Annual Report • Apr 22, 2022
Annual Report
Open in ViewerOpens in native device viewer
213800JY7VJFS2OOX3552021-01-042022-01-02iso4217:GBP213800JY7VJFS2OOX3552019-12-302021-01-03iso4217:GBPxbrli:shares213800JY7VJFS2OOX3552022-01-02213800JY7VJFS2OOX3552021-01-03213800JY7VJFS2OOX3552019-12-29ifrs-full:IssuedCapitalMember213800JY7VJFS2OOX3552019-12-29ifrs-full:SharePremiumMember213800JY7VJFS2OOX3552019-12-29ifrs-full:TreasurySharesMember213800JY7VJFS2OOX3552019-12-29ifrs-full:ReserveOfSharebasedPaymentsMember213800JY7VJFS2OOX3552019-12-29ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800JY7VJFS2OOX3552019-12-29ifrs-full:RetainedEarningsMember213800JY7VJFS2OOX3552019-12-29hiltonfoodgroupplc:ReverseAcquistionReserveMember213800JY7VJFS2OOX3552019-12-29ifrs-full:MergerReserveMember213800JY7VJFS2OOX3552019-12-29ifrs-full:EquityAttributableToOwnersOfParentMember213800JY7VJFS2OOX3552019-12-29ifrs-full:NoncontrollingInterestsMember213800JY7VJFS2OOX3552019-12-29213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:IssuedCapitalMember213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:SharePremiumMember213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:TreasurySharesMember213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:ReserveOfSharebasedPaymentsMember213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:RetainedEarningsMember213800JY7VJFS2OOX3552019-12-302021-01-03hiltonfoodgroupplc:ReverseAcquistionReserveMember213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:MergerReserveMember213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:EquityAttributableToOwnersOfParentMember213800JY7VJFS2OOX3552019-12-302021-01-03ifrs-full:NoncontrollingInterestsMember213800JY7VJFS2OOX3552021-01-03ifrs-full:IssuedCapitalMember213800JY7VJFS2OOX3552021-01-03ifrs-full:SharePremiumMember213800JY7VJFS2OOX3552021-01-03ifrs-full:TreasurySharesMember213800JY7VJFS2OOX3552021-01-03ifrs-full:ReserveOfSharebasedPaymentsMember213800JY7VJFS2OOX3552021-01-03ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800JY7VJFS2OOX3552021-01-03ifrs-full:RetainedEarningsMember213800JY7VJFS2OOX3552021-01-03hiltonfoodgroupplc:ReverseAcquistionReserveMember213800JY7VJFS2OOX3552021-01-03ifrs-full:MergerReserveMember213800JY7VJFS2OOX3552021-01-03ifrs-full:EquityAttributableToOwnersOfParentMember213800JY7VJFS2OOX3552021-01-03ifrs-full:NoncontrollingInterestsMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:IssuedCapitalMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:SharePremiumMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:TreasurySharesMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:ReserveOfSharebasedPaymentsMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:RetainedEarningsMember213800JY7VJFS2OOX3552021-01-042022-01-02hiltonfoodgroupplc:ReverseAcquistionReserveMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:MergerReserveMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:EquityAttributableToOwnersOfParentMember213800JY7VJFS2OOX3552021-01-042022-01-02ifrs-full:NoncontrollingInterestsMember213800JY7VJFS2OOX3552022-01-02ifrs-full:IssuedCapitalMember213800JY7VJFS2OOX3552022-01-02ifrs-full:SharePremiumMember213800JY7VJFS2OOX3552022-01-02ifrs-full:TreasurySharesMember213800JY7VJFS2OOX3552022-01-02ifrs-full:ReserveOfSharebasedPaymentsMember213800JY7VJFS2OOX3552022-01-02ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800JY7VJFS2OOX3552022-01-02ifrs-full:RetainedEarningsMember213800JY7VJFS2OOX3552022-01-02hiltonfoodgroupplc:ReverseAcquistionReserveMember213800JY7VJFS2OOX3552022-01-02ifrs-full:MergerReserveMember213800JY7VJFS2OOX3552022-01-02ifrs-full:EquityAttributableToOwnersOfParentMember213800JY7VJFS2OOX3552022-01-02ifrs-full:NoncontrollingInterestsMember 01_Cover_Contents_v21 02_Highlights_p2_3_v21 03_WhereWeOperate_p4_5_v18 04_ChairmanStatement_p6_9_v24 05_CEOStatement_p10_17_v26 06_PerforFinReview_p18_23_v26 07_Risk_p24_27_v12 08_CSR1_p28_39_v33 09_CSR2_p40_47_v38 10_CSR3_p48_55_v30 11_CSR4_p56_63_v29 12_CSR5_p64_77_v36 13_Governance_p78_95_v31 14_DRR_Responsibilities_p96_111_v20 15_IndependentAuditorsReport_p112_117_v13 16_Financials_p118_123_v24 17_Financials_p122_135_v20 18_Financials_p136_154_v28 The international protein partner ofchoice HILTON FOOD GROUP PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Overview 1 2021 highlights 2 Where we operate 4 Strategic report 6 Chairman’s introduction 8 Chief Executive’s summary 10 Performance and financialreview 18 Risk management and principal risks 24 Sustainability report 28 Approval of Strategic report 77 Governance 78 Board of Directors 80 Directors’ report 82 Corporate governance statement 84 Report of the Audit Committee 90 Report of the Nomination Committee 94 Directors’ remuneration report 96 Directors’ remuneration policy 99 Annual report on remuneration 104 Statement of Directors’ responsibilities 111 Independent auditors’ report 112 Financial statements 118 Consolidated income statement 120 Consolidated statement of comprehensive income 120 Consolidated and Company balance sheet 121 Consolidated and Company statement of changes in equity 122 Consolidated and Company cash flow statement 123 Notes to the financial statements 124 Additional information 156 Registered office and advisors 156 Contents This has been a year of delivery anddiversification. We have delivered another strong financialperformance with volumes andrevenue both growing, maintaining a trend of continuous volume growth every year since Hilton’s flotation in 2007. We grew adjusted operating profit by 12.7%, in line with the 11% compound annual growth rate we have delivered inour fourteen years as a listed business. These results reflect an outstanding teameffort as wellas the power of our business model, which is rooted in the partnerships we have built with customersacross Europe and Asia-Pacific. We have also made strategic progress indiversifying the business. Last year, weset ourselves the goal of becoming theprotein partner of choice.Put simply, we want to offer all the proteins people want to put on their plates, inhome andout of home, not just in Europe and Asia, butacross North America too. To reach that goal, we have been transformingour business to expand intonewprotein products and categories, to enter new international markets, to deepen ourtechnology and engineering capabilities, andto expand our sustainability commitmentsacross allprotein categories. The acquisitions we have made over the past year will accelerate this. Following the completion of the purchase of Foppen within thepast month, we are well set togrow furtherand enter the high growth smoked salmon market. We already now generate more than two thirds of our revenue, and threequarters of our volume, outside the UK, and this breadth means the business is increasingly well placed to create long-term sustainable value, in spite of short-term challenges or market headwinds. While those headwinds persist, our model positions uswell to provide nutritious, affordable and increasingly sustainable protein at scale, fulfilling changing consumer demands. HILTON FOOD GROUP PLC, THE LEADING SPECIALIST INTERNATIONAL FOOD PACKING BUSINESS, ANNOUNCES ITS RESULTS FOR THE 52 WEEKS TO 2 JANUARY 2022. 1 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION * On a 52 week constant currency basis. ** Excluding lease liabilities. Adjusted results represent the IFRS results before deduction of acquisition intangibles amortisation and exceptional items and also IFRS 16 lease adjustments as detailed in the Alternative performance measuresnote 34. £67.2m Adjusted profit before tax higher by 13.0% to £67.2m (2020: £61.1m) 61.3p Adjusted basic earnings per share up 13.8% at 61.3p (2020: 55.4p) 21.5p Proposed final dividend of 21.5p, taking total dividend for 2021 to 29.7p (2020: 26.0p) £121.3m Strong cash flows from operating activities £121.3m with £57.4m capex investment and a strong balance sheet following refinancing (2020: £120.8m) £47.4m IFRS profit before tax lower by 12.3% to £47.4m, after exceptional items of £8.2m (2020: £54.0m) 45.0p IFRS basic earnings per sharedown 7.4% at 45.0p (2020: 48.6p) Financial highlights £3.30bn Group revenue up 21.6% to£3.3bn, driven by growthacross proteins and geographies (2020: £2.77bn) 492,588 t Volume growth of 7.0% to 492,588 tonnes (2020: 469,110 tonnes) REVENUE (£M) £3,302m ‘17 ‘18 ‘19 ‘20 ‘21 1,357.2 1,649.6 1,814.7 2,774.0 3,302 ADJUSTED OPERATING PROFIT (£M) £73.6m ‘17 ‘18 ‘19 ‘20 ‘21 38.3 48.7 54.7 67.0 73.6 NET BANK CASH/(DEBT) (£M) £(84.6)m ‘17 ‘18 ‘19 ‘20 ‘21 27.6 (25.0) (86.8) (122.2) (84.6) Financial performance overview 2 2021 highlights Strategic highlights 26.4% Vegan and vegetarian volume growth 2019-2021 Growing across global markets Over 75% of Group’s 2021 volumes produced in countries outside the UK Entered new markets across Europe, including acquisition of vegetarian producer Dalco Moving into North American market forfirst time with the acquisition of leading smoked salmon producer, Foppen with £75m equity raise Delivering sustained growth across all protein categories 14.3% Meat and fish volume growth 2019-2021 36.0% Added value easier meals volume growth 2019-2021 Supporting our Partners to become First Choice for Sustainable Protein Launching new ESG strategy, The Sustainable Protein Plan, focused on three pillars of People, Planet and Product, with each pillar underpinned by threestrategic drivers and new targets and goals PLANET Science Based Targets approved for Scope 1, 2 and 3 during 2021 PRODUCT 76% average recycled content across entire tray range during 2021 UK Launched in UK food service market through acquisition ofFairfax Meadow NEW ZEALAND Significant Australia growth with fish launch in New Zealand Becoming best-in-class FMCG for technology Ongoing transformation of Hilton Seafood with industry leading automation and palletisation Growing engineering solutions offer through 2022 JV with Agito Group Continued growth of Foods Connected supply chain management services, with contracts in new sectors and geographies Page 32 3 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Where we operate United Kingdom 34% Australasia 40% The Netherlands 9% Sweden 7% Denmark 3% Central Europe 3% Ireland 3% Belgium 1% Total employees 6,000+ Annual Turnover £3.3m Production facilities 24 Revenue by location UNITED KINGDOM Location: HUNTINGDON Op Co: Hilton Food Group plc Incorporated: 2007 Op Co: Hilton Foods UK Commenced production: 1994 Op Co: SV Cuisine Acquired: 2019 Op Co: Hilton Food Solutions Commenced trading: 2016 Location: GRIMSBY Op Co: Hilton Seafood UK Acquired: 2017 Locations: DERBY, ENFIELD, EASTLEIGH & MILTON KEYNES Op Co: Fairfax Meadow Acquired: 2021 Locations: LONDONDERRY & AUSTRALIA Op Co: Foods Connected Commenced joint venture: 2017 1 BELGIUM Location: GHENT Op Co: Hilton Foods Belgium Commenced production: 2020 3 IRELAND Location: DROGHEDA Op Co: Hilton Foods Ireland Commenced production: 2004 4 NEW ZEALAND Location: AUCKLAND Op Co: Hilton Foods New Zealand Commenced production: 2021 11 AUSTRALIA Locations: BUNBURY & MELBOURNE Op Co: Hilton Foods Australia Joint venture: 2013 Transitioned: 2020 Location: BRISBANE Op Co: Hilton Foods Australia Commenced production: 2019 Locations: PERTH & SYDNEY Op Co: AGITO Commenced joint venture: 2022 10 NETHERLANDS Location: ZAANDAM Op Co: Hilton Foods Holland Commenced production: 1994 Location: OOSTERHOUT & OSS Op Co: Dalco Joint venture: 2019 Acquired: 2021 Location: HARDERWIJK Op Co: Foppen Acquired: 2022 2 DENMARK Location: AARHUS Op Co: Hilton Foods Danmark Commenced production: 2011 5 CENTRAL EUROPE Location: TYCHY, POLAND Op Co: Hilton Foods Poland Commenced production: 2006 7 SWEDEN Location: VASTERAS Op Co: Hilton Foods Sverige Commenced production: 2004 6 PORTUGAL Location: SANTAREM Op Co: SoHi Meat Solutions Commenced joint venture: 2017 8 GREECE Location: PREVEZA Op Co: Foppen Acquired: 2022 9 4 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 4 AUSTRALASIA EUROPE 11 1 2 6 7 8 9 3 4 5 10 5 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Chairman’s introduction 8 Outlook and current trading 9 Chief Executive’s summary 10 Strategic objectives 10 Business model 12 Business development 14 2021 Performance overview 14 Segment performance 15 Resourcing for growth: culture and people 16 Past and future trends 17 Performance and financial review 18 2021 Financial performance 19 Key performance indicators 20 Treasury management 22 Going concern statement 22 Viability statement 23 Cautionary statement 23 Risk management andprincipal risks 24 Sustainability report 28 Approval of the Strategic report 77 Strategic report 6 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 MEAT For more information visit www.hiltonfoodgroupplc.com Hilton Food Group’s strategy is to support our customers’ brands and their development in local markets, leading to sustainable growth. ѱ Delivering sustained growth in meat sector through core business growth, innovation, and new ventures. ѱ Diversifying into food service market through acquisition of Fairfax Meadow. 7 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Strategic progress We have continued to make good progress growing across international markets. We successfully opened our multi-protein facility in New Zealand and there has been continued growth inprotein diversification into plant-based, seafood and convenience foods. The acquisition of Fairfax Meadow further diversifies the business into the UK food service market. We were also able to welcome Dalco fully into the Hilton Group through the purchase of the remaining shares, thereby strengthening our vegan and vegetarian proposition. Our automation, engineering and services arm has developed through the agreement for a joint venture with Agito Group, an Australian automation and technology solutions business, which brings together excellence in automation and food supply chain expertise. We acquired Foppen, a specialist smokedsalmon business, with facilities in the Netherlands and Greece, which enhances our existing fish portfolio and is an entry point for us into the North American retail market. We financed the acquisition via an equity raise, and completed post the year end. We continue to successfully execute our strategy to grow and diversify and we continue to explore opportunities todevelop our cross-category business in both domestic and overseas markets as well as applying our state-of-the-art skills and experience to deliver value toour customers. Group performance In 2021 we again increased our volumes maintaining a trend of continuous growth achieved in every year since Hilton’s flotation in 2007. There was strong growth in adjusted profit and earnings per share despite Covid related costs although IFRS metrics were lower due to exceptional items. We also continued to invest in people and infrastructure to support future growth across the Group. There was an extensive fire at our Belgium facility but we ensured continued supply to our customers and plan to restore our production capability. Our response during the year demonstrates our ability to thrive in the face of these tough challenges. Hilton generated strong operating cash flows during 2021 with, as expected, further significant investment in our facilities to increase capacity, improve operational efficiency and offer innovative solutions to our retailer partners. Chairman’s introduction Our response during the year demonstrates our ability to thrive inthe face of tough challenges.” ROBERT WATSON, OBE CHAIRMAN 8 Hilton remains financially strong with significant cash balances, undrawn committed bank facilities and operating well within our banking covenants. In January 2022 we successfully renewed our bank facilities for a further five years. Dividend policy The Group has maintained a progressive dividend policy since flotation. The Board is satisfied that the Group has adequate headroom under its existing facilities and that it is appropriate to continue to operate this dividend policy. With the proposed final dividend of 21.5p per ordinary share, total dividends in respect of 2021 will be29.7p per ordinary share, an increase of14.2% compared to last year. Our Board, purpose andgovernance The Hilton Board is responsible for thelong-term success of the Group and establishing its purpose, values and strategy aligned with its desired culture. Our purpose is to create efficiency and flexibility in the food supply chain whilst maintaining high quality through innovative and sustainable food manufacturing and supply chain solutions with the ambition to be the first choice partner for food retailers seeking excellence, insight and growth. To achieve this the Board has an appropriate mix of skills, depth and diversity and a range of practical business experience, which is available to support and guide our management teams across a wide range of countries as well as having in place succession planning and maintaining a talent pipeline. We remain committed to achieving good governance balanced against our desire to preserve an agile and entrepreneurial approach. I would like to thank my colleagues on the Board for their support, counsel andexpertise during the year. There are some Board changes for 2022. Patricia Dimond joined the Board and John Worby will step down at the AGM after six years. We wish John well and thank him for hisservice. Nigel Majewski also indicated his desire to step down from the Board at the AGM but will continue in areduced capacity as director of investor relations and strategic development. It is planned that the current Group Financial Controller, Matt Osborne, willbe appointed to succeed him as ChiefFinancial Officer. I am delighted that Matt will become Hilton’snew CFO. He has impressed the Board and the wider management team during his time as Group Financial Controller, and he represents the ideal candidate to take over from Nigel Majewski. I would like to thank Nigel for his significant contribution to Hilton’s successful journey over the past 15 years. He was a key part of the Group’s successful flotation and he has helped oversee Hilton’s sustained growthsince then. The Board takes its responsibilities very seriously to promote the success of the Company for the benefit of its stakeholders as a whole. We take the interests of our workforce and other stakeholders fully into account in Board discussions and decision making. Details of the Group’s policies and procedures that have been implemented to enhance stakeholder and workforce engagement, which explain how these interests have influenced our decisions, areset out in the governance section ofourAnnual report. Sustainability The vulnerabilities of our food system arebecoming ever more apparent highlighting the interdependencies between business, climate and society. We are at a critical juncture in the future of our planet with last year’s IPCC report warning of increasingly extreme heatwaves, droughts and flooding, and a key temperature limit being broken in just over a decade. Continuing to perform as a prosperous and resilient business means we must also drive meaningful change for our planet. We recognise thatbusiness has a crucial role in translating the COP26 Glasgow Climate Pact commitments into rapid action. That’s why we are strengthening our commitment to the Science Based Targets Initiative to achieve a 1.5° C trajectory, marking our ambition towardsa net negative future. Outlook and current trading Against the backdrop of a more challenging environment, with global uncertainties impacting supply chains and inflation, the Hilton Board is confident of making further progress in 2022. We continue toexplore opportunities with existing and new customers for further expansion in ourdomestic and overseas markets. Our short and medium term growth prospects are underpinned by the Foppen, Dalco and Fairfax Meadow acquisitions as well as further opportunities arising across our markets by the development of our cross-category business and the application of our supply chain management expertise. Annual General Meeting This year’s AGM will be held at Hilton’s offices at 2-8 The Interchange, Latham Road, Huntingdon, Cambridgeshire PE296YE in a hybrid format on 24 May 2022 at noon. Robert Watson OBE Chairman 5 April 2022 Please refer to our website at www.hiltonfoodgroupplc.com/ en/investors/shareholder- meeting-documents/ OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 9 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Strategic objectives Our strategy continues to be to support our customers’ brands and their development in local markets, thereby achieving long-term sustainable customer and shareholder value through: – Growing volumes and extending product ranges supplied and services provided toits existing customers; – Optimising use of assets and investing in new technology to deliver competitive advantage to our customers; – Maintaining a vigilant focus on food safety and integrity and reducing unit costs, while improving product quality and service provision; and – Entering new territories and markets either with new customers or in partnership with our existing customers. This approach combined with a strong reputation, well-invested modern facilities and a robust balance sheet has generated growth over many years. We will continue to pursue both geographical expansion and range extension towards our goal of becoming the protein partner of choice, 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 supporting our customers and the successful development of their brands. We have successfully expanded our product range into new proteins and categories such as seafood, vegetarian, sous vide, food service and fresh convenience foods. This year has strengthened ourdedication to being a leader insustainable business to secure abetter future for all.” PHILIP HEFFER CHIEF EXECUTIVE OFFICER Chief Executive’s summary 10 Business model The Hilton business model is well proven and sustainable, whilst being relatively simple and straightforward. We build and operate large scale, extensively automated and robotised food processing, packing and logistics facilities for major international retailers largely on a dedicated basis. Through economies of scale we are able to secure significant efficiency savings for our customers whilst retaining a competitive margin. Our business is based on a total partnership approach withcustomers and suppliers forged over many years. The wide geographical spread of the Group’s operations is a significant strength of our business model. In 2021 we operated facilities in eight European countries and four facilities in Australasia, each run by a local management team enhanced by specialist central leadership, expertise, advice and support. A Portuguese facility is operated by a joint venture company in which we share the profits. Products from our facilities are sold in fourteen European countries, Australia and New Zealand. Our businesses operate under the terms of long-term supply agreements with ourretailer partners, either on a cost plus, packing rate or volume-based reward basis. These contractual arrangements, combined with our customer dedication, serve to maximise achievable volume throughput whilst minimising unit packing costs thereby delivering value toour customers. Under the long-term supply 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 food 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 designed to align our objectives with those of our customers. Our four key strategic objectives For more information visit www.hiltonfoodgroupplc.com Growing volumes andextending product ranges supplied and services provided to itsexisting customers; Optimising use of assets andinvesting in new technology to deliver competitive advantage toour customers; Maintaining a vigilant focuson food safety and integrity and reducing unit costs, while improving product quality and serviceprovision; and Entering new territories andmarkets either withnewcustomers orinpartnership with ourexisting customers. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 11 WE SUPPLY WE PRODUCEWE PARTNER UNITED KINGDOM IRELAND NETHERLANDS DENMARK SWEDEN BELGIUM POLAND HUNGARY CZECH REPUBLIC SLOVAKIA LATVIA ESTONIA LITHUANIA AUSTRALIA STEAK ROAST SAUSAGES BURGERS MEATBALLS TRADING COMPANY STEAK ROAST CHOPS STRIPS MINCE PULLED SAUSAGES BURGERS BALLS SCHNITZEL SANDWICHES WRAPS BAGUETTES BURGERS PIZZA GARLIC BREAD CSR SUPPLY CHAIN INSIGHT RETAIL PACKS FOODSERVICE QUALITY CLOUD BASED PROCUREMENT PLATFORM PROCUREMENT ANIMAL WELFARE CONSUMER INSIGHT LEADING SOLUTIONS MEATLOAF SHANKS GAMMON SCHNITZEL STEAK SAUSAGES CHOPS BACONMINCE ROAST DICED MINCE DICED CHICKEN KEBAB CHICKEN DRUMSTICKS CHICKEN THIGH CHICKEN WINGS HALF CHICKEN DUCK LEG DUCK HALF HUMMUS SOUP READY MEALS PASTA SAUCE MEAL KITS MEAL SOLUTIONS READY TO COOK SALAD SALMON WHITE FISH NUGGETS FOOD FOR LATER FOOD FOR NOW DICED PRAWNSCOATED WHOLE/HALF/ QUARTER CARCASS MINCEDICED RIBS PULLED BELLY RIB RACK SMOKED LOINMEATBALLS MEATLOAF WE SOURCE SUSTAINABLY PORTUGAL ECONOMICS OF SCALE LOW MARGIN OPERATION HIGH VOLUME PROCESS & PACKING FACILITIES FULL TRACEABILITY STORE ORDER PICKING DEPOT NEW ZEALAND Our business model The Hilton business model is provenand sustainable, whilst beingrelatively simple and straightforward. – A total partnership approach withcustomer and suppliers – Raw materials sourced locally and internationally from proven suppliers – Processed and packed in large scale, highly automated facilities using advanced robotics – Delivered to retailers’ distribution centres or direct to stores Chief Executive’s summary continued 12 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 WE SUPPLY WE PRODUCEWE PARTNER UNITED KINGDOM IRELAND NETHERLANDS DENMARK SWEDEN BELGIUM POLAND HUNGARY CZECH REPUBLIC SLOVAKIA LATVIA ESTONIA LITHUANIA AUSTRALIA STEAK ROAST SAUSAGES BURGERS MEATBALLS TRADING COMPANY STEAK ROAST CHOPS STRIPS MINCE PULLED SAUSAGES BURGERS BALLS SCHNITZEL SANDWICHES WRAPS BAGUETTES BURGERS PIZZA GARLIC BREAD CSR SUPPLY CHAIN INSIGHT RETAIL PACKS FOODSERVICE QUALITY CLOUD BASED PROCUREMENT PLATFORM PROCUREMENT ANIMAL WELFARE CONSUMER INSIGHT LEADING SOLUTIONS MEATLOAF SHANKS GAMMON SCHNITZEL STEAK SAUSAGES CHOPS BACONMINCE ROAST DICED MINCE DICED CHICKEN KEBAB CHICKEN DRUMSTICKS CHICKEN THIGH CHICKEN WINGS HALF CHICKEN DUCK LEG DUCK HALF HUMMUS SOUP READY MEALS PASTA SAUCE MEAL KITS MEAL SOLUTIONS READY TO COOK SALAD SALMON WHITE FISH NUGGETS FOOD FOR LATER FOOD FOR NOW DICED PRAWNSCOATED WHOLE/HALF/ QUARTER CARCASS MINCEDICED RIBS PULLED BELLY RIB RACK SMOKED LOINMEATBALLS MEATLOAF WE SOURCE SUSTAINABLY PORTUGAL ECONOMICS OF SCALE LOW MARGIN OPERATION HIGH VOLUME PROCESS & PACKING FACILITIES FULL TRACEABILITY STORE ORDER PICKING DEPOT NEW ZEALAND 13 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Chief Executive’s summary continued As well as our ability to provide excellent execution locally, we also have at our disposal a wide and deep expertise on anumber of areas of specialism, such as engineering, new product development, food related IT applications, category management support, logistics and market intelligence. We are able to apply these skills to a number of markets to support our customers in a cost-effective way. Business development The Group’s expansion is based on itsestablished and proven track record, international reputation and experience and the recognised success of the close partnerships we have forged and maintained with successful retail partners over many years. Hilton’s business model has proved successful in Europe and Australasia supplemented by targeted acquisitions. We have demonstrated that this business model is capable of being successfully transferred into new countries, adapted with our local customers to meet their specific requirements. 2021 Performance overview 2021 saw continued year-on-year sales and volume growth driven primarily by expansion including from a new facility in New Zealand which opened during the year as well as continued growth inAustralia. We delivered growth in our core meat business, innovation, and new ventures despite continuing Covid challenges. There was expansion in added value poultry and innovation in seasonal range development and we saw double digit growth in fresh convenience foods. There was a strong performance in the seafood category despite challenging market conditions and we grew our vegan and vegetarian business through innovation and partnerships with global brands and retailers. Our consumer-led innovation resulted in over 700 new product launches during the year. The Foods Connected joint venture business continues to grow, providing end-to-end supply chain management services and further opportunities for category diversification. During the year we experienced an extensive fire at our Belgium facility and it was pleasing to see a rapid response to ensure continued supply to our customer with plans to restore our production capability under way. Overall volume increased by 7.0% on acomparable 52 week basis to 492,588 tonnes (2020: 469,110 tonnes) delivering sustained volume growth across all protein categories with two-year compound annual growth in meat & seafood of 14.3%, vegan & vegetarian 26.4% and added value easier meals 36.0%. In 2021 over 75% of the Group’s volumes were produced in countries outside the UK. Adjusted operating profit increased by 12.7% on a comparable 52 week constant currency basis although the overall operating margin decreased to 2.2% (2020: 2.4%) reflecting the Australia post- JV transition arrangements and higher raw material prices. The margin per kg increased to 14.9p (2020: 14.3p) with progress made in added value and convenience foods and from reduced central costs. Our customer service level remains best in class at 96.4% (2020: 95.4%) reflecting an outstanding performance during the challenging period as the economy emerges from Covid. The wide geographical spread of the Group increases its resilience by minimising its reliance on any one individual economy. Hilton’s results are reported in Sterling and are therefore sensitive to changes in the value of Sterling compared to the range ofoverseas currencies in which the Group trades. During 2021 the impact of average exchange rates on our results compared with 2020 was marginal. Sustainability We understand the importance of our role in the future of a sustainable food system that protects and restores our planet’s resources and enhances the lives of the people and animals that produce it. This year has strengthened our dedication to being a leader in sustainable business to address the concerns that matter most to our stakeholders to secure a better future for all. Sustainability is at the heart of how we do business and this year we are pleased to introduce our new 2025 Sustainable Protein Plan with new robust targets, built around improved transparency and action re-focused to three pillars: People, Planet and Product. We are aligning our business to deliver long-term benefits to both people and planet, using our scale and reach to drive transformative change. In 2021 our Science Based Targets were approved and we signed the business ambition to 1.5°C committing us to net zero before 2050. 100% of the paper and board we use comes from certified forests and 76% of our meat trays are made from 100% recycled PET. 98% of our UK seafood was sourced from Marine Stewardship Council certified fisheries and we signed the EU Code of Conduct on Responsible Food Business and Marketing Practices during the year. Raw materials are sourced, in conjunction with our retail partners, from a combination of 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. 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. We consider that our application of technology will enable us to deliver competitive advantage toour customers. We seek to keep ourselves at the forefront of the food packing industry, including becoming more sustainable and environmentally friendly, which helps ensure our continued competitiveness. We constantly look to drive efficiencies, always maintaining a pipeline of clear identifiable cost reduction initiatives and an open minded approach designed tocontinually 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. We invest continuously across all areas of our business, including raw materials sourcing, packaging materials design, increased processing efficiency and storage solutions and updating our IT infrastructure. Group capital expenditure over the last five years totalled £364m. 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 ofservices which enable our customers to evolve and improve their food supply chain management. Our customer base comprises high quality 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 food 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 aconstant focus on the challenges they face so we can put forward flexible solutions, together with continuing increases in efficiency and cost competitiveness. This flexible approach and understanding of our local markets remains one of our core strengths. 14 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Progress in 2021 against our strategic objectives Volume growth with existing customers Investment inassets & capacity Focus on food, cost, quality & service New territories and markets Fairfax Meadow acquisition expansion intofoodservice Dalco purchase of remaining shares New facility opened in New Zealand Foppen acquisition completed since the year end Protein expansion AUSTRALASIA Adjusted operating profit of £22.4m (2020: £16.9m) on turnover of £1,314.6m (2020: £769.6m) In Australia the Group previously operated a joint venture with Woolworths earning service fees based on retail packed meat produced at plants in Bunbury, Western Australia and Melbourne, Victoria. In July 2020 these plants transitioned to Hilton’s ownership through the purchase of the assets relating to the joint venture. A new Hilton facility in Brisbane, Queensland opened in 2019 and a further new facility in New Zealand opened in July 2021 to supply beef, lamb, pork, chicken, seafood and added-value products. Volumes for the year 52 week basis, which in the first half of 2020 included 50% of the JV activities, increased by32.8% through the new facility in New Zealand and the annualisation of thehigher volume growth at the Brisbane facility. Constant currency sales on a 52week basis, which in the first half of 2020 excluded the JV activities, increased by 68.0% which is attributable to the new facility in New Zealand and also the recognition of revenue from the two Australian joint venture facilities following their transition to Hilton ownership. Operating profit increased to £22.4m (2020: £16.9m) although the operating profit margin per kg was steady at 14.1p (2020: 14.2p). Segment performance EUROPE Adjusted operating profit of £61.8m (2020: £61.4m) on turnover of £1,987.4m(2020: £1,952.1m) This operating segment covers the Group’s businesses and joint ventures in the UK, Ireland, Holland, Belgium, Sweden, Denmark, Portugal and Central Europe. Our products are sold in 14 countries across Europe. During the year we purchased the remaining shares in the Dalco business and additionally acquired Fairfax Meadow, a UK-based business in the UK food service sector. Our Belgium facility suffered an extensive fire in June 2021. We quickly implemented our contingency plan to ensure continued local supply to our customers and we are working hard to restore our production capability while progressing an insurance claim. At SV Cuisine we have moved sous vide production to Huntingdon to reduce cost and provide additional capacity in a growing segment and we agreed early settlement of the acquisition deferred consideration. Volumes were 2.0% lower on a 52 week basis following the Covid lockdown boost in the corresponding 2020 period. Over a two year period volumes grew at an average 3.1% per year. Sales on a 52week constant currency basis grew by 3.1% and operating profit by 2.3% despite the lower volume. Operating margins were unchanged at 3.1% (2020: 3.1%) and operating profit margin per kg increased to18.5p (2020: 18.0p). Progressive new build in New Zealand. * On a comparable 52 week basis. 15 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Resourcing for growth: cultureandpeople Our people are at the heart of our successand they have risen tremendouslyto every opportunity and challenge presented during 2021. In partnership with our customers and against the backdrop of the Covid-19 pandemic our teams have dedicated themselves to feeding our nations’ families. At the same time, they have ensured the delivery of our growth agendathrough organic growth into new markets and the acquisition of newbusinesses that complement andbroaden our offering. Our teams across the countries weoperate have worked tirelessly to keepour people safe. We have continuallyreviewed our policies and procedures through the changing pandemic. We haveensured investment in our facilities, systems and equipment and we have fully engaged our people aswe have adjusted our ways of working. I am proud of how we always work asone team sharing best practice across ourinternational operating companies andintroducing innovative approaches. I am delighted that a record number of colleagues completed our annual engagement survey. We are committed to work safely and with regard to the well-being of our colleagues and this year we added a number of health and safety related questions to our survey. Our surveys provide invaluable feedback on which our operating companies can build plans that continuously improve employee satisfaction. We increased the scope of our leadership development programmes with our first emerging leaders programme and overcame the challenges of the pandemic in running this successful international programme virtually. We have also continued to provide all our teams with thetraining they need to perform their roles safely and effectively. We are committed to providing an inclusiveworking environment where everyone feels valued, respected and able to fulfil their potential. We recognise that people from different backgrounds, countries and experiences bring huge benefits to our business and each other. This year we became a strategic sponsor of Meat Business Women the global professional networking movement for progressive women working in the meat sector. We alsolaunched our own internal women’s network, an inclusive group engaging and enabling those who identify as women in Hilton Food Group and the food sector through support, development and action. Our recruitment policies and practices are guided by local legislation in the countries in which we operate. In the UK we give fulland fair consideration to candidates with disabilities. We utilise occupational health expertise to assess new recruits’ needs and make any required adjustments to the workplace and to provide ongoing support. We also adapt training to meetthe needs of disabled employees. In addition, we have established a wellbeing programme which includes a network of mental health first aiders and on-site mental health and wellbeing clinics in partnership with our professional occupational health providers. Chief Executive’s summary continued Hilton’s expansion is based on its established and proven track record Western Australia Joint Venture with Woolworths Portugal Joint Venture with Sonae Acquire SV Cuisine UK Partner with Tesco Central Europe Partner with Ahold, Tesco and Rimi Hilton Food Solutions UK Acquire 100% of Joint Venture Assets Investment in Foods Connected Netherlands Partner with Albert Heijn Denmark Partner with Coop Danmark Acquire Seachill UK Investment in Dalco Food Park opens in Foods New Zealand Acquire 100% share Acquire Fairfax Meadow Victoria Joint Venture with Woolworths High tech facility opens in Queensland Acquire Foppen Agito Joint Venture Belgium Partner with Delhaize 1994 2000 Ireland Partner with Tesco Sweden Partner with ICA 2004 2006 2011 2013 2015 2016 2019 2020 2021 20222017 16 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 The Group currently employs over 6,000 colleagues across Europe and Australasia. We work as “one team” with local empowered leadership teams dedicated to the needs of our customers and their consumers. These teams are equipped with excellent local consumer and market insight. They also provide flexible and rapid support which has been a key strength in these pandemic conditions. Our local teams are supported by our Group capability which delivers specialist expertise and support, enables the sharing of best practice and business growth. The Board fully understands and appreciates just how much our progress relies on the effort, personal commitment, enthusiasm, enterprise and initiative ofour employees. I would like to take this opportunity, on behalf of the Board, to personally thank them all for both fortheirdedication and resilience during 2021and their continuing commitment to the Group’s ongoing growth and development. In addition, I would like totake this opportunity to recognise the significant contribution made by Hilton’s CFO Nigel Majewski over the past 15years. As he decides to step back from heading up the finance function, I would like to to thank him for his instrumental role in having helped drive forwards the Group’s continued growth, both financially and operationally. I look forward to both welcoming Matt Osborne as our new CFO, and continue working with Nigel in his new role as director of investor relations and strategic development. Past and future trends Over recent decades major retailers haveprogressively rationalised their supplybase through large scale, centralised packing solutions capable of producing private label packed fresh food products. This achieves lower costs with consistent high food safety, food integrity, traceability and quality standards allowing supermarket groups to focus on their core retail business whilst addressing consumers’ continuing requirement for quality and value. This trendtowards increased use of centralised packing solutions is likely to continue, albeit at different speeds across the world, representing potential future geographical expansion opportunities for Hilton. Consumer buying patterns are evolving withmore seafood and vegetarian proteins being eaten. Through Hilton’s diversification into these proteins we arewell placed to grow our business. Philip Heffer Chief Executive Officer 5 April 2022 SENIOR MANAGERS Male 28 Female 11 DIRECTORS Male 5 Female 3 EMPLOYEES Male 3,395 Female 2,386 For more information visit www.hiltonfoodgroupplc.com 17 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Strong cash flow generation supporting our ongoing significant investment in facilities.” NIGEL MAJEWSKI CHIEF FINANCIAL OFFICER Volume +7.0% Revenue +21.6% Operating profit +12.7% Performance and financial review For more information visit www.hiltonfoodgroupplc.com 18 Summary of Group performance This performance and financial review covers the main highlights of the Group’s financial performance and position in 2021. Hilton’s overall financial performance saw continued strong growth in volumes, sales, profitability and basic earnings per share on an adjusted basis. Cash flow generation was strong, supporting our ongoing significant investment in facilities. Basis of preparation The Group is presenting its results for the 52 week period ended 2 January 2022, with comparative information for the 53 week period ended 3 January 2021. The financial statements of the Group are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and UK adopted International Accounting Standards. Hilton uses Alternative Performance Measures (APMs) to monitor the underlying performance of the Group. Management considers that APMs better reflect business performance and provide useful information in line with how management monitor and manage the business day-to-day. Unless otherwise stated financial metrics in the Financial highlights, Chairman’s introduction, Chief Executive’s summary and this Performance and financial review refer tothe adjusted results. 2021 Financial performance Volume and revenue Volumes grew by 5.0% (7.0% on a 52 week basis) in the year driven by growth in Australasia including the new facility in New Zealand. Additional details of volume growth by business segment are set out in the Chief Executive’s summary. Revenue increased 19.0% and by 21.6% on a 52 week constant currency basis representing the volume growth and also the recognition of revenue from the two Australian joint venture facilities following their transition to Hilton ownership. Operating profit and margin Adjusted operating profit of £73.6m (2020: £67.0m) was 9.8% higher than last year and 12.7% higher on a 52 week constant currency basis driven predominantly by expansion inAustralasia. IFRS operating profit was £63.4m (2020: £66.9m) after charging £7.1m in exceptional costs (2020: £nil). The operating profit margin in 2021 declined to 2.2% (2020: 2.4%) mainly dueto the recognition of revenue from the two Australian joint venture facilities following their transition to Hilton ownership and higher Australian raw material prices. The operating profit per kilogram of packedfood sold increased to14.9p (2020: 14.3p) reversing the trendof recent years. Net finance costs Net finance costs excluding exceptional items and lease interest increased to £6.4m (2020: £5.9m) reflecting higher borrowings that financed our expansion programme. Interest cover in 2021 was unchanged at 11 times (2020: 11 times). IFRS net finance costs were £16.0m (2020: £12.8m). Taxation The taxation charge for the period was £14.5m (2020: £13.5m). The effective tax rate was 21.6% (2020: 22.0%). The IFRS taxation charge was £8.1m (2020: £12.0m) with an effective tax rate of 17.1% (2020: 22.2%). Net income Net income, representing profit for the year attributable to owners of the parent of £50.5m (2020: £45.3m) was 11.4% higher than last year and 14.5% higher on a 52week constant currency basis. IFRS net income was £37.1m (2020: £39.7m). Earnings per share Basic earnings per share 61.3p (2020: 55.4p) was 10.6% higher than last year and 13.8% on a 52 week constant currency basis. IFRS basic earnings per share were 45.0p (2020: 48.6p). Diluted earnings per share were 44.8p (2020: 47.9p). Earnings before interest, taxation, depreciation and amortisation (EBITDA) Adjusted EBITDA, which is used bythe Group as an indicator of cash generation, increased by 12.7% to £119.5m (2020: £106.0m) reflecting the growth in profitability following significant investment and by 15.8% on a 52 week constant currency basis. IFRS EBITDA was£139.0m (2020: £126.5m). Free cash flow and net debt position Operating cash flow was strong in 2021 with cash flows from operating activities of £121.3m (2020: £120.8m). IFRS free cash outflow after capital expenditure of £57.4m and acquisitions £41.6m but before dividends and financing was £11.7m (2020:inflow £0.6m). During the year £75m was raised through issuing equity. The Group closing net bank debt comprising borrowings less cash and cash equivalents excluding lease liabilities, was £84.6m (2020: £122.2m) reflecting bank borrowings of £224.7m net of cash balances of £140.0m. Net debt including lease liabilities was £328.0m (2020: £367.4m). 19 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Financial KPIs Revenue growth (%) 19.0% 2020: 52.9% Year on year revenue growth expressed as a percentage. The 2021 increase mainly reflected volume growth and the recognition of revenue following the transition of the two Australian JV facilities to Hilton ownership and the new facility inNew Zealand. Adjusted operating profit margin (%) 2.2% 2020: 2.4% Adjusted operating profit expressed as a percentage of turnover. The operating profit margin % in 2021 was lower due mainly to the recognition of revenue following the transition of the two Australian JV facilities to Hilton ownership and higher Australian raw material prices. Adjusted operating profit margin (pence per kg) 1 4 . 9 p 2020: 14.3p Adjusted operating profit per kilogram processed and sold in pence. The increase in 2021 compared with 2020 reflects progress made in added value and convenience foods and from reduced central costs. At the end of 2021 the Group had undrawncommitted bank facilities under its syndicated banking facilities of £96.8m (2020: £51.5m). These banking facilities are subject to covenants comprising minimum tangible net worth, net bank debt to EBITDA and interest cover. Headroom under these covenants at theend of the year was at least 65% for all these metrics. Existing bank facilities were due to expire in October 2022 and consequently all borrowings at the end ofthe year were classed as current. Since the end of the year the Group renewed its banking facilities with a £424mfive year revolving credit and term loan facility agreed with a syndicate of lenders. The resilience of the Group has been assessed by applying significant downside sensitivities to the Group’s cash flow projections. Allowing for these sensitivities and potential mitigating actions the Board is satisfied that the Group has adequate headroom under its existing committed facilities and will be able to continue to operate well within its banking covenants. Dividends The Group has maintained a progressive dividend policy since flotation. The Board is satisfied that, given the Group has adequate headroom under its existing facilities, it is appropriate to continue to operate this dividend policy and has therefore recommended a final dividend of 21.5p per ordinary share in respect of 2021. This, together with the interim dividend of 8.2p per ordinary share paid in December 2021, represents a 14.2% increase in the full year dividend, as compared with last year. The final dividend,if approved by shareholders, willbe paid on 1 July 2022 to shareholders on the register on 6 June 2022 and the shares will be ex dividend on 1 June 2022. 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 opposite. In addition, a much wider range of financial and operating KPIs are continuously tracked at business unit level. 20 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Non-financial KPIs Growth in sales volumes (%) 5.0% 2020: 26.2% Year on year volume growth. Volume growth was due primarily toopening the new facility in NewZealandinaddition to continuedgrowth in Australia. Employee and labour agencycosts (pence per kg) 60.9p 2020: 57.2p Labour cost of producing food products as a proportion of volume. The increase reflects the Australia JV transition. Adjusted earnings before interest,taxation, depreciation andamortisation (EBITDA) (£m) £119.5m 2020: £106.0m Adjusted operating profit before depreciation and amortisation. The increasereflected the growth in profitability following significant investments. Free cash flow (£m) £(11.7)m 2020: £0.6m IFRS cash (out)/inflow before minorities, dividends and financing. Operating cash flow generation in 2021 increased in line with EBITDA with lower capex spend but impacted by costs of acquisitions of£41.6m during the year. Customer service level (%) 96.4% 2020: 95.4% Packs of product delivered as a % oftheorders placed. The customer servicelevel remains best in class. Net debt/ EBITDA ratio (%) 70.9% 2020: 115.3% Year end net bank debt as a percentage ofadjusted EBITDA. The decrease is due to the equity raise of £75m and continued strong operating cash generation. 21 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Liquidity risk 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 toBoard approval. Going concern statement The Directors have performed a detailed assessment, including a review of the Group’s budget for the 2022 financial year and its longer term plans, including consideration of the principal risks faced by the Group. The resilience of the Group has been assessed by applying significant downside sensitivities to the Group’s cash flow projections. Allowing for these sensitivities and potential mitigating actions the Board is satisfied that the Group is able to continue to operate well within its banking covenants and has adequate headroom under its new committed facilities which do not expire until 2027. 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 thefinancial statements. 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 theGroup is Sterling, most of its earnings are generated in other currencies, principally the Euro 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 ventures, and in the translation of overseas earnings. The level of country specific risk currently remains material for many businesses, interms of the impact of macroeconomic developments and commodity price movements. The Group sells high quality basic food products, for which there will always be continuing demand, to successful blue chip retailers in developed countries. 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 SONIA 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 either on a cost plus, packing rate or volume based reward basis with its customers. Performance and financial review continued 22 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 The Group’s bank borrowings as detailed in the financial statements and the principal banking facilities, which support the Group’s existing and contracted new business, are committed. The Group is in full compliance with all its banking covenants and based on forecasts and sensitised projections is expected to remain in compliance. Future geographical expansion which is not yet contracted, andwhich 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. Since the end of the year the Group renewed its banking facilities with a£424m five year revolving credit and termloan facility. The Group’s internal budgets and forward forecasts, which incorporate all reasonably foreseeable changes in trading performance, are regularly reviewed bythe Board and show that it will be able to operate within its current banking facilities, taking into account available cashbalances,for the foreseeable future. Viability statement In accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors confirm that they have areasonable expectation that the Group willcontinue to operate and meet its liabilities, as they fall due, for the three years ending in December 2024. 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. The Directors’ assessment has been madewith reference to the Group’s current position and strategy taking into account the Group’s principal risks, including those in relation to Covid-19, and how these are managed. 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 food raw material, packaging and other costs, together with the anticipated level ofcapital investment required to maintain our facilities at state-of-the-art levels. Cautionary statement This Strategic report contains forward- looking statements. Such statements are based on current expectations and assumptions and are subject to risk factors and uncertainties which we believe are reasonable. Accordingly Hilton’s actual future results may differ materially from the results expressed or implied in these forward-looking statements. We do notundertake to update or revise any forward-looking statements, whether asaresult of new information, future events or otherwise. Nigel Majewski Chief Financial Officer 5 April 2022 23 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Risks and risk management In accordance with provision 28 of the 2018 UK Corporate Governance Code the Directors confirm that they have carried out a robust assessment of the emerging and principal risks facing the Group that might impede the achievement of its strategic and operational objectives as well as affect performance or cash position. As a leading food processor in a fast moving environment it is critical that the Group identifies, assesses and prioritises its risks. The result of this assessment is astatement of the principal risks facing the Group together with a description of the main controls and mitigations that reduce the effect of those risks were they to crystallise. This, together with the adoption of appropriate mitigation actions, enables us to monitor, minimise and control both the probability and potential impact ofthese risks. How we manage risk Responsibility for risk management acrossthe Group, including the appropriateidentification of risks and the effective application of actions designed to mitigate those risks, resides with the Board which believes that a successful riskmanagement framework carefully balances risk and reward, and applies reasoned judgement and consideration of potential likelihood andimpact in determining its principal risks. The Group takes a proactive approach torisk management with well-developed structures and a range of processes for identifying, assessing, prioritising and mitigating its key risks, as the delivery ofourstrategy depends on our ability tomake sound risk informed decisions. Risk management process andriskappetite The Board believes that in carrying out theGroup’s businesses it is vital to strike the right balance between an appropriate and comprehensive control environment and encouraging the level ofentrepreneurial 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, asoutlined below. 