Bakkavor Annual Report and Accounts 2015 / 01
BRINGING THE BEST
TO THE TABLE
ANNUAL REPORT & ACCOUNTS 2015
02 / Bakkavor Annual Report and Accounts 2015
WE CREATE FRESH PREPARED FOODS IN PARTNERSHIP
WITH OUR WORLD-LEADING RETAIL AND FOODSERVICE
CUSTOMERS. WE ARE ONE OF THE LARGEST INTERNATIONAL
FOOD MANUFACTURERS IN THIS FAST-MOVING AND
EXCITING SECTOR.
WE PRIDE OURSELVES ON DRIVING INDUSTRY-LEADING
STANDARDS IN SAFETY, QUALITY, SERVICE AND INNOVATION.
Asda SunBlush® Tomato
& Mozzarella Flatbreads
made by Bakkavor Bread
in Crewe, Cheshire.
DOWNLOAD
A COPY OF OUR
COMPANY
BROCHURE
ONLINE
WHAT’S IN THIS REPORT
STRATEGIC REPORT
WHO WE ARE
OUR STRATEGIC FOCUS
OUR BUSINESS REVIEW
GOVERNANCE
HOW WE RUN OUR BUSINESS
FINANCIALS
KEY FIGURES 2015
£1,675m
STATUTORY REVENUE
+1.6%
LIKE-FOR-LIKE REVENUE1
£92.6m
FREE CASH FLOW3
Footnotes relating to key measures used throughout this year’s
Annual Report and Accounts are detailed on pages 4 and 26.
Our Group KPIs are indicated by this symbol
and can be found on page 17.
Bakkavor at a glance
Our products
Chairman’s report
Year in review
Our business model
Our market
Our strategy and KPIs
Our key risks
Chief Executive’s review
UK business review
International business review
Financial review
Our responsibilities
Management Board
Governance
Directors’ report
Independent auditor’s report
Consolidated income statement
Consolidated statement of comprehensive
income and expense
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
Company income statement
Company statement of changes in equity
Company statement of financial position
Company statement of cash flows
Notes to the company financial statements
Company information
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BAKKAVOR AT A GLANCE
WE HAVE 47 WORLD-CLASS FACILITIES ACROSS 32 SITES
IN FIVE COUNTRIES, MAKING FRESH PREPARED FOODS FOR
MAJOR GLOBAL GROCERY RETAILERS AND WELL-KNOWN
INTERNATIONAL FOODSERVICE CUSTOMERS.
OUR SITES
REVENUE BY DIVISION
91%
UK
9%
INTERNATIONAL
United States
Belgium
Spain
Mainland China
& Hong Kong
>18,000
EMPLOYEES
GROUP FIGURES
STATUTORY REVENUE
£m
18
47
PRODUCT CATEGORIES
WORLD-CLASS FACILITIES
LIKE-FOR-LIKE REVENUE1
£m
ADJUSTED EBITDA2
£m
FREE CASH FLOW 3
£m
1,593
1,634
1,675
1,555
1,620
1,646
106.4
113.3
129.7
32.3
43.7
92.6
2013
2014
2015
2013
2014
2015
2013
2014
2015
2013
2014
2015
+2.5%
£1,675 MILLION
(2014: £1,634 MILLION)
+1.6%
£1,646 MILLION
(2014: £1,620 MILLION)
+14.5%
£129.7 MILLION
(2014: £113.3 MILLION)
+111.9%
£92.6 MILLION
(2014: £43.7 MILLION)
Throughout this report, the results for 2014 have been restated to exclude Italpizza as this is now classified as a discontinued operation following the completion of the sale of this business in July 2015.
1
2
3
Like-for-like revenue excludes the impact of acquisitions, disposals, closures and foreign exchange translation but includes the Group’s share of revenue generated by associates.
Adjusted EBITDA – The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’. EBITDA is generally defined as operating profit/loss before share of results of associates, depreciation, amortisation and
asset impairments. In calculating Adjusted EBITDA, we further exclude restructuring costs and royalty charges. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue from continuing operations.
Free cash flow is defined as the amount of cash generated by the business from continuing and discontinued operations, after meeting all its obligations for interest, tax and pensions, and after investments in tangible assets but
excluding payments relating to historic UK tax liabilities.
Bakkavor Annual Report and Accounts 2015 / 05
UNITED KINGDOM
INTERNATIONAL
LEADER IN THE MOST ADVANCED AND INNOVATIVE FRESH
PREPARED FOODS MARKET IN THE WORLD.
UNIQUE INTERNATIONAL FOOTPRINT FOCUSED ON
HIGH GROWTH GEOGRAPHIES.
Over 45 years’ experience of making own-label fresh
Leading US fresh prepared foods own-label manufacturer
prepared foods
National operator in China with six facilities close to
Strong, long-standing relationships with the UK’s leading
Tier-1 cities
grocery retailers
No.1 producer by value in 11 of our 16 product categories
Procurement and distribution hub in continental Europe
Opportunities for further growth with new and existing
Quality and innovation recognised externally by numerous
customers, leveraging UK expertise
industry awards
page 24 for more information about
our 2015 UK performance.
page 25 for more information about our
2015 International performance.
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OUR KEY CUSTOMERS
OUR KEY CUSTOMERS
®
LIKE-FOR-LIKE REVENUE1
ADJUSTED EBITDA2
LIKE-FOR-LIKE REVENUE1
ADJUSTED EBITDA2
+0.6%
£1,511 MILLION
(2014: £1,502 MILLION)
+£11.2m
£124.1 MILLION
(2014: £112.9 MILLION)
+14.3%
£134.8 MILLION
(2014: £117.9 MILLION)
+£5.2m
£5.6 MILLION
(2014: £0.4 MILLION)
06 / Bakkavor Annual Report and Accounts 2015
OUR PRODUCTS
WE ARE THE LEADING PRODUCER OF OWN-LABEL
FRESH PREPARED FOODS, COVERING 18 CATEGORIES.
OUR MARKET LEADERSHIP ENABLES US TO BENEFIT
FROM ECONOMIES OF SCALE.
SANDWICHES
& SANDWICH WRAPS
READY MEALS
FRESH CUT FRUIT
FRESH CUT VEGETABLES
SAUCES
FRESH CUT SALADS
PIZZA
FRESH PRODUCE
SPECIALITY BREAD
& BAKERY PRODUCTS
>200
NEW PRODUCT DEVELOPMENT EXPERTS
>33%
OF PRODUCTS RENEWED OR
REFRESHED EACH YEAR
No.1
MARKET LEADER IN 11 OF
OUR 16 UK CATEGORIES
Bakkavor Annual Report and Accounts 2015 / 07
DIPS
DRESSED SALADS
& MEAL SALADS
DESSERTS & PASTRIES
MODERN DELI
FRUIT JUICES
& SMOOTHIES
STIR FRIES
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DRESSINGS
PASTA
SOUPS
>200m
READY MEALS MADE EVERY YEAR
900
24 hour
SUPPLIERS MANAGED BY OUR
INDUSTRY-LEADING PURCHASING TEAMS
‘JUST-IN-TIME’ MODEL, MAKING AND DELIVERING
FRESH PREPARED FOODS TO ORDER
08 / Bakkavor Annual Report and Accounts 2015
CHAIRMAN’S REPORT
2015 WAS ANOTHER STRONG YEAR.
WE EXPANDED OUR INTERNATIONAL
PRESENCE IN TARGET GROWTH AREAS
AND STRENGTHENED OUR OWNERSHIP
STRUCTURE, INCREASING OUR ABILITY
TO DRIVE FORWARD OUR LONG-TERM
STRATEGY.
LYDUR GUDMUNDSSON
GROUP CHAIRMAN
2015 OVERVIEW AND 2016 UPDATE
This has been another successful year for the Group, with revenue
growth underpinned by a strong performance in our International
business and profitability growth achieved by focusing on cost and
efficiency. We spent considerable time during the year working on
the long-term ownership structure of the Group and in January 2016
we were delighted to welcome The Baupost Group to Bakkavor as
our new partners. Furthermore, we have continued to strengthen
the Group’s financial position with a partial refinancing of our Senior
Secured Notes 2018 in 2015, resulting in a reduction in interest costs.
A further reduction will arise on the redemption of £75 million of
the same notes early in 2016, funded from our cash reserves.
FINANCIAL AND OPERATIONAL OVERVIEW
Statutory revenue increased by 2.5% with like-for-like revenue up
1.6%. Productivity investments and volume gains drove efficiencies
and resulted in an improved Adjusted EBITDA of £129.7 million,
up 14.5% year on year, giving an Adjusted EBITDA margin improvement
of 80 basis points. We generated £92.6 million of free cash from
operating activities this year, allowing us once again to reduce
operational net debt from £472.7 million to £398.6 million. Our leverage
also continues to fall, and was below three times at the year end.
We continued to reshape our International operations in 2015,
focusing on growing our market presence in the US and Asia. We
sold the remaining 60% of our Italian pizza business and exited
a low-margin prepared fruit business in the UK. As part of our growth
strategy we announced the acquisition of B. Robert’s Foods in the
US and, building on our expertise in chilled food, we have opened
our first pizza restaurant in the UK.
PEOPLE
We operate in an increasingly challenging trading environment and
I would like to thank all our employees for their hard work, passion
and loyalty to our business. We remain committed to training and
developing our people for the long term as we know they are best
placed to maintain our industry-leading standards. In October, we
announced the departure of John Gorman, a long-serving member
of the senior management team. We would like to thank John for
his contribution over many years and welcome Ivan Clingan, formerly
UK Managing Director of Fresh Convenience, to his new role as
President and CEO in the US.
OUTLOOK AND NEW SHAREHOLDING
In 2016, the year of Bakkavor Group’s 30th anniversary, we expect
trading conditions to remain challenging, particularly due to intense
retailer competition and increased input costs; but we remain highly
confident in our long-term strategy for growth.
Our ability to implement this strategy was reinforced in January 2016,
when we announced that Bakk AL Holdings Limited, a company owned
by myself and my brother, Agust, and funds managed by The Baupost
Group, L.L.C., had purchased approximately 89% of the outstanding
shares in Bakkavor Group Limited. Our commitment to the business
is as strong as ever. With a controlling interest in the Group we will
both remain in our current roles and envisage no changes to day-to-day
operations or to existing senior management. In due course we will
announce our revised Group Board. The Baupost Group is globally
recognised as a highly successful long-term investor and is supportive
of our continued expansion plans and ambitions.
Lydur Gudmundsson
Group Chairman
24 February 2016
page 22 for more detail on
our performance.
Bakkavor Annual Report and Accounts 2015 / 09
SUCCESSFUL US ACQUISITION
In January we acquired B. Robert’s
Foods in North Carolina, US, our first
significant acquisition in seven years.
STRATEGIC DISPOSALS/
CLOSURES
OPENED FIRST PIZZA
RESTAURANT
We sold the remaining shares
of Italpizza S.r.l. to Dreamfood
S.r.l. in July and also exited from
a low-margin fresh prepared fruit
business in the UK.
In November we opened
‘Inferno’ in Nottingham, in line
with our strategy to target
growth opportunities aligned
to our core business.
SIX FOOD AWARDS
We had six winning products at
two of the UK’s most prestigious
food awards – three at the Quality
Food Awards and three at The Grocer
Own-Label Food & Drink Awards.
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2015 YEAR IN REVIEW
16th YEAR OF OUR ACCELERATED
MANAGEMENT SCHEME (AMS)
We took on 22 graduates this year, six of whom
are on our new International scheme with
placements in our strategic growth markets.
240
AMS GRADUATES RECRUITED SINCE
SCHEME LAUNCHED IN 1999
M&S ‘PLAN A’ SUPPLIER GROUP
OF THE YEAR AWARD
M&S presented this award to us in October
for demonstrating clear leadership in
sustainability, a commitment to delivering
impactful sustainability outcomes and being an
inspiration to other businesses in the sector.
PRINCE’S TRUST PARTNERSHIP
This was our first full year of a four-year
commitment to working with The Prince’s
Trust. It included a series of visits to our sites
for young people to help them learn about
food manufacturing processes and roles.
OWN-LABEL SUPPLIER OF THE YEAR
AT THE GROCER GOLD AWARDS
Judged by The Grocer magazine and industry
representatives in June, this award celebrates
achievements in the grocery sector, with a specific
focus on innovation and customer satisfaction.
10 / Bakkavor Annual Report and Accounts 2015
LEADING THROUGH
INNOVATION
OUR LEADERSHIP IN FRESH PREPARED FOODS
COMES FROM A SIMPLE BUSINESS MODEL,
UNDERPINNED BY OUR COMPETITIVE STRENGTHS
AND A CLEAR STRATEGY FOR GROWTH.
Bakkavor Annual Report and Accounts 2015 / 11
Waitrose Aromatic Keralan
Spiced Chicken Soup made at
our Soups & Sauces factory
in Spalding, Lincolnshire.
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WE WORK ON STAYING AHEAD THROUGH
PROMOTING A CULTURE OF INNOVATION
AND FORGING LONG-TERM PARTNERSHIPS
WITH OUR KEY CUSTOMERS.
The Group’s Innovation Committee promotes a
culture of innovation across all business disciplines,
allowing us to move quickly to capitalise on latest
product and process trends. Our operational
structure encourages proactive collaboration with
key customers and is reinforced through customer
champions. This approach channels our extensive
in-house skills effectively, helping us to defend
and develop our market-leading position.
>50
DEVELOPMENT CHEFS AND FOOD
PROCESS EXPERTS IN THE UK
Craig Sandle, one of our Senior Development Chefs, receives his trophy from
Michel Roux for winning the 2015 GroceryAid Chef of the Year.
12 / Bakkavor Annual Report and Accounts 2015
OUR BUSINESS MODEL
WE CREATE INNOVATIVE, HIGH-QUALITY PRODUCTS FOR OUR
CUSTOMERS, WHICH GIVE CHOICE AND VALUE FOR MONEY FOR
CONSUMERS. WE USE THE CASH GENERATED TO MEET OUR
FINANCIAL OBLIGATIONS AND REINVEST FOR THE FUTURE.
THE BAKKAVOR
DIFFERENCE
By focusing solely on the
fast-moving fresh prepared
foods sector and setting
industry-leading standards
for safety, quality, service and
innovation, we believe the way
we do business creates strong
competitive advantages.
PARTNERSHIPS
WITH LEADING GLOBAL
RETAILERS
COMMITTED AND
ENGAGED EMPLOYEES
EXPERIENCED
MANAGEMENT BOARD
WORLD-CLASS
OPERATING FACILITIES
LEADERSHIP IN FOOD
SAFETY AND INTEGRITY
PROVEN FINANCIAL
DISCIPLINE
BREADTH OF PRODUCT
PORTFOLIO
DEVELOPING
INNOVATIVE PRODUCTS
BUILDING PROGRESSIVE
CUSTOMER RELATIONSHIPS
Uniquely focused on the fast-moving
fresh prepared foods sector
Creating value for customers by offering
premium quality and value for money
Building on our market-leading positions
by staying at the forefront of relevant
food and consumer trends
Embedding and rewarding a culture
of innovation
Providing outstanding customer service
Setting the food industry benchmark for
safety, quality, service and innovation
6 awards
5 awards
FOR PRODUCT INNOVATION AND QUALITY
IN OUR INDUSTRY
FROM OUR CUSTOMERS FOR OUR
SERVICE AND QUALITY
Bakkavor Annual Report and Accounts 2015 / 13
FOCUSING ON EXCELLENT
OPERATIONAL DELIVERY
GENERATING STRONG
CASH FLOW
MAKING INVESTMENTS THAT
MEET TARGETED RETURNS
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Reinvesting in continuous improvement
Ongoing focus on maintaining strict
Maintaining a highly focused
throughout the business
cost controls
capital expenditure programme
Developing centres of excellence,
strengthening our core capabilities
Using our global buying platforms to
Emphasis on productivity investments
source quality ingredients at the right price
in 2015
Recruiting, developing and rewarding
Managing working capital effectively
Reducing leverage and net debt to
the right people
further strengthen our capital structure
>5,000
DIFFERENT PRODUCTS MADE ACROSS
THE GROUP IN 2015
£92.6m
OF FREE CASH GENERATED IN 2015
<3 times
LEVERAGE AT THE END OF 2015
14 / Bakkavor Annual Report and Accounts 2015
OUR MARKET
WE USE OUR UNDERSTANDING OF MARKET DYNAMICS TO DEVELOP
THE RIGHT PRODUCTS FOR OUR CUSTOMERS AND THEIR CONSUMERS
AND TO SHAPE OUR LONG-TERM STRATEGIC FOCUS.
RETAIL TRENDS
CONSUMER TRENDS
FOOD TRENDS
Own-label food ranges used as key
Value for money mind-set entrenched,
Smaller pack sizes and snacking
strategic tools to differentiate retailer
corporate brand values
Fresh prepared foods remain a
priority area to showcase innovation
Ongoing online investment to enable
personalised food ordering, shopping
and delivery choices
Continued roll-out of convenience
stores in high-density areas to meet
demand for smaller, top-up shops
Discounters increasing their share
of the UK grocery market with
new high street locations and
‘no frills’ shopping
but quality remains a priority
Continued strong demand for
convenient, simple, time-saving
meal solutions as part of modern-day
lifestyles and flexible eating patterns
options fulfilling demand for flexible
eating patterns and top-up shops
Highly nutritious ‘superfood’
ingredients used more and marketed
prominently
Increasing confidence to try new
More on-pack information to help
foods and experiment with authentic
ingredients
consumers monitor personal health
requirements
Increased awareness of inherent
More ‘free from’ ranges to support
natural health benefits of foods as
well as food intolerances
‘One size fits all’ no longer
acceptable as consumers look for
products they can personalise
food intolerances
Greater choice of exotic and
authentic flavours and ingredients
More ‘pick and mix’ meal choices
available for eating at home and on
the move
OUR FOUR STRATEGIC DRIVERS
1
2
3
4
TARGETING GROWTH
OPPORTUNITIES
STRENGTHENING
OUR CUSTOMER
RELATIONSHIPS
DEVELOPING OUR
PEOPLE TO DRIVE
INDUSTRY-LEADING
STANDARDS
INVESTING
AND WORKING
EFFICIENTLY
page 16 for more information about
our strategy and progress.
Bakkavor Annual Report and Accounts 2015 / 15
BREAKFAST ON THE GO
In 2015 we launched a variety of
fresh breakfast products, including
Bircher-style muesli, porridge,
and bacon and sausage muffins.
SUPER SEEDS & GRAINS
Today quinoa, black barley,
bulgar wheat and buckwheat
are fast becoming popular
healthy ingredients and feature
in many of our salad products.
TRENDY VEGETABLES
Our Garden of Innovation
has enabled us to develop
exciting and unusual produce
for commercial use.
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UNDERSTANDING MARKET TRENDS
A TASTE OF THE EXOTIC
Roast pepper and harissa sauce,
wasabi potato salad, sumac
spiced butternut and chickpea
dip – we’re meeting the growing
demand for Mediterranean and
Middle Eastern flavours.
UK FRESH PREPARED FOODS MARKET
We are a market leader in the most
developed and innovative fresh prepared
foods market in the world.
£9.6bn
MARKET SIZE IN 2015
SOURCE: KANTAR WORLDPANEL
CHINESE FOODSERVICE MARKET
We operate in this market, which is forecast
to grow by 11% CAGR 2014-2017.
>$68bn
FORECAST MARKET SIZE IN 2017
SOURCE: EUROMONITOR
US FRESH PREPARED FOODS
We are expanding our presence in this
market, which is projected to outpace
retail and foodservice food/beverage sales
with 6-7% CAGR 2012-2017.
>$26bn
MARKET SIZE IN 2013
SOURCE: A.T. KEARNEY
READY TO ‘BLITZ’
FRESH MIXES
Our Tesco Summer Fruit
Punch Mix – a fresh selection
of fruit with cucumber and
mint – won a Quality Food
Award in 2015.
CUSTOMISED & FAST
‘INFERNO’ PIZZAS
Our new ‘Inferno’ restaurant gives
diners the opportunity to create their
own custom-made pizza. Picking
from a wide range of fresh toppings,
customers are able to see the pizza
cooked and ready to eat in less
than five minutes.
16 / Bakkavor Annual Report and Accounts 2015
OUR STRATEGY AND KPIs
OUR VISION IS TO BE RECOGNISED AND RESPECTED AS
THE WORLD’S LEADING FRESH PREPARED FOODS PROVIDER,
WITH FOUR CLEAR KEY STRATEGIC OBJECTIVES.
1
TARGETING GROWTH OPPORTUNITIES
Building on our leading positions in
high-potential, fast-growing fresh prepared
foods markets.
2
STRENGTHENING OUR CUSTOMER
RELATIONSHIPS
Leveraging our strong customer relationships
to drive mutual and profitable growth.
3
DEVELOPING OUR PEOPLE TO DRIVE
INDUSTRY-LEADING STANDARDS
Setting the industry benchmark for safety,
quality, service and innovation through the
talent and commitment of our people.
4
INVESTING AND WORKING EFFICIENTLY
Delivering sustainable long-term growth
through capital investment and a continued
focus on efficiency.
STRATEGIC PROGRESS
Acquired B. Robert’s Foods in North Carolina in
January 2015 to extend our coverage across the US
Extended healthy and ‘food to go’ ranges in
response to consumer demand
Opened first pizza restaurant in Nottingham, UK
in November, capitalising on our experience in
chilled pizza
M&S ‘Plan A’ Supplier Group of the Year Award for
sustainability leadership
Tesco QVIS (Quality, Value, Innovation and Service)
‘green’ supplier scorecard
Waitrose Product Innovation award for ‘fantastic
product development, customer insight and great
collaborative work’
Employee engagement survey carried out,
with results driving action plans in areas such
as performance management and further
career development
Annual Innovation & Responsibility Awards to
recognise employee-led initiatives that have made
a positive difference to the success of the business
and our local communities
£38 million capital expenditure on projects including
ready meals automation, desserts and salads
capacity improvements and production upgrades
Effective working capital management delivered
£50 million cash inflow
Profit delivery from productivity investments and
volume gains drove further efficiency benefits with
an Adjusted EBITDA increase of 14.5%
HOW WE STAY ON TRACK
Progress against our Group KPIs (detailed opposite) is reported
to our Management Board at every monthly meeting.
page 40 for more information about our Management Board.
page 43 for more information about the risk management
responsibilities assigned to each Management Board member.
OUR KPIs
WHY WE USE THIS MEASURE
HOW WE HAVE PERFORMED
Bakkavor Annual Report and Accounts 2015 / 17
LIKE-FOR-LIKE REVENUE1
£m
1,555
1,620
1,646
+1.6%
£1,646 MILLION
(2014: £1,620 MILLION)
2013
2014
2015
EMPLOYEE RETENTION
%
80
87
86
86%
2013
2014
2015
OF EMPLOYEES RETAINED
(2014: 87%)
LOST-TIME ACCIDENTS (+7 DAY RIDDOR**)
PER 100,000 EMPLOYEES
857
589
500
40%
LOWER THAN
INDUSTRY AVERAGE
+14.5%
£129.7 MILLION
(2014: £113.3 MILLION)
2013
2014
2015
ADJUSTED EBITDA2
£m
106.4
113.3
129.7
2013
2014
2015
FREE CASH FLOW 3
£m
32.3
43.7
92.6
+111.9%
£92.6 MILLION
(2014: £43.7 MILLION)
2013
2014
2015
*
Source: Kantar Worldpanel 52 weeks ending 3 January 2016.
** RIDDOR: Reporting of Injuries, Diseases and Dangerous Occurrences Regulations.
Financial footnotes referring to key measures are detailed on pages 4 and 26.
Growth in our like-for-like revenue
shows our success at generating
revenue through product innovation,
effective promotional mechanisms
and business wins.
1
2
We use this measure to monitor
progress against strategic drivers
1 and 2.
Retaining employees who have the
right behavioural values, and having
systems in place to ensure they
can develop with us to the best
of their potential, is fundamental
to our success.
3
We use this measure to monitor
progress against strategic driver 3.
UK like-for-like revenue, whilst impacted
by our exit from certain low-margin
business, grew ahead of the UK food
market, which declined by 0.2%*
We continued to be a UK market leader
in fresh prepared foods, holding No.1 or 2
positions across our 16 product categories
Revenue in our International division was
particularly strong, increasing by 14% on
a like-for-like basis
Our success at winning The Grocer
Own-Label Supplier of the Year and other
industry awards comes from having the
right people in place who share our values
and are passionate about what we do
We were shortlisted for the IGD John
Sainsbury Learning & Development award
for our Recipes for Success management
training programme
We recruited 22 graduates and 12
apprentices onto our Group Schemes
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We monitor our performance against
the industry average as part of our
commitment to take every reasonable
step to protect the health & safety of
our employees.
3
We use this measure to monitor progress
against strategic driver 3.
