BAKKAVOR GROUP PLC
ANNUAL REPORT AND ACCOUNTS 2017
B
A
K
K
A
V
O
R
G
R
O
U
P
P
L
C
—
A
N
N
U
A
L
R
E
P
O
R
T
A
N
D
A
C
C
O
U
N
T
S
2
0
1
7
2017 HIGHLIGHTS
A year of good progress with solid foundations
for future growth.
GROUP REVENUE
£1,814.8m (2016: £1,763.6m)
+4.6%1 +2.9%
LIKE-FOR-LIKE REVENUE2
£1,800.3m (2016: £1,708.5m)
+5.4%
ADJUSTED EBITDA2
£152.6m (2016: £146.4m)
+4.2%
OPERATING PROFIT
£96.2m (2016: £91.5m)
+5.1%
NET DEBT
£266.6m (2016: £366.9m)
-£100.3m
1 Growth versus Full Year 2016 on a 52 week basis.
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’,
‘adjusted’ and ‘underlying’ are used as a guide to performance.
The definitions and calculations for APMs are set out in Note 41 of
the Notes to the Consolidated Financial Statements.
Note: Throughout the Annual Report, all comparative amounts are presented
for the 53 week period ended 31 December 2016 unless otherwise stated.
MATERIALITY
Bakkavor’s Annual Report 2017 aims to provide a
fair, balanced and understandable assessment of our
business model, strategy, performance and prospects
in relation to material financial, economic, social,
environmental and governance issues.
The material focus areas in the year were the
Bakkavor Group Initial Public Offering (“IPO”] and related
governance processes, including the introduction of a
formal Risk Register and the Bakkavor Code of Conduct.
CONTENTS
OVERVIEW
At a Glance
STRATEGIC REPORT
About Bakkavor
Chairman’s Letter
Our Business Model
Market Overview
Our Strategy
Chief Executive’s Review
Key Performance Indicators
Risk Management
Financial Review
Corporate Responsibility
GOVERNANCE
Chairman’s Letter on Corporate Governance
Group Board
Management Board
Corporate Governance Compliance Statement
Corporate Governance Report
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
FINANCIAL STATEMENTS
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 Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company Financial Statements
COMPANY INFORMATION
Advisers and Registered Office
2
4
6
8
10
12
14
19
21
26
30
37
38
40
41
42
53
71
75
76
82
83
84
85
86
87
128
128
129
133
FIND OUT MORE ABOUT OUR BUSINESS
ONLINE AT BAKKAVOR.COM
SEE HOW IT’S MADE
BLOG.BAKKAVOR.COM
Disclaimer — Forward-looking statements
This Annual Report, prepared by Bakkavor Group plc (“the Company”), may contain forward-looking statements about Bakkavor Group plc and its subsidiaries (“the Group”).
Forward-looking statements involve uncertainties because they relate to events, and depend on circumstances, that will, or may, occur in the future. If the assumptions on
which the Group bases its forward-looking statements change, actual results may differ from those expressed in such statements. Forward-looking statements speak only
as of the date they are made and the Company undertakes no obligation to update these forward-looking statements. Nothing in this report should be construed as a profit
forecast. Some numbers and period on period percentages in this report have been rounded or adjusted in order to ensure consistency with the financial information.
WE ARE THE LEADING PROVIDER
OF FRESH PREPARED FOOD IN THE UK
WITH A GROWING INTERNATIONAL
PRESENCE IN THE US AND CHINA.
WE HAVE A CLEAR STRATEGY,
A STRONG MARKET POSITION AND CLOSE
STRATEGIC PARTNERSHIPS WITH
OUR CUSTOMERS.
WE ARE DRIVEN BY OUR INSIGHT
AND ABILITY TO INNOVATE, CONSISTENTLY
DELIVERING HIGH-QUALITY PRODUCTS
TO MEET EVOLVING CONSUMER NEEDS.
WE ARE
BAKKAVOR
AT A GLANCE
BAKKAVOR IS THE LEADING PROVIDER
OF FRESH PREPARED FOOD IN THE UK,
WITH A FAST-DEVELOPING INTERNATIONAL
PRESENCE IN THE US AND CHINA
We employ over 19,000 people and operate from 39 locations, including
24 factories, three distribution centres and our head office in the United Kingdom (“UK”),
three factories in the United States (“US”) and eight factories in China.
In addition, we have two factories under construction in the US and a further two in China.
OVER
19,000
EMPLOYEES
WORLDWIDE
8
Factories
24
Factories
Our factory sites
are operational
24 hours a day,
364 days a year.
3
Factories
3
Distribution
centres
BAKK.L
In November
2017, the Group
listed on the
London Stock
Exchange.
2
Bakkavor Group plc — 2017 Annual Report
OVERVIEW WE CREATE FRESH PREPARED FOOD IN PARTNERSHIP
WITH OUR LEADING RETAIL AND FOODSERVICE
CUSTOMERS ACROSS THE WORLD
Our deep understanding of consumer food choices enables us to create innovative
products that set us apart from our competitors. In the UK, we develop products
across the four categories that make up the fresh prepared food (“FPF”) market:
Meals
Salads
OUR CUSTOMERS
Our UK customers include
all the well-known grocery
retailers.
Desserts
Pizza & Bread
Our international customers
include some of the world’s
best-known brands.
We won a number of awards in the year including Innovation
winner for the Prepared Salads Category and Innovative Product
of the Year at the Grocer Own Label Food & Drink Awards 2017,
as judged by The Grocer magazine and industry representatives.
Portfolio of
2,000
products
in the UK
Created over
500
new products
in the UK
3
ABOUT BAKKAVOR
OUR VISION IS TO LEAD THE WAY IN
BRINGING GREAT TASTING FRESH PREPARED
FOOD TO PEOPLE AROUND THE WORLD
OUR VALUES
OUR PURPOSE
Our purpose is to develop
and produce innovative,
commercially successful
food that offers choice, quality,
convenience and freshness.
Our vision and purpose are
underpinned by a strong set
of values that describe what
we stand for and how we behave
with our customers, suppliers,
investors, in the communities
in which we operate, and with
each other.
Customer care
We are committed to supplying outstanding
service, quality and value, never forgetting that
our relationship with our customers is key
to our success.
Can-do attitude
We encourage personal initiative and empower our
people to make things happen. Our motivation comes
from a determination to succeed in all that we do.
Teamwork
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 work to deliver the right results every time in the
most effective way, providing value for our customers
and stakeholders alike.
A SUSTAINABLE BUSINESS
We operate a responsible and sustainable business model which is integral to everything we do.
A culture of safety
Safety is core to our vision and values
and is integral to the way we work.
This includes food safety and
integrity, making sure our products
meet all legal and customer
standards as well as ensuring the
health and safety of all our people.
We have a strong Board-led process
of safety management in place.
Customer care and engagement
We are proud of the relationships we
have with our customers, working in
partnership to develop new products
together. We meet regularly to
discuss global food and consumer
trends, share innovative ideas and to
taste-test potential new recipes. We
always challenge ourselves to deliver
customer excellence and we respect
our customers’ brand values as
though they were our own.
An employer of choice
We aim to position Bakkavor as
an employer of choice, providing a
secure, enjoyable and motivational
working environment for all our
people. We measure our success
through our employee engagement
survey and the ability to retain our
people, as well as through our robust
approach to workplace safety.
4
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT
ONE OF THE LARGEST INTERNATIONAL
FOOD MANUFACTURERS IN A DYNAMIC
AND FAST-MOVING SECTOR
International
The International business comprises the FPF market in the
US and the international and local foodservice market in China.
Bakkavor employs over 550 people in the US and around 1,600
in China, having operated in both countries for over 10 years.
The Group believes it is well-placed to influence and develop
these markets, leveraging its UK expertise. Both markets
have demonstrated a growing demand for fresh, high-quality,
healthy and convenient food options.
Strategic positioning
• Strong understanding of markets and long established
presence
• Leverage UK expertise and insight for competitive advantage
• Significant opportunities for growth
• Increased purchasing power for raw materials
Group revenue
10%
BUSINESS ACTIVITIES
Bakkavor is the leading provider of FPF in the UK and has a
growing international presence in the US and China. Our 19,000
employees operate from 39 locations, including 24 factory sites,
three distribution centres and a head office in the UK, three
factories in the US and eight in China, to develop and produce
innovative fresh prepared food for a wide variety of occasions
and budgets.
In the UK and the US, the Group works with leading grocery
retailers, focusing on their own label brands, to support them
in differentiating their product offering. In China, the Group
supplies international and local foodservice operators.
In partnership with its customers, Bakkavor has led the way in
developing the fresh prepared food market in the UK, one of the
largest and most dynamic fresh prepared food markets in the world.
The Group has used this expertise to grow and develop its
presence in the US and China, with both these markets showing
strong growth in the high-quality, fresh, convenience food sector.
Bakkavor’s proven business model, combined with the
Group’s extensive insight into consumer trends and its ability
to turn this insight into creative commercial product offerings,
gives the Company a clear competitive advantage in this
growing market.
The Group reports its business performance under two segments:
United Kingdom and International.
UK
Bakkavor employs approximately 17,000 people in the UK and
is the number one producer by market share in each of the four
UK FPF categories: meals; salads; desserts; and pizza & bread.
Customers include all the well-known UK grocery retailers,
who sell Bakkavor products under their respective brands.
90%
In 2017, over 500 new products were developed in the UK in
conjunction with customers.
We operate a complex operating model and sites are operational
24 hours a day, 364 days a year. Given the short shelf-life of
products, sites receive orders ‘on-the-day, for-the-day.’ In order
to fulfil orders on time and in full, labour and materials are
ordered in advance which requires a skilled planning process.
Bakkavor’s success in this area is evidenced by more than 99%
of orders being completed on time, ahead of the industry
benchmark of 98.5%.
Strategic positioning
• Operating in attractive markets
Adjusted EBITDA2
5%
• Leadership position across all four product categories
• Strong insight, innovation and new product development focus
• Expanding customer base
95%
UK
£1,636.3m
International
£178.5m
UK
£145.2m
International
£7.4m
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’,
‘adjusted’ and ‘underlying’ are used as a guide to performance.
The definitions and calculations for APMs are set out in Note 41 of
the Notes to the Consolidated Financial Statements.
5
CHAIRMAN’S LETTER
A YEAR OF GOOD PROGRESS,
WITH SOLID FOUNDATIONS
FOR FUTURE GROWTH
In October 2017, I succeeded Lydur Gudmundsson as
Chairman. Lydur is the co-founder of Bakkavor and, along
with Agust, takes credit for building the business into what it
is today. His experience and knowledge remain invaluable to
us and I am delighted that he will continue to be part of the
Group Board. Meanwhile I welcome Sue Clark, who joined us
in November, and I am also delighted that Denis Hennequin
has become our Senior Independent Director. Jane Lodge
also joined us as an Independent Non-executive Director on
3 April 2018 and I welcome her too.
Bakkavor employs more than 19,000 people across the Group,
including 17,000 in the UK. They all work at the highest standards
to make great tasting food consistently and safely. Many are
potentially impacted by the Brexit process and we have been
working to support them at a time of significant personal
uncertainty. I would like to thank them for their contribution,
on which these results have been built.
As set out in the public listing prospectus, no dividend will be
declared in respect of the 2017 financial year. The Group has
confirmed its intention that a dividend equivalent to 40% of
adjusted profit after tax for the financial year 2018 will be paid,
with an interim payment in September 2018 of approximately one
third of the expected total for the year.
Simon Burke
Non-executive
Independent Chairman
9 April 2018
I am delighted to report, in our first set of results
as a public company, a year of good progress in
line with our plans.
Group revenue from continuing operations increased by
4.6%1 to £1,814.8 million, adjusted EBITDA2 increased by 4.2%
to £152.6 million and operating profit increased by 5.1% to
£96.2 million.
In the UK, our business is based on strong, long-term customer
relationships and this has helped us to manage the impact of
inflation which, together with good volumes, has resulted in
revenue growth of 4.6%1. Innovation is at the heart of these
relationships and during the year we launched over 500 new
products for our customers, such as the UK’s first ever range
of charcoal-base pizzas to create further differentiation in
the market.
Our International business is much smaller, but growing in line
with our plans. We have seen this particularly in China, where
our customers are expanding rapidly and extending their fresh
offering. In the US, we are steadily pushing out our boundaries,
both geographically and in terms of range, as the market develops
its taste for fresh prepared products. The new dedicated factory to
service a significant customer in Texas is on track and expected to
be operational in the second half of 2018.
Although we continue our investment in both new facilities and the
upgrade of existing factories, cash generation in the year was
strong, and this, combined with the benefits from the March
refinancing and the listing proceeds received, resulted in net debt
being just 1.8 times adjusted EBITDA2 at the end of December.
Looking ahead, whilst we see the widely reported risks to the
UK economy from inflation and some general uncertainty around
the Brexit process, we believe that Bakkavor is well-placed for
continuing profitable growth in a segment of the food market
which is still showing strong dynamics. We continue to take a
long-term perspective of our business and any passing turbulence
will not deflect us from the strategy we are working to. Growth
prospects in our international markets remain very positive and
we will capitalise on these in the coming years.
We are very proud to have become a listed company in November
and I would like to welcome the many new shareholders who have
joined us at that time and since.
1 Growth versus Full Year 2016 on a 52 week basis.
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’, ‘adjusted’ and ‘underlying’ are used as a guide to performance.
The definitions and calculations for APMs are set out in Note 41 of the Notes to the Consolidated Financial Statements.
6
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT In 2017, we supplied over 30 different products using
beetroot to our customers in the UK, including a vibrant
beetroot and mint dip.
We have been a fresh prepared food pioneer for decades, harnessing our expertise
in chilled manufacturing and fresh produce to successfully create high-quality
products that continually meet consumers’ ever-evolving tastes and demands.
SEE HOW IT’S MADE
blog.bakkavor.com
It is our ‘farm to fork’ expertise, our ability to operate at scale and our focus on
outstanding customer service that have ensured our clear leadership in the UK
FPF market. Translating and applying these strengths to our international markets
is enabling us to exploit further opportunities for growth.
OUR BUSINESS MODEL
A PROVEN MODEL FOR
COMPETITIVE ADVANTAGE
Consumers are at the heart
of what we do: our deep
understanding of the food
choices they make enables
us to create and make
innovative products for our
customers that set us apart
from our competitors.
Focusing on customer service
and continuously creating
and making food that is
commercially viable and meets
consumer demand is what
drives our business and
what creates value for
our stakeholders.
WHAT DIFFERENTIATES US
We have a number of strengths which, combined with a confidence in market
fundamentals and demand for fresh prepared food, help differentiate us in the industry:
• Clear leadership in the attractive UK FPF market and across product categories
• Proven operating model of managing complexity and ability to manufacture short
shelf-life products at scale
• Strong and long-standing customer relationships in all our markets
• Ability to generate customer and consumer specific insights to drive innovation
• Track record of, and investment in, food safety
• Strong financial profile and sustainable track record for organic growth
OUR STAKEHOLDERS
We engage with our stakeholders through:
• Partnering with our customers to develop a diverse, innovative and
on-trend product range to drive consumer demand
• Collaborating with our suppliers to promote customer service and food safety
excellence so that we all benefit from growth and innovation
• Offering open communication with our investors, explaining
our strategy and performance at regular intervals
• Providing an engaging learning environment and rewards to attract and
retain colleagues
• Investing in our communities, working collaboratively to promote the
sustainable growth of the food industry
HOW WE
CREATE
VALUE
INSIGHT AND INNOVATION
We use insights gained through our
investment and analysis of consumer
research and data, as well as our
knowledge of food trends sourced
from around the world, to gain a good
understanding of what consumers want.
Our teams of chefs and product
development experts continuously create
and test recipes and work collaboratively
with our commercial and marketing teams
to ensure products can be produced which
taste great, are commercially viable and
reinforce our market-leading positions.
DEDICATED TEAMS AND PLANS
We recognise that our relationships with
customers and the service we provide is
key to our success.
As a specialist in private label food,
we are committed to protecting and
developing our customers’ brands
as though they are our own.
We have dedicated teams, each with
differentiated plans, to take care of our
strategic customers and to ensure that
we meet their exacting standards.
8
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT OUR PURPOSE
is to develop and produce innovative, commercially successful food
that offers choice, quality, convenience and freshness
ELLENCE
C
X
Y E
T
E
F
A
S
D
O
O
F
I
n
n
o
v
a
t
i
o
n
I N S I G H T AND INNOVATION
O UR VALUES
i g h t,
g i t r
g i t r i g h t
G etti n
ke e pi n
Custo
m
e
r
c
a
r
e
e
d
u
C an-do attit
D
E
D
I
C
A
T
E
D
T
E
A
M
S
A
N
D
P
L
A
N
S
Teamwork
C
O
M
P
L
E
X
M
A
N
U
F
A
CTURING
D P L A N NING
N
G A
P R O C U R I N
PROCURING AND PLANNING
Our procurement teams work with
selected growers and suppliers to source
raw materials in the right quantities at
the right price. They buy from over
50 countries with no single supplier
accounting for more than 3% of orders.
Our planning experts ensure we can
meet the daily orders of our customers by
analysing product demand and planning
production accordingly. As well as raw
material planning, this also involves
efficient staff planning and a mix of both
permanent employees and agency workers
to meet seasonal demand.
COMPLEX MANUFACTURING
Our factories are operational 24/7, 364
days a year, providing over 2,000 different
short shelf-life products to customers
every day.
FOOD SAFETY EXCELLENCE
We manufacture food that is not
only great tasting for consumers,
but also meets the highest standards
of safety.
We operate a ‘just-in-time’ model, using
fresh raw materials to produce only what
is required to meet our daily orders and we
have a proven ability to deliver high-quality
products to customers.
Sites are audited regularly, often on
an unannounced basis, by internal
food safety experts, customers and
independent bodies for compliance
with food safety standards.
Essential to the success of our ‘just-in-
time’ model is our logistics expertise in
managing our inbound and outbound
supply chain. Raw materials are supplied to
our factories and finished products are
delivered on time through our distribution
centres into customers’ depots.
We employ more than 500 food
safety professionals and conduct
over 2,000 in-house microbiology
and chemistry tests every day.
9
MARKET OVERVIEW
WE OCCUPY A LEADING
POSITION IN A GROWING MARKET
Bakkavor operates in the fresh prepared food market. In the UK and the US,
Bakkavor serves grocery retailers and focuses primarily on supporting these
retailers to differentiate their own brands. In China, the Group mainly focuses
on serving international and local foodservice operators.
Whilst the Group operates in three very different geographical
markets, the overarching trends that drive demand in these
markets are shared. It is our ability to anticipate and translate
these trends into commercially successful products that helps
drive our performance and long-term growth.
Consumers are changing the way they shop for food, looking for
convenient products and solutions that meet specific occasions
or needs to support their lifestyle.
Trends such as the rise in single person households and fewer
shared meal occasions have driven a shift towards convenience as
shoppers buy fewer single ingredients to make their own meals.
Fresh prepared food has proven popular with the over-45s who
have grown accustomed to the convenience it offers and, as life
expectancy increases, demand for these types of products is set
to continue.
The amount of time spent cooking has approximately halved
in the last 30 years, with people opting to make quick, quality
meals to fit around their busy lifestyles.
Consumer tastes are changing, with an increased desire
for healthy, fresh and nutritious products and snacks that
are hard to replicate at home and expensive to make from
scratch. Demand for more of this type of food can be
seen through increased health-focused ranges such as low
calorie, vegan, high protein and gluten-free or free-from
products or meals.
In addition, the frequency of shopping trips has increased,
with more individuals choosing meals at the last minute,
impulse buying and trying new products. Major grocery retailers
have responded through further investment in the convenience
store format, increasing their commitment to fresh prepared
food and using the category to differentiate their own brands.
In addition, consumers are increasingly confident about ordering
fresh prepared food online, which is further supported through
delivery options such as ‘click and collect’.