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 combining the set of business unit risk registers supplemented by formal interviews with senior executives and Directors of the Group. The Group has a Risk Management Committee which reports regularly to the Audit Committee and Board on the substance of the risk assessment and any changes to the nature of those risks or changes to the likelihood or materiality of the risk in question. The Risk Management Committee also reviews progress in control development and implementation of those key controls related to principal risks listed in this section of the report. The Group’s internal audit function derives its risk based assurance plan onthe controls after considering the risk assessment and reports its findings to the Audit Committee. The Risk Management Committee also considers the risk appetite and oversees the scenario based business continuity management exercises. Not all the risks listed are within theGroup’s control and others may be unknown or currently considered immaterial, but could turn out to be material in the future. These risks, togetherwith 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 tomanage rather than completely eliminate any identified risks. Risk management during 2021 Brexit Hilton’s exposure is generally mitigated through our predominantly local sourcing and operating model. Impacts are likely to continue through 2022 as the UK and EU regulatory and trade environments evolve. The Group is ensuring compliance through ongoing engagement with the appropriate authorities and regulatory forums. Our dedicated Brexit team continues to monitor policy changes and amend processes and operations as required. The structure of the UK workforce is changing in response to both reduced access to EU labour markets and Covid-related employment trends. Our recruitment and retention strategies are evolving in line with this changing landscape and our continued focus ontechnology and automation further reduce risk exposure in this area. Principal risks The most significant business risks that the Group faces, 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. 24 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Risk management and principal risks Description of risk Its potential impact Risk mitigation measures andstrategies adopted Strategic risks Risk 1 The Group strategy focuses on a small number of customers who can exercise significant buying power and influence when it comes to contractual renewal terms at 5 to 15 year intervals. No movement The Group has a relatively narrow, but expanding, customer base, with sales to subsidiary or associated companies of the Tesco, Ahold and Woolworths groups still comprising the larger part of Hilton’s revenue. The larger retail chains have over many years increased their market share of protein 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. The Group is progressively widening its customer base and has maintained a 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 2 The Group’s growth potential may beaffected by the success of its customers and the growth of their packed food sales. No movement The Group’s products predominantly carry the brand labels of the customer to whom packed food is supplied and it is accordingly dependent on its customers’ success in maintaining or improving consumer perception of their own brand names andpacked food offerings. The Group plays a very proactive 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 avery wide range ofparameters, including delivery time, product specification, product traceability and accuracy ofdocumentation 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. Risk 3 The progress of the Group’s business is affected by the macroeconomic environment and levels of consumer spending which is influenced by publicity including reports concerning the risks of consuming certain foods. No movement Changing consumer purchasing habits may mean little or no overall growth in meat consumption. Consumer demand may drop due to food scares and economic conditions. No business is immune to difficult economic climates and the consequent pressure on levels of consumer spending. With a sound business model including successful diversification across different proteins, broadening product ranges with ourstrong 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. Risk 4 As Hilton continues to grow there is more reliance on key personnel and their ability to manage growth, change, integration and compliance across new legislative and regulatory environments. This risk increases as the Group continues to expand with new customers and into new territories either organically or through acquisition with potentially greater reliance on stretched skilled resource and execution of simultaneous growth projects. Increased The Group may struggle to meet key project objectives and fail to adhere to regulatory and legislative requirements, which in turn detracts from our performance delivery for our customers. The Group carefully manages its skilled resources including succession planning and maintaining a talent pipeline. The Group is evolving its people capability balanced with anappropriate management structure within theoverall organisation. Hilton continues to invest in on-the-job training and career development, whilst recruiting high quality new employees, as required, to facilitate the Group’s ongoing growth and in deploying resource to support the growth projects appropriately. Appointment of additional key resources and alignment of structures have supported the enhancement of project management control and oversight. Control systems embedded in project management enable the risks of growth to be appropriately highlighted and managed. To underscore our efforts, we have active relationships with strong industry experts across all areas of business growth. 25 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Description of risk Its potential impact Risk mitigation measures andstrategies adopted Strategic risks continued Risk 5 The Group’s business strength isaffected by its ability to maintain awide and flexible global food supply base operating at standards that can continuously achieve the specifications set by Hilton and its customers. No movement The Group is reliant on its suppliers to provide sufficient volume of products, to the agreed specifications, in the very short lead times requiredby its customers, with efficient supply chain management being a key business attribute. TheGroup sources certain of its food 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 and therefore potentially impact our ability to meet agreed customer service levels. The Group maintains a flexible global food supplybase, which is progressively widening as it expands and is continuously audited to ensure standards are maintained, so as to have in placeawide range of options should supply disruptions occur. Risk 6 Contamination within the supply chainincluding outbreaks of disease and feed contaminants affecting livestock and fish. No movement This will potentially affect the Group’s ability to procure sufficient quantities of safe raw material. The Group sources its food 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. Within our factories, Global Food Safety Initiative (GFSI) benchmarked food safety standards and our own factory standard assessments drive the enhancement of the processes and controls that are necessary to ensure that the risks of contaminants throughout the processing, packingand distribution stages are mitigated andtraceable should a risk ever materialise. Risk 7 Significant incidents such as fire, flood,pandemic or interruption ofsupply of key utilities could impact theGroup’s business continuity. The current Covid-19 pandemic continues to present challenges acrossthe globe. No movement Such incidents could result in systems ormanufacturing process stoppages with consequentdisruption and loss of efficiency whichcould impact the Group’s sales. The Group has robust business continuity plans in place including sister site support protocols enabling other sites to step in with manufacturing and distribution of key product lines where necessary. Continuity management systems and plans are suitably maintained and adequately tested including building risk assessments and emergency power solutions. There are appropriate insurance arrangements in place tomitigate against any associated financial loss. The new Belgium facility suffered an extensive fire in June 2021. We quickly implemented our contingency plan to ensure continued local supplyto our customers and plan to restore ourproduction capability. The Covid-19 mitigation measures that we put inplace were effective in navigating throughout the pandemic and are well placed. 26 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Risk management and principal risks continued Description of risk Its potential impact Risk mitigation measures andstrategies adopted Operational risks Risk 8 The Group’s IT systems could be subject to cyber-attacks, including ransomware and fraudulent external email activity. These kinds of attacks are generally increasing in frequency and sophistication. Increased The Group’s operations are underpinned by a varietyof IT systems. Loss or disruption to those IT systems or extended times to recover data or functionality could impact the Group’s ability to effectively operate its facilities and affect itssalesand reputation. The Group has a robust IT control framework, minimum operating standards, including working towards National Institute of Technology requirements, all of which are tested frequently by internal staff and by specialist external bodies. This framework is established as the key control to mitigate cyber risk and is applied consistently throughout the Group. The increased prominence of IT risk is mitigated by investments in IT infrastructure and now forms a regular part of the Group Risk Management Committee agenda and presentations to the Board. In accordance with Group strategy IT risk is considered when looking at new ventures and control measures implemented in new sites follow the Group common standards. There is internal training and resources available with emphasis on prevention, user awareness and recovery. Increasingly, IT forms part of site business continuity exercises which test and help develop the capacity to respond to possible crises or incidents. The technical infrastructure to prevent attacks, safeguard data and the resilience to recover are continuously developed including yearly assessments to meet emerging threats. ITsystems including financial and banking systems are configured to prevent fraudulent payments. There are monthly IT security reviews to ensure compliance with expected levels of applications updates, and of server and data centres together with yearly penetration testing. Risk 9 A significant breach of health & safety legislation as complexity increases in managing sites across different product groups and geographies. No movement Such breach in health & safety legislation could lead to reputational damage and regulatory penalties, including restrictions on operations, finesor personal litigation claims. The Group has established robust health & safety processes and procedures across its operations, including a Group oversight function which provides key guidance and support necessary to strengthen monitoring, best practice and compliance. The Group has also rolled out an enhanced standardised safety framework. Health and safety performance isreviewed regularly by the Board. Risk 10 The Group’s business and supply chain is affected by climate change risks comprising both physical and transition risks. Physical risks include long-term rises in temperature and sea levels as well as changes to the frequency and severity of extreme weather events. Transition risks include policy changes, reputational impacts, and shifts in market preferences and technology. Increased Potential physical impacts from climate change could include a higher incidence of extreme weather events such as flooding, drought, and forest fires that could disrupt our supply chains andpotentially impact production capabilities, increase costs and add complexity. Action takenbysocieties could reduce the severity ofthese impacts. Governmental efforts to mitigate climate change may lead to policy and regulatory changes as well as shifts in consumer demand. The potential transitional impacts include additional costs of low greenhouse gas emission farming systems, and thepotential of carbon price regulation aimed at shifting consumers to lower carbon foods, which may reduce the profitability of some ofour products. Additionally there is increased stakeholder focus on climate change issues. Ourreputation could be impacted if we are notactive in reducing the climate impacts ofouroperations and supply chains, resulting inlower demand for our products. We continue to develop our approach to climate change risk mitigation. We have committed to set a science-based target through the Science Based Targets initiative and signed the Business Ambition for 1.5°C pledge to decarbonise our own operations and supply chains. We have set energy and water efficiency targets for our sites and continue to engage in global collaborative action for decarbonisation of our key raw materials. Weare directing our efforts towards a net-zero carbon footprint before 2050. Shifts in consumer demand are an opportunity for growth in our portfolio of plant based and seafood products. Additionally, we are ensuring we have the flexibility to adapt our supply chains over time to mitigate physical disruption. We are conducting an assessment of the key physical and transition risks impacting our business in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. We are also, for the first time this year, reporting on our initial assessment of climate risks and opportunities in line with the TCFD framework. 27 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Delivering afuture-ready food system means we must think critically to address the complex interconnected issues; from climate and biodiversity, to resource use, and human rights.” PHILIP HEFFER CHIEF EXECUTIVE OFFICER CEO Introduction 28 Sustainability Committee Chair’s Introduction 30 Highlights 31 2025 Sustainable Protein Plan 32 Materiality matrix 34 Governance 35 Value chain influence 36 People 38 Valuing our people 40 Respecting human rights 42 Developing potential 44 Planet 46 Reducing emissions 48 Enhancing animal wellbeing 50 Nature positive 52 Product 54 Balanced healthy diets 56 Circular packaging 58 Resource efficiency 60 Food safety and quality 62 Supply Chain Integrity, Environmental Impact Assessment and Traceability 63 Climate risk and impact report (Task Force on Climate-related FinancialDisclosures) 64 Climate-related metrics and targets 73 Non-financial disclosure and SASB 74 Sustainability report 28 I am more convinced than ever of the profound responsibility of Hilton Foods to provide affordable, nutritious, and sustainable food in the many markets in which we operate. 2021 was marked by continued disruption to our global food systems and 2022 brings the tragedy of war in Europe. We are thankful to all our people, who have worked tirelessly producing essential food, a testament to their resilience and resourcefulness. Our thoughts are with thefamilies and friends of the colleagues we lost during last year. We have a renewed understanding of how human health is inextricably linked to the health of our planet. Business has a powerful role to play in society, both bymanaging our impact and performance and by galvanising positive change. Delivering afuture-ready food system means we must think critically to address the complex interconnected issues, from climate and biodiversity, to resource use, and human rights. As we have grown and diversified in 2021, we have increased our sustainability ambitions. I am pleased to announce that we are launching our new ‘2025 Sustainable Protein Plan’ delivering arefocused strategy under the pillars of People, Planet and Product. Our renewed strategy will embed sustainability into our daily actions, our decision-making and governance. Our strategy is to use our business capabilities and scale to support the UN Sustainable Development Goals. We became full participants in the UN Global Compact in 2021, and I am pleased to formally renew our continued support and commitment to the initiative and its principles. My personal commitment is to ensure the2025 Sustainable Protein Plan isusedas a powerful catalyst for action, within our business but also across our supply chains. The task is daunting, but can be achieved through collective action. We signed the EU Code ofConduct on Responsible Food Business and Marketing Practices in 2021, which was one of the first deliverables of the EUFarm toFork Strategy. Last year we reported our intention toset Science Based Targets (SBTs), which have now been approved by the Science Based Targets initiative (SBTi). We also announced that we have signed the Business Ambition for 1.5°C pledge, committing us to reach net zero before 2050. We plan to submit even more ambitious targets to SBTi, aligned to the 1.5 degree track for our operations and their FLAG pathway for our supply chains. We’re delighted to be recognised by CDP as a 2021 Supplier Engagement Leader, recognising our efforts to mitigate climate risk within our supply chain. We’re rolling out tailored decarbonisation plans across our own operations, employing technology for maximum heat recovery and efficiency. Hilton Foods Ireland has made significant strides, already halving their gas use across their operations since 2019. Striving toward a more sustainable food system requires a holistic evaluation ofhow business engages with society, ensuring equitable access to the ‘table’ for all. I am thrilled to announce our commitment to advance the voice and impact of women, with a target of 30% of Hilton Foods leadership roles filled by women by 2025. We’re committed to building a sustainable future together, ensuring all have the opportunity to thrive. In 2021, we made a renewed commitment to the implementation of the United Nations Guiding Principles on Business and Human Rights (UNGPs) in our Human Rights and Supply Chain Social Responsibility Policies. This includes all agency, temporary and migrant workers. Our teams have delivered impressive projects in 2021. Hilton Seafood UK received the Innovation in Animal Welfare Award by Compassion in World Farming for the world’s first electrical humane stunner for warm water prawns. Huge progress has been made on delivering sustainable and circular packing solutions, with the replacement of plastic trays for beef mince with Flow-Wrap in the Netherlands and PaperSeal trays in Australia. We are passionate about putting impactful climate and social actions at the heart of what we do, delivering for our employees, our customers, and shareholders alike. I hope the following report makes clear the commitment and energy Hilton Foods has delivering positive adaptions for society. Philip Heffer Chief Executive Officer 29 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Reflecting on another year markedby continued disruption from the Covid-19 pandemic, the vulnerabilities of our food system have become ever more apparent. We are at a critical juncture in the future of our planet, where the interdependencies between business, climate and society are unmistakably clear. The Intergovernmental Panel on Climate Change (IPCC) signalled a ‘code red for humanity’ in its report earlier this year, asobering statement for all of us who understand the urgency of the task at hand. Continuing to perform as a prosperous and resilient business means we must also drive meaningfulchange for our planet. This year we have responded with speed and agility to protect lives and livelihoods, whilst growing our business. Finding afuture that is sustainable for everyone on our planet demands that weintensify our capacity to create positiveadaptations both for both society and the environment, and look critically atreducing negative impacts. The COP26 summit in November 2021 achieved the Glasgow Climate Pact, aresult of negotiations from almost 200nations. We recognise that business has a crucial role in translating these commitments into rapid action. That’s whywe are strengthening our commitment to the Science Based Targetsinitiative to achieve a 1.5°C trajectory, marking our ambition towards anet negative future. However, we are aware that as we expedite climate action, it is of utmost importance that we secure a ‘just transition’ for society, making sure theevolution towards a climate-neutral economy happens in a fair way, leaving noone behind. Respecting human rights, enabling theprovision of fair and safe workplaces, and ensuring employees’ voices are heard throughout our value chains is essential to building back better. Momentum is building toward the EU Sustainable Corporate Governance Directive, whilst mandatory human rights due diligence legislation has already been achieved at a national level in a number of member states. We recognise the responsibility of businesses to identify and act to protect human rights in their supply chains, that’s why we advocated for similar human rights due diligence legislation to be introduced in the UK this year. Consumption of soy for agricultural use isone of the primary causes ofdeforestation and biodiversity loss globally. This is why we have increased our advocacy both within the UK and EUfor robust deforestation due diligence legislation, and have worked with EFECA to support Defra in the implementation ofUK legislation. Sustainability considerations also influencewhere consumers want toshop,and where individuals want towork. The growing prominence of the eco-conscious consumer who wants to make purchases that align with their values and have a positive impact on the planet must be addressed. We are expanding our expertise by bringing innovative solutions to deliver sustainable protein choices that perform in taste, quality and affordability for our customers. We are committed to taking a leadership position to address the concerns that matter most to our stakeholders, whether they be our investors, our customers, our suppliers, or our own employees. Above all, this year has strengthened our dedication to being a leader in sustainable business. I hope the following report makes clear that we are an organisation which is passionate about achieving theseaims for a better future for all. Continuing to perform as a prosperous and resilient business means we must also drive meaningful change forour planet.” REBECCA SHELLEY SUSTAINABILITY COMMITTEE CHAIR Sustainability report Sustainability Committee Chair’s introduction 30 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 1 0 0 % of the paper and board we use comes from certified forests >2.4GWh In 2021, we generated 2.4GWh of solar electricity atour Heathwood, Huntingdon and Grimsby sites 30% We have committed to women filling 30% of leadership roles by 2025 PEOPLE PLANET We signed the EU Code ofConduct on Responsible Food Business and Marketing Practices in 2021 Launched our Women’s Network supporting women to progress at alllevels of our business We published our first Group Human Rights Policy and recommitted to the UN Guiding Principles of our UK seafood was sourced from Marine Stewardship Council certified fisheries 98% Highlights Using more robust methodology, we have recalculated our Scope3 emissions at 15.5 million tonnes CO 2 e, inanticipation of setting more ambitious targets in 2022 76% of our meat trays are made from 100% recycled PET 82% We have reduced the weightofplastic in our mince packaging by up to 82% at HiltonFoods Holland by implementing flow wrap technology Hilton Seafood UK received the Compassion in World Farming Award for Innovation in Animal Welfare in 2021 1.5°C In 2021, our Science Based Targets were approved and we signed the Business Ambition to 1.5°C, committing us to Net Zero before 2050 PRODUCT 31 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Sustainability is at the heart of how we do business. This year we are pleased to introduce our new strategy, the 2025 Sustainable Protein Plan. This amalgamates the workstreams ofour previous ‘Quality Naturally’ strategy in an improved clearer format, with new robust targets built around improved transparency and action. We understand the importance of ourrole in the future of a sustainable food system that protects and restores our planet’s resources and enhances the lives of the people and animals that produce it. This report sets out the work currently being undertaken by Hilton Foods, andour plans to enhance and improve. We are aligning our business to deliver long-term benefits to both people and planet, using our scale and reach todrivetransformative change. Transparency is crucial to meeting our targets, but through leveraging technological solutions to drive change within our value chains, we have been ableto progress data accessibility. Our data collection platform can demonstrate where our raw materials come from, assurance of standards acrossour supply chains, and measure progress made towards shared goals andour 2025 targets. The 2025 Sustainable Protein Plan is ambitious, but we’re confident we can achieve our goals in partnership with our customers and suppliers as we raise the bar together. Business as usual is changing and consumers’ expectations have shifted considerably. Thereis a danger in setting easytargets and meeting them – we want to set stretching goals that drive impactful actions that become integrated into our core business practices. It’s so much more than just reporting.” NIGEL EDWARDS GROUP CSR DIRECTOR Sustainability report Our 2025 Sustainable Protein Plan Innovating through partnership to make nutritious protein more sustainable VALUING PEOPLE REDUCING EMISSIONS BALANCED HE A LTHY DIETS RESPECTING HUMAN RIGHTS ENHANCING ANIMAL WELLBEING CIRCULAR PACKAGING DEVELOPING POTENTIAL NATURE POSITIVE RESOURCE EFFICIENCY PEOPLE PLANET PRODUCT 32 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 PEOPLE PLANET PRODUCT Valuing people Being a fair, safe and inclusive employer by engaging and empowering our people while supporting our local communities. Our people are at the core of how wedo business and they bring our culture to life within our factories, offices and communities. Respecting human rights Safeguarding the welfare and just treatment of all people and communities engaged with our business and supply chains. We have a responsibility to protect the internationally recognised human rights of workers both within our business and our global supply chains. Building strong ethical standards to embed respect for human rights across our value chain is an essential step toward a fairer food system. Developing potential Growing and developing our people tobe thebest they can be, ensuring our business is ready for the future. We’re committed to building a sustainable future together, ensuring all our employees have the opportunity to thrive. Ensuring our business is fit for the future means wehave to create a visible frameworkfor our employees to access and understand their careerand training opportunities. Balanced healthy diets Efficient regenerative food systemsproducing more accessible and nutritious proteins. By combining innovation and responsible sourcing, weensure our consumers canmakebalanced choices thatarehealthy forthem andfortheplanet. Circular packaging Developing a circular economy forpackaging and actively bringing waste materials back into use acrossour fullvalue chain. We are using innovation and our scaleto drive transformational development ofsustainable packaging andmovetowards a circular economy across our value chain. Resource efficiency Reducing food waste and optimisinguse of energy and wateracross sites, supply chains, andin consumers’ homes. We are constantly reducing our environmental impact by eliminating waste and driving resource efficiency. Reducing emissions Going further than addressing our footprint by achieving net negative emissions across our sites and value chains. With over 30% of global emissions comingfrom the food system and the impacts of climate change becoming more acute, we are working to make this complex topic actionable across oursupply chain on our journey tonetnegative emissions. Enhancing animal wellbeing Driving standards and innovation inthecare of animals that enhances their lives and reduces antibiotic use. We are actively encouraging uptakeofinnovationand developing standards that advance welfare and reduce theneed for antibiotics throughout our global supply chains. Nature positive Collaborating to improve our stewardship of land and sea; promoting biodiversity, addressing deforestation, and protecting waterand soils. We are leading collaborative action toaddress the key environmental challenges, shapingand guiding agendasanddriving uptake of innovation atscale. Page 38 Page 46 Page 54 33 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Impact on our business Importance to external stakeholders As part of the development of ournew strategy we have updated our materiality matrix to effectively prioritise initiatives and ensure our focus is on addressing the most material issues toour business. In the process of developing the materiality matrix, a consultation was carried out with both a cross-section of internal and external stakeholders (including NGOs, consultancies, centres of excellence, customers, retailers and partners in our agricultural, ingredient and packaging supply chains) with recognised expertise across our key risk areas. This ensures materiality is assessed against: Hilton Foods strategy, broader societal expectations, legislation, policy and the business’ influence on other entities in ourvalue chain. A thorough statistical analysis was performed on the consultation’s results to ensure the views of each stakeholder group were appropriately reflected, taking into accountthe geographic and operational diversity of our business. Our material issues were identified as: • Product safety, quality and integrity Ensuring all food is safe to eat is of paramount importance to us, our products must also meet our quality specifications and be labelled correctly, covering important issues such as the allergens they contain, the country oforigin and the nutritional content ofthe products. • Sustainability and biodiversity of agriculture, fisheries and aquaculture This encompasses the management ofinputs and output of agriculture, fisheries and aquaculture at a level thatmay allow its continuation in the long term in harmony with the ecosystems with which it interfaces. • Greenhouse gases Greenhouse gas emissions occurring in our value chain, from farm, through processing, distribution and retail to consumption, and their contribution toclimate change. • Human rights Respecting human rights by safeguarding the welfare and ensuring just treatment of all workers and communities engaged with our businessand our supply chain. • Health & safety Safeguarding the health & safety ofpeople in the workplace and ensuringa safety-first culture acrossourvalue chain. These most material risks are under active management and are subjects of engagement by Hilton. These processes are under constant review and subject toongoing improvement to ensure robust,comprehensive monitoring tobestmitigate their impact. Our 2025 Sustainable Protein Plan was builtto mitigate our material issues. Sustainability report Materiality matrix ACCESSIBLE, HEALTHY & NUTRITIOUS FOOD HUMAN RIGHTS HE A LTH & SAFETY PRODUCT SAFETY, QUALITY & INTEGRIT Y SUSTAINABILITY AND BIODIVERSIT Y OF AGRICULTURE, FISHERIES & AQUACULTURE PACKAGING CIRCULARITY & PLASTIC REDUCTION ENERGY & WATER EFFICIENCY IN FACTORIES ANTIMICROBIAL RESISTANCE EFFLUENT & GENERAL WASTE MANAGEMENT FOOD WASTE ACROSS VALUE CHAIN TALENT DEVELOPMENT & AVAILABILITY WELLBEING, DIVERSITY & INCLUSION TRANSPARENT SUPPLY CHAINS GREENHOUSE GASES ANIMAL HEALTH & WELFARE SUPPORTING OUR COMMUNITIES 34 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 At Hilton we have embedded sustainability throughout our governance structure and decision making processes, so that we remain accountable and ensure we apply ourinfluence for benefit of both people and planet. The Board ensures the ongoing success of the business, overseeing and engaging with both the Sustainability Committee and Executive Leadership Team on the direction and values of the company, including the integration of corporate socialresponsibility objectives. The Board is updated onsustainability objectives and strategy progress every six months. The Sustainability Committee, chaired byNon-Executive Director Rebecca Shelley, oversees the delivery of our long-term corporate sustainability strategy and performance. The Committee approves formal reporting on corporate sustainability and provides integral support to the Senior Management Team, while evaluating both opportunities and risks alongside the Audit and Risk Committee in order toensure aclimate resilient business. The Executive Leadership Team are updated monthly alongside the CEO on customer and corporate social responsibility targets and objectives. The CSR team (led by the Chief Quality and Sustainability Officer and the CSRDirector) coordinate our supply chain engagement and global reporting. The team acts as stewards over the sustainability strategy, assuming full responsibility for achieving targets and meeting reporting requirements. MAIN BOARD Set the ambition for long term CSR programme, embedding this in the business culture SUSTAINABILITY COMMITTEE and AUDIT AND RISK COMMITTEE EXECUTIVE LEADERSHIP TEAM Agree and oversee delivery of targets SENIOR MANAGEMENT TEAM Set global strategy and oversee Group and local implementation plans CHAIRMAN NON-EXECUTIVE DIRECTOR CHIEF TECHNOLOGY OFFICER MANAGING DIRECTORS HR LEADS CEO CEO CHIEF QUALITY AND SUSTAINABILITY OFFICER REGIONAL CHIEF OPERATING OFFICERS GROUP HEAD OF ENERGY MANAGEMENT & FACILITIES PROCUREMENT LEADS CHIEF FINANCIAL OFFICER REPRESENTATIVES FROM EXECUTIVE LEADERSHIP TEAM CHIEF PEOPLE AND CULTURE OFFICER CSR DIRECTOR GROUP CENTRAL CSR TEAM SITE CSR COORDINATORS NON-EXECUTIVE DIRECTORS CSR DIRECTOR CHIEF MANUFACTURING AND PROCUREMENT OFFICER CHIEF COMMERCIAL OFFICER GROUP HEAD OF PROCUREMENT (NON-PROTEIN) OPERATIONAL LEADS Integrate CSR strategy into their areas of responsibility Responsible for CSR projects and reporting Direct responsibility for CSR, including climate Shared responsibility Who is responsible for CSR at Hilton Governance 35 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 How we work through thevaluechain Hilton Foods engages the whole valuechain to incentivise investmentin step change improvements, whichare economically sustainable at scale. We do not own farms, fishing vessels orabattoirs, which gives us the freedom to work with the leaders in innovation andsustainability. The diagram shows howwe guide and influence at each stageof the chain. Foods Connected ensures we partner with suppliers that share our commitment to quality, safety, animal welfare, human rights andsustainability. The system helpsus manage supplier performance andrisk assessment to make sure we deliver our customer priorities. Ensuring the sustainability of foodrequirestransparency across the value chain toprevent negative environmental and human rights impacts.New technologies and tracing methods will inform consumers about theorigin andmethods ofproduction andhow human rights are protected. Sustainability report Value chain influence HOW WE WORK THROUGH THE VALUE CHAIN Hilton and Foods Connected – supply chain transparency BASE TRACEABILITY The movement and transformation of a product across different parties in the supply chain VALUE ADDED TRACEABILITY Additional information that can be captured at different stages in the base traceability process PESTICIDE USAGE ANIMAL WELFARE ETHICAL SOURCING ANTIBIOTIC USAGE CARBON EMISSIONS PACKAGING RECYCLABILITY FOOD SAFET Y & QUALITY SUSTAINABLE SOURCING AUDIT GUIDE INFLUENCE INFLUENCE GUIDE CONTROL 1 RAW MATERIAL S RAW MATERIAL S RAW MATERIAL S FINISHED GOODS FINISHED GOODS CONSUMERRETAIL CUSTOMER HILTON FOOD GROUP ABATTOIRFARM/VESSELFEED 2 3 4 5 6 36 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Working with Foods Connected ontransparency We continue to work with Foods Connected to enhance transparency through digitisation of data capture withinour facilities and throughout our supply chain. Some examples include rejection recording to allow comparison of supplier performance across our sites, customer complaints recording to report on trending issues, and group risk assessments which are completed by each site to inform audit scheduling based on risk. Having an aligned approach allows us to create powerful reports to manage performance, identify opportunities for continuous improvement and showcase best practice. Hilton Foods continue to work with Foods Connected on an Innovate UK funded traceability project, to demonstrate how state-of- the-art technology can be implemented in a commercial environment to deliver a transparent supply chain where data is accurate and accessible in real-time. Hilton Foods Huntingdon have conducted a current and future state analysis and completed a full digital gap analysis of product movement throughout the facility for a beef primal cut. This has allowed us to identify where Foods Connected and other existing systems can digitise data capture. Mapping and understanding our digital landscape is an important first step towards real time access and integration with the centralised traceability solution, Trace Connected. Throughout this year wehaverefined our value propositions and used them to inform thekey events and associated data that are required for afull and complete trace. These include but are not limited to, base traceability (product movement), alongside value-added traceability data, such as,product quality and inventory metrics, the scope ofwhich can be broadened based on reporting needs. Foods Connected have continued to design and build Trace Connected in line with our requirements, ensuring the solution is fit for purpose for the Food Industry, reducing risk, cost, waste, and ensuring product integrity throughout. We are collaborating with one of our suppliers to capture data one step back in the supply chain to achieve interoperable traceability between multiple stakeholders and systems. Centralising traceability information end to end is both innovative, and a significant step change for the food industry. A DIGITALLY CONNECTED FOOD SUPPLY CHAIN TO DELIVER TRANSPARENCY, SUSTAINABILITY AND EFFICIENCY Hilton Foods Huntingdon have completed a full analysis of product movement throughout the facility for a beef primal cut 37 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 At Hilton Foods we employ over 6,000 people, dedicated to serving our customers and themillions ofconsumers across 14countries. Our people are at the heart of our success and their health, safety and wellbeing is our first priority. We are aninclusive organisation built on respect, with equal opportunities for skills and career development. We work together to keep our business resilient for the future, bringing the diversity, creativity andentrepreneurial skills of our people tothe fore. It is essential that every person in our supply chains is treated fairly and rewarded appropriately for their work, whether on farm or fishing vessel, abattoir or distribution centre. Protecting human rightsis about building a fairer society andfood system forall. Alignment with the UN SDGs 5.5 Ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision-making in political, economic and public life 8.8 Protect labour rights and promote safe and secure working environments for allworkers, including migrant workers, in particular women migrants, and those in precarious employment PEOPLE Sustainability report 38 Valuing our people Being a fair, safe and inclusive employer by engaging and empowering our people and supporting our local communities 2025 Targets – Reduce Lost Time Incidents (LTIs) by10% against a 2020 baseline across Hilton Foods. – Establish a Global Wellbeing Framework to support employee wellbeing, inspiring our employees tomake informed decisions about their mental, physical andfinancial health. – 30% of our leadership roles filled by women. – A commitment to equal opportunity and development forall within Hilton Foods. – Promote growth of our Women’s Network, aimed at providing support, development and action to those who identify as women within Hilton Foods. – Employee consultative forums orworks councils operational atallHilton Foods sites. Respecting human rights Safeguarding the welfare and just treatment of all workers andcommunities engaged with our business and supply chains 2025 Targets – Have a functioning governance structure in place which addresses human rights risks and opportunities. – Train all Hilton Foods employees onhuman rights. – Modern slavery awareness training extended to managerial colleagues. – Development and roll-out of core HFG Agency Labour Standards. – 100% of labour and service providers audited to HFG Agency Labour Standard. – 100% of primary suppliers agreed to HFG Supplier Social Code of Conduct. – 100% of new primary suppliers screened using social criteria. – 100% of high risk primary suppliers audited. Developing potential Growing and developing our people to be thebest they can be, ensuring our business is ready forthe future 2025 Targets – All production colleagues will be offered the opportunity to participate in ‘work conversations’ with their manager to discuss performance, development career aspirations, wellbeing and sharing ideas and feedback. – Provide development opportunities for all management talent that has been identified as ready for succession through the annual review of leadership capability and succession. By end of 2025, there will be have been 150 through the programmes. Page 40 Page 42 Page 44 39 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 2025 Strategic Goals Continue to put the health, safety, andwellbeing of our employees attheheart of what we do Driving a more inclusive anddiverseworkforce, where allhaveanopportunity to thrive Engaging and empowering our people Our people are at the core of how we do business and they bring our culture to life within our factories, offices and communities. Health, safety and wellbeing is the cornerstone of our strategy, facilitated through good leadership, safe behaviour and the continuous improvement of our Global Safety Framework. 92% of our employees reported that they understand how to apply our health and safety rules intheir day-to-day work. This is evidence of our strong health and safety management system. We’re working towards an ambitious future, one we want to build together withall our employees. Creating spaces where our employees can speak freely about contributing to that future and howto participate in it is vital. – We have stepped up our focus on mental health and wellbeing. A number of our factories now have ‘mental health first aiders.’ The pandemic has had aprofound impact on all our lives, it’simportant to us as a business that we look after our employees holistically. – Many of our sites supported our employees to have their Covid-19 and flu vaccinations whilst at work. It’s important to us that we make it aseasy as possible for our employees tostay safe. – Supporting our communities is avaluable part of who we are. Many ofour sites have worked to fundraise for causes important to them: from MakeaWish Foundation to Parkinson’s and East Anglia Children’s Hospices. – We achieved an increase in the response rate to our annual engagement survey, rising to 77% of our global business. The first step to inclusion is to listen to our people to understand how we can improve. We are driving an even more inclusive and diverse business through our people strategy. We believe that no one should miss out on opportunities because of their age, gender, race, social background, sexual orientation, belief, political opinion, trade union membership, disability, family responsibility (i.e. pregnancy), mental health, sensitive medical condition or anyother characteristic that forms part ofwhothey are. In 2021, we asked our employees whether ‘I feel I can be myself at work’ resonated with them. 74% of our employees responded that they were able to be themselves at Hilton. This is the first time we have included a diversity and inclusion metric in our annual engagement survey, and wewill use this as a way of understanding the impacts of our Inclusion and Diversity activities going forward. Highlights: – In 2021, we successfully ran a Health and Safety Awareness week across all our European sites. Our employees found creative ways to bring our healthand safety culture to life, fromvideos, to quizzes and posters. It’simportant tous that everyone has anopportunity to engage positively. Valuing our people Being a fair, safe and inclusiveemployer by engaging and empowering ourpeople while supporting our localcommunities PEOPLE Sustainability report 40 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 At Hilton Foods we are passionate about supporting women and those who identify as women in their careers. Improving ourgender balance is critical tous, that is why we are setting a target onwomen inleadership for the first time. We want to take action on progressing the careers of women within Hilton, that is why 30% of our leadership roles will befilled by women by 2025. In this context, a‘leadership role’ will mean any job roles atfunctional lead or senior specialist level. We will continue to be a sponsor of Meat Business Women, finding innovative ways to achieve better female representation within senior management. Looking forward In 2022, we will establish a Global Wellbeing Framework to further support employee wellbeing, inspiring our employees to make informed decisions about their mental, physical and financial health. This will allow our sites to address the wellbeing needs that matter to their employees: from morning workouts in Denmark to our Your Voice and Wellbeing Committee in Ireland. We’ve made a commitment to equal opportunity and development for all withinHilton Foods. In APAC we have established a Learning Management system to support our employees’ development and we will build further onthis in 2022 and beyond. WOMEN’S NETWORK 2021 LAUNCH Last year we launched ourWomen’s Network, aimed at providing support, development and action to those who identify as women at Hilton Foods. Over 100 colleagues from across our global business have already joined the network. Achieving gender equality and promoting the value of careers in food production for women goes beyond targets to addressing systemic issues. We have thought critically about how toengage those in our workforce that identify as women and have created space for networking andskills development. We plan to run four global virtual development events per year open to all, focusing on topics raised by individuals participating in our forum. The development of this forum has been informed by colleagues across our Group, it is important to us that we are led by what is important to our employees and how we work isshaped by them. 30% By 2025, 30% of our leadership roles will be filled by women Diverse and inclusive teams are key to delivering our ambitious growth plans. It is essential that we do all that we can to demonstrate the opportunities for diverse talent that exists within our business.” JACKIE LANHAM CHIEF PEOPLE AND CULTURE OFFICER 41 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 The global food system is a complex web of activities, ranging from agricultural cultivation, production and processing to transport and consumption, upon which many livelihoods depend. We have a responsibility to protect the internationally recognised human rights of workers both within our business and our global supply chains. This includes their labour rights; for example access toeffective grievance procedures, workerrepresentation, and a safe workingenvironment. Building strong ethical standards to embed respect for human rights across our value chain is an essential step toward a fairer food system. As we better understand the profound impact of Covid-19 and the tremendous shift in our society that will be required toreach Net Zero, it is essential that wework to make this a ‘just transition’. At Hilton Foods we see business donewell as a vital element of ensuring ajust transition: creating good jobs and opportunities for people and communities across our value chain. We have both anopportunity and a responsibility toprovide a better future for all. In 2021, we made a renewed commitment to the implementation of the United Nations Guiding Principles on Business and Human Rights (UNGPs) through the publication of our Human Rights Policy and Supply Chain Social Responsibility Policy. This sets our commitments to all workers engaged across our own operations and value chain. This includes all agency, temporary or migrant workers. The purpose of these policies is to embed respect for labour rights and improve working conditions throughout our business and supply chain. Highlights: – Alongside our new policies, our human rights strategy has been refreshed and endorsed by senior management within Hilton Foods. We plan to accelerate the work we’re doing on human rights to 2025, by extending its scope and enhancing our commitments. – We have created a new Supplier Ethical Approval & Risk Assessment process which is housed on our supplier management system, Foods Connected. We piloted this system in 2021, and will launch across our business in 2022. In addition, we have developed a new Supplier Social Code of Conduct, which sets out the behaviours and standards we expect from our suppliers. This Code of Conduct will launch in 2022. – In 2021, we extended our in-house modern slavery and human rights standards training to our Group auditors. We see the value in empowering those working with our suppliers most frequently with the tools to speak up when they see something amiss. – We have continued to support the outcomes of the independent Human Rights Impact Assessment, in collaboration with Tesco and local supply chain partners in our Vietnamese prawn supply chain. We are committed to understanding theimpacts of our business activities onrights- holders, and working to address andenhance livelihoods. 2025 Strategic Goals Assess and address human rights impacts across our business activities Extend our modern slavery strategy and awareness training to colleagues to all Hilton Foods sites Improving access to grievance procedures across Hilton Foods Establishing future-ready standardsfor agency and service staffon our sites Hold robust due diligence on ourprimary (protein, ingredients andindirect) suppliers Respecting human rights Safeguarding the welfare andjust treatment of all people and communities engaged with our business and supplychains PEOPLE Sustainability report 42 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Advocacy for a better future The European Commission’s legislative proposal on Sustainable Corporate Governance will be published in early 2022, which is anticipated to deliver mandatory human rights and environmental due diligence expectations for businesses operating in the EU. It is vitally important that similar legislation is implemented in the UK; this is not only to ensure a ‘level playing field’, buta reflection of high human rights and environmental standards within the UK, and appropriate access to justice for victims. To this end, we signed a letter advocating for the introduction of this legislation in the UK, alongside a number of our investors and customers. COLLABORATION AND GOVERNANCE At Hilton Foods we recognise the importance of collective action to deliver a future ready food system. We work with a number of third parties, including NGOs to deliver thischange; working to address both our own impact and wider industry issues that impact our suppliers. This collaborative work enables us to safeguard labour rights and improve working conditions. We are a founding member of the Seafood Ethics Action Alliance (SEAA), a pre-competitive collaboration platform that works to ensure human rights in wild-capture fish supply chains are respected. We sit on the steering group of the SEAA, and have participated in the development of a risk assessment tool in 2021, with the purpose of enabling businesses to identify potential human rights risks in their supply chains (based on an agreed set of indices and criteria). The Food Network for Ethical Trade (FNET), in which weactively participate, provides valuable due diligence and horizon-scanning for our risk assessment processes. In 2021, we participated in their Recruitment Fees WorkingGroup, we are using these learnings to enhanceour own internal procedures. In 2021, we have held governance roles within Global Seafood Assurances, working to improve working conditions on vessels through the creation of robust health and safety and employment standards through theResponsible Fishing Vessel Scheme. Hilton Foods supports the work of Stronger Together, aleading initiative working to provide practical solutions to business in the eradication of modern slavery and hidden exploitation. We use their training across our UKbusinesses, and spoke at an Australian webinar supporting their work in APAC. 43 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION We’re committed to building a sustainable future together, ensuring all our employees have theopportunity to thrive. The culture of our business is derived fromour people, that’s why we arecommitted to developing them. The innovation, resourcefulness and dedication of our employees is what makes Hilton a great place to work. Ensuring our business is fit for thefuture means we have to create avisibleframework for our employees toaccess and understand their career andtraining opportunities. This is about creating value for every employee who works with us. As part of our capability and succession review in 2021, we worked to identify andgrow talent to fill future leadership and business-critical positions. Our vision for a business ready for the future means working with our employees to identify their strengths, and making our business resilient with a strong talent pipeline. Nurturing internal talent is important tous, that’s why we run our Accelerated Development Programmes. We want to ensure everyone knows they have aplace at Hilton, and support is at hand for them to become the best they can be. In 2021, we were proud to launch our Emerging Leaders Programme, developing participants to lead and toimplement change. We want to grow our future leaders to be self-aware and empathetic leaders, who are able to work across cultures and deliver our growth strategy. Highlights – In 2021, our employees accessed atotal of 8444 training hours. – We are passionate about the unique perspectives and skills ouremployees bring to the table. That’s why in 2021 we created reversementoring relationships between our executive leadership team and our shop floor employees. We hope this will encourage even better cross- pollination of ideas within our business, and ensure all levels of leadership understand what matters to employees. – We’ve extended the number ofemployees receiving individual performance appraisals. We focus on holistic conversations from objectives to work responsibilities and from development plans to career aspirations. we believe we engage best with our employees by working transparently with them. – We know the value of training for our employees and our customers. Along with upskilling, training offers important opportunities to enhance employee satisfaction, improve our internal processes and retain valuable employees. Our factories have conducted training covering: – Lean Manufacturing – Food Safety and Allergens – Chemical Handling – First Aid – Electrical Safety – Manufacturer Training for Equipment – Manual Handling Training – Personal Development Review Training – Apprenticeships Across Functions – Modern Slavery and Human Rights 2025 Strategic Goals Enhance learning and development opportunities for our employees Developing potential Growing and developing ourpeople to be thebest theycan be, ensuring our business is ready for the future PEOPLE Sustainability report 44 Looking forward At Hilton Foods, we want everyone to have an opportunity to have their achievements recognised and the chance to discuss their ambitions andjob progression. This is why we’re launching ‘workplace conversations’ across our business. This new initiative will give every Hilton Foods employee the chance to discuss their experience at work, development and future ambitions at least twice a year. This forms part of our 2025 Sustainable Protein Plan. Having quality conversations is a vital element of maintaining and improving employee engagement and to achieve thisfor our hourly paid colleagues, theapproach is intentionally informal and positively focused, coming from abelief in respect and inclusion. It gives the opportunity for a straightforward conversation carried out with a genuine interest and intent and focused on what matters toour colleagues. An update on our Accelerated Development Programmes Last year we announced the extension of our Accelerated Development Programme to Emerging Leaders. Despite the challenges of Covid we successfully took 18 participants from seven of our businesses on a five-month leadership development journey. They worked on live Corporate Social Responsibility projects of critical significance to Hilton Foods. We are passionate about our developing leaders building powerful futures with us. CAREERS AT HILTON FOOD GROUP The Emerging Leaders programme gave me the headspace to really think about what I wanted from my career within HFG, the perspectives of different colleagues across Europe, and the opportunity to understand new areas of our business was invaluable. The cross-functional working enabled by the Emerging Leaders programme through project teams was brilliant, giving me an opportunity to take myself out of my comfort zone, build my network within the business, and work with colleagues I wouldn’t normally work with on an unfamiliar topic. This brought lots of interesting shared learnings and broaden my knowledge within a new field. CAREERS AT HILTON FOOD GROUP The Emerging Leaders programme was agreatopportunity to get myself out of my comfort zone. This allowed me to enhance myskills and improve how I addressed and coped with more complex situations. 