The definition of lost-time accidents has been
changed by the Health and Safety Executive (HSE)
and we have therefore adopted this measurement
as the appropriate Group KPI.
We are very sad to report the death of
a colleague from an accident at work in
February 2015
Compared to 2014, our total number of
accidents reduced by 3% and our +7 day
lost-time accidents reduced by 18%
We continued to achieve lower accident
rates than the HSE industry average with
both lost-time and major accidents lower
by 40% and 47% respectively
This measure demonstrates the
Group’s effectiveness in converting
revenue into profitable growth.
4
We use this measure to monitor
progress against strategic driver 4.
The generation of free cash flow
enables us to reinvest funds in the
business for future growth and to
pay down debt.
4
We use this measure to monitor
progress against strategic driver 4.
Increase of 14.5% driven by productivity
investments and volume gains
Adjusted EBITDA margin improvement
of 80 basis points following our exit from
low-margin business
Strong International growth from increase
in consumer demand and successful
integration of US acquisition
Excellent cash conversion with free cash
increase of £48.9 million
Continued focus on working capital
management has delivered further benefits
Capital expenditure focused on
productivity and maintenance projects,
after a number of major capacity
investments in recent years
18 / Bakkavor Annual Report and Accounts 2015
OUR KEY RISKS
THE SUCCESSFUL MANAGEMENT OF EIGHT KEY RISKS IS VITAL TO THE DAY-TO-DAY
RUNNING OF OUR BUSINESS AND OUR ABILITY TO MEET OUR STRATEGIC GOALS.
KEY RISKS TO THE BUSINESS
WHAT MIGHT HAPPEN IF WE GET IT WRONG
OPERATIONAL RISKS
FOOD SAFETY & INTEGRITY
Millions of people eat our products every
day. We have a duty to make food that is safe
and is clearly and correctly labelled.
Consumer safety and confidence is vital to us; any
issue that breaches that trust could also impact our
industry’s long-term prospects and our reputation.
86%
OF EMPLOYEES RETAINED
HEALTH & SAFETY (H&S) AND
ENVIRONMENT
We understand our duty of care to secure and
protect the H&S of our employees and to reduce
the environmental impact of our operations.
The safety of our employees is paramount to our
continued success and getting it wrong could carry
significant reputational and legal risks.
LOSS OF KEY EMPLOYEES
We have a highly experienced senior management
team who are passionate about our business
and who are integral to our continued growth
and success as a market leader.
We risk being unable to achieve our strategic
growth objectives without the recruitment,
development and retention of talented and
committed people who understand and respect
our values.
MARKET RISKS
CUSTOMER RELATIONSHIPS
We work with a small number of the largest
food retailers and foodservice operators in
the world.
Given the size and relatively small number of
our customers, any major customer loss would
have a significant negative impact on our revenue,
manufacturing efficiency and profit.
No. 1
OWN-LABEL SUPPLIER
OF THE YEAR
CONSUMER UNDERSTANDING
Our in-depth consumer understanding
enables us to develop a diverse, innovative
and commercially viable product range, which
is critical to maintaining market leadership
and future growth.
Investing in product areas which fail or underperform
is costly in terms of resource and profitability, and
can damage our reputation with our customers.
INPUT COST AND WAGE INFLATION
The Group’s cost base and margin can be
affected by changes in the cost of labour,
raw materials, packaging and energy.
Increases in raw material prices and labour costs
adversely affect individual product margins. An
inability to pass on these cost increases within a
reasonable timeframe impacts the Group’s profit
and future investments.
FINANCIAL RISKS
COVENANT COMPLIANCE
We are subject to various financial covenants
and undertakings as part of the Group’s
financing agreements.
To achieve our growth objectives, we require a
strong financial platform. Breaching any covenant
would destabilise the business and impair our
ability to secure future financing.
INTEREST RATES, FOREIGN EXCHANGE
RATES, LIQUIDITY & CREDIT
In the multi-currency trading environment in
which the Group operates, there are inherent risks
associated with fluctuations in foreign exchange
rates, interest rates and the availability of credit.
To achieve our growth objectives, we require a
strong financial platform. An inability to access
liquidity or a downgrading of the Group’s credit rating
could impact our ability to secure future financing.
£92.6m
FREE CASH GENERATED IN 2015
Bakkavor Annual Report and Accounts 2015 / 19
HOW WE MITIGATE OUR RISKS
DEVELOPMENTS DURING 2015
Hazard Analysis Critical Control Point (HACCP) principles used
The Group continued to maintain and develop industry-leading
to identify and control food safety risks
Staff trained against documented procedures
Raw material suppliers audited and approved by food safety experts
Food safety controls regularly audited by internal and external
parties. Emerging risks monitored by working with industry and
regulatory bodies
food safety and traceability procedures
Group Responsible Sourcing Manager appointed in September 2015
to identify and mitigate sustainability risks in our supply chains
Risk assessment principles used to identify and manage
It was with the deepest regret that we reported the death of an
H&S and Environmental risks
employee from an accident at work in February 2015
H&S KPIs reported monthly to the Management Board
Compared to 2014, our total number of accidents reduced by 3%
H&S and Environmental impacts are managed by our in-house
and our +7 day lost-time accidents reduced by 18%
experts who embed and monitor our practices
We continued to provide training and share best practice to raise
Culture of engagement from the Management Board through
to the shop floor on accident prevention
awareness and improve H&S performance
Company values used to recruit, appraise, reward and
Top 100 Company in The Job Crowd’s top companies to work for
develop employees
Over 75% of our 16,000 UK employees completed an employee
Succession planning, long-term management incentives, retention
engagement survey
initiatives and a commitment to training
Operational structures reviewed and revised to allow senior
management progression
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Business Directors appointed as Customer Champions to
M&S ‘Plan A’ Supplier Group of the Year Award for
manage strategic relationships and account planning
sustainability leadership
Communication with our customers at all levels of the
Tesco QVIS (Quality, Value, Innovation and Service) ‘green’
decision-making process
supplier scorecard
Waitrose Product Innovation award for 'fantastic product
development, customer insight and great collaborative work'
Investment in market research to capture latest consumer trends
Six awards received for product innovation and quality
Market share performance and trends discussed at each
Launched Garden of Innovation to develop exciting and unusual
Management Board meeting
produce for commercial use
Annual Innovation Awards held to celebrate success in product
Opened first pizza restaurant in Nottingham
development, new processes and technology
Central procurement team focuses on achieving balance
Active engagement at each site to address the introduction
between price, quality, availability and service levels
of the National Living Wage
Forward purchasing agreed and price variations passed on
Exited from low-margin business
where possible
Continued focus on cost reduction and productivity enhancements
Continued focus on cost reduction and productivity enhancements
Financial results, projections and covenant performance
Our leverage (the ratio of net debt to Adjusted EBITDA) was below
reviewed regularly
3 times at the year end
Open and regular dialogue with our lenders and an active
Significant improvement in covenant headroom
investor engagement programme
Redemption through refinancing of £140 million of Senior Secured
Notes 2018 in April 2015
Treasury function operates within framework of strict
Operational net debt down £74.1 million to £398.6 million at
Board-approved policies and procedures (see note 30 to the
Group financial statements)
year end
Revolving credit and receivables financing facilities remain
Active foreign exchange hedging programme maintained
undrawn at year end
Majority of borrowings are at fixed interest rates
page 42 for more information about
how we manage our risks.
20 / Bakkavor Annual Report and Accounts 2015
MAINTAINING
MOMENTUM
OUR PERFORMANCE IN 2015 REFLECTS OUR
DISCIPLINED APPROACH TO INVESTMENT,
OUR UNDERSTANDING OF TRADING PRESSURES
AND OUR ABILITY TO MAKE THE RIGHT
COMMERCIAL CHOICES FOR THE GROUP.
PERFORMING SUCCESSFULLY IN A
CHALLENGING TRADING ENVIRONMENT.
In our intensely competitive market environment
we remain focused on continuous improvement
and maintaining our business momentum. We
have a disciplined investment approach to both
capacity utilisation and productivity benefits. Our
operational strength and innovative culture enables
us to develop new products quickly and maximise
the opportunities arising from constant changes in
consumer taste.
>45m
CUSTARD TARTS MADE IN 2015
Custard tarts are made at our chilled desserts facility in Newark, Nottinghamshire.
Bakkavor Annual Report and Accounts 2015 / 21
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M&S Petite Patisserie selection
made at our Bakkavor Desserts factory
in Newark, Nottinghamshire.
22 / Bakkavor Annual Report and Accounts 2015
CHIEF EXECUTIVE’S
REVIEW
WE HAVE REPORTED AN EXCELLENT
SET OF RESULTS. OUR OPERATIONAL
STRENGTH AND NEW OWNERSHIP
STRUCTURE MEAN WE ARE IDEALLY
PLACED TO ACHIEVE OUR LONG-TERM
OBJECTIVES.
AGUST GUDMUNDSSON
CHIEF EXECUTIVE OFFICER
OVERVIEW
SERVICE, QUALITY AND INNOVATION
I am very pleased that as we celebrate Bakkavor’s 30th anniversary
in 2016 we can report that the Group is in a very strong position.
Against a background of challenging market conditions, we achieved
good revenue growth, margin improvement, excellent cash
conversion and a recovery in the performance of our International
business. Early 2016 marked a turning point when we resolved historic
issues with our ownership structure and welcomed The Baupost
Group as our new long-term strategic partner. We also restructured
our debt capital to reduce our cost of financing. With this stability we
look forward to pursuing our long-term objectives with confidence.
STRATEGIC PROGRESS
We made excellent progress during the year, as we continued to
reshape our International portfolio and focused on our core product
categories. We exited a low-margin business in the UK, restructured
our Belgian operation and grew volumes in Asia on the back of increasing
customer demand. We also continued to build scale and geographic
presence in the US with a major acquisition, our first in seven years.
MARKET CONDITIONS
In the UK, our largest market, overall consumer spending remained
subdued. However, the fresh prepared foods sector grew faster than the
overall grocery market, indicating a continued preference by consumers
for quality, convenience and freshness. These trends are also becoming
more evident in our targeted international markets and we will continue
to focus on this exciting and dynamic sector of the food industry.
Intense retailer competition in the UK is here to stay, with discounters
increasing their share of the grocery market and maintaining pressure
on retail pricing. In such a competitive environment, our ability to
develop own-label food ranges at pace is a core competitive strength,
as our customers increasingly use our products to differentiate their
corporate brand and showcase innovation. We continue to work closely
with our customers and invest across the Group to further strengthen
our operations, technical excellence and product innovation.
Across our business we extended our customer base and in the
UK we have moved into two new growth areas. We opened a pizza
restaurant and also partnered a British vegetable grower to create our
Garden of Innovation, enabling us to introduce exciting and unusual
produce into UK supermarkets. Initiatives such as these demonstrate
the importance we place on innovation to drive growth and margin.
We were also delighted to receive several industry and customer
awards in recognition of our product innovation and quality, as well
as for sustainability initiatives and customer service.
FOCUSED INVESTMENTS
Whilst our capital expenditure in the year was lower than in 2014, we
remain firmly committed to investing behind our core categories and in
2015 key investments focused on productivity improvements, category
expertise and maintenance. As we move through 2016 we already have
a comprehensive investment plan in place to support key projects.
OUTLOOK
Against a background of challenging market conditions, the Group
has, once again, reported an excellent set of results. We expect
trading conditions to remain tough over the coming months due to
pressures from the competitive retailer environment and rising labour
costs. However, we remain confident about our future performance
given our leading market positions, our culture of innovation and
strong capital base.
Agust Gudmundsson
Chief Executive Officer
24 February 2016
Bakkavor Annual Report and Accounts 2015 / 23
UK HIGHLIGHTS
GARDEN OF INNOVATION LAUNCHED
INVESTMENT IN MEALS AUTOMATION
“…a fantastic example of our forward-thinking food
industry embracing new approaches to boost productivity
and meet the global demand for delicious British produce.”
Elizabeth Truss, Secretary of State at the Department
for Environment, Food and Rural Affairs (DEFRA)
In 2015 we installed a new automated filling
line at our Bakkavor Meals factory in Lincolnshire
to meet promotional volume requirements. This
investment has significantly improved factory
efficiencies and capacity.
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DEVELOPING NEW
ROUTES TO MARKET
A dedicated team from
our commercial, marketing,
development and technical
functions worked together
on a new casual dining
concept, resulting in the
launch of a new range of
products for Caffè Nero in
September 2015.
REMAINING 60% STAKE
IN ITALPIZZA SOLD
The completion of our sale of
Italpizza S.r.l. to Dreamfood S.r.l. in
July marked an important strategic
step to focus on core growth
markets in the UK, US and Asia.
+ £5.2m
ADJUSTED EBITDA2 INCREASE IN 2015
FROM INTERNATIONAL SEGMENT
Financial footnotes referring to key measures are detailed
on pages 4 and 26.
INTERNATIONAL HIGHLIGHTS
BAKKAVOR CHARLOTTE
The acquisition of B. Robert’s Foods
(now Bakkavor Charlotte) complements
and strengthens our existing US business
by providing access to an important new
regional retailer on the East coast.
24 / Bakkavor Annual Report and Accounts 2015
UNITED KINGDOM
WE WORK CLOSELY WITH OUR CUSTOMERS IN THE
DEVELOPED UK MARKET TO SECURE OUR CATEGORY
LEADERSHIP AND BUILD MARKET SHARE.
MARKET DYNAMICS
The fresh prepared foods market grew faster
than the wider UK grocery market over the
year as consumer spending, whilst remaining
subdued, has reflected a preference for
convenient, high-quality chilled foods. Whilst
raw material price deflation was a factor
throughout 2015, labour costs continued to
accelerate and the forthcoming introduction
of the National Living Wage in April will
present a challenge for the UK food sector
as a whole. We continue to work through the
potential impact to the business and remain
in active dialogue with all our stakeholders
to mitigate costs wherever possible.
BUSINESS PERFORMANCE
Like-for-like revenue in our UK business
in the 52 weeks to 26 December 2015
was £1,511.0 million (£1,519.0 million on
a statutory basis), with underlying growth
impacted by the ongoing deflationary
environment and our exit from certain
low-margin business.
The Adjusted EBITDA margin improvement
of 80 basis points in the year reflected
the benefits of our investment programme,
ongoing cost control and exit from
low-margin business.
CONTINUOUS INVESTMENT
Due to the rephasing of certain strategic
projects our capital expenditure in the UK
was lower than in 2014. Our focus remained
on investing in maintenance, productivity
and strengthening category expertise within
our core categories. Projects included ready
meals automation, desserts and salads
capacity improvements and capability
investments in bread and pizza.
INNOVATION
Innovation remains a key priority for the
Group as we focus on ongoing growth and
margin performance. We are therefore proud
to have won a number of UK awards this
year for product innovation, customer service
and sustainability leadership from both the
industry and our key customers.
Building on our experience in the chilled
pizza market, we also opened our first pizza
restaurant in Nottingham in November, which
creates fresh, custom-made pizzas in less
than five minutes. This personalised concept
has proved successful with consumers and
we are planning on rolling out this model in
the coming months.
OUTLOOK
We are confident about our UK business
given the positive market dynamics and
our ongoing ability to invest. There will be
pressure on growth as we continue to
reshape our business and focus on rising
labour costs. We will mitigate these pressures
by continuing to drive productivity and
control costs.
OVERVIEW
30
FACILITIES
19
SITES
LIKE-FOR-LIKE REVENUE1
£m
ADJUSTED EBITDA2
£m
1,447
1,502
1,511
104.1
112.9
124.1
2013
2014
2015
2013
2014
2015
>16,000
EMPLOYEES
+0.6%
£1,511 MILLION
(2014: £1,502 MILLION)
+£11.2m
£124.1 MILLION
(2014: £112.9 MILLION)
OUR KEY CUSTOMERS
Financial footnotes referring to key measures are detailed on pages 4 and 26.
Bakkavor Annual Report and Accounts 2015 / 25
INTERNATIONAL
WE ARE WELL POSITIONED TO BENEFIT FROM
GROWTH IN FRESH PREPARED FOODS ACROSS
THE US AND ASIA.
MARKET DYNAMICS
Strong consumer macro trends of
convenience and health, underpinned by
socio-economic and demographic factors,
continue to support the growth of fresh
prepared foods in these strategic regions.
BUSINESS PERFORMANCE
We have continued to reshape our
International segment over the past year with
the acquisition in January 2015 of B. Robert’s
Foods, a fresh prepared foods business in
North Carolina. As a consequence, statutory
revenue increased by 37% in the year.
However, on a like-for-like basis, which
excludes the impact of this acquisition,
revenue still grew by 14%, largely supported
by stronger performances in the US and Asia
as we benefited from increased customer
demand and geographic expansion.
Adjusted EBITDA margin improved
significantly in the year, reflecting our
increased customer base and scale of
operations in both the US and Asia which
in turn have driven efficiency benefits.
ASIA
In Asia, the business performed well following
a challenging 2014 for our key customers.
Revenue growth reflected improved pricing
and increasing consumer demand across
the Western-style foodservice sector. We
have made further investments through 2015
to increase capacity and enhance technical
capabilities, and the lift in volumes has driven
efficiencies and improved margins. We
continue to work closely with our customers
to strengthen our position in this market and
drive future profitability.
US
In the US, we have seen strong revenue
growth as we have continued to build our
scale with key customers over the past year.
The purchase of B. Robert’s Foods was the
first acquisition for the Group in seven years
and marked an important step in broadening
our presence in this core strategic growth
market. As a result of the acquisition,
the Group widened its customer base by
partnering with Harris Teeter to expand our
product ranges and geographical reach.
OUTLOOK
We continue to believe in the significant
growth potential of fresh prepared foods in
our strategic chosen markets of the US and
Asia, and will remain focused on maximising
opportunities to grow in these regions.
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LIKE-FOR-LIKE REVENUE1
£m
ADJUSTED EBITDA2
£m
108.0
117.9
134.8
2.3
0.4
5.6
2013
2014
2015
2013
2014
2015
+14.3%
£134.8 MILLION
(2014: £117.9 MILLION)
+£5.2m
£5.6 MILLION
(2014: £0.4 MILLION)
OVERVIEW
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EMPLOYEES
OUR KEY CUSTOMERS
®
26 / Bakkavor Annual Report and Accounts 2015
FINANCIAL REVIEW
A STRONG TRADING YEAR WITH REVENUE
GROWTH, MARGIN IMPROVEMENT AND
A SIGNIFICANT REDUCTION TO NET DEBT
AND LEVERAGE.
PETER GATES
CHIEF FINANCIAL OFFICER
DISCONTINUED OPERATIONS
GROUP REVENUE
In July 2015 the Group completed the sale of its remaining 60%
interest in Italpizza S.r.l. In 2015, this business generated a profit
after tax to the Group for the period up to its sale of £13.5 million,
including £10.4 million profit on disposal and £3.1 million from trading.
In 2014 the business generated a profit after tax of £2.7 million
for the full year. In accordance with IFRS this business has been
classed as a discontinued operation and its results are therefore
excluded from this Financial Review, with all references referring
to Continuing Operations.
The Group reported a revenue of £1,674.5 million for the year ended
26 December 2015, an increase of 2.5% on the prior year. On a
like-for-like basis, excluding acquisitions, sold and closed businesses
and at constant currency, revenue growth was 1.6%, mainly due
to strong growth from our International operations.
Our UK reported revenue was broadly flat at £1,519.0 million. UK
revenue growth was limited as volume gains in our core categories
were offset by price decreases as we passed on raw material
deflation to our customers. UK revenue was also impacted by the
closure of our Prepared Fruit business in June.
STATUTORY REVENUE
£m
LIKE-FOR-LIKE REVENUE1
£m
1,593
1,634
1,675
1,555
1,620
1,646
£89.6m
OPERATING PROFIT
5.4%
OPERATING MARGIN
2013
2014
2015
2013
2014
2015
+2.5%
£1,675 MILLION
(2014: £1,634 MILLION)
+1.6%
£1,646 MILLION
(2014: £1,620 MILLION)
Throughout this report, the results for 2014 have been restated to exclude Italpizza as this is now classified as a discontinued operation following the completion of the sale of this business in July 2015.
1
2
3
Like-for-like revenue excludes the impact of acquisitions, disposals, closures and foreign exchange translation but includes the Group’s share of revenue generated by associates.
Adjusted EBITDA – The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’. EBITDA is generally defined as operating profit/loss before share of results of associates, depreciation, amortisation and
asset impairments. In calculating Adjusted EBITDA, we further exclude restructuring costs and royalty charges. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue from continuing operations.
Free cash flow is defined as the amount of cash generated by the business from continuing and discontinued operations, after meeting all its obligations for interest, tax and pensions, and after investments in tangible assets but
excluding payments relating to historic UK tax liabilities.
Bakkavor Annual Report and Accounts 2015 / 27
RECONCILIATION TO ADJUSTED EBITDA2
FY 2015 FY 2014
89.6
62.3
35.3
34.8
5.9
3.5
1.2
–
0.2
(5.2)
(0.8)
129.7
8.1
6.6
1.2
4.1
(1.0)
(1.8)
(1.0)
113.3
Reported revenue in our International segment increased by
£42.1 million to £155.5 million, with particularly strong growth
in our US and Asian businesses. The US business now includes
B. Robert’s Foods which has contributed £22.3 million of revenue
since its acquisition in January 2015. On a like-for-like basis revenue
growth was 14.3% with increased volume demand, new product
roll-outs in Asia and the US, and improved pricing from core
Asian customers.
GROSS PROFIT
£ million
Operating profit
Add/(deduct):
Depreciation
Amortisation
Exceptional items (net)
Parent royalty charge
Impairment of assets
The gross profit margin for 2015 was 28.0% compared to 26.8% in
the prior year. The margin improvement reflects increased efficiencies
at our facilities driven by volume growth as well as the benefits from
productivity investments made during the current and previous year.
Loss/(profit) on disposal of property, plant and equipment
Profit on disposal of subsidiaries and associates
Share of results of associates after tax
Adjusted EBITDA2
We have been able to pass back raw material deflation to our
customers. However we have continued to see labour costs rising and
we expect this trend to continue into next year with the introduction
of the National Living Wage in April 2016.
DISTRIBUTION AND OTHER ADMINISTRATIVE COSTS
These costs have increased by 3.5% in the year to £379.8 million
as we continued to invest to support product innovation and volume
growth. The year-on-year increase was also attributable to rising labour
costs and the inclusion of overheads relating to our newly acquired
business in Charlotte in the US.
ADJUSTED EBITDA2
Adjusted EBITDA for the Group was £129.7 million, compared with
£113.3 million in 2014, an increase of £16.4 million. As a result, our
Adjusted EBITDA margin increased by 80 basis points from 6.9%
to 7.7%. Increased volumes and productivity investments helped
to support our margin, and the restructuring of our UK business
during the prior year has been fundamental to reducing both cost
and complexity throughout 2015.
For further analysis of the Group’s adjusted EBITDA performance refer
to our Business Review on pages 22 to 25.
EXCEPTIONAL ITEMS
Exceptional items are those that, in management’s judgement,
should be disclosed by virtue of their nature or amount. Exceptional
items comprised:
£ million
Restructuring costs
Total
FY 2015 FY 2014
(3.5)
(3.5)
(6.6)
(6.6)
Restructuring costs in the year, relating mainly to redundancy
payments, comprise £1.1 million in respect of the closure of our
UK Prepared Fruit business and £1.5 million for the restructuring of
our Belgian operation. In addition, £0.9 million of costs were incurred
following the decision by a major customer in the US to cease
trading. Restructuring costs in the prior year were all in respect of
our UK businesses.
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ADJUSTED EBITDA2
£m
FREE CASH FLOW 3
£m
106.4
113.3
129.7
32.3
43.7
92.6
2013
2014
2015
2013
2014
2015
+14.5%
£129.7 MILLION
(2014: £113.3 MILLION)
+111.9%
£92.6 MILLION
(2014: £43.7 MILLION)
£398.6m
OPERATIONAL NET DEBT
£38.2m
CAPITAL EXPENDITURE
28 / Bakkavor Annual Report and Accounts 2015
FINANCIAL REVIEW CONTINUED
IMPAIRMENT
The Group is required to assess the appropriateness of its goodwill
and intangible asset carrying values on an annual basis by comparing
the carrying values with future cash flows expected to be generated
from those assets. The review has resulted in no impairment charges
this year. In 2014 there was an impairment charge of £2.6 million
for goodwill and £0.1 million for intangible assets due to the more
difficult trading conditions across two of our UK businesses. A further
impairment charge of £1.4 million was recognised in 2014 in respect
of property, plant and equipment.
OPERATING PROFIT
Operating profit increased by £27.3 million to £89.6 million,
representing an operating margin of 5.4%, 160 basis points ahead
of the prior year or 130 basis points before an impairment charge
of £4.1 million taken in 2014. The majority of this improvement was
due to volume gains and productivity improvements.