THE LONG-TERM TRENDS DRIVING THE UK FRESH PREPARED FOOD MARKET
Population
aged 45 and over
(millions)
Single
households
Too busy
to cook
Food chosen
for health reasons
Choosing meals at
the last minute
Frequency of
shopping trips (per
buyer, per annum)
21
29
17%
28%
55%
60%
36%
40%
52%
57%
54
62
+38%
+65%
+9%
+11%
+10%
+15%
1971
2016
1971
2016
2009
2015
2013
2016
2009
2015
2011
2017
† OC&C Strategy Consultants’ analysis of multiple sources.
10
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT “We have worked with Bakkavor for 22 years and have a long
history of growing and developing together.”
Carlo Boscolo, Cultiva
We specialise in fresh prepared food which, by its nature, involves sourcing many
types of fresh fruit and vegetables in the creation of thousands of different recipes.
For instance, we use around 80 different salad leaves and herbs such as wild rocket,
baby spinach and flat leaf parsley, and over 100 different vegetables from Charlotte
potatoes to Chantenay carrots.
Our ability to source the best ingredients originates from our fresh produce heritage,
a partnership approach with our growers and having our own agronomy and procurement
experts who ensure we have a consistent, high-quality supply.
SEE HOW IT’S MADE
blog.bakkavor.com
OUR STRATEGY
DELIVERING LONG-TERM
SUSTAINABLE GROWTH
The Group’s core strategy of delivering long-term sustainable growth is focused on developing
its businesses in the UK and internationally, while continuing to improve operational efficiency.
This strategy is underpinned by a continued focus on customer needs and service, selective
partnerships and strong financial disciplines.
1. LEVERAGING NUMBER
ONE POSITION† IN THE UK
Bakkavor’s strategy in the UK is to leverage its number one
position in the fast-growing FPF market.
Our strategy centres on the following key areas:
• Strengthening partnership arrangements with
existing customers
• Exploiting insight, innovation and breadth of capability
• Pursuing strategic investments to accelerate growth
We seek to deliver these strategic priorities and enhance
our number one position through our dedicated customer
teams, our commitment to operational excellence and our
ongoing capital investment programme.
STRATEGY IN ACTION
Bakkavor has long-standing relationships of over 30 years with
its four largest customers. During the year, we continued to
develop these relationships with several significant business
wins, commercial launches delivered to plan and category
innovation that builds the pipeline for 2018.
2017 was a particularly successful year for innovating our
offering and broadening our categories. We have seen good
volume growth within our core business, working with
customers on product and packaging innovation to create
further differentiation in this market.
Our ongoing investment programme of around £50 million per
annum ensures we have capacity in place for medium-term
growth across all categories. However, expected demand in
our desserts business requires more substantial expansion.
To address this, the Group has approved a multi-million pound
investment in its Newark desserts site. The investment will add
capacity across desserts and also provide market-leading
innovation capabilities.
† OC&C Strategy Consultants' analysis of multiple sources.
12
Bakkavor Group plc — 2017 Annual Report
STRATEGIC PRIORITIES FOR 2018
We continuously invest in new insights through our dedicated
team, which is hugely valuable in evaluating evolving consumer
trends. We have already seen growth in such areas as gluten-free
products, which have delivered incremental sales and, in the
coming year, we will be developing further our ‘free-from’
proposition, capitalising on these trends where we identify
long-term potential.
We continue to closely monitor developments in the wider
market, responding to changes in category dynamics. As
previously mentioned, in response to ongoing consolidation
in the desserts category, we are making a material investment
in our desserts business, which will come online during 2018
and provide the necessary additional capacity to support our
growth plans.
2. ACCELERATING GROWTH IN HIGH-
POTENTIAL INTERNATIONAL MARKETS
Bakkavor has developed a strong presence in the attractive
markets of the US and China, where the Group has
operated for over 10 years. Our international strategy will
leverage our expertise in the UK to further support the
strong foundations now in place.
To accelerate growth internationally, we are focused on:
• Developing strong customer partnerships
• Establishing leading positions in key categories
with a view to achieving nationwide supply
STRATEGY IN ACTION
In our International markets of the US and China, we benefited
from strong market growth as the uptake of fresh prepared food
continued to accelerate. We remain active in strengthening and
developing partnerships with retailers and food service operators
in our key categories.
In the US, the Group focused on developing its positions in
attractive key categories — dips, soups and sauces and ready
meals. We continue to see growth in these categories and will
invest to further enhance capacity and capability.
STRATEGIC REPORT In addition, in the US, we extended our relationship with
a customer beyond our existing partnership with one of its
subsidiaries, and as a result, we are now producing ready meals
for a second major subsidiary.
Bakkavor has also partnered with a significant new US customer,
and as a sign of the strength of the relationship, we are currently
investing circa $31 million in a new facility in San Antonio, Texas,
to support the large scale roll-out of fresh prepared food to its
stores in Texas.
In China, we have benefited from the rapid rate at which our
customers are expanding their store and restaurant portfolios.
We continue to invest in these partnerships and support their
plans for growth through increasing our capacity and extending
our geographic reach.
We continue to focus on the foodservice market and will also
seek further opportunities in the retail convenience sector. For
example, we have initiated trials for replicating the successful
fresh soups business that has been established in both the UK
and the US. In China, we also continued to test the convenience
market with our ‘Fresh Kitchen’ range of prepared meals where
initial consumer response has been very positive.
Alongside these developments, we remain committed to investing
in our infrastructure to build strong platforms for growth and have
expanded our teams in the areas of marketing, insights, technical,
HR and finance, which increased our costs for the year, and
positions us well for the future.
STRATEGIC PRIORITIES FOR 2018
Our continued international growth rests on our ability to keep
pace with our existing customers’ growing requirements. To that
end, we are making large scale investments in capacity in both
the US and China, much of which will come online during 2018.
In the US, a key focus is the development of our close partnership
with a significant customer, including the opening of the new
dedicated facility, expected in the second half of 2018. In China,
we will be completing the construction of a state-of-the-art
factory, located just outside Shanghai in Haimen, giving us
increased capacity to access the affluent east of the country.
This facility is also due to open later in 2018.
We are also expanding our category presence internationally,
bringing our expertise in chilled bread to both markets in 2018
with the opening of new bakeries. As always, we will embed
dedicated resource from our UK operations as additional
support to ensure successful launches within this new category.
3. IMPROVING OPERATIONAL EFFICIENCY
Bakkavor continues to invest in operational efficiencies
across the Group to support its strategy. These investments
are underpinned by Bakkavor’s operational finance team,
created by bringing some of the Group’s manufacturing
and finance leaders together to work across the Group
as a whole.
STRATEGY IN ACTION
The operational finance team uses benchmarking, knowledge
of cross-business activity and shared improvement projects to
identify instances of operational excellence that can be replicated
elsewhere within the business.
This team is also instrumental in evaluating and prioritising the
Group’s productivity improvement plans. We have improved our
operating efficiency with selected investments, including in the
areas of leaf processing and packaging automation. In many
cases, we see scope to roll these initiatives out across multiple
sites, in support of our long-term pursuit of margin improvement.
STRATEGIC PRIORITIES FOR 2018
We have set ourselves the goal of delivering further EBITDA
margin improvement over the medium-term, which we expect
to achieve by means of continued intervention in areas of
underperformance, and improvement where we believe that we
can do things more efficiently. In the coming year, we expect to
identify further opportunities for efficiency gains, and will continue
to invest accordingly. We will also extend the implementation of
performance improvements we have already made in specific
sites where there is scope to do so.
13
CHIEF EXECUTIVE’S REVIEW
DELIVERING THE BEST FOR OUR
PEOPLE AND OUR CUSTOMERS
IS THE CORNERSTONE OF OUR
FUTURE SUCCESS
This has been an historic year, culminating with
November’s admission to the premium segment
of the London Stock Exchange, which saw us
welcome our new shareholders to the Company.
FOCUSED INVESTMENT
We believe there is significant potential to develop our category
presence across the business and during 2017 we continued to
invest in selective scalable capacity and new capabilities. This
included investment in automation and factory site expansions.
My brother Lydur and I founded Bakkavor over
30 years ago and it is now a business which
employs around 19,000 people across 39 sites in
the UK, US and China and, this year, generated
revenue of over £1.8 billion.
A YEAR OF GOOD PROGRESS
I am pleased to report that the past twelve months have seen us
leverage our scale, innovation credentials and passion for food to
make further good progress across the Group.
Group financial highlights
£ million
Revenue
Revenue:
Like-for-like²
Adjusted EBITDA²
Adjusted EBITDA2
margin
2017
1,814.8
1,800.3
152.6
2016
(53 weeks)
Change
1,763.6 4.6%1/ 2.9%
1,708.5
146.4
5.4%
4.2%
8.4%
8.3%
10bps
Revenue from continuing operations increased by 4.6%1 from
£1,735.4 million (2016: 52 weeks) to £1,814.8 million in 2017.
Like-for-like revenue2 from continuing operations grew by 5.4%
from £1,708.5 million to £1,800.3 million in 2017. Adjusted EBITDA2
increased by 4.2%, from £146.4 million to £152.6 million in 2017.
Operating profit increased by 5.1% from £91.5 million to £96.2
million in 2017. This was a good performance given the
unprecedented inflationary pressures seen in the year.
In the UK, we worked closely with our key customers to
mitigate much of the impact of raw material inflation and the
increase in labour costs, with our strong focus on efficiencies
and cost control. Internationally, we saw further growth,
particularly in China, as both businesses benefited from the
transfer of our UK expertise to these regions and continued
investment in our infrastructure.
The Group’s listing on the London Stock Exchange included
a primary issue of £100 million which will enable us to
accelerate our investment programme, creating further value
for investors and stakeholders, and bring more great tasting
food to consumers.
A COMMITTED WORKFORCE
Our success is driven by the passion, dedication and commitment
of all the people we employ across the Group. On behalf of the
Board, I would like to thank each of those colleagues for their
efforts and the contribution they have made in getting Bakkavor
to where it is today.
In the UK, we employ approximately 17,000 people and a
significant number may potentially be impacted by Brexit.
Although the outcome remains unclear, we have taken steps in
the year to support many of our employees with information on
developments and related guidance and we continue to review
the business impact of potential changes.
CORPORATE STRUCTURE
This year has been an exciting year but, nonetheless, a disruptive
one, with significant management time taken up by the public
listing. I am particularly impressed by the focus and commitment
shown by our teams to ensure our customers remained
unaffected by this corporate activity.
Ahead of the public listing we took steps to strengthen our Board
and I look forward to working with our new Board and benefiting
from their experience as we take the Group forward in the next
stage of its development.
A CONFIDENT OUTLOOK
The second half of 2017 saw volume growth impacted as UK
consumers reacted to significant inflationary pressure. As
expected, this trend has continued into 2018 and is likely to
remain until inflation eases. Later in the year, we expect our
volume growth to benefit from improved market conditions and
new business.
Despite these industry-wide challenges, we are confident that
our scale, track record of innovation and focus on operational
efficiencies ensures we are well placed to deliver ongoing
profitable growth, both from existing business and our
long-term investment strategy.
1 Growth versus Full Year 2016 on a 52 week basis.
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’,
‘adjusted’ and ‘underlying’ are used as a guide to performance. The
definitions and calculations for APMs are set out in Note 41 of the Notes
to the Consolidated Financial Statements.
14
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT
Pomegranate seeds have become increasingly popular
due to their health benefits — they also make a great topping
on our breakfast pots.
Innovation is one of our core values and we are extremely proud of our capabilities
and expertise, always challenging ourselves to think of great ideas that our
customers and consumers love.
By collaborating across our sites, we bring together different competencies including
allergen management, delicate fruit preparation and technical yoghurt processing.
These capabilities, combined with our consumer insight expertise, enabled us to create
and launch a range of fresh breakfast compotes, including a pomegranate bircher
muesli, to appeal to consumers looking for ‘ready to eat’ healthy breakfast ‘on the move’.
SEE HOW IT’S MADE
blog.bakkavor.com
CHIEF EXECUTIVE’S REVIEW CONTINUED
UK OPERATIONS
Producing innovative, commercially successful food that offers
choice, quality, convenience and freshness for consumers
remains the foundation of our success and is what drives
growth in the UK.
The Group has a proven operating model for a challenging
operational environment, producing over 2,000 short shelf-life
products at scale. This level of complexity gives us a unique
competitive advantage in the UK segment, which contributed
around 90% to total Group revenue in 2017.
During the past year, we have reinforced our leading position in
each of the four FPF categories of meals, salads, desserts and
pizza & bread, continuing to work collaboratively with key
customers to support their growth plans through investments
and innovation.
Our close partnerships with our customers, our track record in
food safety, combined with our proven ability to generate cash
for reinvestment in the business for efficiencies, maintenance
and growth, position us well to deliver on our UK strategy.
UK PERFORMANCE
The UK business generated £1,636.3 million in revenue from
continuing operations in 2017, up 4.6%1 compared to the prior
year on a 52 week basis. Like-for-like revenue2 was £1,621.3
million, which is 4.9% up on 2016.
Revenue growth in 2017 was partly driven by price increases
agreed with customers in response to the significant raw material
inflation in the year. Volume growth was strong in the first half of
the year, supported by a number of significant business gains in
the second half of the previous year; a testament to the Group’s
innovation capabilities, product quality and market-leading
technical standards. However, as expected, revenue growth
slowed later in the year as higher retail pricing impacted volumes.
Adjusted EBITDA2 for the year was £145.2 million compared with
£137.7 million in 2016. As anticipated, margins remained under
pressure throughout the year due to inflationary impacts.
However, the business performed well to limit these impacts and,
when combined with the volume benefits and tight cost control,
the year saw an increase in the Adjusted EBITDA2 margin to 8.9%,
20 basis points above the prior year.
At an operational level, we remained focused on managing our
capacity and investing when necessary to support our customers’
growth plans.
MANAGING INFLATIONARY IMPACTS
During 2017, we were impacted by a combination of
unprecedented raw material inflation, largely driven by
volatility in the dairy market and the impact of the weakness
in Sterling, together with rising labour costs following further
increases in the National Living Wage. Working closely with
our customers, we successfully mitigated much of this
inflation through a combination of pricing, product design
and operational performance.
Our significant expertise in growing, planning and buying was
critical during this past year of volatile input pricing. No more
so than in the salads category, when, in the early part of the
year, unforeseen weather conditions markedly affected leaf
availability. The experience of the procurement team and the
strong relationships Bakkavor has with suppliers, particularly
those in Europe and the US, enabled the Group to maintain
supplies during this very challenging period.
The rising labour costs experienced following further increases
to the National Living Wage were largely offset by performance
improvements through efficiency, capital expenditure projects
and operational improvement plans in place across the business.
These improvement plans, supported by the operational finance
team, were targeted to maximise performance and opportunities
for efficiency gains across the UK operations.
UK financial highlights
£ million
Revenue
Like-for-like revenue²
Adjusted EBITDA²
Adjusted EBITDA2 margin
2017
1,636.3
1,621.3
145.2
8.9%
2016
(53 weeks)
1,589.9
1,545.8
137.7
8.7%
Change
4.6%1/2.9%
4.9%
5.4%
20bps
1 Growth versus Full Year 2016 on a 52 week basis.
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’, ‘adjusted’ and ‘underlying’ are
used as a guide to performance. The definitions and calculations for APMs are set out in Note 41 of
the Notes to the Consolidated Financial Statements.
16
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT
Towards the end of the year, we started work on a major
£35 million expansion of our desserts facility in Newark. This
investment will provide increased capacity following recent
supplier consolidation in the category as well as market-leading
innovation and state-of-the-art automation to support efficiency.
STRENGTHENING CUSTOMER PARTNERSHIPS THROUGH
INSIGHT AND INNOVATION
We continued to focus during the year on strengthening our
partnerships in the UK. Bakkavor has relationships with all the
major UK grocery retailers, although around 86% of revenues
are generated from its four biggest customers: Tesco; M&S;
Sainsbury’s; and Waitrose. We continue to work closely with
these strategic customers through dedicated teams to protect
and enhance our partnerships; each team has a differentiated
plan and a clear understanding of that customer’s fresh prepared
food needs.
Bakkavor’s extensive knowledge of key food trends and
experience in creating innovative and great tasting food is
widely recognised by its customers. Around 230 colleagues are
dedicated to the development of high-quality products and in
the year we created and launched approximately 500 new and
improved products for customers. For example, in November
2017, we launched a number of award-winning dessert ranges
for Christmas, including a chocolate ‘dome’ which gained
considerable positive press coverage. We also launched the UK’s
first charcoal-base pizza range, which proved very popular with
consumers and again attracted favourable media reviews.
We also won a number of awards during 2017, including
Innovation winner for the Prepared Salads Category and
Innovative Product of the Year at the Grocer Own Label Food
& Drink Awards 2017.
INVESTING FOR GROWTH
During 2017, the Group continued its UK capital programme,
investing behind its facilities to support customer plans and
maximise efficiencies and capabilities.
In the year we have seen a number of new investments to enhance
capacity and capability following business wins. Good examples of
these include investments in our Holbeach pizza factory and our
Crewe bread factory.
17
CHIEF EXECUTIVE’S REVIEW CONTINUED
INTERNATIONAL OPERATIONS
Bakkavor’s strategy to accelerate its performance in China and
the US is borne from over 10 years of operating in these regions,
where we have developed a strong understanding of these
markets and their potential for high growth.
The FPF markets in the US and China are significantly
underserved when compared with the UK. Bakkavor has
established itself as a pioneer in leveraging its UK expertise to
drive the FPF proposition in the US, and in supplying international
and local foodservice chains in China, with high standards of food
safety and quality.
Our international businesses in the US and China continue to
grow as consumer preferences increasingly shift towards fresh
prepared food.
INTERNATIONAL PERFORMANCE
Our International business, whilst still only representing around
10% of the Group, has continued to grow. This business generated
£178.5 million in revenue from continuing operations compared
with £173.7 million in the prior year. On a like-for-like2 basis,
which excludes the impact of foreign currency movements and
the sale of the Group’s Belgian business NV Vaco BV on 1 August
2016, revenues increased by 10.0% in the year to £179.0 million.
Adjusted EBITDA2 for the International segment was £7.4 million
for the year, compared with £8.7 million in 2016. Whilst the
business in China has profited from strong volume growth,
inflationary pressures have partly offset this benefit. We also
increased investment in our technical and commercial
capabilities, particularly in the US, to ensure we have the
appropriate infrastructure for future growth.
FAVOURABLE MARKET TRENDS IN BOTH REGIONS
The US and China represent highly attractive opportunities for
growth, and our target markets in these countries are forecast
to grow by at least 10% per annum going forward.
Our US business saw further growth in demand for fresh
prepared food during the year, with consumers switching away
from frozen and long-life products and increasingly showing a
preference for fresh ‘better for you’ food, such as clean label
and organic products.
The Group has continued to develop its US relationships with
key strategic customers, extending its category portfolio with a
successful new range of burritos, and introducing a new range
of ready-to-cook meals with a major customer.
In China, we saw strong growth as we continued to develop our
presence in the international and local foodservice markets,
fuelled by the rapid rate at which key customers are expanding
their store and restaurant portfolios. This provides Bakkavor with
a solid base for expansion. In addition, our investment in our new
product development capabilities has broadened our offering to
major customers, including for example the introduction of fresh
soups, salads and breakfast products.
ACCELERATING PERFORMANCE THROUGH INVESTMENT
The relationship with a key customer in Texas has significantly
strengthened during the year as we announced plans to invest
$31 million in a dedicated new factory in San Antonio. Working in
close partnership with our customer, the facility will supply a wide
range of meals and is scheduled to start production later in 2018.
Whilst the Group already has an established presence in the
US in the meals, dips and soups & sauces categories, the chilled
bread market represents an exciting new growth area where
we can capitalise on our UK expertise as market leader in this
category. Following a period of market testing, we have now
started work on a new bakery facility in Charlotte, which will
also be operational later in 2018.
In China, the Group is investing around £20 million in a new
state-of-the-art factory just outside Shanghai in Haimen,
East China, which again is due to start production in 2018
and will provide additional capacity in this high-growth market.
We have also committed £3 million of investment into a new
high-quality bread facility near Shanghai, which has recently
started production, as we again have the opportunity to capitalise
on our UK expertise in this category.