1 8 participants in our leadership development programme Hilton Food Group is being increasingly diversified, competitive, agile and technologically advanced and, more than ever, I feel ready forthechallenge!” GROUP PROCESS IMPROVEMENT LEADER The course helped me to see the different opportunities available acrossthe Group. It feels like acreative way of approaching personaldevelopment.” COMMERCIAL MANAGER 45 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 We believe we have a responsibility as a business to play our part in ensuring we move towards a food system that is operating within planetary boundaries. For this reason we have committed to being a net zero business by 2050. We recognise that this is a major undertaking for our supply chain and have committed to Science Based Targets to demonstrate our progress on this journey. To reach our ambitious targets we haveput in place robust decarbonisation plans for our own operations. Hilton Foods is rolling out tailored reduction andimprovement plans on all sites, using low carbon technology for heat recovery and efficiency. We have also built decarbonisation plans for our supply chains working incollaboration with our suppliers, retail partners and key industry stakeholders. PLANET Sustainability report Alignment with the UN SDGs 2.4 By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production, that help maintain ecosystems 14.4 By 2020, effectively regulate harvesting and end overfishing, illegal, unreported and unregulated fishing and destructive fishing practices and implement science-based management plans 15.2 By 2020, promote the implementation of sustainable management of all types offorests, haltdeforestation, restore degraded forests and substantially increase afforestation and reforestation globally 4646 Reducing emissions Going further than addressing our footprint by achieving NetNegative emissions across our sites and value chains 2025 Targets – 100% renewable electricity across allour own operations in Europe byend of 2025 and globally by 2027. – Achieve our Science Based Targets across scope 1, 2 and 3 and publish updated ambitions. – An intensity reduction of 15% in emissions of cattle in Europe by 2025, aligned to the ERBS Sustainability objectives. Enhancing animal wellbeing Driving standards and innovation in the care ofanimals that enhances their lives and reduces antibiotic use 2025 Targets – To achieve more than 90% of livestock from farms in assurance schemes and engage intheir development. – 100% humane slaughter of animals across all our products including aquaculture. – Ensure responsible antibiotic usethroughout our supply chain. Nature positive Collaborating to improve our stewardship of land and sea, promoting biodiversity, addressing deforestation, and protecting water and soils 2025 Targets – Enable farmers to reduce their emissions and improve biodiversity, to promote more regenerative farming, by providing planning andreporting tools. – 100% of seafood responsibly sourced to HFG standards (aligned to the Sustainable Seafood Coalition code and PAS 1550), actively engaging in fishery improvement projects and aquaculture standards development, and openly reporting our supply chains and their status inthe Ocean Disclosure Program. – Hilton Seafood UK directly sourced wild caught seafood 100% certified to the MSC standard or equivalent by 2025. – We have signed up to the UK Courtauld Commitment 2030 Water Ambition to improve the quality and availability of water atcatchment scale. – Eliminate deforestation from the conversion of natural forests to agriculture or livestock production inour supply chains. – Promoting novel proteins and oils in aquaculture feed to enable sustainable growth. – Maintain 100% of paper and board from certified sources. Page 48 Page 50 Page 52 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 47 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 With 30% of global emissions comingfrom the food system andtheimpacts of climate change becoming more acute, we are workingto make this complex topic actionable across our supply chain onour journey to net negative emissions. The first stage of this journey is buildingthe measurement infrastructure tounderstand our emissions in more detail and monitor improvements. We arebuilding an internal lifecycle assessment team and are working withFoods Connected to build tools thatestablish an ongoing reporting dialogue with our supply chain partners. By building a toolset which gives a transparent view of our full value chain, we can target our resources where they will have the greatest impact and provide consumers with the clear evidence they need to make informed choices. We are actively working with industry associations, suppliers and government to accelerate emission reductions. We recognise that the land sector has aunique opportunity in mitigating climate change. As custodians of the land, our supply chain has the capacity to sequester carbon, offsetting residual emissions from other sectors and providing long-term revenue streams. Highlights – The Science Based Target initiative approved our targets to reduce absolute scope 1 and 2 GHG emissions 25% by 2030 from a 2020 base year and reduce our absolute scope 3 GHG emissions from purchased agricultural products 12.3% within the same timeframe. – We signed up to the UN Race to Zero, announcing our commitment to achieve net zero emissions globally before 2050. – We have brought in a dedicated LCA specialist to improve our carbon accounting infrastructure and develop our decarbonisation strategy. This has begun with work to re-baseline our scope 3 emissions in anticipation of setting more ambitious targets in 2022. – We have solidified our commitment to lower carbon proteins by taking full ownership of vegetarian and vegan protein producer, Dalco Foods. – We are building tools to allow us to integrate consideration of carbon emissions into new product development. – We have reduced business travel emissions by 84% compared to 2019 by making teleconferencing the primary business technology. – We have partnered with WRAP in the development of their Scope 3 Guidance for the Food Sector and with the UNGC in the development of guidance for seafood. – We have worked through UK CSP to deliver common industry KPIs to enable farmers to implement reductions at farm level. Reduce emissions Going further than addressing our footprint by achieving netnegative emissions across our sites andvalue chains 2025 Strategic Goals Achieve net negative emissions acrossour value chain to limit the impacts of climate change Sustainability report PLANET 48 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 TARGETING OUR DECARBONISATION ACTIVITIES As part of our commitment to embedding lifecycle assessment within our business andthe growing importance of environmental topics more broadly, we have expanded ourteam to include an experienced LCA practitioner. They have conducted a detailed assessment of our full business carbon footprint across our agricultural and industrial supply chains, improving upon our previous indicative methodology based on financial spend data tousephysical entities. This updated methodology estimates our total global carbon footprint at 15.5 million tonnes CO 2 e with 80% of that coming from thebeef we pack. This work is allowing us to better target our decarbonisation activities where they have the greatest impact, accurately assess reductions andset more ambitious targets with confidence. For example, whilst it is small overall, we found that 90% of emissions from upstream and downstream transport occurin Australia, soimproving logistics in thatregion will be apriority for 2022. ENVIRONMENTAL IMPACT IN VIETNAM Environmental assessment of aquatic supply chains is often made challenging by a lack of transparent geographic or system specific data. This can make it difficult to target resources to the elements of the supply chain where theycan have thegreatest impact. This is the case with many agricultural systems, due to the challenges associated with monitoring biogenic systems which are not present in most industrial systems. Working with Tesco, IDH and Blonk, wehave begun a project to build abetter picture of the environmental impact of ourVietnamese aquaculture supply chain. This project is focused on climate change, eutrophication and water consumption down to the level of thefarm in Basa (Pangasius) and both intensive and extensive prawn systems, including the feed and hatcheries. The learnings will be presented at the Seafood Expo Global in Barcelona in April 2022, enhancing capability across the industry. 2020 14.4 14.6 14.8 15.0 15.2 15.4 15.6 15.8 Scope 3 Emissions (tCO 2 e) 2021 Proteins Waste Ingredients Business travel Packaging Employee commuting Capital goods Downstream transportation & distribution Fuel & energy related activities Use of sold products Upstream transportation &distribution End-of-life treatment of sold products * Purchased goods and services. 49 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 At Hilton Foods, animal welfare is important to us, our retail partners and their consumers. The science andunderstanding of animal welfare is continually improving, and we work to adopt new innovations to improve the lives of animals. Society is demanding more transparency and stakeholders such as NGOs, investors and consumers increasingly have a heightened interest in the provision of animal welfare. We actively promote and engage in standards development to deliver transparency and address welfare improvements inour supply chains. We have increased the transparency ofthe animal welfare standards within our supply chains. This year we revised our animal welfare policy and issued our animalwelfare statement which can be found on our website and will be updated annually. Our animal welfare statement details our approach and implementation ofanimal welfare; it includes our eight animal health and welfare objectives and our progress against them. We are also increasing our contribution toindustry working groups to improve thelives of animals in our supply chain andthe markets we operate in. Alongside our focus on the sustainability of our products, we will ensure there is no compromise in animal welfare. We will do this by driving standards and innovation in the care of animals that enhances theirlives and reduces antibiotic use. As part of our annual audit of suppliers all our supplying abattoirs are audited for animal welfare. We have developed a further standard that gives our customers the option of a more in depth animal welfare standard at audit. Highlights – Hilton Seafood received the award for Innovation in Animal Welfare in 2021 by Compassion in World Farming for progressing humane stunning inwarm water prawns by adopting the worlds first commerical use of anelectrical stunner. – We achieved tier 3 in the Business Benchmark in Farm Animal Welfare, demonstrating that we have an established approach to farm animal welfare. – We are involved in a number of industry working groups to influence the progression of animal welfare including the European Roundtable on Sustainable Beef and Global GAP standards committee. – We were on the development group for the animal welfare goals for the Global Roundtable on Sustainable Beef. – We supported the Hilton Foods auditors through providing internal and external training in animal welfare assessments, both to upskill their general knowledge and audit specific training on this topic. – Our Aquaculture & Fisheries Manager is Co-Chair of Global GAP Aquaculture Committee, which we have been part ofsince its inception. Enhancing animal wellbeing Driving standards and innovation in the care ofanimals that enhances theirlives and reduces antibiotic use Sustainability report PLANET 2025 Strategic Goals Further animal welfare throughout oursupply chains by raising the baseline and increasing the percentage of animals that are rearedto a higher welfare standard 50 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Hilton Foods seek to ensure that all animals and farmed fish are effectively stunned prior to slaughter. All animals in all markets are routinely stunned prior to slaughter across the group. Hilton Seafoods has made significant progress working with our suppliers to drive improved standards ofhumane slaughter. A good example of this was a project that has helped to step change the humane slaughter of warm water prawns using a technology we previously introduced for stunning seabass and seabream in Turkey. This was a two- year project which resulted in the first commercial trial and the adoption of an electric stunner in warm water prawns (P. Vannamei). The electric stunner for finfish had to be modified to fit prawn production, and the stunner had to be fitted on a moving platform to allow the transfer of the stunner to the many ponds ina farm. The evaluation concluded that the use of the stunner presented several benefits including: – Faster method to render prawns unconscious and insensible to pain thanthe widely used ice slurry – Reduced handling – Better consistency of stun delivery – Greater efficiency and reduction inlabour during the harvest process – Not detrimental to product quality This work has been recognised by Compassion in World Farming when HiltonSeafood was awarded its award forInnovation in Animal Welfare in 2021. Our Fisheries, Aquaculture and Supply Chain Manager presented this project atthe Animal Welfare Research Network to share the learnings with the scientific community who may be able to adapt the technology to meet the needs of other species. AWARD-WINNING ELECTRIC STUNNER INNOVATION The sentience of crustaceans is often overlooked and in the absence of any legislation or standards, this electric stunner for shrimp, pioneered by Hilton Seafood, has the potential to benefit billions ofanimals if adopted more widely across theindustry.” TRACEY JONES DIRECTOR OF FOOD BUSINESS, COMPASSION IN WORLD FARMING 51 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 We understand that we have to enhance the resilience of our planet to not just halt nature loss but reverse it. We need to take action now to reduce and remove the drivers that lead to the degradation of nature across our global supply chains. We will do this by: collaborating toimprove our stewardship of land and sea; promoting biodiversity; addressing deforestation; and protecting water and soils. We will enhance biodiversity on land by: – Eliminating deforestation in our supply chains. – Maintaining 100% of paper and board sourcing from certified sources. – Enabling farmers to reduce their emissions and improve biodiversity by providing planning and reporting tools. We will enhance aquatic biodiversity by: – Ensuring 100% of seafood is responsibly sourced to Hilton Foods standards which are aligned to the Sustainable Seafood Coalition code and PAS 1550. – Hilton Seafoods UK directly sourced wild caught seafood 100% certified to the MSC standard or equivalent by 2025. – We will continue to engage in fishery improvement and aquaculture standards. – We will continue to report our progress in the Ocean Disclosure Program. – Promoting novel proteins and oils in aquaculture feed to enable sustainable growth. – We have committed in the UK to theCourtauld 2030 Water Ambition toimprove water catchments. Highlights – We are signatories of the UK Soy Manifesto. – We are founder members of the Soy Transparency Coalition and sponsored the first trader benchmarking report in 2021. – Building on the success of the 2020 deforestation cut-off date set by the soyprotein concentrate traders in Brazilfor use in salmon. – Focusing on beef, wehave aligned aUKcattle industry soyplan in UK CattleSustainability Platform. – We have achieved that 98% of our UK direct supply of wild caught fish iscertified tothe MSC Standard. – We fund and actively participate inProject UK Fishery Improvement Projects (FIPs) to bring the remainder into certification. Nature positive Collaborating to improve our stewardship of land and sea; promoting biodiversity; addressing deforestation; and protecting water and soils Sustainability report PLANET 2025 Strategic Goals Enhance biodiversity on land Enhance aquatic biodiversity 52 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Through this we are committed to: – Collectively verifying that the supplying farms used by the traders are free from deforestation and conversion with a cut-off date of January 2020 – Ask direct suppliers to adopt and cascade the same commitment – Build this requirement into contractual requirements through the supply chains – Publicly disclose progress – Support harmonised monitoring, verification and reporting COLLABORATING FOR CHANGE We are signatories of the UK Soy Manifesto which is a collective industry commitment to ensure that all of the soy imported to the UK or used in feed for animals is from farms that are deforestation and conversion free by 2025. INFLUENCING AND RESPONDING TO LEGISLATION ON DEFORESTATION We supported the successful advocacy for UK and European regulations to require traders of forest risk commodities to apply deforestation due diligence. We are now actively working to supportDefra with the design of thenew UKregulation and to support BordBia to align the soy supply into Ireland with both the forthcoming UK and European requirements. Trees and forests are true allies in the fight against the climate and biodiversity crises. Treespurify our air, cool our cities, and takeup CO 2 . We need to be their allies too. Our deforestation regulation answers citizens’ calls to minimize theEuropean contribution to deforestation and topromote sustainable consumption.” FRANS TIMMERMANS EXECUTIVE VICE-PRESIDENT FOR THE EUROPEAN GREEN DEAL 53 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Each year we provide an estimated 150million people access to high quality nutrition and we are committed to continuing to help each of them make better choices; better for their health, better for people and better forthe environment. Last year we processed 492,588 tonnes ofprotein, using 29,036 tonnes of packaging, 957,084,000 litres of water and 196,086,756 kWh of energy. The2025 Sustainable Protein Plan will guaranteewe can continue to provideaccess to nutritious, high quality products while ensuring we are good stewards ofthe Earth’s resources. PRODUCT Sustainability report Alignment with the UN SDGs 7. 2 By 2030, increase substantially the share ofrenewable energy in theglobal energy mix 12.3 By 2030, halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses 12.5 By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse 54 Balanced healthy diets Efficient regenerative foodsystems producing more accessible and nutritious proteins 2025 Targets – Doubling in sales of plant based, vegetarian and flexitarian (vegetables added to products that were previously 100% meat or fish) products compared to a2020 baseline – Assess health and sustainability attributes of all of our proteins to provide consumers with the facts on their role in a diet that ishealthy for us and the planet Circular packaging Developing a circular economy for packaging and actively bringing waste materials back into use across our full value chain 2025 Targets – Reduce direct packaging waste by30% compared to a 2020 baseline – Drive demand for circular tray-to- trayrecycling and actively prioritise the use of circular material – All our retail packaging will be fully reusable, recyclable or compostable – Achieve a minimum of 50% average recycled content across allplastic packaging – Reduce the weight of our plastic packaging while ensuring itremains fit for purpose Resource efficiency Optimising food waste and use of packaging, energy and water across sites, supply chains, and inconsumers’ homes 2025 Targets – Improve energy efficiency in our facilities by at least 10% compared toa 2018 baseline – Improve water efficiency in our facilities by at least 10% compared toa 2018 baseline – Halve our factory generated foodwaste by 2030compared to2019 in line with the Champions 12.3 commitment todeliver UN SDG 12.3 Page 56 Page 58 Page 60 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 55 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 At Hilton we believe we have aresponsibility to make it easier for consumers to identify the most healthy and sustainable option to enable them to make better choices. We want to help consumers make ethical and sustainable choices forboth their health and the healthofthe planet. Through our principle approach of consumer-led and customer-focussed, insight has shown that health and sustainability aspirations are becoming of increasing importance to consumers. We are usinginnovation to provide consumers with healthy food choices in line with dietary recommendations. We promote healthy choices and provide ranges of affordable products with lower fat and salt content to help people to reduce these in their diets. We continued to build our science-based knowledge on the positive role of each of the proteins we produce in a balanced diet, to inform our product development. Highlights – We invited Professor Alice Stanton to meet with senior colleagues across our businesses to both upskill and enable us to have practical conversations on how we can ensure consumers have access to the correct information and enable them to make better choices. Professor Stanton also gave us the tools to be able to better interpret the science enabling us to have more educated conversations with our retail partners. – Our blended meat and vegetable range in the UKhas been redeveloped to achieve a new improved heath score. This makes it easier for consumers to increase the amount of vegetables that they eat allowing them tomake healthier meal choices. This has been achieved by using cuts of beef with more lean muscle and less fat. – Reducing sugar and salt has been afocus area for our developers over the last 12 months. Proactively improving the nutritional value of our products. Practical examples of this have been; reducing the salt content ofthe Tesco Piri Piri Chicken Wings and within our Heat and Enjoy Garlic Prawns byintroducing anew batter system. Balanced healthy diets Efficient regenerative food systems producing more accessible and nutritious proteins 2025 Strategic Goals Enable consumers to make choices that are healthier for themselves andthe planet Increase the health scores of our current products and prioritise healthin new product development Sustainability report PRODUCT 56 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 ENABLING CONSUMERS TO MAKE BETTER CHOICES Working with Tesco we undertook a review of their meat and vegetable inclusion range, which was first launched in 2019. Our consumer insight research told us that consumers found the meat and vegetable inclusion range helped them to make healthier choices, but that it was sometimes difficult to find in store and therefore could be more clearly communicated. Taking learnings from the success of Plant Based in Tesco, the range was relaunched as a destination in store with both brands and own-label products to help build trust and appeal with customers. Retaining familiar product formats has enabled consumers to make simple swaps within meals they already cook regularly at home. The range has had strong appeal with families, and we have increasingly seen customers making repeat purchases oftheproducts. DEVELOPING AND UTILISING BETTER TOOLS In partnership with Foods Connected we have built a tool for NPD workflow. This is a critical manager workflow and this supports us in collaboration with our colleagues across all the functions. Getting a product from a concept tolaunch involves teams across everyfunction in our business. Workflow gives everybody clear visibility of what they have to do and when they have to do it. Which gives clarity to our colleagues. We’re working to enable consumers to increase theamount of vegetables intheir diet 57 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Packaging is essential to ensuring our consumer receives safe, high quality products and preventing food waste throughout the valuechain. We are committed to building acircular economy, working with our partners to reduce the impact packaging has on the environment. We are working to support the development oflowerimpact polymer grades, introducing new fibre packaging options, and accelerating the development of global recycling infrastructure through our use ofrecycled content. As part of our journey to circularity, we are ensuring we embed the waste hierarchy in every product decision we make. Reducing the amount of packaging we use is our first priority, before exploring reusable solutions and then striving for the highest quality recycling route. This is implemented through a set of sustainable design principles, using systems- thinking to ensure we are providing the best packaging solution whilst considering any second life the product might have. These strategies ensure weare able to reduce the environmental impact of our packaging throughout the fullproduct lifecycle. Highlights – 76% of our meat trays are made from 100% recycled PET. – We have reduced the weight of our mince packaging by 74% and the plastic content by 73% at Hilton Foods Holland by implementing flow wrap technology. – We are maintaining leadership in natural fibre packaging by ensuring 100% of the paper and board we use comes from certified forests. – We are a signatory to the UK Plastic Pactand the European Plastics Pact anda member of the Australian Packaging Covenant Organisation. – We have continued our work to ensureall our packaging is reusable, recyclable or compostable. – We have continued to transition ourmodified atmosphere packaging (MAP) from mixed PE/PET to mono- material PET. – Our packaging contains an average of57% recycled plastic. – We continue to use our Carbon Trust packaging footprint and circularity assessment tools to make the right choices. – We have removed 10 million pads fromsalmon fillets, and are now testingpadless meat trays. – We have reduced the thickness ofourvacuum sealed trays by 25%, delivering an estimated annual reductionof 400tonnes of plastic. Circular packaging Developing a circular economy for packaging and actively bringing waste materials back into use acrossour full value chain Waste hierarchy Sustainability report PRODUCT 2025 Strategic Goals Eliminate as much of the plastic waste within our own operations aspossible Achieve our commitments in the Plastics Pacts globally to drive the circular recycling of our packaging and reduce our use of virgin plasticmaterials 58 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 70% reduction in the weight of our mince packaging 2,231 tonnes of plastic diverted from landfill and incineration each year JAZZ PROJECT REDUCES WASTE TO LANDFILL We have rolled out the Jazz project across our UK meat andfish lines. This novel technology convertsdifficult-to-recycle colouredplastics intofood gradepackaging, which isitselfrecyclable, creating acirculareconomy. Using this technology wewere able to divert 2,231tonnes of plastic from landfill and incineration each year, equivalent to over 100 million individual items. FLOW WRAP TECHNOLOGY SAVES 200+ TONNES OF PLASTIC EACH YEAR We have reduced the weight of ourmince packaging by 70% at Hilton Foods Holland bytransitioning from traditional traysto flow wrap technology. This innovation will save over 200tonnes of plastic each year withnoreduction in the product’s qualityorshelf life. This has also allowed us to print product information directly onto the pack, avoiding the production of200,000 paper labels every week. 59 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Hilton recognises the Earth’s resources are finite; and is committed tominimising the resources that we do use, and working toeliminate waste throughout our value chain. Optimising our own operations will alwaysremain our first priority, but we are also working with our value chain partners to ensure effective monitoring and reduction of waste through the wholefood system. – We are working with our retail partners toprovide product choices to consumers that help them to reduce food waste, and the useof energy and water in their homes. As part of this we are ensuring we address our key water management risks,including: drought or extreme flood events in areas which supply both core proteins and non-protein ingredients. This is a fairly material risk which is primarily mitigated through our distributed supply strategy, which reduces our dependence on any specific geography. – Disruption to water supplies in our facilities, most likely due to a pollution event or damaged infrastructure, is mitigated by most sites having onsite stores of water capable of lasting at leastone day. – Water pollution events from our sites are mitigated by grease traps on effluent pipes. Highlights – In 2021 we generated 2,466,759kWh of solar electricity at our Heathwood andHuntingdon sites. – We have continued our programme totransition our refrigeration systems away from fluorinated gases. – We have implemented intelligent energymonitoring across all our global sites, allowing us to effectively manage energy use across our portfolio. – At Hilton Foods Poland we have saved25,727kWh by optimising ouruseofair compressors. – At Hilton Foods Ireland we have saved in excess of 11,000 litres per day by shutting down one of the site’s cooling towers during the cold winter months. This also allows us to implement more thorough, less disruptive maintenance, improving efficiency all year and extending the life of our assets. – We have installed charging stations across our estate to help our employees transition to electric vehicles. – We have saved 65,151kWh at our Polish site and 14,551 at our Irish site byupgrading all our lights to LEDs. – We have saved 89,846kWh byoptimising refrigeration at our Huntingdon plant. – We have saved 103,617kWh by optimising our use of vacuum systems at Hilton Foods Ireland and a further 74,760kWh at our SoHi joint venture in Portugal. – We have saved 110,000kWh per year by replacing our liquid nitrogen freezing tunnels at Hilton Foods Poland with acompressor cooling system. – We have initiated a project to implement ISO 50001 across our global sites. Resource efficiency Optimising food waste anduse of packaging, energyandwater across sites, supply chains and inconsumers’ homes Sustainability report PRODUCT 2025 Strategic Goals Improve resource efficiency acrossour global operations Reduce waste across our full value chain 60 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 400,000kWh annual savings across the business due to resource efficiencies We have implemented processes toensure we only heat the water weneed and reduced the amount weare using by auditing our cleaning processes, ensuring at all times we were not compromising hygiene. Through this process we then changed the nozzles on the cleaning lances to halve the flow rate, changed the cleaning cycle to use cold water where it did not detrimentally affect hygiene and turned off the airhandling units during cleaning toprevent overrun. Overall the site has cut its annual consumption by 5.5 million litres of water and halved its gas use since 2019. WATER HEATING AUDIT CUTS GAS USE BY 50% At Hilton Foods Ireland we havehalved our gas use in the lasttwoyears by optimising ouruseofhot water. EFFICIENCY FROM THE BOARDROOM TO THE SHOP FLOOR AT SOHI From the boardroom to the shop floor, at our Portuguese Joint venture SoHi, we have implemented the principle that ‘efficiency is everyone’s job’. Over the last year we have introduced a project to reduce our energy use during down time by turning off vacuum systems and other production equipment when they are not in use. We have optimised our refrigeration systems by; changing temperature set points in different rooms, automating door operation, isolating temperatures between rooms, and switching compressors across the site to best match the load and reduce consumption. This is an ongoing process that will continue in the coming years, we have already identified opportunities to optimise the compressed air system by eliminating losses and reducing the pressure. By embedding a resource efficiency mindset across the site, we have already been able to implement over 400,000kWh of annual savings across the business. 1,666.132019 1,396.16 2020 834.5 2021 61 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Food safety and quality Hilton Foods is committed to working in an ethical, open and honest manner to produce products of the highest food safety and quality. This is underpinned by our Group Quality Policy which outlines our commitment across theGroup to: – Food safety, product quality, legality and integrity; – The achievement of customer satisfaction by adherence to product specifications and service requirements; – Adequate resources in the pursuit of continuous improvement for our products, processes and our people; and – A programme to develop a food safety culture. Our commitment to food safety and quality combined with our first-class manufacturing facilities and our customer focus makes us the first choice for our retail partners. Managerial responsibility and accountability for our product safety andquality policy sits with the Chief Quality & Sustainability Officer. Factory standards andqualitysystems We are proud of our modern, specialised processing and packing facilities which use state-of-the-art production equipment, including a high degree of automation and the use of robotic equipment which minimises handling. We are also automating our quality checks and by doing so removing paper and reducing the risk of errors. This, combined with our high standards of hygiene and temperature controls, ensure we meet our customers’ expectations for quality throughout each product’s shelf life. Our well-trained production operatives are responsible for the quality of our retail partners’ products and they are supported by highly qualified and experienced quality assurance and technical teams at each site. We have developed our own HFG Factory Standards to ensure both our new and existing facilities are set up and operate to the highest standards. All our sites are audited against these standards by our group audit team. In addition each of our sites undergo independent third-party accreditation to a Global Food Safety Initiative (GFSI) recognised certification scheme. Our retail customers make frequent visits to our sites, which in some cases includes unannounced audits and visits aspart of their own surveillance. 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. All of our sites received the highest levels of third-party and customer audit results in 2021. We maintain strong links with academia and technological advances, working alongside Campden BRI, Danish Meat Research Institute and Teagasc Ireland. We are also active members of a number of trade associations such as British Meat Processors Association, Food and Drink Federation and Seafish. Product standards and responsibility The quality of the raw materials used in our products contributes significantly to the achievement of consistent finished product quality. We work closely with our suppliers to set clear specifications for the products they supply. Monitoring incoming raw material quality combined with close control of the processes we follow in our manufacturing operations ensures we are able to consistently meet the best in class specifications our retail partners set for our products. Our product innovation capability is industry leading with local and regional centres of excellence for each of the food categories we produce. We have specialist teams at each of the sites and we share expertise in product and process development across the Group. Our creative team includes many qualified chefs who utilise the market insight teams and consumer focus groups to ensure our new product launches have ahigh degree of success. Hilton’s approach is to only use ingredients and additives where required to increase food safety and ensure product stability and quality. We comply with our customers’ lists of prohibited additives, and actively reformulate where we can to remove artificial ingredients and unnecessary additives. We are also supporting the reformulation of products to reduce the total salt and fat in food, and increase fibre in line with customer health targets and following FSA/EFSA guidance. Where possible weeliminate known allergens and clearly labelthem when present. All of our sites have in-house testing facilities for raw material and finished products including organoleptic and physical assessment. We operate laboratory facilities in a number of our sites which carry out microbiological and chemical testing. These are operated by fully trained personnel and have appropriate local accreditation. We have a comprehensive product recall policy and mechanism, that isverified by simulated tests, and is integrated into our wider business crisismanagement systems. All of our sites received thehighest levels of third party and customer audit results in 2021.” Our product innovation capability is industry leading with local and regional centres of excellence for each ofthe food categories weproduce.” Sustainability report Food safety and quality 62 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 We partner with the best suppliers that share our commitment to quality, food safety, animal welfare and sustainability. We are committed to ensuring the integrity and traceability of the raw materials we use in our products, which includes the meat, fish, ingredients and packaging. We have developed our own supplier standards foreach raw material group whichclearly state the standards we expect our suppliersto operate to. Audit frequency is determined by risk assessment which looks at a combination of raw material and supply chain threat and vulnerability, horizon scanning and supplier history. We have full traceability back to the farms and fishing vessels that supply the slaughter operations and primary processing factories in our supply chains. Audits are carried out by our own team of qualified auditors or second party auditors against the Hilton Food Group Supplier standards. In addition, the majority of our suppliers are certified against GFSI benchmarked standards by independent audit bodies. For new suppliers our policy isto take from only GFSI certified suppliers. The current GFSI certification status of oursupply chains is93%. These audit processes have been inplacefor more thanthree fiscal years. All UK Seafood is environmentally risk assessedin accordance with the Sustainable Seafood Coalition Codes which we helped develop as the first founding member. Currently over 98% of our wild capture volume is from certified fisheries and over 99% of our farmed fish and shellfish are from certified farms (ASC, GlobalGAP, or BAP). All other fisheries are risk assessed against the most relevant data sources such as ICES stock assessments, Seafish RASS, Sustainable Fisheries Partnership Fish Sources, and Marine Conservation Society. We do not source from any high risk fisheries where there is no data available or there isproven poor fishery status, prevalence of illegal fishing, lack of management, or very highenvironmental impact. We also buy directly from many fishing vessels that freeze their catch at sea givingus direct relationships with the majorfishing quota owners. We exercise due diligence in establishing the legal origin of seafood products and marine ingredients used in the feed for our farmed fish, and base our systems on the BSI PAS 1550 standard (for eliminating illegal unreported or unregulated fisheries) which we helped to develop. This includes audits of the feed producers and for the highest risk supply chains the fishmeal plants that supply them. Hilton Seafood has signed to support theEnvironmental Justice Foundation Charter for Transparency. We hold Group Marine Stewardship Councilcertification for all of our manufacturing facilities that use fish, with annual compliance audits by the certification body. Hilton Seafood is founding, funding and active participants in multiple Fishery Improvement Projects to bring the remainder of our supply to certification or to develop new sources of supply. Hilton Seafood discloses all of our source species, fisheries and fish farming areas on the Ocean Disclosure Program website. All farms, livestock facilities and slaughter facilities for farm animals, and >99% of farmed fish supplying Hilton Food Group UK, Ireland and Sweden, and the majority supplying to the other European and Australian markets are certified to independent farm assurance schemes. Where required assurance may be to higher welfare schemes or organic standards. We have developed livestock farming and abattoir welfare standards in partnership with our retail customers. 100% of our livestock slaughter facilities are audited by a welfare qualified auditor, either to the Hilton Group Supplier Standard by our own team of welfare trained auditors, independently using a dedicated second party, or by auditors employed by our retail partners. Hilton Seafood UK directly employs farmed fish welfare officers to audit all farmed fish slaughter facilities globally and the fish farmsand hatcheries that supply them. Our supplier approval process gives us full transparency on the safety, quality, traceability and provenance of the raw materials we use. This ensures our product labels correctly describe the provenance ofthe product, including its species and country of origin so that consumers can trust in the products we produce. Our Seafood Standard includes additional requirements on fishery management, andenvironmental impact mitigation infisheries and aquaculture. Hilton actively review and engage in the sustainable development of our agriculture supply chains. We work alongside our suppliers to address the footprint of our supply chains including factories, abattoirs and farms, and we are building decarbonisation and water stewardship plans for each sector with our key suppliers. This includes addressing the GHG footprint of animal feed and other environmental risk areas. We engage in the leadership of collaborative action to address the footprint of soy and cattle farming with the Soy Transparency Coalition, European Round Table in Beef Sustainability and UK Cattle Sustainability Platform. Our engagement is described in more detail in the Planet pillar. Hilton additionally reviews welfare and environmental risks by using external data sources (for example lice counts, benthic scores and mortality in farmed salmon). For our aquaculture supply we are working with low stocking density farms where the environmental outputs are lower than standard with additional welfare benefits. Hilton continually develops and refines testing methods, data collection and reporting. Samples collected from raw material deliveries are assessed for compliance to microbiological standards and agreed quality specifications. Results are used to assess the performance of suppliers and achieve continuous improvement. We conduct a wide range of authenticity testing to evaluate new supply chains and to monitor existing ones. The tests include speciation and screening for adulteration using chemical and DNA methodologies ataccredited specialist laboratories. We are members of the FoodIndustry Intelligence Network where we compile industry-wide compliance statistics and share intelligence on suspectedfood fraud. Supply chain integrity, environmental impactassessment and traceability We have developed our own supplier standards foreach raw material group whichclearly state the standards we expect our suppliersto operate to.” 63 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Introduction In 2020, we made our first TCFD disclosure that explained how our climate risk and opportunity assessments were being conducted, and how they fitted into our broader ESG strategy. This year we have made climate-related financial disclosures consistent with the TCFD’s recommendations and recommended disclosures with the following exception: – We have included details of our scenario analysis work in this report. However, Hilton is currently enhancing the number of scenarios it runs to ensure we further understand the financial impact of climate-related risk on the business. We plan to build more details into future disclosures. We recognise that global warming is driving climate change and that governments, industry and wider society need to act together to mitigate the effects. We have identified potential risks and opportunities for our global food business and value chains and have explained the actions we are taking and plan to take in the future to mitigate the risks and maximise the opportunities. Governance The governance structure is detailed inthediagram on page 35. The Board’s oversight of climate- related risks and opportunities The Board, led by our Chair, Robert Watson, has ultimate responsibility for sustainability, provides rigorous challenge to management on progress against goals and targets, and ensures the Group maintains an effective risk management and internal control system, including over climate-related risks and opportunities. The Board members also have a range of experience that is relevant to risk assessment and mitigation strategy including leading financial, supply chain, sustainability, and general governance roles within global retailers andtheir suppliers. The Board convenes eight times a year and where appropriate climate-related issues form part of the Board agenda. The Board has oversight of the progress against our Sustainability strategy. The Board has full responsibility to ensure the effectiveness of the risk management systems in place, and undertakes an annual review of the principal risks that include climate change. The Board delegates certain sustainability oversight matters to its principal committees who work in synergy with overlapping membership utilising and ensuring a broad reach of skills and expertise across the business. Corporate Sustainability Committee Climate-related issues are discussed within the Hilton Sustainability Committee, which includes the CEO as a member, andis chaired by a Non-Executive Director, Rebecca Shelley, who has relevant experience in ESG derived from four years leading Tesco’s CSR strategy and delivery programme internationally, as well as establishing and running sustainability programmes for large financial services companies including Prudential. This Committee meets at least three times a year. The role of the Sustainability Committee is to review the strategy to address climate risks and opportunities, and to monitor progress in reducing our climate footprint and the footprint of our supply chains. The Committee Chair subsequently informs the Board of our strategy and progress. Audit and Risk Committees Climate-related risks and the mitigation strategies are also reviewed within theinternal audit and risk management function and the Risk Management Committee. The purpose is to ensure that the risks are identified and appropriately monitored and reported to the Audit Committee which recommends the risk categorisation and agrees mitigation measures for final approval by the Board. This process provides assurance to the Board that climate-related risks are fully integrated into the risk management framework. Progress against the sustainability strategy is considered within the Audit Committee’s review ofthe effectiveness of both the internal controls and risk management systems. This is the responsibility of the Sustainability team and enables the Board to receive assurance on the management and mitigations of our climate opportunities and risks. The Risk Management Committee and theAudit Committee both meet four timesa year. As climate change is one of our principal risks, it is reviewed and monitored at all Audit Committee meetings. A special focus workshop meeting on climate risks was held where the two committees worked together toholistically consider risk. Managements role in assessing andmanaging climate-related risksandopportunities Our Chief Executive, Philip Heffer has overall responsibility for climate change, and environmental matters. As part of our commitment to sustainability, he leads our positive response to addressing climate risk and opportunities. The CSR team, led by the Chief Quality and Sustainability Officer and the CSR Director, is responsible for climate risks mitigation across our supply chains. The operations teams, led by the Chief Manufacturing and Procurement Officer, are responsible for climate risks mitigation at site levels. These teams oversee carbon reduction projects in partnership with customers and suppliers, and members of the team hold governance roles within industry collaborative forums. Sustainability report Climate risk and impact report Task Force on Climate-related Financial Disclosures 64 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 We recognize that global warming is driving climate change and that governments, industry andwider society need toact together to mitigate theeffects.” Climate-related issues are monitored by the group CSR team and mitigation strategies are developed for approval by the Executive Leadership Team and reported to the Sustainability Committee by the CSR Director. The Group Head of Internal Audit and Risk executes a key role, supported by the CSR Director, in ensuring that management are identifying, mitigating, monitoring, and reporting on all key risks including the principal risk of climate change. Through this process they coordinate the agenda for the Risk Management Committee that allows management to present their activities to mitigate the risks. They are then able to assess the effectiveness of these activities independently to report to the Audit Committee and subsequently to the Board. This provides key assurance to the Board. The Executive Leadership Team oversees the strategy to meet our climate targets and align our product portfolio to shifts in demand. Processes by which management is informed about climate-related issues Management are advised by our internal experts in energy procurement, sustainable agriculture, sustainable fisheries & aquaculture, sustainable packaging, consumer insight, and supply chain insight. Management take external advice from specialist consultants including South Pole, Schneider Electric and IMS who advise on climate risk and mitigation options. The management team are directly engaged in national, regional, andglobal associations and forums that inform us about the latest science on both the risks and potential mitigations. Hilton has also directly employed aspecialist inlife cycle analysis and modelling ofdecarbonisation plans toadvance our mitigation activities. Hilton has directly engaged with a number of organisations to understand the climate risks and mitigation options during 2021. A selection are listed below. – WWF – Engaged with the UK team to contribute to the development of their Protein Disclosure guidance and Sustainable Food Basket measure – UN Global Compact (UNGC) – Sponsored the UNGC Ocean Stewardship Coalition and contributed extensively to their guidance on achieving Science Based Targets in Seafood – Direct engagement with national bodies that coordinate programmes to reduce the footprint of the livestock sectors including Meat and Livestock Australia, Beef and Lamb New Zealand, Bord Bia, and The Agricultural and Horticultural Development Board in the UK – Soy Transparency Coalition – Founder sponsor to ensure open reporting of progress by traders in South America Risk management Our processes for identifying andassessing climate risks Climate risks (physical and transition), their severity, impacts and mitigation are considered within the Hilton Risk Management Committee and reported to the Hilton Audit Committee as described in the Governance section above. These assessments are a collaborative effort across business functions and are an opportunity to identify emerging risk, review existing risks and provide appropriate mitigation measures to reduce or manage the risk. The Committee considers the risk in terms of likelihood of occurrence, timescale and scale of potential impacts, alongside other types ofrisk. These determine the categorisation of principal and emerging risks that are submitted for final approval by the Board. This assessment is where Hilton’s own response to climate change is noted, with the appropriate action to deliver improvements detailed. Existing and proposed regulatory requirements in each of our operating countries are considered, to determine compliance requirements. These include emissions and deforestation controls and product environmental labelling. Hilton actively engages in the consultation over proposed regulations and support the development of effective regulation that ensures common high standards of environmental management. We are currently supporting the development of the UK regulation to prevent the sale of products linked to illegal deforestation. For more details of our risk management process and principal risks see page 24. Our processes for managing climate risks and opportunities Our process to determine material issues was to consult with a cross-section of both internal and external stakeholders (including NGOs, consultancies, centres of excellence, customers, retailers and partners in our agricultural, ingredient and packaging supply chains) with recognised expertise across our key risk areas. This ensures that materiality is assessed against legislation, policy and the business’s influence on other entities in our value chain. The resulting matrix isshown on page 34 in this report. The climate risks prioritised in our materiality assessment formed the basis of our risk and opportunity assessment. This is detailed in the strategy section below that considered the potential impact on our sites and supply chains from climate change and Hilton’s strategy in preparing its transition to a low carbon economy. We have considered how each of these risks can be mitigated (for supply chain and consumer risks) or controlled (for risks related to our own operations). All of the climate-related risks have documented action plans to address them and likewise the opportunities have action plans to enable Hilton to maximise the benefits. 