FINANCING COSTS
Net finance costs increased from £53.0 million to £55.4 million in
2015 with the current year including £9.3 million of one-off costs
as a result of the refinancing completed in April 2015. These costs
comprise a £5.8 million call premium paid on the early redemption
of £140 million of the Senior Secured Notes 2018 and £3.5 million
of accelerated amortisation of fees relating to the previous financing
structure. The early redemption was financed by an increase in the
bank term loan of £140 million. However, as a result of the significant
reduction in net debt during the year and the refinancing, underlying
borrowing costs were lower than the prior year.
Other gains and losses represent mark-to-market movements on
both the Group’s remaining fixed rate interest swap, maturing in 2016,
and foreign exchange forward contracts and options. The total also
includes a £10.7 million gain for the mark-to-market value of the call
option in the Senior Secured Notes 2020, as this is classified as an
embedded derivative under IFRS.
CASH FLOW 3
£ million
Adjusted EBITDA2
Adjusted EBITDA2 from discontinued operations
Working capital
Pensions (cash and non-cash)
Interest paid
Tax paid
Capital expenditure (net)
Free cash generated from operating activities
Royalty payment
Cash impact of exceptional items
Acquisition of business
Disposal of subsidiary & associate net of cash disposed of
Refinancing costs
FY 2015 FY 2014
129.7
113.3
5.7
50.1
(3.8)
6.6
26.8
(3.8)
(45.4)
(49.0)
(5.7)
(38.0)
92.6
(3.4)
(5.2)
(19.6)
26.5
(7.2)
(1.0)
(49.2)
43.7
–
(5.8)
–
10.8
–
–
One-off tax payment in respect of historic liabilities
(12.5)
Cash before financing activities
71.2
48.7
Throughout this report, the results for 2014 have been restated to exclude Italpizza as this is now classified as a discontinued operation following the completion of the sale of this business in July 2015.
1
2
3
Like-for-like revenue excludes the impact of acquisitions, disposals, closures and foreign exchange translation but includes the Group’s share of revenue generated by associates.
Adjusted EBITDA – The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’. EBITDA is generally defined as operating profit/loss before share of results of associates, depreciation, amortisation and
asset impairments. In calculating Adjusted EBITDA, we further exclude restructuring costs and royalty charges. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue from continuing operations.
Free cash flow is defined as the amount of cash generated by the business from continuing and discontinued operations, after meeting all its obligations for interest, tax and pensions, and after investments in tangible assets but
excluding payments relating to historic UK tax liabilities.
Bakkavor Annual Report and Accounts 2015 / 29
TAX
The Group’s tax charge was £8.8 million for 2015 (2014: £2.4 million).
The higher tax charge is due to the increase in profit before tax to
£49.2 million (2014: £11.2 million) and also due to the use of UK tax
losses in 2014 which lowered the cost for that year.
Our liquidity position remains strong with cash balances of
£97.0 million at the year end and our revolving credit and receivables
financing facilities were both undrawn. Since the year end we have
given notice that we intend to redeem £75 million of the Senior
Secured Notes 2018 on 29 February 2016 from cash reserves.
CASH FLOW, NET DEBT AND LEVERAGE
PENSIONS
Free cash generation improved by £48.9 million in the year to
£92.6 million, following increased profitability, effective working
capital management and lower interest payments after the refinancing
in April 2015. The Group’s improvement in cash generation was also
driven by lower capital spend in the year as a number of significant
investments during 2014 were brought on stream, and certain
strategic projects were rephased. A further reduction in net debt
of £34.2 million arose from the sale of Italpizza S.r.l. (including
£7.7 million of debt held at the date of sale) and Manor Fresh Limited
during the year. This reduction to net debt was partly offset by the
payment of £12.5 million to settle historic UK tax liabilities, £19.6
million for the acquisition of B. Robert’s Foods in January 2015 and
£7.2 million of refinancing fees (including a call premium of £5.8 million
paid on the early redemption of £140 million of Senior Secured
Notes 2018).
Overall operational net debt reduced significantly by £74.1 million to
£398.6 million. Leverage (the ratio of net debt to Adjusted EBITDA)
was below 3.0 times at the year end, down from 3.9 times last year.
The Group continues to operate with good headroom against all
financial covenants and remains focused on further deleveraging.
For statutory reporting purposes, net debt was further reduced by the
inclusion of an asset of £10.7 million for the fair value of the call option
for the Senior Secured Notes 2020 as required by IFRS.
Under the valuation principles that are required by IAS 19 to be
used for accounting purposes, the Group recognised a deficit of
£3.9 million for the UK defined benefit scheme as at 26 December
2015 (2014: surplus of £6.7 million). The deficit has arisen as the
combination of the return from the scheme’s assets and recovery
contribution is more than offset by the reduction to the discount
rate which has increased the scheme’s liabilities.
The Group and the Trustee agreed during 2014 the triennial valuation
of the UK defined benefit pension scheme as at 31 March 2013.
This resulted in a funding shortfall which continues to be paid over
a six-year period ending on 31 March 2020. The recovery contributions
have been paid in accordance with the agreed plan and amounted
to £4.5 million for the year.
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TAKING RESPONSIBILITY
WE RECOGNISE THAT OPERATING OUR BUSINESS
IN A RESPONSIBLE WAY AND REWARDING OUR PEOPLE
FOR UNDERSTANDING AND LIVING OUR VALUES IS ONE
OF OUR KEY STRENGTHS.
Bakkavor Annual Report and Accounts 2015 / 31
Menu from Waitrose Wood-fired King
Prawn & Chilli Pizza made at our Bakkavor
Pizza factory in Harrow, Middlesex.
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OUR ULTIMATE RESPONSIBILITY IS
SAFETY – WE NEED TO ENSURE THAT OUR
PRODUCTS ARE SAFE TO EAT AND THAT WE
PROVIDE A SAFE WORKING ENVIRONMENT.
Millions of people around the world eat our
products every day and thousands of employees,
contractors and visitors come to our sites. In order
to promote a proactive culture of safety and integrity
we have robust systems and protocols in place
and we train and develop our employees to enable
them to do things the right way.
>450
PEOPLE WORK IN OUR TECHNICAL TEAM
Our verification processes include laboratory testing, internal and external
audits and management reviews.
32 / Bakkavor Annual Report and Accounts 2015
OUR RESPONSIBILITIES
BY COMMUNICATING WITH OUR STAKEHOLDERS WE CAN UNDERSTAND
BETTER WHAT WE DO WELL AND WHERE WE CAN IMPROVE FOR THE
LONG-TERM GOOD OF THE BUSINESS.
OUR KEY STAKEHOLDERS
SUPPLIERS/CONTRACTORS
CUSTOMERS
Collaborating to promote
customer service, food safety
excellence and continuous
improvement.
Building relationships
through strong customer
engagement across
the business.
INVESTORS
Communicating
in an open, timely
and unbiased
manner, which
respects commercial
sensitivities.
UNIONS
Developing productive
partnerships with
our unions.
INDUSTRY
BODIES
Participating
in food industry
debates by engaging
with leading
industry bodies and
working groups.
COMMUNITY
Working with
local communities
to understand
any issues and
develop community
relationships.
VALUES
We communicate
our values to promote a
common way of working
and expected behaviour
when engaging with
our stakeholders.
EMPLOYEES
Engaging through a range
of communication channels,
including daily briefings,
newsletters, formal
appraisals, and site and
Group-wide forums.
OUR VALUES
1
2
3
4
5
CUSTOMER CARE
CAN-DO ATTITUDE
TEAMWORK
We are committed to
supplying outstanding
service, quality and
value, never forgetting
that our relationship
with our customers
is key to our success.
We encourage personal
initiative and empower
our people to make
things happen. Our
motivation comes from
a determination to
succeed in all we do.
We believe everyone
has a valuable part to
play in the success of
our business. We aim to
communicate effectively
and are committed to
the highest standards
of ethics and integrity.
INNOVATION
We thrive on new
challenges, looking
for innovative ways to
grow and improve our
business further.
GETTING IT RIGHT,
KEEPING IT RIGHT
We strive to deliver the
right results every time
in the most effective
way, providing value
for our customers and
stakeholders alike.
Bakkavor Annual Report and Accounts 2015 / 33
OUR ULTIMATE RESPONSIBILITY
PRACTICAL, FOCUSED, VALUES-LED APPROACH
We make fresh prepared foods which are eaten daily by millions
of people around the world. We have an ultimate responsibility
for safety, ensuring that our products are safe to eat and that we
provide a safe working environment for all employees, contractors
and visitors.
We must also respect the communities in which we operate,
from both an environmental and a social standpoint, by addressing
immediate concerns arising from our operations and looking after
our employees, developing them for a long-term career within
the Group.
TANGIBLE LONG-TERM BENEFITS
By doing these things well we believe wholeheartedly that we
gain tangible business benefits. This helps us to set industry-leading
standards and endorses our reputation in the industry which, in
turn, encourages our key stakeholders to work with us. It allows
us to attract and retain the best people in the industry – customers,
employees and suppliers – and it creates goodwill among our
local communities.
Finally, responsible behaviour encourages financial discipline.
It helps us to understand and manage our key resources more
efficiently and cost-effectively.
We have a focused approach to managing our responsibilities,
concentrating our actions where we have direct control and,
consequently, where we can make the most impact. Many of
our focus areas are measured by Group KPIs and linked to our
overall strategic progress. Members of our Management Board
are tasked with monitoring and reporting on these at each
monthly Management Board meeting.
Whilst we have a formal reporting structure in place, it is our
culture of integrity and day-to-day behaviour that determines how
we work. Our five values, listed opposite, are widely communicated
across the Group and shape this behaviour, providing a framework
that underpins our daily activities.
Given our deep-rooted culture of safety in everything we do, it is
with the deepest regret that we report the death of an employee
from an accident in the workplace in February 2015. Our thoughts
remain with the deceased’s family, friends and work colleagues.
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MANAGING OUR
RESPONSIBILITIES
Management Board members are directly
responsible for managing our five focus areas
and KPIs are reported to the Management
Board each month.
ANN SAVAGE, GROUP TECHNICAL DIRECTOR
FOOD SAFETY &
INTEGRITY
HEALTH & SAFETY
OUR ENVIRONMENT
OUR FOCUS AREAS
OUR PEOPLE
COMMUNITIES
PIPPA GREENSLADE, GROUP HR DIRECTOR
34 / Bakkavor Annual Report and Accounts 2015
OUR RESPONSIBILITIES CONTINUED
FOOD SAFETY AND INTEGRITY
WE ARE PROUD TO BE ENTRUSTED WITH PROTECTING
THE INTEGRITY OF OUR CUSTOMERS’ PRODUCTS.
INDUSTRY-LEADING TECHNICAL STANDARDS
Our Technical Team, led by Group Technical Director Ann Savage,
consists of over 450 people who define standards and monitor
compliance with our systems for ensuring food safety. These
systems are HACCP*-based and implemented through documented
quality management systems, ensuring we comply with all our
legal and customer requirements. Our verification processes
include laboratory testing, announced and unannounced internal
and external audits and regular management reviews. Timely
feedback of information from these processes into our quality
management systems ensures prompt corrective and preventative
action if required.
Our technical teams also work closely with our procurement
and agronomy teams to ensure the integrity of our supply base.
Our Group Technical Director reviews the Group’s food safety
performance at each Management Board meeting and is
responsible for managing the Group strategy in this area.
FOCUS AREAS
Raw material integrity
Consistent application of good practice in food safety
management systems
IT solutions to enhance our effective management of food
safety and raw materials
Over 35 specialists work in
our microbiology and chemistry
laboratories.
BAKKAVOR PIZZA’S INNOVATIVE
‘STEPBACK’ H&S CAMPAIGN
At our Innovation Awards we presented
our Bakkavor Pizza business with an
award for implementing an effective way
of promoting the importance of workplace
safety. Its campaign encourages individuals
to ‘step back’ from their daily work
to identify potential hazards and risks,
challenge existing controls and put
forward their own solutions.
*
Hazard Analysis Critical Control Point.
HEALTH & SAFETY
WE TAKE EVERY PRACTICAL STEP TO SECURE AND
PROTECT THE HEALTH AND SAFETY OF OUR OWN
EMPLOYEES AND PEOPLE WHO WORK AT OUR PREMISES.
EMPOWERING OUR EMPLOYEES
Our aim is to promote a proactive safety awareness and accident
prevention culture by empowering our employees to do the right
thing, raising risk awareness and supporting solutions to improve
H&S performance. To facilitate this we provide relevant training
and share best practice.
Our Health & Safety teams, led by the Group Technical Director,
define standards and monitor compliance with our systems for
ensuring workplace health and safety. These systems are risk-based
and implemented through documented Health & Safety Management
systems, ensuring we comply with all our legal responsibilities.
They include a comprehensive compliance audit carried out by
qualified experts, performance monitoring and reporting, and a
well-established process for capturing and sharing good practice
and learnings.
APPOINTMENT OF GROUP
RESPONSIBLE SOURCING MANAGER
We recognise the need for consistent
and resilient supply chains to underpin
our future growth. To help us achieve this
we have appointed a Group Responsible
Sourcing Manager, who reports to the
Group Technical Director, to work with our
supply chain partners and customers.
Sustainability
Award
M&S ‘PLAN A’ SUPPLIER GROUP
OF THE YEAR AWARD FOR
DEMONSTRATING CLEAR
LEADERSHIP IN SUSTAINABILITY
Bakkavor Annual Report and Accounts 2015 / 35
ENVIRONMENT
WE MANAGE THE DIRECT IMPACTS OF OUR BUSINESSES
ON THE ENVIRONMENT AND FOCUS ON THOSE AREAS
THAT ARE MOST MATERIAL TO OUR OPERATIONS.
MANAGING RESOURCES EFFICIENTLY
We encourage environmental efficiency through a Group-wide
focus on resource management, supported by our Group
Environmental Policy. We have identified key areas where we
can further reduce our environmental impacts: waste, water,
energy efficiency and packaging.
We sent less than 0.5% of our UK waste to landfill in 2015 – our
goal is zero waste to landfill.
We continue to trial, implement and scale up solutions to
improve the energy efficiency of our key processes and buildings.
We focus our attention on our most water-intensive businesses
and optimise our water efficiency by minimising usage and by
treating and recovering waste water whenever possible.
We work with both our customers and suppliers to minimise
packaging without compromising the integrity of ingredients
and products.
FOCUS AREAS
Ongoing commitment to improving resource efficiency
Continue to eliminate waste from our operations and
maximise recycling
Continue to work closely with key customers, industry bodies
and suppliers to develop and implement sustainable supply
chain practices
Continue to work with our employees and local communities
to encourage sustainable practices and initiatives
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Our Group Technical Director reviews H&S performance indicators,
audit information and key initiatives at each Management Board meeting
and is responsible for managing the Group strategy in this area.
Compared to 2014, our total number of accidents reduced by 3% and
our lost-time accidents (+7 days) reduced by 18%.
We continued to achieve lower accident rates than the HSE industry
average with both lost-time and major accidents lower by 40% and
47% respectively.
However, it was with the deepest regret and sadness that we reported
the death of an employee from an accident in the workplace. We remain
fully committed to reducing risk and driving our safety performance.
FOCUS AREAS
Reducing the risk associated with workplace transport
(people and vehicles).
Continued focus on machinery safety
Supporting the development of our accident prevention
culture across the business
** Royal Society for the Prevention of Accidents.
5 gold awards
RECEIVED FROM ROSPA** IN
2015 FOR OUR COMMITMENT
TO CONTINUOUS IMPROVEMENT
IN ACCIDENT AND ILL-HEALTH
PREVENTION AT WORK
36 / Bakkavor Annual Report and Accounts 2015
OUR RESPONSIBILITIES CONTINUED
OUR PEOPLE
FOCUS AREAS
OUR PEOPLE STRATEGY INVOLVES ATTRACTING,
RETAINING, SUPPORTING AND REWARDING OUR PEOPLE
IN THE MOST EFFECTIVE WAY TO ACHIEVE THE GROUP’S
STRATEGIC GOALS.
OUR APPROACH
Our Group HR Director, Pippa Greenslade, and her HR
teams focus on four areas: talent management, learning and
development, reward and engagement and digital HR, all of
which are underpinned by robust compliance programmes.
OUR KEY ACTIVITIES IN 2015
Talent management: We advanced our talent pipeline through
a range of early-career programmes, specifically designed for
apprentices, graduates and young managers seeking international
experience. This approach brings talented individuals into Bakkavor
at an early stage, enabling them to develop as we grow.
Learning and development: We concentrated on improving
supervisory, managerial and leadership skills within the business
– key areas identified to support our future growth.
Reward and engagement: We continued to focus on making
Bakkavor a great place to work. This involves measuring and
rewarding our people on how they live our values and reviewing
how we can be recognised as an employer of choice. More
than 75% of our 16,000 UK colleagues completed an employee
engagement survey and we are using the results to formulate
action plans in 2016, in areas such as performance management
and further career development opportunities.
Digital HR: We continued to strengthen our systems with all
site training data now available online, freeing up time previously
spent on administrative tasks.
Ongoing talent and succession planning in core strategic areas
Strengthening performance management and collaborative
working
Focused skills development across functions and rolling out
an HR Academy
Building HR systems skills and capabilities to streamline our
HR management information
EXPANDING OPPORTUNITIES
FOR GRADUATES
Our latest Accelerated Management Scheme
graduates started their first placements
in September 2015, with new opportunities
in marketing and overseas.
240 graduates
HAVE JOINED OUR GROUP SCHEME SINCE 1999
Bakkavor Annual Report and Accounts 2015 / 37
£258,000
CHARITABLE DONATIONS MADE IN 2015
FAMILY FUN WEEKEND
In July Bakkavor’s Spalding site
hosted a weekend for employees
and the local community which
included a funfair, team games
and live music.
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OPENING OUR DOORS
As part of The Prince’s Trust ‘World of
Work’ campaign, our UK sites hosted
40 young people, enabling them to
learn about food manufacturing roles
and processes.
FIRST ‘WORK-BASED
ACADEMY’ COMPLETED
Tilmanstone Salads trained a
group of 19 local 18-24 year-olds
to improve their employability skills.
The attendees gained certificates in
Food Safety, First Aid, Numeracy and
Literacy and completed two days of
work experience. Subsequently, 13
of the young people were successful
in gaining permanent employment.
SUPPORTING LOCAL EVENTS
As part of its annual involvement
in the Watercress Festival, Alresford
Salads ran a ‘design a salad
competition’ at a local school. The
winning salad was produced by
Alresford Salads and packs were
sold by pupils at the Festival to raise
money for new sports equipment.
COMMUNITIES
WE WORK WITH OUR COMMUNITIES TO UNDERSTAND
THEIR NEEDS AND CONCERNS.
LOCAL IMPACT
We believe our local business teams are best placed to understand
the needs of their communities and support local causes and
initiatives. We recognise, reward and celebrate community
engagement through our annual Group Responsibility Awards
and by communicating achievements internally and externally.
We also support relevant national campaigns, such as IGD’s*
Feeding Britain’s Future, which focus on the sustainability of the
food industry using the support of manufacturers to help people
develop the right skills and capabilities for gaining employment.
Similarly, through our partnership with The Prince’s Trust we
undertook several projects to improve the work prospects of
young, unemployed people in our local communities, and those
struggling at school and at risk of exclusion.
FOCUS AREAS
Concentrating support on local community causes close
to our business sites
Continued collaboration to promote the sustainable growth
of the food industry
Ongoing projects as part of our four-year partnership with
The Prince’s Trust
Corporate sponsorship of Farm Africa’s Food for Good
campaign and The Prince’s Countryside Fund
*
IGD: Institute of Grocery Distribution.
38 / Bakkavor Annual Report and Accounts 2015
GOVERNANCE OF
THE BUSINESS
AS WE EXPAND INTO NEW GEOGRAPHIES AND
VENTURES, WE ARE INCREASINGLY RELIANT
ON OUR MANAGEMENT TEAM’S LEADERSHIP
TO REINFORCE OUR GOVERNANCE PROCEDURES
AND MANAGE OUR KEY RISKS.
Menu from Waitrose Lamb Shanks with
Chunky Roasted Vegetables, accompanied
by Tesco Finest Green Vegetable Selection
made at Bakkavor Meals, London.
Bakkavor Annual Report and Accounts 2015 / 39
THE STRENGTH OF OUR SENIOR
MANAGEMENT IS RECOGNISED IN THE
INDUSTRY AS A CORE COMPETITIVE
ADVANTAGE.
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Our senior management team has a proven track
record of delivering profitable growth in the food
sector. Industry-specific commercial, operational
and technical experience is complemented by
core functional expertise and underpinned by an
ongoing commitment to our values and a passion
for our business.
Our in-house agronomy team works with farmers to develop
new crop varieties and farming methods.
100 years
TOTAL SERVICE OF THE MANAGEMENT BOARD
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MANAGEMENT BOARD
A STRONG TEAM WITH THE EXPERIENCE
TO DRIVE THE BUSINESS FORWARD.
AGUST GUDMUNDSSON
CHIEF EXECUTIVE OFFICER
KEY EXPERIENCE
Entrepreneur and founder of Bakkavor Group
Hands-on knowledge of food industry start-ups
Group Executive Chairman from 1986 to 2006
29 years of service with Bakkavor
PETER GATES
CHIEF FINANCIAL OFFICER
KEY EXPERIENCE
International financial experience including Saatchi & Saatchi
and Avis Europe
Over 30 years of corporate finance activity
Chartered Accountant
Member of the Association of Corporate Treasurers
5 years of service with Bakkavor
JOHN GORMAN
During the year under review, John Gorman was a member of
the Management Board as President and CEO of Bakkavor USA.
John stepped down from this role on 31 December 2015 and
we would all like to thank him for his great contribution to the
Group over many years.
MIKE EDWARDS
CHIEF OPERATING OFFICER, UK
KEY EXPERIENCE
Various senior operational roles across Bakkavor
In-depth knowledge of fresh prepared food categories
Over 26 years in the food industry, including United Biscuits
and Heinz
14 years of service with Bakkavor
Bakkavor Annual Report and Accounts 2015 / 41
ANN SAVAGE
GROUP TECHNICAL DIRECTOR
KEY EXPERIENCE
PIPPA GREENSLADE
GROUP HR DIRECTOR
KEY EXPERIENCE
Over 35 years of food industry experience
Over 25 years in global HR roles
Range of senior technical, development, research and
manufacturing roles
Active engagement in industry-wide governance and
consultation roles
16 years of service with Bakkavor
Senior management roles with Cadbury Schweppes and
the British Council
2 years of service with Bakkavor
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PRESIDENT & CEO OF BAKKAVOR USA
KEY EXPERIENCE
Extensive knowledge of fresh prepared foods
Senior operational and functional roles with Bakkavor, most
recently as Managing Director, Fresh Convenience in the UK
Qualified as a Management Accountant with Nestlé
25 years of service with Bakkavor
EINAR GUSTAFSSON
MANAGING DIRECTOR, BAKKAVOR ASIA
KEY EXPERIENCE
Turnaround specialist for two US seafood companies
Management consultancy background with Deloitte
10 years of service with Bakkavor
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CORPORATE GOVERNANCE
AT BAKKAVOR, WE BELIEVE THAT EFFECTIVE
GOVERNANCE IS REALISED THROUGH LEADERSHIP
AND COLLABORATION.
OUR GOVERNANCE FRAMEWORK
RISK IDENTIFICATION AND MANAGEMENT
Our model empowers the managers of our businesses to identify,
evaluate and manage the risks they face on a timely basis. Principal
risks and internal control procedures are assigned to key members
of the Management Board. It is their responsibility to report to the
Board each month on the actions associated with each key risk.
In last year’s Annual Report and Accounts we reported eight key
risks, the management of which we considered to be paramount
to the day-to-day running of our business and the achievement of
our long-term vision. We continue to believe that all eight identified
risks remained key risks to the business in 2015. More information
about these risks, why they are deemed to be key, how we mitigate
them and what progress we have made during the year can be
found on pages 18 to 19. An overview of which Management Board
member is responsible for managing each key risk is provided in
the table on page 43.
The Group has robust internal control and risk management
processes, which are designed to provide assurance but which cannot
avoid all risks. The systems are designed to manage rather than to
eliminate all possible risk and to provide reasonable, but not absolute,
assurance against material misstatement or loss. These processes
also support management’s decision-making, improve the reliability
of business performance and assist in the preparation of the Group’s
consolidated accounts.
We operate within a governance framework that reflects our business
structure, culture and values and which we believe identifies all the
elements of a sound approach to governance and responsibility.
The Group Board, together with the Management Board, uses
the governance framework to set and monitor governance and
responsibility objectives, identify improvement opportunities and
ensure that activities align with business strategy. Through this
framework we provide assurance to all our stakeholders that
Bakkavor is a well-managed, responsible company. Each element
of the governance framework is detailed below.
