Hilton Food Group (HFG) has formed a joint venture with Sonae Modelo Continente after a supplying the Portuguese food retailer with a range of packaged beef, lamb, veal and pork products since July.
Shares in the red meat supplier have climbed 4% so far today to 670p on the back of the agreement.
Hilton revealed in July that the supply agreement with Sonae was expected to lead to signing a joint venture.
The listed meat packer will work alongside Sonae to redevelop the production facilities of its packing and sourcing subsidiary Sonae Centro Processamento Carnes (CPC), which supplies stores in Portugal and currently sources more than 1,000 tonnes of packaged meat products each week.
SOHI Meat Solutions – the name of the jv – will supply products to all Sonae’s grocery stores and the partners believed the deal would lead to an increase in the overall volumes supplied to the Portuguese market.
The facility will require an initial investment of €22m (£18.8m), financed principally by both companies, with Hilton’s share of the investment funded mostly by debt.
Hilton CEO Robert Watson said: “Our progress in Portugal demonstrates further the strength of Hilton’s flexible and versatile business model, enabling us to meet the local requirements of our customers in their territories.
“This now extends our presence to 15 countries, and we will continue to look for further opportunities for geographic expansion.”
Sonae operated about 1,200 stores, including non-food and pharma outlets, and has a market share of 22%. Its portfolio is made up of hypermarkets, supermarkets as well as convenience stores, predominantly under the Continente banner.
Sonae commercial director Eunice Silva added: “We are pleased that the partnership has progressed to a full joint venture agreement in Portugal, which will enable us to strengthen the leadership position of Continente further in the development of innovation and the sustainable promotion of the agro-food business in Portugal.”
Peel Hunt analysts Charles Hall said Hilton now had visibility on strong future profits growth, with a 50% hike expected over the next five years.
“This deal adds a new geography and a new customer, so it further diversifies Hilton’s business,” Hall added.
“It also demonstrates the strength of the model and attraction to food retailers across a broad range of geographic markets.
“The company is set for a protracted period of profit growth with Sonae in the short term and the recent deal with Woolworths [in Australia] set to deliver over the medium term.”
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