65 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Climate-related risks Risk Description Type Area of impact Time horizon Likelihood Potential positive financial impact Response Relevant Targets Reduced revenue fromhigher emissionfood ifconsumers changetheir purchasing preferences to loweremission food Transition (Market) Downstream consumer shifts in demand Short– Medium Likely Reduced revenues of higheremission foods We are investing in acquisitionsand diversificationto gain marketshare in lower emissionproteins. (Shortterm) Our work to decarbonise our factories and both agricultural and industrial supply chains will give consumers a choice of lower emission proteins inall product sectors. (Medium term) We have approved Science Based Targets for scope 1, 2, and 3. Improve energy emissions and water efficiency in ourfacilities by at least 10% before the end of2025, compared toa2018 baseline Storm and flood disruption inoursupply chains leading tochallenges sourcing raw materials Physical (Severe Weather) Upstream supply chain Medium– Long Likely locally in at least onesupply chain Disruptions in local supply affecting regionalavailability and/or pricing Maintaining spread and flexibility in regional and global supply chains reduces the impacts oflocaldisruptions. (Short to Long term) Reduced revenues from products with higher emissions, ifcarbon pricing is introduced to incentivise consumers to purchase lower carbon foods Transition (Emerging Regulation) Downstream consumer shifts in demand Medium– Long Likely Price increases ofhigheremission products affecting the balance of consumer demand. Consumers movingawayfrom proteinswhere the footprints have not been mitigated to lower emission proteins and/ orsupply chains We are working towards our target of net zero by reducing emissions from our factories and, in partnership with suppliers, to incentivise innovation in lower footprint farming and fishing. (Mediumto Long term) We have committed to the UN Race to Zerothrough signing the Business Ambition for 1.5°C. An intensity reduction of 15% in emissions of cattle in Europe by 2025, aligned to the ERBS Sustainability objectives. 100% renewable electricity across all ourown operations in Europe by end of 2025 and globally by 2027. Sustainability report Climate risk and impact report Task Force on Climate-related Financial Disclosures Strategy The impact of climate-related risks and opportunities on the business’s strategy and financial planning. Last year we introduced climate change as a new principal risk – “The Group’s business is affected by climate change risks comprising both physical and transition risks. Physical risks include long- term rises in temperature and sea levels as well as changes to the frequency and severity of extreme weather events, which pose a threat to the sourcing of our raw materials. Transition risks include policy changes, reputational impacts, and shifts in market preferences and technology.” In 2021, we conducted an exercise tofurther identify the specific climate changerisks and opportunities that may potentially arise in each time horizon in ouroperations and value chains, asshownin the tables below: This builds on the initial assessment that we conducted during 2020, and is a more detailed analysis with input from expert consultants. This analysis considers our exposure to physical impacts from climate change and the potential impacts and opportunities from the transition to a lowcarbon economy. An external review was carried out of the risks of flooding and wildfires for our sites. The locations of our sites were geocoded, and overlaid with data provided by Swiss Re’s CatNet ® geo-spatial tool, including the major types of flooding (river, pluvial, and coastal storm surge) and wildfire risks. There is only one site that is in an area at risk, from a coastal storm surge, inthe Netherlands. All other sites are in areas oflow or very low risk of flooding. None of our sites are in high risk areas for wildfires. We will continue to monitor the potential for physical risks from climate change and its impact on severe weather events. For the purposes of this disclosure wehave categorised risk as: – Short term (likely to manifest in the next year) addressed by immediate inyear actions – Medium term (likely to manifest in the next five years) addressed by current business strategy – Long term (likely to manifest in the next five to 50 years) addressed by incremental actions that contribute toachieving our net zero strategy 66 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Climate-related opportunities Opportunity Type Area of impact Time horizon Likelihood Potential positive financial impact Response Relevant Targets Reduced energy costs through decarbonisation ofour operations and supply chains Decarbonisation and Energy Sources Own Operations Short– Medium Very likely Reduced cost from investment in self- generation (solar/ wind) and long-term contracts for renewable energy sources. Potential for revenues from participation in carbon markets within our supply chains. Investment in self-generation of electricity. Securing long- term lowest cost contracts for renewable energy. Seeking opportunities for carbon sequestration in the supply chains to inset residual emissions and potentially to create revenue. Improve energy and water efficiency in our facilities by at least 10% before the end of 2025, compared to a 2018 baseline. 100% renewable electricity across all our own operations in Europe by end of 2025 and globally by 2027. Growth in revenue from our ability to provide market-leading supply chain management systems and environmental data collection across multi-tier supply chains Products &Services Upstream Medium Very likely Revenue from supply chain management services and data provision. Revenue from increased sales of existing products with lower footprints. Lower costs from more efficient and resilient supply chains. Reduced exposure to potential carbon taxes and the potential for revenue from generated carbon credits. Utilising our IT solutions for supply chain management to lead in environmental data collection and traceability across multi-tier supply chains. Work with customers and suppliers to incentivise uptake. Utilising supply chain data to facilitate development of lower footprint versions of existing products and provide consumer messaging on the lower footprints and higher environmental standards. Enable farmers to reduce their emissions and improve biodiversity, to promote more regenerative farming, byproviding planning and reporting tools. Growth in revenue from meeting consumer demand for foods with demonstrably lower footprints Markets Downstream Medium Very likely Increased revenues from sales of profitable low climate impact products aligned to shifts in consumer demand. We are leading innovation in vegetarian, vegan, blended meat and vegetable products for the flexitarian consumer, and in seafood. These are profitable sectors where we have established expertise. Acquisitions and extension / adaption of existing sites to broaden our portfolio and range in low impact proteins. Assess health and sustainability attributes of all of our proteins to provide consumers with the facts on their role in a diet that is healthy for us and the planet. Doubling in sales of vegan, vegetarian and flexitarian (vegetables added to products that were previously 100% meat or fish) products compared to a 2020 baseline. Reduced costs from improving theenergy and water efficiency of our sites, and reducing waste of food and packaging Material Efficiency Own Operations Medium Very likely Reduced energy and water costs by improved efficiency. Improved yields, lower packaging costs, and lower input costs. Investment in heat and water recovery, investment in systems to measure and manage energy, water, and waste reduction. Improving packaging recyclability and reducing its weight. Accessing grants and subsidies to facilitate investment across our sitesas they become increasingly available. Improve energy and water efficiency in our facilities by at least 10% before the end of 2025, compared to a 2018 baseline. Achieve a minimum of 50% average recycled content across all plastic packaging by 2025. All our retail packaging will be fully reusable, recyclable or compostable by 2025. 67 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Our approach to climate scenarioanalysis Introduction to scenario analysis Hilton’s primary revenue base is currently derived from meat proteins, and according to the OECD-FAO Agricultural Outlook 2021-2030, global meat consumption is expected to increase 14% by 2030 with population growth being the primary driver. While growth in meat consumption differs within different regions, Hilton operates on a global scale and is continually looking to enter into new markets. With agile operations that enable rapid change in response to market shifts, we are well placed to respond to changes in demand for protein. Through our forward looking risk assessment approach we are well aware of changes to the market which may drive shifts in demand for proteins. This could include a trend toward lower carbon or healthier alternatives, and may incorporate market disruptors such as lab-based proteins. With our lean operating chains and an ability to rapidly alter operations to suit a dynamic market, we are well placed to respond to market demands as and when they arise. We have strong strategies to reduce our scope 1 and 2 emissions so we are confident of meeting our targets for the emissions related to our operations. Hilton does not directly own or operate the farms or abattoirs from which we source our protein products where the more significant impact comes from, ie our scope 3 emissions. We have therefore focused our scenario analysis on the impact that policy changes or consumer purchasing behaviours are likely to have on the Group’s businesses and strategy. Many of our supply chain partners are within the agricultural sector, which both contributes to climate change and is affected by climate change. Many of the jurisdictions in which we operate are aiming to reduce their greenhouse gas emissions from agriculture and adapt theirfood-production systems to cope withclimate change. To achieve the emissions reductions required, there are calls by the UK Climate Change Committee and others to change consumers eating habits to lessen meat consumption and increase other protein sources in their diet. Policy changes may therefore be implemented to drive down emissions in the agricultural sector and to shift consumer behaviours toward lower carbon options. Changes in carbon policy could be realised as a carbon tax or levy on food producers or retailers, inclusion ofagricultural activities withinexisting cap and tradeschemes, or through adjustments toexisting agricultural subsidies. Policy mechanisms will, however, needto balance emissions reductions with the needs of a growing population and ensure continued levels of food security which contribute to abalancedand healthy diet. As such, there may be an increase in incentives for carbon offsetting schemes on agricultural land, or increased R&D incentives forlow carbon agricultural techniques. The situation is currently unclear and islikely to be implemented in different ways across different political landscapes. While future policy is uncertain, as part of our initial climate-related scenario analysis, Hilton sought to deepen understanding of how changes to carbon tax could impact upon our supply chain and impact upon pricing strategies adopted for different protein products. We are aware that consumer purchasing is heavily dependent on fluctuations in the price of protein products. As such, we sought to understand how a change in carbon cost throughout the supply chain could result in a shift to consumer behaviour. Our internal scenario analysis is continually developing and improving and future disclosures will build on the work carried out so far for 2021. The scenario analysis we have completed looks at the likely impact on relative product cost as a result of carbon pricing and the likely changes in demand that will induce. Assumptions and uncertainties The outputs of our scenario analysis are highly sensitive to the assumptions used for modelling and are outlined as the potential impact we could face as a business before taking any mitigating actions into account. The modelling is not intended to be a forecast of the impacts on our business, but an illustration of how changes to policy could impact upon our key product portfolios. Scenario modelling has many limitations and the studied scenarios are not forecasts, but are useful to evaluate a range of hypothetical outcomes within a plausible range under specific assumptions. Longer timeframes entail greater uncertainty and thus it is more challenging to model these outcomes. All results should be considered in light ofthese limitations. Key inputs for our scenario analysis Regional protein consumption To develop a baseline understanding of consumption data for different protein sources in different geographical regions, we have considered the OECD-FAO Agricultural Outlook 2021-2030 which provides a baseline projection for protein consumption based on expectations of regional demand. We have considered ourthree key operating regions: the UK andIreland, Europe and Australia. Our Dalco operations and SoHi joint venture operations are included in the modelling but Fairfax Meadow is not included in this year’s modelling as it was acquired too late in the process. Weconsider impacts to a range of proteinproducts, primarily pork, beef, lamb, fish and vegetarian proteins. Additional factors such as significant and unexpected inflation, efficiencies infarming practices, changes in the cost of agricultural production and changes in policy may further impact upon regional supply and demand and this would impactupon our analysis. Sustainability report Climate risk and impact report Task Force on Climate-related Financial Disclosures 68 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Carbon emissions At Hilton, we have an in-depth understanding of the emissions associated with the products we produce. The bulk of our emissions arise from farming activities, feed provided to livestock and enteric fermentation, with smaller amounts attributable to processing, transport, packaging and retail. We are in the process of aligning our carbon reduction trajectory with the Science Based Targets initiative’s Forest, Land and Agriculture standard, which sets out ambitious reductions trajectories to prevent the worst impacts of global warming and have applied the relevant emissions reductions to our portfolio emissions. It should be noted that any deviations from this emissions reduction pathway by either Hilton or its suppliers would result in a higher level of emissions and a more significant impact toour cost base, in the event of a change in carbon policy. Carbon policy It is currently unclear where and how changes to carbon policy could impact upon the supply chain. We have therefore assessed the impact of changes to acarbon price across the supply chain, to assess how this could impact upon the retail value of our produce, and consequently on consumer behaviour. The carbon prices considered are derived from IEA’s Stated Policies Scenario (STEPS) and the IEA’s Sustainable Development Scenario and are outlined below. Our modelling is highly sensitive to changes in carbon price. IEA Stated Policies IEA Sustainable Development Warming alignment by 2100 2.6°C Well below 2°C Carbon price 2030 (US$2020 per tonne CO 2 e) $65 $100 Impact of carbon policy on sales values Our assessment considered the impact ofa change in carbon policy within the supply chain and how that could impact upon the potential for increased costs throughout that supply chain. While it iscurrently unclear the extent to which a change in carbon policy would result inincreased costs for Hilton, it is possible that this would result in a change to the cost base of our proteins and would therefore impact upon the pricing of our products. As can be seen from the table below, beef and lamb products would receive the largest increase in pricing. Fish and plant products do not increase as significantly in price when applying either the stated policies scenario carbon price, or the sustainable development scenario carbon price. There are a number of differences in the price differential for products within different regions and across different scenarios. Beef, for example, displays a medium impact within the STEPS scenario in the UK and Ireland, but ahighimpact elsewhere. Similarly, lamb displays a medium impact in the STEPS scenarios, and a high impact in the SDS scenarios, apart from Europe, where the impact for the SDS scenario is also medium. The impact of carbon pricing on the cost of pork has a medium impact within the UK and Ireland for both scenarios, but only in the SDS scenario for Europe. These differences are largely a result of the distribution of GHG emissions across the product portfolio when compared to the original cost of the product. Beef inthe UK and Ireland, for example, has a lower carbon impact when looking at the carbon impact relative to the cost of product, whereas pork within the UK and Ireland has a higher carbon impact when looking at the impact relative to the cost of product. These differences result in regional variations when looking across different products and regions. Indication of how a change in carbon price could impact upon pricing in 2030 Australia UK and Ireland Mainland Europe STEPS 2030 SDS STEPS SDS STEPS SDS Pork Beef Lamb Fish * * Plant * In 2020 Hilton had no operations outside of the UK and Ireland relating to fish products, this will change in 2022 and is expected to change significantly by 2030. An assumption has been made that a change in carbon policy would result inalow impact on pricing in 2030, in line with expectations for Australia, UK and Ireland. STEPS = IEA’s Stated Policies Scenario SDS = IEA’s Sustainable Development Scenario Low impact Medium impact High impact 69 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Sustainability report Climate risk and impact report Task Force on Climate-related Financial Disclosures Impact of carbon policy on salesvolumes Past trends in consumer behaviour have shown us that changing the pricing of a product is likely to impact upon consumer behaviour and as such, where carbon policy changes result in an increase in our pricing strategy, this may result in a shift in sales volumes for certain products. However, it is not just the percentage change in price that matters, but the grosschange. As an illustrative example, a10% increase in the cost of a lamb joint is likely to have a more significant impact inconsumer behaviour due to the significant gross cost increase in that product. A 10% increase in the cost of pork mince, however, may not have such a significant impact as the gross change in cost does not have such a significant impact on household spend. Reducing the consumption of one protein source may also impact upon the demand for other protein sources, as consumers switch to alternative sources of protein. A shift away from high-cost lamb could result in an increase in demand for lower- cost pork, for example, and is a pattern we have witnessed within historic sales trends. There is, however uncertainty around future trends for vegetarian and plant-based options which are fast- growingareas within the protein industry. In order to assess how carbon policy couldimpact upon consumer behaviour wehave considered baseline trajectories for protein consumption (derived from OECD-FAO forecasts) and overlaid the impact of a change in carbon policy and pricing strategies in driving consumer behaviour, based on our historic understanding of how pricing shifts impactupon consumer behaviour. It shouldbe noted that due to data limitations of the OECD-FAO data forecasts (which looks solely at a limited set of plant proteins), we have assessed the expected potential growth in the alternative protein market, which better represents Hilton’s operations. The table below sets out how consumer behaviour may change, based on a change in product pricing arising from potential changes to carbon policy. From our analysis it is possible that changes to carbon policy may result inrebalancing of protein sales from beef andlamb toward lower carbon and healthier alternatives such as plant. This may benefit fish and seafood to a lesser extent, given that minor changes in price fluctuations can impact significantly on gross price changes, though a strong desire for healthier options is expected to continue to drive underlying growth. In addition, itisour expectation that changing consumer trends will result in increased demand for alternative emerging proteins. Our approach to scenario analysis – further developments Using the work undertaken in 2021 and 2022, Hilton is in the process of understanding how a change in carbon policy could impact upon our overall revenues and costs. This work will progress over the course of 2022. Potential significant modelled increase Potential for no significant modelled change Potential significant modelled decrease Indication of how a change in carbon policy could impact upon consumption trends Australia UK and Ireland Mainland Europe STEPS SDS STEPS SDS STEPS SDS Pork Beef Lamb Fish * * Plant * In 2020 Hilton had no operations outside of the UK and Ireland relating to fish products, this will change in 2022 andisexpected to change significantly by 2030. An assumption has been made that a change in carbon policy wouldresult in a low impact on pricing in 2030, in line with expectations for Australia, UK and Ireland. STEPS = IEA’s Stated Policies Scenario SDS = IEA’s Sustainable Development Scenario 70 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 The resilience of our strategyagainst different climate-related scenarios Protein mix and diversification Hilton has long been aware of the trends toward healthier and more sustainable eating. Social consciousness is of growing importance to consumers when making decisions about their lives and the food they eat. We want to help customers make ethical and sustainable choices for both their health and the planet. Shifting tosustainable food consumption was a key pillar for the UN 2021 Food Summit and the EU farm-to-fork strategy. During 2021 we reached an agreement to acquire the remaining 50% of our joint venture partner Dalco Food B.V. – aleading vegan and vegetarian product manufacturer. This acquisition is in line with Hilton’s strategy to further diversify and strengthen its protein offering within the fast-growing and attractive vegan and vegetarian market. The agreement will build on the success of the existing partnership and will see Hilton commit ongoing investment in order to significantlyincrease its capacity to customers, grow its ranges and develop new, innovative, plant-based products. In early 2022 we took a further active step to diversify into fish, a lower carbon protein, by the acquisition of Foppen. For Tesco UK, we launched several veganChristmas items in the Wicked Kitchen Brand with the Wicked Kitchen NoTurkey Crown being the top-selling meat alternative Christmas product. We have introduced a range of products globally, incorporating vegetables into products that were originally 100% meat. This enables consumers to balance theirmeat and vegetable consumption without changing their favourite meals. We recognise, however, that protein demand is expected to double by 2050 and a balance of food sources will be needed that can meet the full nutritional requirements of a growing population. We are also, therefore focusing on the resilience of our supply chain within a sustainable economy (seeourdecarbonisation strategy below). Hilton’s role is to enable consumers tochoose from a range of sustainable andhealthy proteins and to provide themwith the information to make thesechoices. To do this we are measuring andaddressing the footprintsofthe foodswe make anddiversifying our rangeinto fast- growinglow impact sectors. Hilton will provide its partners with a balanced portfolio of meat and fishproducts that have significantly reduced environmental impacts, alongsidegrowing its sales of vegetarian and vegan plant-based alternatives. There will also be opportunities for premium retail and food service products across all proteins, especially linked to seasonal celebrations. For example, there has been double-digit percentage growth across the premium own label Christmas products over the last two years in the UK. Agility of operating structure Hilton operates an agile business model which enables a fast response to changing market demands, such as those that may arise in a population that moves quickly toward lower carbon food options. We donot own or operate abattoirs or farms directly, and as such are able to continually assess our relationships with suppliers to ensure thatour supplier relationships are the most effective in contributing to our widercorporate strategy. Hilton’s Response to Mitigate Potential Impacts Tackling Emissions Ambitious decarbonisation plans for each of our key supplychains supported byexpert external advisors Engagement in the governance of key global and local forums toreduce the emissions of cattle and aquaculture Investment in renewable energy and self-generation, alongside industry-leading efficiency for our own sites Supporting Consumers toTransition their Diets Investing in acquisitions and organic growth that diversifies our protein portfolio and aligns to the future market balance Developing tools to integrate lifecycle assessment into product and packaging development, in a holistic approach to circular food systems Leading in the development andmarketing of plant-based and vegetarian products Influencing Nature Positive Policies Advocacy for industry wide commitments toenddeforestation intheCerrado Actively supporting the introduction of regulations thatban trading in products sourced from illegally deforested farms Engaging in Fishery Improvement Projects to establish fish stock governance based on science and ensure the sustainability of our supplychains 71 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Sustainability report Climate risk and impact report Task Force on Climate-related Financial Disclosures Our consumer and market insight teams map emerging consumer behaviour and follow developing regulation, supported by our membership of trade associations such as the Food and Drink Federation. Our continual stakeholder consultation enables us to identify trends in consumption, whether this be toward lower carbon alternatives, healthier alternatives, or where there is increased interest in as yet untested technologies such as lab-based proteins. This enables us to continually assess whether our product portfolio is resilient against a changing consumer market. Our agile operating supply chain also enables us to make adaptations to product options to increase affordability and ensure access to protein in the event of significant changes to pricing. This could result in increased levels of mixed meat proteins, or mixed vegetable and meat products, to ensure that a growing population is not priced out of a healthy diet. Decarbonisation Our climate risk mitigation strategy for our own sites starts with securing renewable energy contracts with support from Schneider Electric. We are reducing our operational climate change impact through investment in energy and water efficiency measures such as heat pumps, solar self-generation, and lower energy use equipment. We have invested in line-by- line energy monitoring to determine and act on efficiency improvement savings. Hilton is aware that the protein needs of a growing population mean that it is important to work with supply chains to decarbonise. At Hilton, with support from independent experts such as South Pole, we actively review and engage in the sustainable development of our agricultural supply chains. We work alongside our suppliers to address the footprint of our supply chains including factories, abattoirs and farms, and we are building decarbonisation and water stewardship plans for each sector with our key suppliers. This includes partnering to address the GHG footprint of animal feed and other environmental risk areas. – We are vice chair of the European Roundtable for Beef Sustainability (ERBS). The ERBS has set a target to reduce cattle emissions by 15% by 2025 and has established national platforms, including the UK Cattle Sustainability Platform, where Hilton is coordinating the actions to deliver the emissions reduction target. – In the Netherlands, we have collaborated with a dairy company to take ex-dairy cows and finish them to produce beef with an independently verified significantly lower climate footprint than dedicated beef cattle. – We are evaluating the impact on methane production in the rumen of cattle from novel feeds and optimised feed formulations. The most effective mitigations will be promoted across our supply chains with support from our suppliers and the collaborative platforms that we engage in. – We are full participants in the UNGC and the Action Platform for Sustainable Ocean Business. We contributed to their report ‘Accelerating Sustainable Seafood’ that explains the key enablers for seafood to transition to net zero carbon and other SDG objectives, and their forthcoming guidance on Science Based Targets for ocean businesses. – Hilton is engaging in advocacy to end deforestation associated with soy and cattle in Brazil as one of the Signatories of Support for the Cerrado Manifesto. We took part in the successful negotiations, to set a 2020 cut-off date, with the traders supplying salmon feed companies. We are also founding members of the Soy Transparency Coalition that benchmarks soy traders on their programmes to halt deforestation. Adaption to physical impacts of climatechange To address the risk of extreme weather events in our supply chains we maintain flexible and diverse supply partnerships toensure we can rebalance supplies when one supplier or area is affected. As part of our work to achieve water efficiency and risk mitigation we utilise water supply buffer tanks to ensure we have access to peak water requirements when water supply is reduced. Where required we incorporate flood mitigation including run-off water capture tanks to protect the local water systems. 72 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 The metrics we use to assess climate- related risks and opportunities The key metrics that Hilton uses to measure its climate-related impacts are scope 1, 2 and 3 emissions combined with total consumption and usage of electricity, gas, water and refrigerants. Our GHG emissions inventory data is independently verified. We also monitor the split between renewable and non- renewable energy as we seek to move towards more renewable sources. Our targets used to manage climate- related risks and opportunities The sustainability strategy includes the following climate-related goals and objectives that are monitored against annual KPIs and our progress is reported to and reviewed by the Board. Our scope 1, 2 and 3 emissions In 2021 we have measured our own scope 1 and 2 emission sources and conducted a review of our scope 3 emissions with support from the consultancy South Pole. This confirmed that the largest impact is from our scope 3 purchased goods and services, with cattle being the single largest sector. In our assessing and reporting of scope 1, 2 and 3 emissions we follow the GHG corporate protocol. We consider both location and market-based emissions, and utilise the most appropriate public data for our supply chains combined with supplier- specific emission factors. Our scope 1, 2 and 3 emissions are validated and verified by GEP Environmental to a ‘limited level of assurance’, which is in line with ISO14064:3. The emissions are detailed on page 74. Our Science Based Targets To address our climate footprint the decision was taken to set Science Based Targets for our own operations and our supply chains. These targets were approved by the Science Based Target initiative during 2021. We also committed to the Business Ambition for 1.5°C to align our long-term targets against a track to achieve net zero before 2050. To achieve these targets, we have built decarbonisation plans for each of our operations in line with the path required to meet interim and final targets. This has been supported by Schneider Electric and includes identifying specific opportunities for heat recovery and efficiency projects and obtaining ISO 50001 energy management certification globally. We are also seeking opportunities for investment and grant support for low carbon technology for both heat generation using renewable energy, and water capture and treatment, which we plan to introduce in due course. We are working with our key suppliers to build decarbonisation plans for our supply chains. For our livestock supply chains our decarbonisation plans are being aligned to the Science Based Target initiative, Forestry, Land and Agriculture (SBTi FLAG) pathways. These are being determined for each type of livestock and will be agreed with the suppliers concerned. Once these decarbonisation plans are all in place, we plan to submit new more ambitious targets to the SBTi for approval. Our approved targets Percentage reduction targets Target year 2025 Target year 2030 Scope 1 (WB2C) 12.5% 25% Scope 2 (WB2C) 12.5% 25% Scope 3 (2C) 6.5% 12.3% * Well below 2°C pathway. ** 2°C pathway. Goals Targets Improve resource efficiency across our global operations Improve energy and water efficiency in our facilities by at least 10% before the end of 2025, compared to a 2018 baseline. We report on total water withdrawn and total water consumed, in regions with high water stress. Reduce waste across our full value chain Halve our own food waste by 2030 compared to 2019 and continue to publish food waste annually, in line with the Champions 12.3 commitment to deliver UNSDG 12.3. Achieve net negative emissions across our valuechain to limit theimpacts ofclimatechange Achieve our Science Based Targets across Scope 1, 2 and 3 andpublish updated ambitions. See details below this table. An intensity reduction of 15% in emissions of cattle in Europe by 2025, aligned to the ERBS Sustainability objectives. 100% renewable electricity across all our own operations inEurope by end of 2025 and globally by 2027. Enhance biodiversity onland Eliminate deforestation from the conversion of natural forests to agriculture or livestock production in our supply chains by the end of 2025. Enable farmers to reduce their emissions and improve biodiversity, to promote more regenerative farming, by providing planning and reporting tools. Transition consumerdiets Assess health and sustainability attributes of all of ourproteins to provide consumers with the facts on theirrolein a diet that is healthy for us and the planet. Doubling in sales of vegan, vegetarian and flexitarian (vegetables added to products that were previously 100% meat or fish) products compared to a 2020 baseline. Circular packaging Achieve a minimum of 50% average recycled content across all plastic packaging by 2025. All our retail packaging will be fully reusable, recyclable orcompostable by 2025. Climate-related metrics and targets 73 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Sustainability report Non-financial KPIs 2021 2020 (SBT base year) 2019 Carbon Footprint UK Global (excl. UK) Total UK Global (excl. UK) Total UK Global (excl. UK) Total Scope 1 (tCO 2 e) 5,999 9,562 15,561 4,503 6,136 10,639 6,832 4,720 11,5 52 Scope 2 – location based (tCO 2 e) 8,900 48,349 57,249 8,607 49,069 57,675 7,609 44,609 52,218 Scope 2 – market based (tCO 2 e) 1,182 40,822 42,004 0 47,10 3 47,103 Scope 3 – 01. Purchased goods and services 3,250,823 11,867,23 3 15,136,440 3,890,451 11,395, 565 15,286,016 Scope 3 – 02. Capital goods 2,004 5,950 7,95 4 3,578 102,644 106,221 Scope 3 – 03. Fuel and energy related activities 1,649 8,019 9,668 1,535 9,799 11,334 Scope 3 – 04. Upstream transportation anddistribution 2,478 75,189 77,666 3,040 75,673 78,713 Scope 3 – 05. Waste 18,004 11,195 29,19 9 6,062 6,970 13,032 Scope 3 – 06. Business travel 39 141 180 2 3 5 Scope 3 – 07. Employee commuting 898 1,425 2,323 917 1,081 1,998 Scope 3 – 08. Upstream leased assets – – – – – – Scope 3 – 09. Downstream transportation anddistribution 4,961 114,599 119,560 4,240 118 ,841 123,082 Scope 3 – 10. Processing of sold products – – – – – – Scope 3 – 11. Use of sold products 7,911 84,093 92,004 8,19 9 104,641 112,8 4 0 Scope 3 – 12. End-of-life treatment of soldproducts 6,357 17,0 32 23,389 6,432 23,471 29,904 Scope 3 – 13. Downstream leased assets – – – – – – Scope 3 – 14. Franchises – – – – – – Scope 3 – 15. Investments – – – – – – Scope 3 – Forestry, Land and Agriculture (FLAG) (tCO 2 e) 3,241,797 11,802,691 15,044,488 3,860,330 11,340,601 15,200,931 Scope 3 Upstream (tCO 2 e) 3,275,894 11,969,151 15,263,431 3,905,585 11,591,734 15,497,320 Scope 3 Downstream (tCO 2 e) 19,229 215,724 234,953 18,872 246,954 265,825 Scope 3 – Non-FLAG (tCO 2 e) 53,327 382,18 4 453,895 6 4,127 498,087 562,214 Total Scope 3 (tCO 2 e) 3,29 5,123 12,184,875 15,498,383 3,924,457 11,838,6 8 8 15,763,145 Total Scope 1, 2 and 3 – location based (tCO 2 e) 3,310,022 12,242,786 15,571,193 3,9 37,5 67 11,893,893 15,831,459 Intensity ratio SC1&2 (tonnes CO 2 pertonneof product produced) 0.03 0.19 0.12 0.03 0.12 0.15 0.04 0.13 0.17 * Scope 3 emissions reported in this year’s report differ from those reported in 2020 due to significant methodological change from financial screening to detailed LCA. This is described in Reducing Emissions (page 48). 2020 scope 1 and scope 2 (location and market based) reported emissions and 2021 scope 1, 2 and 3 emissions have been externally verified with limited assurance by anindependent third party (GEPEnv) in accordance with ISO 14064:3. UK scope 2 (Market) emissions in 2021 are not zero due to the purchase of Fairfax Meadow, all other UK sites continue to use 100% renewable electricity. All 2021 UK data includes full year data for Fairfax Meadow, in addition to Hilton Foods UK (incorporating Hilton Foods Solutions), SVC and Hilton Seafood sites. Likewise, Global data includes full year data for Dalco. We follow the GHG corporate protocol to calculate our scope 1 and 2 emissions, using IEA emissions factors for our location based emissions and supplier specific factors to calculate our market based emissions. 2021 2020 2019 Energy, kWh UK Global (excl. UK) Total UK Global (excl. UK) Total UK Global (excl. UK) Total Total renewable fuel consumption 0 0 0 0 0 0 0 0 0 Coal 0 0 0 0 0 0 0 0 0 Heavy Oil 0 0 0 0 0 0 0 0 0 Transport Fuel 5,584,948 1,044,790 6,629,737 LPG 0 87,0 42 87,0 42 0 1,981,079 1,981,079 Natural Gas 15,537,123 24,876,987 4 0,414,110 21,332,658 30,218,747 51,551,406 Total non-renewable fuel consumption 21,122,071 26,008,819 47,130,889 21,332,658 32,199,827 53,532,485 Solar electricity generation 223,291 2,926,408 3,149,699 243,000 2,260,000 2,503,000 0 0 0 Total renewable electricity consumption 38,510,862 35,573,856 74,084,718 243,000 25,984,033 26,227,0 3 3 Total non-renewable electricity consumption 3,784,729 63,979,808 67,764,537 37,526,233 71,445,071 108,971,304 Proportion of renewable electricity 91% 36% 52% Total renewable other energy consumption 0 0 0 0 0 0 Non-renewable other energy consumption (district heating) 0 7,10 6,611 7,10 6,611 0 1, 392,196 1, 392,196 Total renewable energy consumption 38,510,862 35,573,856 74,084,718 243,000 25,984,033 26,227,0 3 3 Total non-renewable energy consumption 24,906,799 97,095,238 122,002,037 58,858,892 105,037,093 163,895,985 Total energy consumption 63,417,662 132,669,094 196,086,756 59,101,892 131,021,126 190,123,018 Energy consumption (kWh used pertonneof product produced) 293 513 806 447 397 411 * Details of efficiency measures are included in Resource Efficiency, on page 60. 74 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Freshwater (m 3 ) UK The Netherlands Ireland Sweden Portugal^ Denmark Poland Australia Total freshwater use Total freshwater withdrawals Intensity (m 3 per tonne of product produced) 2019 297,500 169,000 49,000 59,000 35,000 45,000 74,000 47,000 775,500 2020 329,600 164,700 45,000 58,300 31,950 46,000 96,000 249,300 1,020,850 2021 290,064 173,478 39,231 61,830 28,953 44,945 89,366 268,447 9 57,084 941,743 1.91 * Fairfax Meadow not included. ^ Adjusted to JV holding. Sites in areas of water stress (defined by World Resources Institute). Data from New Zealand is not included for this year as the site was not fully operational and data is impacted by construction use. Very high = 0 High = 1 Truganina Packaging Total weight of packaging 29,036 Percentage from recycled materials 57% Percentage that is recyclable, reusable, and/or compostable 75% Workforce 2021 2020 2019 2018 2017 Gender Male Female Total Male Female Total Male Female Total Male Female Total Male Female Total Board 5 2 7 5 2 7 5 1 6 5 1 6 5 1 6 Executive Management 7 3 10 8 2 10 8 2 10 8 2 10 8 2 10 Senior management 28 11 39 47 11 58 39 11 50 39 11 50 40 8 48 Employees 3,395 2,386 5,781 3,18 5 2,206 5,391 2,981 1,963 4,944 2,878 1,840 4,718 2,483 1,18 8 3,671 Board 71% 29% 71% 29% 83% 17% 83% 17% 83% 17% Executive Management 70% 30% 80% 20% 80% 20% 80% 20% 80% 20% Senior management 72% 28% 81% 19% 78% 22% 78% 22% 83% 17% Employees 59% 41% 59% 41% 60% 40% 61% 39% 68% 32% Soft skills training 8,444 6,554 4,523 % of employees covered by collective bargaining agreements 41% 33% Total staff turnover 24.91% 17.10% 21.90% 22.50% 30.60% Total fatality rate 0 0 0 0 0 Health and Safety 2021 2020 2019 % Change (2021 vs 2020) Hours Worked 9,559,280 9,143,579 9,717,405 4.5% First Aid Incidents 586 677 573 -13.4% Lost Time Incidents 138 87 147 58.6% Lost Time Incident Frequency Rate 14.44 9.51 15.13 51.8% Number of Days Lost 3514 2,198 2,012 59.9% Lost time incident severity rate 367.6 3 240.33 207.05 53.0% Non injury incidents/hazards 5,191 4,993 85 4.0% * This data was not recorded on a Group basis in this format in 2019. ** The definition use of a ‘lost time incident’ is when the injured person does not attend work for the start of their next shift not including the day of the incident. Lost-time incident rate for current and last 2 fiscal years covers 100% of directly employed Hilton employees. Nutritional Context, for growing areas in healthier products % of total sales Total sales 2021 Products with a high source of Omega 3 1% Low fat products (<3%) 3% Lower fat products (<5%) 16% Products containing E Numbers 21% Low salt products (less than 0.12g/100g) 15% Other information Charitable donations in 2021 £72,629 Total site waste (tonnes) 47,405 We have received no human rights/quality violations for the past three years No Hilton Foods staff have been disciplined or dismissed due to non-compliance with anti-corruption policy/policies in the current and last 2 fiscal years Customer service level (%) 96.44% Product produced 492,588 75 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Sustainability report SASB Processed Foods ReportingRecommendations SASB Code Sub-category 2nd sub-category Disclosure Unit of measure Direct Response FB-FR-130a.1 Energy Management Measurement (1) Total energy consumed, (2)percentage grid electricity, (3)percentage renewable Gigajoules (GJ), Percentage (%) Total energy consumption, proportion fromthe grid and proportion from renewable sources are detailed in the 'Resource Efficiency' disclosure on page60of this document. FB-PF-140a.1 Water Management Measurement (1) Total water withdrawn, (2)totalwater consumed, percentageofeach in regions withHighor Extremely HighBaselineWater Stress Thousand cubic meters (m³), Percentage (%) Total water withdrawals and total water consumption are detailed in the 'Resource Efficiency' disclosure on page 60 of this document. All data is adjusted to reflect ourholding in our SoHi joint venture. The difference between the two can be accounted for by rainwater harvesting operations at our SoHi JV. 12% of water isabstracted in high stress areas, as defined by WRI, all at our Truganina plant. FB-PF-140a.2 Water Management Measurement Number of incidents of non- complianceassociated with water quantity and/or quality permits, standards, and regulations Number There has been one issue of non- compliance associated with water quantity and/or quality permits, standards, and regulations in 2021, with our trade waste permit at our Truganina plant. We have worked with the local regulator to resolve this and municipal system was not impairedas a result of this non-compliance. FB-PF-140a.3 Water Management Description Description of water management risks and discussion of strategies andpractices to mitigate those risks N/A See 'Resource Efficiency' disclosure onpage 60 of this document. FB-PF-250a.1 Food Safety Measurement Global Food Safety Initiative (GFSI) audit (1) non-conformance rate and(2)associated corrective actionratefor (a) major and (b)minornon-conformances Rate We have 17 sites which are all GFSI certified, one site which is currently not operational and one that is newly constructed and is preparing for GSFI certification in 2023. 14 sites are certified against the BRC standard, 7 sites are AA grade (<5 minors), 7 sites are A grade (6-10 minors). 3 sites are certified against the FSSC 22000 standard all of which have a been graded as Pass. We have 1 joint venture which is certified against the FSSC22000 standard, which has been graded as Pass. FB-PF-250a.2 Food Safety Measurement Percentage of ingredients sourced from Tier 1 supplier facilities certified to a Global Food Safety Initiative (GFSI)recognised food safety certification program Percentage (%) by cost In FY21, 93% of our ingredients sourced from Tier 1 supplier facilities certified to a Global Food Safety Initiative (GFSI) recognised food safety certification program. FB-PF-250a.3 Food Safety Measurement (1) Total number of notices of foodsafety violation received, (2)percentage corrected Number, Percentage (%) In FY21 we received no notices of food safety violations. FB-PF-250a.4 Food Safety Measurement (1) Number of recalls issued and (2)totalamount of food product recalled Number, Metrictons (t) In FY21 we had no product recalls. FB-PF-260a.1 Health & Nutrition Measurement Revenue from products labelled and/ or marketed to promote health and nutrition attributes Reporting currency Hilton Foods is a predominantly own labelprovider to our customers' brands. We work with our customers to enhance the health and nutrition attributes of our products. We do not currently gather data on the revenue of sales from products labelled and/or marketed to promote health and nutrition attributes. We are working to develop an internal database to be able to gather and share data on the nutritional attributes of our products across our different markets. 76 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 SASB Code Sub-category 2nd sub-category Disclosure Unit of measure Direct Response FB-PF-260a.2 Health & Nutrition Description Discussion of the process to identify and manage products and ingredients related to nutritional and health concerns among consumers N/A Hilton Foods is actively engaged in reformulating products to reduce the salt, sugar, calories and fat levels, where appropriate, across our global product range. We actively promote the adoption of Omega 3 products among our customers, and engaging the salmon industry to increase the Omega 3 contentof salmon feed and therefore thelevels in the finished product. As a predominately private label supplier, we work in partnership with our customers to deliver health benefits to their consumers, please refer to 'Balanced healthy diets' on page 56 of this document for further information. FB-PF-270a.1 Product Labeling & Marketing Measurement Percentage of advertising impressions (1) made on children and (2) made on children promoting products that meet dietary guidelines Percentage (%) Hilton Foods is a predominantly own label provider to our customers' brands, so we do not conduct any consumer facing marketing – whether to children orotherwise. FB-PF-270a.2 Product Labeling & Marketing Measurement Revenue from products labeled as (1) containing genetically modified organisms (GMOs) and (2) non-GMO Reporting currency Hilton Foods does not generate revenue from products labelled as (1) containing genetically modified organisms (GMOs) and (2) non-GMO. FB-PF-270a.3 Product Labeling & Marketing Measurement Number of incidents of non-compliance with industry or regulatory labeling and/ or marketing codes Number Hilton Foods has not received any incidents of non-compliance with industry or regulatory labeling and/or marketing codes in FY21. FB-PF-270a.4 Product Labeling & Marketing Measurement Total amount of monetary losses as a result of legal proceedings associated with labeling and/or marketing practices Reporting currency Hilton Foods has not been a party to any legal proceedings in FY21 in relation to branding/ product labelling. FB-PF-410a.1 Packaging Lifecycle Management Measurement (1) Total weight of packaging, (2)percentage made from recycled and/or renewable materials, and (3)percentage that is recyclable, reusable, and/or compostable Metric tons (t), Percentage (%) Total weight of packaging, the proportion ofthat from recycled and renewable sources and the proportion that is recyclable, reusable or compostable are detailed in the packaging section onpage58. FB-PF-410a.2 Packaging Lifecycle Management Description Discussion of strategies to reduce the environmental impact of packaging throughout its lifecycle N/A See 'Circular Packaging' disclosure onpage58 of this document. Activity Metrics FB-PF-000.A N/A Measurement Weight of products sold Metric tons (t) 492,355 FB-PF-000.B N/A Measurement Number of production facilities Number Hilton Food Group has 18 production siteswhich are wholly-owned, and one jointventure. Pages 6 to 77 of this Annual report comprises a Strategic report which has been drawn up and presented inaccordance with applicable English company law, in particular Chapter 4A ofthe Companies Act 2006, and the liabilities of directors in connection with this report shall be subject to thelimitations and restrictions providedbysuch 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 in its entirety. Approved by order of the Board of Directors Neil George Company Secretary 5 April 2022 Approval of the Strategic report 77 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Governance Board of Directors 80 Directors’ report 82 Corporate governance statement 84 Report of the AuditCommittee 90 Report of the NominationCommittee 94 Directors’ remuneration report 96 Directors’ remuneration policy 99 Annual report on remuneration 104 Statement of Directors’ responsibilities 111 Independent auditors’report 112 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 78 For more information visit www.hiltonfoodgroupplc.com To fuel growth, we constantly seek out new opportunities and inspiration. We explore swiftly and innovate with focus, delivering new ideas and commercial advantage forour partners. ѱ Operational and strategic progress inseafood category despite challenging market conditions. ѱ Completed acquisition of smoked salmon specialists, Foppen, to complement and grow our seafood portfolio into 2022. SEAFOOD HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 79 Non-Executive Chairman Executive Directors ROBERT WATSON OBE NON-EXECUTIVE CHAIRMAN Tenure: 19 years Robert joined Hilton as Chief Executive in 2002 and was appointed as Executive Chairman in 2018. He transitioned to a non-executive capacity on 1 January 2021. Robert is Chairman of the Board and is also Chairman of the Nomination Committee. Key skills and competencies: Robert has over 40 years’ experience in the meat industry, has proven himself as an industry leader and has overseen the successful growth of the Hilton Food Group to date. Robert brings this wealth of experience and valuable skills as Chairman of the Group. Current external appointments: WhitworthsHoldings Ltd. Previous experience: A founder of the FoyleFood Group in 1977 and previously a board member of the Livestock Meat Commission and Food For Britain. PHILIP HEFFER CHIEF EXECUTIVE OFFICER Tenure: 27 years Philip joined Hilton at its inception in 1994, as Managing Director of the Group’s UK subsidiary and from 2012 to 2018, served as Hilton’s Chief Operating Officer. He was promoted to Chief Executive Officer on 1 July 2018. Key skills and competencies: Philip attendedSmithfield College and is an associate member of the Institute of Meat. Philip is responsible for developing Hilton’sbusinesses with its major customers. His in-depth knowledge and experience of themeat industry provides valuable contribution to the Board. Current external appointments: None. Previous experience: Senior positions withinthe RWM Food Group. NIGEL MAJEWSKI CHIEF FINANCIAL OFFICER Tenure: 15 years Nigel was appointed Chief Financial Officer of Hilton in 2006, following 11 years in senior finance roles with PepsiCo. Key skills and competencies: Nigel has extensive financial and commercial experience within UK and European meat and other food markets. He is a qualified Chartered Accountant and has a first class honours degree in accountancy. Current external appointments: None. Previous experience: Senior finance and commercial roles with Bernard Matthews plc, Royal Dutch Shell and Whitbread and Co. More recently Nigel was CFO of the company’s European business, and prior to this, as Finance Director for Pepsi-Cola General Bottlers, Poland. Board of Directors COMMITTEES KEY Audit Committee Remuneration Committee Nomination Committee John Worby, Christine Cross,AngusPorter, Rebecca Shelley and Patricia Dimond are allconsidered to be independent. 80 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Non-Executive Directors Company Secretary 1. JOHN WORBY A R N NON-EXECUTIVE DIRECTOR & SENIOR INDEPENDENT DIRECTOR Tenure: 6 years John joined Hilton as an independent Non-Executive Director in 2016. He is Chair of the Audit Committee and is the Senior Independent Director. Key skills and competencies: John is a Chartered Accountant and as well as financial andaccounting skills has a wealth of experience of working in public companies and the food sector. Current external appointments: Non-Executive Director and Audit Committee chair at Carr’s Group plc. Previous experience: John was Group FinanceDirector at Genus plc and Group Finance Director and Deputy Chairman of Uniq plc. He was Non-Executive Director at Fidessa Group plc, Cranswick plc, and Connect Group plc and amember of the Financial Reporting Review Panel. 2. CHRISTINE CROSS A R N NON-EXECUTIVE DIRECTOR Tenure: 6 years Christine joined Hilton as an independent Non-Executive Director in 2016. She is Chair ofthe Remuneration Committee. Key skills and competencies: Christine was originally a food scientist before devoting 14 years to 2003 with Tesco in senior roles focusing on own brand, non-food and global sourcing. She brings a wealth of global experience with a wide range of food and non-food retailing businesses to the Board. Current external appointments: Non-Executive Directorships with Coca-Cola Europacific Partners plc, Clipper Logistics plc and several private companies as well as numerous advisory roles. Previous experience: Christine was Non-Executive Director at zooplus AG (Germany), Sonae SGPS SA (Portugal), Nextplc,WoolworthsLimited (Australia), Brambles Limited (Australia) and Kathmandu Holdings Limited (New Zealand). 3. ANGUS PORTER A R N NON-EXECUTIVE DIRECTOR Tenure: 3 years Angus joined Hilton as an independent Non-Executive Director in 2018. He is the designated NED for workforce engagement. Key skills and competencies: Angus’ extensive knowledge and experience in public companies and the food and retail sectors are valuable tothe decisions of the Board. He has an MA innatural sciences and PhD from the University of Cambridge. Current external appointments: Non-Executive Chairman at McColl’s Retail Group plc and Co-Chairman of Direct Wines Ltd. Previous experience: Angus has held numerous executive and non-executive roles including Mars, BT, Abbey National and WPP. He was Chief Executive of the Professional Cricketers’ Association, Non-Executive Director and Senior Independent Director of Punch Taverns plc and Non-Executive Director of TDC A/S (Denmark). 