The Group Board retains ultimate responsibility for upholding
corporate governance standards and determining the strategic
objectives of the Group. The Management Board implements the
strategic objectives of the Group Board, determines investment
policies, agrees on performance criteria and delegates to senior
management the detailed planning and implementation of those
objectives and policies in accordance with appropriate risk parameters.
It monitors compliance with policies and achievement against
objectives by holding management accountable for its activities
through monthly and quarterly performance reporting and budget
updates. The Management Board receives regular presentations
from Heads of key Group functions, enabling it to explore specific
issues and developments in greater detail.
The governance framework is reinforced across the organisation
and addresses stakeholder interests through the five Bakkavor
values, which define our approach to all aspects of our business.
Our values are Customer care, Can Do attitude, Teamwork, Innovation
and Getting it right, Keeping it right. These values are fundamental
to our ability to carry out our day-to-day business with integrity.
We recruit people and reward all managers against their ability
to demonstrate Bakkavor values.
Details of the Group Board who served during the reporting period
can be found on page 45 in the Directors’ Report. Management Board
profiles can be found on pages 40 to 41.
Bakkavor Annual Report and Accounts 2015 / 43
AUDIT COMMITTEE
AUDITORS
The Group Board has delegated authority to the Audit Committee,
which comprises key management across the business, to regularly
monitor internal controls. Each year the Audit Committee meets to
discuss and approve the nature and scope of the audit programme
for the year. The Audit Committee then instructs the internal audit
function to undertake an agreed schedule of audits, during which
the effectiveness of the controls operating within the business are
reviewed. The Group’s internal audit function, which comprises both
employees and professionals from an external provider, Baker Tilly,
has the skills and experience relevant to the operation of each
business. In addition to our internal audit function, the completion
of comprehensive internal control questionnaires is required from
Financial Controllers within each business unit. These self-assessment
representations are designed to ensure that any material control
breakdowns are highlighted. The results of these representations are
reviewed by internal audit before being reported to the Audit Committee.
The Audit Committee is also responsible for the appointment of the
Company’s Auditor, Deloitte LLP. Annually, the Committee reviews
the relationships the Company has with Deloitte LLP and considers
the level of non-audit services provided by the Auditor. The engagement
of Deloitte LLP for non-audit services requires approval from the
Group Financial Controller and, if significant, the Audit Committee,
to ensure that any services provided do not impair the objectivity of
the external Auditor. A list of non-audit services provided by Deloitte
LLP in 2015 and the associated fees has been provided in note 6 to
the Group’s financial statements.
ENGAGING WITH INVESTORS
The Board delegates the management of Bakkavor’s investor
engagement programmes to our CEO, CFO and Head of External
Affairs. In 2015 the team ran an extensive programme of events
and held numerous meetings and telephone calls with investors
and analysts.
Please refer to the Investor Relations section on our website for
further information and key dates.
MANAGEMENT BOARD RISK MANAGEMENT RESPONSIBILITIES
OPERATIONAL RISKS
FOOD SAFETY & INTEGRITY
HEALTH & SAFETY AND ENVIRONMENT
LOSS OF KEY EMPLOYEES
GROUP TECHNICAL DIRECTOR
GROUP HR DIRECTOR
MARKET RISKS
CUSTOMER RELATIONSHIPS
CONSUMER UNDERSTANDING
INPUT COST AND WAGE INFLATION
CHIEF OPERATING OFFICER, UK
FINANCIAL RISKS
COVENANT COMPLIANCE
INTEREST RATES, FOREIGN EXCHANGE RATES, LIQUIDITY & CREDIT
CHIEF FINANCIAL OFFICER
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DIRECTORS’ REPORT
The Directors present their annual report on the affairs of Bakkavor
Finance (2) plc (the ‘Group’). This is accompanied by the financial
statements and Auditor’s Report for the 52 weeks ended 26 December
2015. Comparatives are for the 52 weeks ended 27 December 2014.
RESULTS FOR THE YEAR
The results of the Group for the year are set out in the Group Income
Statement. The profit for the year after taxation and exceptional items
was £53.9 million (2014: profit after tax of £11.5 million). Further details
of the Group’s financial performance are outlined in the Financial
Review on pages 26 to 29.
IMPORTANT EVENTS SINCE THE END OF
THE FINANCIAL YEAR
On 25 January 2016, we announced that Bakk AL Holdings Limited,
a company owned by Agust and Lydur Gudmundsson and funds
managed by the Baupost Group L.L.C., purchased the shares in
Bakkavor Group Limited previously owned by BG12 slhf and certain
other shareholders, for £163 million. Accordingly, Bakk AL Holdings
Limited now owns approximately 89% of the outstanding shares in
Bakkavor Group Limited, the ultimate parent of Bakkavor Finance (2) plc.
The Directors see this as a very positive move and is pleased to
welcome its new shareholders, who are long-term investors with
experience of investing in a wide range of securities and asset
classes and has previously invested in a variety of food-related
businesses across a number of different geographies. Agust and
Lydur Gudmundsson, who own a controlling interest in Bakk AL
Holdings Limited, will remain in their current roles and retain their
positions as CEO and Chairman respectively on the Board. There
will be no changes to day to day operations, the Management Board
or other senior positions.
On 28 January 2016, the Group announced the redemption of
£75 million of its Senior Secured Notes due 2018 with a redemption
date of 29 February 2016. The redemption is to be financed through
existing cash reserves.
FUTURE DEVELOPMENTS
We expect the trading environment to remain challenging over the
coming months due to pressures from intense retailer competition and
the introduction of the National Living Wage. Despite this, we remain
focused on working closely with our customers and investing across
the Group to drive growth, technical excellence and product innovation.
GOING CONCERN DISCLOSURE
The Directors, in their detailed consideration of going concern,
have reviewed the Group’s future cash forecasts and revenue
projections, which they believe are based on prudent market
data and past experience. The Directors considered the Group’s
level of liquidity and compliance with its financing arrangements.
At the date of this report the Group has complied in all respects
with the terms of its borrowing agreements, including its financial
covenants, and forecasts to continue to do so. Consequently, the
Directors consider that the Company and the Group have adequate
resources to meet their liabilities as they fall due for a period of at
least 12 months from the date of approval of the financial statements.
For this reason, they continue to adopt the going concern basis
in preparing the financial statements.
RESEARCH AND DEVELOPMENT
The main focus of the Group’s research and development expenditure
is product innovation. Research and development expenditure totalled
£7.7 million in the year (2014: £7.9 million).
EMPLOYEE INVOLVEMENT
During the financial year we continued to provide open channels of
communication between employees and management through regular
Site Employee Forums (SEFs) and the annual Group Employee
Forum (GEF). At the GEF, matters of common concern to employees
are discussed (including updates on the Group’s financial performance)
and learnings, best practice and ideas are shared. This enables
positive policy development and the communication and discussion
of operational changes.
EQUAL OPPORTUNITIES
The Group is an equal opportunities employer. Equal opportunities
are offered to all regardless of race, colour, nationality, ethnic origin,
sex (including gender reassignment), marital or civil partnership
status, disability, religion, belief, sexual orientation, pregnancy and
maternity, age or trade union membership. All candidates and
employees are treated equally in respect of recruitment, promotion,
training, pay and other employment policies and conditions. All decisions
are based on relevant merit and abilities.
DISABLED EMPLOYEES
The Group gives full and fair consideration to employment applications
made by people with disabilities. We offer equal opportunity to all
disabled candidates and employees who have a disability or who
become disabled during the course of their employment. A full
assessment of the individual’s needs is undertaken and reasonable
adjustments are made to the work environment and/or practices in
order to assist those with disabilities.
Bakkavor Annual Report and Accounts 2015 / 45
OVERSEAS SUBSIDIARIES
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Information on the Company’s subsidiaries is set out in note 10 to
the Company’s financial statements.
DIRECTORS
The Directors who served throughout the period under review were
as follows:
A Gudmundsson
L Gudmundsson
B Bjarnason (resigned 22 January 2016)
H Ludvigsson (resigned 22 January 2016)
G Sigurdsson (resigned 22 January 2016)
Following our announcement on 25 January 2016 regarding the
change in Bakkavor Group Limited shareholding, we confirm that
Agust and Lydur Gudmundsson will remain in their current roles and
retain their positions as CEO and Chairman respectively. However,
as outlined by our Chairman on page 8, this will lead to a significant
change in our Board composition. At the time of publishing this
Annual Report and Accounts, the new Board is still being finalised.
Once confirmed, the Board members will be announced and Board
positions and biographies will be posted on our corporate website.
The Company has made qualifying third–party indemnity provisions
for the benefit of Directors which remain in force at the date of
this report.
DIVIDENDS
The Directors do not propose payment of a dividend for the 52 weeks
ended 26 December 2015 (2014: £nil).
FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES
Information on the Group’s financial risk management objectives
and policies and on the exposure of the Group to relevant risks in
respect of financial instruments is set out in the key risks section
and in note 30 (Financial Instruments).
AUDITORS
Each of the persons who is a Director at the date of approval of
this Annual Report confirms that:
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations. Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance
with International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
Under Company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and the Group and of
the profit or loss of the Company and the Group for that period.
In preparing these financial statements, International Accounting
Standard 1 requires that Directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity’s financial position and financial performance; and
make an assessment of the Company and the Group’s ability to
continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s transactions
and disclose with reasonable accuracy at any time the financial
position of the Company and the Group and enable them to ensure
that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
G
O
V
E
R
N
A
N
C
E
STRATEGIC REPORT
In accordance with section 414A of the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013, as a large private
company, Bakkavor Finance (2) Plc Group, has prepared a Strategic
Report, which can be found on pages 1 to 37 of this Annual Report and
which includes information about employee and environmental matters.
so far as the Director is aware, there is no relevant audit
information of which the Company’s Auditor is unaware; and
The Strategic Report was approved by the Board of Directors on
24 February 2016.
the Director has taken all the steps that he ought to have taken
as a Director in order to make himself aware of any relevant audit
information and to establish that the Company’s Auditor is aware
of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418(2) of the Companies Act 2006.
Deloitte LLP has expressed its willingness to continue in office as
Auditor and a resolution to reappoint Deloitte LLP will be proposed
at the Company’s Annual General Meeting.
By order of the Board
A Gudmundsson
Director
24 February 2016
46 / Bakkavor Annual Report and Accounts 2015
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF BAKKAVOR FINANCE (2) PLC
OPINION ON FINANCIAL STATEMENTS
We have audited the financial statements of Bakkavor Finance (2) plc
(the ‘Company’) and its subsidiaries (the ‘Group’) for the 52 weeks
ended 26 December 2015 (‘period’) which comprise the consolidated
income statement, the consolidated statement of comprehensive
income and expense, the consolidated statement of financial position,
the consolidated statement of changes in equity, the consolidated
statements of cash flows, and the related notes 1 to 41, company
income statement, company statement of changes in equity, company
statement of financial position, company statement of cash flows
and the related notes 1 to 15. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the company’s members those matters we are required to state
to them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company’s members
as a body, for our audit work, for this report, or for the opinions
we have formed.
RESPECTIVE RESPONSIBILITIES OF
DIRECTORS AND AUDITOR
As explained more fully in the Directors’ Responsibilities Statement,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require
us to comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s and the parent company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we read
all the financial and non-financial information in the annual report to
identify material inconsistencies with the audited financial statements
and to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired by
us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the
implications for our report.
In our opinion the financial statements:
give a true and fair view of the state of the Group’s and of the
parent Company’s affairs as at 26 December 2015 and of the
Group’s profit and the Company’s profit for the period then ended;
have been properly prepared in accordance with IFRSs as adopted
by the European Union; and
have been prepared in accordance with the requirements of the
Companies Act 2006.
SEPARATE OPINION IN RELATION TO
IFRSs AS ISSUED BY THE IASB
As explained in Note 2 to the financial statements, the Group
in addition to applying IFRSs as adopted by the European Union,
has also applied IFRSs as issued by the International Accounting
Standards Board (IASB).
In our opinion the financial statements comply with IFRSs as issued
by the IASB.
OPINION ON OTHER MATTER PRESCRIBED BY THE
COMPANIES ACT 2006
In our opinion the information given in the Strategic Report and
the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
MATTERS ON WHICH WE ARE REQUIRED
TO REPORT BY EXCEPTION
We have nothing to report in respect of the following matters where
the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
the parent company financial statements are not in agreement
with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law
are not made; or
we have not received all the information and explanations
we require for our audit.
Christopher Robertson
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Birmingham, UK
24 February 2016
FINANCIALS 47 / Bakkavor Annual Report and Accounts 2015
CONSOLIDATED INCOME STATEMENT
52 WEEKS ENDED 26 DECEMBER 2015
52 weeks ended 26 December 2015
52 weeks ended 27 December 2014
£ million
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Other administrative costs
Royalty charge
Exceptional items
Impairment of assets
Total administrative costs
Profit on disposal of subsidiary
Profit on disposal of associate
Share of results of associates after tax
Operating profit/(loss)
Investment revenue
Finance costs
Other gains (net)
Profit/(loss) before tax
Tax
Profit/(loss) for the period from continuing operations
Discontinued operations
Profit for the period from discontinued operations
Profit/(loss) for the period
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
4,5
7
8
33
19,33
19
5,10
11
12
13
14,33
6
32
Before
non-
recurring
items
Non-
recurring
items
Before
non-
recurring
items
Non-
recurring
items
Total
1,674.5
1,633.5
(1,206.4)
(1,195.2)
468.1
438.3
(82.9)
(77.8)
(296.9)
(1.2)
(3.5)
–
(289.1)
(1.2)
–
–
–
–
–
–
–
–
(6.6)
(4.1)
Total
1,633.5
(1,195.2)
438.3
(77.8)
(289.1)
(1.2)
(6.6)
(4.1)
(301.6)
(290.3)
(10.7)
(301.0)
–
5.2
0.8
89.6
0.1
(55.5)
15.0
49.2
(8.8)
40.4
13.5
53.9
52.6
1.3
53.9
–
–
1.0
71.2
0.1
(53.1)
1.9
20.1
(4.0)
16.1
2.7
18.8
18.1
0.7
18.8
1.8
–
–
(8.9)
–
–
–
(8.9)
1.6
(7.3)
–
(7.3)
(7.3)
–
(7.3)
1.8
–
1.0
62.3
0.1
(53.1)
1.9
11.2
(2.4)
8.8
2.7
11.5
10.8
0.7
11.5
1,674.5
(1,206.4)
468.1
(82.9)
(296.9)
(1.2)
–
–
(298.1)
–
–
0.8
87.9
0.1
(46.2)
15.0
56.8
(10.9)
45.9
3.1
49.0
47.7
1.3
49.0
–
–
–
–
–
–
(3.5)
–
(3.5)
–
5.2
–
1.7
–
(9.3)
–
(7.6)
2.1
(5.5)
10.4
4.9
4.9
–
4.9
The notes to the accounts form an integral part of the consolidated financial statements.
FINANCIALS
48 / Bakkavor Annual Report and Accounts 2015
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME AND EXPENSE
52 WEEKS ENDED 26 DECEMBER 2015
£ million
Profit for the period
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to income statement:
Actuarial (loss)/gain on defined benefit pension schemes
Tax relating to components of other comprehensive income
Items that may be reclassified subsequently to income statement:
Exchange differences on translation of foreign operations
Exchange differences on translation of discontinued foreign operations
Net exchange losses recycled to income statement on disposal of subsidiaries
Total other comprehensive income
Total comprehensive income
Attributable to:
Equity holders of the parent
Non-controlling interests
The notes to the accounts form an integral part of the consolidated financial statements.
52 weeks
52 weeks
ended
ended
26 December 27 December
2014
2015
Notes
38
13
33
53.9
11.5
(14.4)
2.8
(11.6)
3.4
(2.2)
–
1.2
(10.4)
43.5
43.0
0.5
43.5
0.3
–
0.3
1.1
(0.5)
1.7
2.3
2.6
14.1
13.8
0.3
14.1
FINANCIALS
49 / Bakkavor Annual Report and Accounts 2015
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
26 DECEMBER 2015
£ million
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in associates
Other investments
Retirement benefit asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Obligations under finance leases
Provisions
Derivative financial instruments
Deferred income
Non-current liabilities
Trade and other payables
Borrowings
Obligations under finance leases
Provisions
Deferred tax liabilities
Retirement benefit obligation
Deferred income
Total liabilities
Net assets
Equity
Share capital
Share premium
Merger reserve
Capital reserve
Translation reserve
Retained earnings
Shareholder’s equity
Non-controlling interest
Total equity
Notes
26 December 2015
27 December 2014
15
16
17
19
20
38
21
22
23
25
28
24
27
29
25
28
24
27
29
26
38
31
31
31
31
31
32
642.9
5.1
281.2
10.7
0.1
–
940.0
57.5
182.9
97.0
0.5
337.9
1,277.9
(389.8)
(6.2)
(14.9)
(0.5)
(3.4)
(2.5)
(0.7)
(418.0)
(0.3)
(465.8)
(4.4)
(10.7)
(16.5)
(3.9)
(1.2)
(502.8)
(920.8)
357.1
0.1
315.2
45.2
4.0
19.5
(26.9)
357.1
–
357.1
642.1
9.4
277.8
10.9
0.1
6.7
947.0
64.3
201.3
24.6
0.5
290.7
1,237.7
(364.1)
(18.3)
(8.8)
(0.4)
(0.6)
(6.9)
–
(399.1)
(0.2)
(485.4)
(1.7)
(11.5)
(16.9)
–
–
(515.7)
(914.8)
322.9
0.1
315.2
45.2
4.0
17.5
(67.9)
314.1
8.8
322.9
The financial statements of Bakkavor Finance (2) plc and the accompanying notes, which form an integral part of the consolidated financial statements,
were approved by the Board of Directors on 24 February 2016. They were signed on behalf of the Board of Directors by:
A Gudmundsson
Director
FINANCIALS
50 / Bakkavor Annual Report and Accounts 2015
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
52 WEEKS ENDED 26 DECEMBER 2015
£ million
Equity attributable to owners of the parent
Share
capital
Share
premium
Merger
reserve
Capital Translation
reserve
reserve
Retained
earnings
Non-
controlling
interests
Total
Total
equity
Balance at 29 December 2013
0.1
315.2
45.2
4.0
14.8
(77.8)
301.5
–
301.5
Profit for the period
Other comprehensive income/(expense) for the period
Total comprehensive income for the period
Disposal of investment (note 33)
Balance at 27 December 2014
Profit for the period
Other comprehensive income/(expense) for the period
Total comprehensive income for the period
Dividends paid
Disposal of non-controlling interest (note 32)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
315.2
45.2
4.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.7
2.7
–
17.5
–
2.0
2.0
–
–
10.8
0.3
11.1
(1.2)
(67.9)
52.6
(11.6)
41.0
–
–
10.8
3.0
13.8
(1.2)
314.1
52.6
(9.6)
43.0
–
–
Balance at 26 December 2015
0.1
315.2
45.2
4.0
19.5
(26.9)
357.1
0.7
(0.4)
0.3
8.5
8.8
1.3
(0.8)
0.5
(1.3)
(8.0)
–
11.5
2.6
14.1
7.3
322.9
53.9
(10.4)
43.5
(1.3)
(8.0
357.1
The notes to the accounts form an integral part of the consolidated financial statements.
FINANCIALS
51 / Bakkavor Annual Report and Accounts 2015
CONSOLIDATED STATEMENT OF CASH FLOWS
52 WEEKS ENDED 26 DECEMBER 2015
£ million
52 weeks
52 weeks
ended
ended
26 December 27 December
2014
2015
Notes
Net cash generated from operating activities
35
101.6
86.4
Investing activities:
Interest received
Dividends received from associates
Purchases of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Acquisition of business
Disposal of subsidiaries net of cash disposed of
Disposal of associate
Net cash used in investing activities
Financing activities:
Dividends paid to non-controlling interests
Increase in borrowings
Repayments of borrowings
Repayments of obligations under finance leases
Net cash generated from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
The notes to the accounts form an integral part of the consolidated financial statements.
34
33
33
32
0.1
0.6
(38.2)
0.2
(19.6)
20.5
6.0
(30.4)
(1.3)
143.9
(140.6)
(0.7)
1.3
72.5
24.6
(0.1)
97.0
0.1
0.6
(50.8)
1.6
–
10.8
–
(37.7)
–
1.6
(72.6)
(0.5)
(71.5)
(22.8)
47.5
(0.1)
24.6
FINANCIALS
52 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
52 WEEKS ENDED 26 DECEMBER 2015
1 GENERAL INFORMATION
Bakkavor Finance (2) plc (the ’Company’) is a Public Limited Company whose ultimate parent Company and controlling party is Bakkavor Group Limited,
a Company registered in the United Kingdom. The address of the registered office is given in note 41.
The principal activities of the Company and its subsidiaries (the ’Group’) comprise preparation, marketing and distribution of fresh prepared foods
and fresh produce. These activities are undertaken in the UK, Continental Europe, Asia and the US and products are primarily sold through
high street supermarkets.
In the current year, the Group has adopted the following Standards and Interpretations with no material impact on the financial statements of the Group.
Amendments:
IAS 19
Various
Various
Defined Benefit Plans: Employee Contributions (Nov 2013)
Annual Improvements 2010 – 2012 cycle (Dec 2013)
Annual Improvements 2011 – 2013 cycle (Dec 2013)
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial
statements were in issue but not yet effective (and in some cases have not yet been adopted by the EU):
New or revised standards:
IFRS 9
IFRS 9
IFRS 9
IFRS 14
IFRS 15
IFRS 16
Financial Instruments (Nov 2009 and Oct 2010)
Financial Instruments: Hedge Accounting and Amendments to IFRS 9, IFRS 7 and IAS 39 (Nov 2013)
Financial Instruments 2014 (Nov 2013)
Regulatory Deferral Accounts (Jan 2014)
Revenue from Contracts with Customers (May 2014)
Leases (Jan 2016)
Amendments:
IAS 1
IFRS 10 & IAS 28
IFRS 11
IAS 16 & IAS 38
IAS 16 & IAS 41
IAS 27
IAS 32
IAS 36
IAS 39
Various
Various
Various
Disclosure initiative (Dec 2014)
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Sep 2014)
Accounting for Acquisitions of Interests in Joint Operations (May 2014)
Clarification of Acceptable Methods of Depreciation and Amortisation (May 2014)
Agriculture: Bearer Plants (Jun 2014)
Equity Method in Separate Financial Statements (Aug 2014)
Presentation: Offsetting Financial Assets and Financial Liabilities (Dec 2011)
Recoverable Amount Disclosures for Non-Financial Assets (May 2013)
Novation of Derivatives and Continuation of Hedge Accounting (June 2013)
Annual Improvements 2012 – 2014 cycle (Sep 2014)
IFRS 10, IFRS 12 and IAS 27: Investment Entities (Oct 2012)
IFRS 10, IFRS 12 and IAS 28: Investment Entities, Applying the Consolidation Exception (Dec 2014)
With the exception of IFRS 9, IFRS 15 and IFRS 16, the Directors anticipate that the adoption of these Standards and Interpretations will have
no material impact on the financial statements of the Group. The adoption of IFRS 9 Financial Instruments will impact both the recognition and
disclosure of the Group’s financial instruments, IFRS 15 may impact revenue recognition and IFRS 16 will be applicable to the Group’s leases.
It is not practical to quantify the future impact of the application of IFRS 9, IFRS 15 and IFRS 16.
2 SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board (IASB). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union.
These financial statements are presented in Pounds Sterling because that is the currency of the primary economic environment in which the Group
operates. Foreign operations are included in accordance with the foreign currency policy set out below.
The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting
policies adopted are set out below.
GOING CONCERN
The Directors have reviewed the historical trading performance of the Group and the forecasts through to March 2017. See note 3, for the Directors’
consideration of Going Concern.
BASIS OF CONSOLIDATION
The Group financial statements comprise the financial statements of the parent undertaking and its subsidiary undertakings, together with the Group’s
share of the results of associated undertakings comprising a 53 or 52 week period ending on the Saturday nearest to 31 December. Where the fiscal
year 2015 is quoted in these financial statements this relates to the 52 week period ended 26 December 2015. The fiscal year 2014 relates to the
52 week period ended 27 December 2014.
FINANCIALS 53 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
SUBSIDIARIES
Subsidiary undertakings are included in the Group financial statements from the date on which control is achieved, and cease to be consolidated
from the date on which control is transferred out of the Group. Control is achieved when the Group is exposed, or have rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group reassesses whether
or not it controls an investee when facts and circumstances indicate that there are changes to one or more of the elements of control.
When the Company has less than a majority of the voting rights of an investee, it considers all relevant facts and circumstances in assessing whether
or not it has power over the investee to direct the relevant activities of the investee unilaterally.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interests of non-controlling shareholders are
measured at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. Subsequent to acquisition,
the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of
subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests, even if this results in the non-controlling
interests having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount
of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries.
Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received
is recognised directly in equity and attributed to the owners of the Company.
BUSINESS COMBINATIONS
Business acquisitions from third parties are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate
of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange
for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3
are recognised at their fair value at the acquisition date.
Goodwill arising on business combinations is recognised as an asset and initially measured at cost, being the excess of the cost of the business
combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after the
reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost
of the business combination, the excess is recognised immediately in the income statement.
When the consideration in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent
consideration is measured at its acquisition date fair value and included as part of the consideration transferred. Changes in the fair value of the
contingent consideration are adjusted retrospectively, with corresponding adjustments against goodwill.
Where a business combination is achieved in stages, the Group’s previously-held interests in the acquired entity are re-measured to fair value
at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in the income statement.
GOODWILL
Goodwill is initially recognised and measured as set out above in the business combinations note.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the
cash-generating units (CGUs) or groups of CGUs expected to benefit from the synergies of the combination. CGUs or groups of CGUs to which goodwill
has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable
amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss
recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary or associate, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
The Group’s policy for goodwill on the acquisition of an associate is described in the investment in associates note overleaf.
FINANCIALS 54 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
INVESTMENTS IN ASSOCIATES
An investment in an associate is an entity over which the Group is in a position to exercise significant influence, through participation in the financial and
operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee
but is not control or joint control over those policies.
The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments
in associates are initially recognised in the statement of financial position at cost and adjusted thereafter by the Group’s share of the profit or loss and
other comprehensive income of the associate, less any impairment in the value of individual investments.
On acquisition of the investment, goodwill is the excess of cost of the investment over the Group’s share of the net fair value of the identifiable assets
and liabilities, which is included within the carrying amount of the investment. The entire carrying amount of the investment is tested for impairment,
as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognised forms part of the carrying amount
of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 ‘Impairment of Assets’.
Where a Group company transacts with an associate of the Group, profits and losses are only recognised in the financial statements to the extent
of interests in the associate that are not related to the Group.
DISCONTINUED OPERATIONS
A discontinued operation is a component of an entity that has either been disposed of or is classified as held for sale and represents a separate major
line of business or geographical area of operation. A discontinued operation is presented as a single amount and shown separately from continuing
operations in the income statement and statement of comprehensive income. Italpizza S.r.l has been sold in the current period resulting in it being
disclosed as a discontinued operation. As a result, prior year figures in the consolidated income statement and related notes have been re-presented to
present separately amounts relating to operations classified as discontinued in the current period. For details see note 14.
REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal
course of business, net of discounts, VAT and other sales-related taxes.
The Group sells fresh prepared foods and fresh produce.
Revenue from the sale of these goods is recognised when all of the following conditions are satisfied:
• the Group has transferred to the buyer the significant risks and rewards of ownership of the goods;
• the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over
the goods sold;
• the amount of revenue can be measured reliably;
• it is probable that the economic benefits associated with the transaction will flow into the entity;
• the costs incurred or to be incurred in respect of the transaction can be measured reliably.
As a result, revenue for the sale of these goods is generally recognised upon delivery to the customer.
LEASES
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
FINANCE LEASES
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position
as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant
rate of interest on the remaining balance of the liability. The interest element of the finance cost is charged to the income statement over the lease period.
OPERATING LEASES
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and
receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
FINANCIALS 55 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
FOREIGN CURRENCY
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates
(its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are
expressed in Pounds Sterling, being the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency (foreign
currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each statement of financial position date, monetary
assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the statement of financial position date.
Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement
for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for
the period except for differences arising on the retranslation of non-monetary items carried at historical cost of which gains and losses are recognised
directly in other comprehensive income.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange
rates prevailing on the statement of financial position date. Income and expense items are translated at the annual average rate, unless exchange rates
fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are
recognised in other comprehensive income and accumulated in the Group’s translation reserve.
On the disposal of a foreign operation, all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified
to the income statement. However, a partial disposal of a foreign operation where the Group does not lose control, results in the proportionate share
of accumulated exchange differences being re-attributed to non-controlling interests and is not recognised in the income statement.
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. Exchange differences arising are recognised in other comprehensive income.
RESEARCH AND DEVELOPMENT
Research and development costs comprise all directly attributable costs necessary to create and produce new products which are both new in design
and those being modified. Expenditure on research and development is recognised as an expense in the period in which it is incurred.
OPERATING PROFIT
Operating profit is stated after charging exceptional items (net), royalties, impairment of assets, disposal of subsidiaries and associates and share
of results of associates but before investment revenue, finance costs and other gains and losses.
RETIREMENT BENEFIT OBLIGATIONS
DEFINED CONTRIBUTION PLANS
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity, which then invests the contributions
to buy annuities for the pension liabilities as they become due based on the value of the fund and hence the Group has no legal or constructive
obligations to pay further contributions. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income
statement as employee service is received. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future
payments is available. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes
where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.
DEFINED BENEFIT PENSION PLANS
A defined benefit plan is a pension plan that defines the amount of pension benefit that an employee will receive on retirement, usually dependent
on factors such as age, years of service and compensation.
For defined benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried
out at each statement of financial position date. Actuarial gains and losses are recognised in full in the period in which they occur. They are recognised
outside of the income statement and presented in the statement of comprehensive income.
Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over
the average period until the benefits become vested.
The retirement benefit recognised in the statement of financial position represents the present value of the defined benefit obligation as adjusted for
unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service
cost, plus the present value of available refunds and reductions in future contributions to the scheme.
FINANCIALS 56 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
TAXATION
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position
liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group
is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax
is charged or credited in the income statement, except when it relates to items charged or credited directly to other comprehensive income, in which
case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Where current and deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the
business combination.
PROPERTY, PLANT AND EQUIPMENT
All property, plant and equipment is stated in the statement of financial position at cost less any subsequent accumulated depreciation and subsequent
accumulated impairment losses.
Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful
lives, using the straight-line method, on the following bases:
Buildings – maximum period of 50 years
Plant and machinery – 1 to 20 years
Fixtures and equipment – 3 to 5 years
Freehold land is not depreciated. Most plant and machinery is depreciated over 12 years.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term
of the relevant lease.
Reviews of the estimated remaining useful lives of and residual values of individual productive assets are performed annually, taking account of
commercial and technological obsolescence as well as normal wear and tear. All items of property, plant and equipment are reviewed for impairment
when there are indications that the carrying value may not be recoverable.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount
of the asset and is recognised in the income statement.
OTHER INTANGIBLE ASSETS
Intangible assets have finite useful lives over which the assets are amortised on a straight line basis. The amortisation charge for customer relationships
and customer contracts is recognised as an expense over 10 years.
IMPAIRMENT
The useful economic lives of intangible assets are determined based on a review of a combination of factors including the asset ownership rights
and the nature of the overall product life cycle.
Intangible assets and property, plant and equipment are tested for impairment when an event that might affect asset values has occurred. Examples
of such triggering events include significant planned restructuring, a major change in market conditions or technology, expectations of future operating
losses, or a significant reduction in cash flows.
An impairment loss is recognised, in the income statement, to the extent that the carrying amount cannot be recovered either by selling the asset
or by the discounted future earnings from operating the assets in accordance with IAS 36 ‘Impairment of Assets’.
FINANCIALS 57 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and
those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted
average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing,
selling and distribution.
FINANCIAL ASSETS
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms
require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction
costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets at ‘fair value through profit or loss’ (FVTPL), and ‘loans and
receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
FINANCIAL LIABILITIES
Financial liabilities held by the Group are classified as other financial liabilities at amortised cost and derivatives at FVTPL.
LOANS AND RECEIVABLES
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and
receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is
recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial.
OTHER FINANCIAL LIABILITIES
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently
measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
EFFECTIVE INTEREST METHOD
Finance costs are recognised on an effective interest basis for debt instruments other than those financial liabilities designated as at FVTPL.
The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating finance costs over the relevant period.
The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the debt instrument, or, where
appropriate, a shorter period, to the net carrying amount on initial recognition.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FVTPL
Financial assets and financial liabilities are classified as at FVTPL when the financial asset/liability is either held for trading or it is designated as at FVTPL.
A financial asset/liability is classified as held for trading if:
• It has been acquired/incurred principally for the purpose of selling/disposal in the near term; or
• It is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking;
or
• It is a derivative that is not designated and effective as a hedging instrument.
A financial asset/liability other than a financial asset/liability held for trading may be designated as at FVTPL upon initial recognition if:
• Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
• The financial asset/liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated
on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the Group
is provided internally on that basis; or
• It forms part of a contract containing one or more embedded derivatives, and IAS 39 ‘Financial Instruments: Recognition and Measurement’ permits
the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial assets/liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in the income statement. The net gain or loss
recognised in the income statement incorporates any dividend or interest earned on the financial asset and interest paid on the financial liability.
Fair value is determined in the manner described in note 30.
FINANCIALS 58 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
FINANCIAL LIABILITIES CONTINUED
IMPAIRMENT OF FINANCIAL ASSETS
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each statement of financial position date. Financial assets
are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset,
the estimated future cash flows of the financial asset have been affected.
Objective evidence of impairment could include:
• significant financial difficulty of the issuer or counterparty; or
• default or delinquency in interest or principal payments; or
• it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial assets such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for
impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting
payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national and local
economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables,
where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written
off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in
the carrying amount of the allowance account are recognised in the income statement. If in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment
loss is reversed through the income statement to the extent that the carrying amount of the asset at the date the impairment is reversed does not
exceed what the amortised cost would have been had the impairment not been recognised.
DERECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to another entity. Financial liabilities are derecognised when, and only when
the Group’s obligations are discharged, cancelled or expire.
DERIVATIVE FINANCIAL INSTRUMENTS
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign
exchange forward contracts and interest rate swap contracts to manage these exposures. The Group does not use derivative financial instruments for
speculative purposes. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles
on the use of financial derivatives. Changes in the fair value of derivative financial instruments are recognised in the income statement as they arise.
EMBEDDED DERIVATIVES
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are
not closely related to those of host contracts and the host contracts are not carried at fair value, with gains or losses reported in the income statement.
PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will
be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the statement of financial
position date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated
to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required
to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement
will be received and the amount of the receivable can be measured reliably.
A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation
in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it.
The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that
are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
Present obligations arising from onerous contacts are recognised and measured as provisions. An onerous contract is considered to exist where the
Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be
received under it.
CONTINGENT LIABILITIES
A contingent liability is a possible obligation that arises from past events and the existence of which will only be confirmed by the occurrence or
non-occurrence of one or more uncertain future events not wholly within the control of the Group or the amount of the obligation cannot be measured
reliably. A contingent liability is disclosed in the notes to the financial statements and is not recognised when the obligation is not probable. When
an outflow becomes probable, it is recognised as a provision.
FINANCIALS 59 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
CRITICAL JUDGEMENTS IN APPLYING THE GROUP’S ACCOUNTING POLICIES
The following are areas of particular significance to the Group’s financial statements and include the application of judgement, which is fundamental
to the compilation of a set of financial statements:
GOING CONCERN
The Directors, in their detailed consideration of going concern, have reviewed the Group’s future cash forecasts and revenue projections, which
they believe are based on prudent market data and past experience. The Directors considered the Group’s level of liquidity and compliance with
its financing arrangements. At the date of this report the Group has complied in all respects with the terms of its borrowing agreements, including
its financial covenants, and forecasts to continue to do so. Consequently, the Directors consider that the Group have adequate resources to meet
their liabilities as they fall due for a period of at least 12 months from the date of approval of the financial statements. For this reason, they continue
to adopt the going concern basis in preparing the financial statements.
IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS
The recoverable amount of CGUs or groups of CGUs are determined based on the higher of net realisable value and value in use calculations,
which require the use of estimates. The Group has considered the impact of the assumptions used on the calculations and has conducted sensitivity
analysis on the impairment tests of the CGUs carrying values. See notes 15 and 16 for further details.
FAIR VALUE OF DERIVATIVES AND OTHER FINANCIAL INSTRUMENTS
Derivative financial instruments and certain other financial assets are recorded at fair value in the statement of financial position. The fair value of
the financial instruments that do not have quoted market prices requires significant judgement and estimates. The Directors use their judgement in
selecting an appropriate valuation technique for these financial instruments. Valuation techniques commonly used by market practitioners are applied.
For derivative financial instruments, assumptions are made based on quoted market rates adjusted for specific features of the instrument. Other financial
instruments are valued using a discounted cash flow analysis based on assumptions supported, where possible, by observable market prices or rates.
The estimation of fair value of unlisted shares includes some assumptions not supported by observable market prices or rates. These assumptions
are based on past and expected future performance. Details of the assumptions used and of the results of sensitivity analysis regarding these
assumptions are disclosed in note 30.
Embedded derivatives that are not closely related to the host contract are separately accounted for at fair value through the income statement.
The Group’s embedded derivatives are the call option feature of certain Senior Secured Notes. The call option feature is valued as if it were a swap
instrument which allows the Group to swap the fixed rate interest due for the Senior Secured Notes to a floating rate at the callable dates in return
for the payment of a premium. The swap value is determined by market rates for swap instruments available for the call dates at the relevant fixed
interest rate and taking into account the Group’s credit spread at each statement of financial position date.
PENSIONS
The Group maintains a defined benefit pension plan for which it has recorded a pension asset or liability. The pension asset/liability is based on an
actuarial valuation that requires a number of assumptions including discount rate, mortality rates and actual return on plan assets that may necessitate
material adjustments to this asset/liability in the future. The assumptions used by the Group are the best estimates based on historical trends and the
composition of the work force. Details of the principal actuarial assumptions used in calculating the recognised asset/liability for the defined benefit plan
are given in note 38.
RECOGNITION OF DEFERRED TAX ASSETS AND CURRENT TAX PROVISION
The recognition of deferred tax assets is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future
against which the reversal of temporary differences can be deducted. Where the temporary differences relate to losses, the availability of the losses
to offset against forecast taxable profits is also considered. Recognition therefore involves judgement regarding the future financial performance
of the particular legal entity or tax group in which the deferred tax asset has been recognised. The Group had unrecognised deferred tax assets
as a result of unused tax losses of £37.3 million (2014: £30.1 million), available for offset against future profits. Deferred tax assets are not recognised
on the losses carried forward to the extent that it is not probable that the losses will be utilised.
The Group operates in various countries and its income tax returns are subject to audit and adjustment by local tax authorities. The nature of the
Group’s tax exposures is often complex and subject to change and the amounts at issue can be substantial. The Group develops an estimate
of the potential tax liability based on the tax positions taken, historical experience and its internal tax expertise. These estimates are refined
as additional information becomes known. Any outcome upon settlement that differs from a recorded provision may result in a materially higher
or lower tax expense in future periods.
FINANCIALS 60 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4 SEGMENT INFORMATION
The chief operating decision-maker has been defined as the Management Board headed by the Chief Executive Officer. They review the Group’s internal
reporting in order to assess performance and allocate resources. Management has determined the segments based on these reports.
As at the statement of financial position date, the Group is organised as follows:
• UK:
• International:
The preparation and marketing of fresh prepared foods and fresh produce for distribution in the UK.
The preparation and marketing of fresh prepared foods and fresh produce outside of the UK.
The Group’s segment measure of profit represents operating profit before exceptional items, impairment of assets, disposals of subsidiaries, associates
and property, plant and equipment, royalty charges and share of results of associates. Measures of total assets are provided to the Management Board;
however, cash and cash equivalents, short term deposits and some other central assets are not allocated to individual segments. Measures of segment
liabilities are not provided to the Management Board.
The following table provides an analysis of the Group’s segment information for the period to 26 December 2015:
£ million
Revenue
Segment profit
Royalty charge
Exceptional items (net)
Loss on disposal of property, plant and equipment
Profit on disposal of subsidiary
Profit on disposal of associate
Share of results of associates
Operating profit
Investment revenue
Finance costs
Other gains (net)
Profit before tax
Tax
Profit for the period
Other segment information:
Depreciation and amortisation
Adjusted EBITDA
Capital additions
Total assets
UK
International
Un-
allocated
Total Discontinued
operations
Group
Continuing
operations
1,519.0
188.3
87.4
(1.2)
(1.1)
(0.1)
–
5.2
0.1
90.3
6.0
–
(2.4)
(0.1)
10.4
–
0.7
14.6
(36.7)
124.1
36.0
(5.3)
11.3
6.5
–
–
–
–
–
–
–
–
–
–
–
–
1,707.3
93.4
(1.2)
(3.5)
(0.2)
10.4
5.2
0.8
104.9
0.1
(55.6)
15.0
64.4
(10.5)
53.9
(42.0)
135.4
42.5
1,067.0
113.2
97.7
1,277.9
32.8
4.9
–
–
–
10.4
–
–
15.3
–
(0.1)
–
15.2
(1.7)
13.5
(0.8)
5.7
1.1
–
1,674.5
88.5
(1.2)
(3.5)
(0.2)
–
5.2
0.8
89.6
0.1
(55.5)
15.0
49.2
(8.8)
40.4
(41.2)
129.7
41.4
1,277.9
The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’. EBITDA is generally defined as operating profit/(loss)
before share of results of associates, depreciation and amortisation. In calculating Adjusted EBITDA, we further exclude restructuring costs, royalty
charges, asset impairments and those additional charges or credits that are one-off in nature and significance.
FINANCIALS
61 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4 SEGMENT INFORMATION CONTINUED
The following table provides an analysis of the Group’s segment information for the period to 27 December 2014:
£ million
Revenue
Segment profit
Royalty charge
Exceptional items
Impairment of assets
Profit on disposal of property, plant and equipment
Profit on disposal of subsidiaries
Share of results of associates
Operating profit
Investment revenue
Finance costs
Other gains and (losses)
Profit before tax
Tax
Profit for the period
Other segment information:
Depreciation and amortisation
Adjusted EBITDA
Capital additions
Total assets
UK
International
Un-
allocated
Total Discontinued
operations
Group
Continuing
operations
1,520.1
74.5
(1.2)
(6.4)
(3.8)
1.0
–
0.2
64.3
172.5
0.7
–
(0.2)
(0.3)
–
1.8
0.8
2.8
(38.4)
112.9
42.3
(6.3)
7.0
8.8
–
–
–
–
–
–
–
–
–
–
–
–
1,692.6
75.2
(1.2)
(6.6)
(4.1)
1.0
1.8
1.0
67.1
0.1
(53.3)
1.7
15.6
(4.1)
11.5
(44.7)
119.9
51.1
1,089.3
123.3
25.1
1,237.7
59.1
4.8
–
–
–
–
–
–
4.8
–
(0.2)
(0.2)
4.4
(1.7)
2.7
(1.8)
6.6
1.6
41.4
1,633.5
70.4
(1.2)
(6.6)
(4.1)
1.0
1.8
1.0
62.3
0.1
(53.1)
1.9
11.2
(2.4)
8.8
(42.9)
113.3
49.5
1,196.3
Discontinued operations relate to the Group’s International segment.
MAJOR CUSTOMERS
In 2015 the Group’s four largest customers accounted for 76% (2014: 76%) of our total revenue from continuing operations, with no single customer
representing more than 30% (2014: 30%) of our revenue from continuing operations. The Group does not enter into long-term contracts with its
retail customers.
5 REVENUE
£ million
Continuing operations
Sale of goods
Investment revenue
Discontinued operations
Sale of goods
2015
2014
1,674.5
1,633.5
0.1
0.1
1,674.6
1,633.6
32.8
59.1
FINANCIALS
62 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
6 PROFIT/(LOSS) FOR THE PERIOD
Profit/(loss) for the period has been arrived at after charging/(crediting):
£ million
Continuing operations
Depreciation of property, plant and equipment – owned
– leased
Research and development costs
Cost of inventory recognised as an expense
Write down of inventories recognised as (credit)/expense
Amortisation of intangible assets
Impairment of assets (note 8)
Exceptional items (note 7)
Loss/(profit) on disposal of property, plant and equipment
Profit on disposal of subsidiary (note 33)
Profit on disposal of associate (note 19, 33)
Staff costs (note 9)
The analysis of auditor remuneration is as follows:
£’000
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Tax services
Other assurance services
Corporate finance services
Other services
Total non-audit fees
7 EXCEPTIONAL ITEMS
2015
2014
34.8
0.5
7.7
779.3
(0.4)
5.9
–
3.5
0.2
–
(5.2)
419.7
34.4
0.4
7.9
799.8
0.1
8.1
4.1
6.6
(1.0)
(1.8)
–
396.8
2015
2014
75
279
354
484
–
85
11
580
73
299
372
340
20
62
4
426
Exceptional items are those that, in management’s judgement, should be disclosed by virtue of their nature or amount. Exceptional items are as follows:
£ million
Continuing operations
Restructuring costs
RESTRUCTURING COSTS
2015
2015
2014
(3.5)
(6.6)
£1.1 million of restructuring costs relate to the closure of a fresh prepared fruit facility within the UK sector and £1.5 million relates to the restructuring
of the Group’s operation in Belgium. In addition, £0.9 million of costs were incurred following the decision by a major customer in the US to cease
trading. With the exception of the US costs the restructuring costs are mainly in respect of redundancy payments.
2014
In 2014, the Group restructured a number of its UK businesses. As a consequence of this restructure and other reorganisation initiatives, the Group
recognised exceptional charges of £6.6 million in 2014, principally arising from redundancy payments.
The allocation of exceptional items by segment is shown in note 4.
FINANCIALS
63 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
8 IMPAIRMENT OF ASSETS
£ million
Continuing operations
Impairment of goodwill
Impairment of intangible assets
Impairment of property, plant and equipment
2015
2014
–
–
–
–
2.6
0.1
1.4
4.1
The annual impairment review of the carrying value of goodwill and intangible assets has resulted in no impairment charge being recognised within the
Group (2014: £2.6 million goodwill and £0.1 million intangible asset impairments, both within the UK segment).
During the period, the Group has not impaired any property, plant and equipment (2014: £1.1 million impaired within the UK segment and £0.3 million
within the International segment).
9 STAFF COSTS
The average monthly number of employees (including executive Directors) during the year was:
Continuing operations
Production
Management and administration
Sales and distribution
Their aggregate remuneration comprised:
£ million
Continuing operations
Wages and salaries
Social security and other costs
Other pension costs (note 38)
The Directors’ emoluments were as follows:
£’000
Directors’ emoluments excluding pension contributions
Directors’ pension contributions
2015
Number
2014
Number
15,791
1,632
891
18,314
15,636
1,520
773
17,929
2015
2014
375.1
37.9
6.7
419.7
352.2
37.5
7.1
396.8
2015
2014
848
95
943
876
79
955
The aggregate emoluments of the highest paid Director were £546,363 (2014: £565,474). The pension contributions of the highest paid Director at
26 December 2015 were £58,050 (2014: £41,805).
FINANCIALS
64 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
10 INVESTMENT REVENUE
£ million
Continuing operations
Interest on bank deposits
11 FINANCE COSTS
£ million
Continuing operations
Interest on borrowings
Interest on obligations under finance leases
Amortisation of refinancing costs
Call premium for 2018 Senior Secured Notes
Unwinding of discount on provisions (note 29)
2015
2014
0.1
0.1
2015
2014
42.5
0.2
6.7
5.8
0.3
55.5
48.6
0.2
4.0
–
0.3
53.1
The call premium of £5.8 million and £3.5 million of accelerated amortisation of refinancing fees relating to the previous financing structure have been
classed as non-recurring items in the consolidated income statement in the current period (2014: £nil).
12 OTHER GAINS (NET)
£ million
Continuing operations
Change in the fair value of derivative financial instruments
Change in fair value of call option
Foreign exchange gains
13 TAX
£ million
Continuing operations
Current tax:
Current period
Prior period adjustment
Deferred tax:
Current period (note 26)
Prior period adjustment (note 26)
Tax charge for the period
2015
2014
4.2
10.7
0.1
15.0
1.5
–
0.4
1.9
2015
2014
6.4
(0.3)
1.9
0.8
8.8
3.1
(2.6)
0.5
1.4
2.4
Corporation tax is calculated at 20.25% (2014: 21.5%) of the estimated assessable profit/(loss) for the period. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
FINANCIALS
65 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
13 TAX CONTINUED
The charge for the period can be reconciled to the profit per the income statement as follows:
Profit before tax:
Tax charge at the blended UK corporation tax rate of 20.25% (2014: 21.5%)
Non-deductible expenses
Adjustment in respect of prior periods
Tax effect of losses carried forward not recognised
Unprovided deferred tax assets now recognised
Overseas taxes at different rates
Release of deferred tax on IBA reversal
Deferred tax change in rate
Group relief surrendered to Bakkavor Group Limited free of charge
Tax charge and effective tax rate for the period
2015
£ million
2015
%
2014
£ million
2014
%
49.2
100.0
11.2
100.0
9.9
0.8
0.5
0.4
(0.8)
–
(0.8)
(1.5)
0.3
8.8
20.2
1.6
1.0
0.8
(1.6)
–
(1.6)
(3.1)
0.6
17.9
2.4
1.2
(1.2)
1.3
(0.7)
0.1
(0.9)
(0.1)
0.3
2.4
21.5
10.7
(10.7)
11.6
(6.3)
0.9
(8.0)
(0.9)
2.7
21.5
In addition to the amount charged to the income statement, a £2.8 million credit (2014: £nil) relating to tax has been recognised directly in other
comprehensive income. No other tax charges/credits have been recognised directly in equity.