International financial highlights
£ million
Revenue
Like-for-like revenue²
Adjusted EBITDA²
Adjusted EBITDA² margin
2017
178.5
179.0
7.4
4.1%
2016
(53 weeks)
173.7
162.7
8.7
5.0%
Change
4.0%1/2.8%
10.0%
(14.9%)
(90bps)
Agust Gudmundsson
Chief Executive Officer
9 April 2018
1 Growth versus Full Year 2016 on a 52 week basis.
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’, ‘adjusted’ and ‘underlying’ are
used as a guide to performance. The definitions and calculations for APMs are set out in Note 41 of
the Notes to the Consolidated Financial Statements.
18
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT KEY PERFORMANCE INDICATORS
MEASURING OUR PROGRESS
We measure our progress by focusing on a number of performance measures which support our
strategy and which we believe help deliver long-term value for stakeholders.
Reported revenue1 from
continuing operations
Like-for-like revenue2 from
continuing operations
+4.6%
+5.4%
Adjusted EBITDA2
+4.2%
2016
2017
£1,735.4m
2016
£1,708.5m
2016
£146.4m
£1,814.8m
2017
£1,800.3m
2017
£152.6m
The increase in 2017, on a comparable 52 week
basis, was due to UK underlying volumes benefiting
from the full-year effect of recent business wins and
price increases agreed with customers in response
to the significant raw material inflation in the year.
The International business saw growth, particularly
in China as customers expanded their businesses.
Revenue growth at a constant currency (and
excluding the impact of Melrow Salads that was
closed in November 2017 and NV Vaco BV that was
sold in August 2016] was strong for the year as we
benefited from good volumes across the business.
The further improvement in the year was due to
benefits from the significant volume increases in the
first half of the year and the continued focus on cost
control and productivity improvements.
Net cash from operating activities
Adjusted earnings per share2
Leverage ratio (net debt / adjusted
EBITDA2)
-18.7m
+25.5%
2016
2017
£112.1m
2016
10.6p
2016
2.6x
£93.4m
2017
13.3p
2017
1.8x
This was lower than 2016, primarily due to the
impact of refinancing costs of £16.3 million in the
year and £10.0 million of exceptional payments for
the public listing in November 2017.
This increase reflects the improvement in
underlying trading in the year. Basic earnings
per share has decreased from 8.8p in 2016 to 5.8p
in 2017 due to the impact of refinancing costs and
exceptional items in the year.
As a result of strong cash generation in 2017 and
the cash benefit from the primary proceeds from
the public listing during the year, debt levels have
reduced significantly which has lowered this ratio.
UK accidents resulting in lost time >
7 days (per 100k employees)
UK employee turnover
-6.4%
+5.1%
2016
2017
406
380
2016
2017
21.6%
22.7%
The Group continued to actively promote safety
awareness and accident prevention during the year,
resulting in a 6.4% improvement when compared
with 2016.
The Group recognises the importance of
attracting and retaining a skilled workforce.
The 5.1% increase in UK employee turnover
(excluding fixed term contracts) in 2017 is an
area of focus and steps are being taken to target
improvements in 2018.
1 Growth versus Full Year 2016 on a 52 week basis.
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’,
‘adjusted’ and ‘underlying’ are used as a guide to performance. The
definitions and calculations for APMs are set out in Note 41 of the
Notes to the Consolidated Financial Statements.
Notes:
Throughout this report all comparative amounts are presented for the
53 week period ended 31 December 2016 unless otherwise stated.
The KPIs set out above are those that are reported internally in the business.
19
Our quick turnaround capability enables us to receive
orders for our customers ‘on-the-day, for-the-day.’
Our customers’ orders are typically confirmed early in the morning and collected
within 24 hours.
To successfully fulfil orders 364 days a year requires great agility due to the complex
nature of manufacturing short shelf-life products at scale.
For example, ingredients such as baby leaf lettuce are prepared, packed and despatched
within 24 hours of picking from the field.
In our meals category, it is our ability to quickly and safely transition from one product
line to the next that enables us to produce around 250 different product lines at a single
factory site every day.
SEE HOW IT’S MADE
blog.bakkavor.com
RISK MANAGEMENT
DESIGNED TO HELP
US DELIVER AGAINST
OUR STRATEGY
Bakkavor’s risk management process is designed to help the
Group deliver against its strategy, while protecting the interests
of key stakeholders and safeguarding assets including its people,
finances and reputation.
The Group Board has overall responsibility for ensuring the
effective identification and management of key strategic and
emerging risks, and for the review and approval of the ongoing
risk management process, including the determination of clear
policies as to what can be considered an acceptable level of risk.
During 2017, Bakkavor undertook a review of its risk identification
and management process and put in place a formal Risk Register,
which has been in place up to the date of this Annual Report.
The Risk Register identifies the principal risks faced by the
Group and the key mitigating actions used to address them.
The Audit and Risk Committee, delegated by the Group Board,
reviews the effectiveness of the Group’s risk management
process and internal control system and receives regular
reports from management and Internal and External Auditors.
These detail the risks that are relevant to business activity,
the effectiveness of internal controls in dealing with these risks
and any required remedial action, together with an update on
their implementation.
The Audit and Risk Committee reports to the Group Board on the
effectiveness of the risk management process.
Day-to-day risk management is led by Senior Management with
ownership for individual risks, as identified in the Risk Register,
assigned to a member of the Senior Management team.
Management of risk is embedded in daily working practices and
underpinned by Bakkavor’s policies and Code of Conduct and
Business Ethics.
Where risks are identified, action plans are developed to mitigate
the risk with clear allocation of responsibilities and timescales
for completion. Progress towards implementing these plans is
monitored and reported back to the Group Board through the
Audit and Risk Committee as part of a structured business review.
Risk management process
B a k kavor strategy
1
cess
o
r
w p
e
i
v
e
r
k
s
i
R
4
2
R
i
s
k
a
s
s
e
s
s
m
e
nt
Risk mitigati o n
3
1 The process begins with the evaluation of the most
significant strategic risks for Bakkavor.
2 Senior Management must regularly assess risks for
potential impact.
3 Action plans for mitigating significant risks are developed
and implemented.
4 The Audit and Risk Committee, delegated by the Group
Board, is responsible for the independent review of the
effectiveness of risk management and the internal
control system.
21
RISK MANAGEMENT CONTINUED
Internal control system
The internal control system provides Senior Management with
an ongoing process for risk management. The system can only
provide reasonable, and not absolute, assurance, as it is designed
to manage rather than eliminate all risks.
Examples of the Bakkavor internal control system are:
Health and safety — The Group promotes a proactive safety and
accident awareness culture and has in place health and safety
teams that define standards and monitor compliance with the
Group’s systems for ensuring workplace safety.
Food safety — The Group strives to deliver food products with the
highest levels of safety and integrity to its customers. Bakkavor
applies food safety procedures when designing and managing all
of its sites, including rigorous testing and Hazard Analysis and
Critical Control Point management systems.
Food quality — The Group maintains strict controls regarding
the authenticity and quality of the products it manufactures and
supplies. Bakkavor is subject to regular inspection by food safety
and other authorities for compliance with applicable food laws.
IT systems — The Group has a Disaster Recovery Programme
in place and strict policies to ensure its IT infrastructure and
equipment are sufficiently protected. In addition, Bakkavor has
in place a continuous IT Risk and Security Programme.
Treasury — The Group has a treasury policy in place with its
main objectives to ensure that appropriate capital resources are
available for the maintenance and development of the Group’s
businesses, and to ensure that the financial risk relating to the
Group’s currency, interest rate and counterparty credit exposure
is understood, measured and managed appropriately.
Risk appetite
The Group’s approach is to minimise exposure to reputational,
financial and operational risk, while accepting a risk/reward
trade-off in achieving its strategic objectives. As a food producing
business, food safety and integrity is of paramount importance
and all reasonable efforts are made to mitigate risk in this area.
The business takes a measured approach to overseas investment
to minimise risk exposure. Whilst significant capital expenditure
is planned for 2018 in the US and China, these are markets within
which Bakkavor has operated for many years. Therefore, whilst
there is an element of risk in all investments, we believe the
Company is well placed to make a measured approach and
minimise exposure in these two key markets.
2018 Plan
Following the implementation of a formal Risk Register during
2017, the Group intends to further improve its operational risk
management capabilities. In addition, the Group is now subject
to increased regulation as a listed company and will continue
to put in place relevant internal controls during 2018 to
ensure compliance.
Risk assessment map
5
4
3
2
1
d
o
o
h
i
l
e
k
L
i
1
2
3
4
5
6
7
8
9
Food safety and integrity
Raw material costs
Customer concentration
Labour scarcity and costs
IT systems
Health and safety and the environment
Loss of key employees
Exchange rate
Liquidity and covenant compliance
4
2
8
7
6
3
5
9
4
1
5
1
2
3
Business impact
22
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT Principal risks and uncertainties
Change in risk level over past 12 months
higher
level
lower
Risk area
Risk description
Mitigating controls
Developments in 2017
Food safety and
integrity
Millions of people eat our
Stringent food safety policies in place
Continued to ensure
products every day. We have a
duty to make food that is safe
and is clearly and correctly
labelled.
throughout the organisation and use of
Hazard Analysis Critical Control Point
(“HACCP”) principles to identify and
control food safety risks.
Consumer safety and confidence
are vital to our business; any
issue that breaches that trust
could result in loss or reduction
of customer business and also
impact our credibility and
reputation.
Employees trained against
documented procedures.
Food safety controls regularly audited
by internal and external parties.
Emerging risks monitored by working
with industry and regulatory bodies.
Food safety audits conducted for
new suppliers with regular audits of
existing suppliers.
Regular reporting of food safety
performance to the Group Board
and immediate reporting of significant
issues.
Bakkavor met all legal and
customer standards and is
HACCP compliant.
New UK Technical
Director joined the team
to ensure standards are
continually reviewed.
Improved approach to
internal audits.
Raw material
costs
Customer
concentration
The Group’s cost base and
margin are vulnerable to
fluctuations in the price and
availability of raw materials,
packaging materials and freight.
Ability to pass on any increases
in these costs to customers
within a reasonable timeframe is
a challenge and failure to do so
could impact the Group’s
profitability and hence its ability
to continue to invest in the
business.
We work with four of the largest
food retailers in the UK and a
significant proportion of our
revenue is from these
customers.
Any major customer loss would
have a significant negative
impact on our business.
Central procurement team focused on
achieving a balance between price,
quality, availability and service levels.
Forward purchasing agreed and price
variations passed on where possible.
Agreements in place with some
customers on recovery of raw material
cost impacts.
Continued focus on cost reduction and
productivity enhancements.
Continued to extend
number of cost models in
place with customers through
inflationary period.
Continued to work more
collaboratively with customers
regarding purchasing
strategies.
Further strengthened supplier
base, particularly in the US
and Europe.
Partnership model in place with
customers. In the UK, customer
specific champions and teams manage
strategic customer relationships.
Relationships with all grocery retailers
beyond four largest gives breadth of
cover.
Strong reputation in food safety and
quality.
Reputation amongst customers for
strong insights and innovation
capabilities.
Significant investment in manufacturing
facilities and highly complex ‘just in
time’ manufacturing process.
Continued to drive
‘partnership’ model with
four largest customers to
develop deep relationships
and arrangements.
Built more strategic
relationships with smaller,
emerging customers.
Continued to evaluate
opportunities outside
mainstream grocery retailer
base.
23
RISK MANAGEMENT CONTINUED
Principal risks and uncertainties continued
Change in risk level over past 12 months
higher
level
lower
Risk area
Risk description
Mitigating controls
Developments in 2017
Labour scarcity
and costs
Higher labour costs and the
Specific campaigns and focus groups
Centralised resource function
in place targeting recruitment of future
employees and building attractiveness
of careers in food industry.
Initiatives in place to enhance and
upgrade factory site facilities to help
attract and retain employees.
Central staff dedicated to recruitment
and management of staff costs.
Initiatives in place to support employees
with Brexit-related concerns.
to support recruitment process.
Focused on talent development
including apprenticeship
schemes to build future talent.
Introduced Brexit retention
programme to offer advice and
support to employees.
scarcity of labour could affect
the Group’s business and
future profitability. The
Group competes with other
manufacturers for good and
dependable employees. The
supply of such employees is
limited and competition to hire
and retain them may result in
higher labour costs.
Additionally, for the Group’s UK
operations, Brexit presents a
risk as historically the Group has
employed a material number of
citizens from the European
Union.
IT systems
Unauthorised access of the
Company’s Information
Technology (“IT”) systems
could lead to breaches of data
protection and release of market
sensitive information.
Any breakdown or failure in
the Group’s IT infrastructure
or the Group’s communication
networks, including malicious
cyber-attacks by third parties,
could delay or otherwise impact
the Group’s day-to-day business.
Group Information Systems (“IS”)
manage access to business data
through strong password protection,
role-based access to business systems
and policies to ensure appropriate use.
The Group IS department has delivered
Disaster Recovery (“DR”) for critical
systems and is working towards
delivering DR for important systems.
Group IS has strict policies and
actively ensures IS infrastructure and
equipment are sufficiently protected
against malicious cyber attacks.
Health and
safety and the
environment
We understand our duty of care
to secure and protect the health
and safety (“H&S”) of our
employees and to reduce the
environmental impact of our
operations. Failure to maintain
the H&S of employees could
have a significant reputational
impact and also have serious
legal consequences.
H&S and environmental impacts are
managed by the Group’s in-house
experts who embed and monitor
practices.
Stringent processes are implemented
for identifying and managing H&S and
environmental risks.
Regular reporting of H&S Key
Performance Indicators to the Group
Board and immediate reporting of
significant issues.
Culture of employee engagement
around accident prevention across
the Group.
Business as usual continual
improvements supported by a
continuous Risk and Security
programme.
DR delivery programme will
continue through to the end
of 2018.
Focus areas included
improvements to patching
regimes and a number of
upgrade projects to ensure
services remain on supported
platforms.
The Risk and Security
programme continued to
support the delivery of
enhancements in these areas.
Increased central resource.
Changed approach to Internal
Audit, increasing frequency and
moving to an unannounced
format.
Improved data capture process
to record environmental
performance.
24
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT
Change in risk level over past 12 months
higher
level
lower
Risk area
Risk description
Mitigating controls
Developments in 2017
Loss of key
employees
Exchange rate
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.
The loss of any of these
personnel or the Group’s
inability to recruit new personnel
would have an adverse impact
on the Group.
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.
In the multi-currency trading
environment in which the
Group operates, there are
inherent risks associated with
fluctuations in foreign exchange
rates.
Company values used to recruit,
appraise, reward and develop
employees.
Ongoing succession planning,
commitment to training and bonus
schemes in place to retain key
personnel and manage staff turnover.
Post the public listing,
management retention
initiatives devised for early
2018 implementation.
Treasury function operates within
framework of strict Group Board-
approved policies and procedures.
Active foreign exchange hedging
programme maintained.
Active policy of hedging known
non-Sterling denominated expenditure
both for specific projects and on a
rolling basis for material purchases.
Continued review of exposures
and subsequent hedging, with
regular reporting back to the
Group Hedging Committee and
Audit and Risk Committee.
Assessment of financial
instruments available for
hedging.
Liquidity and
covenant
compliance
To achieve our growth
objectives, we require a strong
financial platform.
Financial results, projections and
covenant performance reviewed
regularly.
Open and regular dialogue with
our lenders and an active investor
engagement programme.
The Group has significant
facilities governed by financing
agreements under which we are
subject to various financial
covenants and undertakings.
Breaching any covenant would
impair our ability to maintain
existing financing and secure
future financing, thereby
destabilising the business.
New financing arrangements
entered into in 2017 with
extended maturity and reduced
interest costs. Public bonds
redeemed.
Overall net debt and leverage
reduced through trading profit
and funds raised in the public
listing.
25
FINANCIAL REVIEW
STRONG TRADING
PERFORMANCE IN A HIGHLY
INFLATIONARY ENVIRONMENT
The Group typically presents its annual results covering a 52 week
period. However, every six years an additional week is included in
the Group’s reporting period to ensure that its end-of-year date is
near the end of December. Consequently, the Group’s results for
2016 are based on a 53 week trading period as compared to
financial year 2017 which is a 52 week trading period. To assist
with comparability, revenue, cost of sales and gross profit for
2016 are discussed below on a 52 week basis in addition to the
53 week comparison.
REVENUE
Revenue from continuing operations increased by £51.2 million, or
2.9% from £1,763.6 million in 2016 (53 weeks), to £1,814.8 million
in 2017.
On a 52 week basis, revenue from continuing operations increased
by £79.4 million, or 4.6%, from £1,735.4 million in 2016 to
£1,814.8 million in 2017.
Like-for-like revenue2 grew by 5.4%, from £1,708.5 million in
2016, to £1,800.3 million in 2017. This increase was primarily
due to strong growth in the Group’s operating segments, as
described below.
SEGMENTAL BREAKDOWN
In the UK segment, revenue from continuing operations increased
by £46.4 million, or 2.9%, from £1,589.9 million in 2016 (53 weeks)
to £1,636.3 million in 2017.
On a 52 week basis, revenue from continuing operations in the UK
segment increased by £72.6 million, or 4.6%, from £1,563.7 million
in 2016 to £1,636.3 million in 2017.
Like-for-like revenue2, which excludes our Melrow Salads
business that was closed in November 2017, grew by 4.9%, from
£1,545.8 million in 2016, to £1,621.3 million in 2017. Melrow Salads
contributed revenues of £15.0 million in 2017 for the period up to
its closure.
This increase in revenue was primarily due to strong growth
across all key customers, with underlying volumes benefiting
from the full-year effect of recent business wins. In addition,
revenues increased as a result of price increases agreed with
customers in response to the significant raw material inflation
seen through the year.
In the International segment, revenue from continuing operations
increased by £4.8 million, or 2.8%, to £178.5 million in 2017 from
£173.7 million in 2016 (53 weeks).
On a 52 week basis, revenue from continuing operations in
the International segment increased by £6.8 million, or 4.0%,
to £178.5 million in 2017 from £171.7 million in 2016. Revenue
growth in 2017 was impacted by the sale of the Group’s Belgian
business NV Vaco BV on 1 August 2016, which had contributed
revenue of £17.0 million in 2016. This loss of revenue was partly
offset by favourable foreign currency movements.
Like-for-like revenue2 grew by 10.0%, from £162.7 million in 2016,
to £179.0 million in 2017. The increase was primarily due to strong
growth in our business in China, where sales volumes increased
with all key customers.
COST OF SALES
Cost of sales from continuing operations increased by
£53.2 million, or 4.2%, from £1,275.9 million in 2016 (53 weeks)
to £1,329.1 million in 2017.
On a 52 week basis, cost of sales from continuing operations
increased by £75.8 million, or 6.0%, from £1,253.3 million in 2016
to £1,329.1 million in 2017.
This increase was largely due to a combination of an increase in
raw materials and direct labour costs supporting the sales volume
growth in the year. Costs also increased due to the high level of
raw material inflation in 2017 across most ingredients, but
particularly those that were dairy related, and the continued
impact of further increases in the National Living Wage on labour
costs in the UK.
GROSS PROFIT
Gross profit reduced by £2.0 million, or 0.4%, from £487.7 million
in 2016 (53 weeks) to £485.7 million in 2017.
On a 52 week basis, gross profit increased by £3.6 million, or 0.7%,
from £482.1 million in 2016 to £485.7 million in 2017.
This increase was primarily due to the benefits from the sales
volume increases more than offsetting the increase in raw
material and direct labour costs.
DISTRIBUTION COSTS
Distribution costs were marginally lower at £77.2 million in 2017,
a £0.8 million, or 1.0%, decrease from £78.0 million for 2016. The
reduction was due to 2016 including an additional trading week.
OTHER ADMINISTRATIVE COSTS
Administrative costs decreased by £6.1 million, or 1.9%, from
£319.0 million in 2016 to £312.9 million in 2017.
Administrative costs for underlying activities excluding exceptional
items and impairment of assets reduced by £5.3 million, or 1.8%,
from £302.8 million in 2016 to £297.5 million in 2017.