4. REBECCA SHELLEY A R N NON-EXECUTIVE DIRECTOR Tenure: 2 years Rebecca joined Hilton in 2020 as an independent Non-Executive Director. She chairs the executive sustainability committee. Key skills and competencies: Rebecca has held market-facing investor relations and corporate communications roles at a number of listed companies. She has a BA (Hons) in Philosophy and Literature from the University of Warwick and an MBA in International Business and Marketing from Cass Business School. Current external appointments: Non-Executive Director at Sabre Insurance Group plc, Liontrust Asset Management plc and Arraco Global Markets Ltd. Previous experience: Rebecca was Group Communications Director and a member of the Executive Committee at Tesco plc and Global Corporate Affairs Director at TP ICAP plc. Other roles include Norwich Union plc, Prudential plc and as a partner at Brunswick LLP. She was also on the Board of the British Retail Consortium and aTrustee of the Institute of Grocery Distribution. 5. PATRICIA DIMOND A R N NON-EXECUTIVE DIRECTOR Tenure: appointed 1 April 2022 Patricia joined Hilton in 2022 as an independent Non-Executive Director. Key skills and competencies: Patricia qualified as a Chartered Accountant working with Deloitte in Canada and the UK, is a CFA charter holder and holds an MBA from IMD Switzerland with a 30 year international career inconsumer, retail and financial markets. Current external appointments: Non-Executive Director at Foresight VCT plc, LXi REIT plc, Aberforth Smaller Companies plc, English National Operaand the National Academy forSocial Prescribing. Previous experience: Executive roles with Storehouse, Mothercare and Value Retail plc and a management consultant with McKinsey & Co. NEIL GEORGE COMPANY SECRETARY Neil joined Hilton in 2007 andisaChartered Accountant. 54 3 2 1 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 81 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Directors’ report The Directors present their report together with the audited consolidated financial statements for the 52 weeks ended 2 January 2022. Reference to other relevant information incorporated into thisreport is below. Strategic report The Strategic report on pages 4 to 77 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, future developments 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 22. This Strategic report also includes the Sustainability report on pages 28 to 77 which contains details of the Group’s employment practices and greenhouse gas emissions. A statement which sets out how the Directors have had regard to the matters under Section 172 of the Companies Act 2006 is also included in the Strategic report. Corporate governance and otherstatutory disclosures The Corporate governance statement, Board Committee reports and Directors’ remuneration report on pages 84 to 110 includes information required by DTR 7.2. All necessary disclosures required under LR 9.8.4 have been made. Non-Financial Reporting Directive The EU Non-Financial Reporting Directive has been implemented into English law and requires companies to disclose non- financial information necessary to provide investors and other stakeholders with a better understanding of a company’s development, performance, position andimpact of its activity. The table below sets out where stakeholders can find information in our Strategic report relating to non-financial matters. Information requirement Where to read more Page Business Model Our business model 11 to 14 Principal risks Risk management and principal risks 24 to 27 Non-financial KPIs Key performance indicators 20 to 21 Environment Sustainability report 28 to 77 Employees 28 to 77 Human rights 28 to 77 Social matters 28 to 77 Anti-bribery and corruption Corporate governance statement 84 to 89 Principal activities The Group is a leading international protein producer. Results and dividends The profit before income tax is £47.4m (2020: £54.0m). An interim dividend of 8.2p per ordinary share was paid in November 2021. The Directors recommend the payment ofa final dividend for the period which is not reflected in these financial statements, of 21.5p per ordinary share totalling £19.1m, which, together with the interim dividend, represents 29.7p per ordinary share for theyear. Subject to approval at the AnnualGeneral Meeting, the final dividend will be paid on 1 July 2022 to members on the register at the close ofbusiness on 6 June 2022. Shares will beexdividend on1 June 2022. Directors and their interests The Directors of the Company in office throughout 2021, together with their biographical details, are set out on pages 80 and 81. All the Directors served for the whole of the year under review except Patricia Dimond who joined the Board on 1 April 2022. Details of Directors’ interests in shares are provided in the Directors’ remuneration report on page 107. Directors are subject to reappointment atthe Company’s AGM following the year in which they are appointed. Under its Articles all Directors will retire and stand for election or re-election, as appropriate, at each Annual General Meeting. Directors’ indemnities As permitted by law and its Articles of Association the Company has in place appropriate directors’ and officers’ liability insurance cover during the year and up tothe date of signing this report. 82 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 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: Group Number of ordinary shares Percentage of issued share capital Nature of holding abrdn 9,843,027 11.07% Indirect Capital Group 5,985,063 6.73% Indirect Schroder Investment Management 4,108,235 4.62% Indirect BlackRock 3,291,802 3.70% Indirect Montanaro Investment Managers 2,854,000 3.21% Indirect Invesco 2,783,638 3.13% Indirect Vanguard Asset Management 2,695,025 3.03% Indirect R. Heffer 2,677,233 3.01% Direct Polar Capital 2,66 9,911 3.00% Indirect Additionally Directors’ interests in shares total 7.01% and details are given on page 107. There are robust safeguard controls in place to monitor transactions between major shareholders of the Company. These include share register analysis on at least a quarterly basis and weekly share transaction reporting. As a policy Hilton does not have any devices which would limit the ability to perform a takeover of Hilton Food Group plc. This includes devices which would limit share ownership and/or issue new capital for the purpose of limiting or stopping a takeover. Political donations No donations for political purposes were made during the year (2020: £nil). The practice of making political donations would require authority from shareholders and Hilton has never sought such authority. 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 ontransfers of ordinary shares. – there are no restrictions on voting rightsof ordinary shares. – 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 aDirector 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 ofthe 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 24 May 2021: – Directors have authority to resolve that the Company shall purchase upto10% of its own shares subject tocertain conditions. – Directors have authority, within limits, to exercise the powers of theCompany to allot shares and limited authority to disapply shareholder pre-emption rights. Both these authorities expire on theearlier of the date of 24 August 2022 or the next Annual General Meeting atwhich renewal of these authorities will be sought. – 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 oremployment that occurs because ofatakeover bid. The Companies Act 2006 also allows that Hilton Food Group plc shareholders representing at least 5% of paid-up capital with voting rights of the Company can require that the Directors call a general meeting to include the text of a resolution that may properly be moved at that meeting. Additionally shareholders have the right under the Company’s Articles to vote on resolutions to re-appoint every director annually at each Annual General Meeting. 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 80 and 81. 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 – each Director has taken all the steps aDirector 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 ofthat 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 theseparate 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/ en/investors/shareholder-meeting- documents/. By order of the Board Neil George Company Secretary 5 April 2022 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 83 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Corporate governance statement Introduction The Hilton Board is responsible for the long-term success of the Group and establishing its purpose, values and strategy aligned with itsdesired culture. Company purpose, values andculture Our purpose is to create efficiency and flexibility in the food supply chain without compromising quality through innovative and sustainable food manufacturing and supply chain solutions with the ambition to be the first choice partner for food retailers seeking excellence, insight and growth. Hilton’s model of ‘growth through total partnership’ creates value for its stakeholders as well as contributing towider society. Hilton has developed its strategic compass through which desired values include being dedicated, ambitious, curious, entrepreneurial and resilient. We remain committed to achieving good governance balanced against our desire to preserve an agile and entrepreneurial culture with astrong client and talent focus. Governance framework The Board heads the Group’s governance structure and is collectively responsible for promoting the long-term sustainable 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 ensuring there is an appropriate framework of checks and balances in place. The Board has delegated certain responsibilities to formal Board sub- committees which comprise an Audit Committee, Remuneration Committee andNomination Committee. These Committees operate under defined terms of reference that are approved by the Board which ensures that each Committee has sufficient resources to undertake their duties. Each Committee reports regularly to the Board. Executive Committees include a Risk Management Committee which reports tothe Audit Committee and a Sustainability Committee which is chaired by an Independent Non-Executive Director. During the year an additional Board sub-committee was formed to oversee the finalisation of the SV Cuisine acquisition deferred consideration. Given Philip Heffer’s conflict of interest in this transaction the Board considered it appropriate to establish this new committee chaired by John Worby, the Senior Independent Director, with other members comprising Christine Cross and Robert Watson. All parties agreed to reduce the length of the deferred consideration period with complicating factors including proposed capex investment in the business and a proposedmove of the SV Cuisine businessto Huntingdon. The Committee liaised withexternal advisors and negotiated afairconsideration agreed withall partieswhich was endorsed by Hilton’s other Non-Executive Directors. Governance code and compliance We evaluate our governance against principles and provisions contained in the2018 UK Corporate Governance Code issued by the Financial Reporting Council which can be obtained from www.frc.org.uk/corporate/ukcgcode.cfm. This Corporate governance statement together with the Board Committee reports and the Directors’ remuneration report on pages 84 to 110 detail how the Board applies the principles of good governance and best practice as set out inthis Code. The Directors consider that the Company has complied with the provisions of the Code during 2021 except for two provisions relating to Hilton’s Chairman. Robert Watson is one of Hilton’s founders, joining its Board as Chief Executive in 2002. In 2018 he transitioned to Executive Chairman and from 1 January 2021 moved into a non-executive capacity. Provision 9 of the Code states that achairman should be independent on appointment and that a chief executive should not go on to become chair of the same company although the Code does recognise that this can happen in exceptional circumstances. Additionally Provision 19 of the Code states that the chair should not remain in post beyond nine years from the date of their first appointment to the board. Whilst Robert’s position does not comply with these provisions the Directors are of the strong view that there are valid exceptional circumstances which are in the best interests of the Company and itsstakeholders and these are detailed on page 85. The Board Board responsibilities The Board has specific powers reserved to it contained in a schedule of matters reserved for decision by the Board. These powers include changes to capital structure, acquisitions and disposals, major trading agreements, major capital expenditure projects, dividends, treasury and risk management policies, approval of budgets and financial reports, and the giving of any guarantees or letters of comfort. The Board also has responsibility for setting policy and monitoring matters including financial and risk control, health and safety policy, management succession and planning and environmental issues. There is a clear written division of responsibilities between the Chairman and the Chief Executive, agreed by the Board, split between running the Board and the business. They maintain a close working relationship, speaking regularly between Board meetings to ensure a fullunderstanding of evolving issues andtofacilitate swift decision making. Implementation of the agreed strategy and budget and the day-to-day management ofthe Group’s operations is delegated to an executive leadership team led by the CEO. 84 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Membership At the date of this report the Board consists of the Chairman, two Executive Directors and five Non-Executive Directors whose names, responsibilities, brief biographies and membership of Board Committees are set out on pages 80 and 81. The Directors bring strong judgment and expertise to the Board’s deliberations and with diversity achieves a balance of skills and experience appropriate for the requirements of the business. On 1 April 2022 Patricia Dimond joined the Board as an independent Non-Executive Director. Patricia brings a wealth of experience including a 30 year international career in consumer, retail and financial markets workings with FTSE 100, Private Equity and owner managed companies. More information on Patricia’s experience can be found on page 81. John Worby has advised the Board that he will not be seeking re-election at Hilton’s AGM and therefore will step down from the Hilton Board on 24 May 2022. Nigel Majewski also indicated his desire to step down from the Board at the AGM but continue in a reduced capacity as director of investor relations and strategic development. It is proposed that the current Group Financial Controller, Matt Osborne, be appointed to the Board as Chief Financial Officer. All Directors are reappointed annually under the Company’s Articles and for FTSE 350 companies under the Code. All new Directors are subject to reappointment by shareholders at the first opportunity following their appointment. Chairman Robert Watson is one of Hilton’s founders and as such has an intimate knowledge of the business as well as having relationships with key decision makers at supermarket retailing businesses around the world. He has held senior Hilton Board positions since 2002 and during that time has guided the Group to significant continuous and sustainable growth including a successful flotation in 2007. This success is illustrated by the graph on page 109 which charts Hilton’s total shareholder return over the past ten years showing average compound annual growth of 18.2% which compares with 11.6% achieved by the FTSE 250 Index. A further indicator of Hilton’s enduring success isthe average compound annual growth inHilton’s adjusted operating profit which, inthe 15 years since flotation, is 11.0%. Robert joined Hilton initially as Chief Executive, transitioning during 2018 to Executive Chairman, and on 1 January 2021 he moved into a non-executive capacity. This transition path has been discussed with Hilton’s major shareholders over a number of years to ensure both openness and transparency and to gauge their views. They have been supportive of these changes to date and Hilton will continue to engage with them in the futureto ensure that this remains the case. Robert has been instrumental in Hilton’ssuccess over a prolonged period and Hilton’s other Directors are of the strong view that Robert’s knowledge and experience within the business can contribute to our further growth and success in the future. The Board believes that he has demonstrated, and will continue to demonstrate, objective judgment that is in the best interests of the Company. The 2019 external board evaluation supported the Board’s view concluding that the retention of Robert Watson has not only sustained shareholder value but proved an effective learning environment for the CEO. Whilst Robert cannot be designated as independent under the Code the Board believes that he has, since moving to Non-Executive Chairman, distinguished himself by critically scrutinising decisions purely on the basis of his extensive knowledge of the Company, its history, the industry in which it operates and its stakeholders. He has shown that he is able to chair and monitor the Company without prejudice and that he is impartial in his judgement and voting behaviour. He is also supported in this by astrong SeniorIndependent Director. In view of the above, the Board believes that there are valid exceptional circumstances envisaged by the Code which are in the best interests of the Company and its stakeholders for Robertto continue as Hilton’s Chairman. We do also appreciate stakeholder concerns to ensure appropriate governance, and specifically with regardtothe balance of the Hilton Board, which comprises a majority of independent Non-Executive Directors. The Board maintain an ongoing focus on appropriate successionplanning arrangements and it is anticipated that Robert will step down in2023 or 2024. Non-Executive Directors The Non-Executive Directors, excluding the Chairman but including the Senior Independent Director, are considered to be independent all having served on the Board for six years or less. Whilst all the Non-Executive Directors hold other directorships outside Hilton it is considered that they are all able to devote sufficient time to meet their board responsibilities. 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. The Non-Executive Directors met once during the year specifically to scrutinise the performance of the executive management. A further meeting was heldwithout the Chairman present toassess his performance. Senior Independent Director John Worby, the Senior Independent Director, is available to shareholders as an alternative to the Chairman, CEO and CFO. Following all conversations or meetings he reports any relevant findings to the Board. When John steps down from the Hilton Board in May Angus Porter will become the Senior Independent Director. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 85 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Board balance and diversity During the year the balance of independent Non-Executive Directors on the Board was 57% and female representation on the Board was 29%. Following the appointment of Patricia Dimond and upcoming departure of John Worby female representation on the Board will increase to 43%. Hilton is committed to diversity on its Board, executive committee and its direct reports including implementing targets for female representation and persons of colour. We will look to increase diversity within the Group at every opportunity albeit that there are no further planned changes to the Board’s size or composition in the coming year. 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 interest. 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, which is permitted under the Company’s Articles. The Board considers that the Directors’ powers of authorisation of conflicts have operated effectively and thatthe procedures set out above have been followed properly. There was a continuing conflict of interest involving Hilton’s CEO, Philip Heffer, in relation to SV Cuisine Limited, a UK based sous vide manufacturer acquired in 2019. Prior to the acquisition, Philip was ashareholder in SV Cuisine and was also adirector, an office he resigned immediately following the acquisition. The transaction involved deferred consideration which was agreed and paid during the year. Philip did not participate in the decision to agree this deferred consideration and his conflict of interest thereafter ceased. Information and support provided toBoard 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 inadvance of Board meetings, the right to obtain independent professional advice atthe 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 theChairman, for all governance matters. The appointment and removal of the Company Secretary is determined bytheBoard as a whole. Attendance at Board meetings The Board meets not less than eight times a year to direct and control the strategy and operating performance of the Group. The following table sets out the Board meeting attendance by Board members together with the percentage attended. Attendance at Board Committee meetings is set out in each Committee report. Number attended Percentage attended Robert Watson 8 100% Philip Heffer 8 100% Nigel Majewski 8 100% John Worby 8 100% Christine Cross 8 100% Angus Porter 8 100% Rebecca Shelley 8 100% Other Governance Performance evaluation An external evaluation of the Board andits Committees was last performed in 2019. An internal evaluation was performed during 2021 whereby each Director completed a detailed written questionnaire with 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 individual Directors, the Board and its standing Committees continue to perform effectively. The next external evaluation isdue during 2022. Annual General Meeting Our 2022 AGM will continue in a hybrid format at which shareholders will be asked to vote on 20 resolutions dealing with key governance matters, including the reappointment of all Directors, approval of the Directors’ remuneration report and policy, and the reappointment of the auditor. 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 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 are summarised in the Risk management section on pages 24 to 27. 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. Corporate governance statement continued 86 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 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 andevaluate business risk; – a Group internal audit function which isinvolved in the review and testing ofthe internal control systems and of key risks across the Group in accordance with an annual programme agreed withthe Audit Committee; – a strong control environment; – an information and communication process; and – a monitoring system and regular Board reviews for effectiveness. 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 are reviewed. All financial information published by the Group is approved by the Board andAudit 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. These have been reviewed and discussed through the Risk Management Committee and by the Audit Committee and their financial implications and the effectiveness of the control processes in place to mitigate these risks have been assessed. The Board has reviewed a summary ofthese findings and this, together with itsdirect involvement in the strategies ofthe business, investment appraisal andbudgeting processes, has enabled theBoard to report on the effectiveness oftheGroup’s internal control systems. Whistleblowing policy Hilton is committed to a free and open culture in dealings between its officers, employees, customers, suppliers and all people with whom the Group engages in business relations. We seek to conduct our business honestly and with integrity at all times. The Board has therefore established a whistleblowing policy which covers all our employees and operations so that any suspected business misconduct can be reported. The policy allows anonymised reporting and that reports are treated confidentially. More information on this policy can be found on our website. The Board reviewed and updated this policy during the year to comply with the common minimum internal reporting standards contained in the EU Whistle Blower Directive and to introduce a 24/7/365 telephone and web- based reporting service available in all local languages. The Audit Committee receives reports on any communications reported via this mechanism. Anti-bribery and anti-corruption policy Hilton has a zero tolerance approach to bribery and corruption and accordingly the Board has established an anti-bribery and anti-corruption policy. This policy, which is available in local languages, covers all our employees and operations and also applies to third parties such as suppliers, contractors and other business partners. The policy defines and prohibits bribes and facilitation payments and covers all corporate hospitality including gifts, entertaining and charitable donations which must be authorised. Hilton does not make contributions to political parties. Regular training is provided toallcolleagues to maintain awareness ofthese policies and processes. Directors’ duties and stakeholderengagement Section 172 of the Companies Act 2006 requires company directors to act in the way he or she considers, in good faith, would be most likely to promote the long-term success of the company for thebenefit of its members as a whole andother stakeholders. The Directors ensure that the views of the Company’s key stakeholders are known and fully considered during their discussions and decision-making. Proposals submitted to the Board on allsignificant decisions include a section that assesses the potential impact on our stakeholders and their interests. This is intended to guide Board discussions to ensure that these interests are adequately considered when decisions are made to approve business projects and the Company’s strategy. During 2021 the key decisions for the Board related to the continuing response to Covid and proposals to expand the business including Fairfax Meadow and Foppen acquisitions, Dalco purchase of remaining shares and a joint venture. Additionally Board oversaw the opening of the new facility in New Zealand, other significant capital expenditure investment proposals and also the relocation of SV Cuisine. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 87 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Case study – business relocation In 2019 Hilton acquired SV Cuisine, a standalone business based at Wednesbury located north-west of Birmingham with approximately 200 employees and agency workers in a variety of skilled and unskilled roles producing slow cooked sous vide products. In March 2021 we announced the intention to relocate the business to our Hilton Foods UK facility in Huntingdon, some 88 miles away. The reasoning for the move was that retaining Wednesbury as a standalone facility could not maintain market competitiveness and as such was not fit for the long-term sustainability of the business. There was a need to become more cost-efficient in an increasingly competitive market which could only be achieved through synergies from combining with another larger facility. Whilst we wanted to keep all our staff we recognised that the distance may be too great to expect them to move with the business and of course we respected their wishes. Hilton therefore put in place a range of measures, including offering retention bonuses ensuring continued production, to support our people. – Relocation support – Financial including relocation expenses and staff loans – Information comprising open days atthe Huntingdon facility and information about the local area including accommodation, schools, community and council support – Details of vacancies at Hilton’s otherUK facilities – Redundancy support – Outplacement support including CVwriting guidance, career workshops and interview training – Redeployment workshops including partnering with local businesses, agencies and jobcentres – Free financial information and aconfidential helpline Up to the time that production ceasedatWednesbury in August 2021 we sustained good overall factory performance and a high customer service level whilst employee turnover remained low. A positive culture was maintained throughout the process which resulted inno redundancy appeals or grievances. Our shareholders The Board promotes open communication with its shareholders. We aim to provide transparent, clear and balanced communications so that they understand our business strategy and how we deliver long term shareholder value through earnings and capital growth. The Chief Executive Officer 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 understandingof 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 to77. Twice a year general presentations are given to analysts covering the annual and half year results. Additionally other reports and forecasts, together with relevant articles in the financial press, are circulated to the Board. The Executive Directors are available to meet the Company’s major shareholders if required and, together with the Chairman and Senior Independent Director, are 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 Chair of every Board Committee usually attend. In addition the Group’s website containing published information and press releases can be found at www.hiltonfoodgroupplc.com. During 2021 the pandemic continued to disrupt our ability to hold physical meetings. Instead an increased frequency of virtual presentations and meetings were offered to keep shareholders up to date. Our customers and suppliers The Board and senior management engage with our customers and suppliers through an established total partnership strategy todiscuss and reach agreements on product quality and payment terms, address concerns, identify risks, suggest solutions and demonstrate best practice. Our customers comprise high quality food retailers based in Europe and Australasia. We create long-term partnerships with these retailers which are key drivers of the Company’s growth and continued success. Through these established partnership arrangements we are able to successfully deliver safe, high quality products, competitively priced ensuring the highest level of customer satisfaction. We communicate with our customers every day to gain an in depth understanding of their, and their consumers’, needs and expectations, andthe markets within which they operate. We work closely with local and international suppliers, as part of an integrated food supply chain, which enables us to create effective partnerships that combines our knowledge of industrial- scale food production and consumer needsand expectations with their expertise in the supply of sustainable andinnovative raw materials. Our products are governed by national legislation and food safety standards throughout the supply chain. We hold regular dialogue with our suppliers on governance and compliance matters, including human rights and modern slavery. Further details on how we engageour suppliers on these matters can be found in the Sustainability report onpages 28 to 77. Corporate governance statement continued 88 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Our people, including workforce engagement The Board recognises the value its employees contribute to the Company’s sustainable long-term success, which is why the Group is committed to engaging with its workforce to discuss employee interests and concerns, as well as to identify and develop talent within the Group. Some of the workforce engagement mechanisms established to date, enabling employees to raise any matters of concern, are as follows: – Angus Porter is the designated Non- Executive Director appointed by the Board to head the Group’s workforce engagement procedures. Angus works closely with the Group key personnel to ensure the Group’s engagement practices in relation to its employees areappropriately monitored and reporting back to the Board on his findings and interactions; – An annual workforce engagement survey to capture the views and opinionsof the workforce regarding howthey feel about working in the Group, and the support they receive; – Induction programmes for new employees; – Internal communications App, “MyHFG”, which is an information and communication resource that provides aplatform for employees to receive news, participate in the annual engagement survey and a number of other activities. “MyHFG” proved to be an invaluable resource during the pandemic; – Hosting of virtual leadership conferences and town halls during the year to ensure our employees are fully engaged in strategy and progress and know how they can personally contribute; – Values rewards programmes, such as “Hilton Heroes” across the Group to identify and reward dedication andtalentwithin the workforce; – Employee forums with a view to strengthening the ‘employee voice’ within the Group; – Continuation of our accelerated leadership development programmes utilising virtual technology during the pandemic; – Development of a people analytics dashboard to ensure continuous development in relation to our workforce; – Development of an inclusion and diversity strategy including strategic sponsorship of the Meat Business Women network and the launch oftheHFG Women’s Network; – A remote working toolkit to support home workers and their leaders duringthe pandemic; – Implementation of global health andsafety standards and KPIs; and – A whistle-blowing mechanism throughwhich employees and others can raise concerns about suspected business misconduct, wrongdoing including infinancial reporting or othermatters ordangers at work. Further measures include understanding reasoning behind emotive employee survey responses, establishing better communication and information flow locally amongst the business divisions andimproving teams’ working together and manager feedback. The Board has assessed the above engagement mechanisms and corrective actions and is satisfied that these are aligned with the Company’s purpose, values and strategy. Community & environment Hilton seeks to be a good neighbour in all its locations and is committed to social responsibility built through the relationships we have with our communities and legitimate public interest groups. Further details on how we engage with the community and on environmental matters can be found in the Sustainability report on pages 28 to 77. With regard to tax we recognise the importance of the tax contribution that wemake and consider the needs of all our stakeholders. Hilton is committed to paying the right amount of tax at the right time. We have a low risk appetite with a simple corporate structure based around our commercial operations. We do not engage in planning schemes or arrangements that could be considered aggressive or artificial in nature. Consistent with this, the Group’s approach to transfer pricing is to ensure that transactions reflect the underlying commercial arrangements, and therefore the use of transfer pricing as a means toartificially avoid tax is prohibited. By order of the Board Neil George Company Secretary 5 April 2022 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 89 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Key areas of focus included reviewing acquisition accounting and the new TCFDdisclosures.” JOHN WORBY CHAIRMAN OF THE AUDIT COMMITTEE 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 ofthe Nomination Committee. In 2021 theCommittee comprised the Chairman oftheCommittee, John Worby, and the other Independent Non-Executive Directors, Christine Cross, Angus Porter and Rebecca Shelley. Patricia Dimond joined the Committee on 1 April 2022. At least one member has recent and relevant financial experience and between them they have awide experience of the food industry and commerce in general. Other individuals such as the Chairman, Chief Executive Officer, Chief Financial Officer, Internal Auditor and the external auditors are invited to attend meetings as appropriate. The external auditors and the Internal Auditor have the opportunity for direct access to the Committee without the Executive Directors being present. Attendance at meetings ofthe AuditCommittee Number attended Percentage attended John Worby 4 100% Christine Cross 4 100% Angus Porter 4 100% Rebecca Shelley 4 100% Report of the Audit Committee 90 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Responsibilities of the Committee The main responsibilities of the Audit Committee, which are contained in the UKCorporate Governance Code and also in the Committee’s terms of reference, arethe review and monitoring of: – 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; – whether the annual report and accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the company’s position and performance, business model and strategy; – the Company’s internal financial controls and internal control and risk management systems and their effectiveness; – the work done and the effectiveness ofthe Company’s internal audit function; – the scope and effectiveness of the external auditors including making recommendations to the Board, about the appointment, reappointment and removal of the external auditor, and approving their remuneration and terms of engagement; – the external auditor’s independence and objectivity including the policy on the engagement of the external auditor to supply non-audit services, considering the impact this may have on independence; – the effectiveness of the external auditprocess, taking into consideration relevant UK professional and regulatory requirements; and – the adequacy of the Company’s whistleblowing and anti- bribery arrangements. As part of its responsibilities the Committee meets with the external auditors and the head of internal audit at least once a year without management being present. In addition it reports to the Board on how it has discharged its responsibilities. How the Committee has discharged its responsibilities During 2021 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 Committee reviewed the half andfull year financial reports including the application of accounting policies, estimates and judgements in their preparation and, the clarity and completeness of the disclosures. The Committee also held discussions withmanagement and the external auditorand reviewed supporting papers inrespect of these matters. The key areas of focus and significant issues considered during the year were: – a review of revenue recognised on the Group’s major contracts. The external auditor identified complex customer arrangements as an area of audit focus and the Committee fully considered these issues, including a review of customer balances in relation to these contracts at the year end. The Committee concurred with these balances. 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 relation tothese contracts; – a review of the accounting for the acquisition of Fairfax Meadow and the remaining shareholding in Dalco, including the allocation of the purchase price, including intangible assets and goodwill. The Committee considered papers prepared by management and concurred with the preliminary accounting treatment and disclosures made in the Annual report; – a review of accounting developments. The Committee reviewed the impact ofnew IFRS standards effective in the year and their adoption by the UK; – an assessment of the Group’s cost plus contracts in relation to IFRS 16 to determine whether they contain a lease. The Committee particularly focused on new contracts entered into during the year. As in previous years the Committee remains comfortable that there are no such implied lease arrangements; – reviewing the SV Cuisine acquisition deferred consideration; – reviewing the impacts and insurance claim status from the fire at Hilton’s facility in Belgium and reviewing and agreeing the treatment of asset write offs and related disclosures; – the Committee held a separate workshop with key executives to review the work done and proposed disclosures to meet the disclosure requirements under the Task Force on Climate-related Financial Disclosure (TCFD) framework including the reasonableness of the metrics and targets disclosed in the Annual report. The Committee was satisfied with the disclosures made (pages 64 to 72); and – a review of the continuing impact of Covid-19 on the business and its projected cash flows. The Committee considered the impact of potential sensitivities on the Group’s cash flows and concurred that the statements made in relation to going concern and the Group’s viability were appropriate. The Committee was satisfied that 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 modeland strategy. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 91 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Report of the Audit Committee continued The Committee reviewed a paper prepared by the Chief Financial Officer relating to going concern and the Group’s longer term viability and concluded that the Group should be considered as a going concern. The proposed disclosures relating to the Group’s longer term viability were agreed. Thereafter the Committee recommended that the Board approve these financial reports for publication and that the letter of representation to the external auditor be signed. Internal audit, 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. There was ongoing focus on the continuing challenges from the Covid-19 pandemic including a roadmap out of lockdown. Additional work included risk assurance mapping, climate change including TCFD and business continuity following the Belgium fire. The Committee also reviewed the Group’s cyber security and preparedness against cyber attacks. The Committee noted the findings from this and other work done and agreed the internal audit plan for the year ahead. The Committee was satisfied that the internal audit function had been effective in its work during the year. The Committee received regular updates on risk management including changes to the assessments of risks and consideration of emerging risks. The Committee also reviewed the work done by the Risk Management Committee and an updated Principal Risks Register. At the end of the year, the Committee considered a report from the Head of Internal Audit on the effectiveness of the risk management and internal control systems. Based on the report and the work done by internal audit during the year, the Committee concluded that the Group’s internal control and risk management systems were operating effectively and reported accordingly tothe Board. The Committee also receives updates on any allegations of whistle-blowing, bribery and fraud in the business at every meeting together with individual updates as required. The Committee was satisfied with management actions in respect ofsuch allegations. External audit The Committee oversees the relationship with, and the performance of, the external auditor. UK law sets the maximum duration for an audit firm to conduct the statutory audit of a public interest entity as 10 years although can be extended to up to 20 years where a public tendering process is conducted every 10 years. The Committee has complied with the Competition and Markets Authority ‘The Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014’. The current external auditor, PricewaterhouseCoopers LLP (PwC), were appointed in 2007 and reappointed in 2016 following a public audit tender process. As a result new external auditors are required to be appointed by 2026. However, it is the Audit Committee’s current intention to undertake an audit tender at an earlier date so that new external auditors are appointed for the 2024 audit. The current audit partner took over responsibility for the audit in 2019 in accordance with PwC’s policy that the lead partner is rotated every five years to ensure continued objectivity and independence. The next rotation is due in 2024. The engagement partners on key components are also required to rotate every five years. Meetings were held with the external auditor before the audit to agree their audit plan and fees and after their half year review and year end audit work to discuss their key findings. The Committee considered issues raised by PwC in their audit management letter ensuring that they were discussed locally with an action plan to resolve. PwC 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 periodic quality control reviews. Potential independence threats through the provision of non-audit services are mitigated through various safeguards. During 2021 the Committee were advised that the Financial Reporting Council’s (FRC) Audit Quality Review team had selected the Hilton Food Group plc 2020 audit for specific review. PwC discussed a summary of the findings from this review with the Audit Committee in February 2022. There were no key findings arising from the review. After the conclusion of the audit, the Committee reviewed the effectiveness of the audit including PwC’s performance based on a questionnaire completed bymembers of the Committee and key finance staff. The conclusion was that theaudit had been effective. 92 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 The Committee continues to be satisfied with the independence and performance of PwC and have therefore recommended to the Board that they should be reappointed as the Group’s auditor at the forthcoming Annual General Meeting. Non-audit services and fees Hilton’s policy on the use of the external auditor for non-audit services designed to preserve the independence of the external auditor was reviewed and updated during the year. This policy categorises non- audit services into (i) continuing services which the Committee permits the external auditor 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 2021 at £74,000 (including £49,000 for work in connection with the half year review) represents 10% of audit fees in the year and an average of 12% over three years which compares with a 70% cap. Excluding items required by EU or national legislation, the three year average of non-audit fees was 4% of audit fees. Further details of audit and non-audit costs can be found in note 6 on page 134. The Committee considers that the level of non-audit fees does not affect the independence of the external auditor. Other The whistle-blowing policy was updated to comply with the common minimum internal reporting standards contained in the EU Whistle Blower Directive and the introduction of a 24/7/365 telephone and web-based reporting service available in all local languages. Meetings were held with both the external and internal auditors without management present. 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 John Worby Chairman of the Audit Committee 5 April 2022 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 93 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 The Committee considered the continuing evolution ofastrong, well-balanced anddiverse Board.” ROBERT WATSON OBE CHAIRMAN OF THE NOMINATION COMMITTEE Attendance at meetings ofthe Nomination Committee Number attended Percentage attended Robert Watson OBE 2 100% John Worby 2 100% Christine Cross 2 100% Angus Porter 2 100% Rebecca Shelley 2 100% 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 The Committee is chaired by the Chairman of the Board. The independent Non- Executive Directors are the other members of the Committee who therefore comprise the majority. Patricia Dimond joined the Committee following her appointment as aNon-Executive Director on 1 April 2022. 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 and its Committees which should have acombination of skills, experience and knowledge; – to promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths; – to give consideration to succession planning for Directors and other senior executives and identify appropriate candidates for the approval of the Board; – to make recommendations to the Board with regard to any changes and oversee new appointments to the Board; – to review the results of the Board performance evaluation relating to thecomposition of the Board; and – to review the time requirements of Non-Executive Directors. Report of the Nomination Committee 94 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 How the Committee has discharged itsresponsibilities During 2021 the Committee met twice and considered a range of topics including resource, succession planning and reviewing time commitments. The Committee considered the continuing evolution and composition of the Board inorder to maintain a strong, well-balanced and diverse Board with particular focus in the year on the Chairman, Non-Executive Director and CFO positions. The Committee gave further consideration to the Chairman position and planning for the time when I step down which is anticipated to be in 2023 or 2024. Plans fora process to appoint my successor are being developed. The Committee noted that John Worby had advised the Board that he will not be seeking re-election at Hilton’s AGM. Therefore the need for a further Independent Non-Executive Director was identified to replace John. Desirable attributes for potential candidates included financial expertise as well as experience in the food, retail and international sectors and having the capacity to give the necessary time commitment. Hilton engaged Sam Allen Associates, who have no connection with the Company or individual directors, to lead the search. They identified and approached potential candidates leading to the development of a shortlist who were interviewed, and references taken, following which the Committee recommended to the Board that Patricia Dimond be appointed. Following her commencement on 1 April 2022 and John’s departure in May the balance oftheBoard independence will be maintained at 57% and Board gender diversity from 29% to 43%. Nigel Majewski indicated his desire to step down from the Board in a reduced capacity. I am delighted that he has agreed to stay with Hilton as director of investor relations and strategic development. Through the Group’s talent pipeline aninternal candidate was identified as the replacement Chief Financial Officer. The Committee recommended to the Board that Matt Osborne, the current Group Financial Controller, be appointed and he will take up the position following the AGM in May. Hilton is an inclusive business and we ensure that we give equal access to all opportunities. Our approach supports diversity which is overseen by the Committee. The gender balance of those in senior management and their direct reports continues to improve increasing from 24% in 2020 to 28% in 2021. We continue to develop management structures to promote our talent pipeline as part of a succession planning process covering the Directors and senior management positions to enable, where possible, recruitment of vacant positions from internal candidates. Accordingly processes are in place 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. Given the growth inbusiness categories and geographies, the Committee continues to monitor the planning of resource implications. The Chairman has discussions with eachDirector 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 Robert Watson OBE Chairman of the Nomination Committee 5 April 2022 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 95 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Annual bonus and LTIP outcomes are reflective of strong Group and individual performance.” CHRISTINE CROSS CHAIRMAN OF THE REMUNERATION COMMITTEE Attendance at meetings ofthe Remuneration Committee Number attended Percentage attended Christine Cross 2 100% John Worby 2 100% Angus Porter 2 100% Rebecca Shelley 2 100% Annual Statement Dear Shareholder, On behalf of the Board I am pleased to present the Directors’ remuneration report for the 52 weeks ended 2 January 2022. This report sets out the Company’s policy on Directors’ remuneration as well as information on remuneration paid to Directors during the year. 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 2018 UKCorporate Governance Code (the ‘Code’) and the Financial Conduct Authority Listing Rules (the‘Listing Rules’). 2021 saw continued disruption due to the Covid pandemic combined with the rapid organic and inorganic growth of the Group. We continued to keep our factories open and ensure that supermarket shelves were stocked with fresh food products whilst safeguarding our workforce. We did not seek or receive any governmental assistance or support including no use offurlough in our production facilities and noredundancies and our progressive dividend policy was maintained. A new facility in New Zealand opened during the year. We also acquired Fairfax Meadow and bought the remaining stake in Dalco, both elements of our continued diversification by product and route to market. Amidst this, the Group delivered significant adjusted operating profit and earnings per share (EPS) growth of over9%. Directors’ remuneration report 96 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Directors’ remuneration major decisions and substantial changes 2021 pay outcomes The Company continues to successfully implement its strategy with a wide spread of the Group’s operations across Europe and the Asia Pacific region which represents a material strength. The financial results for 2021 were strong reflecting ongoing efforts by management to overcome significant challenges in our response to Covid. The remuneration policy operated as intended in terms of Company performance and quantum and accordingly no changes were considered to be necessary and no discretion exercised. The annual bonus will pay out at 68% of the maximum and LTIP awards will vest at 70.4% of the maximum. There were no payments to Directors during the year outside of the approved Policy and there were no changes made to the terms of the bonus or outstanding share awards. Annual bonus The financial element of the annual bonus was based on the Group’s underlying adjusted profit before tax. The actual performance exceeded the target by 1.4% resulting in a financial element bonus of 65.0% of salary being awarded. This is augmented by the personal element of the bonus for the Executive Directors which was based on performance objectives set in respect of delivering the strategy, planning for the future, leading the food quality, health and safety and environmental agenda, ensuring a culture and talent pipeline and building positive relationships with investors. Managing the ongoing Covid situation was an additional task to these objectives. The Committee’s assessment of performance was that both Executive Directors should receive 20% of salary for above target performance. In aggregate a total bonus of 85.0% of salary is payable to each Executive Director in respect of 2021 performance out of a maximum of 125% of salary. Long Term Incentive Plan The LTIP award granted in 2019 and due to vest in 2022 was subject to performance against stretching target metrics including EPS with a weighting of 70% and TSR with a weighting of 30%. Threshold EPS performance was set at growth of 6% per annum whereby 10% of the awards would vest, rising to EPS growth of at least 15% per annum whereby 100% of the awards would vest. Threshold TSR performance was median whereby 10% of the awards would vest rising to upper quartile whereby 100% of the awards would vest. Following the end of the three year performance period ended 2 January 2022, compound annual EPS growth was 13.15% with 81.5% vesting and TSR performance was 66th out of 163 constituents with 44.4% vesting meaning that overall 70.4% of these awards will vest. The Committee believes the annual bonus and LTIP outcomes are reflective of Group and individual performance over the relevant one and three year performance periods. An outstanding performance that demonstrated the strength and motivation of the management team in operating through taxing times. New LTIP awards were granted in 2021 which are subject to EPS and TSR performance conditions. The EPS 6% threshold and 13% maximum compound annual growth targets reflect Hilton’s business cycle. The Committee considers that these targets are robustly challenging given the geographic expansion and market dynamics. 