The UK corporation tax rate reduced from 21% to 20% from 1 April 2015. In accordance with the Finance (No. 2) Act 2015, the UK corporation tax rate
will reduce to 19% in 2017 and 18% in 2020.
Deferred tax has been calculated at the tax rate applicable for the period in which the temporary differences are expected to reverse.
14 DISCONTINUED OPERATIONS
On 14 July 2015, the Group completed the sale of its remaining 60% stake in Italpizza S.r.l, its Italian Pizza manufacturing business, to Dreamfood S.r.l.
for a cash consideration of £22.0 million (€31.0 million).
As a result Italpizza S.r.l qualified as a discontinued operation and has been presented as such in the income statement.
The results of the Group’s discontinued operation has been included in the consolidated income statement as follows:
£ million
Discontinued operations
Revenue
Cost of sales
Gross profit
Distribution costs
Total administrative costs
Profit on disposal of subsidiary
Operating profit
Finance costs
Other (losses) net
Profit before tax
Tax
Profit for the period from discontinued operations
Attributable to:
Equity holders of the parent
Non-controlling interests
52 weeks
ended
52 weeks
ended
26 December 27 December
2014
2015
Notes
4,5
33
32.8
(21.0)
11.8
(1.4)
(5.5)
10.4
15.3
(0.1)
–
15.2
(1.7)
13.5
12.2
1.3
13.5
59.1
(41.1)
18.0
(2.4)
(10.8)
–
4.8
(0.2)
(0.2)
4.4
(1.7)
2.7
2.0
0.7
2.7
During the year, discontinued operations used £0.5 million (2014: contributed cash of £5.6 million) of the Group’s net operating cash flows, paid
£1.4 million (2014: paid £1.5 million) in respect of investing activities (excluding proceeds from the disposal of the business) and received £0.6 million
(2014: paid £4.9 million) in respect of financing activities.
FINANCIALS
66 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
15 GOODWILL
£ million
Cost
At 29 December 2013
Exchange differences
At 27 December 2014
Acquisition of business (note 34)
Disposal of subsidiary (note 33)
Exchange differences
At 26 December 2015
Accumulated impairment losses
At 29 December 2013
Impairment
Exchange differences
At 27 December 2014
Disposal of subsidiary (note 33)
Exchange differences
At 26 December 2015
Carrying amount
At 26 December 2015
At 27 December 2014
712.6
(0.4)
712.2
14.5
(33.9)
1.0
693.8
(68.2)
(2.6)
0.7
(70.1)
20.0
(0.8)
(50.9)
642.9
642.1
Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs or group of CGUs that are expected to benefit from that business
combination. A summary of the allocation of the carrying value of goodwill by segment is as follows:
£ million
UK
International
The recoverable amounts of the CGUs or groups of CGUs are determined based on value in use calculations.
There was no impairment recognised during the period:
£ million
Continuing operations
UK
26 December 27 December
2014
2015
601.5
41.4
642.9
601.5
40.6
642.1
2015
2014
–
2.6
The 2014 goodwill impairment, within the Group’s UK segment was a result of difficult trading conditions across two of the Group’s UK businesses.
FINANCIALS
67 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
15 GOODWILL CONTINUED
The key assumptions used in the impairment reviews were as follows:
• Discount rates: Management uses post-tax rates that reflect current market assessments of the time value of money and the risks specific to the
CGUs. The present value of the future cash flows is calculated using a pre-tax discount rate that ranges from 9.5% to 10.3% (2014: 8.4% to 10.4%).
• Growth rates. The revenue growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices
and expectations of future changes in the market. The Group this year has prepared cash flow forecasts derived from the most recent financial
budgets approved by management for the next three years determined by business units, and extrapolated cash flows for the following two years
based on an estimated growth rate, to provide a five year forecast. Cash flows are then extrapolated using a perpetuity growth rate of 2 per cent
(2014: 2 per cent). The forecast cash flow of CGUs in those territories with growth rates below 2% perpetuity have been adjusted to reflect this.
The Group has conducted a sensitivity analysis on the impairment test of each CGUs carrying value. The assumptions used, and the impact of
sensitivities on these assumptions, are shown below:
£ million
Sensitivity:
Head room of impairment test based on management assumptions
UK
International
364.6
13.4
If the pre-tax discount rate were to be increased by a factor of 5%, the impairment charge would be £2.1 million and for an increase of 10% the
impairment charge would be £4.5 million. A 10% reduction in the perpetuity growth rate would result in an impairment charge of £0.5 million.
Furthermore, management continually review the commercial returns across the Group’s product portfolio, and, as in the past, if such returns
deteriorate then management may choose to exit from low margin business.
16 OTHER INTANGIBLE ASSETS
£ million
Cost
At 29 December 2013
Exchange differences
At 27 December 2014
Acquisition of business (note 34)
Disposal of subsidiary (note 33)
Exchange differences
At 26 December 2015
Accumulated amortisation and impairment
At 29 December 2013
Impairment
Charge for the period
Exchange differences
At 27 December 2014
Disposal of subsidiary (note 33)
Charge for the period
Exchange differences
At 26 December 2015
Carrying amount
At 26 December 2015
At 27 December 2014
Customer
Relationships
Customer
Contracts
89.8
(0.2)
89.6
3.2
(4.9)
(0.3)
87.6
(71.7)
–
(8.6)
0.1
(80.2)
3.5
(6.1)
0.3
(82.5)
5.1
9.4
1.6
–
1.6
–
–
–
1.6
(1.4)
(0.1)
(0.1)
–
(1.6)
–
–
–
(1.6)
–
–
Total
91.4
(0.2)
91.2
3.2
(4.9)
(0.3)
89.2
(73.1)
(0.1)
(8.7)
0.1
(81.8)
3.5
(6.1)
0.3
(84.1)
5.1
9.4
The 2014 impairment charge of £0.1 million related to the Group’s UK segment and arose due to difficult trading conditions in one particular business.
FINANCIALS
68 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
17 PROPERTY, PLANT AND EQUIPMENT
£ million
Cost
At 29 December 2013
Additions
Disposals
Reclassifications
Exchange differences
At 27 December 2014
Additions
Acquisition of business (note 34)
Disposals
Disposal of subsidiary (note 33)
Exchange differences
At 26 December 2015
Accumulated depreciation and impairment
At 29 December 2013
Charge for the period
Disposals
Impairment
Reclassifications
Exchange differences
At 27 December 2014
Charge for the period
Disposals
Disposal of subsidiary (note 33)
Exchange differences
At 26 December 2015
Carrying amount
At 26 December 2015
At 27 December 2014
Land
and
buildings
Plant
and
machinery
Fixtures
and
equipment
183.8
7.2
(0.8)
(1.0)
–
189.2
4.1
–
(0.3)
(0.9)
(0.3)
191.8
(90.9)
(6.5)
0.4
(0.3)
(0.1)
–
(97.4)
(6.3)
0.3
0.4
0.2
308.5
38.1
(0.7)
0.8
(0.8)
345.9
32.2
1.0
(3.0)
(11.7)
(1.3)
363.1
(156.3)
(22.9)
0.6
(1.1)
–
0.7
(179.0)
(22.9)
2.7
9.0
0.9
51.7
5.8
(0.5)
0.2
0.1
57.3
6.2
–
(0.7)
(0.9)
(0.1)
61.8
(32.1)
(6.6)
0.4
–
0.1
–
(38.2)
(6.7)
0.6
0.8
0.1
Total
544.0
51.1
(2.0)
–
(0.7)
592.4
42.5
1.0
(4.0)
(13.5)
(1.7)
616.7
(279.3)
(36.0)
1.4
(1.4)
–
0.7
(314.6)
(35.9)
3.6
10.2
1.2
(102.8)
(189.3)
(43.4)
(335.5)
89.0
91.8
173.8
166.9
18.4
19.1
281.2
277.8
The carrying value of the Group’s plant and machinery includes an amount of £5.0 million (2014: £2.3 million) in respect of assets held under
finance leases.
At 26 December 2015, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to £4.2 million (2014: £2.1 million).
During the period, the Group has not impaired any property, plant and equipment (2014: £1.1 million within the UK sector and £0.3 million within
the International sector).
18 SUBSIDIARIES
The Group consists of a parent company, Bakkavor Finance (2) plc, incorporated in the UK and a number of subsidiaries and associates held directly
and indirectly by Bakkavor Finance (2) plc. Note 10 to the Company’s separate financial statements lists details of the interests in subsidiaries.
FINANCIALS
69 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
19 INTERESTS IN ASSOCIATES
Details of the associated undertakings of the Group at 26 December 2015 were as follows:
Place of registration
and operation
Proportion of voting interest
Principal activity
2015
2014
Method of
accounting
Name of associate
La Rose Noire Limited
Hong Kong
Producer of bakery and pastry products
45.0%
45.0%
Equity
On 9 December 2015, the Group sold its 27.5% share in its associate Manor Fresh Limited, a supplier of fresh produce based in the United Kingdom for
a cash consideration of £6.0 million. The transaction has resulted in a profit on sale of associate of £5.2 million being recorded in the income statement.
£ million
Associates that are not individually material
At 29 December 2013
Share of profit after tax
Exchange differences
Dividend payment
At 27 December 2014
Share of profit after tax
Exchange differences
Dividend payment
Disposal of associate
At 26 December 2015
20 OTHER INVESTMENTS
£ million
At 27 December 2014 and 26 December 2015
21 INVENTORIES
£ million
Raw materials and packaging
Work-in-progress
Finished goods
Manor
Fresh
Limited
La Rose
Noire
Limited
0.8
0.2
–
(0.1)
0.9
0.1
–
(0.2)
(0.8)
–
9.2
0.8
0.5
(0.5)
10.0
0.7
0.4
(0.4)
–
10.7
Total
10.0
1.0
0.5
(0.6)
10.9
0.8
0.4
(0.6)
(0.8)
10.7
Non listed
investments
held at cost
0.1
26 December 27 December
2014
2015
48.3
3.2
6.0
57.5
51.9
2.4
10.0
64.3
FINANCIALS
70 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
22 TRADE AND OTHER RECEIVABLES
£ million
Amounts receivable from trade customers
Allowance for doubtful debts
Net amounts receivable from trade customers
Other receivables
Prepayments
26 December 27 December
2014
2015
155.1
(0.6)
154.5
18.3
10.1
182.9
168.2
(1.0)
167.2
14.6
19.5
201.3
The Group has a £65 million (2014: £65 million) Receivables Securitisation Facility which it can draw against, up to a maximum of 72% of its net eligible
receivables balance. As at 26 December 2015 the Group had not drawn against this facility (2014: £nil). The collection risk on these receivables remains
with the Group until final settlement and therefore the Group continues to recognise these receivables until payment is received from the customer.
The average credit period taken on sales of goods is 32 days (2014: 33 days). An allowance has been made for estimated irrecoverable amounts from
the sale of goods of £0.6 million (2014: £1.0 million). Allowances against receivables are made on a specific basis based on objective evidence and
previous default experience. Receivables are therefore deemed past due but not impaired when the contractual obligation to pay has been exceeded,
but as yet no objective evidence or previous default experience indicates this debt will be irrecoverable.
The Directors consider that the carrying amount of trade and other receivables from customers approximates to their fair value due to their
short-term nature.
The following table is an ageing analysis of trade receivables from customers:
£ million
Not past due
Past due by 1 – 30 days
Past due by 31 – 60 days
Past due by 61 – 90 days
Past due by more than 90 days
26 December 27 December
2014
2015
136.6
16.2
1.2
0.3
0.8
152.1
13.8
1.3
0.2
0.8
155.1
168.2
Trade receivables renegotiated in 2015 that would otherwise have been past due or impaired amounted to £nil (2014: £nil)
The majority of the Group’s customers are leading UK retailers, representing more than 76% (2014: 76%) of the Group’s revenue from continuing
operations and therefore hold favourable credit ratings. On this basis the Group does not see any need to charge interest, seek collateral or credit
enhancements to secure any of its trade receivables due to their short term nature.
The following table is an analysis of the movement of the Group’s trade receivables allowance for doubtful debts:
£ million
Balance at beginning of the period
Allowances recognised against receivables
Amounts written off as uncollectible during the period
Amounts recovered during the period
Allowance reversed
Balance at end of the period
26 December 27 December
2014
2015
(1.0)
(0.4)
0.4
0.1
0.3
(0.6)
(0.8)
(0.8)
0.1
0.4
0.1
(1.0)
FINANCIALS
71 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
23 CASH AND CASH EQUIVALENTS
£ million
Cash and cash equivalents
26 December 27 December
2014
2015
97.0
24.6
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less which are
readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.
The carrying amount of these assets approximates their fair value.
24 BORROWINGS
On 29 April 2015, the Group agreed an increase and extension to its existing banking facilities. The new financing structure considerably extends the
maturity of the Group’s banking facilities and delivers a material reduction in the interest rate margin.
The facilities have been increased from £80 million to £220 million in total and the maturity extended from October 2016 to February 2018. The Group
used the increase in liquidity to fund an early repayment of £140 million of the Group’s existing 8.25% Senior Secured Notes due in 2018, resulting
in significant interest savings for the Group.
BAKKAVOR FINANCE (2) PLC SENIOR SECURED NOTES
8.25% SENIOR SECURED NOTES
The Group has £192 million (2014: £332 million) of 8.25% Senior Secured Notes due in 2018 outstanding following the early repayment of £140 million
of the Notes in April 2015. Interest on the Notes is payable semi-annually each year on 15 February and 15 August. The Notes will mature on
15 February 2018.
8.75% SENIOR SECURED NOTES
The Group has £150 million (2014: £150 million) of 8.75% Senior Secured Notes due in 2020. Interest on the Notes is payable semi-annually each year
on 15 June and 15 December. The Notes will mature on 15 June 2020.
BAKKAVOR CENTRAL FINANCE LIMITED RECEIVABLES SECURITISATION FACILITY
The Group has a £65 million (2014: £65 million) Receivables Securitisation Facility whose maturity was extended from June 2016 to February 2018
during the year. The maximum drawing of the facility depends on the size of the Group’s UK receivable book and the Group’s ability to deliver against
performance triggers. The Group can draw a maximum of 72% of net eligible receivables. Net eligible receivables, in its simplest form, is the Group’s
UK receivables aged no greater than 60 days less accruals for customer deductions.
The maximum drawdown period under this facility is one month provided that the amount drawn is less than 72% of net eligible receivables
at any reporting date. The interest rate incurred by the Group for amounts drawn against the receivables facility is Libor plus a margin of 2.85%
(2014: Libor plus a margin of 2.6%). As at 26 December 2015, the Group has not drawn against the facility (2014: £nil). The facility is subject
to a non-utilisation fee of 1.4% (2014: 1.3%).
BAKKAVOR FINANCE (2) PLC BANK FACILITIES
The Group’s total banking facilities amount to £220 million (2014: £130 million) comprising (i) a £150 million term loan (2014: £60 million term loan), split
£25 million and £125 million maturing on 31 December 2017 and 15 February 2018 respectively and (ii) £70 million RCF (2014: £70 million RCF), which
includes an overdraft and money market facility of £16.5 million (2014: £15.0 million) and further ancillary facilities of £12.4 million (2014: £12.4 million).
The Group has not repaid any of the term loan as at 26 December 2015 (2014: £50 million) and therefore the balance owing at that date was £150 million
(2014: £10.0 million). At 26 December 2015 there were no drawings under the RCF and overdraft facilities (2014: £nil).
Of the outstanding term loan amount, £25 million will be repaid in instalments of £5 million every six months with the first payment to be made
on 31 December 2015 and the final payment to be made on 31 December 2017. The remaining term loan amount of £125 million and any RCF balance
outstanding is to be repaid on 15 February 2018. The interest rate payable on the term loan at 26 December 2015 is Libor plus a margin of 3.00%
(2014: 4.00%).
The Senior Secured Notes and bank facilities are secured by fixed and floating charges over the assets of Bakkavor Finance (2) plc and
its subsidiaries as governed by an Inter-creditor Agreement. The receivables securitisation is secured by floating charges over the assets
of Bakkavor Central Finance Limited.
FINANCIALS
72 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
24 BORROWINGS CONTINUED
£ million
Bank overdrafts
Bank loans
Receivables securitisation
8.25% Senior Secured Notes
8.75% Senior Secured Notes
Borrowings repayable as follows:
On demand or within one year
In the second year
In the third to fifth years inclusive
Over five years
Analysed as:
Amount due for settlement within 12 months (shown within current liabilities)
Amount due for settlement after 12 months
26 December 27 December
2014
2015
0.1
149.8
(0.2)
195.8
135.2
480.7
14.9
7.8
458.0
–
480.7
14.9
465.8
480.7
1.3
11.4
(0.4)
337.0
144.9
494.2
8.8
8.7
328.6
148.1
494.2
8.8
485.4
494.2
The Group has not drawn against the receivables facility as at 26 December 2015 (2014: £nil) and as such the £(0.2) million (2014: £(0.4) million)
receivables securitisation credit represents unamortised fees.
The following table is an analysis of the Group’s borrowings by currency:
£ million
Borrowings by currency
GBP
Euro
RMB
The weighted average interest rates paid were as follows:
Bank overdrafts
Senior Secured Notes and bank loans
26 December 27 December
2014
2015
480.7
489.5
–
–
4.5
0.2
480.7
494.2
26 December 27 December
2014
%
2015
%
–
6.97
2.08
8.29
The Group has a £63.2 million (2014: £63.2 million) interest rate swap in place at 26 December 2015, which matures in September 2016. Both the
8.25% and 8.75% Senior Secured Notes due in 2018 and 2020 respectively, were issued at a fixed rate. Interest on the Group’s term loan, receivables
securitisation and other borrowings are at floating rates, thus exposing the Group to cash flow interest rate risk.
The Directors estimate the fair value of the Group’s borrowings are not materially different from their book value due to the interest rates currently
available to the Group being broadly in line with the rates already agreed on the facilities.
The 8.75% Senior Secured Notes due in 2020 contain a call option from 15 June 2016 that under IAS 39 ‘Financial Instruments: Recognition and
Measurement’ should be accounted for as an embedded derivative and is required to be separately accounted for at fair value with the issued bond
value carried at amortised cost. As at 26 December the fair value of the call option amounted to an asset of £10.7 million (2014: £nil).
FINANCIALS
73 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
24 BORROWINGS CONTINUED
£ million
Analysis of net debt
Cash and cash equivalents
Borrowings
Unamortised fees
Interest accrual
Finance leases
Debt due within one year
Borrowings
Unamortised fees
Fair value of call option
Finance leases
Debt due after one year
Group statutory net debt
Group statutory net debt
Unamortised fees
Interest accrual
Fair value of call option
Group operational net debt
25 DERIVATIVE FINANCIAL INSTRUMENTS
Held for trading derivatives that are not designated in hedge accounting relationships:
£ million
Foreign currency contracts – included in current assets
Foreign currency contracts
Interest rate contracts
Included in current liabilities
Total
Further details of derivative financial instruments are provided in note 30.
26 December 27 December
2014
2015
97.0
(10.0)
2.4
(7.3)
(0.5)
(15.4)
24.6
(1.9)
3.9
(10.8)
(0.4)
(9.2)
(480.7)
(493.3)
4.2
10.7
(4.4)
(470.2)
(388.6)
(388.6)
(6.6)
7.3
(10.7)
(398.6)
7.9
–
(1.7)
(487.1)
(471.7)
(471.7)
(11.8)
10.8
–
(472.7)
26 December 27 December
2014
2015
0.5
(0.5)
(2.0)
(2.5)
(2.0)
0.5
(2.4)
(4.5)
(6.9)
(6.4)
FINANCIALS
74 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
26 DEFERRED TAX
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and
prior reporting period.
£ million
At 29 December 2013
Charge/(credit) to income – continuing operations
Discontinued operations
At 27 December 2014
Charge/(credit) to income – continuing operations
Discontinued operations
Disposal of subsidiary
Credit to equity
At 26 December 2015
Accelerated
tax
depreciation
Fair value
gains
Intangibles
Provisions
Impairment
losses
Retirement
benefit
obligations
13.8
2.6
–
16.4
0.1
(0.1)
0.1
–
16.5
(1.5)
0.2
–
(1.3)
2.9
–
–
–
1.6
3.7
(1.7)
(0.1)
1.9
(1.2)
–
(0.3)
–
0.4
(0.5)
(0.9)
–
–
(0.5)
–
–
–
–
–
–
(0.9)
0.1
–
–
–
(0.5)
(0.8)
0.5
0.8
–
1.3
0.8
–
–
(2.8)
(0.7)
Total
15.1
1.9
(0.1)
16.9
2.7
(0.1)
(0.2)
(2.8)
16.5
Certain deferred tax assets and liabilities have been offset and the net liability is shown as deferred tax liabilities in the statement of financial position.
At the statement of financial position date the Group had unused tax losses of £37.3 million (2014: £30.1 million) available for offset against future
profits. Deferred tax assets are not recognised on the losses carried forward to the extent that it is not probable that the losses will be utilised.
The Group is not aware of any temporary differences associated with undistributed earnings of subsidiaries due to the availability of tax credits against
such liabilities. The Group is in a position to control the timing of the reversal of any such temporary differences should they arise.
Temporary differences arising in connection with interests in associates are insignificant.
27 OBLIGATIONS UNDER FINANCE LEASES
Minimum
lease payments
Present value of
minimum lease payments
£ million
Amounts payable under finance leases:
Within one year
In the second to fifth years inclusive
Over five years
Less: future finance charges
Present value of lease obligations
Analysed as:
Amount due for settlement within 12 months (shown within current liabilities)
Amount due for settlement after 12 months
26 December 27 December 26 December 27 December
2014
2015
2015
2014
0.8
3.3
1.7
5.8
(0.9)
4.9
0.5
1.8
0.3
2.6
(0.5)
2.1
0.5
2.8
1.6
4.9
4.9
0.5
4.4
4.9
0.4
1.4
0.3
2.1
2.1
0.4
1.7
2.1
The weighted average lease term outstanding is 7.5 years (2014: 5.5 years). For the 52 weeks ended 26 December 2015, the weighted average effective
borrowing rate was 4.73% (2014: 7.69%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements
have been entered into for contingent rental payments.
The finance lease obligations are denominated in Sterling and the fair value of the Group’s lease obligations approximates their carrying amount.
The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets.
FINANCIALS
75 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
28 TRADE AND OTHER PAYABLES
£ million
Trade payables
Social security and other taxation
Amounts owed to ultimate parent company
Other payables
Accruals
Less: amounts due after one year
Other payables
Trade and other payables due within one year
26 December 27 December
2014
2015
203.5
211.1
2.1
0.2
20.5
163.8
390.1
(0.3)
389.8
2.0
2.4
28.0
120.8
364.3
(0.2)
364.1
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade
purchases is 60 days (2014: 61 days). No interest is incurred against trade payables.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
29 PROVISIONS
£ million
At 29 December 2013
Utilisation of provision
Unwinding of discount
At 27 December 2014
Included in current liabilities
Included in non-current liabilities
At 27 December 2014
Utilisation of provision
Increase of provision
Unwinding of discount
At 26 December 2015
Included in current liabilities
Included in non-current liabilities
Onerous Dilapidation
provisions
leases
1.7
(0.2)
–
1.5
0.6
0.9
1.5
(0.6)
0.1
–
1.0
0.6
0.4
10.3
–
0.3
10.6
–
10.6
10.6
–
2.2
0.3
13.1
2.8
10.3
Total
12.0
(0.2)
0.3
12.1
0.6
11.5
12.1
(0.6)
2.3
0.3
14.1
3.4
10.7
Onerous lease provisions will be utilised over the term of the individual leases to which they relate.
Dilapidation provisions relate to obligations under various property leases to ensure that, at the end of the leases, the buildings are in the condition
agreed with the landlords. The provisions will be utilised at the end of the individual lease terms to which they relate.
30 FINANCIAL INSTRUMENTS
CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to
stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of borrowings, as disclosed in note 24,
cash and cash equivalents and equity attributable to owners of the parent, comprising issued capital, reserves and retained earnings.