This decrease was primarily due to the Group’s tight control
over costs and 2016 included £4.3 million of costs in respect
of NV Vaco BV, which was sold on 1 August 2016. Excluding the
impact of the sale of NV Vaco BV, total administrative costs were
broadly flat.
26
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT ADJUSTED EBITDA2
Adjusted EBITDA2 increased by £6.2 million, or 4.2%,
from £146.4 million in 2016 to £152.6 million in 2017.
This increase was primarily due to the benefits from a
significant increase in sales volumes in the first half of
2017 and the Group’s continued focus on cost control and
productivity improvements.
OTHER ITEMS
Included within administrative costs are other items as follows:
£ million
Exceptional items
Public listing costs
Transaction costs
Restructuring costs
Legal cases
New site costs
Impairment
Property, plant and equipment
2017
2016
10.4
–
3.1
0.6
1.3
15.4
–
15.4
–
5.2
1.3
1.5
–
8.0
8.2
16.2
Exceptional items
The Group has incurred £10.4 million of costs in 2017 in
connection with the public listing in November 2017. The
restructuring costs of £3.1 million in the year relate to the cost
of closing a site in the UK and moving related operations to other
sites. The remaining exceptional costs relate to the Group’s US
business, of which £1.3 million is in respect of initial start-up
costs for a new factory and the remaining £0.6 million due to
ongoing employment litigation.
In 2016, the Group incurred exceptional costs of £8.0 million,
of which £5.2 million relate to the fees incurred that year in
connection with the transactions that resulted in
Bakk AL Holdings Limited owning 100% of the Company and
becoming the parent company of the Group; £1.3 million relate
to redundancy costs following the loss of some business at one
of the Group’s UK operations; and £1.5 million relate to legal
and other costs in respect of an intellectual property dispute
that has now been concluded.
Impairment
The Group is required to assess the appropriateness of its
goodwill, intangible and tangible asset carrying values on an
annual basis by comparing the carrying values with future cash
flows expected to be generated from those assets. There were
no impairment charges in 2017 but in 2016 the review resulted
in an impairment charge of £8.2 million for UK property, plant
and equipment.
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’,
‘adjusted’ and ‘underlying’ are used as a guide to performance.
The definitions and calculations for APMs are set out in Note 41 of
the Notes to the Consolidated Financial Statements.
SHARE OF RESULTS OF ASSOCIATES AFTER TAX
Share of results of associates after tax decreased by
£0.1 million, or 14.3%, from £0.7 million in 2016 to £0.6 million
in 2017. This decrease was due to an increase in the cost base
for the Group’s associate La Rose Noire Limited as it continues
to expand its operations.
OPERATING PROFIT
Statutory operating profit increased by £4.7 million, or 5.1%,
from £91.5 million in 2016 to £96.2 million in 2017 with margins
increasing by 10 basis points to 5.3%. This increase was primarily
due to benefits from the increase in sales volumes and the
productivity improvements across the business. The statutory
operating profit for the UK segment increased by £8.1 million
in the year from £86.8 million in 2016 to £94.9 million. For the
International segment, statutory operating profit decreased by
£3.4 million from £4.7 million in 2016 to £1.3 million. Before
exceptional items and impairment of assets, the operating
margins for 2017 were in line with 2016 at 6.1%.
FINANCE COSTS
Finance costs decreased by £3.8 million, or 9.8%, from
£38.8 million in 2016 to £35.0 million in 2017.
In 2017 these include payment of a call premium of £9.9 million
in respect of the early redemption of the 2020 Senior Secured
Notes as part of a refinancing of the Group’s lending facilities in
March 2017. In addition, accelerated amortisation of refinancing
fees in relation to the previous debt facilities necessitated a
charge of £3.3 million. In 2016, the Group incurred a call premium
of £1.5 million and accelerated amortisation of £0.7 million in
refinancing fees in connection with the early redemption of £75
million of the 2018 Senior Secured Notes. Excluding these costs
in both years, finance costs decreased by £14.8 million in 2017,
which reflects the benefits of lower debt levels and the reduction
in the cost of debt to circa 3.5% per annum.
OTHER GAINS AND LOSSES
Other gains and losses moved by £32.5 million, from a gain of
£10.3 million in 2016, to a loss of £22.2 million in 2017. This
change was primarily due to a £17.2 million non-cash loss in 2017,
reversing previous gains on the fair value of the call option within
the 2020 Senior Secured Notes following redemption of the Notes
in March 2017. The Group also incurred mark to market losses of
£2.1 million on its financial derivatives in 2017 compared to a gain
of £4.6 million for 2016.
TAX
The tax charge for the year decreased by £4.3 million, or 35.0%,
from £12.3 million in 2016 to £8.0 million in 2017, largely due to
an increase in the deferred tax asset recognised for US trading
losses, giving an effective rate of 20.5% for 2017. Excluding the
impact of exceptional costs in the year of £15.4 million, the
effective tax rate is 15.4%. This is higher than originally expected
due to the impact of the enacting in December 2017 of a lower US
corporate tax rate of 21% compared to the previous rate of 35%
which reduced the value of the increase in the deferred tax asset
recognised in 2017 for the historic US trading losses. This is
considered to be a one-off impact for 2017 and we expect the
2018 effective rate to be between 14% and 15%.
27
FINANCIAL REVIEW CONTINUED
PROFIT FOR THE PERIOD
As a result of the foregoing, profit for the period decreased by
£20.3 million, or 39.6%, from £51.3 million in 2016 to £31.0 million
in 2017. Excluding the impact of exceptional items and refinancing
costs in 2016 and 2017, the underlying profit for the year has
increased by £9.3 million to £70.5 million.
EARNINGS PER SHARE
Basic earnings per share has decreased from 8.8p for 2016
to 5.8p in 2017, reflecting exceptional and refinancing costs
incurred in the year. However, adjusted earnings per share2 has
increased from 10.6p for 2016 to 13.3p in 2017 which reflects the
improvement in underlying trading for the business in the year.
The weighted average number of shares for 2017 was 530,738,162
and for 2016 was 578,645,254, after adjusting for the 1 for 5
share split that took place in November 2017 in advance of the
public listing.
CASH FLOW
Free cash flow2 for the year of £71.1 million was £12.6 million
higher than the previous year. This was largely due to expenditure
on core capital (excluding development projects) being £11.3
million lower than 2016 as a number of projects were rephased
from the latter half of 2017 and into 2018. Our effective
management of working capital delivered a further benefit of
£8.6 million for the year and interest payments were £15.1 million
lower this year following the refinancing in March 2017. The free
cash generated was partly offset by refinancing fees of £16.3
million, which included payment of a call premium of £9.9 million
for the early redemption of the Senior Secured Notes due to
mature in 2020.
CAPITAL, DEBT AND LEVERAGE
On 23 March 2017, the Group completed a refinancing of its debt
facilities, putting in place a new £485 million corporate loan facility
comprising a revolving credit facility of £200 million maturing in
June 2021, and term loans totalling £285 million, of which £210
million mature in June 2021 with the balance maturing in June
2024. The funds from the refinancing were used to repay in full
existing bank debt, redeem all outstanding Senior Secured Notes
maturing in 2018 and 2020 and pay associated fees. The Group’s
new debt funding structure provides the Group with a significant
reduction in interest costs while extending the maturity of the
funding commitments. In November 2017 the Group repaid
£37.5 million of the term loans.
On 16 November 2017 the Group successfully completed a public
listing on the London Stock Exchange, raising gross primary
proceeds of £100 million from the issue of 55,555,555 ordinary
shares of £0.02 each at £1.80 per share. The total transaction
costs amounted to £13.8 million, of which £3.4 million related
directly to the primary issue and have been offset against the
gross proceeds within the share premium account and the
balance of £10.4 million has been charged to exceptional items.
The proceeds raised will be used to fund the Group’s development
projects over the next two years.
2 Alternative Performance Measures (“APMs”), including ‘like-for-like’,
‘adjusted’ and ‘underlying’ are used as a guide to performance.
The definitions and calculations for APMs are set out in Note 41 of
the Notes to the Consolidated Financial Statements.
28
Bakkavor Group plc — 2017 Annual Report
As a result of the strong free cash generation and cash raised
through the public listing, operational net debt has reduced
by £112.6 million to £270.5 million. Leverage (the ratio of
operational net debt to adjusted EBITDA) was 1.8 times at
the end of 2017, down from 2.6 times at the end of 2016 and
within the Group’s target range of 1.5 – 2.0 times. The Group’s
liquidity position remains strong with good headroom against
all financial covenants.
RETURN ON INVESTED CAPITAL2
The increase in operating profit in 2017 has driven a further
improvement in the Group’s Return on Invested Capital2 (“ROIC”)
which has increased from 11.7% in 2016 to 12.2% in 2017. Going
forward, the Group plans to spend circa 3.5% of revenues on
capital investment, and in addition will use the proceeds from the
primary issue to fund certain key development projects to deliver
further improvements in returns.
PENSIONS
Under the IAS 19 valuation principles that are required to be
used for accounting purposes the Group recognised a surplus
of £5.2 million for the UK defined benefit scheme as at
30 December 2017 (2016: deficit of £10.0 million). The surplus
has been recognised under IFRIC 14 as the scheme's terms
and conditions allow the Group to have an unconditional right
to a refund of contributions when economic benefits are available.
The movement from a deficit in the prior year to a surplus is
largely due to an increase in the fair value of the scheme’s assets
and the effective liability hedging in place.
The Group and the Trustee agreed in April 2017 the triennial
valuation of the UK defined benefit pension scheme as at
31 March 2016. This resulted in a funding shortfall which
continues to be paid over an agreed eight-year recovery period
ending on 31 March 2024. The recovery contributions over that
period amount to £22.5 million with £4.5 million payable for
the year ending 31 March 2018.
DIVIDEND
As set out in the public listing prospectus, no dividend will be
declared in respect of the financial year 2017. The Group has
confirmed its intention that a dividend equivalent to 40% of
adjusted profit after tax for the financial year 2018, will be paid,
with an interim payment in September 2018 of approximately one
third of the expected total for the full year.
Peter Gates
Chief Financial Officer
9 April 2018
STRATEGIC REPORT We source over 5,000 quality ingredients
from around the world.
We recognise our responsibility to ensure the traceability of our food through
all stages of production, processing and distribution.
We visit and audit suppliers around the world and use multiple suppliers for certain
ingredients to ensure year round supply.
Ensuring the integrity of these ingredients is a vital part of our business and we adopt
a risk-assessed approach to cover all aspects of food safety, ethical requirements and
environmental responsibility.
SEE HOW IT’S MADE
blog.bakkavor.com
CORPORATE RESPONSIBILITY
WE BELIEVE IN
DOING THE RIGHT THING,
IN THE RIGHT WAY
At Bakkavor, we recognise and take seriously
the significant trust placed in us by our
stakeholders. As we continue to grow and
develop, Corporate Responsibility (“CR”) is an
integral part of our strategy and is crucial to
how we drive growth, productivity and enhance
and protect our reputation.
Building a sustainable business is in the long-term interests
of our stakeholders, including customers, investors, suppliers,
our people and all the consumers that have access to and
choose our food products.
OUR APPROACH
In November 2017, we listed on the London Stock Exchange,
providing us with a platform from which to further develop our
CR activities, not just in the UK, where we have the majority of our
operations and factories, but also internationally, where we are
expanding our presence.
Whilst we already undertake a large number of CR-related
initiatives across our factories in the UK, we have begun the
process of centralising our CR efforts at Group level with a
more focused CR programme. During the year, we put in place
a flexible framework to guide and support our developments in
CR and our commitment to furthering this agenda at Bakkavor
in the years ahead. The framework reflects the responsibility and
duty of care we have for our colleagues, the communities which
we operate within, our customers and all those who consume
our products every day.
Our CR framework covers four key areas of Food safety and
integrity, Environment, Workplace and Community.
Food safety
and integrity
Community
Corporate
Responsibility
Framework
Environment
Workplace
30
Bakkavor Group plc — 2017 Annual Report
Our focus on safety is fundamental. Food safety and workplace
health and safety are not a business choice, nor are they
responsibilities that we can part-achieve. They are integral to the
way we work every day and embedded in our culture and values.
In the UK, CR initiatives are organised at a local level across all
24 factory sites and are often co-ordinated or communicated
through each site’s ‘Site Employee Forum’ (“SEF”). The SEF feeds
into a Group Employee Forum (“GEF”) which offers a platform to
share ideas and best practice and which also recognises all the
good work going on across the business via our annual Group
Responsibility Awards.
Bakkavor recognises that the majority of its CR data is currently
limited to its UK factory site operations. During the year, the
Group undertook a review of its data capture process and put
in place measures to begin the collection of CR data from its
International business. The Group also put in place more robust
and efficient mechanisms to measure environmental waste data
both in the UK and across its International business.
GOVERNANCE OF CORPORATE RESPONSIBILITY
Corporate Responsibility is monitored by the Senior Management
team and reported to the Group Board. The Group Board reviews
progress in these areas against the priorities set for the year.
Currently the Group sets priorities in the areas of Food safety and
integrity, Workplace health and safety and Workplace recruitment,
retention and development.
During the year, the Group introduced the Bakkavor Code of
Conduct to support good governance of behaviours.
This Code replaces a number of separate codes and policies and
sets out the ethics and principles which are upheld by our people.
Its launch was supported by a mandatory questionnaire to ensure
understanding of the Code across the Group. The Code includes
a number of policies and procedures that govern the way we do
business. These cover areas including anti-bribery and business
ethics, IT usage policy and further statements to support our
commitment to acting professionally, fairly and with integrity.
Bakkavor is committed to the highest standards of ethics and
integrity. Slavery, forced or trafficked labour will not be tolerated
within our business or our supply chain. This is an issue on which
we have no complacency and we are steadfast in ensuring that
Bakkavor remains a fair and rewarding place to work. A copy of
our Modern Slavery Statement is available on our website.
STRATEGIC REPORT FOOD SAFETY AND INTEGRITY
Our passion for food is core to our business and that passion is
only realisable if our customers and consumers trust our food.
Bakkavor manufactures food that is not only great tasting for
consumers, but which also meets the highest standards of
safety. In addition to customer requirements, the Group is
subject to extensive food safety regulations and, where required,
governmental monitoring in each of the countries in which
it operates.
The Group uses HACCP principles to identify any potential
food safety risks and to ensure these risks are robustly
controlled. To deliver these controls consistently, the Group
adheres to documented food safety procedures when developing
and manufacturing its products. These procedures form the
backbone of Bakkavor Quality Management Systems and
Standards. To ensure they are designed and implemented
effectively Bakkavor employs more than 500 food safety
professionals.
Bakkavor ensures it has effective food safety systems through
vigorous inspection, testing and reporting procedures. Sites are
audited regularly, often on an unannounced basis, by internal food
safety experts, customers and independent bodies for compliance
with food safety standards.
The effectiveness of Bakkavor HACCP plans is also verified
through a regular testing programme. For example, in the UK,
the Group conducts over 2,000 in-house microbiology and
chemistry tests every day.
21 of the Group’s UK manufacturing sites also hold certification
at ‘A’ grade against the British Retail Consortium Global Standard
— Food Safety.
As a food producer we recognise the significant part we can
play in shaping food habits and behaviours. We support the
growing trend for healthy convenient food, and through our
insight and innovation capabilities, we do our utmost to provide
consumers with nutritious and fresh food choices that help
support a healthy lifestyle.
In the year, we continued to collaborate with our customers to
respond to healthy eating trends and to review the salt, sugar
and saturated fat levels in our food and introduced a number
of healthy food ranges.
We source over 5,000 different ingredients from around the world.
We recognise our responsibility to ensure the traceability of our
food through all stages of production, processing and distribution.
We visit and audit suppliers around the world and use multiple
suppliers for certain ingredients to ensure year round supply.
Ensuring the integrity of these ingredients is a vital part of our
business and Bakkavor adopts a risk-assessed approach to
cover all aspects of food safety, ethical requirements and
environmental responsibility.
Food safety and integrity priorities for 2018 are:
• To maintain current high standards by ensuring a
robust governance process and reporting and
escalation process
• To ensure raw materials are safe and sourced in line
with exacting customer requirements
• To ensure we have the best food safety experts in the
business, and links to relevant industry bodies and
external experts
RESPONSIBLE SOURCING
Risk assessment — Own operations and supply chain
Threats and
vulnerability
assessment
Environmental
impacts and
sustainability
Security and
quality of
supply chain
Human rights
and people
Raw material
integrity
31
CORPORATE RESPONSIBILITY CONTINUED
ENVIRONMENT
Bakkavor is committed to addressing the effects of
climate change and undertakes many practical activities
and initiatives across the Group to reduce its overall carbon
footprint and protect the environment.
As a responsible business, Bakkavor recognises that its
operations have both direct and indirect impacts on the
environment. The Group encourages environmental efficiency
through a Group-wide focus on the four main areas of waste,
water, energy efficiency and packaging.
Bakkavor has this year put in place a data capture process across
the Group to record its waste management performance and
further processes to capture its carbon emissions in its US and
China factories. The Group aims to improve its environmental
performance through a number of sustainability initiatives.
In 2017, Bakkavor sent less than 1% of its UK waste to landfill
and in addition managed surplus food through its staff shop and
local food charities, including ‘Company Shop’, ‘Community Shop’
and FareShare.
Report) Regulations 2013, following the UK Government
Environmental Reporting Guidelines (June 2013).
The total gross GHG emissions reported include all Scope 1 and
Scope 2 emissions for the Bakkavor Group in the UK. This covers
UK factory sites where Bakkavor has full operational control. Data
has not been collected for sites owned by Bakkavor but leased to
tenants as Bakkavor does not have oversight or control of this
energy usage and emissions data.
Bakkavor’s International business put in place a data
capture process to collect carbon emissions data from
1 January 2018 onwards.
Scope 1 emissions are those that directly release GHGs and
include fuel consumed by our manufacturing facilities, offices,
warehouses and our vehicle fleet, and releases of fluorinated
gases from our refrigeration plant. Scope 2 emissions are
released indirectly from our consumption of energy sources
(electricity and cooling streams). As this is the first year for the
Group to present this information, no comparative data from the
previous year is available.
Bakkavor’s Caledonian Produce site was awarded the 'Reduce,
Reuse, Recycle Award' at the 2017 National CSR Awards for its
‘Sustainability in Action’ campaign. The campaign transformed
the factory’s approach to waste management and the business
achieved zero waste to landfill.
Bakkavor has used the WRI/GHG Protocol Corporate Accounting
and Reporting standard and emission factors from Defra’s UK
Government GHG Conversion Factors for Company Reporting to
calculate the GHG emissions where they are not separately
provided by a supplier.
During the year, Bakkavor continued to invest in its water
efficiency programmes. In the UK, we were awarded ‘Most
Innovative Water Scheme in Europe’ by Water Reuse Europe
trade association for our new waste water facility, developed in
conjunction with Aquabio, in Lincolnshire, UK. The investment
demonstrates Bakkavor’s commitment to environmental
efficiency with over 80% of the water used in the facility being
recycled. The initiative also won the 'Environmental Leadership
Award' at the M&S ‘Plan A’ Awards.
In China, the Group continued to invest in cost effective upgrades
to its sites to maximise environmental efficiency. In Beijing,
Bakkavor is currently developing a new waste water treatment
facility expected to be operational in the first half of 2018.
Greenhouse gas emission statement
Greenhouse gas (“GHG”) emissions for the year ended 30
December 2017 have been measured and reported as required
under the Companies Act 2006 (Strategic Report and Directors’
32
Bakkavor Group plc — 2017 Annual Report
The Group’s environmental management system is based on
ISO 14001.
Greenhouse gas emissions
(for the year ended 30 December 2017)
Scope 1
Emissions from combustion of
fuel and operation of facilities
Scope 2
Emissions from purchased
electricity and cooling
2017 emissions
tCO2e
2017 intensity
ratio tCO2e/£m
turnover)
112,392
68.68
80,606
49.26
Total gross emissions
Green tariff
192,998
(22,747)
Total
170,251
117.94
The vast majority of our GHG emissions arise from our factory
sites’ heating and cooling operations. We have a programme
of activities across the sites to reduce energy use and hence
GHG emissions. During 2017, we also moved to a renewable
electricity supply contract across our sites to support our energy
reduction programme.