2022 implementation The current remuneration policy will soon reach the end of its three year term. Consequently a new policy will be submitted at the forthcoming AGM for approval by shareholders. The proposed changes to the policy are summarised below with the detailed policy wording in the policy section of this Directors’ remuneration report together with an illustration of future application of remuneration policy. We have consulted with major shareholders and the main representative bodies to ensure that we are implementing the policy in a way that is aligned with good governance and commercial best practice whilst motivating the management team to continue delivering for all stakeholders. Base salaries Our broad principle for base salary is to align any increases for the Executive and Non-Executive team with the wider workforce and this principle has been in place for two years for the CEO post his succession to the role. The Committee recognised Hilton’s continuing significant growth, international breadth and complexity achieved during 2021 and also the Foppen and Agito acquisitions completed since the end of the year. This rapid expansion, designed to deliver long-term sustainable value to shareholders, is set to continue through 2022 and into 2023. This results in a business where the production facilities have increased by 61%, the number of countries with operations by 33% and the number of employees by over 50% since 2018. Given the above, the CEO role is significantly larger, more complex and with more global demands and accordingly the Committee approved an increase in Philip’s base salary by 12.6% to £570k from 1 January 2022 and with a further realignment in January 2023. Pension and benefits Pension contributions for the CEO and CFO, and all future Executive Director appointments, will be workforce aligned, as required by the Code. Contributions will be reduced from 15% to 7% of salary, following the approval of the triennial remuneration policy at the 2022 AGM bringing the Company into compliance with the Code. Variable pay For 2022 the maximum annual bonus opportunity will continue to be capped at 125% of base salary for Executive Directors which has remained unchanged for the past eight years. The financial element of up to 105% of salary will be measured by comparing targeted performance against the underlying adjusted profit before acquisition intangible amortisation, depreciation of fair value adjustments to property, plant & equipment, exceptional items and tax removing any tax implications which are largely out of management’s control. In addition 20% of salary will be available based on individual performance against personal and strategic objectives aggregating to a 125% of salary maximum bonus opportunity for the Executive Directors. The annual bonus targets are considered to be commercially sensitive at this point although full disclosure of the targets and performance against them will be provided on a retrospective basis in next year’s Directors’ remuneration report. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 97 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Under the new policy the maximum annual bonus opportunity to be operated from 2023 will increase to 150% of salary for which a bonus deferral mechanism will be introduced whereby one third of any bonus over 50% of salary will be deferred into Hilton shares for two years. The 2022 LTIP awards for Executive Directors are expected to be granted over shares equal to 175% of salary with vesting determined by stretching EPS and relative TSR performance targets. Under the new policy this limit will remain unchanged. Given the considerable focus on ESG and in particular climate-based measures linked to science-based targets, wastage and carbon neutrality, we have developed robust quantitative measures over the last year and plan to introduce them from the 2023 LTIP onwards once the Committee is comfortable with the calibration of the targets. Other policy changes Annual bonus and LTIP malus and clawback provisions will be updated toalign with the Code. The CFO shareholding guideline will increase from 175% of salary to 200% of salary. No change will be made to theCEO’s shareholding guideline (300%of salary). Post cessation shareholding guidelines will increase to 100% of the relevant in-employment guideline for two years post cessation (from 50% for one year currently). Activities of the Committee The Committee’s main activities during 2021 are summarised below and full details are set out in the relevant sections of this report. – Agreeing Executive Director base salaryincreases for 2022; – Agreeing annual bonus award levels for 2020 and setting the targets for 2022; – Reviewing the EPS performance targets and determining the percentage vesting for the 2018 LTIP awards which vested in 2021; – Approving the LTIP awards granted in 2021; – Approving the issue of the Sharesave scheme for 2021; – Reviewing the CEO pay ratio disclosures; – Reviewing pensions across the Group in order to approve a pension alignment strategy; and – Performing an annual evaluation of theCommittee’s performance and reviewing its terms of reference. In addition, the Committee considered how the remuneration policy and practices are consistent with the six factors set out in Provision 40 of the Code: Clarity – Our policy (current and proposed) approved by shareholders in 2019 is understood by our senior executive team and has been clearly articulated to our shareholders and representative bodies (both on an ongoing basis and when changes are proposed). This includes appropriate two way dialogue with staff, and consideration of their views in respect of remuneration within the Group. Simplicity – The Committee is mindful of the need to avoid overly complex remuneration structures which can be misunderstood and deliver unintended outcomes. Therefore, a key objective of the Committee is to ensure that our executive remuneration policies and practices are straightforward to communicate and operate. Risk – Our policy (current and proposed) has been designed to ensure that inappropriate risk-taking is discouraged and will not be rewarded through (i) the balanced use of annual and long-term pay which employ a blend of financial, non- financial and shareholder return targets; (ii) the significant role played by equity in our incentive plans; and (iii) malus/ clawback provisions. Predictability – Our incentive plans are subject to individual caps, with our share plans also subject to market standard dilution limits. Proportionality – There is a clear link between individual awards, delivery of strategy and our long-term performance. In addition, the significant role played by performance-related pay, together with the structure of the executive directors’ service contracts, ensures that poor performance is not rewarded. Alignment to culture – Our executive pay policies are fully aligned to our culture through the use of metrics in both the annual bonus and LTIP. Use of discretion Under the Code and its terms of reference, the Committee has the right to exercise independent judgment and discretion in itsassessment of Directors’ remuneration, taking account of the performance of the Company, Directors’ individual performances and wider circumstances. The Committee was satisfied that no discretion needed to be exercised in respect of the policy or its operation for the52 weeks ended 2 January 2022. Looking ahead The Remuneration Committee is committed to ensuring that the policy and its implementation remains compliant with all legislative requirements as they come into force, and is aligned with evolving best practice, while continuing to take account of our overarching remuneration philosophy and delivering value to shareholders. Transparency and equality of pay across all grades, gender and geographies remains akey focus of the business and is a regular item on the Committee’s agenda. Shareholder consultation andAGMapprovals Every year all shareholders have the right to vote on the executive remuneration as proposed by the Board. At our forthcoming 2022 AGM an advisory resolution in respect of the Directors’ remuneration report (excluding the policy) together with a binding resolution on the proposed new remuneration policy will be put to shareholders. I would like to thank investors and the representative bodies for their positive feedback on the new policy proposals which the Committee considered in detail. I hope we continue to receive your supportin respect of our Annual report atour forthcoming AGM. Christine Cross Chair of the Remuneration Committee Directors’ remuneration report continued 98 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Directors’ remuneration policy Introduction The current remuneration policy was passed by a binding shareholder vote at the Company’s 2019 Annual General Meeting and became effective from the date of that meeting. Following its three year term a new policy, as set out below, will be proposed as a resolution subject to a binding shareholder vote at the Company’s 2022 Annual General Meeting. The new policy takes into account the provisions of the 2018 UK Corporate Governance Code and other good practice guidelines from institutional shareholders and shareholder bodies. Subject to approval by shareholders it will become effective from the 2022 AGM date and shall be in place for the next three year period unless a new policy is presented toshareholders before then. All payments to Directors during the policy period will beconsistent with the approved policy. Policy scope The Policy applies to the Chairman, Executive Directors and Non- Executive Directors. Overview of 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 shareholders’ interests. The policy, developed following a comprehensive remuneration review, hasthe following objectives: – To develop a remuneration structure which supports the Company’s strong performance culture and our key objective of creating long term shareholder value; – To enable the Company to recruit and retain executives with the capability to lead the Company on its ambitious growth path; – To ensure our remuneration structures are transparent and easily understood both internally and externally; – To align the interests of all our stakeholders; the HFG team, our customers, the communities and environment in which weoperate andour shareholders; and – To reflect principles of best practice. A summary of the key changes proposed for inclusion in the new remuneration policy are as follows: – Annual bonus potential for the CEO and CFO to increase from 125% to 150% of salary from the next bonus year commencing on 1 January 2023; – The introduction of a bonus deferral mechanism such that one third of anybonus over 50% of salary to be deferred into HFG shares for two years; – Pension contributions for the CEO and CFO, and all future Executive Director appointments, to be workforce aligned, reducing from 15% to 7% of salary, totake effect from the date of 2022 AGM Policy approval; – Annual bonus and LTIP malus and clawback provisions to be updated to align with the 2018 UK Corporate Governance Code; – CFO shareholding guideline to increase from 175% of salary to 200% of salary. No change will be made to the CEO’s shareholding guideline (300% of salary); – Post cessation shareholding guidelines increased to 100% of the relevant in-employment guideline for 2 years post cessation (from 50% for 1 year currently). The increased guideline will only include shares from share awards granted post the 2022 AGM (i.e. own shares purchased and shares from past awards will be excluded); and – No change to the current 175% of salary LTIP potential albeit the Committee intends to supplement the EPS and relative TSR performance measures with ESG performance measure(s) from2023 onwards. Remuneration policy table 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 Purpose and link to strategy Operation Maximum opportunity Base salary To recruit and reward executives of a suitable calibre for the role and duties required. Normally reviewed annually by the Committee with effect from 1 January, taking account of Company size and structural changes, performance, individual performance, changes in responsibility and levels of increase for the broader employee population. Reference is also made to levels within relevant FTSE and industry comparators on a periodic basis although this is only one factor that is taken into account when determining pay levels and increases. The Committee considers the impact of any base salary increase on the total remuneration package. Pay levels throughout the organisation are also taken into account in order to ensure adequate provision for timely succession. Normally capped by the increases made to the general workforce. On occasion it may be appropriate for a new director to be positioned on a below market base salary but then to provide above market increases as the executive gains experience in the role. Benefits To provide market competitive benefits toensure the retention ofemployees. The Company typically provides: – Company car and fuel; – Private healthcare; and – Other ancillary benefits, including relocation expenses (asrequired). Any reasonable business related expenses (including taxthereon) may be reimbursed. Executive Directors are eligible for other benefits which are introduced for the wider workforce on broadly similar terms. The value of traditional benefits is based on the cost to the Company andis not pre-determined. Relocation expenses or benefits will take into account the nature of the relocation and will be provided on afairand reasonable basis. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 99 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Element Purpose and link to strategy Operation Maximum opportunity Pension To provide adequate retirement benefits. Employer contributions are made to money purchase pension schemes or in certain circumstances a salary supplement may be paid in lieu of such pension contributions. Up to 7% of basic salary to align withthe broader workforce. Annual bonus To encourage and reward delivery of the Company’s short term financial and/or strategic objectives. The Committee will review performance metrics at the start ofthe year. Performance criteria will be aligned to the Company’s strategic objectives at that time. The majority of the bonus will be linked to challenging financial metrics, which will typically include a measure of profit. Strategic or other individual targets may be used to determine aminority of the bonus outcome. For financial measures, typically a sliding scale of targets will beset. Where operated, no more than 20% of that element shall be payable for threshold performance. It may not be possible toset sliding scale targets for individual or strategic measures but full disclosure on the objectives and performance against these will be provided on a retrospective basis. One third of any bonus over 50% of salary will be deferred intoshares for two years. Dividend equivalents may be paid on the value of dividends paid during the vesting period on any deferred bonus shares. The payment may be in the form of additional shares and mayassume reinvestment. Bonuses are subject to malus and claw-back provisions in circumstances of misstatement, error or gross misconduct, reputational damage and insolvency/corporate failure. Up to 150% of base salary (125% ofbase salary for 2022). Long term incentives To encourage and reward delivery of the Company’s medium term objectives. Toprovide a way of building up a meaningful shareholding in the Company and providing alignment with shareholders’ interests. Under its Long Term Incentive Plan (LTIP) Hilton makes annual awards of conditional shares or nil cost options to selected senior executives. Awards vest subject to continued employment and satisfaction of challenging performance conditions measured over three years to be satisfied by the issue of new shares or through purchasing shares in the market. The performance measures will be based on financial (e.g.EPS),share-price related (e.g. relative TSR) and, when appropriate, ESG performance targets. Performance targets will be determined at the date of grant withup to 10% vesting at threshold performance. The Committee may introduce new, or reweight existing, performance measures so that they are aligned with the Company’s strategic objectives at the start of each performanceperiod. Quantitative ESG measures aligned withCompany strategic objectives may alsobe added cappedat 15% of the total award. Awards are subject to malus and claw-back provisions for three years following vesting in circumstances of material misstatement, error or misconduct, reputational damage andinsolvency/corporate failure. A two-year post-vesting holding period will operate for LTIP awards granted to Executive Directors. Dividend equivalents may be paid on the value of dividends paidduring the vesting period or any holding period (if applicable). The payment may be in the form of additional shares and may assume reinvestment. Up to 175% of salary for allExecutiveDirectors. All employee share schemes To encourage employee share ownership and thereby increase their alignment with shareholders. All employees are eligible to join any permissible all employee scheme. Executive Directors will be eligible to participate in anyall employee share plan operated by the Company on the same terms as other eligible employees. Under Hilton’s Sharesave Scheme (HMRC approved for the UKand Ireland) regular savings over three years is followed byasix month period to exercise the options granted. No performance conditions attach to options granted undertheScheme. The maximum level of participation is subject to the limits imposed byHMRC from time to time (or alowercap set by the Company). Directors’ remuneration report continued 100 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Element Purpose and link to strategy Operation Maximum opportunity Shareholding and post cessation guidelines To further align Executive Directors’ interests with those of long term shareholders and other stakeholders. Executive Directors are expected to build a holding in the Company’s shares equal to a minimum value of 300% of basesalary for the Chief Executive Officer and 200% of basesalary for all other Executive Directors. To the extent that this guideline has not been achieved, executives are normally required to retain 50% of any vested share awards (after the sale to meet tax obligations). Shareholdings for new executive Board members can be builtover a five year period. N/A Post cessation shareholding guidelines will increase to 100% of the relevant in-employment guideline for two years post cessation (from 50% for one year currently). However the increased guideline will only include shares from share awards granted post the 2022 AGM (i.e. own shares purchased and shares from past awards will be excluded). The previous policy post cessation guideline will continue to apply until sufficient shares under the new policy have been acquired. N/A Non-Executive Director fees To attract and retain a high-calibre Non- Executive Chairman and Non-Executive Directors by offering a market competitive fee level. The Non-Executive Directors receive fees for carrying out theirduties. Fees are reviewed annually. A base fee is augmented for Committee Chairmanship or membership to take into accountthe additional time commitment and responsibilities associated with those committees. Neither the Chairman northe Non-Executive Directors are eligible for any performance related remuneration. Non-Executive Director remuneration is determined by the Chairman and the Executive Directors. The Executive Chairman’s remuneration is determined by the Remuneration Committee. If there is a temporary yet material increase inthetime commitments for Non-Executive Directors, theBoard may pay extra fees on a pro-rata basis to recognisetheadditional workload. Additional fees may be payable in relation to extra responsibilities undertaken such as chairing a Board Committeeand/or a Senior Independent Director role orbeingamember of a committee. Any reasonable business-related expenses (including taxthereon) can be reimbursed if determined to be ataxablebenefit. As for the Executive Directors, thereisno prescribed maximum annual increase, although will normally align to the workforce pay increase. Any increases to fee levels will take into account the general salary increase for the broader UKemployee population, the level of timecommitment required to undertake the role and the level offeespaid in the general market. 1. As Hilton operates in a number of geographies, remuneration practices vary across the Group. However, employee remuneration policies are based on the same broad principles and the remuneration policy for the Executive Directors is designed with regard to the policy for employees 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 greatestpotential to influence Group levels of performance. 2. 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: – participation; – the timing of the grant of award and/or payment; – 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) whichaddress vesting date, exercise period and reduction in number of vesting options; – 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; andadjusting the long term incentive vesting outcome if the level of vesting is not considered to be commensurate with performance over the period. The Committee, in using its discretion, would act fairly and reasonably and would seek to consult with shareholders prior to the use of any upwards discretion. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 101 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Other policy information Element Description Non-UK based Directors and foreign currency translation 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. Approach to recruitment 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 feearrangement would be set in accordance with the approved remuneration policy in force at that time. The salary for a new Executive Director shall take into account the experience and calibre of the individual and the market rate required for recruiting him or her. The initial salary may be set below the normal market rate, with phased increases over the first few years as theExecutive Director gains experience in their new role. Pension provision will be workforce aligned. Depending on the timing of the appointment, the Committee may deem it appropriate to set different annual bonus performance criteria for the remainder of the first performance year of appointment. The bonus would be pro-rated to reflect the portion of the yearinemployment. In addition, an LTIP award can be made shortly following an appointment (providing that the Company is not inaclosed period). The maximum bonus and LTIP grant level will be in accordance with the maxima outlined in the policy table. If an individual is forfeiting remuneration from his or her previous employer, 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 reflectand 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. The aim of any such award would be to ensure that so far as possible, the expected value and structure of the award will be no more generous than the amount being forfeited. Shareholders will be informed of any such payments in the remuneration report. For an internal Executive Director appointment, any variable pay element awarded in respect of the prior role will be allowed to pay outaccording 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 has the discretion to pay ongoing relocation costs for areasonable period, as well as one-off payments (assuming they are fair and reasonable). Any share-based awards referred to in this section will be granted as far as possible under the Company’s existing share plans. Ifnecessary, awards may be granted outside of these plans as permitted under the Listing Rules. Payment for lossof office Payments for loss of office are made in accordance with the terms of the Directors’ service contracts as below. On termination no bonus is payable unless the Committee determines good leaver circumstances apply where, subject to performance conditions, a pro-rata bonus may be payable at the Company’s discretion. LTIP awards will generally lapse on cessation although they may be capable of vesting in certain good leaver situations. For good leavers, outstanding share awards may vest at the original vesting date, or on the date of cessation if the Committee decides, subject to time pro-rating and the performance conditions being satisfied. 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 may pay reasonable outplacement and legal fees where considered appropriate. In addition, the Committee may pay any statutory entitlements or settle or compromise claims in connection with a termination of employment, where considered in the best interests ofthe Company. Consideration ofshareholder views The Committee is always interested in shareholder views and is committed to an open dialogue. Accordingly, the Committee will seek to engage with major shareholders on any proposed significant changes to its remuneration policies or in the event of a significant exercise of discretion. The Committee considers shareholder feedback received in relation to each AGM alongside views expressed during the year. In addition, we engage actively with our largest shareholders and consider the range of views expressed. Consideration of employment conditions elsewhere in theGroup The Committee takes into account the general employment reward packages of employees across the Group when setting policy forExecutive Director remuneration and is kept informed of changes in pay across the Group. Employees have not previously been actively consulted on Director remuneration policies but this may be considered in future where appropriate. 102 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Directors’ remuneration report continued Director service contract and other relevant information Provision Executive Directors Non-Executive Directors Term Philip Heffer and Nigel Majewski appointed on 24 April 2007 withno fixed term Robert Watson – from 1 January 2021 John Worby – from 23 March 2019 Christine Cross – from 23 March 2019 Angus Porter – from 1 July 2018 Rebecca Shelley – from 1 April 2020 Re-election atAGM Annually under the Company’s Articles and for FTSE 350 companies under the UK Corporate Governance Code Annually under the Company’s Articles and for FTSE 350 companies under the UK Corporate Governance Code Notice period Up to 12 months for both the Company and the Director. Theservice contract policy for new appointments will be onsimilarterms as existing Directors Six months for both the Company and the Director Termination payment/ payments in lieu of notice 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 None Change of control There are no enhanced terms in relation to a change of control There are no enhanced terms in relation to a change of control External appointments External appointments can be held and earnings retained fromsuch appointments with the Company’s permission N/A Inspection Executive Director service agreements and Non-Executive Director appointment letters are available for inspection at the Company’s registered office. Illustration of future application of remuneration policy The chart below illustrates 2022 Executive Directors’ remuneration at different levels of performance under the remuneration policy. 2022 DIRECTOR REMUNERATION ILLUSTRATION £’000 Minimum 630 100% Philip Heffer On target 1,34247% Maximum 31% 2,055 Maximum 27% 32% 21% 41% 28% 37% 36% 2,340 Minimum 459100% On target 98247% Maximum 30% 1,504 Maximum 27% 32% 21% 42% 28% 37% 36% 1,713 Nigel Majewski Fixed One year targets Multiple year targets * With 50% share price growth Notes 1. Fixed elements of pay comprise salary and fees, benefits and pension. Salary and fees include known increases and benefits are included at 2021 levels. Pension is included at 7%. 2. One year targets represent the annual bonus under the updated remuneration policy even though it will not apply until 2023. The minimum scenario assumes no bonus on the basis thatthreshold is not reached, the on target scenario assumes aggregate 75% of salary bonus, and the maximum scenario assumes the full 150% bonus. 3. Multiple year targets comprise long term incentives. The minimum scenario assumes that threshold performance is not reached with no awards vesting, the on target scenario isbasedon 50% of the awards vesting and the maximum scenario reflects the maximum performance with 100% of the awards vesting. 4. The basis of the calculation of the share price appreciation is that the share price embedded in the calculation for the ‘maximum’ bar chart is assumed to increase by 50% across theperformance period. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 103 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Annual report on remuneration 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 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 Chair of the Remuneration Committee. In 2021 the Committee comprised the independent Non-Executive Directors Christine Cross, John Worby, Angus Porter and Rebecca Shelley. Patricia Dimond joined the Committee following her appointment as a Non-Executive Director on 1 April 2022. The Committee is chaired by Christine Cross who had extensive experience of serving on remuneration committees prior to her appointment tochair the Committee. Other individuals such as the Chairman, Chief Executive and external advisors may be invited by the Committee to attend meetings as and when required. The Company Secretary is in attendance atall meetings. Responsibilities of the Committee The main responsibilities of the Remuneration Committee which are contained in the Code and also in the Committee’s terms of reference are: – setting the remuneration policy and agreeing payments for the Company’s Non-Executive Chairman, the Executive Directors and Senior Leadership Team; – approving the design of, and determining the targets for, any performance-related pay schemes operated by the Company and approving the aggregate annual payments made under such schemes; – reviewing the design of all share incentive plans for approval by the Boardand shareholders; and – reviewing all elements of workforce remuneration and associated policies. External advisors The Committee appointed and is advised by FIT Remuneration Consultants LLP on remuneration matters. FIT’s fees, on a time and expense basis, for advice provided to the Remuneration Committee during the year were £12,750. FIT does not provide any other services to the Group and the Committee is satisfied that it provides independent and objective remuneration advice. FIT is a signatory to the Code of Conduct for Remuneration Consultants in the UK, details of which can be found on the Remuneration Consultants Group’s website at www.remunerationconsultantsgroup.com. 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 2 January 2022 the headroom available under these limits was 1.9% and 0% respectively. Statement of voting at Annual GeneralMeeting The following table shows the voting results in respect of the 2020 Directors’ remuneration report (other than the Directors’ remuneration policy) at the 2021 AGM and the last time the remuneration policy was approved by shareholders atthe2019 AGM: Approve Directors’ remuneration report Approve Directors’ remuneration policy AGM year 2021 2019 Resolution type Advisory Binding Votes for % 64,582,070 59,981,468 97.79% 86.35% Votes against % 1,456,835 9,482,939 2.21% 13.65% Votes withheld 814,022 844,433 The remainder of this section is subject to audit. 104 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Directors’ remuneration report continued Single total figure table of remuneration The remuneration of individual Directors is set out below. 52 weeks to 2 January 2022 Salary and fees (note 1) £’000 Benefits (note 2) £’000 Pension (note 3) £’000 Total fixed pay £’000 Annual bonus (note 4) £’000 Long term incentive (note 5) £’000 Total variable pay £’000 Total £’000 Executive Directors Philip Heffer 506 20 76 602 430 654 1,084 1,686 Nigel Majewski 410 12 62 484 349 530 879 1,363 Non-Executive Directors Robert Watson 265 – – 265 – 282 282 547 John Worby 60 – – 60 – – – 60 Christine Cross 60 – – 60 – – – 60 Angus Porter 55 – – 55 – – – 55 Rebecca Shelley 55 – – 55 – – – 55 Total 1,411 32 138 1,581 779 1,466 2,245 3,826 53 weeks to 3 January 2021 Salary and fees (note 1) £’000 Benefits (note 2) £’000 Pension (note 3) £’000 Total fixed pay £’000 Annual bonus (note 4) £’000 Long term incentive (note 5) £’000 Total variable pay £’000 Total £’000 Executive Directors Robert Watson 397 24 60 481 497 387 884 1,365 Philip Heffer 496 28 74 598 620 547 116 7 1,765 Nigel Majewski 402 19 60 481 502 454 956 1,437 Non-Executive Directors John Worby 59 – – 59 – – – 59 Christine Cross 59 – – 59 – – – 59 Angus Porter 51 – – 51 – – – 51 Rebecca Shelley (appointed 1 April 2020) 38 – – 38 – – – 38 Total 1,502 71 194 1,767 1,619 1,388 3,007 4,774 Notes 1. Salary and fees Reflects salaries/fees paid to Directors in respect of 2021 (with 2020 comparatives). 2. Benefits Benefits provided comprised company car and fuel and private healthcare. 3. Pension Payments were made during 2021 to money purchase pension schemes or in lieu as a salary supplement at the rate of 15% of base salary for all Executive Directors. 4. Annual bonus The 2021 annual bonus had two elements. The financial element bonus was based on adjusted profit before tax performance against a sliding scale of targets. A strategic element bonus was available based on achievement of personal objectives. The bonus outcome for 2021 for all Executive Directors is summarised below. Bonus element Metric Threshold performance Target performance Maximum stretch target 2021 achieved Financial Adjusted profit before tax £61.1m £66.3m £69.6m £67.2m % against target 92% 100% 105% 101.4% % of base salary 20% 50% 105% 65.0% Strategic % of base salary 20% 20.0% Total % of base salary 125% 85.0% The Executive Directors were given a number of different personal and strategic objectives individually tailored to their role and the needs of the business in the year now under review. The achievements against these objectives were considered carefully by the Committee. A summary of these objectives and achievements for the Executive Directors is set out below together with the assessment and overall outcome. Covid 19 added an additional task to all objectives, not envisaged when these were written, but the performance of the Group through the pandemic is testament to efforts in maintaining supply to customers whilst protecting the workforce. In a year of exceptional performance both Executive Directors were deemed tohave achieved a full 20% on their strategic objectives. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 105 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Philip Heffer Objectives Detailed Targets Remuneration Committee Assessment 1. Driving growth & financial performance – Implement the strategic plan with investment choices 1.1 Secure major retailer contracts in all markets formeatand fish with scope for range expansion 1.2 Ensure expansion of continental European andAustralasiafactory projects 1.4 Make substantial progress towards an additional major market 1.5 Proactively develop the non-meat elements of thebusiness through organic growth and M&A 1.6 Grow share in new categories with existing &new customers 1.7 Manage the implications of Brexit and Covid-19 Met in full Various meat, including fresh food, and fish contracts agreed. Expansion of Hilton Seafoods has commenced. The New Zealand facility opened in July 2021. Fish and poultry supplies in Denmark have commenced. Potential new projects are being negotiated. Acquisitions of Fairfax Meadow and the remaining shares in Dalco were completed and agreement reached on Foppen. Strong plant-based market share growth. All factories kept openthrough Covid. 2. Customer experience – Ensure that our customers are assured ofthe leading market proposition in thefresh protein sector 2.1 Continue to develop HFG record on food safety, provenance & quality 2.2 Develop a comprehensive ESG policy whilst proactivelysupporting our customers’ CSR agendas 2.3 Focus on customer and end consumer sales data toinform a structured plan for product innovation Met in full Quality and food safety culture significantly improved across the Group. ESG ratings have improved and our CSR credentials with our customers are seen as a USP of Hilton. Insights significantly improved and innovation of over 400 new products in 2021. 3. Continuous improvement – Maintain & develop efficiency of operations 3.1 Oversee the strategic plan, review all existing plant and planned capex investment to align operating costsand efficiency 3.2 Support our lead on quality & health & safety through a focus on quantitative KPIs & metrics tomonitor performance 3.3 Fully utilise & develop technology expertise within theGroup to maintain competitive advantage 3.4 Leverage the central function & local business units tofoster shared learnings and continue improvement Met in full Strategic plan is on track. Capex proposed for 3 years for cost reduction programme, but delayed due to recent M&A activity. Full health & safety and quality KPI metrics implemented across all regions. Technical capability improved within the Hilton teams. Foods Connected is gaining new business wins. Consulting services arm is expanding boosted by Agito JV investment. Cyber security improved across the Group. There areongoing shared learnings which will be developed further. 4. Culture, talent, succession planningand diversity – Maintain & develop efficiency of operations 4.1 Annually review succession plans for the executiveleadership team 4.2 Oversee the development of a clear job banding plusaninclusion policy for the Group 4.3 Oversee the employee engagement plan &followup actions Met in full Succession and capability plan reviewed and updated during the year. Job banding and inclusion policy implemented. Engagement survey completed and action plan implemented. Outcome of strategic personal objectives, Remuneration Committee assessment: After considering the performance against the targets set out above, theCommittee awarded a 20% bonus against the strategic objectives. Nigel Majewski Objectives Detailed Targets Remuneration Committee Assessment 1. Financing strategy – Support the growth agenda 1.1 Overall approach to next stage of renewal offacilities,new builds & acquisitions 1.2 Growth agenda items of key capital market andinvestor focus 1.3 Support for ongoing customer contract developmenttoalign with strategic goals Met in full Screening and management of all investments to meet long-term financial plans and operational needs. Raised £75m equity to ensure HFG growth can be funded within the stated net debt to EBITDA limit. Strategy accepted by funds and analysts as evidenced during roadshow for acquisition of Foppen, Fairfax and Dalco. 2. Investor relations – In existing & potential new markets 2.1 Continue to build relationships. Extend and onboardnewinvestors as required Met in full Ongoing positive relationships. A number of new investors introduced as part of the equity raise. Supported introduction of more effective PR support. Upgraded broker support team through selection and execution of agreement with a new broker. 3. Continued growth & financing – Appropriate to support strategy&operations 3.1 Update long term financial plans as a basis fordemonstrating growth 3.2 Put in place financing as required 3.3 Execute acquisitions to support growth 3.4 Support commercial discussions for organic growth Met in full Long term plans regarded as credible when presented to enlarged bank consortium. Raised £424m through expanded bankconsortium. Discussions continue to move forward onorganic growth projects. Successfully completed four acquisitions and JV transactions. 4. Succession planning – Financial support, talent development&succession 4.1 Continue the development of the Finance Team &Financial Reports in line with business needs Met in full Successor identified, endorsed and underway to ensure asmoothtransition in which relationships are kept positive Outcome of strategic personal objectives, Remuneration Committee assessment: After considering the performance against the targets set out above, theCommittee awarded a 20% bonus against thestrategic objectives. 5. Long term incentive Long term incentives comprise the number of share awards 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. Awards were granted in 2019 under the Long Term Incentive Plan which are due to vest in 2022 subject to performance conditions covering the three financial years 2019-2021 with a70%weighting given to an EPS metric and a 30% weighting to a TSR metric. The share price at the date the awards were granted was £10.66. The expected long term incentive outcomeissummarised below. EPS metric Threshold performance Maximum performance 2021 achieved 2019-21 adjusted basic EPS % annual growth 6% 15% 13.15% Vesting % 10% 100% 81.5% 106 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Directors’ remuneration report continued TSR metric Threshold performance Maximum performance 2021 achieved 2019-21 adjusted TSR growth Median Upper quartile 66th out of 163 constituents Vesting % 10% 100% 44.4% The overall expected vesting is 70.4% which is not affected by any assumptions over acquisitions. Director Awards granted No. Awards expected to vest 70.4% No. Average share price of £11.63 £’000 Amount attributable to share price appreciation £’000 Robert Watson 34,434 24,242 282 24 Philip Heffer 79,873 56,231 654 55 Nigel Majewski 64,697 45,547 530 44 * The award to Robert Watson was granted when in an executive capacity and adjusted pro rata following his transition to a non-executive capacity. The long term incentive values for 2020 have been restated based on the actual share price at vesting (£11.20 instead of the 2020 year end share price of £11.14). 6. Payments to past directors There were no other payments made to former directors in 2021. 7. Payments for loss of office There were no payments for loss of office made in 2021. Director shareholding and share interests Details of Director shareholdings and changes in outstanding share awards were as follows: Director Type At 3 January 2021 Granted (note 4) Exercised Lapsed At 2 January 2022 Exercise price (pence) Earliest exercise date Latest exercise date Notes Robert Watson Shares 2,304,814 2,317,292 1 Share options 1,394 – (1,394) – – 645.50 01.06.20 01.12.20 2 Share options 1,084 – (1,084) – – 830.00 01.06.21 01.12.21 2 Total share options 2,478 – (2,478) – – Nil cost options 34,568 – (34,568) – – nil 03.07.21 0 3.07. 28 3 Nil cost options 34,434 – – – 34,434 nil 21.05.22 21.05.29 3 Nil cost options 5,017 – – – 5,017 nil 28.09.23 28.09.30 3 Total nil cost options 74,019 – (34,568) – 39,451 Philip Heffer Shares 3,823,172 3,824,566 1 Share options 1,394 – (1,394) – – 645.50 01.06.20 01.12.20 2 Total share options 1,394 – (1,394) – – Nil cost options 48,873 – – – 48,873 nil 03.07.21 0 3.07. 28 3 Nil cost options 79,873 – – 79,873 nil 21.05.22 21.05.29 3 Nil cost options 72,981 – – – 72,981 nil 28.09.23 28.09.30 3 Nil cost options – 73,089 – – 73,089 nil 11.05.24 11.05.31 3 Total nil cost options 201,727 73,089 – – 274,816 Nigel Majewski Shares 103,829 103,829 1 Share options 732 – – – 732 1228.00 01.08.23 01.02.24 2 Total share options 732 – – – 732 Nil cost options 50,365 – – – 50,365 nil 20.04.18 20.04.25 3 Nil cost options 50,296 – – – 50,296 nil 25.04.19 25.04.26 3 Nil cost options 32,287 – – – 32,287 nil 24.04.20 24.04.27 3 Nil cost options 40,528 – – – 40,528 nil 03.07.21 0 3.07.28 3 Nil cost options 64,697 – – – 64,697 nil 21.05.22 21.05.29 3 Nil cost options 59,115 – – – 5 9,115 nil 28.09.23 28.09.30 3 Nil cost options – 59,202 – – 59,202 nil 11.05. 24 11.0 5.31 3 Total nil cost options 297,288 59,202 – – 356,490 John Worby Shares 9,000 9,719 1 Christine Cross Shares 15,000 25,000 1 Angus Porter Shares 1,000 2,877 1 Rebecca Shelley Shares 1,966 3,281 1 Notes 1. All shares are beneficially owned with the exception of 1,316,917 shares held by various family trusts of which Robert Watson is a trustee. Since the end of the year Robert Watson sold 50,000 shares. There have been no other changes in the interests of Directors between 2 January 2022 and the date of this report. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 107 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 The Company’s remuneration policy includes a shareholding guideline such that Executive Directors are expected to build a holding in the Company’s shares at least equal to a minimum value as a percentage of base salary. At 2 January 2022 the guideline and actual share holdings were as follows: Director Guideline minimum holding value as a % of salary Actual holding value as a % of salary Guideline met? Philip Heffer 300% 8,613% Yes Nigel Majewski 175% 289% Yes 2. Share options granted under Hilton’s all employee Sharesave Scheme. 3. Nil cost options granted under the Long Term Incentive Plan which are subject to the performance conditions and compound earnings per share growth below on a sliding scale over the performance period. Grant year Performance basis Performance period Threshold vesting Compound annual growth at threshold vesting Maximum vesting Compound annual growth at maximum vesting 2018 EPS 100% 2018–2020 10% 6% 100% 14% 2019 EPS 70% 2019–2021 10% 6% 100% 15% TSR 30% 2019–2021 10% Median 100% Upper quartile 2020 EPS 70% 2020–2022 10% 6% 100% 12% TSR 30% 2020–2022 10% Median 100% Upper quartile 2021 EPS 70% 2021–2023 10% 6% 100% 13% TSR 30% 2021–2023 10% Median 100% Upper quartile 4. Grant of nil cost option awards in the year were as follows: Director Face value Number of shares under 2021 LTIP award Proportion of salary Share price date Closing share price Philip Heffer £885,843 73,089 175% 10 May 2021 1212p Nigel Majewski £717,5 32 59,202 175% 10 May 2021 1212p Further information Statement of implementation of remuneration policy in the 2022 financial year Base salaries, benefits and pension For 2022 the salary for Philip Heffer has been increased to reflect the larger, more complex and more global demands of the CEO role as explained in the Chair’s annual statement on page 97. Nigel Majewski’s salary has increased by 2% in line with the increases of the general workforce. 2021 £’000 2022 £’000 Philip Heffer 506 570 Nigel Majewski 410 418 There are no changes in benefits. However pensions will decrease to 7%of salary at the 2022 AGM. Annual bonus The maximum annual bonus in 2022 will continue to be set at 125% of salary. This bonus will be payable subject to stretching targets around the adjusted profit before tax metric (up to 105% of salary) and personal and strategic targets (up to 20% of salary). Both financial targets, set with reference to the budget, and the personal and strategic targets (covering responsible customer, category and geographic growth with financial and people resource to support) are considered commercially sensitive. The Committee will therefore disclose targets on a retrospective basis. 2022 LTIP awards The Committee will make a decision to grant LTIP awards to Executive Directors over shares equal to 175% of salary in 2022 followingthe Annual report approval date. EPS – 70% of awards – stretching yet motivational targets to be measured over the three financial years commencing with the year of grant. TSR – 30% of awards – 10% of this part of an award will vest for median performance against the constituents of the FTSE 250 (excluding investment trusts) increasing pro rata to full vesting for this part of an award for upper quartile performance measured over the three financial years commencing with the year of grant. In addition, no part of this award may vest unless the Committee issatisfied with the underlying performance of the Company. Details of the 2022 grant and EPS performance targets noted above will be published immediately following the grant via a RegulatoryInformation Service. Non-Executive Directors Fees for the Chairman and all the independent Non-Executive Directors will increase by 2% in line with the increases of the general workforce. These pay elements will be operated in line with the approved policy. 108 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Directors’ remuneration report continued 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 250 Index covering the ten years from 2012 to 2021. The FTSE 250 Index is, in the opinion of the Directors, the most appropriate index against which the TSR of the Company should be measured as it is a broad equity index ofwhich Hilton Food Group plc is a constituent. Hilton Food Group FTSE 250 (ex IT) 20122011 600 500 400 300 200 100 0 2013 2014 2015 2016 2017 2020 2021 2018 2019 Chief Executive Officer remuneration ten year trend 2012 2013 2014 2015 2016 2017 2018 2 2019 2020 2021 Total remuneration (£’000) 593 610 626 784 1,235 1,570 1,627 1,562 1,765 1,686 Annual bonus (as a percentage of the maximum) 10% 42% 32% 60% 69% 80% 78% 100% 100% 68% Long term incentive vesting (as a percentage of the maximum) 100% n/a 1 0% 0% 61% 73% 88% 66% 100% 70% Notes 1 There were no long term incentive awards that were due to vest dependent on a performance period ending in 2013. 2 Robert Watson was CEO until 30 June 2018 when the current CEO Philip Heffer was appointed. Data for the 2018 year comprises the remuneration of Robert Watson from 1 January2018 to 30 June 2018 and that of Philip Heffer from 1 July 2018 to 30 December 2018. Director remuneration percentage change 2021 percentage increase over 2020 2020 percentage increase over 2019 Salary/fees % change Benefits % change Annual bonus % change Salary/fees % change Benefits % change Annual bonus % change Executive Directors Philip Heffer 2.0% -29.0% -30.6% 2.0% -31.6% 2.0% Nigel Majewski 2.0% -39.9% -30.6% 2.0% 18.2% 2.0% Non-Executive Directors Robert Watson (Executive Director in 2020) -33.3% -100.0% -100.0% 2.0% 21.9% 2.0% John Worby 2.0% n/a n/a 2.0% n/a n/a Christine Cross 2.0% n/a n/a 2.0% n/a n/a Angus Porter 7.9% n/a n/a 2.0% n/a n/a Rebecca Shelley (appointed during 2020) 7.9% n/a n/a n/a n/a n/a Company average - 0.1% -23.1% -43.0% 2.8% -1.9% 4.5% OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 109 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 CEO pay ratio CEO pay ratio Year Method 25th percentile pay ratio Median – 50th percentile pay ratio 75th percentile pay ratio 2019 Option B 83 79 51 2020 Option B 87 78 48 2021 Option B 73 65 48 Option B was adopted so that it could be linked with existing processes generating gender pay gap or similar information. This information, comprising basic pay since the majority of employees do not receive benefits or annual bonuses, as at April 2021 was used as a starting point to identify those UK employees as the best equivalents of P25, P50 and P75. There was no reliance onestimates or judgements. The information for these employees was then updated to represent total pay and benefits for the 2021financial year. CEO £’000 25th percentile employee £’000 50th percentile employee £’000 75th percentile employee £’000 Salary component 506 23 26 33 Total pay and benefits 1,686 23 26 35 The CEO’s remuneration is weighted more heavily towards variable pay than that of the wider workforce so that it is aligned with the Group performance. This will inevitably cause the pay ratios to fluctuate over time. The increase in the P25 pay ratio is due toanincrease in the number of our factory employees. The Committee has considered the pay data for the three employees identified and believes that it fairly reflects pay at the relevant quartiles amongst the UK workforce. The Committee is satisfied that the median pay ratio for the year is consistent with the pay, reward and progression policies for the Group’s UK employees who have the same pay and reward policies and opportunities. Gender pay gap We report information about the difference in average pay for its male and female employees as required by gender pay gap legislation. Gender pay gap metrics are submitted by the Group’s main three UK employing entities. The headline gender pay metric is the difference in the median hourly pay received by men and women. In their most recent reports. This metric for 2021 was 9.8% at Hilton Foods UK and 11.1% at Hilton Seafood UK both favouring men which is broadly similar to, or an improvement on, previous years. The metric at Fairfax Meadow is 0.0%. Hilton’s gender pay gap arises as more males than females are employed at a senior level and additionally there is a history of our sector being male dominated. We will continue to take action to address the gender pay gap and focus on ensuring equal opportunity for all. Pay is identical in all cases for men and women doing the same job. We are raising the profile of inclusion and diversity internally across the Group. We will continue to encourage active membership and participation of women’s networking groups andmentoring programmes. For more information and to view the full metrics see the gender pay gap portal or our website www.hiltonfoodgroup.com. Relative importance of spend on pay The following table sets out for the comparison total spend on pay with dividends. 2021 £’000 2020 £’000 % change Staff costs (note 8 to the financial statements) 211,8 66 190,859 11% Dividends payable 25,862 21,305 21% 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 Christine Cross Chair of the Remuneration Committee 5 April 2022 Directors’ remuneration report continued 110 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Statement of Directors’ responsibilities Directors’ responsibilities in respect of the Annual report andfinancial statements The Directors are responsible for preparingthe Annual report and the financial statements in accordance withapplicable law and regulations. 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 accounting standards in conformity with the requirements of the Companies Act 2006. Under company law the Directors must notapprove the financial statements unless they are satisfied that they give atrue and fair view of the state of affairs ofthe Group and the Company and the profit or loss of the Group for that period. In preparing these financial statements theDirectors are required to: – select suitable accounting policies andthen 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 inthe financial statements; and – prepare the financial statements on the going concern basis, unless it isinappropriate to presume that the Group and the Company will continuein business. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps forthe prevention and detection of fraud and other irregularities. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and the Company’s transactions and which disclose with reasonable accuracy at any time the financial position of the Group and Company and to enable them to ensure that the financial statements and the Directors’ remuneration report comply with the Companies Act 2006. 