The Group manages its capital by collating timely and reliable information to produce various internal reports such as capital expenditure and weekly
net debt reports, which enable the Board of Directors to assess the Group’s capital, and manage that capital effectively and in line with the Group’s
objectives. The gearing of the Group is constantly monitored and managed to ensure that the ratio between debt and equity is at an acceptable level
and enables the Group to operate as a going concern and maximise stakeholders return.
FINANCIALS
76 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
30 FINANCIAL INSTRUMENTS CONTINUED
GEARING RATIO
The gearing ratio at the period end was as follows:
£ million
Debt
Cash and cash equivalents
Net debt
Equity
Net debt to net debt plus equity
26 December 27 December
2014
2015
485.6
(97.0)
388.6
357.1
496.3
(24.6)
471.7
322.9
52.1%
59.4%
Debt is defined as long and short term borrowings, as disclosed in note 24 and finance leases payable in note 27.
SIGNIFICANT ACCOUNTING POLICIES
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on
which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2.
CATEGORIES OF FINANCIAL INSTRUMENTS
£ million
Financial assets
Fair value through profit and loss:
Derivative financial instruments
Call option on Senior Secured Notes due 2020
Loans and receivables at amortised cost:
Trade receivables
Other receivables
Cash and cash equivalents
£ million
Financial liabilities
Fair value through profit and loss:
Derivative financial instruments
Other financial liabilities at amortised cost:
Trade payables
Amounts owed to ultimate parent company
Other payables
Borrowings
Finance leases
26 December 27 December
2014
2015
0.5
10.7
154.5
18.3
97.0
281.0
0.5
–
167.2
14.6
24.6
206.9
26 December 27 December
2014
2015
2.5
6.9
203.5
0.2
20.5
491.4
4.9
723.0
211.1
2.4
28.0
494.2
2.1
744.7
The fair value of the financial assets approximates to their carrying value due to the short term nature of the receivables. Fair values for the derivative financial
instruments and the call option on the Senior Secured Notes due 2020 have been determined as level 2 under IFRS 7 ‘Financial Instruments: Disclosures’.
The fair value of other financial liabilities at amortised cost approximates to their carrying value. The trade and other payables approximate to their fair value
due to the short term nature of the payables. The finance lease fair value approximates to the carrying value based on discounted future cash flows.
FINANCIAL RISK MANAGEMENT
The Group is exposed to a number of financial risks such as access to and cost of funding, interest rate exposure, currency exposure and working capital
management. The Group seeks to minimise these risks where possible and does this by constantly monitoring and reviewing the best use of derivative
financial instruments. Use of financial instruments is governed by Group policies which are approved by the Board. The treasury function does not
operate as a profit centre, makes no speculative transactions and only enters into or trades financial instruments to manage specific exposures.
FINANCIALS
77 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
30 FINANCIAL INSTRUMENTS CONTINUED
MARKET RISK
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group enters
into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency risk, including:
• Interest rate swaps to mitigate the risk of rising interest rates.
• Forward foreign exchange contracts to hedge the exchange rate risk arising on revenues and purchases in foreign currencies.
Market risk exposures are supplemented by sensitivity analysis. There has been no change to the Group’s exposure to market risks or the manner
in which it manages and measures the risk.
FOREIGN CURRENCY RISK MANAGEMENT
Foreign currency risk management occurs at a transactional level on revenues and purchases in foreign currencies and at a translational level in relation
to the translation of overseas operations. All transactional risks, cash flow forecasts and related hedges are reviewed by the Group Hedging Committee
and Group Treasury, at least quarterly, to monitor foreign exchange rates and confirm the appropriateness of the Group’s hedged cover.
The Group’s main foreign exchange risk is to the Euro and US dollar.
During the 52 week period to 26 December 2015, the Euro weakened against Sterling by 6.6%, with the closing rate at €1.3634 compared to €1.2787
at the prior period end. The average rate for the 52 week period to 26 December 2015 was €1.3771, a weakening of the Euro of 10.9% versus prior year.
In the same period the US dollar, strengthened against Sterling by 4.0%, with the closing rate at $1.4941 compared to $1.5562 at the prior period end.
The average rate for the period to 26 December 2015 was $1.5284, a 7.2% strengthening of the US dollar versus the prior year.
The net foreign exchange impact on profit from transactions is a gain of £0.1 million (2014: gain of £0.4 million).
FOREIGN CURRENCY SENSITIVITY ANALYSIS
A sensitivity analysis has been performed on the financial assets and liabilities to a sensitivity of 10% increase/decrease in the exchange rates.
A 10% increase/decrease has been used, and represents management’s assessment of the reasonably possible change in foreign exchange rates.
The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for
a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where
the denomination of the loan is in a currency other than the currency of the lender or the borrower. A positive number below indicates an increase in
profit where Sterling strengthens 10% against the relevant currency.
Profit or (loss)
10% Strengthening
Profit or (loss)
10% Weakening
£ million
Euro
USD
HKD
RMB
26 December 27 December 26 December 27 December
2014
2015
2015
2014
(4.0)
(1.3)
(0.3)
(0.1)
(5.5)
(2.3)
(0.1)
0.2
4.9
1.6
0.2
0.1
6.8
2.8
0.2
(0.3)
FOREIGN EXCHANGE CONTRACTS
It is the policy of the Group to enter into foreign exchange contracts to cover specific foreign currency payments and receipts. The Group also enters into
foreign exchange contracts to manage the risk associated with anticipated sales and purchase transactions to minimise the exposure generated.
The following table details Sterling foreign currency contracts outstanding as at 26 December 2015:
Outstanding contracts
2015
2014
2015
2014
2015
2014
2015
2014
Foreign
currency
(million)
Average
exchange
rate
Contract
value
(£ million)
Fair
value
(£ million)
Net Euros:
3 months or less
3 to 6 months
6 to 12 months
Over 12 months
Net US Dollars:
3 months or less
3 to 6 months
6 to 12 months
Over 12 months
33.1
21.3
20.7
5.9
3.4
4.2
7.0
3.0
38.5
27.5
25.3
2.0
30.4
2.5
2.4
0.1
1.35
1.34
1.36
1.36
1.53
1.50
1.50
1.49
1.24
1.23
1.24
1.25
1.58
1.67
1.60
1.57
24.6
15.9
15.0
4.3
2.2
2.8
4.7
2.1
71.6
31.1
22.4
20.4
1.6
19.2
1.5
1.5
–
97.7
(0.3)
(0.2)
0.3
0.1
–
–
0.1
–
–
(1.2)
(0.6)
(0.4)
–
0.3
0.1
0.1
–
(1.7)
FINANCIALS
78 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
30 FINANCIAL INSTRUMENTS CONTINUED
FOREIGN EXCHANGE CONTRACTS CONTINUED
The following table details the Euro foreign currency contracts outstanding as at 26 December 2015:
Outstanding contracts
2015
2014
2015
2014
Foreign
currency
(million)
Average
exchange
rate
Contract
value
(€ million)
2015
2014
Fair
value
(€ million)
2015
Fair
value
(£ million)
2014
2015
2014
Sell US Dollars:
3 to 6 months
6 to 9 months
–
–
2.5
4.0
–
–
1.21
1.21
–
–
–
2.0
3.3
5.3
–
–
–
(0.1)
(0.1)
(0.2)
–
–
–
(0.1)
(0.1)
(0.2)
INTEREST RATE RISK MANAGEMENT
The Group is exposed to interest rate risk on borrowings. The risk is managed by maintaining an appropriate mix between fixed and floating rate
borrowings and by the use of derivative financial instruments such as interest rate swaps to minimise the risk associated with variable interest
rates. At the year end 12.9% of the Group’s borrowings were covered by interest rate swaps (2014: 12.8%). The Group has in issue £192 million
(2014: £332 million) of 8.25% and £150 million (2014: £150 million) of 8.75% fixed rate Senior Secured Notes that are both listed on the Irish
Stock Exchange (see note 24). Use of interest rate derivatives is governed by Group policies which are approved by the Board.
INTEREST RATE SENSITIVITY ANALYSIS
Interest rate sensitivity analysis has been performed on the financial assets and liabilities to illustrate the impact on Group profits and equity if interest
rates increased/decreased. This analysis assumes the liabilities outstanding at the period end were outstanding for the whole period. A 100 basis points
increase or decrease has been used, comprising management’s assessment of reasonably possible changes in interest rates.
£ million
Effects of 100 basis points increase in interest rate
Effects of 100 basis points decrease in interest rate
Profit/(loss)
Profit/(loss)
26 December 27 December
2014
2015
(0.9)
0.9
0.5
(0.5)
It is assumed that all other variables remained the same when preparing the interest rate sensitivity analysis.
INTEREST RATE SWAPS
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on
agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate
borrowings held and the cash flow exposures on the issued variable rate borrowings held. The fair value of interest rate swaps at the reporting date is
determined by discounting the future cash flows using the yield curves at the reporting date and the credit risk inherent in the contract, and is disclosed
below. The average interest rate is based on the outstanding balances at the end of the financial year.
The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at 26 December 2015:
Interest rate swaps
9 to 12 months
Average contract fixed
interest rate
Notional
principal amount
Fair value
2015
%
2014
%
2015
£ million
2014
£ million
2015
£ million
2014
£ million
4.90
4.90
63.2
63.2
(2.0)
(4.5)
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is 3 months Libor. The Group will settle the difference
between fixed and floating interest rates on a net basis.
FINANCIALS
79 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
30 FINANCIAL INSTRUMENTS CONTINUED
CREDIT RISK MANAGEMENT
Credit risk refers to the risk of financial loss to the Group if a counterparty defaults on its contractual obligations of the loans and receivables at amortised
cost held in the statement of financial position.
The Group’s main credit risk is attributable to its trade receivables. The Group’s top four customers, all leading UK retailers, continue to represent more
than 76% (2014: 76%) of the Group’s revenue from continuing operations. These customers have favourable credit ratings and consequently reduce the
credit risk for the Group’s overall trade receivables.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with good credit ratings assigned by
international credit rating agencies. Group policy dictates that Group deposits are shared between banks to spread the risk. Currently Group deposits
are shared between banks that are counterparties in the Group’s secured committed bank facilities. Bakkavor Finance (2) plc’s current bank credit
limit consists of a £150 million term loan (2014: £10 million) and a £70 million RCF facility (2014: £70 million), through a bank syndicate. Coöperatieve
Rabobank U.A. is the syndicate agent of this facility and they manage the syndicate and participation with other counterparties.
Processes are in place to manage receivables and overdue debt and to ensure that appropriate action is taken to resolve issues on a timely basis.
Credit control operating procedures are in place to review all new customers. Existing customers are reviewed as management become aware of
changes of circumstances for specific customers. The amounts presented in the statement of financial position are net of appropriate allowance for
doubtful trade receivables, specific customer risk and assessment of the current economic environment. The carrying amount of financial assets
recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk.
CALL OPTION ON 8.75% SENIOR SECURED NOTES DUE 2020
As at 26 December the fair value of the call option amounted to an asset of £10.7 million (2014: £nil) based on a credit spread of 368 basis points.
For a 100 basis point increase in the credit spread the asset would reduce to £5.6 million. For a 100 basis point decrease in the credit spread the asset
would increase to £16.4 million.
COMMODITY RISK MANAGEMENT
The Group acquires substantial amounts of raw materials for its operations, including dairy, wheat and rapeseed oil. The Group is exposed to commodity
price and supply risks for these raw materials. The Group takes action to reduce overall material costs and exposure to price fluctuations by sourcing raw
materials from suppliers all over the world, thereby decreasing geographic risk and also frequently tenders to benchmark market prices. In general our
requirements are managed using contracts for periods of between three to twelve months forward. The Group also manage any local currency exposure
in line with agreed contracts.
LIQUIDITY RISK MANAGEMENT
Liquidity risk refers to the risk that the Group may not be able to fund the day to day running of the Group. The Group manages liquidity risk by monitoring
actual and forecast cash flows and matching the maturity profiles of financial assets and liabilities. The Group also monitors the drawdown of borrowings
against the available banking facilities and reviews the level of reserves. Liquidity risk management ensures sufficient borrowings funding is available
for the Group’s day to day needs. Group policy is to maintain reasonable headroom of unused committed bank facilities in a range of maturities at least
12 months beyond the period end.
FINANCIALS 80 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
30 FINANCIAL INSTRUMENTS CONTINUED
MATURITY PROFILE OF FINANCIAL LIABILITIES
The following table illustrates the Group’s remaining contractual maturity for its financial liabilities when they fall due.
£ million
Due within one year:
Trade payables
Other payables
Derivative financial instruments
Borrowings
Finance leases
Interest on borrowings
Total due within one year
In the second to fifth years inclusive:
Other payables
Borrowings
Finance leases
Interest on borrowings
Total due in the second to fifth years
Due after five years:
Borrowings
Finance leases
Interest on borrowings
Total due after five years
The weighted average interest rates for the Group’s borrowings are found in note 24 and in note 27 for finance leases.
31 SHARE CAPITAL AND RESERVES
SHARE CAPITAL
£ million
Issued and fully paid:
26 December 27 December
2014
2015
203.5
20.4
2.5
10.0
0.5
33.7
270.6
0.3
481.9
2.8
75.4
560.4
–
1.6
–
1.6
211.1
30.2
6.9
1.9
0.4
11.9
262.4
0.2
344.8
1.3
120.7
467.0
150.0
0.4
6.6
157.0
26 December 27 December
2014
2015
55,258 (2014: 55,258) Ordinary shares of £1 each
0.1
0.1
SHARE PREMIUM
The share premium account represents amounts received by the Company over and above the nominal value of the shares issued.
MERGER RESERVE
The incorporation of Bakkavor Finance (2) plc as an intermediate holding company of the Group in 2011 was accounted for using the principles
of merger accounting.
CAPITAL RESERVE
The capital reserve of £4.0 million arose in 2009 following the capitalisation of an inter-company balance between Bakkavor London Limited and
Bakkavor Group ehf.
TRANSLATION RESERVE
The translation reserve represents foreign exchange rate differences arising on the consolidation of the Group’s foreign operations. The assets and
liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the statement of financial position date. Income and expense
items are translated at the average exchange rates for the period. Exchange differences arising, if any, are recognised in the translation reserve.
FINANCIALS
81 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
32 NON-CONTROLLING INTERESTS
The table below provides a reconciliation of the Group’s material non-controlling interest relating to Italpizza S.r.l, which was sold on 14 July 2015.
Note 33 provides further information on the disposal of Italpizza S.r.l.
£ million
Cost of investment at 7 May 2014
Share of profit for the period
Exchange differences
Balance at 27 December 2014
Share of profit for the period
Disposal of subsidiary
Dividends paid
Exchange differences
Balance at 26 December 2015
33 DISPOSALS
2015
DISPOSAL OF SUBSIDIARY
As referred to in note 14, on 14 July 2015 the Group completed the sale of its remaining 60% stake in Italpizza S.r.l, its Italian Pizza manufacturing
business, to Dreamfood S.r.l. for a cash consideration of £22.0 million (€31.0 million). This transaction resulted in a profit on disposal of £10.4 million
being recorded in the income statement within discontinued operations.
The net assets of Italpizza S.r.l on the date of disposal were as follows:
8.5
0.7
(0.4)
8.8
1.3
(8.0)
(1.3)
(0.8)
–
£ million
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax asset
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Corporation tax payable
Borrowings
Deferred tax liability
Derivative financial instruments
Net assets
Group’s 60% share of net assets
Profit on disposal
Total cash consideration
The cash inflow arising on disposal of the business was as follows:
Total cash consideration
Cash disposed of with business
Net cash consideration received
DISPOSAL OF ASSOCIATE
14 July
2015
13.9
1.4
3.3
0.1
5.1
13.8
1.5
(10.6)
(1.0)
(7.7)
(0.3)
(0.1)
19.4
11.6
10.4
22.0
22.0
(1.5)
20.5
On 9 December 2015, the Group sold its 27.5% share in its associate Manor Fresh Limited, a supplier of fresh produce based in the United Kingdom for
a cash consideration of £6.0 million. The transaction has resulted in a profit on sale of associate of £5.2 million being recorded in the income statement.
FINANCIALS
82 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
33 DISPOSALS CONTINUED
2014
DISPOSAL OF INVESTMENT
On 7 May 2014, the Group completed the sale of 40% of its 100% holding in Italpizza S.r.l for a total cash consideration of €9.0 million (£7.4 million).
This transaction was accounted for as an equity transaction as the Group has decreased its stake in an existing subsidiary without any changes in control.
The Group incurred disposal costs of £0.1 million, resulting in a net cash consideration of £7.3 million. The amount recognised directly within equity was
£1.2 million.
DISPOSAL OF SUBSIDIARIES
On 13 January 2014, the Group completed the sale of Spring Valley Foods, its South African Prepared Fruit Business for a cash consideration of
ZAR 110.0 million (£6.6 million). The Group incurred disposal costs of £0.6 million relating to this disposal. The transaction resulted in a profit
on disposal of £1.9 million, of which £1.7 million related to the recycling of foreign exchange losses, being recorded in the income statement.
In March 2014, the Group incurred and paid costs of £0.1 million, relating to the Czech business Heli Foods Fresh A.S. which was disposed
of by the Group in December 2013.
The Group therefore recorded a net profit on disposal of £1.8 million, relating to the sale of both businesses.
34 ACQUISITIONS
On 12 January 2015, the Group completed the acquisition of the trade and assets of B. Robert’s Foods, a private label fresh prepared foods manufacturer
based in Charlotte, North Carolina in the Unites States of America for a cash consideration of £19.6 million (US$ 30.5 million). The primary reason for the
acquisition was to increase the Group’s presence in the US.
The amounts recognised in respect of the fair value of the identifiable assets acquired and liabilities assumed are as set out in the table below:
£ million
Other intangible assets
Property, plant and equipment
Inventories
Net identifiable assets acquired
Goodwill
Total consideration
The cash outflow arising on acquisition of the business was as follows:
Total cash consideration
3.2
1.0
0.9
5.1
14.5
19.6
19.6
The results of B. Robert’s Foods have been consolidated in the Group’s consolidated income statement from 12 January 2015 and contributed
£22.3 million of revenue and profit of £2.9 million to the Group’s profit for the period.
If the acquisition had been completed on the first day of the financial period, Group revenues would have been £1,675.3 million and Group profit would
have been £53.9 million.
FINANCIALS
83 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
35 NOTES TO THE STATEMENT OF CASH FLOWS
£ million
Operating profit – continuing operations
– discontinued operations
Adjustments for:
Share of results of associates
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss/(profit) on disposal of property, plant and equipment
Profit on disposal of subsidiaries (note 33)
Profit on disposal of associate (note 33)
Impairment of assets
Net retirement benefits charge less contributions
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables
Increase in payables
(Decrease)/increase in exceptional creditor
Increase/(decrease) in provisions
Cash generated by operations
Income taxes paid
Interest paid
Net cash from operating activities
26 December 27 December
2014
2015
89.6
15.3
104.9
(0.8)
35.9
6.1
0.2
(10.4)
(5.2)
–
(3.8)
126.9
1.7
3.2
41.0
(1.7)
2.0
173.1
(18.2)
(53.3)
101.6
62.3
4.8
67.1
(1.0)
36.0
8.7
(1.0)
(1.8)
–
4.1
(3.8)
108.3
(5.6)
(12.8)
46.7
0.8
(0.3)
137.1
(1.0)
(49.7)
86.4
36 CONTINGENT LIABILITIES AND COMMITMENTS
The Group may from time to time, and in the normal course of business, be subject to claims from customers and counterparties. The Group regularly
reviews all of these claims to determine any possible financial loss to the Group. No provision was considered necessary in the consolidated financial
statements. In addition, there are a number of legal claims or potential claims against the Group, the outcome of which cannot at present be foreseen.
Provision has been made for all probable liabilities.
As at 26 December 2015 the Group had purchase commitments for the next 12 months to guarantee supply and price of raw materials of £112.5 million
(2014: £115.9 million).
FINANCIALS
84 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
37 OPERATING LEASE ARRANGEMENTS
THE GROUP AS LESSEE
£ million
Continuing operations
2015
2014
Minimum lease payments under operating leases recognised as an expense in the period
12.4
11.8
At the statement of financial position date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Land and buildings
Other
£ million
Operating leases which expire:
Within one year
Within two to five years
After five years
26 December 27 December 26 December 27 December
2014
2015
2015
2014
7.7
25.6
51.0
84.3
7.1
26.5
42.1
75.7
3.6
5.9
–
9.5
3.6
5.0
0.1
8.7
The Group leases various offices and operational facilities under non-cancellable operating lease arrangements. The leases have various terms, escalation
clauses and renewal rights. The Group also leases plant and machinery under non-cancellable operating lease agreements.
38 RETIREMENT BENEFIT SCHEMES
The Group operates a number of pension schemes in the UK and overseas. These schemes are either trust or contract based and have been set up
in accordance with appropriate legislation. The assets of each of the pension schemes are held separately from the assets of the Company.
In the UK, the two main schemes are a defined contribution scheme which is open to all UK employees joining the Group (full or part time) and
the other is the Bakkavor Pension Scheme, a funded defined benefit scheme which provides benefits on a final salary basis and was closed to future
accrual in March 2011.
Pension costs charged in arriving at profit on ordinary activities before taxation were:
£ million
UK defined benefit scheme net charge
UK defined contribution scheme net charge
Overseas net charge
Total charge
DEFINED CONTRIBUTION SCHEMES
2015
2014
0.7
5.9
0.1
6.7
0.8
6.1
0.2
7.1
The total cost charged to income of £6.0 million (2014: £6.3 million) represents contributions payable to these schemes by the Group at rates advised
by the Group to all employees, subject to the minimum requirements set out in legislation. No amounts were owing at the period end for the defined
contribution schemes (2014: £nil).
FINANCIALS
85 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
38 RETIREMENT BENEFIT SCHEMES CONTINUED
DEFINED BENEFIT SCHEMES
A full actuarial valuation of plan assets and the present value of the defined benefit obligation for funding purposes was carried out at 31 March 2013.
The results were updated for IAS 19 ‘Employee Benefits’ purposes to 26 December 2015 by a qualified independent actuary with Willis Towers Watson.
The projected unit cost method was used to value the liabilities.
The major assumptions used in this IAS 19 valuation were:
Future pension increases (majority of liabilities)
Discount rate applied to scheme liabilities
Inflation assumption (CPI)
26 December 27 December
2014
2015
3.00%
3.75%
2.15%
3.00%
3.85%
2.15%
The mortality table is based on scheme specific postcode fitted SAPS tables with a 102% multiplier for male members and a 108% multiplier for female
members. Long cohort improvements are applied from 2002 to 2010. Future improvements are in line with the CMIB core 2013 improvements model
with a 1.0% pa long term trend, giving life expectancies as follows:
Males expected
future lifetime
2015
Males expected
future lifetime
2014
Females expected
future lifetime
2015
Females expected
future lifetime
2014
Member aged 45
Member aged 65
42.1
22.4
41.9
22.3
44.3
24.4
44.1
24.3
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Assumption
Discount rate
Rate of inflation
Life expectancy
Change in assumption
Approximate impact on scheme liabilities
Increase/decrease by 1.0%
Decrease £39.7 million/increase £50.1 million
Increase/decrease by 0.5%
Increase £15.6 million/decrease £14.7 million
Members assumed to be one year
younger than their actual age
Increase £7.1 million
Amounts recognised in income in respect of these defined benefit schemes are as follows:
£ million
Past service cost
Net interest on net defined benefit (liability)/asset
Administration costs incurred during the period
Total charge
2015
2014
–
(0.3)
1.0
0.7
0.1
(0.3)
1.0
0.8
All of the charges for each period presented have been included in total administrative expenses. The actuarial loss of £14.4 million (2014: £0.3 million
gain) has been reported in other comprehensive income.
The actual return on scheme assets was a decrease of £1.7 million (2014: £31.7 million increase).
The amount included in the statement of financial position arising from the Group’s obligations in respect of its defined benefit retirement benefit
schemes is as follows:
£ million
Fair value of scheme assets
Present value of defined benefit obligations
(Deficit)/surplus in scheme
Related deferred taxation asset/(liability)
26 December 27 December
2014
2015
211.2
(215.1)
(3.9)
0.7
(3.2)
220.2
(213.5)
6.7
(1.3)
5.4
FINANCIALS
86 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
38 RETIREMENT BENEFIT SCHEMES CONTINUED
The assumptions used are the best estimates chosen from a range of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice.