STRATEGIC REPORT
Each factory site has a Climate Change Agreement (“CCA”) and,
as part of this, has energy efficiency targets to meet by 2020
compared to a 2008 base year. The average target is a 22%
efficiency improvement and Bakkavor regularly monitors and
reports progress internally. Bakkavor is currently in the process
of translating these energy efficiency targets into GHG reduction
targets. These targets and related performance will be disclosed
in the 2018 Annual Report.
WORKPLACE
We are committed to providing a workplace environment where
people are safe, engaged and motivated.
Diversity and equal opportunities
Bakkavor is committed to equal opportunities in all its
employment practices, policies and procedures from recruitment
and selection, through training and development, appraisal
and promotion.
The Group will do all that it can to make sure that everyone has
an equal chance to apply and be selected for jobs at Bakkavor and
an equal chance to be trained and promoted when they work for
the Group.
In the UK in 2017, Bakkavor refreshed its approach to diversity
training, and all managers now attend a one day ‘inclusion
culture’ workshop, and all other employees receive a shorter
training session as part of their induction process.
Training and development
Bakkavor has a long history of investing in its innovative
recruitment programmes.
The Bakkavor Youth Strategy Programme targets the next
generation of potential Bakkavor employees and helps raise
awareness of the Group amongst young people attending schools
located near Bakkavor UK factories. In 2017, the Group invested
in ten strategic partnerships with schools to support industry
talent growth through the Institute of Grocery Distribution (“IGD”)
‘Feeding Britain’s Future’ programme.
In addition, over 200 people in the UK are currently part of
our Apprenticeship Programme which covers a broad range
of training specialisms including Engineering, Manufacturing
and Product Development. During the year, we expanded this
programme with additional areas of specialism and increased
the number of places available.
Bakkavor also continued to work closely with the National Skills
Academy during the year to develop new training standards and
to increase its network of training providers. The Group’s
commitment to training and development was recognised with
the award of ‘Training Programme of the Year’, won in conjunction
with CQM Training & Consultancy at the Food Manufacturing
Excellence Awards.
Our long-running Graduate Programme provides the opportunity
to learn and develop in a wide range of roles across the Group and
the programme continues to give Bakkavor a vital talent pipeline
for its future leaders. A number of our Senior Management
originally joined the Group through this scheme and in 2017 the
Group welcomed a further 18 graduates to the UK programme.
Bakkavor also continued to develop its relationship with the
University of Lincoln which supports the programme through
innovation workshops and projects.
Bakkavor currently has 13 graduates on its Graduate Programme
to develop our business in China. The programme, which has
been running successfully for several years, is a three-year
programme which includes the first year in the UK to develop
a strong understanding of the business, operations and best
practice standards.
The Group is committed to providing appropriate training to
ensure that its employees have the skills necessary to do their job.
The in-house Bakkavor Training System (“BTS”) enables Bakkavor
to monitor compliance and plan and record training for factory
site-based colleagues in the UK. In 2017, BTS was enhanced to
allow Bakkavor to conduct real time assessments to improve the
reliability of these results.
The Group also piloted its first e-learning module which provided
online learning of the performance management process for
salaried colleagues. The system will be developed further in
2018 to bring online an effective process for booking training
courses. Bakkavor is very proud of its tiered approach to
management and leadership training and development. The
Group’s personal development programme for senior business
leaders ‘Leading for Success’ was extended to approximately
35 colleagues across the Group during the year. In addition, the
Group’s ‘Recipes for Success’ programme continued to run for
functional managers and was enhanced during the year with
further online support resources.
Bakkavor continues to support its people through local initiatives
and launched a UK-wide Employee Assistance Programme
(“EAP”) in 2017. The system provides support in a range of ways
including webinars and access to articles, promotional campaigns
and tools on topics such as financial budgeting, wellbeing
assessments and confidential counselling services.
33
CORPORATE RESPONSIBILITY CONTINUED
Employee engagement
Employee engagement is important to our operations and the
way we do business.
We measure our engagement levels through a Group-wide
Employee Engagement Survey conducted every two years.
In the intervening year, Bakkavor holds a Pulse Survey, which
represents the views of around 20% of employees selected
at random.
In 2017, the Employment Engagement score from the Pulse
Survey improved from 29% to 31%. The Group recognises that
whilst this is a small improvement versus the prior year,
Bakkavor will continue to actively review factory site based
initiatives targeted at improving workplace engagement.
Workplace recruitment, retention and development
priorities for 2018 are:
• To increase awareness of apprenticeship programmes in
the UK and internationally
• To continue to develop internal talent and succession
plans to support business growth
• To further develop a centralised resourcing model to
support business growth
Employee health and safety
Bakkavor promotes a proactive safety awareness and accident
prevention culture by empowering employees to do the right
thing, to raise risk awareness and to actively support solutions
to improve the Group’s health and safety performance.
The Group’s health and safety culture is based on strong
governance processes and is driven from the Group Board.
Bakkavor has health and safety teams in place that define
standards and monitor compliance with the Group’s systems
for ensuring workplace health and safety. These systems are
risk-based and are implemented through the Group’s Health
and Safety Management System to ensure compliance with
relevant legal responsibilities.
Systems include comprehensive compliance audits carried
out by qualified experts, performance monitoring and reporting,
and a well-established process for capturing and sharing good
practice and learnings.
Bakkavor recognises excellence in safe ways of working through
Group-wide award and recognition programmes. During the year,
the Group hosted its annual GEF and part of the event’s agenda
was dedicated to communicating safety messages and sharing
best practice initiatives. The GEF also included the Bakkavor
Group Responsibility Awards ceremony which recognised health
and safety activities and initiatives carried out across sites in the
UK during the year. The main award this year was to our fresh
cut salads site at Bourne for the design and implementation of
a conveyor feed system to reduce handling and improve
maintenance processes.
34
Bakkavor Group plc — 2017 Annual Report
Our commitment to ensuring a safe working environment for
everyone on our sites was recognised with four awards from
the Royal Society for the Prevention of Accidents in 2017.
Particular focus during the year was given to reducing risk
associated with workplace transport, raising awareness of
machinery safety and further supporting and communicating
the Group’s accident prevention culture across factory sites.
For example, the Group focused on areas where moving vehicles
are present and helped prevent related accidents in yards by
segregating areas and prohibiting access. Bakkavor also
reinforced its site rules and management processes around
visiting drivers and driver standards.
To help prevent machinery accidents, 248 employees undertook
Machinery Safety Workshops in the year.
In 2017, the total number of accidents in the UK business was
1,864, a 9% improvement on the prior year. The total number of
accidents resulting in more than seven days of lost time was 66,
an improvement of 4% versus the prior year.
The number of major accidents recorded in the UK business was
seven, the same as the prior year, and a 77% outperformance
against the HSE industry average.
Workplace health and safety priorities for 2018 are:
• To continue to drive our governance process to identify
risks and risk reduction
• To foster and embed a positive approach to workplace
health and safety across the Group
• To further develop training and risk awareness packages
across factory sites
STRATEGIC REPORT Workplace accidents data for the UK
Major* accidents
per 100k employees
>7 days lost-time accidents
per 100k employees
Total accidents
per 100k employees
2017
40
380
2016
41
406
10,745
12,089
* Number of ‘major’ accidents as defined by the Health and Safety Executive.
Major accidents in the UK per 100,000 employees versus
the HSE industry average
At 30 December 2017, 87%, 8% and 5% of the Group’s UK
employees were employed in production, management &
administration and sales & distribution, respectively.
In 2017, the Group reported employee turnover in the UK
of 22.7%, representing an increase of 5.1% versus 2016. This
is in line with average levels in the UK manufacturing sector.
Turnover includes voluntary and involuntary leavers and
excludes employees on fixed term contracts and those
affected by redundancy. In 2017, the average length of service
of employees in production was six years, while that of employees
in management and administration was eight years.
Employees by gender
Female
Male
Total number of employees
UK
7,116
10,232
17,348
International
972
1,273
2,245
221
205
152
153
Senior management by gender
113
107
92
45
41
40
Female
Male
Total
Group Board and
Management Board
2
10
12
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
HSE INDUSTRY AVERAGE
BAKKAVOR
Workplace data
The Group employs 19,593 employees in total. Approximately
98% of employees are considered permanent.
The Bakkavor UK Gender Pay Report 2017 is available on the
Group website as part of its annual requirement as a company
with more than 250 employees. Bakkavor will publish its UK
Gender Pay Report 2018 in its 2018 Annual Report and on its
website in due course, and is committed to advancing and raising
the profile of gender equality across the Group.
Employees by location
United Kingdom
US
China
Continental Europe
Total number of employees
Employees by function
Production
Management and administration
Sales and distribution
Total number of employees
2017
2016
17,348
595
1,628
22
19,593
2017
16,653
1,992
948
19,593
17,007
450
1,468
20
18,945
2016
16,280
1,740
925
18,945
35
In addition, the Bakkavor bread team supported its local
community as lead sponsor of the Whitchurch Food & Drink
Festival and the Live Cookery Theatre in Cheshire. As part of their
involvement in the community event, they also raised funds for the
Wingate Special Children’s Trust in Crewe through proceeds from
their bakery stand.
In the US, Bakkavor has donated surplus food to the Lives
Transformed Mission for the past six years. Approximately 100
pounds of food per week is donated, which is distributed to various
local organisations including a women’s shelter, a half-way house
for men, Open Arms Ministry, the Community Kitchen and Meals
on Wheels. A team from the Charlotte factory site also donated
toys for a local family shelter in the Charlotte area.
CORPORATE RESPONSIBILITY CONTINUED
COMMUNITY
We aim to support the communities in which we work, giving
opportunities to support those causes and projects that are
important to our people.
The Group’s chosen charities for the year were The Prince’s Trust
and The Prince’s Countryside Fund.
2017 was the third year of our partnership with The Prince’s Trust.
Our investment and commitment have enabled the Trust to
support many young people. For example, through the ‘World of
Work’ tours, we have helped raise the skill levels and aspirations
of many young lives. In addition, a team of Bakkavor employees
completed the ‘Palace to Palace’ bike ride during the year to raise
funds for The Prince’s Trust.
During the year, colleagues on the Bakkavor Graduate
Programme raised funds for The Prince’s Countryside Fund
through an ‘Art of Food’ photography competition and art auction
and participation in the Three Peaks 24-mile challenge.
Supporting local causes
As part of being a responsible business, the Group encourages
employees at its factory sites to select and support the local
causes and initiatives that matter most to them. This process
is initiated via local SEFs and supported via the annual GEF
which celebrates the actions local teams have undertaken
during the year.
Initiatives included the annual ‘Bakkavor Fun Weekend’ held
in Spalding in July. This year, over £30,000 was donated to local
charities including Lincolnshire and Nottingham Air Ambulance,
Spalding Air Cadets, Spalding Town Husbands and Action
Medical Research.
Other local community events and fundraisings include Sutton
Bridge site’s Christmas present wrapping event, a healthy eating
school jamboree at Tilmanstone site, and Caledonian site’s
support of the Bo’ness Fair Festival.
36
Bakkavor Group plc — 2017 Annual Report
STRATEGIC REPORT GOVERNANCE
CHAIRMAN’S LETTER ON CORPORATE GOVERNANCE
COMMITTED TO THE HIGHEST STANDARDS
OF CORPORATE GOVERNANCE
The Governance Code recommends that at least half the board
of directors of a UK listed company, excluding the Chairman,
should comprise Non-executive Directors determined by the
Board to be independent. I am delighted that Jane Lodge, an
Independent Non-executive Director, was appointed to the Group
Board with effect from 3 April 2018, and so Bakkavor is now fully
compliant with this Governance Code provision.
As part of the preparation for the IPO, we worked with our
professional advisers to review Bakkavor’s governance policies
and formalise its arrangements for the division of responsibilities
between Agust Gudmundsson as Chief Executive Officer and
myself as Chairman. We refreshed the matters reserved for
the decision of the Group Board and adopted additional
governance policies covering such areas as share dealing
restrictions for Directors and Senior Executives, and the
treatment of Inside Information.
The report on Corporate Governance sets out the processes
which ensure that we comply with all applicable laws and
regulations. It also outlines how we will create the necessary
internal culture to enable us to meet the requirements of our
shareholders and wider stakeholders to deliver long-term
sustainable growth. The Group Board is committed to maintaining
an open dialogue with shareholders and welcomes the opportunity
to meet with those who are able to attend our Annual General
Meeting (“AGM”) on 23 May 2018.
The Group Board believes the culture within which the business
operates is an important part of its success and has a significant
impact on the success of our governance arrangements.
It has been an evolutionary year and we have made good progress
enhancing Bakkavor’s governance. I am sure this will help
continue to drive performance and enable us to stay aligned with
best practice over the coming years.
I greatly value the diverse and complementary range of skills
and experience of my fellow Board members. Our discussion
and debate takes place within an environment of openness,
mutual trust and respect, and I would like to extend my thanks
to all Board members for their valuable support and commitment.
I look forward to reporting to you next year on how our governance
arrangements have continued to evolve.
Simon Burke
Chairman
9 April 2018
37
DEAR SHAREHOLDER
In our first Annual Report as a public company,
I am delighted to take the opportunity to
make a statement on Bakkavor’s approach
to corporate governance.
The Group Board is committed to the highest standards of
corporate governance, and recognises that good governance is
critical in building a successful business that is sustainable for the
longer term. 2017 was a progressive year for Bakkavor in terms of
its governance structures, as it transitioned to public ownership.
In preparation for Bakkavor’s IPO and Admission to the London
Stock Exchange, the Group Board established a Nomination
Committee and a Remuneration Committee and took steps to
develop and enhance its existing Audit Committee. These steps
were intended to ensure Bakkavor is in line with established best
practice for Listed Companies, as set out in the UK Corporate
Governance Code (the “Governance Code”), published in April
2016 by the Financial Reporting Council (“FRC”).
In anticipation of the IPO, a new legal entity, Bakkavor Group plc,
was established as the overall parent company of the Group.
Agust Gudmundsson (Chief Executive Officer) and Robert Berlin
(Non-executive Director) became Directors of Bakkavor Group plc
on 28 September 2017, and the following became Directors on
20 October 2017:
• I was appointed as Independent Non-executive Chairman
• Peter Gates was appointed as Chief Financial Officer and
Director
• Lydur Gudmundsson was appointed as Non-executive Director
• Todd Krasnow was appointed as Independent Non-executive
Director
• Denis Hennequin was appointed as Independent Non-executive
Director
• Sue Clark was appointed as Independent Non-executive
Director
GOVERNANCE
GROUP BOARD
WE BELIEVE IN DOING THE RIGHT
THING, IN THE RIGHT WAY
PETER GATES
Chief Financial
Officer
TODD KRASNOW
Independent
Non-executive Director
AGUST GUDMUNDSSON
Chief Executive
Officer
SIMON BURKE
Independent
Non-executive Chairman
NC
RC
AC
Agust is one of the founders
of Bakkavor and has served
as Chief Executive Officer of
Bakkavor since May 2006. He
served as Executive Chairman
of Bakkavor from 1986, the
year the Bakkavor Group was
founded, through to May 2006.
Agust received his education
from the College of Ármúli in
Reykjavik, Iceland.
Peter joined Bakkavor
in 2010 as Chief Financial
Officer and was appointed
to the Group Board in 2017.
Prior to joining Bakkavor, he
was Group Treasurer at Avis
Europe plc. As a chartered
accountant, Peter has
responsibility for Finance as
well as Treasury, Tax, Legal,
Communications and
Information Technology.
Peter holds a Bachelor of
Science from Southampton
University.
Todd has served as a
Non-executive Director
of Bakkavor since January
2016. He is a senior
executive at a number of
multi-national companies
with extensive experience
in the retail and consumer
services sectors. In addition,
Todd currently serves on
the boards of Carbonite,
Tileshop, C&S Wholesale
Grocers and Ecentria, Inc.
He has also served on the
boards of a number of
companies in the past,
including On Force, Inc.
and Piedmont Limited. He
holds a bachelor’s degree
from Cornell University and
an MBA from Harvard
Business School.
Simon has served as a Non-executive
Director of Bakkavor since February
2017. He is a chartered accountant
with over 30 years’ experience in
the retail and food sectors. Following
a decade in financial and advisory
roles, he was appointed CEO of Virgin
Retail UK in 1988, and following a
turnaround of that business, held
increasingly senior roles until
appointed CEO of the global Virgin
Entertainment Group in 1996. In 1999,
Simon was appointed Chairman and
Chief Executive of Hamleys plc
where he completed a successful
restructuring and subsequent sale
of the company in 2003. Simon then
specialised in value creation roles in
both quoted companies and private
equity backed businesses. He has
chaired many well-known consumer
businesses, including Majestic Wine,
Mitchells & Butlers, Bathstore.com,
and Superquinn. He is currently
Senior Independent Director of the
British Broadcasting Corporation
and a Non-executive Director of
the Co-operative Group Limited.
He is also Chairman of The Light
Cinemas (Holdings) Limited and
Blue Diamond Limited.
38
Bakkavor Group plc — 2017 Annual Report
DENIS HENNEQUIN
Independent
Non-executive Director
SUE CLARK
Independent
Non-executive Director
ROBERT BERLIN
Non-executive Director
LYDUR GUDMUNDSSON
Non-executive
Director
AC
NC
RC
AC
NC
RC
NC
NC
Lydur is one of the founders
of Bakkavor. He served as
Chief Executive Officer from
1986 to 2006; Executive
Chairman from 2006 to 2010;
and Chairman of the Board
of Directors of the Bakkavor
Group from 2010 to 2017. Lydur
received his education from the
Commercial College of Iceland.
Robert is currently a Non-
executive Director of Bakkavor
and has been serving since
the Baupost Group made an
investment into the Bakkavor
Group in January 2016. He is a
senior investment professional
with wide-ranging experience,
including foodservice and
consumer companies, having
held a number of strategic
roles within the tech and
financial sectors. Robert is
currently a Managing Director
of Baupost and received his
education from the Washington
& Lee University in Virginia,
United States.
Denis has served as a
Non-executive Director of
Bakkavor since February 2017.
He has extensive leadership
experience within the retail
sector, spending the majority
of his career with the
McDonald’s Corporation in a
variety of senior financial and
operational roles before
becoming President and Chief
Executive Officer of McDonald’s
Europe, where he was
responsible for changing the
image and concept and
securing its market-leading
position. Denis was appointed
Chairman and Chief Executive
Officer of Accor in 2011 where
he was responsible for an
estate spread across over
90 countries. He left Accor in
2013 to pursue an advisory and
portfolio career. He is currently
a Non-executive Director of
Eurostar International Limited
and SSP Group plc.
Sue has served as a Non-
executive Director of Bakkavor
since October 2017. She was
formerly Managing Director of
SABMiller Europe from 2012
to 2016, where she returned
the region to growth through
innovation and premiumisation
of its well-loved consumer
brands. Sue was a member
of the SABMiller executive
team from 2003 that built the
business into a top five FTSE
company and was involved in
major corporate transactions
and business transformations,
particularly in the Americas,
Africa and Asia. She is
currently a Non-executive
Director on the boards of
Akzo Nobel, Tulchan
Communications LLP and
Britvic plc where she also
chairs the Remuneration
Committee. Sue holds a Master
of Business Administration
from Heriot Watt University
and a Bachelor of Science
from Manchester University.
Board Committees
Nomination Committee
NC
Audit and Risk Committee
AC
Remuneration Committee
RC
Report on page 47
Report on page 48
Report on page 53
39
GOVERNANCE
MANAGEMENT BOARD
AGUST GUDMUNDSSON
Chief Executive Officer
See Group Board profile on page 38
PETER GATES
Chief Financial Officer
See Group Board profile on page 38
IVAN CLINGAN
President and
Chief Executive Officer, Bakkavor USA
Ivan joined Bakkavor in 1990 from Nestlé
UK. During his career at Bakkavor he has
held a number of operational and general
management roles and was appointed as
head of Bakkavor’s US operations in 2016.