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. Directors’ confirmations 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 and Company’s position and performance, business model and strategy. Each of the current Directors whose names and functions are set out on pages 80 and 81, confirm that to the best of their knowledge and belief: – the Group and Company financial statements, which have been prepared inaccordance with international accounting standards in conformity withthe requirements of the CompaniesAct 2006, give a true and fairview of the assets, liabilities, financialposition and profit of the Groupand profit of 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 that it faces. This responsibility statement was approved by the Board of Directors on 5 April 2022 and is signed on its behalf by: Robert Watson OBE Non-Executive Chairman Nigel Majewski Chief Financial Officer OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 111 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Report on the audit of the financialstatements 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 2 January 2022 and of the group’s profit and the group’s and company’s cash flows for the 52 week period then ended; – have been properly prepared in accordance with UK-adopted international accounting standards; and – have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Financial Statements (the “Annual Report”), which comprise: the consolidated and company balance sheets as at 2 January 2022; the consolidated income statement, the consolidated statement of comprehensive income, the consolidated and company cash flow statement, the consolidated and company statements of changes in equity for the period then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided. Other than those disclosed in note 6, we have provided no non-audit services to the company or its controlled undertakings in the period under audit. Our audit approach Overview Audit scope – Nine trading subsidiaries, together with four intermediate holding companies require local statutory audits and were in-scope for group reporting. This accounted for 95% of the total Group revenue and 94% of profit before tax and exceptional items. – Six trading subsidiaries, including the newly acquired Fairfax Meadow Europe Limited and Dalco Food BV, were not subject to full scope reporting audits. Two joint venture companies were subject to specified audit procedures. – In scoping our audit, we held discussions with management in order to understand their assessment of the impact of climate change on the business and in the context of the Annual Report and Financial Statements. We confirmed that climate change did not represent a significant risk of material misstatement to the financial statements for the period ended 2 January 2022. – In reaching this conclusion, we considered: – the key physical and transitional risks at both a company and subsidiary level; – the commitments made by the group referred to in the Sustainability Report within the Annual report e.g.science based targets to reduce their emissions, how those targets will be achieved and the costs of doing so; – the impact of climate change on any estimates or judgements made by management; – the nature of the group’s customer contracts which in the majority of cases are under a cost plus arrangement; – and the consistency of the climate related disclosures made by the group with the financial statements and our knowledge of the group obtained from our audit. Key audit matters – Complex customer arrangements (group) – Accounting for the impact of the Belgium fire (group) – Accounting for material acquisitions (group) Materiality – Overall group materiality: £2,795,000 (2020: £2,700,000) based on 5% of profit before tax and exceptional items. – Overall company materiality: £2,500,000 (2020: £1,700,000) based on 1% of total assets. – Performance materiality: £2,096,250 (2020: £2,025,000) (group) and £1,875,000 (2020: £1,275,000) (company). The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Accounting for the impact of the Belgium fire and accounting for material acquisitions are new key audit matters this year. Covid-19, which was a key audit matter last year, is no longer included because of the insignificant impact of Covid-19 on business performance and control environment, and the audit process due to well established ways of remote working. Otherwise, the key audit matters below are consistent with last year. 112 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Independent auditors’ report to the members of Hilton Food Group plc Key audit matter How our audit addressed the key audit matter Complex customer arrangements (group) 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. 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, resulting in an increased risk of errors in the calculations. As the arrangements are mainly based on contracted rates and known sales volumes, there is limited judgement required around the accurate recognition of these amounts 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 a heightened risk that the application of those terms might be calculated inaccurately, omitted from the calculation or included in the incorrect accounting period. 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, resulting in an increased risk of errors in the calculations. We updated our understanding of customer supply arrangements in order to understand the impact of these on the financial statements; We held discussions with the Directors and management; We inspected minutes of the Board to determine whether the list of contracts management had provided was complete; We selected a sample of rebate and incentive accruals and agreed the inputs to the calculations to the contracts and the sales amounts in the accounting ledgers (which we had audited) to test the accuracy and timing of the recognition of the rebates; We selected rebate and incentive payments made after the period end and checked that they were appropriately recognised in the correct period. Where settlement was made during the year or following the year end, we compared these to the amounts accrued; and We performed look back procedures in relation to the liability held at 3 January 2021 and tested those that were settled in the financial period. No issues were identified through the procedures we performed. No issues were identified through the procedures we performed. Accounting for the impact of the Belgium fire (group) On 13 June 2021, Hilton Foods Belgium experienced a fire at its meat product packaging facility in Ghent, Belgium. Both Hilton and the landlord’s own occupied part of the property (incorporating a large meat cold store) were severely damaged, as were adjoining Hilton offices. As a result of the fire, exceptional costs totalling £11,661,000 have been recognised. The costs include the impairment of tangible fixed assets and leased assets destroyed of £6,377,000 and £2,239,000 respectively, the costof inventory that was destroyed as a result of the fire of £1,344,000 andother related additional costs of £3,844,000, offset by a gain of £2,183,000 arising from the early settlement of related lease liabilities. At the time of the fire the variance fund with Delhaize had risen to £7.1m duefrom Delhaize. We focused on this balance given the level of judgment in recognising an insurance receivable and variance fund receivable and given the material values involved. We held discussions with the Directors, management and management’s specialists along with obtaining management’s insurance policy; We reviewed correspondence between management, the insurers and management’s claims advocate; We obtained independent confirmation from the group’s legal representatives to consider any claims made against the group; We reviewed correspondence between management and Delhaize to ascertain the recoverability of the variance fund balance; and We have reviewed management’s accounting and disclosures within the financial statements and consider these to be reasonable. No issues were identified through the procedures we performed. Accounting for material acquisitions (group) During the period the Group acquired the remaining 50% shareholding of Dalco Food BV “Dalco” for consideration of £13.4m in addition to acquiring Fairfax Meadow Europe Limited “Fairfax” for consideration of £15.3m. In respect of Dalco, the fair value acquisition work is underway and is expected to result in the recognition of identifiable intangibles such as customer relationships and brands. As this work has not yet been completed, provisional goodwill of £18.8m has been recognised which may change following the completion of work by the Group’s third party valuation specialists. We focused on this area because there is a level of judgement involved in identifying the intangibles upon acquisition and given the material values involved. In respect of Fairfax, the fair values presented reflect management’s initial assessment and has resulted in customer relationship and brand intangibles of£12.5m being recognised alongside £2.9m of goodwill. The accounting for these acquisitions remains provisional and subject toamendment for one year from the date of the acquisitions. In performing our audit of the provisional acquisition accounting: We verified the consideration paid under the terms of the transaction to the Share Purchase Agreements, which included cash consideration for Fairfax and cash consideration and amounts settled in shares in respect of Dalco; We understood the methodology applied by the third party valuation specialists in determining the provisional accounting; We engaged valuation experts to support us in assessing the methodology and considering the reasonableness of certain assumptions utilised; We assessed underlying forecasts supporting the valuation of intangible assets in respect of Fairfax; The intangibles useful economic lives have been evaluated based on our understanding of the business and similar historical acquisitions; We verified the recognition and measurement of the provisional fair value adjustments; and We reviewed the disclosures for compliance with IFRS 3 ‘Business Combinations’. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 113 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work tobe able to give an opinion on the financial statements as a whole, taking intoaccount the structure of the group andthe company, the accounting processes and controls, and the industry inwhich they operate. The Group is structured as a parent company with twenty-five subsidiary undertakings. There are fifteen trading subsidiaries located in the United Kingdom, the Republic of Ireland, the Netherlands, Poland, Denmark, Sweden, New Zealand and Australia; all of these entities are required to have statutory audits under local legislation. There are four intermediary holding companies, all located in the United Kingdom, which are all required to have statutory audits. All of these entities are audited by PwC network firms. The remaining six entities are dormant entities. In addition to these twenty-five entities the Group has a 50% interest in three joint venture companies which are located in Australia, Portugal andthe United Kingdom. The key protocols we adopted in respect ofworking 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; holding planning discussions with all component auditors in order to agree those requirements; discussing the Group audit risks to identify any component specific risks; high level analysis of the financial information of the component by the Group engagement team to identify any unusual transactions or balances for discussion with component auditors; ongoing communication and interaction throughout the audit with the component audit teams; attending, with Group management, the component clearance meetings held between the component auditors and local management; and obtaining signed interoffice opinions that the component financial information was properly prepared in accordance with the group’saccounting policies. There are two significant components in the Group whose statutory audit opinions are not signed by the Group engagement partner which are located in the Netherlands and Australia. The Group engagement partner reviewed the component auditors’ working papers that support their interoffice opinions for these significant components. This review included assessing their work over the three significant risk areas applicable to these components: i) management override of controls; ii) the risk of fraud in revenue recognition; and iii) complex customer arrangements. In addition, on a rotational basis the Group engagement team reviews the audit working papers for a non-significant component. For the current year, this related to the Poland and Denmark audit file. Following these reviews, meetings were held with each component to discuss findings from the engagement partner’s review. 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 inaggregate on the financial statements asa whole. Based on our professional judgement, wedetermined materiality for the financial statements as a whole as follows: Financial statements – group Financial statements – company Overall materiality £2,795,000 (2020: £2,700,000). £2,500,000 (2020: £1,700,000). How we determined it 5% of profit before tax and exceptional items 1% of total assets Rationale for benchmark applied The basis of determining materiality has changed from profit before tax to profit before tax and exceptional items given the group has incurred material exceptional items with respect to the Belgium fire and acquisition costs. Given that the group’s businesses are profit oriented and the directors use profit based measures to assess the performance of the group, we believe that change to the profit before tax and exceptional items benchmark provides us with a consistent year on year basis for determining materiality. We believe that total assets is the primary measure used by the shareholders in assessing the performance of the entity and is a generally accepted auditing benchmark for a holding company with no trading operations. 114 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Independent auditors’ report continued For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £100,000 and£2,750,000. Certain components wereaudited to a local statutory audit materiality that was also less than our overall group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2020: 75%) of overall materiality, amounting to £2,096,250 (2020: £2,025,000) for the group financial statements and £1,875,000 (2020: £1,275,000) for the company financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £100,000 (group audit) (2020: £100,000) and £100,000 (company audit) (2020: £100,000) as well asmisstatements below those amounts that, inour view, warranted reporting for qualitative reasons. Conclusions relating to goingconcern Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern basis of accounting included: – Performing a risk assessment to identify factors that could impact the going concern basis of accounting, including the ongoing impact of Covid 19 and impact of rising inflation; – Understanding and evaluating the group’s financial forecasts including severe, but plausible downside scenarios that could arise; – Obtaining and reviewing the group’s new financing arrangements entered into in January 2022; – Critically assessing the assumptions used within the forecasts, including consideration of alternative views, and their impact on the group’s liquidity and covenant compliance (with current and new facilities); – Comparing the group’s financial forecasts to historical performance to assess management’s ability to forecast as well as assessing the financial year 2022 year to date performance against budget; and – Reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the company’s ability to continue as a going concern. In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 115 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Strategic report and Directors’ report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report for the period ended 2 January 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ report. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Corporate governance statement The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this report. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to: – The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks; – The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated; – The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; – The directors’ explanation as to their assessment of the group’s and company’s prospects, the period this assessment covers and why the period is appropriate; and – The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Our review of the directors’ statement regarding the longer-term viability of the group was substantially less in scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the group and company and their environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit: – The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the group’s and company’s position, performance, business model and strategy; – The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and – The section of the Annual Report describing the work of the Audit Committee. We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. Responsibilities for the financial statements and the audit Responsibilities of the directors for thefinancial statements As explained more fully in the Directors’ responsibilities in respect of the Annual report and financial statements, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. 116 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Independent auditors’ report continued Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related to UK Listing Rules, UK and international tax legislation, health and safety requirements and other legislation specific to the industry in which the group operates (including food safety legislation), and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to manipulate financial results, including revenue recognition and manipulation of EBITDA, and management bias through judgements and assumptions in significant accounting estimates and significant one-off or unusual transactions. The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included: – Discussions with internal audit, management and those charged with governance including consideration of known or suspected instances of non- compliance with laws and regulations and fraud; – Evaluation, and where relevant, testing of the operating effectiveness of management’s controls designed to prevent and detect fraud in financial reporting; – Identified and tested unusual journal entries, in particular, journal entries posted to manipulate financial results, including revenue recognition and manipulation of EBITDA; – Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to complex customer accruals, acquisition accounting balances and the Belgium fire impairments (see related key audit matters above); – Confirmation that there have been no matters reported on the group’s whistleblowing helpline; – Review of minutes from board and other committee meetings e.g. audit committee or remuneration committee; – Reading any key correspondence with regulatory authorities received in the year; and – Obtaining an understanding of the legal and regulatory framework applicable to the group and how the group is complying with that framework. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report 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. Other required reporting Companies Act 2006 exceptionreporting Under the Companies Act 2006 we are required to report to you if, in our opinion: – we have not obtained 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 – certain disclosures of directors’ remuneration specified by law are not made; 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. Appointment Following the recommendation of the Audit Committee, we were appointed by the directors on 1 October 2007 to audit the financial statements for the year ended 31 December 2007 and subsequent financial periods. The period of total uninterrupted engagement is 15 years, covering the years ended 31 December 2007 to 2 January 2022. Other matter In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report will be prepared using the single electronic format specified in the ESEF RTS. Martin Cowie (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Belfast 5 April 2022 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 117 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Financial statements Consolidated income statement 120 Consolidated statement of comprehensive income 120 Consolidated and Company balance sheet 121 Consolidated and Company statement of changes in equity 122 Consolidated and Company cash flow statement 123 Notes to the financial statements 124 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 118 For more information visit www.hiltonfoodgroupplc.com VEGAN & VEGETARIAN We are an ambitious, entrepreneurial business with strong values and principles. Our reputation for excellence is what attracts people tostay and want to work with us. ѱ Growing vegan and vegetarian business through innovation and partnerships with global brands and retailers. ѱ Completed 100% acquisition ofDalco, strengthening our vegan and vegetarian proposition in market with strong growth forecasts. HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 119 Notes 2021 52 weeks £’000 2020 53 weeks £’000 Continuing operations Revenue 5 3 , 3 01, 9 7 0 2, 7 74 , 0 3 6 Cost of sales 7 (2,9 35 ,8 92) (2, 452,0 9 3) Gross profit 36 6 ,078 3 21, 9 4 3 Distribution costs 7 (25 ,0 8 3) (2 3, 24 6) Other administrative expenses 7 (272, 4 38) (236,8 59) Exceptional items 7, 9, 34 (7,050) – Total administrative expenses (279, 48 8) (236,859) Share of profit in joint ventures 1, 9 2 5 5,0 29 Operating profit 63,4 32 66,8 67 Finance income 10 10 22 Other finance costs (14 , 913) (12 , 8 6 1) Exceptional finance costs 9, 34 (1 ,1 3 1) – Total finance costs 10 (16 , 0 4 4) (12 , 8 6 1) Finance costs – net (16 , 0 3 4) (1 2,839) Profit before income tax 47, 3 9 8 5 4,0 28 Income tax expense 11 (11, 2 3 2) (1 1 ,988) Exceptional tax income 9, 34 3 ,11 6 – Total income tax expense (8 ,11 6) (1 1 ,988) Profit for the period 39, 282 42,0 4 0 Attributable to: Owners of the parent 3 7,14 3 39, 736 Non-controlling interests 2,139 2,30 4 39, 282 42,0 4 0 Earnings per share attributable to owners of the parent during the year Basic (pence) 12 4 5.0 4 8.6 Diluted (pence) 12 4 4.5 4 7. 9 2021 52 weeks £’000 2020 53 weeks £’000 Profit for the period 39, 282 42,0 4 0 Other comprehensive (expense)/income Currency translation differences (7,090) 4,6 82 Other comprehensive (expense)/income for the year net of tax (7,090) 4,6 82 Total comprehensive income for the year 3 2 ,19 2 4 6 ,7 2 2 Total comprehensive income attributable to: Owners of the parent 3 0 , 417 4 4 ,1 0 1 Non-controlling interests 1,7 7 5 2, 6 21 3 2 ,19 2 4 6 ,7 2 2 The notes on pages 124 to 155 are an integral part of these consolidated financial statements. 120 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Consolidated income statement Consolidated statement of comprehensive income Group Company Notes 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Assets Non-current assets Property, plant and equipment 14 2 9 1, 4 8 8 29 0,8 4 6 – – Intangible assets 15 10 5 ,7 75 7 0, 071 – – Lease: right of use assets 16 222,004 235, 1 35 – – Investments 17 5,5 39 12 , 6 2 2 247,785 157,2 21 Trade and other receivables 20 2, 23 9 – – – Deferred income tax assets 25 6 ,952 6 , 219 – – 6 33, 9 97 6 14 , 8 9 3 247,785 157,221 Current assets Inventories 19 15 6 , 517 11 6 , 9 4 1 – – Trade and other receivables 20 23 0,3 88 19 9 ,6 4 2 2,874 14,272 Current tax assets 5 , 2 12 – – – Other financial asset 22 1,140 – – – Cash and cash equivalents 21 1 4 0 ,17 0 1 23,81 6 151 190 5 33 ,427 4 4 0,3 99 3,025 14,462 Total assets 1 ,1 6 7, 4 2 4 1 ,055,292 250,810 171,683 Equity Equity attributable to owners of the parent Ordinary shares 26 8,8 93 8 ,1 9 4 8,893 8,19 4 Share premium 14 2 , 0 4 3 6 5, 6 19 142,043 65,619 Own shares (87) – – – Employee share schemes reserve 6,99 0 6 ,1 2 3 – – Foreign currency translation reserve (2,106) 4,620 – – Retained earnings 17 6 , 4 4 9 16 1, 6 0 7 28,850 26,851 Reverse acquisition reserve (3 1,7 0 0) (3 1,7 0 0) – – Merger reserve 919 9 19 71,019 71,019 3 01 , 4 01 215 , 3 8 2 250,805 171,683 Non-controlling interests 6,54 8 6,5 56 – – Total equity 3 0 7, 9 4 9 2 2 1, 9 3 8 250,805 171,683 Liabilities Non-current liabilities Borrowings 23 – 20 6,22 8 – – Lease liabilities 16 228 ,97 7 238,9 95 – – Deferred consideration 18 – 3 , 318 – – Deferred income tax liabilities 25 4 ,1 3 2 2,3 8 4 – – 2 3 3 ,1 0 9 4 5 0,9 25 – – Current liabilities Borrowings 23 2 24 ,7 3 2 3 9 ,7 5 9 – – Lease liabilities 16 14 , 419 6 ,25 0 – – Trade and other payables 24 387,215 33 2,3 5 4 5 – Current tax liabilities – 4,0 6 6 – – 626, 36 6 382, 429 5 – Total liabilities 8 5 9 ,47 5 8 33,3 54 5 – Total equity and liabilities 1 ,1 6 7, 4 2 4 1 ,055,292 250,810 171,683 The notes on pages 124 to 155 are an integral part of these consolidated financial statements. The financial statements on pages 120 to 155 were approved by the Board on 5 April 2022 and were signed on its behalf by: R. Watson N. Majewski Director Director Hilton Food Group plc – Registered number: 06165540 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 £24,301,000 (2020: £21,000,000). OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 121 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Consolidated and Company balance sheet Attributable to owners of the parent Group Notes Share capital £’000 Share premium £’000 Own shares £’000 Employee share schemes reserve £’000 Foreign currency translation reserve £’000 Retained earnings £’000 Reverse acquisition reserve £’000 Merger reserve £’000 Total £’000 Non- controlling interests £’000 Total equity £’000 Balance at 30 December 2019 8 ,17 3 6 4 , 2 51 – 4,139 255 1 4 0 ,1 9 2 (3 1,7 0 0) 9 19 186,229 5 , 7 11 19 1, 9 4 0 Profit for the year – – – – – 39, 736 – – 39, 736 2, 30 4 42,0 4 0 Other comprehensive income Currency translation differences – – – – 4,3 65 – – – 4, 365 3 17 4 ,68 2 Total comprehensive incomefor the year – – – – 4, 365 39, 736 – – 4 4 ,1 0 1 2 ,6 21 4 6,7 2 2 Issue of new shares 21 1, 3 6 8 – – – – – – 1, 3 8 9 – 1, 3 8 9 Adjustment in respect of employee share schemes – – – 2 ,12 0 – – – – 2 ,12 0 – 2 ,12 0 Tax on employee shareschemes – – – (13 6) – – – – (13 6) – (13 6) Dividends paid 13 – – – – – (18 , 3 21) – – (1 8 , 3 2 1) (1,7 7 6) (20,0 97) Total transactions with owners 21 1, 3 6 8 – 1, 9 8 4 – (18 , 3 2 1) – – (14 , 9 4 8) (1,7 7 6) (16 ,7 24) Balance at 3 January 2021 8 ,1 9 4 6 5 , 6 19 – 6 ,1 2 3 4,6 20 16 1, 6 0 7 (31, 7 0 0) 919 215 , 3 8 2 6,5 56 2 2 1, 9 3 8 Profit for the year – – – – – 37,143 – – 37,143 2,139 39,282 Other comprehensive expense Currency translation differences – – – – (6, 726) – – – (6, 726) (364) (7,090) Total comprehensive incomefor the year – – – – (6,726) 37,143 – – 3 0 , 417 1, 7 7 5 3 2 ,1 9 2 Issue of new shares 699 76 ,424 – – – – – – 7 7,1 2 3 – 7 7,1 2 3 Purchase of own shares – – (2, 278) – – – – – (2,278) – (2, 278) Adjustment in respect of employee share schemes – – – 2,7 2 5 – – – – 2 ,7 25 – 2 ,72 5 Settlement of employee sharescheme – – 2 ,1 9 1 (2 ,1 9 1) – – – – – – – Tax on employee shareschemes – – – 333 – – – – 333 – 333 Dividends paid 13 – – – – – (2 2 , 3 0 1) – – (2 2 , 3 0 1) (1,7 8 3) (24,0 8 4) Total transactions with owners 699 76 ,424 (87) 867 – (2 2 , 3 01) – – 5 5,6 02 (1,7 8 3) 5 3, 819 Balance at 2 January 2022 8,89 3 14 2 , 0 4 3 (87) 6,990 (2,106) 176,449 (31,700) 919 301,401 6,548 307,949 Company Balance at 30 December 2019 8,173 64,251 – – – 24,172 – 71,019 167,615 Profit for the year – – – – – 21,000 – – 21,000 Total comprehensive incomefor the year – – – – – 21,000 – – 21,000 Issue of new shares 21 1,368 – – – – – – 1,389 Dividends paid 13 – – – – – (18,321) – – (18,321) Total transactions with owners 21 1,368 – – – (18,321) – – (16,932) Balance at 3 January 2021 8,194 65,619 – – – 26,851 – 71,019 171,683 Profit for the year – – – – – 24,300 – – 24,300 Total comprehensive incomefor the year – – – – – 24,300 – – 24,300 Issue of new shares 699 76,424 – – – – – – 77,123 Dividends paid 13 – – – – – (22,301) – – (22,301) Total transactions with owners 699 76,424 – – – (22,301) – – 54,822 Balance at 2 January 2022 8,893 142,043 – – – 28,850 – 71,019 250,805 The notes on pages 124 to 155 are an integral part of these consolidated financial statements. 122 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Consolidated and Company statement of changes in equity Group Company Notes 2021 52 weeks £’000 2020 53 weeks £’000 2021 52 weeks £’000 2020 53 weeks £’000 Cash flows from operating activities Cash generated from operations 28 12 1, 2 5 9 1 20,77 1 – – Interest paid (16 , 0 4 4) (12 , 8 61) – – Income tax paid (19 , 2 10) (16 , 2 5 4) – – Net cash generated from operating activities 86,0 0 5 9 1, 6 5 6 – – Cash flows from investing activities Acquisition of subsidiary, net of debt acquired (39,0 62) – – – Other financial asset -– restricted cash (1 ,1 4 0) – – – Settlement of deferred consideration (2,5 0 0) – – – Issue of inter-company loan – – (77,377) (4,000) Purchases of property, plant and equipment (5 6 , 2 51) (92, 80 3) – – Proceeds from sale of property, plant and equipment 114 13 4 – – Purchases of intangible assets (1 ,11 5) (2 ,7 0 3) – – Interest received 10 22 – – Dividends received – – 24,300 21,000 Dividends received from joint venture 2, 273 4 ,2 71 – – Net cash (used in)/generated from investing activities (9 7, 6 7 1) (91, 07 9) (53,077) 17,000 Cash flows from financing activities Proceeds from borrowings 6 7, 0 6 2 9 2,56 3 – – Repayments of borrowings (79,8 1 9) (48, 90 8) – – Payment of lease liability (6,58 8) (15 , 0 4 4) – – Issue of ordinary shares 7 7,1 2 3 1, 3 8 9 75,339 1,389 Purchase of own shares (2, 278) – – – Dividends paid to owners of the parent (2 2 , 3 0 1) (18 , 3 21) (22,301) (18,321) Dividends paid to non-controlling interests (1, 7 8 3) (1,7 76) – – Net cash generated from/(used in) financing activities 3 1, 416 9,9 0 3 53,038 (16,932) Net increase/(decrease) in cash and cash equivalents 19 ,7 5 0 10 , 4 8 0 (39) 68 Cash and cash equivalents at beginning of the year 1 23,81 6 11 0 , 5 1 4 190 122 Exchange (losses)/gains on cash and cash equivalents (3,39 6) 2,822 – – Cash and cash equivalents at end of the year 21 1 4 0 ,1 7 0 1 23,81 6 151 190 The notes on pages 124 to 155 are an integral part of these consolidated financial statements. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 123 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Consolidated and Company cash flow statement 1 General information Hilton Food Group plc (‘the Company’) and its subsidiaries (together ‘the Group’) is a leading international protein producer supplying major international food retailers in fourteen European countries, Australia and New Zealand. The Company’s subsidiaries are listed in note 17. The Company is a public company limited by shares incorporated and domiciled in the UK and registered in England. 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 52 weeks to 2 January 2022 (prior financial year 53 weeks to 3 January 2021). These consolidated financial statements were approved for issue on 5 April 2022. 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 £24,301,000 (2020: £21,000,000). 2 Summaryofsignificantaccountingpolicies 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 and company financial statements of Hilton Food Group plc have been prepared under the historical cost convention as modified by financial liabilities at fair value through profit or loss and in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The consolidated and company 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 22. 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 2 January 2022. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (i) Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity where the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group (see note 18). Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated, unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively. (ii) Joint ventures Joint ventures are all entities over which the Group exercises joint control and has an interest in the net assets of that entity. Interests injoint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated balance sheet. Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from joint ventures are recognised as a reduction in the carrying amount of the investment. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. 124 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notestothefinancialstatements International Financial Reporting Standards a) New standards, amendments and interpretations effective in 2021 The following standards and amendments are applicable for accounting periods beginning on or after 1 January 2021. These amendments have had no impact on the Group’s financial position or performance in the current or prior years. Covid-19-Related Rent Concessions – amendments to IFRS 16, and Amendments to IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform Phase 2 b) New standard, amendments and interpretations issued but not yet effective The following standard and amendments have been issued but are not yet effective. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. IFRS 17, ‘Insurance Contracts’ (effective 1 January 2023) Amendments to IAS 1 – Classification of Liabilities as Current or Non-current (effective 1 January 2023) Amendments to IAS 1 and IFRS Practice Statement 2 – Disclosure of Accounting Policies (effective 1 January 2023) Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before intended use (effective 1 January 2022) Amendments to IFRS 3 – Reference to the Conceptual Framework (effective 1 January 2022) Amendments to IAS 37 – Onerous Contracts – Cost of Fulfilling a Contract (effective 1 January 2022) Annual Improvements to IFRS Standards 2018-2020 (effective 1 January 2022) Amendments to IAS 8 – Definition of Accounting Estimates (effective 1 January 2023) Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Effective 1 January 2023) * Not yet endorsed by the UK. Group leasing activities and accounting treatment The Group’s leases relate to property leases for a number of food processing facilities, leases of plant and equipment and leases ofmotor vehicles. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the repayment of the lease liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight line basis. The depreciation is being charged to administration expenses in the Group’s Income Statement, in line with where depreciation has previously been recorded. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: – fixed payments (including in-substance fixed payments), less any lease incentives receivable; – variable lease payments that are based on an index or a rate; – the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and, – payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain anassetof similar value in a similar economic environment with similar terms and conditions. Right-of-use assets are measured at cost comprising the following: – the amount of the initial measurement of lease liability; – any lease payments made at or before the commencement date less any lease incentives received; and – any initial direct costs. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense inprofit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment andsmall items of office equipment. Extension and termination options Extension and termination options are included in a number of property leases across the Group. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 125 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 2 Summaryofsignificantaccountingpoliciescontinued Revenue recognition The Group sources raw material food proteins often in conjunction with its customers. The raw materials are then processed, packed and delivered to customers. Revenue is recognised at a point in time when control of the products has transferred, that is when the products have been delivered to the customer’s specified location or have been collected by the customer from the Group’s facilities. At that point the customers have obtained all the benefits of the products and have full discretion over the channel and price to sell the products, and the Group has no unfulfilled obligation that could affect the customers’ acceptance of the products. Delivery occurs when the products have been shipped to the specific location or have been collected 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. The products are sold with discounts and rebates which are based on contractual arrangements. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated discounts or rebate. Accumulated experience is used to estimate and provide for the discounts and rebates, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A payable is recognised for expected rebates and discounts are deducted from the amount receivable from the customer. A receivable is recognised when the goods are delivered to the customer’s specified location or collected by the customer, since this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. 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. 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 afunctional 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. Business combinations Business combinations are accounted for using the acquisition method. The consideration transferred for the acquisition of a subsidiary or business comprises the fair value of the assets transferred, the liabilities incurred to the former owners of the acquired businesses, the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary at the acquisition date. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The excess of (a) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the (b) fair value of the identifiable net assets acquired is recorded as goodwill. If control of a subsidiary is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in profit or loss. Transactions with non-controlling interests that result in changes to the ownership interest of a subsidiary do not result ina fair value re-measurement but are instead accounting for as adjustments to equity attributed to the owners of the parent. 126 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notestothefinancialstatements continued 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: Annual rate Buildings (including leasehold improvements) 4%–14% Plant and machinery 14%–33% Fixtures and fittings 14%–33% Motor vehicles 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. 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 (note 15). (b) Other intangibles Other intangibles include acquired software licences, customer relationships and brands and are stated at cost or acquisition fair value less accumulated amortisation. Software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Amortisation is charged on a straight line basis over the assets’ useful economic lives of three 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 its financial assets at amortised cost only if both of the following criteria are met: – the asset is held within a business model whose objective is to collect the contractual cash flows; and – the contractual terms give rise to cash flows that are solely payments of principal and interest. These items 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. Such assets include, ‘trade and other receivables’, ‘cash and cash equivalents’ and ‘other financial assets’ in the balance sheet. b) Recognition and measurement Purchases and sales of financial assets are recognised on trade date being the date on which the Group commits to purchase or sell the asset. Financial assets are recognised initially at the amount of consideration that is unconditional, unless they contain a significant financing component, in which case they are recognised at fair value. These assets are held with the objective of collecting the contractual cash flows, and so it measures them subsequently at amortised cost using the effective interest method. Financial assets are derecognised when (a) the contractual rights to the cash flows from the asset expire or are settled, or (b) substantially all the risks and rewards of the ownership of the asset are transferred to another party or (c) despite having retained some significant risks and rewards of ownership, control of the asset has been transferred to another party who has the practical ability to unilaterally sell the asset to an unrelated third party without imposing additional restrictions. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 127 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 2 Summaryofsignificantaccountingpoliciescontinued c) Impairment of financial assets The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all financial assets. Once the expected credit loss has been determined, this is deducted from the carrying value of the asset and 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 are 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 the amount of consideration that is unconditional, unless they contain significant financing components, in which case they are recognised at fair value. The Group holds the trade receivables with the objective of collecting the contractual cash flows, and so it measures them subsequently at amortised cost using the effective interest method. Details about the Group’s impairment policies and the calculation of the loss allowance are provided in note 20. The Group applies the IFRS 9 simplified approach to measuring expected credit loss which uses a lifetime expected loss allowance forall trade receivables and contract assets. 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 orless. Bank overdrafts are shown on the balance sheet within borrowings in current liabilities. Other financial assets – Restricted cash Where cash is held for a specific purpose and is therefore not available for immediate or general business use it is recognised as restricted cash and classified as an other financial asset. 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 thefair 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 thecost of that asset. All other borrowing costs are recognised in the income statement in the period in which they are incurred. 128 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notestothefinancialstatements continued 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. 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. Employment benefits Short-term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet. Pensions and other post-employment benefits The Group operates defined contribution schemes for certain employees in the UK, Ireland, the Netherlands, Belgium, Denmark, Australia and New Zealand 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 share-based compensation plans that have been accounted for as equity settled schemes. 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. Exceptional Items Exceptional items are not defined under IFRS. However, the Group classifies Exceptional Items as those that are separately identifiable by virtue of their size, nature or expected frequency and that therefore warrant separate presentation. The Group has previously treated acquisition costs, including legal and professional fees and stamp duty costs, as exceptional. As detailed in note 9 during the period to 2 January 2022 the Group has recognised exceptional items in respect of the fire at its facility in Belgium, in respect of acquisition related costs incurred in the period and in respect of a gain made on accounting for the acquisition of a 50% share of its Dalco joint venture. The income statement separately shows the impact of the exceptional items on reported operating profit with further reconciliations between statutory and adjusted measures used by the Group presented in note 34. Presentation of these exceptional items and the reconciliations between adjusted and statutory measures is not intended to be a substitute for or intended to promote the adjusted measures above statutory measures. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 129 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 3 Financialriskmanagement 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, Polish Zloty, Australian Dollar and New Zealand Dollar 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. (iv) Sensitivity analysis Group Income statement £’000 2021 Equity £’000 Income statement £’000 2020 Equity £’000 Annual effect of a change in Group-wide interest rates by 0.5% 885 885 572 572 (885) (885) (572) (572) Annual effect of a change in exchange rates to the GBP £ by 10% 3,913 14,715 2,625 9,494 (3,202) (12,040) (2,147) ( 7,768) (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 £227.1m (2020: £187.8m) as stated in note 33. (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 £140.2m (2020: £123.8m) 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: 2021 2020 Borrowings £’000 Leases £’000 Trade and other payables £’000 Borrowings £’000 Leases £’000 Trade and other payables £’000 Less than one year 227,98 6 22,717 378,258 42,473 15,010 324,858 Between one and two years – 20,873 – 208,058 19,595 – Between two and five years – 5 8,137 – – 58,227 – Over five years – 233,672 – – 255,619 – The Group’s bank borrowings have been classified as current liabilities as the bank facility agreements were due to mature in October 2022. Since the year end the Group has refinanced these facilities (see note 31). 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 bank debt as per note 29 divided by EBITDA as shown in note 34. Net bank 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, excluding the impact of IFRS 16. The gearing of the Company was 69.5% as at the year end (2020: 115.3%). 130 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notestothefinancialstatements continued 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 Criticalaccountingestimatesandjudgements 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. Critical accounting judgements Leases In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). For leases of buildings and equipment, the following factors are normally the most relevant: – If there are significant penalties to terminate (or not extend), the Group is typically reasonably certain to extend (or not terminate). – If any leasehold improvements are expected to have a significant remaining value, the Group is typically reasonably certain to extend (or not terminate). – Otherwise, the Group considers other factors including historical lease durations and the costs and business disruption required to replace the leased asset. Extension options in vehicles leases have not been included in the lease liability, because the Group could replace the assets without significant cost or business disruption. The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the lessee. Long term supply contracts On adoption of IFRS 16 the Group elected not to reassess whether a contract is or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessments made applying IAS 17 and IFRIC 4 “Determining whether an Arrangement contains a Lease”. Some of Hilton’s long term supply contracts are on a cost plus basis. These cost plus arrangements typically contain benchmarking clauses which allow our customers to obtain competitive pricing or to source supply from a competitor. Additional 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, market price. On this basis the criteria in IFRIC 4 for determining whether these agreements contained a lease were not met. Under IFRS 16 the assessment of whether a contract is or contains a lease will be determined based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contracts conveys the right to control the use of an asset judgement is required in the assessment of a customer’s right to: – obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use; and – direct the use of the identified asset. Although a number of the Group’s supply contracts are fulfilled from dedicated manufacturing facilities, and therefore customers will obtain a significant proportion of the economic benefits from their use, the Group believes that future Long Term Supply contracts should not be assessed as containing leases as the Group considers it has the right to direct the use of the identified assets. In making this assessment, the Group has considered that the Group controls the raw materials including the timing and amount of purchases and has discretion as to how and when such materials are processed to fulfil customer orders. Therefore, the Group obtains the economic benefits from processing the inventory, has the right to direct the use of the identified assets and the customer rights are limited to placing orders. This consideration is particularly judgmental given orders are typically produced on a real-time basis. However, it is the Group’s view that this real-time production is inherent in the context of producing perishable goods with a short shelf life and not indicative of the customer having the right to control the use of the facilities. Woolworths Meat Co. Pty Limited Joint Venture (i) Assessment of Control In July 2018 the Group took day-to-day operational responsibility for the joint venture (JV) meat processing facilities operated in Australia and following the conclusion of a two year transition period took full control of these facilities in June 2020. During the two-year transition period these processing facilities continued to be owned by the Group’s JV partner, Woolworths, and continued to be operated under the oversight of the JV Board which had control over key business and strategic decisions. The JV continued to earn a processing fee based on the volume of retail packed meat produced at the facilities over which it had oversight. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 131 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 4 Criticalaccountingestimatesandjudgementscontinued Both Hilton and its JV partner had equal representation on the JV Board with the JV partner able to appoint the Chairman of the Board. All decisions of the JV Board needed to be unanimous though in the event of unresolved deadlock Hilton’s JV partner would have had the right to purchase Hilton’s interest in the JV at net book value. Although the Group had day-to-day operational responsibility for the processing facilities during the transition period, the oversight provided by the JV Board meant that in in the Group’s judgement it did not control the JV. Therefore, during the transition period the Group continued to account for its 50% interest in the JV using the equity method of accounting. At the end of the transition period in June 2020 the JV Board’s role overseeing the key business and strategic decision of the processing facilities ended. From this point, the facilities were fully controlled by the Group and have been fully consolidated within the Group’s financial statements. (ii) Revenue Recognition Throughout the two-year transition period referred to above the costs of production of this meat, other raw materials and indirect and direct overheads, at the JV controlled facilities were administered by the Group and then recharged to its customer. The assessment of whether the Group should recognise the costs and related recharges on a net basis or gross basis, with revenue and equal costs recognised separately, required the exercise of significant judgement. These activities did not directly affect the Group’s primary return from the JV facilities, which continued to be derived from its 50% interest in Woolworths Meat Co. Pty Limited. The Group concluded that during the transition period it was acting as an agent on behalf of the JV rather than as principal fully responsible for the processing activities of the facilities and therefore recognised revenue from the facilities on a net basis. This conclusion was reached following consideration of the following factors: – During the transition period the JV rather than the Group was primarily responsible for ensuring processed products were provided to its customer. – The cost recovery mechanism during the transition period resulted in the majority of the inventory risk associated with the operations remaining with the JV’s customer rather than with the Group. – The Group was not exposed to significant pricing risk. Following the end of the transition period, on 30 June 2020, the JV arrangements ended and the Group took full control of and responsibility for the inputs and outputs of these facilities. Accordingly, the Group became entitled to earn income directly from these facilities and was exposed to the full risk and rewards of ownership and control of their operations. From this point onwards when consolidating the result of its subsidiary the Group has recognised the income and expenses of these meat processing operations on a gross basis with revenue of £319.5m being recognised since 30 June 2020. Share Based Payments The Group operates a Long Term Incentive Plan (LTIP) and an employee Sharesave scheme both of which have been accounted for as equity-settled share based payment schemes under IFRS 2. Upon exercise, awards under the LTIP scheme may be settled either through issuing new shares to participants, or by issuing shares that have been purchased in the market. Awards under the LTIP scheme first began to vest during the 2017 financial year and options exercised were settled either by providing plan participants with shares purchased in the market by the Group or the cash equivalent to the market value of the shares. The Group ended its practice of settling LTIP exercises with cash alternatives during 2020 and communicated this to plan participants. Therefore there is no constructive obligation to settle share based payments in cash and the schemes concerned are considered to be equity settled. Critical accounting estimates Goodwill impairment Goodwill is reviewed for impairment on at least an annual basis. Details of the tests and carrying value of the assets are shown in note 15. An impairment review requires an estimation of the recoverable amount of the cash-generating units to which the goodwill is allocated using either value-in-use or fair value less costs of disposal calculations. Value-in-use calculations require assumptions to be made regarding the expected future cash flows from the cash generating unit and choice of a suitable discount rate in order to calculate the present value of those cash flows. Fair value less costs of disposal calculations can be based on transaction prices observed in the market for comparable assets or if these are not available using a discounted cash flow model, requiring assumptions in respect of cash flows and suitable after-tax discount rates to be made. If the actual cash flows are lower than estimated, future impairments may be necessary. Sensitivities are applied to the key assumptions used in the impairment assessment and as explained in note 15 the impact of these sensitivities would not result in an impairment in the next twelve months. Share based payments Note 27 describes the key assumptions and valuation model inputs used in the determination of the fair values of awards made under the Group’s share based payment plans. 132 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notestothefinancialstatements continued In addition, estimates are made as to the number of awards that will ultimately vest based on the Group’s projected future financial performance, in relation to the probability of meeting non-market-based performance conditions and the continuing participation of employees in the plans. Of these estimates, future outcomes are likely to be most significantly impacted by changes to expectations of the Group’s adjusted earnings per share performance. If projected performance was to increase by 10% above expectations, expected share based payment charges would increase by approximately £0.7m in the next year, however were projected results to fall by 10% compared to expectations share based payment charges would be expected to reduce by approximately £1.8m. Business combinations For business combinations the assets acquired, liabilities assumed and consideration payable are all valued at fair value. This requires a number of estimates and judgements to be applied notably when assessing the fair value of acquired property, plant and equipment, identifiable intangible assets and acquired leased assets and liabilities. Note 18 describes the business combinations that took place in the year and the Group’s approach to assessing fair values of acquired assets and liabilities. During 2021 and 2020 there were no other critical accounting estimates or judgements in relation to the application of the Group or Company’s accounting policies. 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 nine operating segments: i) United Kingdom; ii) Netherlands; iii) Belgium; iv) Republic of Ireland; v) Sweden; vi) Denmark; vii) Central Europe including Poland, Czech Republic, Hungary, Slovakia, Latvia, Lithuania and Estonia; viii) Portugal; ix) Australasia and x) Central costs. The United Kingdom, Netherlands, Belgium, Republic of Ireland, Sweden, Denmark, Central Europe and Portugal have been aggregated into one reportable segment ‘Europe’ as they have similar economic characteristics as identified in IFRS 8. Australasia and Central costs comprise the other reportable segments. From a product perspective the Executive Directors consider that the Group has only one identifiable product, wholesaling of food protein products including meat, seafood and vegetarian. 