Movements in the present value of defined benefit obligations (DBO) were as follows:
£ million
Opening balance
Interest cost on the DBO
Benefits paid from scheme assets
Actuarial loss – demographic assumptions
Actuarial loss – financial assumptions
Past service cost
Closing balance
Movements in the fair value of scheme assets were as follows:
£ million
Opening balance
Interest income on scheme assets
Return on scheme assets (less)/greater than discount rate
Contributions from the sponsoring Companies
Benefits paid from scheme assets
Administrative costs paid
Closing balance
The analysis of the scheme assets at the statement of financial position date was as follows:
£ million
Structured UK equity
Overseas equity
High yield bonds
Property
Corporate bonds
Fixed interest government bonds
Index linked government bonds
Cash
Other
26 December 27 December
2014
2015
(213.5)
(188.6)
(8.1)
10.8
–
(4.3)
–
(215.1)
(8.5)
6.3
(0.2)
(22.4)
(0.1)
(213.5)
26 December 27 December
2014
2015
220.2
8.4
(10.1)
4.5
(10.8)
(1.0)
211.2
191.2
8.8
22.9
4.6
(6.3)
(1.0)
220.2
Fair value of assets
26 December 27 December
2014
2015
5.4
31.0
26.3
–
45.6
–
63.4
21.7
17.8
6.6
32.9
20.6
9.1
48.7
8.2
65.0
17.6
11.5
211.2
220.2
Structured UK equity provides exposure to UK equities but is a derivative based solution and not a direct investment in equities.
The scheme assets also include swaps to hedge liability inflation and interest rate risks. The swap value has been included in the value of the gilt
securities used as collateral for the swaps. Corporate bonds and cash are also used as collateral for the swaps in place.
FINANCIALS
87 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
38 RETIREMENT BENEFIT SCHEMES CONTINUED
The Scheme invests in two multi-asset funds which invest in a wide range of assets including alternative asset classes. In the summary above,
the multi-asset funds have been split into the relevant constituent asset classes.
The Bakkavor Pension Scheme operates under trust law and is managed and administered by the Trustee on behalf of the members in accordance
with the terms of the Trust Deed and Rules and relevant legislation. The Scheme is subject to the scheme specific funding requirements as outlined
in UK legislation. The most recent scheme specific funding valuation was at 31 March 2013.
The Group and the Trustees work closely together in matters concerning the Bakkavor Pension Scheme. Regular meetings and correspondence
on matters concerning the Scheme are shared in an open manner between both parties.
The Bakkavor Pension Scheme’s current investment strategy adopts a policy of broadly 55% in growth seeking assets and 45% in bonds, although
the proportions can vary significantly in order to allow for advanced liability hedging techniques. A large proportion of both interest and inflation risk
is hedged. The strategy is intended to reduce the risk of significant changes to the funding level by hedging key risks, while retaining a proportion of
return seeking assets to minimise long term costs by maximising return within an acceptable level of risk. The Scheme’s assets are held separately
from those of the Group.
The weighted average duration of the Bakkavor Pension Scheme is approximately 21 years.
The actual amount of employer contributions expected to be paid to the pension scheme during 2016 is £2.6 million. Employer contributions, except
for deficit reduction contributions, ceased in March 2011 when the scheme closed to future accrual. Employee contributions also ceased at this date.
Following the closure of the Scheme to future accrual in March 2011, the Group and the Trustee agreed that members who were active members
of the Scheme at the date of closure would remain entitled to access early retirement on preferential terms as long as they remained in employment
within the Group. The value of members accessing these preferential terms is not included in the defined benefit obligation as this benefit is not funded
for in advance. If members choose to access this benefit an employer contribution is made to the Scheme to reflect the increase in expected future
pension costs. In 2015 the total contributions made in respect of this benefit were £nil (2014: £0.1 million).
The current deficit reduction contributions were agreed between the Group and the Trustees as part of the 2013 triennial valuation. The deficit
contributions will be paid over a six year recovery period ending on 31 March 2020. The recovery contributions are paid monthly and the agreed
rates were £4.5 million in the year ending March 2016, £2.0 million in the year ending March 2017 and £1.0 million per annum in subsequent years
until 31 March 2020. £4.5 million was also paid over the year to 31 March 2015.
39 RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed
in this note. Transactions between the Company and its subsidiaries and associates are disclosed in the Company’s separate financial statements.
TRADING TRANSACTIONS
During the period, Group companies entered into the following transactions with related parties who are not members of the Group:
£ million
Bakkavor Group Limited
Bakkavor Group ehf.
Royalty charge
Amounts owed from
related parties
Amounts owed to
related parties
2015
2014
2015
2014
2015
2014
1.2
–
1.2
–
–
0.1
–
0.1
0.2
0.1
2.4
0.1
The amount owed from Bakkavor Group ehf of £0.1 million (2014: £0.1 million) is included within the current assets section under Trade and other
receivables. Amounts owed to Bakkavor Group ehf of £0.1 million (2014: £0.1 million) and the royalty charge to Bakkavor Group Limited, of £0.2 million
(2014: £2.4 million), are included in the current liabilities section within Trade and other payables. During the 52 week period ended 26 December 2015,
£3.4 million (2014: £nil) of accrued royalty charges were paid to Bakkavor Group Limited.
Loans between the Group and related parties are all based on varying terms of interest. Related party loans are repayable between one and five years
and incur interest based on the three month Libor rate plus 3%.
The amounts outstanding are unsecured. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the
amounts owed by related parties.
REMUNERATION OF KEY MANAGEMENT PERSONNEL
The remuneration of the Directors and senior management, who are the key management personnel of the Company, is set out below in aggregate for
each of the categories specified in IAS 24 ‘Related Party Disclosures’.
£ million
Short-term employee benefits
Post-employment benefits
2015
2014
5.4
0.2
5.6
5.5
0.3
5.8
FINANCIALS
88 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
40 EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 25 January 2016, the Group confirmed that it had been informed that Bakk AL Holdings Limited, a company owned by Agust and Lydur Gudmundsson
and funds managed by The Baupost Group L.L.C. had purchased the shares in the Bakkavor Group then owned by BG12 slhf and certain other shareholders
for £163 million. Accordingly, Bakk AL Holdings Limited now owns approximately 89% of the issued share capital in the Group.
On 28 January 2016, the Group announced that it had elected to redeem £75 million of the existing 8.25% Senior Secured Notes due in 2018.
The redemption will take place on 29 February 2016.
41 CONTROLLING PARTY
The Company’s ultimate parent company and ultimate controlling party is Bakkavor Group Limited, a Company registered in the United Kingdom.
The largest Group in which the results of the Group are consolidated is that headed by Bakkavor Group Limited. It has included this Group in its group
financial statements, copies of which are available from 5th Floor, 3 Sheldon Square, Paddington Central, London, W2 6HY, United Kingdom. As stated
in note 40 Bakk AL Holdings Limited became the ultimate parent and controlling company on 25 January 2016.
The Company’s immediate parent company is Bakkavor Finance (1) Limited.
FINANCIALS 89 / Bakkavor Annual Report and Accounts 2015
COMPANY INCOME STATEMENT
52 WEEKS ENDED 26 DECEMBER 2015
£ million
Continuing operations
Other administrative costs
Royalty charge
Operating loss
Investment revenue
Finance costs
Other gains
Loss before tax
Tax
Profit and total comprehensive income for the period
The accompanying notes are an integral part of this income statement.
52 weeks
ended
52 weeks
ended
26 December 27 December
2014
2015
Notes
–
(1.2)
(1.2)
0.1
(50.3)
10.7
(40.7)
49.4
8.7
(0.6)
(1.2)
(1.8)
0.1
(47.9)
–
(49.6)
49.6
–
4
5
6
7
The Company has no recognised gains and losses other than the result above, and therefore no separate statement of comprehensive income
is presented.
COMPANY STATEMENT OF CHANGES IN EQUITY
52 WEEKS ENDED 26 DECEMBER 2015
£ million
Balance at 28 December 2013 and 27 December 2014
Profit for the period
At 26 December 2015
Share
capital
Share
premium
Retained
earnings
0.1
–
0.1
315.2
–
315.2
(34.0)
8.7
(25.3)
Total
equity
281.3
8.7
290.0
FINANCIALS
90 / Bakkavor Annual Report and Accounts 2015
COMPANY STATEMENT OF FINANCIAL POSITION
26 DECEMBER 2015
£ million
Non-current assets
Investment in subsidiaries
Current assets
Amounts due from other group companies
Current liabilities
Other payables
Borrowings
Amounts due to other group companies
Non-current liabilities
Borrowings
Deferred tax liability
Net assets
Equity
Share capital
Share premium
Retained earnings
Total equity
Notes
26 December 2015
27 December 2014
9
13
8
13
8
12
929.4
3.9
(0.1)
(22.8)
(152.6)
(175.5)
(465.8)
(2.0)
(467.8)
290.0
0.1
315.2
(25.3)
290.0
929.4
53.0
(0.6)
(42.7)
(175.2)
(218.5)
(482.6)
–
(482.6)
281.3
0.1
315.2
(34.0)
281.3
The financial statements of Bakkavor Finance (2) plc, company number 07501697, and the accompanying notes, which form an integral part of the
Company financial statements, were approved by the Board of Directors on 24 February 2016. They were signed on behalf of the Board of Directors by:
A Gudmundsson
Director
FINANCIALS
91 / Bakkavor Annual Report and Accounts 2015
COMPANY STATEMENT OF CASH FLOWS
52 WEEKS ENDED 26 DECEMBER 2015
£ million
Operating loss
Decrease in receivables
(Decrease)/increase in payables
Cash generated by operations
Interest paid
Net cash generated from operating activities
Investing activities:
Interest received
Financing activities:
Increase in borrowings
Repayment of borrowings
Net cash used in financing activities
Net cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
52 weeks
ended
52 weeks
ended
26 December 27 December
2014
2015
(1.2)
100.5
(23.5)
75.8
(48.2)
27.6
(1.8)
55.6
9.2
63.0
(44.3)
18.7
0.1
0.1
140.0
(167.7)
(27.7)
–
–
–
25.4
(44.2)
(18.8)
–
–
–
FINANCIALS
92 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE COMPANY FINANCIAL STATEMENTS
52 WEEKS ENDED 26 DECEMBER 2015
1 GENERAL INFORMATION
Bakkavor Finance (2) plc (the ’Company’) is a Public Limited Company whose ultimate parent company and controlling party is Bakkavor Group Limited,
a company registered in the United Kingdom.
2 SIGNIFICANT ACCOUNTING POLICIES
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate
financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out
in note 2 to the consolidated financial statements except as set out below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Going concern for the Company has been considered along with the Group by the Directors. This consideration is set out in note 3 to the consolidated
financial statements.
3 EMPLOYEES, DIRECTORS AND AUDIT REMUNERATION
Audit fees of £75,000 (2014: £73,000) for the period ended 26 December 2015 have been borne by fellow group company, Bakkavor Foods Limited.
The Company has no employees and payments to Directors for the periods ended 26 December 2015 and 27 December 2014 have been borne by
fellow group company, Bakkavor Foods Limited.
4 INVESTMENT REVENUE
£ million
Interest on bank deposits
5 FINANCE COSTS
£ million
Interest on borrowings
Amortisation of refinancing costs
Call premium for 2018 Senior Secured Notes
Interest on loans from other group companies
6 OTHER GAINS
£ million
Change in fair value of call option
2015
0.1
2014
0.1
2015
2014
37.8
6.3
5.8
0.4
50.3
2015
10.7
43.7
3.6
–
0.6
47.9
2014
–
FINANCIALS
93 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
7 TAX
The credit for the period can be reconciled to the loss per the income statement as follows:
Loss before tax
Tax credit at the blended UK corporation tax rate of 20.25% (2014: 21.5%)
Group relief surrendered at tax rate in excess of 20.25% (2014: 21.5%)
Deferred tax change in rate
Tax credit and effective tax rate for the period
2015
2014
£ million
%
£ million
%
(40.7)
(100.0)
(49.6)
(100.0)
8.2
41.1
0.1
49.4
20.2
101.0
0.2
121.4
10.7
38.9
–
49.6
21.5
78.5
–
100.0
8 BORROWINGS
£ million
Bank overdraft
Bank loans
8.25% Senior Secured Notes
8.75% Senior Secured Notes
Borrowings repayable as follows:
On demand or within one year
In the second year
In the third to fifth years inclusive
Over five years
Analysed as:
Amount due for settlement within 12 months (shown within current liabilities)
Amount due for settlement after 12 months
BORROWINGS BY CURRENCY
£ million
GBP
Euro
26 December 27 December
2014
2015
7.8
149.8
195.8
135.2
488.6
22.8
7.8
458.0
–
488.6
22.8
465.8
488.6
35.5
7.9
337.0
144.9
525.3
42.7
6.6
327.9
148.1
525.3
42.7
482.6
525.3
26 December 27 December
2014
2015
488.5
0.1
488.6
525.3
–
525.3
The 8.75% Senior Secured Notes due in 2020 contain a call option from 15 June 2016 that under IAS 39 ‘Financial Instruments: Recognition and
Measurement’ should be accounted for as an embedded derivative and is required to be separately accounted for at fair value with the issued bond
value carried at amortised cost. As at 26 December the fair value of the call option amounted to an asset of £10.7 million (2014: £nil).
9 INVESTMENTS IN SUBSIDIARIES
£ million
Balance at 27 December 2014 and 26 December 2015
Investment
in Group
companies
929.4
FINANCIALS
94 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
10 SUBSIDIARIES
As at 26 December 2015, Bakkavor Finance (2) plc held investments in the share capital of the following companies:
Name
Directly held investments:
Bakkavor Finance (3) Limited
Indirectly held investments:
Bakkavor London Limited
Bakkavor Estates Limited
Bakkavor Acquisitions (2008) Limited
Bakkavor USA Inc
Bakkavor USA Limited
Bakkavor Foods USA Inc
Bakkavor Foods Holdings LLC
Bakkavor Foods Canada Inc
Bakkavor Invest Limited
Bakkavor (Acquisitions) Limited
Bakkavor Finance Limited
Bakkavor Asia Limited
Bakkavor China Limited
Creative Food Group Limited
Place of registration
and operation Principal activity
United Kingdom Holding company
United Kingdom Holding company
United Kingdom Property management
United Kingdom Holding company
USA Holding company
United Kingdom Holding company
Interest
100%
100%
100%
100%
100%
100%
USA Manufacture of custom and private label savoury and bakery products
100%
USA Holding company
Canada Non-trading
United Kingdom Holding company
United Kingdom Holding company
United Kingdom Customer invoicing and financing of receivables
United Kingdom Holding company
United Kingdom Holding company
Hong Kong Production and manufacture of salad products
Creative Agriculture Holdings Limited
Hong Kong Production and manufacture of salad products
Jiangsu Creative Agriculture Produce Dev Co. Limited
China Production and manufacture of salad products
Nantong Creative Agriculture Dev Co. Limited
China Production and manufacture of salad products
Creative Food Holdings Limited
Wuhan Creative Foods Co Limited
Shanghai Creative Foods Co Limited
Beijing Creative Foods Co. Limited
Guangzhou Creative Food Co. Limited
Hong Kong Holding company
China Production and manufacture of salad products
China Production and manufacture of salad products
China Production and manufacture of salad products
China Production and manufacture of salad products
Bakkavor (Shanghai) Management Co. Limited
China Holding company
Xianyang Creative Food Co. Limited
Fujian Creative Food Company Limited
Gastro Primo Limited
Bakkavor Limited
Bakkavor (Jersey) Limited
Bakkavor (Jersey Two) Limited
Geest Corporation Inc
China Production and manufacture of salad products
China Production and manufacture of salad products
Hong Kong Preparation and marketing of fresh prepared foods
United Kingdom Holding company
Jersey Dormant holding company
Jersey Dormant holding company
USA Dormant holding company
Bakkavor Overseas Holdings Limited
United Kingdom Non-trading
Bv Foodservice Limited
Bakkavor Foods Limited
Bakkavor Pension Trustees Ltd
Bakkavor European Marketing BV
NV Vaco BV
Bakkavor Fresh Cook Limited
Anglia Crown Limited
English Village Salads Limited
Bakkavor Australia Pty Limited
Inferno Group Limited
Bakkavor Iberica S.L.U
United Kingdom Distribution of fresh prepared foods
United Kingdom Preparation and marketing of fresh prepared foods
United Kingdom Pension trustee holding company
Netherlands Holding company
Belgium Preparation and marketing of fresh prepared foods
United Kingdom Preparation and marketing of fresh prepared foods
United Kingdom Preparation and marketing of fresh prepared foods
United Kingdom Non-trading
Australia Holding company
United Kingdom Production and distribution of fresh prepared foods
Spain Distribution
Bakkavor Central Finance Limited
United Kingdom Customer invoicing and financing of receivables
Notsallow 256 Limited
Kent Salads Limited
Laurens Patisseries Limited
United Kingdom Dormant non-trading company
United Kingdom Dormant non-trading company
United Kingdom Dormant non-trading company
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
FINANCIALS
95 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
10 SUBSIDIARIES CONTINUED
Name
Hitchen Foods Limited
Bakkavor Brothers Limited
Cucina Sano Limited
Butterdean Products Limited
Exotic Farm Prepared Limited
Exotic Farm Produce Limited
Bakkavor Maroc
11 FINANCIAL INSTRUMENTS
FOREIGN CURRENCY RISK
Place of registration
and operation Principal activity
United Kingdom Dormant non-trading company
United Kingdom Dormant non-trading company
United Kingdom Dormant non-trading company
United Kingdom Dormant non-trading company
United Kingdom Dormant non-trading company
United Kingdom Dormant non-trading company
Morocco Dormant non-trading company
Interest
100%
100%
100%
100%
100%
100%
100%
The Company is not exposed to any significant foreign currency risk as principally all its borrowings are in Pounds Sterling.
INTEREST RATE RISK MANAGEMENT
The Company is exposed to interest rate risk on borrowings. The risk is managed by maintaining an appropriate mix between fixed and floating rate
borrowings. The Group uses derivative financial instruments such as interest rate swaps to minimise the risk associated with variable interest rates.
INTEREST RATE SENSITIVITY ANALYSIS
Interest rate sensitivity analysis has been performed on interest bearing Company borrowings of £187.1 million (2014: £21.3 million) to illustrate the impact
on profits and equity if interest rates increased/decreased. This analysis assumes the liabilities outstanding at the period end were outstanding for the whole
period. A 100 basis points increase or decrease has been used, comprising management’s assessment of reasonably possible changes in interest rates.
£’000
Effects of 100 basis points increase in interest rate
Effects of 100 basis points decrease in interest rate
CREDIT RISK MANAGEMENT
CALL OPTION ON 8.75% SENIOR SECURED NOTES DUE 2020
26 December 27 December
2014
Profit/(loss)
2015
Profit/(loss)
(3.0)
3.0
(2.2)
2.2
As at 26 December the fair value of the call option amounted to an asset of £10.7 million (2014: £nil) based on a credit spread of 368 basis points.
For a 100 basis point increase in the credit spread the asset would reduce to £5.6 million. For a 100 basis point decrease in the credit spread the asset
would increase to £16.4 million.
CATEGORIES OF FINANCIAL INSTRUMENTS
£ million
Financial assets
Fair value through profit and loss:
Call option for Senior Secured Notes due 2020
Loans and receivables at amortised cost:
Amounts due from other group companies
Financial liabilities
Other Financial liabilities at amortised cost:
Other payables
Amounts due to other group companies
Borrowings
26 December 27 December
2014
2015
10.7
–
3.9
14.6
53.0
53.0
0.1
152.6
499.3
652.0
0.6
175.2
525.3
701.1
The fair value of the call option on the Senior Secured Notes due 2020 has been determined as level 2 under IFRS 7 ‘Financial Instruments: Disclosures’.
The fair value of the other financial assets and liabilities at amortised cost approximates to their carrying value.
FINANCIALS
96 / Bakkavor Annual Report and Accounts 2015
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
12 SHARE CAPITAL
Issued and fully paid:
Ordinary shares of £1 each
13 RELATED PARTY TRANSACTIONS
TRANSACTIONS
During the period, the Company entered into the following transactions with related parties.
£ million
Group companies
26 December 2015
27 December 2014
Number
£ million
Number
£ million
55,258
0.1
55,258
0.1
Amounts owed by
related parties
Amounts owed to
related parties
2015
2014
2015
2014
3.9
53.0
152.6
175.2
Amounts owed to related parties consist of various corporate loans being £37.1 million (2014: £11.2 million) owed to Bakkavor London Limited,
£115.3 million (2014: £161.6 million) owed to Bakkavor Foods Limited and £0.2 million (2014: £2.4 million) owed to Bakkavor Group Limited. During the
52 week period ended 26 December 2015, £3.4 million (2014: £nil) of accrued royalty charges were paid to Bakkavor Group Limited.
Amounts owed by related parties relate to Group tax relief of £3.9 million from various other group companies (2014: £49.6 million various group relief
and £3.4 million owed by Bakkavor Central Finance Limited).
These amounts are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts
in respect of the amounts owed by related parties.
Amounts are denominated in Sterling. All related party payables and receivables are held at amortised cost.
14 EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 25 January 2016, the Group confirmed that it had been informed that Bakk AL Holdings Limited, a company owned by Agust and Lydur Gudmundsson
and funds managed by The Baupost Group L.L.C. had purchased the shares in the Bakkavor Group then owned by BG12 slhf and certain other shareholders
for £163 million. Accordingly, Bakk AL Holdings Limited now owns approximately 89% of the issued share capital in the Group.
On 28 January 2016, the Group announced that it had elected to redeem £75 million of the existing 8.25% Senior Secured Notes due in 2018.
The redemption will take place on 29 February 2016.
15 CONTROLLING PARTY
The Company’s ultimate parent company and ultimate controlling party is Bakkavor Group Limited, a company registered in the United Kingdom.
The largest group in which the results of the Company are consolidated is that headed by Bakkavor Group Limited and it has included the Company
in its group financial statements. The smallest group into which the accounts are consolidated is Bakkavor Finance (2) plc. As stated in note 14
Bakk AL Holdings Limited became the ultimate parent and controlling company on 25 January 2016.
Copies of both the Bakkavor Group Limited and Bakkavor Finance (2) plc financial statements are available from 5th Floor, 3 Sheldon Square,
Paddington Central, London, W2 6HY, United Kingdom.
The immediate parent of the Company is Bakkavor Finance (1) Limited.
FINANCIALS
97 / Bakkavor Annual Report and Accounts 2015
COMPANY INFORMATION
DIRECTORS
A Gudmundsson
L Gudmundsson
B Bjarnason (resigned 22 January 2016)
H Lúðvígsson (resigned 22 January 2016)
G Sigurdsson (resigned 22 January 2016)
SECRETARY
S Witham
REGISTERED OFFICE
5th Floor
3 Sheldon Square
Paddington Central
London
W2 6HY
BANKERS
Barclays Bank PLC
Multinational Corporates
One Churchill Place
London
E14 5HP
AUDITOR
Deloitte LLP
Four Brindleyplace
Birmingham
B1 2HZ
This Annual Report has been issued for personal use and for information purposes only.
No part of this Annual Report should be published, reproduced, distributed or otherwise
made available in whole or in part to any other person without the prior written consent
of Bakkavor Finance (2) plc.
No part of this Annual Report should form the basis of, or be relied on in connection
with, any contract or commitment or investment decision whatsoever. The
information contained in this Annual Report has not been independently verified and
no representation or warranty, express or implied, is made as to, and no reliance
should be placed on, the fairness, accuracy, completeness or correctness of the
information or opinions contained herein. None of Bakkavor Finance (2) plc, any of
its parent companies or subsidiaries, or any of its affiliates, directors, managers,
officers, advisers or representatives shall have any liability whatsoever (in negligence
or otherwise) for any loss howsoever arising from any use of this document
or its contents or otherwise arising in connection with this Annual Report.
This Annual Report may include “forward looking statements” within the meaning
of the U.S. securities laws and certain other jurisdictions, based on our current
expectations and projections about future events. All statements other than statements
of historical facts included in this Annual Report including, without limitation, statements
regarding our future financial position, risks and uncertainties related to our business,
strategy, capital expenditures, projected costs and our plans and objectives for
future operations, may be deemed to be forward looking statements. These forward
looking statements are subject to a number of risks and uncertainties. By their nature,
forward looking statements involve known and unknown risks, uncertainties and other
factors because they relate to events and depend upon circumstances that may or
may not occur in the future. Although we believe that the expectations reflected in
such forward looking statements are reasonable, we can give no assurance that such
expectations will prove to be correct and that such statements are not guarantees of
future performance because they are based on numerous assumptions. Any forward
looking statement speaks only as at the date on which it is made and we undertake no
obligation to publicly update or revise any forward looking statements, whether as a
result of new information, future events or otherwise. The information contained in this
Annual Report is provided as at the date of this Annual Report and is subject to change
without notice.
46 / Bakkavor Annual Report and Accounts 2015
BAKKAVOR GROUP HEAD OFFICE
5th Floor
3 Sheldon Square
Paddington Central
London W2 6HY
United Kingdom
Tel: +44 (0) 20 7266 6400
Registered in England as
Bakkavor Finance (2) plc No: 7501697
bakkavor.com