Ivan has overall responsibility for the
US operations.
MIKE EDWARDS
Chief Operating Officer, UK
Mike joined Bakkavor in 2001 from Heinz.
During his career at Bakkavor he has
held a number of senior roles and was
appointed Chief Operating Officer in 2014.
Mike has responsibility for UK operations,
including technical development.
PIPPA GREENSLADE
Group Human Resources Director
Pippa joined Bakkavor in 2013 from the
British Council, where she was Global HR
Director. Prior to that, she spent 23 years
with Cadbury Schweppes in a variety of
senior HR roles in the UK, Singapore, US
and Russia. Pippa has global responsibility
for HR.
EINAR GUSTAFSSON
Managing Director, Bakkavor China
Einar joined Bakkavor in 2005 from
Deloitte LLP. During his career at
Bakkavor, Einar has held responsibility for
the overall management and development
of Bakkavor’s operations in mainland
China and Hong Kong.
Pictured from left to right: Ivan Clingan, Mike Edwards, Peter Gates, Agust Gudmundsson, Pippa Greenslade, Einar Gustafsson
40
Bakkavor Group plc — 2017 Annual Report
CORPORATE GOVERNANCE COMPLIANCE STATEMENT
CORPORATE GOVERNANCE OVERVIEW
This report describes Bakkavor’s
corporate governance structures and
procedures and the work of the Group
Board, its Committees and the
Management Board, and how Bakkavor
has applied the main principles of the
Governance Code following its IPO.
The principal corporate governance
rules applying to Bakkavor (as a UK
company listed on the London Stock
Exchange (“LSE”)) for the year ended
30 December 2017 are contained in the
UK Financial Conduct Authority (“FCA”)
Listing Rules, and the Governance Code
as updated and published by the FRC in
April 2016.
A copy of the Governance Code can
be downloaded from the corporate
governance pages of the FRC’s
website (https://www.frc.org.uk/directors/
corporate-governance-and-stewardship/
uk-corporate-governance-code).
The Group Board considers that
Bakkavor has been compliant with
the Governance Code provisions except
as noted opposite:
Provision
Explanation
B.1.2 — at least half the
Board, excluding the
Chairman, should comprise
Non-executive Directors
determined by the Board
to be independent.
B.4.2 — the review of Non-
executive Directors’ training
development requirements.
B.6.1 and B.6.3 — the Board
has not carried out a
performance evaluation and
the Non-executive Directors,
led by the Senior Independent
Director, have not carried out
a performance evaluation of
the Chairman.
C.3.1 — in smaller companies,
the Company Chairman may
be a member of, but not chair,
the Audit and Risk Committee
in addition to the Independent
Non-executive Directors,
provided he or she was
considered independent on
appointment as Chairman.
Bakkavor’s IPO was completed in November 2017
and the Group was unable to achieve full compliance
at this time. Jane Lodge, an Independent Non-
executive Director, was appointed to the Group
Board with effect from 3 April 2018, and the Group
Board is now fully compliant with this Governance
Code provision.
Given the short period between Bakkavor’s IPO and
the financial year end, the Chairman did not consider
it appropriate to review and agree with each Director
their training and development needs. The Chairman,
with the support of the General Counsel and Company
Secretary, will ensure the development and ongoing
training needs of the Group Board are reviewed and
agreed at least annually.
Given the short period between Bakkavor’s IPO
and the financial year end, the Group Board did not
consider it appropriate to carry out a performance
evaluation process prior to the publication of the
Annual Report. The Group Board believes that a
meaningful evaluation can only take place after it
has been working together for a reasonable time,
and therefore an agreed approach to evaluation will
be developed and implemented before the end of the
financial year 2018 and annually thereafter. This will
include an externally facilitated evaluation process at
least every three years.
Bakkavor’s IPO was completed in November 2017
and the Group was unable to meet this requirement
at that time. The Audit and Risk Committee was
chaired by the Company Chairman, Simon Burke.
To ensure full compliance with this Governance
Code provision, Jane Lodge, an Independent Non-
executive Director was appointed to the Group Board
with effect from 3 April 2018 and will assume the
Chair of the Audit and Risk Committee. At the same
time, Simon Burke will step down from the Audit and
Risk Committee.
41
CORPORATE GOVERNANCE REPORT
LEADERSHIP
“Every company should be headed by an effective Board
which is collectively responsible for the long-term success
of the company.”
The role of the Group Board and Management Board
The Group Board provides guidance and entrepreneurial
leadership of Bakkavor by setting the strategic direction of
the Group and overseeing management’s implementation
of the strategy.
It is collectively responsible for the long-term success of
the Group through the creation and delivery of sustainable
shareholder value. In exercising this responsibility, the Group
Board takes into account the needs of all relevant stakeholders.
It is accountable for ensuring that, as a collective body, it has
the appropriate skills, knowledge and experience to perform
its role effectively. The Group Board is provided with timely
and comprehensive information to enable it to discharge its
responsibilities, to encourage strategic debate and to facilitate
robust, informed and timely decision-making.
The Group Board is supported by the Management Board, which
implements the strategic objectives set by the Group Board, and
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.
In anticipation of Bakkavor’s IPO, the Schedule of Matters
Reserved for the Group Board was reviewed and updated along
with the delegated authority framework to ensure that unusual
or material transactions are brought to the Group Board for
approval. Decisions reserved for the Group Board include
approval of strategic plans and annual budgets, acquisitions,
audited accounts and the appointment of additional Directors.
The Schedule of Matters Reserved for the Group Board is
available for review on the Company’s website:
https://www.bakkavor.com/~/media/Files/B/Bakkavor-V3/PDF/
corporate-governance/schedule-of-matters-reserved-for-the-
board.pdf
Group Board composition
The Group Board currently comprises a Non-executive Chairman
who was independent on appointment, two Executive Directors,
two Non-independent Non-executive Directors and four
Independent Non-executive Directors, supported by the General
Counsel and Company Secretary and the Management Board.
The Group Board operates a clear division of responsibilities
between the Chairman and the Chief Executive Officer.
Chairman
The Chairman, Simon Burke, is responsible for leading the Group
Board and creating the right conditions, including its membership
and that of its Committees, to ensure the Group Board’s
effectiveness in all aspects of its role.
The Chairman sets the Group Board’s agenda, in consultation with
the Chief Executive Officer and the General Counsel and Company
Secretary, taking full account of Group Board members’ issues
and concerns and the need to allow sufficient time for robust
and constructive discussion and challenge. He is responsible for
encouraging and facilitating active engagement by all Directors,
drawing on their skills, knowledge and experience.
The Chairman is also responsible for promoting effective
communication between the Group Board, Senior Management,
shareholders and other major stakeholders.
The Chairman has a close working relationship with the
Chief Executive Officer and the General Counsel and Company
Secretary to ensure that the strategies and actions agreed by the
Group Board are effectively implemented. At least annually, the
Chairman meets with the Non-executive Directors without the
Executive Directors present to discuss, amongst other matters,
the Executive Directors, the Group Board as a whole, the
Committees and the interaction between the Executive and
Non-executive Directors.
Chief Executive Officer
The Chief Executive Officer, Agust Gudmundsson, has specific
responsibility for recommending the Group’s strategy to the
Group Board and for implementing agreed strategy once
approved. In undertaking such responsibilities, the Chief Executive
Officer takes advice from and is provided with support by the
Management Board and Group Board colleagues and his Senior
Management team.
Together with the Chief Financial Officer, the Chief Executive
Officer monitors the Group’s operating and financial results and
directs the day-to-day business of the Group. The Chief Executive
Officer is also responsible for recruitment and development of the
Group’s Senior Management team below Group Board level.
Chief Financial Officer
The Chief Financial Officer, Peter Gates, is responsible for the
financial reporting of the Group, for monitoring the Group’s
operating and financial results and for management of the
Group’s internal financial risk management and financial control
systems. He supports the Chief Executive Officer in implementing
the Group’s strategy and in relation to the financial and
operational performance of the Group.
Management Board
The Management Board implements the strategic objectives
set by the Group Board and agrees on performance criteria,
and delegates to 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 responsibilities delegated to the Management Board cover
the following areas:
• Preparing strategic proposals, corporate plans, and budgets
• Executing the strategy agreed upon by the Group Board
42
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE • Executing actions in relation to key Group Board decisions
such as investments, mergers, and acquisitions
• Opening bank accounts and authorising financial payments
• Signing of contracts
• Signing of regulatory documents
• External communication
• Staff recruitment and remuneration
• Establishing a system of internal control and risk management
• Monitoring performance and evaluation of health and safety
Non-executive Directors
The role of the Non-executive Directors is to offer guidance and
advice to the Group Board as a whole and the Executive Directors
in particular, drawing on their wide experience across many
industries. They also provide scrutiny, constructive challenge
and oversight of the Executive Directors and Senior Management.
Senior Independent Director
Denis Hennequin is the Senior Independent Non-executive
Director and in this capacity he acts as a sounding board for
the Chairman. He serves as a trusted intermediary for the other
Directors when necessary. He is also available to shareholders if
they are unable to resolve their concerns through communication
with the Chairman, Chief Executive Officer or other Executive
Directors, or when shareholders prefer to speak directly to him.
He is responsible for evaluating the performance of the Chairman
on behalf of the other Directors.
General Counsel and Company Secretary
The General Counsel and Company Secretary, Simon Witham,
supports and works closely with the Chairman, the Chief
Executive Officer and the Group Board Committee Chairs in
setting agendas for meetings of the Group Board and its
Committees. He supports the accurate, timely and clear
information flow to and from the Group Board and the Group
Board Committees, and between Directors and Senior
Management. The General Counsel and Company Secretary also
advises the Group Board on corporate governance issues and
Group Board procedures and is responsible for administering
Bakkavor’s Share Dealing Code and the AGM.
How the Group Board operates
Prior to the IPO, Bakkavor Group Limited was the parent company
of the Group. During the year, the Board of Bakkavor Group
Limited met four times as scheduled, and then a further three
times to discuss important ad hoc emerging issues. The
Management Board of Bakkavor Group Limited met 10 times.
In preparation for the IPO, Bakkavor’s corporate structure was
reorganised. Bakkavor Group Limited was re-named Bakkavor
Holdings Limited, and a new legal entity, Bakkavor Group plc,
was established as the parent company of the Group. The first
Group Board meeting of Bakkavor Group plc was held on 20
October 2017, and following the IPO, the Group Board met again
on 29 November 2017.
In 2018, the Group Board plans to hold eight regular meetings
including an annual strategy day to review strategic options open
to the Group in the context of the economic and regulatory
environment. The Management Board members below Group
Board level will attend meetings as required to present and
discuss matters relating to their business areas and functions,
and the Management Board will also meet separately throughout
the year on a regular basis.
The Group Board will additionally meet when necessary between
scheduled Group Board meetings to discuss important ad hoc
emerging issues that require consideration.
Each Director commits to dedicating an appropriate amount
of time to their duties during the financial year, and it is
expected that the Non-executive Directors will meet the
time commitment reasonably expected of them, pursuant to
their letters of appointment.
Where Directors are unable to attend meetings, they are
encouraged to give the Chairman their views in advance on the
matters to be discussed.
Attendance at Board meetings
The number of full scheduled Group Board meetings attended by
each Director during the year, including the Group Board strategy
day, is set out below:
Scheduled meeting
eligible to attend
Board
Bakkavor Holdings Limited
(formerly Bakkavor Group Limited)
Non-executive Directors
Robert Berlin
Simon Burke
Denis Hennequin
Todd Krasnow
Executive Directors
Agust Gudmundsson
Lydur Gudmundsson
Bakkavor Group plc
Chairman
Simon Burke
Non-executive Directors
Robert Berlin
Sue Clark
Lydur Gudmundsson
Denis Hennequin
Todd Krasnow
Executive Directors
Agust Gudmundsson
Peter Gates
7
7
7
7
7
7
2
2
2
2
2
2
2
2
Scheduled meetings
attended
7
7
7
6
7
7
2
2
2
2
2
1
2
2
43
CORPORATE GOVERNANCE REPORT CONTINUED
Group Board activities during the year
The Group Board meeting agendas during the year included
business across the following key areas pursuant to the
Schedule of Matters Reserved for the Group Board:
IPO
• Discussed and agreed all matters relating to the
preparation for and finalisation of the IPO and reviewed
the overall process post-IPO.
Strategy
• Discussed and agreed the forward-looking strategic
priorities for the Group.
Business, operational highlights and current trading
• Received reports from the Chief Executive Officer and
Chief Financial Officer and business updates on
performance in the UK, China and the US, including
relevant significant operational issues and challenges.
Financial performance
• Reviewed the financial performance of the Group and
approved all financial results announcements and the
Annual Report.
Forecast and budget
• Received updates on performance against the prior year
and approved the 2018 budget.
Governance and risk
• Discussed the Group’s corporate governance processes
particularly in light of the preparation for the IPO, and
the shape and content of future Group Board meetings.
Introduced a revised Code of Conduct and policies to
ensure that Bakkavor’s obligations to its investors and
other stakeholders are clear, understood and observed.
Discussed the risks faced by the Group during the
financial year, and potential risk profiles looking
ahead to 2018.
People
• Received reports from the Group HR Director on key HR
issues and discussed matters including turnover rates,
Brexit impact, succession planning and people retention
strategies.
GROUP BOARD COMMITTEES
The Group Board has established three Board Committees,
comprising only Non-executive Directors. Each Committee
has agreed Terms of Reference which were approved by
the Group Board, and are available on our website:
https://www.bakkavor.com/investors/governance
These Committees assist with the detailed oversight of
Bakkavor’s financial reporting, risk management and internal
and external audit work, establishing the Remuneration Policy
and overseeing its implementation, and establishing appropriate
succession and contingency plans for the Directors and Senior
Managers, including undertaking appropriate searches for
new Directors as required.
Audit and Risk Committee
The Audit and Risk Committee’s role is to assist the Group Board
with the discharge of its responsibilities in relation to financial
reporting, including reviewing the Group’s annual and half-year
Financial Statements and accounting policies, risk management
and internal and external audits and controls. It reviews and
monitors the scope of the annual audit and the extent of the
non-audit work undertaken by External Auditors, advises on the
appointment of External Auditors and reviews the effectiveness of
the Internal Audit and risk management, internal control and risk
management, whistleblowing and fraud systems in place within
the Group. The Audit and Risk Committee will normally meet not
less than four times a year.
Chair
Simon Burke (interim Chair)
Members
Sue Clark
Denis Hennequin
Supported by:
Simon Witham, General Counsel and
Company Secretary
Nomination Committee
The Nomination Committee assists the Group Board in reviewing
the structure, size and composition of the Group Board. It is also
responsible for reviewing succession plans for the Directors,
including the Chairman and Chief Executive Officer and other
Senior Executives. The Nomination Committee will normally meet
not less than twice a year.
Chair
Todd Krasnow
Members
Robert Berlin
Sue Clark
Denis Hennequin
Lydur Gudmundsson
Supported by:
Simon Witham, General Counsel and
Company Secretary
Remuneration Committee
The Remuneration Committee recommends the Group’s policy on
executive remuneration, determines the levels of remuneration
for Executive Directors and the Chairman and other Senior
Executives and prepares an annual remuneration report for
approval by the shareholders at the AGM. The Remuneration
Committee will normally meet not less than three times a year.
Chair
Denis Hennequin
Members
Sue Clark
Todd Krasnow
Supported by:
Pippa Greenslade, Group HR Director
The Chairman of each Committee reports to the Group Board on
the matters discussed at Committee meetings, and the minutes
of the Committee meetings are made available to all Directors.
Reports from each Group Board Committee Chair, including
information on the Committees’ composition and activities in the
year, can be found in the sections relating to each Committee
within this report.
44
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE
EFFECTIVENESS
“The Board and its committees should have the appropriate
balance of skills, experience, independence and knowledge of
the company to enable them to discharge their respective duties
and responsibilities effectively.”
Group Board composition
It is a core feature of good corporate governance that the Group
Board and its Committees have an appropriate balance of skills,
experience, independence and knowledge to enable the effective
discharge of their duties and responsibilities. Part of the role of
the Chairman and the Nomination Committee is to keep the
balance of skills and expertise on the Group Board and its
Committees under review and make recommendations to the
Group Board where changes are appropriate to maintain that
balance. The Group Board considers that the range of skills,
experience and background of each of the Directors is sufficiently
relevant and complementary to allow appropriate oversight,
challenge and review of Bakkavor’s progress in achieving its
corporate goals.
A summary of the experience and background of each Director
is set out on pages 38 to 39.
It is Bakkavor’s policy, in line with the Governance Code, that
proposed appointments to the Group Board follow an open and
transparent recruitment process and that candidates are
assessed on merit against objective criteria.
Diversity
The Directors recognise the importance of diversity and
understand the significant benefits that come with having a
diverse Group Board. More information on this and the Group’s
diversity statement can be found in the report of the Nomination
Committee on page 47.
Director independence
There is an appropriate combination of Executive Directors and
Non-executive Directors such that no individual or small group
of individuals can dominate the Group Board’s decision-making.
Jane Lodge, an Independent Non-executive Director, was
appointed to the Group Board with effect from 3 April 2018.
Following Jane’s appointment, the Group Board is now fully
compliant with this Governance Code, which requires that at
least half of the Group Board, excluding the Chairman, should
comprise Non-executive Directors who are determined by the
Group Board to be independent.
The independence of the Non-executive Directors will be
considered by the Group Board and reviewed on an annual
basis, as part of the Group Board effectiveness review. In
determining whether they remain independent, the Group Board
will consider factors such as length of tenure and relationships
or circumstances which are likely to affect or appear to affect
the Director’s judgement. As part of the IPO process, the Group
Board reviewed and reaffirmed that it considers each of the
Independent Non-executive Directors to be independent in
character and judgement and that there are no relationships
that might prejudice this independence.
Conflicts of interest
Directors have a statutory duty to avoid situations in which they
may have interests that conflict with those of the Company, unless
that conflict is first authorised by the Group Board. Directors are
required to disclose both the nature and extent of any potential or
actual conflicts with the interests of the Company.
In accordance with the Companies Act 2006, the Company’s
Articles of Association allow the Group Board to authorise
potential conflicts that may arise, and to impose such conditions
or limitations as it sees fit. During the year, any potential conflicts
were considered and assessed by the Group Board and approved
where appropriate.
Inside information and securities dealings
As part of the IPO process, Bakkavor adopted a formal Inside
Information Disclosure Policy, a Group Securities Dealing Code,
and a Persons Discharging Managerial Responsibilities (“PDMR”)
Securities Dealing Code setting out dealing restrictions and
procedures to ensure PDMRs and other relevant Senior Managers
seek clearance for dealing in Bakkavor shares.
Succession planning and appointments to the Group Board
Succession planning will ensure that Executives with the
necessary skills, knowledge and expertise are in place to deliver
Bakkavor’s strategy, and that the Group Board has the right
balance of individuals to be able to discharge its responsibilities.
The Group Board will regularly review its composition.
Induction
Following appointment, each Director will receive a
comprehensive and formal induction to familiarise them with
their duties and Bakkavor’s business operations, risk and
governance arrangements. The induction programme, which
is co-ordinated by the Group HR Director, includes briefings on
industry and regulatory matters relating to Bakkavor, as well as
meetings with Senior Management in key areas of the business.
Ongoing professional development
In order to facilitate greater awareness and understanding
of Bakkavor’s business and the environment in which it
operates, all Directors are given regular updates on changes
and developments in the business. Directors will continually
update and refresh their skills and knowledge, and
independent professional advice is provided when required,
at Bakkavor’s expense.
In preparation for the IPO, the Directors received advice from
Freshfields Bruckhaus Deringer LLP on their duties as Directors
of a listed company, and their ongoing obligations under the FCA’s
Listing Rules and Disclosure Guidance and Transparency Rules.
Annual re-election of the Group Board
In compliance with the Governance Code, all Directors will
retire and offer themselves for re-election or re-appointment
as appropriate at each year’s AGM. At our first AGM, to be
held on 23 May 2018, each Director, regardless of their date of
appointment or length of service, will offer himself or herself for
re-election as a Director.