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: Europe £’000 Australasia £’000 Central costs £’000 2021 Total £’000 Europe £’000 Australasia £’000 Central costs £’000 2020 Total £’000 Total revenue 2,040,618 1,314,602 – 3,355,220 2,04 4,19 0 784,455 – 2,828,645 Inter-co revenue (53,250) – – (53,250) (54,609) – – (54,609) Third party revenue 1,9 87,3 68 1,314,602 – 3,301,970 1,989,581 784,455 – 2,774,036 Adjusted operating profit/(loss) segment result (see note 34) 61,788 22,370 (10,591) 73,567 62,581 17,209 (12,762) 67,028 Amortisation of acquired intangibles (2,778) – – (2,778) (2,449) – – (2,449) Exceptional items (6,994) – – (6,994) – – – – Impact of IFRS 16 291 (654) – (363) 406 1,882 – 2,288 Operating profit/(loss) segment result 52,307 21,716 (10,591) 63,432 60,538 19,091 (12,762) 66,867 Finance income 10 – – 10 22 – – 22 Finance costs (2,881) (10,017) (3,146) (16,044) (3,243) (8,140) (1,478) (12,861) Income tax (expense)/credit (7,96 5) (1,761) 1,610 ( 8,116) (11,165) (2,568) 1,745 (11,988) Profit/(loss) for the year 41,471 9,938 (12,127) 39,282 46,152 8,383 (12,495) 42,040 Depreciation and amortisation 33,039 33,604 140 66,783 32,433 25,877 91 58,401 Additions to non-current assets 29,587 27,528 662 57,777 24,459 70,733 314 95,506 Segment assets 643,157 462,556 49,547 1,155,260 568,638 45 3,14 3 27,29 2 1,049,073 Current income tax assets 5,212 – Deferred income tax assets 6,952 6,219 Total assets 1,167,424 1,055,292 Segment liabilities 346,403 419,611 89,329 855,343 324,582 427,05 0 75,272 826,904 Current income tax liabilities – 4,066 Deferred income tax liabilities 4,132 2,384 Total liabilities 859,475 833,354 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 133 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 5 Segment information continued Sales between segments are carried out at arm’s length. The Executive Directors assess the performance of each operating segment based on its operating profit before exceptional items and amortisation of acquired intangibles and also before the impact of IFRS 16 (see note 34). 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 has five principal customers (comprising groups of entities known to be under common control), Tesco, Ahold Delhaize, Coop Danmark, ICA Gruppen and Woolworths. These customers are located in the United Kingdom, Netherlands, Belgium, Republic of Ireland, Sweden, Denmark and Central Europe including Poland, Czech Republic, Hungary, Slovakia, Latvia, Lithuania and Estonia and Australasia. Analysis of revenues from external customers and non-current assets are as follows: Revenues from external customers Non-current assets excluding deferred tax assets 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Analysis by geographical area United Kingdom – country of domicile 1,122,047 1,125,955 196,857 165,564 Netherlands 298,535 301,537 34,857 7,5 45 Belgium 25,687 6,617 1,327 10,381 Sweden 220,065 221,886 12,814 18,060 Republic of Ireland 95,349 102,460 4,711 6,025 Denmark 116,15 6 122,643 16,046 18,444 Central Europe 109,529 108,483 22,297 25,16 4 Australasia 1,314,602 784,455 3 38,136 357,491 3,301,970 2,774,036 627,0 45 608,674 Analysis by principal customer Customer 1 1,15 6,771 1,168,179 Customer 2 327,293 330,644 Customer 3 231,492 232,022 Customer 4 113,555 117,197 Customer 5 1,314,602 784,455 Other 158,257 141,539 3,301,970 2,774,036 6 Auditors’remuneration Services provided by the Company’s auditors and its associates During the year the Group (including its overseas subsidiaries) obtained the following services from the Company’s auditors andits associates: Group 2021 £’000 2020 £’000 Fees payable to the Company’s auditors for the audit of the parent company and consolidated financialstatements 168 160 Fees payable to the Company’s auditors and its associates for other services: – The audit of the Company's subsidiaries pursuant to legislation 544 450 – Other services pursuant to legislation 49 47 – All other services including regulatory acquisition work 25 25 Total fees payable to the Company’s auditors and its associates 786 682 134 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notestothefinancialstatements continued 7 Expensesbynature Group 2021 £’000 2020 £’000 Changes in inventories of finished goods and goods for resale 3,503 (690) Raw materials and consumables used 2,718,685 2,264,608 Employee benefit expense (note 8) 211,8 66 190,859 Depreciation and amortisation – owned assets 48,356 40,051 Depreciation and amortisation – leased assets 18,427 18,350 Repairs and maintenance expenditure on property, plant and equipment 24,101 21,305 Transportation expenses 24,721 22,058 Gain on impact of acquisition of Dalco BV (note 9) (6,837) – Foreign exchange losses 1,180 1,750 Other expenses 196,461 153,907 Total cost of sales, distribution costs and administrative expenses 3,240,463 2,712,198 8 Employeebenefitexpense Group 2021 £’000 2020 £’000 Staff costs during the year Wages and salaries 182,736 161,986 Social security costs 16,855 16,462 Share options granted to Directors and employees 2,725 4,372 Other pension costs 9,550 8,039 211,8 66 190,859 Group 2021 Number 2020 Number Average number of persons employed (including Executive Directors) during the year by activity Production 4,755 4,305 Administration 1,270 1,136 6,025 5,441 Group 2021 £’000 2020 £’000 Key management compensation (including Directors) Salaries and short term employee benefits, including termination benefits 8,423 8,062 Post-employment benefits 314 4 41 Share-based payments 3,074 3,081 11,811 11,58 4 Group 2021 £’000 2020 £’000 Directors’ emoluments Aggregate emoluments 3,658 4,572 Company contribution to money purchase pension scheme 138 194 3,796 4,766 Further details of Directors’ emoluments and share interests, including the highest paid Director, are given in the Directors’ remuneration report. The Company has no employees and Directors do not receive emoluments from the Company. Employee expenses of the Company amounted to £nil (2020: £nil). OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 135 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 9 Exceptionalitems Group Operating profit 2021 £’000 Finance costs 2021 £’000 Tax 2021 £’000 Profit after tax 2021 £’000 Fire in Belgium 11,661 – (2,901) 8,760 Impact of acquisition of Dalco (6,837) – – (6,837) Acquisition costs 2,226 1,131 (215) 3,142 Total exceptional costs 7,050 1,131 (3,116 ) 5,065 Fire in Belgium In June 2021 the Group’s facility in Belgium suffered an extensive fire and as a result exceptional costs totalling £11,661,000 have been recognised. The costs include the impairment of tangible fixed assets and leased assets destroyed of £6,377,000 and £2,239,000 respectively, the cost of inventory that was destroyed as a result of the fire of £1,344,000 and other related additional costs of £3,884,000, offset by a gain of £2,183,000 arising from the early settlement of related lease liabilities. An exceptional tax credit has been of £2,901,000 has been recognised in respect of these costs. The Group continues to work closely with its insurers to progress the related claims. The results for the period to 2 January 2022 do not include potential income that may be received in respect of these claims with the insurance proceeds therefore considered to be contingent assets; at this stage in the claims process the value of the contingent asset has yet to be determined. Legal claims have been made against the Group in connection with the fire, however at this stage the Group considers the likelihood of incurring financial liabilities as a result of them is remote. Impact of acquisition of Dalco On 1 October 2021 the Group acquired the remaining 50% interest in Dalco Food BV (see note 18) and the financial position and performance of the business was fully consolidated from this date. The Group’s joint venture interest was effectively disposed of at this date with an exceptional gain of £6,837,000, being the difference between the carrying value and fair value of the joint venture interest, recognised. Acquisition Costs During the year the Group has recognised exceptional acquisition costs in respect legal and professional fees and other related costs of £2,226,000. A further £1,131,000 of exceptional finance costs have been recognised related to the agreement of short term acquisition bridge financing. An exceptional tax credit of £215,000 has been recognised in respect of exceptional finance costs that are allowable for deductible for tax purposes. 10Financeincomeandcosts Group 2021 £’000 2020 £’000 Finance income Other interest income 10 22 Finance income 10 22 Finance costs Bank borrowings (5,132) (4,483) Interest on lease liabilities (8,536) (6,919) Exceptional finance costs (note 9) (1,131) – Other interest expense (1,245) (1,459) Finance costs (16,044) (12,861) Finance costs – net (16,034) (12,839) 136 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notestothefinancialstatements continued 11Incometaxexpense Group 2021 £’000 2020 £’000 Current income tax Current tax on profits for the year 12,646 17,878 Adjustments to tax in respect of previous years (2,322) (273) Total current tax 10,324 17,6 05 Deferred income tax Origination and reversal of temporary differences (3,342) (5,721) Adjustments to tax in respect of previous years 1,134 104 Total deferred tax (2,208) (5,617) Income tax expense 8,116 11,988 Deferred tax charged directly to equity during the year in respect of employee share schemes amounted to £333,000 (2020: charge £136,000). Factors affecting future tax charges The Group operates in numerous tax jurisdictions around the world and is subject to factors that may affect future tax charges including transfer pricing, tax rate changes and tax legislation changes. The UK government made a number of budget announcements on 3 March 2021. These include confirming that the rate of corporation tax will increase to 25% from 1 April 2023. This new law was substantively enacted on 24 May 2021. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements. The tax on the Group’s profit before income tax differs (2020: differs) from the theoretical amount that would arise using the standard rate of UK Corporation Tax of 19% (2020: 19%) applied to profits of the consolidated entities as follows: 2021 £’000 2020 £’000 Profit before income tax 47, 398 54,028 Tax calculated at the standard rate of UK Corporation Tax 19% (2020: 19%) 9,006 10,265 (Income)/expense not deductible for tax purposes (15) 834 Joint venture received net of tax (471) (1,364) Adjustments to tax in respect of previous periods (1,188) (169) Profits taxed at rates other than 19% (2020: 19%) 2,746 2,501 Deferred tax on IFRS 16 (1,047) (87) Impact of changes in tax rates 414 – Non-taxable gain on acquisition of JV (1,299) – Other (30) 8 Income tax expense 8,116 11,988 There is no tax impact relating to components of other comprehensive income. Adjustments to tax in respect of prior periods have resulted from changes in assumptions in respect of deductible expenses and the application of capital allowances. 12Earningspershare 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 Basic 2021 Diluted Basic 2020 Diluted Profit attributable to owners of the parent (£’000) 37,14 3 37,143 39,736 39,736 Weighted average number of ordinary shares in issue (thousands) 82,456 82,456 81,835 81,835 Adjustment for share options (thousands) – 1,098 – 1,084 Adjusted weighted average number of ordinary shares (thousands) 82,456 83,554 81,835 82,919 Basic and diluted earnings per share (pence) 45.0 44.5 48.6 47.9 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 137 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 13 Dividends Group and Company 2021 £’000 2020 £’000 Final dividend in respect of 2020 paid 19.0p per ordinary share (2019: 15.4p) 15,561 12,586 Interim dividend in respect of 2021 paid 8.2p per ordinary share (2020: 7.0p) 6,740 5,735 Total dividends paid 22,301 18,321 The Directors propose a final dividend of 21.5p per share payable on 1 July 2022 to shareholders who are on the register at 6 June 2022. This dividend totalling £19.1m has not been recognised as a liability in these consolidated financial statements. Dividends paid to non-controlling interests in the year totalled £1,783,000 (2020: £1,776,000). 14 Property, plant and equipment Group Land and buildings (including leasehold improvements) £’000 Plant and machinery £’000 Fixtures and fittings £’000 Motor vehicles £’000 Total £’000 Cost At 30 December 2019 93,510 342,541 16,043 274 452,368 Exchange adjustments 1,250 15,655 820 (1) 17,724 Additions 2,793 49,040 3,637 110 55,580 Additions: Transfer from Right-of-Use Asset – 37,223 – – 37,223 Transfer to intangible assets – (566) – – (566) Disposals (30) (650) (2) (211) (893) At 3 January 2021 97,523 443,243 20,498 172 561,436 Accumulated depreciation At 30 December 2019 25,684 187,666 12,379 77 225,806 Exchange adjustments 528 7,245 473 (1) 8,245 Charge for the year 4,168 30,609 2,483 38 37,29 8 Disposals (30) (615) (2) (112) (759) At 3 January 2021 30,350 224,905 15,333 2 270,590 Net book amount At 30 December 2019 67,826 154,875 3,664 197 226,562 At 3 January 2021 67,173 218,338 5,165 170 290,846 Cost At 4 January 2021 97,523 443,243 20,498 172 561,436 Exchange adjustments (3,248) (19,497) (1,136) (8) (23,889) Acquisition (note 18) 2,315 7,843 548 123 10,829 Additions 15,125 37,487 3,606 33 56,251 Exceptional impairment (note 9) – (7,0 49) – – (7,049) Transfer to intangible assets 430 (769) (4,165) 3 (4,501) Disposals (469) (260) (735) (15) (1,479) At 2 January 2022 111,676 460,998 18,616 308 591,598 Accumulated depreciation At 4 January 2021 30,350 224,905 15,333 2 270,590 Exchange adjustments (924) (10,560) (781) (7) (12,272) Charge for the year 4,440 37,38 4 2,297 65 4 4,18 6 Exceptional impairment (note 9) – (672) – – (672) Transfer to intangible assets – – (553) – (553) Disposals (87) (192) (878) (12) (1,16 9) At 2 January 2022 33,779 250,865 15,418 48 30 0,110 Net book amount At 2 January 2022 77,8 97 210,133 3,198 260 291,488 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 £13,025,000 (2020: £20,318,000). Additions to property, plant and equipment include capitalised interest costs of £725,000 (2020: £409,000). 138 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued 15 Intangible assets Group Computer software £’000 Brand and customer relationships £’000 Goodwill £’000 Total £’000 Cost At 30 December 2019 7,85 8 22,560 47,5 82 78,000 Exchange adjustments 41 – – 41 Additions 2,703 – – 2,703 Transfer from property, plant and equipment 566 – – 566 Disposals (188) – – (188) At 3 January 2021 10,980 22,560 47,582 81,122 Accumulated amortisation At 30 December 2019 3,279 5,182 – 8,461 Exchange adjustments 25 – – 25 Charge for the year 304 2,449 – 2,753 Disposals (188) – – (188) At 3 January 2021 3,420 7,6 31 – 11,051 Net book amount At 30 December 2019 4,579 17,378 47,5 82 69,539 At 3 January 2021 7,5 60 14,929 47,582 70,071 Cost At 4 January 2021 10,980 22,560 47,582 81,122 Exchange adjustments (411) – – (411) Acquisition (note 18) 158 12,519 21,900 34,577 Additions 1,115 – – 1,115 Transfer from property, plant & equipment 4,501 – – 4,501 Disposals (3) – – (3) At 2 January 2022 16,751 35,079 69,482 121,312 Accumulated amortisation At 4 January 2021 3,420 7,6 31 – 11,051 Exchange adjustments (235) – – (235) Charge for the year 1,468 2,702 – 4,170 Transfer from property, plant & equipment 553 – – 553 Disposals (2) – – (2) At 2 January 2022 5,204 10,333 – 15,537 Net book amount At 2 January 2022 11,5 47 24,746 69,482 105,775 Amortisation charges are included within administrative expenses in the income statement. Goodwill Impairment Testing Goodwill includes £44,793,000 relating to the acquisition of the Seachill business (now trading as Hilton Seafood UK) in 2017 and £2,789,000 recognised in 2019 following the acquisition of SV Cuisine Limited. Hilton Seafood UK and SV Cuisine are each considered to be separate cash generating units. The recoverable amount of the Seachill cash generating unit was based on its fair value less costs of disposal after allowing for the impact of planned investment and the recoverable amount of SV Cuisine was determined on a value-in-use basis based, in both cases using a discounted cash flow model. For each cash generating unit the recoverable amounts calculated exceeded their carrying value. The key assumptions used in the calculations are projected EBITDA, projected profit after tax, the pre-tax and post-tax discount rates and the growth rates used to extrapolate cash flows beyond the projected period. EBITDA and profit after tax are based on one-year budgets approved by the Board and longer term, three year, projections based on past experience adjusted to take account of the impact of expected changes to sales prices, volumes, business mix and margin. Cash flows are discounted at a pre-tax discount rate of 10% (2020: 10%) or a post-tax discount rate of 8% (2020: 8%) with a growth rate of 2% (2020: 2%) used to extrapolate cash flows. Discount rates and growth rates are calculated with reference to external benchmarks and where relevant past experience. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 139 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 15 Intangible assets continued Sensitivity to changes in assumptions The calculation is most sensitive to changes in the assumptions used for projected cash flow, the pre-tax discount rate and the growth rate. Management considers that reasonably possible changes in assumptions would be an increase in discount rate of one percentage point, a reduction in growth rate of 1 percentage point or a 10% reduction in budgeted cash flow. As an indication of sensitivity, when applied to the value-in-use calculation neither a 1% reduction in growth rate, a 10% reduction in budgeted cash flow, nor a 1% increase in the pre-tax discount rate would have resulted in an impairment of goodwill in the year. No indicators of impairment were identified in respect of other, amortised, intangible assets and therefore no impairment review has been undertaken. Goodwill acquired in the year Goodwill and other intangible assets totalling £34,577,000 have been provisionally recognised following the acquisitions of Dalco Food BV and Fairfax Meadow Europe Limited in the year (see note 18). Dalco and Fairfax Meadow will each form separate cash generating units for impairment testing purposes and impairment testing will begin before the end of the current financial year. 16 Leases (i) Amounts recognised in the balance sheet The balance sheet includes the following amounts relating to leases: Lease: right of use assets Group Land & Buildings £’000 Equipment £’000 Vehicles £’000 Total £’000 Opening net book amount as at 29 December 2019 132,940 42,679 2,674 178,293 Exchange Adjustments 10,469 295 83 10,847 Additions 98,427 195 1,303 99,925 Transfer to tangible fixed assets – (37,223) – (37,223) Remeasurements, reclassification and scope changes 2,592 (586) (363) 1,643 Depreciation (13,008) (4,254) (1,088) (18,350) Closing net book amount at 3 January 2021 231,420 1,106 2,609 235,135 Exchange Adjustments (9,945) (147) (108) (10,200) Additions 2,739 2,418 420 5,577 Acquisition (note 18) 6,066 5,139 1,289 12,494 Remeasurements, reclassification and scope changes – (336) – (336) Depreciation (16,339) (927) (1,161) (18,427) Disposal of leased assets destroyed by fire (note 9) (2,168) (19) (52) (2,239) Closing net book amount at 2 January 2022 211,773 7,23 4 2,997 222,004 Lease liabilities Group 2021 £’000 2020 £’000 Current 14,419 6,250 Non-current 228,977 238,995 243,396 245,245 Maturity analysis – contractual undiscounted cash flows Group 2021 £’000 2020 £’000 Less than one year 22,716 15,010 One to five years 79,010 77,822 More than five years 233,673 255,619 Total lease liabilities 335,399 348,451 140 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued 16 Leases continued (ii) Amounts recognised in the consolidated income statement The income statement shows the following amounts related to leases: Depreciation charge on right-of-use assets Group 2021 £’000 2020 £’000 Buildings 16,339 13,008 Plant & equipment 927 4,254 Vehicles 1,161 1,088 18,427 18,350 Interest expenses (included in finance costs) 8,536 6,919 Expenses relating to short-term leases (included in costs of goods sold and administrative expenses) 136 278 Expenses relating to leases of low-value assets that have not been shown above as short-term (included in costs of goods sold and administrative expenses) 3 24 The total cash outflow for leases in 2021 was £17,307,000 (2020: £59,488,000). Variable Lease Payments Leases with liabilities recognised of £9,824,000 (2020: £10,163,000), accounting for 4.0% (2020: 4.1%) of total lease liabilities, are subject to five yearly RPI linked rent reviews. These rent reviews are subject to a minimum collar, the impact of which is included in the calculation of lease liabilities and a maximum cap. If the impact of these variable lease payments had been recognised, applying index levels as at 2 January 2021, lease liabilities would have increased by 2021: £1,895,000 (2020: £633,000). In addition, leases with liabilities recognised totalling £6,408,000 (2020: £11,063,000), accounting for 2.6% (2020: 4.5%) of total lease liabilities, are subject to annual CPI linked rent increases. If the impact of these variable lease payments had been recognised, applying index levels as at 2 January 2022, lease liabilities would have increased by £278,000 (2020: £44,000). 17 Investments 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 2021 £’000 2020 £’000 At the beginning of the year 12,622 11,758 Profit for the year 1,925 5,029 Disposal of investment (6,551) – Dividends received (2,273) (4,271) Effect of movements in foreign exchange (184) 106 At the end of the year 5,539 12,622 Where relevant, management accounts for the joint venture have been used to include the results up to 2 January 2022. The Group’s share of the net assets, income and expenses of the joint venture are detailed below: Set out below are the joint ventures of the Group as at 2 January 2022. (%) Proportion of ordinary shares held by Joint venture Registered address Country Share class Parent Group SoHi Meat Solutions – Distribuicao deCarnes SA Zona Industrial de Santarem – Quinta de Mocho District, Santarem, 2005 002 Varzea Portugal €5 Ordinary – 50 Foods Connected Limited Ground Floor, Old City Factory, Patrick Street, Londonderry, Northern Ireland, BT48 7EL UK £1 Ordinary – 50 Foods Connected Australia Pty Limited 62 Burwood Road, Burwood, NSW 2134 Australia AUD 1 Ordinary – 50 At 3 January 2021 the Group held 50% interests in Woolworths Meat Co. Pty Limited and Dalco Food BV. As noted below during the period the Group acquired the remaining 50% interest in Dalco Food BV taking its interest to 100%. Following the end of Woolworths Meat Co. Pty Limited’s oversight role in respect of the former joint venture meat processing facilities in Australia the company ceased trading in 2020 and it was subsequently dissolved in the period. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 141 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 17 Investments continued The tables below provide summarised financial information for those joint ventures that are material to the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant joint ventures and not the Group’s share of those amounts. SoHi Meat Solutions Woolworths Meat Co. Pty Limited Dalco Food BV Summarised balance sheet 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Current assets Cash and cash equivalents 301 417 – – – 3,934 Other current assets 35,675 41,987 – – – 17,14 5 Total current assets 35,976 42,404 – – – 21,079 Non-current assets 19,023 22,708 – – – 5,439 Total current liabilities (42,377) (52,290) – – – (9,640) Total non-current liabilities (6,920) (7,14 4) – – – (1,906) Net assets 5,702 5,678 – – – 14,972 Reconciliation to carrying amounts Opening net assets 5,678 5,534 – 2,412 14,972 12,090 Acquisitions 1,086 1,128 – 5,034 1,982 2,782 Profit for the period – – – – (13,102) – Dividends paid (956) (1,060) – (7,4 82) (3,602) – Exchange adjustments (106) 76 – 36 (250) 100 Closing net assets 5,702 5,678 – – – 14,972 Group’s share – % 50% 50% 0% 50% 0% 50% Group’s share – £k 2,851 2,839 – – – 7,4 86 Summarised statement ofcomprehensiveincome Revenue 254,949 254,948 – 7,561 56,039 54,997 Depreciation and amortisation (4,020) (4,675) – – (1,293) (1,299) Net finance costs (634) (296) – – (167) (145) Income tax expense (417) (343) – (2,266) (612) (917) Profit for the period 1,086 1,128 – 5,034 1,982 2,782 Dividends received from joint venture entity 478 530 – 3,741 1,801 – On 1 October 2021 the Group acquired the remaining 50% interest in Dalco Food BV (see note 18) and the financial position and performance of the business was fully consolidated from this date. The Group’s joint venture interest was effectively disposed of at this date with an exceptional gain of £6,837,000, being the difference between the carrying value and fair value of the joint venture interest, recognised. During the year the Woolworths Meat Co. Pty Limited was dissolved. The Group also has an interest in one other individually immaterial joint venture. Individually immaterial joint ventures: 2021 £’000 2020 £’000 Aggregate carrying amount of individually immaterial joint venture 2,688 2,297 Aggregate Group share of profit for the year 391 557 142 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued 17 Investments continued Non-controlling interests Set out below is summarised financial information for Hilton Foods Holland BV, the only Group subsidiary with a non-controlling interest that is considered to be material to the Group. The amounts disclosed are before inter-company eliminations. Hilton Meats Holland BV Summarised balance sheet 2021 £’000 2020 £’000 Current assets 70,246 75,994 Current liabilities (49,314) (54,525) Current net assets 20,932 21,469 Non-current assets 5,310 5,319 Non-current liabilities (274) (436) Non-current net assets 5,036 4,883 Net assets 25,968 26,352 Accumulated non-controlling interests 5,194 5,270 Summarised statement of comprehensive income Revenue 288,347 301,677 Profit for the period 7,301 7,68 5 Other comprehensive (expense)/income (1,806) 1,587 Total comprehensive income 5,495 9,272 Profit allocated to non-controlling interests 1,460 1,537 Dividends paid to non-controlling interests 1,175 1,164 Summarised cash flows Cash flows from operating activities 9,065 13,371 Cash flows from investing activities (5,646) (9,213) Cash flows from financing activities (5,919) (7,752) Impact of foreign exchange (1,443) 1,268 Net decrease in cash and cash equivalents (3,943) (2,326) There were no transactions with non-controlling interest in the current or prior year. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 143 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 17 Investments continued Investments in subsidiaries Investments in subsidiary undertakings are recorded at cost, which is the fair value of consideration paid. Company 2021 £’000 2020 £’000 At the beginning of the year 157,221 157,221 Additions 90,564 – At 3 January 2021 and 2 January 2022 247,785 157,2 21 During the year the Company invested £90,564,000 in its subsidiary Hilton Foods Limited. The subsidiary undertakings of the Group are: (%) Proportion of shares held by Subsidiary undertakings Registered address Country Share class Parent Group Hilton Foods Asia Pacific Limited 2-8 The Interchange Latham Road, HuntingdonPE29 6YE UK £1 Ordinary – 100 Hilton Food Solutions Limited £1 Ordinary – 55 Agito Holdings Limited (formerly Hilton Alternative Protein UK Limited) £1 Ordinary – 100 Seachill UK Limited trading asHiltonSeafood UK £1 Ordinary – 100 Coldwater Seafood UK Limited £1 Ordinary – 100 Icelandic UK Limited £1 Ordinary – 100 Fairfax Meadow Europe Limited £1 Ordinary – 100 (2020: 0) Fairfax London Limited £1 Ordinary – 100 (2020: 0) £1 Preference – 100 Hilton Foods Limited Carson McDowell LLP, Murray House, MurrayStreet, Belfast, Northern Ireland, BT16DN UK £1 Ordinary 100 100 Hilton Foods UK Limited £1 Ordinary – 100 Hilton Meats Holland Limited £1 Ordinary – 80 Hilton Food Group (Europe) Limited £1 Ordinary – 100 Hilton Food.com Limited £1 Ordinary – 100 Hilton Foods Holland BV Grote Tocht 31, 1507 CG Zaandam Netherlands €1,000 Ordinary – 80 Hilton Food Solutions Holland BV €1 Ordinary – 55 Dalco Food BV Sweelinckstraat 8, 5344 AE Oss €45.38 Ordinary – 100 (2020: 50) Hilton Foods (Ireland) Limited Termonfeckin Road, Drogheda, Co Louth Ireland €1 Ordinary – 100 Hilton Foods Sverige AB (formerlyHFG Sverige AB) Saltangsvagen 53, 721 32 Vasteras Sweden SEK 2,500 Ordinary – 100 Hilton Foods Danmark A/S Brunagervej 4, Kolt, 8361 Hasselager Denmark DKK 100 Ordinary – 100 Hilton Foods Ltd Sp z o.o. Ul Strefowa 31, 43-100 Tychy Poland PLN 500 Ordinary – 100 Hilton Foods Belgium BV Guldensporenpark 120, Stratenplan, 9820Merelbeke Belgium €1 Ordinary – 100 Hilton Foods Australia Pty Limited 267 Dohertys Road, Truganina, VIC 3029 Australia AUD 1 Ordinary – 100 Hilton Foods New Zealand Limited 11 Puaki Drive, Wiri, Auckland 2104 New Zealand NZD 1 Ordinary – 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. 144 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued 18 Business combinations On 1 October 2021 the Group completed the purchase of the remaining 50% of Dalco Food BV (Dalco) taking its interest from 50% to 100%. Dalco is a leading producer of vegetarian and vegan proteins supplying both retail and food service customers from its facilities in the Netherlands. On 28 October 2021 the Group acquired 100% of the share capital of Fairfax Meadow Europe Limited (Fairfax Meadow) a leading meat supplier to the UK food service sector. Group Dalco Food BV £’000 Fairfax Meadow Europe Limited £’000 Property, plant and equipment 4,393 6,436 Intangibles – Software 113 45 Brand and customer relationship intangibles – 12,519 Lease: Right-of-use asset 5,303 7,191 Inventories 8,14 3 7, 982 Trade and other receivables 5,992 13,643 Trade and other payables (8,767) (16,781) Borrowings (1,824) (8,504) Lease liabilities (5,303) (7,09 4) Deferred tax (242) (3,024) Goodwill 18,967 2,933 Fair value of assets acquired 26,775 15,346 Consideration: Payable on completion 13,388 15,346 Deemed fair value of existing 50% interest 13,387 – 26,775 15,346 Dalco Food BV The acquisition of the remaining 50% of Dalco allows the Group to take full control of the business enabling it to further diversify and strengthen its protein offering in the fast-growing vegan and vegetarian market. Consideration for the acquisition of the 50% interest in Dalco totalled £13,388,000 and comprised cash of £11,603,000, and Hilton Food Group plc shares with a market value at the date of issue of £1,785,000. As a result of the acquisition, and to allow full consolidation of Dalco as a subsidiary the Group has recognised an exceptional gain of £6,837,000 (see note 9) being the difference between the carrying value of its joint venture interest at the date of acquisition and its fair value. Due to the timing of completion of the acquisition and the timing of other acquisition activity undertaken by the Group in 2021, the exercise to assess the fair values of assets and liabilities acquired is ongoing and therefore amounts presented above are provisional and expected to change. The provisional fair value of property, plant and equipment acquired, disclosed above, is the book value recognised by Dalco at the date of acquisition. A review of acquired property, plant and equipment is currently being undertaken by qualified surveyors and once concluded is expected to give rise to adjustments to the fair value recognised. An exercise is also underway to establish the fair value of Dalco’s customer relationships and long term supply agreements, the fair value of brands used within the Dalco business and to identify and value any other intangible assets acquired as part of the business combination. Goodwill of £18.8m has provisionally been recognised, however the conclusion of the ongoing work in respect of the valuation of tangible and intangible fixed assets acquired is expected to result in an overall reduction in the level recognised. Residual goodwill is expected to mainly relating to the strategic benefits for Hilton of diversifying its product portfolio into the vegan and vegetarian protein market. The value of other assets and liabilities reflect the amounts expected to be realised or paid respectively. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 145 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 18 Business combinations continued Fairfax Meadow Europe Limited The acquisition of Fairfax Meadow improves the access for Hilton to the out-of-home channel, providing an opportunity for the Group to diversify into the food service sector and contribute to the group sustainable growth. Consideration for the acquisition of Fairfax Meadow totalled £15,346,000 paid entirely in cash. Goodwill has arisen and mainly relates to the strategic benefits for Hilton of diversifying its product portfolio into the food service sector. The fair value of property, plant and equipment acquired was established following a review undertaken by qualified surveyors and reflect their existing use value. Customer relationship intangibles have been recognised and relate to the supply agreements and long standing relationships that Fairfax Meadow has with its customers. Brand intangibles have been recognised in respect of the Fairfax Meadow trading name and other brands employed by the business. The fair value of these intangible assets of £12,519,000 have been aggregated as they are considered to be linked with their value each dependent on the other and will be amortised over their useful economic lives of 5 to 9 years. The value of other assets and liabilities reflect the amounts expected to be realised or paid respectively. As a result of the timing of completion of the acquisition and the timing of other acquisition activity undertaken by the Group in 2021, fair values presented for the Fairfax Meadow acquisition reflect the initial assessment of fair value and remains subjected to amendment for one year from the date of acquisition. Since the date of acquisition Dalco has contributed revenue of £14.8m to the Group and has realised an adjusted loss before exceptional items and tax of £0.1m; Fairfax Meadow has contributed revenue of £23.4m and realised adjusted profit before tax and exceptional items of £0.5m. If the acquisitions of the 50% interest in Dalco and Fairfax Meadow had taken place at the start of the year the Group would have recognised revenue £3,405.1m and adjusted profit before tax and exceptional items of £66.5m. In the year the Group has recognised exceptional acquisition related costs of £2,226,000 in respect of legal and professional and other related activities associated with acquisition activity alongside exceptional finance costs of £1,131,000 relating to acquisition specific bank financing. See note 9. Deferred Consideration At 3 January 2021 a deferred consideration liability of £3,318,000 in respect of the acquisition of SV Cuisine Limited had been recognised. During the period the Group settled this liability making a payment of £2,500,000. 19 Inventories Group 2021 £’000 2020 £’000 Raw materials and consumables 136,926 99,495 Finished goods and goods for resale 19,591 17,446 156,517 116,941 The cost of inventories recognised as an expense and included in cost of sales amounted to £2,722,188,000 (2020: £2,263,918,000). The Group charged £1,106,000 in respect of inventory write-downs (2020: £2,904,000). The amount charged has been included in cost of sales in the income statement. 146 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued 20 Trade and other receivables Group Company 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Trade receivables 201,377 170,534 – – Less: provision for impairment of trade receivables (699) (369) – – Trade receivables – net 200,678 170,165 – – Amounts owed by Group undertakings – – 2,874 14,272 Amounts owed by related parties (see note 32) 565 690 – – Other receivables 25,868 16,924 – – Prepayments 5,516 11,86 3 – – 232,627 199,642 2,874 14,272 Less: Non-current other receivables (2,239) – – – 230,388 199,642 2,874 14,272 Amounts owed by Group undertaking to the Company are unsecured interest free and repayable on demand. The carrying amounts of trade and other receivables are denominated in the following currencies: Group Company Currency 2021 £’000 2020 £’000 2021 £’000 2020 £’000 UK Pound 66,066 38,426 2,874 14,272 Euro 51,597 57,422 – – Swedish Krona 16,943 21,640 – – Danish Krone 25,204 27,077 – – Polish Zloty 4,313 4,530 – – Australian Dollar 49,092 46,403 – – New Zealand Dollar 19,412 4,14 4 – – 232,627 199,642 2,874 14,272 The Group have performed an assessment of the expected credit losses across the portfolio of trade receivables and contract assets. In determining the expected credit loss, the Group has given due consideration to the historic credit losses arising in prior years and ofcurrent and forward looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. To measure the expected credit loss, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The Group has concluded that the expected credit loss results in a provision being recognisedof £699,000 (2020: £369,000). Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Impairment losses on trade receivables and contract assets are presented as net impairment losses within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item. Movements on the provision for impairment of trade receivables are as follows: Group 2021 £’000 2020 £’000 At the beginning of the year 369 569 Provision for receivables impairment 401 53 Receivables impairment released – (8) Receivables written off during the year as uncollectable (67) (245) Exchange differences (4) – At the end of year 699 369 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 147 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 21 Cash and cash equivalents Group Company 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Cash at bank and on hand 140,170 123,816 151 190 22 Other financial asset – restricted cash On 6 January 2022 the Group acquired a 50% joint venture interest in Agito Group Pty Limited (see note 31). Consideration for this investment was held in escrow by the Group lawyer’s at the year end and has therefore been recognised as restricted cash. 23 Borrowings Group 2021 £’000 2020 £’000 Current Bank borrowings 224,732 39,759 Non-current Bank borrowings – 206,228 Total borrowings 224,732 245,987 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 2021 £’000 2020 £’000 UK Pound 65,198 6 6,142 Euro 18,277 21,217 Danish Kroner 1,118 851 Polish Zloty 5,384 6,560 Australian Dollar 106,903 120,667 New Zealand Dollar 27,852 30,550 224,732 245,987 Bank borrowings are repayable in quarterly instalments from 2019 – 2022 with interest charged at LIBOR (or equivalent benchmark rates) plus 1.3% – 1.6%. Bank borrowings are subject to joint and several guarantees from each active Group undertaking. The Group’s bank borrowings have been classified as current liabilities as the bank facility agreements were due to mature in October 2022. Since the year end the Group has refinanced these facilities (see note 31). The Group has undrawn committed loan facilities of £96.8m (2020: £51.5m). The undiscounted contractual maturity profile of the Group’s borrowings is described in note 3. Group net debt of £85,571,000 (2020: net debt of £123,366,000) comprises borrowings, noted above, of £224,732,000 (2020: £245,987,000) cash and cash equivalents of £140,014,000 (2020: £123,816,000), and finance leases previously recognised under IAS 17 of £853,000 (2020: £1,195,000). Including total lease liabilities Group net debt is £328,114,000 (2020: £367,416,000). 24 Trade and other payables Group Company 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Trade payables 324,673 263,938 – – Amounts owed to related parties (see note 32) 136 208 – – Social security and other taxes 8,956 7,496 – – Accruals 53,450 60,712 5 – 387,215 332,354 5 – The fair value of trade and other payables are the same as their carrying value. 148 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued 25 Deferred income tax Group Accelerated capital allowances £’000 Acquired intangible assets £’000 IFRS 16 Leases £’000 Other timing differences £’000 Total £’000 At 30 December 2019 (1,085) (3,302) 1,612 929 (1,846) Exchange differences 200 – – – 200 Income statement credit 4,18 9 465 963 – 5,617 Adjustment in respect of employee share schemes – – – (136) (136) At 3 January 2021 3,304 (2,837) 2,575 793 3,835 Exchange differences (290) – – – (290) Acquisition (note 18) (3,266) – – – (3,266) Income statement credit (988) 465 2,731 – 2,208 Adjustment in respect of employee share schemes – – – 333 333 At 2 January 2022 (1,240) (2,372) 5,306 1,126 2,820 The following is the reconciliation of the deferred tax balances in the balance sheet: Group 2021 £’000 2020 £’000 Deferred tax liabilities (4,132) (2,384) Deferred tax assets 6,952 6,219 2,820 3,835 Other timing differences principally relate to share-based payments. The deferred income tax liability above includes £281,324 (2020: £253,000) which is estimated to reverse within 12 months. The deferred income tax asset above is not expected to reverse within 12 months. 26 Ordinary shares Group Company Number of shares (thousands) 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Authorised, issued and fully paid ordinary shares of 10p each At 4 January 2021/30 December 2019 81,939 8,194 8,173 8,19 4 8,173 Issue of new shares relating to employee incentive schemes 263 26 21 26 21 Issue of new shares relating to Dalco acquisition 154 15 – 15 – Issue of new shares relating to equity placing 6,579 658 – 658 – At 2 January 2022/3 January 2021 88,935 8,893 8,19 4 8,893 8,194 All ordinary shares of 10p each have equal rights in respect of voting, receipt of dividends and repayment of capital. On 1 October 2021 the Company issued 154,000 ordinary shares with a total market value at the date of issue of £1,785,000, equal to£11.59 per share, as part of the consideration for the acquisition of the remaining 50% interest in Dalco (see note 18). On 10 December 2021 the Company successfully placed 6,578,000 ordinary shares at a price of £11.40 per share raising total gross proceeds of £75,000,000. After share issues costs of £1,833,000, which have been deducted from equity, net proceeds of the placing were £73,167,000. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 149 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 27 Share-based payment 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 (EPS) compound growth target. An additional performance measure for total shareholder return (TSR) was introduced during the year, whereby 70% of the award is based on EPS performance and 30% is based on TSR. Awards will vest on a sliding scale as follows: – EPS – 10% of the maximum award applied at the minimum EPS growth target of 6% per year with the full award vesting where EPS growth is at least 12%-15% per year – TSR – 10% median performance against the constituents of the FTSE 250 (excluding investment trusts) increasing to full vesting for this part of an award for upper quartile performance 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 weighted exercise price are as follows: Sharesave Long Term Incentive Options (’000) Exercise price (pence) Options (’000) Exercise price (pence) At 30 December 2019 750 813.56 1,473 – Granted 260 1,228.00 419 – Exercised (214) 648.25 (192) – Lapsed (56) 918.00 (250) – At 3 January 2021 740 998.99 1,450 – Granted 226 1,200.00 370 – Exercised (263) 829.04 (212) – Lapsed (102) 1,121.39 (20) – At 2 January 2022 601 1,128.69 1,588 – Share options outstanding at the end of the year have the following expiry date and exercise prices: Number options Expiry date Type of scheme Status Exercise price (pence) 2021 (‘000) 2020 (‘000) December 2021 Sharesave Exercisable 830.00 – 267 February 2023 Sharesave Not exercisable 950.00 194 221 February 2024 Sharesave Not exercisable 1228.00 201 249 February 2025 Sharesave Not exercisable 1200.00 209 – April 2024 Long Term Incentive Plan Exercisable nil cost 2 21 April 2025 Long Term Incentive Plan Exercisable nil cost 60 88 April 2026 Long Term Incentive Plan Exercisable nil cost 66 99 April 2027 Long Term Incentive Plan Exercisable nil cost 92 113 May/July 2028 Long Term Incentive Plan Exercisable nil cost 246 359 May 2029 Long Term Incentive Plan Not exercisable nil cost 399 404 Sep 2030 Long Term Incentive Plan Not exercisable nil cost 355 366 May 2031 Long Term Incentive Plan Not exercisable nil cost 367 – Total 2,191 2,19 0 The fair value of options granted during 2021 determined using the Black-Scholes valuation model ranged from 218p to 1145p per option. The significant inputs into the model were the exercise price shown above, volatility of 33% based on a comparison of similar listed companies, dividend yield of 2.14%, an expected option life of 2.64 years, and an annual risk-free interest rate of 0.11%. See note 8 for the total expense recognised in the income statement for share options granted to Directors and employees. 150 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued 28 Cash generated from operations Group 2021 £’000 2020 £’000 Profit before income tax 47, 398 54,028 Finance costs – Net 16,034 12,839 Operating profit 63,432 66,867 Adjustments for non-cash items: Share of post tax profits of joint venture (1,925) (5,029) Depreciation of property, plant and equipment 4 4,18 6 37,298 Depreciation of leased assets 18,427 18,350 Impairment of property, plant and equipment 6,377 – Disposal of leased assets destroyed by fire 2,239 – Gain on early settlement of Belgium lease liabilities (2,18 3) – Amortisation of intangible assets 4,170 2,753 Amortisation of contract assets – charged to revenue – 1,197 Gain on 100% acquisition of Dalco BV (6,837) – Loss/(gain) on disposal of non-current assets 195 (40) Adjustment in respect of employee share schemes 2,725 2,120 Changes in working capital: Inventories (26,656) (23,212) Trade and other receivables (23,116) 22,995 Trade and other payables 40,225 (2,528) Cash generated from operations 121,259 120,771 The parent company has no operating cash flows. 29 Analysis and movement in net debt This section sets out an analysis of net debt and the movements in net debt for each of the periods presented. 2021 £’000 2020 £’000 Cash and cash equivalents 140,170 123,816 Borrowings (including overdrafts) (224,732) (245,987) Net bank debt (84,562) (122,171) Lease liabilities (243,396) (245,245) Net debt (327,958) (367,416) Net debt reconciliation Cash/other financial assets £’000 Borrowings (including overdrafts) £’000 Net bank debt £’000 Lease liabilities £’000 Net debt £’000 At 30 December 2019 110,514 (197, 339) (86,825) (184,633) (271,458) Cash flows 10,480 48,908 59,388 52,267 111,655 Lease additions – – – (99,925) (99,925) New borrowings – (92,563) (92,563) – (92,563) Exchange adjustments 2,822 (4,993) (2,171) (11, 309 ) (13,480) Other changes – – – (1,645) (1,645) At 3 January 2021 123,816 (245,987) (122,171) (245,245) (367,416) Cash flows 19,750 79,819 99,569 6,588 10 6,157 Lease additions – – – (5,549) (5,549) Acquisition – – – (12,397) (12,397) New borrowings – (67,062) (67,062) – (67,062) Exchange adjustments (3,396) 8,498 5,102 10,652 15,754 Other changes – – – 2,555 2,555 At 2 January 2022 140,170 (224,732) (84,562) (243,396) (327,958) OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 151 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 30 Commitments Capital commitments Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows: Group Company 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Property, plant and equipment 12,268 32,340 – – 31 Events after the reporting period The following non-adjusting events occurred after the reporting period: Acquisition of Dutch Seafood Company BV On 16 March 2022 the Group acquired 100% of the share capital of Dutch Seafood Company BV, which trades as Foppen. Foppen is a leading international smoked salmon producer with customers in Europe and US. The acquisition provides Hilton with the opportunity to diversify into a complementary protein category and enhance its customer base whilst also entering a new strategic market in the US. Consideration for the acquisition totalled £25.0m paid entirely in cash with the Group also repaying £54.7m of Foppen’s bank and other borrowings immediately following completion of the acquisition. The timing of completion of this transaction and its proximity to the date of these financial statements has meant that initial accounting for the business combination has not been completed and therefore it is impractical to provide the disclosures required by IFRS 3, Appendix B, Paragraph 64 (e) or (h)-(q). Agito Group Pty Limited – Joint Venture Investment On 6 January 2022 the Group acquired a 50% joint venture interest in Agito Group Pty Limited, a provider of automation and software controls used in food processing and other manufacturing facilities based in Australia, for consideration of £1.1m. Bank facility agreement On 21 January the Group agreed a £424m revolving credit and term loan facility with a syndicate of lenders. The facility refinanced the Group’s existing bank facilities including undrawn acquisition bridge financing put in place to fund the Foppen acquisition that matured in January 2022. The Group’s new bank facility matures in January 2027 with the term loans, totalling £134m, repayable in quarterly instalments beginning in April 2022. 32 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 and purchases made on an arm’s length basis on normal credit terms to related parties during the year were as follows: Group sales 2021 £’000 2020 £’000 SoHi Meat Solutions Distribuicao de Carnes SA – fee for services 3,175 3,351 SoHi Meat Solutions Distribuicao de Carnes SA – recharge of joint venture costs 331 368 Dalco BV 438 313 Foods Connected Limited – 3 Group purchases 2021 £’000 2020 £’000 Foods Connected Limited 568 351 Amounts owing from related parties at the year end were as follows: Owed from related parties Group 2021 £’000 2020 £’000 Foods Connected Limited 4 15 SoHi Meat Solutions Distribuicao de Carnes SA 561 393 Dalco BV – 282 565 690 152 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued Amounts owing to related parties at the year end were as follows: Owed to related parties 2021 £’000 2020 £’000 Foods Connected Limited 127 85 SoHi Meat Solutions Distribuicao de Carnes SA 9 – Dalco BV – 123 136 208 During the period the group settled the deferred consideration liability recognised in respect of the acquisition of SV Cuisine Limited, making a payment of £2.5m. The acquisition of SV Cuisine Limited was considered to be a related party transaction as prior to acquisition Philip Heffer, the Hilton Food Group CEO, Graham Heffer and Robert Heffer, both directors of the Group’s subsidiary Hilton Food Solutions Limited, had each held a 30% shareholding in SV Cuisine Limited. 33 Financial instruments by category The accounting policies for financial instruments have been applied to the line items below: Financial assets at amortised cost Group 2021 £’000 2020 £’000 Assets as per balance sheet Trade and other receivables 227,111 187,779 Financial liabilities at amortised cost Group 2021 £’000 2020 £’000 Liabilities as per balance sheet Trade and other payables 378,259 324,858 Borrowings 224,732 245,987 Lease liabilities 243,396 245,245 846,387 816,090 In addition to the above, amounts owed to the Company by Group undertakings of £2,874,000 (2020: £14,272,000) are classified as ‘financial assets at amortised cost’. OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 153 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 34 Alternative performance measures The Group’s performance is assessed using a number of alternative performance measures (APMs). The Group’s alternative profitability measures are presented before exceptional items, amortisation of certain intangible assets and depreciation of fair value adjustments made to property plant and equipment acquired through business combinations and the impact of IFRS 16 – Leases. The measures are presented on this basis, as management believe they provide useful additional information about the Group’s performance and aids a more effective comparison of the Group’s trading performance from one period to the next. Adjusted profitability measures are reconciled to unadjusted IFRS results on the face of the income statement below. 52 weeks ended 3 January 2022 Reported £’000 Add back: IFRS 16 Depreciation and interest £’000 Less: IAS 17 Lease accounting costs £’000 Reported – excl IFRS 16 £’000 Exceptional items £’000 Add back: Amortisation of acquisition intangibles £’000 Adjusted £’000 Operating profit – excluding exceptional items 70,482 18,214 (17,9 07) 70,789 – 2,778 73,567 Exceptional items (7,05 0) 56 – (6,994) 6,994 – – Operating profit 63,432 18,270 (17,907) 63,795 6,994 2,778 73,567 Net finance costs (16,034) 8,498 – (7,5 36) 1,131 – (6,405) Profit before income tax 47, 398 26,768 (17,907) 56,259 8,125 2,778 67,162 Profit for the period 39,282 24,037 (17,9 07) 45,412 5,009 2,250 52,671 Less non-controlling interest (2,139) (7) – (2,146) – – (2,146) Profit attributable to members of the parent 37,143 24,030 (17,9 07) 43,266 5,009 2,250 50,525 Depreciation andamortisation 75,596 (20,489) – 55,107 (6,377) (2,778) 45,952 EBITDA 139,028 (2,219) (17,9 07) 118,902 617 – 119,519 Earnings per share pence pence pence Basic 45.0 52.5 61.3 Diluted 44.5 51.8 60.5 53 weeks ended 3 January 2021 Reported £’000 Add back: IFRS 16 Depreciation and interest £’000 Less: IAS 17 Lease accounting costs £’000 Reported – excl IFRS 16 £’000 Add back: Amortisation of acquisition intangibles £’000 Adjusted £’000 Operating profit 66,867 18,16 3 (20,451) 64,579 2,449 67,028 Net finance costs (12,839) 6,874 – (5,965) – (5,965) Profit before income tax 54,028 25,037 (20,451) 58,614 2,449 61,063 Profit for the period 42,040 24,074 (20,451) 45,663 1,984 47,647 Less non-controlling interest (2,304) (382) 387 (2,299) – (2,299) Profit attributable to members of the parent 39,736 23,692 (20,064) 43,364 1,984 45,348 Depreciation andamortisation 59,558 (18,163) – 41,395 (2,449) 38,946 EBITDA 126,425 – (20,451) 105,974 – 105,974 Earnings per share pence pence pence Basic 48.6 53.0 55.4 Diluted 47.9 52.3 54.7 The depreciation and amortisation figure includes £nil (2020: £1,197,000) amortisation of contract assets charged to revenue and adds back a loss on disposal of £195,000 (2020: gain £40,000). 154 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Notes to the financial statements continued Segmental operating profit reconciles to adjusted segmental operating profit as follows: 52 weeks ended 3 January 2022 Reported £’000 Add back: IFRS 16 Depreciation and interest £’000 Less: IAS 17 Lease accounting costs £’000 Reported – excl IFRS 16 £’000 Exceptional items £’000 Add back: Amortisation of acquisition intangibles £’000 Adjusted £’000 Europe 52,307 6,393 (6,684) 52,016 6,994 2,778 61,788 Australasia 21,716 11,877 (11,223) 22,370 – – 22,370 Central costs (10,591) – – (10,591) – – (10,591) Total 63,432 18,270 (17,9 07) 63,795 6,994 2,778 73,567 53 weeks ended 3 January 2021 Reported £’000 Add back: IFRS 16 Depreciation and interest £’000 Less: IAS 17 Lease accounting costs £’000 Reported – excl IFRS 16 £’000 Add back: Amortisation of acquisition intangibles £’000 Adjusted £’000 Europe 60,538 5,757 (6,163) 6 0,132 2,449 62,581 Australasia 19,091 12,406 (14,288) 17,20 9 – 17,20 9 Central costs (12,762) – – (12,762) – (12,762) Total 66,867 18,16 3 (20,451) 64,579 2,449 67,028 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION 155 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Registered office 2-8 The Interchange Latham Road Huntingdon Cambridgeshire PE29 6YE Advisors Corporate brokers Numis Securities Limited 45 Gresham Street London EC2V 7BF Shore Capital and Corporate Limited & Shore Capital Stockbrokers Limited Cassini House 57 St James’s Street London SW1A 1LD Legal advisor Taylor Wessing LLP 5 New Street Square London EC4A 3TW Independent auditors PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Merchant Square 20-22 Wellington Place Belfast BT1 6GE Registrar Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Financial Public Relations Headland Consultancy Limited Cannon Green 1 Suffolk Lane London EC4R 0AX 156 HILTON FOOD GROUP PLC | ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 Registered office and advisors OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION This report has been printed on paper which is certified by the Forest Stewardship Council ® . The paper is Elemental Chlorine Free (ECF) made ata mill with ISO 14001 environmental management system accreditation. This report has been printed sustainably in the UK by Pureprint, a CarbonNeutral ® company and certified to ISO 14001 environmental management system. It has been digitally printed without the use of film separations, plates and associated processing chemicals, and 100% of all the dry waste associated with this production has been recycled. Designed and produced by: Radley Yeldar | www.ry.com HILTON FOOD GROUP PLC 2-8 THE INTERCHANGE LATHAM ROAD HUNTINGDON CAMBRIDGESHIRE PE29 6YE WWW.HILTONFOODGROUPPLC.COM
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.