Group Board evaluation
It is intended that an evaluation of the effectiveness of the Group
Board will be conducted in 2018.
45
CORPORATE GOVERNANCE REPORT CONTINUED
ACCOUNTABILITY
“The Board should present a fair, balanced and understandable
assessment of the company’s position and prospects.”
Financial and business reporting
The Strategic Report from page 4 describes the business model
and strategy and how Bakkavor generates and preserves value
over the long term and delivers its strategic objectives.
A Statement of Directors’ Responsibilities in respect of the
Financial Statements is set out on page 75 and a statement
regarding the use of the going concern basis in preparing
these Financial Statements is provided in the Directors’ Report
on page 74.
Risk management and internal control
The Group Board has responsibility for ensuring the maintenance
of the Group’s risk management and internal control systems and
reviewing them annually.
The framework under which risk is managed in the business is
supported by a system of internal controls designed to embed the
effective management of the key business risks throughout the
Group. The risk management and internal controls systems are
designed to manage rather than eliminate the risk of failure to
achieve business objectives, and can only provide reasonable and
not absolute assurance against material misstatement or loss.
Through reports from the Audit and Risk Committee, the
Group Board regularly reviews and monitors the Group’s risk
management and internal controls systems and the effectiveness
with which it manages the principal risks faced by the Group.
The Directors confirm that the Group Board has carried out a
robust assessment of the key risks facing the Group, including
those that would threaten its business model, future performance,
solvency and liquidity. The risks to which the Group is exposed and
the framework under which risk is managed, and its system of
internal controls, is outlined in the ‘Risk Management’ section
on pages 21 to 25 and in the ‘Viability Statement’ on page 74.
Internal controls over financial reporting
The Group’s financial reporting process has been designed to
provide reasonable assurance regarding the reliability of the
financial reporting and preparation of Financial Statements,
including Consolidated Financial Statements, for external
purposes in accordance with the International Financial Reporting
Standards (“IFRS”). The annual review of the effectiveness of the
Group’s system of internal controls included reviews of systems
and controls relating to the financial reporting process.
Internal controls over financial reporting include procedures and
policies that:
• Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions of the Group
• Provide reasonable assurance that transactions are recorded
as necessary to permit the preparation of Financial Statements
and that receipts and expenditures are being made only in
accordance with authorisations of management and respective
Directors
• Provide reasonable assurance regarding prevention or
timely detection of unauthorised acquisition, use or disposal of
Group assets that could have a material effect on the Group’s
financial and operational controls and compliance with laws
and regulations
Remuneration
The responsibility for determining remuneration arrangements
for the Chairman and Executive Directors has been delegated to
the Remuneration Committee. Information on the Remuneration
Committee and the Directors’ Remuneration Report and
Remuneration Policy can be found on pages 53 to 70.
Engagement with shareholders
It is the role of the Group Board to promote the long-term
success of the Company and to ensure that its obligations to its
shareholders and other stakeholders are met. Therefore, the
Group gives priority to effective dialogue with shareholders and
ensuring active shareholder engagement.
Throughout the year, the Chief Executive Officer, Chief Financial
Officer and Head of External Affairs met with institutional and
major shareholders.
The Group Board recognises the importance of maintaining
good and constructive communication with the Company’s
shareholders, and has in place a comprehensive programme
to facilitate this each year.
The Annual Report is an important medium for communicating
with shareholders, setting out detailed reviews of the business
and its future developments in the Strategic Report section.
In order to ensure that the members of the Group Board
develop an understanding of the views of shareholders, there is
regular dialogue with institutional investors and shareholders,
presentations by management and investor roadshows around
the time of the Group’s year-end and half-year results
announcements. Bakkavor also responds to ad hoc requests
from shareholders on a regular basis.
The Chairman, the Senior Independent Director, in his capacity
as Chairman of the Remuneration Committee, and the Executive
Directors will hold meetings with Bakkavor’s largest
institutional shareholders and market analysts to discuss
governance developments (including the Remuneration Policy),
business strategy and financial performance.
AGM
Bakkavor’s AGM provides the Group Board with the opportunity
to communicate with private and institutional investors. The
Chairman aims to ensure that all the Directors, including the
Group Board Committee Chairs, are available at the AGM
to answer questions. Bakkavor’s first AGM will be held on
23 May 2018.
46
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE REPORT OF THE NOMINATION COMMITTEE
Chairman’s overview
I am pleased to take this opportunity as Chairman of the
Nomination Committee to outline the objectives and
responsibilities of the Committee and its plans for the
coming year.
Bakkavor’s Nomination Committee was set up in October 2017
in anticipation of the IPO, and its first meeting was on 28 March
2018. It is intended that in the coming year, the Committee will
monitor the balance of the Group Board to ensure that there
remains an appropriate range of skills, experience and diversity
and will ensure succession plans for Directors and Senior
Executives are relevant and up to date.
Committee membership
The Committee consists of Non-executive Directors:
Chair
Todd Krasnow
Members
Robert Berlin
Sue Clark
Lydur Gudmundsson
Denis Hennequin
The biographies of the Committee members are set out on pages
38 to 39. The Committee will discharge its responsibilities through
a series of scheduled meetings during the year.
Meetings attendance
(since the IPO and for the year ended 30 December 2017)
The Nomination Committee did not meet during this period.
Role of the Nomination Committee
The principal role and responsibilities of the Committee include:
• Reviewing the composition of the Group Board and Group Board
Committees to ensure that they are appropriately balanced in
terms of skills, knowledge, diversity and experience
• Ensuring that there is a formal, rigorous and transparent
procedure for the appointment of new Directors
• Identifying and nominating for approval by the Group Board
suitable candidates to fill Group Board vacancies as and when
they arise
• Keeping under review the leadership needs of the Group,
with a view to ensuring the continued ability of the
organisation to compete effectively in its marketplace
The Terms of Reference of the Committee are available on
Bakkavor’s website: https://www.bakkavor.com/investors/
governance
Diversity statement
As a business, we are committed to maintaining a diverse
workforce at all levels across the Company, and how we do this
is set out in our equal opportunity policy and Code of Conduct.
The Directors recognise the importance of diversity and understand
the significant benefits that come with having a diverse Board. The
Group Board believes that diversity is a wider issue than gender,
and includes variations in experience, skills, personal attributes
and background. We have recently published our first gender pay
report which identifies the areas that we will focus on.
Given the short period between Bakkavor’s IPO and the financial
year end, the Group has yet to formalise its diversity policy.
Work on this is ongoing, and the diversity policy is expected to
be in place in 2018.
We will continue to appoint on merit, based on the skills and
experience required for membership of the Group Board, while
giving consideration to gender and other forms of diversity when
the Committee reviews the Group Board’s composition. For
appointments to the Group Board, Bakkavor uses executive
search firms who have signed up to the voluntary code of conduct
setting out the key principles of best practice in the recruitment
process. These principles include a recommendation that search
firms should consider gender diversity and Bakkavor insists on
having both male and female candidates when drawing up
longlists and shortlists of candidates.
Nomination Committee evaluation
It is intended that an evaluation of the effectiveness of the
Nomination Committee will be conducted in 2018.
Todd Krasnow
Chairman, Nomination Committee
9 April 2018
47
CORPORATE GOVERNANCE REPORT CONTINUED
REPORT OF THE AUDIT AND RISK COMMITTEE
Chairman’s overview
I am pleased to present the report of the Audit and Risk
Committee for the year ended 30 December 2017. This report
describes the Committee’s responsibilities and key activities
over the year.
In 2017, for the period prior to the IPO, the Bakkavor Holdings
Limited (formerly Bakkavor Group Limited) Audit Committee
members were Simon Burke, Robert Berlin and Todd Krasnow.
In advance of Bakkavor’s IPO, a new Audit and Risk Committee
was set up for Bakkavor Group plc comprised only of Independent
Non-executive Directors. Its first meeting took place on
11 December 2017, at which the Committee considered the
results of assurance and Internal Audit work carried out in the
year, discussed strengthening Bakkavor’s risk function, and
considered the proposed External Audit tender.
The Audit and Risk Committee met again on 20 February 2018 and
29 March 2018 to review and discuss the progress of the audit of
the Financial Statements for the year ended 30 December 2017,
approve the Internal Audit plan for 2018 and consider in detail the
Group’s IT systems and its exposure to risks such as cyber attack
and system failure. The Committee met privately with the External
Auditors on each occasion to discuss any matters they wished to
make the Committee aware of.
Committee membership
Chair
Simon Burke (Interim)
Members
Sue Clark
Denis Hennequin
The biographies of the Committee members are set out on
pages 38 to 39.
48
Bakkavor Group plc — 2017 Annual Report
Meetings attendance
(since the IPO and for the year ended 30 December 2017)
The Bakkavor Group plc Audit and Risk Committee met on
11 December 2017.
Simon Burke
Sue Clark
Denis Hennequin
Attendance
1 out of 1
1 out of 1
1 out of 1
The Committee will discharge its responsibilities through a series
of scheduled meetings during the year, the agendas of which
include risk management processes, the programme of Internal
Audit and assurance work, deep dives on key financial and other
risk areas, and work related to events in the financial calendar
of the Company.
The Governance Code requires the inclusion in the Committee
of at least one member determined by the Group Board as
having recent and relevant financial experience. I am a chartered
accountant with over 30 years’ experience in the retail and food
sectors and I am considered to fulfil this requirement.
As previously highlighted, the Governance Code states that the
Chairman of the Board shall not be a member of the Committee.
I have been acting as interim Audit and Risk Committee Chair,
however, to ensure compliance with the Governance Code, Jane
Lodge, an Independent Non-executive Director, was appointed to
the Group Board with effect from 3 April 2018 and will shortly
assume the Chair of the Audit and Risk Committee and, at the
same time, I will step down from the Committee.
The Chief Financial Officer, Group Financial Controller, General
Counsel and Company Secretary and representatives from the
External Auditors and the Internal Auditors attend the Committee
meetings by standing invitation. Members of Senior Management
from various areas of the business attend the Committee
meetings by invitation as necessary.
The Committee has four scheduled meetings a year and will
additionally meet if and when required.
Role of the Committee
The Committee’s Terms of Reference are available on the investor
section of the Bakkavor website.
https://www.bakkavor.com/investors/governance
The Audit and Risk Committee provides an independent overview
of the effectiveness of the internal financial control systems,
financial reporting processes and risk management. Its principal
responsibilities are:
• Monitoring and reviewing the effectiveness of the Group’s
Internal Audit function and its activities
• Reviewing Bakkavor’s Financial Statements, including
annual and half-year results and announcements and
reporting to the Group Board on significant financial reporting
issues and judgements
• Monitoring and reviewing and, where appropriate, making
recommendations to the Group Board on the adequacy and
effectiveness of Bakkavor’s internal control and risk
management systems
GOVERNANCE
• Reviewing in detail Bakkavor’s risks and the actions taken to
minimise risks, the policies in force, and the other sources of
assurance upon which reliance is placed to mitigate risk
• Ensuring a robust assessment is conducted of the principal
risks facing Bakkavor, including those that would threaten its
business model, future performance, solvency or liquidity
• Reviewing the content of the Annual Report and advising the
Group Board whether it is fair, balanced and understandable
• Recommending to the Group Board for approval by
shareholders, the appointment, reappointment or removal of
the External Auditor; including the agreement of the terms of
engagement at the start of each audit, the audit scope and the
External Audit fee
• Reviewing the effectiveness and objectivity of the External
Audit and the External Auditor’s independence; including
consideration of fees, audit scope and terms of engagement
and the provision of non-audit services
• Monitoring the effectiveness of Bakkavor’s whistleblowing,
anti-bribery and business ethics procedures
How the Committee operates
To ensure the Committee discharges its responsibilities appropriately, an annual forward calendar, linked to the Committee’s
Terms of Reference and covering key events in the financial reporting cycle, will be approved by the Committee.
Following each Committee meeting, a written or verbal report will be made to the Group Board in which the Chairman of the Audit and
Risk Committee describes the proceedings of the Committee meeting and makes recommendations to the Group Board as appropriate.
Activities
The Bakkavor Holdings Limited Audit Committee met twice and
dealt with the following matters:
• Review of the Financial Statements for 2016 and the External
Auditor’s Report on those Financial Statements
• Review of the Half-Year 2017 Financial Statements and the
External Auditor’s report on those Financial Statements
The Bakkavor Group plc Audit and Risk Committee met for the
first time on 11 December 2017 and again on 20 February 2018
and 29 March 2018 and dealt with the following matters:
• Review of Internal Audit work carried out during 2017 and
discussion and approval of the 2018 Internal Audit plan
• Review of significant risks and accounting policies for the year
ended 30 December 2017
• Review of the External Audit plan for the year ended 30
December 2017
• Review and update on the Group’s non-audit services policy
• Review of the Full Year 2017 Financial Statements and
Annual Report
• Review of the Group’s IT systems and its exposure to risks
such as cyber attack and system failure
• Review of the Group’s whistleblowing policy and procedures
During 2018, the Audit and Risk Committee will continue,
among other things, to focus on:
• The Group’s Internal Audit function and plan for 2018
• The Group’s internal controls and risk management system
• Whistleblowing, fraud, bribery and other compliance policies
and procedures
• Audit and Risk Committee effectiveness review
• External Audit tender
• External Auditor effectiveness, independence and fee
The following table sets out the reporting issues the Audit and Risk Committee considered during the year, and how the Committee
discharged its responsibilities:
Reporting issue
Role of the Committee
Conclusion/action taken
Principal risks and viability
For the 2017 reporting year onwards, the
Directors are required to make a statement
in the Annual Report as to the longer-term
viability of the Group.
The Committee evaluated a report from management
that set out the view of the Group’s longer-term viability.
Taking into account the
assessment by management,
the Committee agreed to
recommend the Viability
Statement to the Group
Board for approval.
49
CORPORATE GOVERNANCE REPORT CONTINUED
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
Reporting issue
Role of the Committee
Conclusion/action taken
Fair, balanced and understandable reporting
The Group is required to ensure
that its external reporting is fair,
balanced and understandable.
Having assessed all of the available
information and the assurances provided
by management, the Committee concluded
that the processes underlying the
preparation of the Group’s published
Financial Statements were appropriate in
ensuring that those statements were fair,
balanced and understandable.
At the request of the Group Board, the Committee
assessed, via discussion with and challenge of
management, whether disclosures in the Group’s
published Financial Statements were fair, balanced
and understandable. It received papers on key
judgemental areas setting out management’s
accounting treatment and also sought and obtained
confirmation from the Chief Financial Officer and his
team that they considered the disclosures to be fair,
balanced and understandable and discussed this
evaluation with the External Auditors, who took this
into account when conducting their audit. It also
established via reports from management that there
were no indications of fraud relating to financial
reporting matters.
Risk Management and internal control
The Committee is required to
assist the Group Board in the
annual review of the effectiveness
of the Company’s Risk Management
process and internal control
systems.
The Committee received a report and assessment
of those risks that might threaten the Group’s
business model, future performance, solvency or
liquidity. It considered and challenged management
on the overall effectiveness of the Risk Management
process and internal control systems. The
Committee reviewed the relevant disclosures
within the Accountability section of the Corporate
Governance Report within the Annual Report.
The Committee agreed to recommend
to the Group Board the Annual Report
statements relating to the effectiveness
of the Risk Management process and
internal control systems.
Internal Audit
The Committee is required to
oversee the performance,
resourcing and effectiveness of
the Internal Audit function.
The Committee reviewed the effective-
ness of the Internal Audit function and
approved the risk-based audit plan.
The Committee is actively engaged in
strengthening the Internal Audit function
and scope during 2018.
The Company has an Internal Audit function,
which currently comprises professionals from
an external provider, RSM, who have the skills
and experience required to carry out Internal Audit
reviews across the Company’s operational business
units. The Committee reviewed the effectiveness
of the Group’s Internal Audit function in the overall
context of the Group’s internal controls and risk
management systems.
It reviewed and assessed the risk-based Internal
Audit plan.
It reviewed and monitored management’s
responsiveness to the findings and recommendations
of the Internal Audit function.
The Committee received all Internal Audit reports
and, in addition, received summary reports on the
results of the work of the Internal Audit function on
a periodic basis.
In addition to the 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.
50
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE
Reporting issue
Role of the Committee
Conclusion/action taken
Whistleblowing and bribery
The Committee considers the adequacy
of the Group’s arrangements by which
employees may in confidence raise
concerns about improprieties in matters
of financial reporting or other matters.
Oversight of External Auditors
The Committee is required to oversee
the work and performance of Deloitte
as External Auditors, including the
maintenance of audit quality during
the period.
Audit and audit-related fees
Audit and audit-related fees include
the statutory audit of the Group and
its subsidiaries.
Non-audit fees
To safeguard the objectivity and
independence of the External Auditors
from becoming compromised, the
Committee has a formal policy governing
the engagement of the External Auditors
to provide non-audit services. The policy is
reviewed on an annual basis and this year
the Committee reviewed the Group’s policy
governing non-audit work against details
of new regulations on the statutory audit of
public interest entities which the Group is
required to comply with since its public
listing in November 2017.
The Group has updated its internal process
on the engagement of auditors and review
of non-audit services to ensure that its
policy is in line with new regulation.
The Committee reviewed the Group’s
whistleblowing policy and anti-bribery
and business ethics policy which were
updated as part of the pre IPO work on
governance and controls.
The Committee met with the key
members of the Deloitte audit team to
discuss the 2017 audit plan and agree
areas of focus.
It assessed regular reports from Deloitte
on the progress of the 2017 audit and any
material issues identified. It debated the
draft audit opinion for the 2017 year end.
The Committee was also briefed by
Deloitte on critical accounting estimates,
where significant judgement is needed.
The Committee concluded that whistleblowing
and anti-bribery processes were operating
effectively.
The Committee approved the audit plan
and the main areas of focus, including
valuation of customer deduction accruals
and impairment reviews for goodwill and
intangible assets. The Committee reviewed
and discussed with Deloitte their Audit and
Risk Committee report on the 2017 Financial
Statements which highlighted any issues
from the audit work undertaken by the
External Auditors.
During the year, the Committee reviewed
and approved a recommendation from
management on the Company’s audit
and audit-related fees.
The Committee considers the 2017 audit
fees to be in line with those expected given the
complexities of the business and the external
reporting requirements of a listed company.
The Committee reviewed and approved
all arrangements for non-audit fees.
The Committee ensured that firms other
than the External Auditors had been
considered, following a competitive
tender process, for the provision of a
wide range of services. The Committee
ensured there were no exceptions to
fee limits and approval process per the
policy during the year.
During the year, non-audit fees of £1.2 million
were paid to Deloitte as discussed in Note 6
to the Consolidated Financial Statements.
These principally related to Bakkavor's IPO.
All non-audit services for the year were
provided prior to the public listing.
The Committee continues to follow the
statutory guidance to seek to reduce the
reliance on the External Auditors for non-
audit work. The Committee approved the
rationalisation of non-audit work among
service providers by the Group.
51
CORPORATE GOVERNANCE REPORT CONTINUED
REPORT OF THE AUDIT AND RISK COMMITTEE CONTINUED
Reporting issue
Role of the Committee
Conclusion/action taken
Greenhouse gas emission
(“GHG”) data
GHG emissions for the year ended
30 December 2017 were measured
and reported as required.
Significant issues
The items noted below reflect those
issues which were considered most
significant in preparing the Annual Report
Financial Statements:
Impairment of goodwill and intangible
assets
The Group had significant amounts of
goodwill and intangible assets as at 30
December 2017 that are subject to an
annual impairment review under IFRS.
Customer deduction accruals
The Group has arrangements in place
with its customers to provide volume-
related rebates and is required to make
estimates in determining the value and
timing of accruals for these customer
deductions due in respect of sales.
The Committee reviewed the GHG
emissions reported as required under
the Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013,
following the UK Government Environmental
Reporting Guidelines June 2013.
The Committee is satisfied that the judgements
made by management are reasonable, and that
appropriate disclosures have been included in
the Annual Report.
The Committee reviewed a paper prepared
by management that set out the basis and
assumptions for the annual impairment
review. The paper set out the determination
of cash-generating units (“CGUs”), the
budget information used and the discount
rate to be applied for the purpose of the
value-in-use calculation.
The Committee reviewed a paper prepared
by management that set out the rationale
for the calculation and timing of the
accruals held at 30 December 2017 under
these arrangements. The paper included a
summary of the key agreements in place
and the level of accruals held across the
business.
The impairment review indicated that no
impairment provisions were required for the
year ended 30 December 2017. The Committee
noted that there was lower headroom for the
US CGU but that this was in their view to be
expected at this stage of the development of the
US business.
The Committee challenged management on
the logic that had been applied to determine
the level of accruals held at 30 December 2017
under these arrangements. The Committee
acknowledged that this was a highly subjective
area that required a significant level of
estimates to be made but concurred with the
rationale applied by management to determine
the value of these accruals.
Audit and Risk Committee evaluation
It is intended that an evaluation of the effectiveness of the
Audit and Risk Committee will be conducted in 2018.
Simon Burke
Chairman, Audit and Risk Committee
9 April 2018
External Auditor
Deloitte was appointed as the External Auditor of Bakkavor in
2005. The current lead audit Partner, William Smith, was
appointed in September 2016.
External Audit tender process
Following the IPO, and after Bakkavor became a constituent of
the FTSE 250 at the end of February 2018, Bakkavor became a
Public Interest Entity (“PIE”) as defined under the Companies
Act 2006. As a PIE, and in accordance with the Governance Code
and EU legislation, Bakkavor is required to comply with all
requirements regarding auditor tendering every 10 years and
rotation after 20 years.
Bakkavor has not run a competitive audit tender process in the
last 10 years and is therefore required to carry one out for its
first audit after it became a PIE.
In compliance with the Competition and Markets Authority’s
final Order on mandatory tendering and audit committee
responsibilities for FTSE 350 companies, the Audit and Risk
Committee plans to carry out a full and competitive audit tender
during 2018 with the External Auditor’s appointment being
effective for the audit of the 2018 financial year.
52
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
ANNUAL STATEMENT
Chairman’s overview
As the Chair of the Remuneration Committee, I am pleased
to present, on behalf of the Group Board, our first Directors’
Remuneration Report since our listing on the Main Market of
the London Stock Exchange on 16 November 2017.
In line with the UK reporting regulations, this report is split into
three sections:
• This Annual Statement summarising the work of the Committee
and our approach to remuneration;
• The Directors’ Remuneration Policy, which details Bakkavor’s
Remuneration Policy and how it links to strategy; and
• The Annual Report on Remuneration, which sets out the
remuneration arrangements and incentive outcomes for the
year under review and how the Committee intends to
implement the new Remuneration Policy in 2018.
As this is the first financial year since coming to market, there will
be two remuneration related resolutions at the May 2018 Annual
General Meeting, being a binding vote on the Remuneration Policy
and an advisory vote on the rest of the Remuneration Report.
The work of the Remuneration Committee
The year ended 30 December 2017 was a major milestone in the
Company’s history as it completed a successful listing on the
London market. Earlier in the year, in anticipation of the IPO,
the Remuneration Committee undertook a comprehensive
review of the existing senior executive remuneration structure
and considered how best to transition to a model which meets
the expectations of institutional investors and is in line with good
corporate governance.
In doing so, the Committee took into account the significant
shareholding held by the founder Directors both before and
after listing and the existing remuneration structure which
was weighted towards fixed pay and included a relatively modest
annual bonus as the only form of performance related pay.
The post-IPO Remuneration Policy has been developed with the
assistance of our independent remuneration consultants and
provides for greater balance in terms of the fixed to variable pay
mix. Through participation in a new Long-Term Incentive Plan
(“LTIP”) and with part of the bonus deferred for three years, the
Committee believes there is strong alignment with shareholders’
interests and the Committee’s objective of ensuring remuneration
supports the long-term success of the Company. The policy also
includes the good practice principles prevalent in UK companies
such as annual bonus deferral, LTIP holding periods, share
ownership guidelines and recovery and withholding provisions.
The Remuneration Policy aims to provide a competitive package
that enables us to attract, retain and motivate high calibre senior
management and supports the delivery of the Group’s strategic
objectives and continued success.
A summary of the post-listing remuneration arrangements
was provided in the IPO prospectus. The Remuneration Policy
contained in this report is consistent with what was disclosed
previously and simply provides greater transparency and
information for shareholders, as is required by the remuneration
reporting regulations.
The Committee is aware of the corporate governance reforms
that will be finalised by the FRC and Government this year and
will come into force in 2019. As a Committee, we are regularly
informed of developments and the evolving views of shareholders
and shareholder voting bodies. The Committee takes a keen
interest in governance and will seek to comply with good practice
principles going forward.
Remuneration in 2017
While the Company was in private ownership, senior executive
packages comprised the following elements:
• Fixed pay made up of a base salary, ancillary benefits and a
contribution towards pension, and
• A performance related cash bonus based on targets set at the
start of the year.
The 2017 bonus opportunities for the Chief Executive Officer
and Chief Financial Officer were 67% and 59% of base salary,
respectively. Our financial performance resulted in an annual
bonus payout of 22.7% and 29.4% of salary for the Chief Executive
Officer and Chief Financial Officer, respectively. In line with the
terms of the bonus plan, these bonuses will be paid in cash.
53
Conclusion
The Committee recognised that senior executive salaries were
positioned at competitive levels prior to IPO and therefore took
the view that there should be no change to fixed pay levels post
listing or in 2018. Reflecting the The Chief Executive Officer‘s
existing interests as a co-founder of the Group, his variable pay
participation has been limited to the annual bonus. The Chief
Financial Officer’s new package now has a more typical balance
between fixed and variable pay and no longer includes a retention
bonus. We believe the remuneration policy is appropriate for a
FTSE 250 company and is one that can assist with retaining and
attracting high calibre talent in a competitive industry to ensure
our continued success. The packages also include the good
practice elements that feature in UK plc practice.
The Committee recognises the importance of developing a
close relationship with shareholders in facilitating the work of
the Committee in developing the remuneration policy and how
we operate it. Therefore, if you have any comments or feedback
on this report, then please let me know through the General
Counsel and Company Secretary. I look forward to receiving your
support at the 2018 AGM.
Denis Hennequin
Chair of the Remuneration Committee
9 April 2018
DIRECTORS’ REMUNERATION REPORT CONTINUED
As a quid pro quo for the absence of any long-term incentive
opportunity, the Company operated a structure which included,
in some cases, annual retention bonuses in addition to the
performance related bonus set out above. As disclosed in the
prospectus and in accordance with an arrangement entered into
whilst Bakkavor was a private company, the Chief Financial Officer
was eligible to receive a retention bonus of £200,000, subject to
continued employment, which he received in January 2018.
As part of the transition towards a more standard plc package
that is aligned with good practice, such retention bonuses do not
form part of the post-listing Remuneration Policy for Executive
Directors. Further information is provided below.
Prior to Admission, Peter Gates and other selected Bakkavor
employees were granted share option awards on a one-off basis.
Peter’s award was over 1,222,515 shares which have an exercise
price of 76.4 pence. These options will vest in 2020 subject to
continued employment and the achievement of an EBITDA
condition. No awards were made at or immediately after the IPO.
Application of Remuneration policy in 2018
As part of the review, the Committee undertook a thorough
review of salaries to consider market positioning and the
relationship between fixed and variable pay. The Committee
determined that the Executive Directors’ salaries, which were
set on 1 January 2017, were competitive and therefore remained
unchanged post Admission. The Chief Executive Officer‘s salary
is £750,000 and the Chief Financial Officer’s is £467,000. There
will be no change in 2018 and salaries will next be reviewed in
January 2019. The Committee’s default policy is to consider
whether a salary increase is warranted, and in such cases to
increase salaries by no more than the increase across the
wider workforce.
As outlined in the prospectus, the annual bonus opportunity
in 2018 will be 80% of salary for Agust Gudmundsson and 125%
of salary for Peter Gates. Payment of the annual bonus will be
subject to the achievement of challenging financial targets with
50% based on adjusted EBITDA, 25% on revenue and 25% on
Free Cash Flow. Two-thirds of any bonus that might become
payable will be paid in cash and the remaining one-third will be
deferred for three years. The deferral will be in the form of cash
for the Chief Executive Officer reflecting his existing shareholding
and in shares for the Chief Financial Officer.
As a result of the Chief Executive Officer‘s significant
shareholding, Agust Gudmundsson will not participate in the
Long-Term Incentive Plan. The Committee intends to make an
Long-Term Incentive Plan award to Peter Gates with a face value
of 150% of salary in 2018. This award will be subject to a relative
Total Shareholder Return (“TSR”) measure and an earnings per
share condition, each with an equal weighting measured over
a three year period. A two year post-vesting holding period will
apply on any vested awards.
54
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE REMUNERATION POLICY
This part of the Directors’ Remuneration Report sets out the
Remuneration Policy (“the Policy”) for the Group and has been
prepared in accordance with the Large and Medium-sized
Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013 and the UK Listing Authority’s Listing Rules.
The Policy was developed taking into account the principles
of the Governance Code and the voting guidelines of major
UK institutional investor bodies.
The following Policy will be put forward for approval by
shareholders in a binding vote at the forthcoming 2018 AGM.
If approved, it is intended that the Policy will take effect from
the date of approval and last for three years.
Key considerations when determining the
Remuneration Policy
The Remuneration Committee designed the Policy with
the following aims in mind. The Policy should:
• attract, retain and motivate high calibre senior management
and focus them on the delivery of the Group’s strategic and
business objectives
• be competitive against appropriate market benchmarks
with the ability to earn above market rewards for strong
performance
• be simple and understandable, both internally and externally
• achieve consistency of approach across the Senior
Management population to the extent appropriate and
• take due account of good governance and promote the
long-term success of the Group
In seeking to achieve the above objectives, the Committee is
mindful of the views of a broad range of stakeholders in the
business and accordingly takes account of a number of factors
when setting remuneration including market conditions, pay
and benefits in relevant comparator organisations, terms and
conditions of employment across the Group, the Group’s risk
appetite, the expectations of institutional shareholders and
feedback from shareholders and other stakeholders.
Shareholder views
The Group Board is committed to open dialogue with
shareholders and intends to engage directly with them and
their representative bodies when considering any significant
changes to our remuneration arrangements. The Remuneration
Committee will consider shareholder feedback received following
the AGM, as well as any additional feedback and guidance
received from time to time. This feedback will be considered
by the Committee as it develops the Company’s remuneration
framework and practices going forward. Assisted by its
independent adviser, the Remuneration Committee also
actively monitors developments in the expectations of
institutional investors and their representative bodies.
Employment conditions
The Committee is regularly updated throughout the year on
pay and conditions applying to Group employees including any
significant changes to employment conditions.
Whilst the Committee does not currently consult directly with
employees regarding its policy for Directors, the Committee
will consider the proposals being introduced as part of the
FRC’s updated UK Corporate Governance Code in 2018 and will
determine accordingly the best method of bringing the employee
voice to the boardroom.
The Remuneration Policy for Executive Directors, which is set
out over the following pages, supports the business needs of
the Company, ensuring it promotes long-term success whilst
enabling it to attract, retain and motivate senior executives of a
high calibre. The Committee is satisfied that the remuneration
policy supports the Company’s strategy of growing long-term
shareholder value and appropriately balances fixed and variable
remuneration. With a high proportion of reward delivered in the
form of equity (for executives other than the current Chief
Executive Officer), this ensures that executives have a strong
alignment with shareholders through the Company’s share price.
55
DIRECTORS’ REMUNERATION REPORT CONTINUED
REMUNERATION POLICY TABLE
The table below sets out, for each element of pay, a summary of how remuneration is structured after listing and how it supports
the Company’s strategy.
Executive Directors
Purpose and link to strategy
Base salary
To recruit and retain
executives of the
highest calibre who
are capable of
delivering the Group’s
strategic objectives,
reflecting the
individual’s experience
and role within the
Group.
Base salary is
designed to provide
an appropriate level of
fixed income to avoid
an over-reliance on
variable pay elements
that could encourage
excessive risk taking.
Operation
Maximum opportunity
Performance metrics
Salaries are normally reviewed annually
and changes are generally effective from
the start of the financial year.
The annual salary review of Executive
Directors takes a number of factors into
consideration, including:
• business performance
• salary increases awarded to the overall
employee population
• skills and experience of the individual
over time
• scope of the individual’s responsibilities;
• changes in the size and complexity of
the Group
• market competitiveness assessed by
periodic benchmarking
• the underlying rate of inflation
Whilst there is no prescribed
formulaic maximum, any increases
will take into account prevailing market
and economic conditions and the
approach to employee pay throughout
the organisation.
Base salary increases are awarded
at the discretion of the Committee;
however, salary increases will normally
be no greater than the general increase
awarded to the wider workforce, in
percentage of salary terms.
Executive Directors’
performance is a
factor considered
when determining
salaries.
No recovery or
withholding
provisions apply.
Percentage increases beyond those
granted to the wider workforce may
be awarded in certain circumstances
such as when there is a change in the
individual’s role or responsibility or
where there has been a fundamental
change in the scale or nature of the
Company.
In addition, a higher increase may be
made where an individual had been
appointed to a new role at below market
salary while gaining experience.
Subsequent demonstration of strong
performance may result in a salary
increase that is higher than for the wider
workforce.
Benefits
Benefits in kind offered
to Executive Directors
are provided to assist
with retention and
recruitment.
The Company aims to offer benefits that
are in line with typical market practice.
The main benefits currently provided
include:
• family private medical insurance
The value of each benefit is not
predetermined and is typically based
upon the cost to the Group.
• life assurance
• income protection
• health screening
• company car/car allowance
• travel insurance
Under certain circumstances the Group may
offer relocation allowances or assistance.
Expatriate benefits may be offered where
required.
Travel and any reasonable business-related
expenses (including tax thereon) may be
reimbursed on a gross of tax basis.
Executive Directors may become eligible for
other benefits which are introduced for the
wider workforce on broadly similar terms.
56
Bakkavor Group plc — 2017 Annual Report
Not performance-
related.
No recovery
or withholding
provisions apply other
than if relocation
costs are provided.
A proportion of any
relocation costs may
be recovered where
a Director leaves the
employment of the
Group within a
specified time period
after appointment or
date of relocation.
GOVERNANCE
Operation
Maximum opportunity
Performance metrics
Purpose and link to strategy
Pensions
The Group aims to
provide a contribution
towards life in
retirement.
Directors are eligible to receive
employer contributions to the
Company’s pension plan (which
is a defined contribution plan)
or a salary supplement in lieu
of pension benefits or a mixture
of both.
Short-Term Incentive Plan (STIP or annual bonus)
The annual bonus
scheme rewards the
achievement of
stretching objectives
that support the
Group’s corporate
goals and delivery of
the business strategy.
Delivery of a proportion
in deferred bonus
shares provides a
retention element
and alignment with
shareholders.
Bonuses are determined based
on measures and targets that are
agreed by the Committee at the
start of each financial year.
Two-thirds of the annual bonus
will be payable in cash, typically
in March following the end of the
financial year
Up to one-third of the bonus is
compulsorily deferred in shares
(or cash in the case of the current
Chief Executive Officer) for three
years under the Deferred Annual
Bonus Plan. At the discretion of
the Committee, participants may
also be entitled to receive the
value of dividends paid between
grant and vesting on vested
shares. The payment may be in
cash or shares and may assume
dividend reinvestment.
Up to 15% of base salary per
annum for the current Chief
Executive Officer and 20% of
base salary per annum for the
current Chief Financial Officer
contribution.
A maximum 15% of salary
contribution applies to new
directors.
The maximum annual bonus
opportunity is 150% of salary
for Executive Directors.
The current Chief Executive
Officer’s bonus opportunity is
lower, at 80% of his base salary.
The normal maximum for
the current Chief Financial
Officer is 125% of salary
although this may be increased
in line with the maximum
150% of salary limit.
Not performance-related.
No recovery or withholding
provisions apply.
Performance measures are determined
by the Committee each year and may
vary to ensure that they promote the
Company’s long-term business strategy
and shareholder value.
The majority of the annual bonus
outcome will be based on financial
measures. This may be a single
measure such as profit or a mix of
measures as determined by the
Committee.
Personal objectives and/or strategic
KPIs may also be chosen.
Where a sliding scale of targets applies,
up to 20% of that element may be
payable for threshold performance.
The bonus measures are reviewed
annually and the Committee has the
discretion to vary the mix of measures
or to introduce new measures taking
into account the strategic focus of the
Company at the time.
The Committee may alter the bonus
outcome if it considers that the pay out
is inconsistent with the Company’s
overall performance taking account of
any factors it considers relevant. This
will help ensure that the pay out reflects
overall Company performance during
the period. The Committee will consult
with leading investors if appropriate
before any exercise of its discretion to
increase the bonus outcome.
Bonus payments, including deferred
bonus awards, are subject to recovery
and withholding provisions (see
‘Recovery and withholding’ in the
‘Notes to the policy table’ below for
further detail).
57
DIRECTORS’ REMUNERATION REPORT CONTINUED
REMUNERATION POLICY TABLE CONTINUED
Executive Directors
Purpose and link to strategy
Operation
Long-Term Incentive Plan (LTIP)
The LTIP is designed
to incentivise the
successful execution
of business strategy
over the longer term
and provide long-term
retention.
Awards will typically be granted
annually to Executive Directors
in the form of nil or nominal cost
options that vest according to
performance conditions normally
measured over three financial
years.
Facilitates share
ownership to provide
further alignment with
shareholders.
Awards are subject to an
additional post-vesting holding
period which requires awards
to be retained for a period of
two years from the end of the
vesting period, except for shares
sold to pay personal tax upon
vesting/exercise.
At the discretion of the
Committee, participants may also
be entitled to receive the value of
dividends paid between grant and
vesting (or, if applicable, between
grant and the earlier to occur of
the expiry of any holding period
and the exercise of an award) on
vested shares. The payment may
be in cash or shares and may
assume dividend reinvestment
The current Chief Executive
Officer will not participate in
the LTIP.
Maximum opportunity
Performance metrics
The individual plan limit is
200% of base salary in any
financial year.
The award policy for the current
Chief Financial Officer is set at
150% of base salary, although
the Committee has the
discretion to make an award
of up to 200% of base salary.
Performance is normally measured
over no less than three financial years.
Awards will be subject to the
achievement of stretching targets
designed to incentivise performance
in support of the Group’s strategy and
business objectives.
The first set of LTIP awards will be
subject to relative TSR and earnings
per share growth targets. However,
the Committee has the flexibility to vary
the mix of measures or to introduce
new measures for each subsequent
award taking into account business
priorities at the time of grant.
For TSR and financial measures, no
more than 25% of each element may
vest for threshold performance.
The Committee may alter the vesting
outcome if it considers that the level of
vesting is inconsistent with the
Company’s overall performance taking
account of any factors it considers
relevant. This will help ensure that
vesting reflects overall Company
performance during the period. The
Committee would seek to consult with
leading investors if appropriate before
any exercise of its discretion to increase
the vesting outcome.
Awards are subject to recovery and
withholding provisions (see ‘Recovery
and withholding’ in the ‘Notes to the
policy table’ below for further detail).
All-employee share schemes
Encourages employee
share ownership and
therefore increases
alignment with
shareholders.
The Company may, from time to
time, operate tax-approved share
plans (such as HMRC-approved
Save As You Earn Option Plan and
Share Incentive Plan) for which
Executive Directors could be
eligible.
The schemes are subject to
the limits set by HMRC from
time to time.
Not performance related.
No recovery or withholding provisions
apply.
58
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE
Purpose and link to strategy
Share ownership guidelines
Operation
Maximum opportunity
Performance metrics
Encourages
Executive Directors
to build a meaningful
shareholding in the
Group so as to further
align interests with
shareholders.
Executive Directors are required to
retain at least half of any share awards
vesting as shares (after the sale of any
shares to settle tax due) until they have
reached the required level of holding.
Executive Directors are
required to build and retain a
shareholding in Bakkavor
equivalent to at least 200% of
their base salary.
Not performance related.
Only shares owned outright by the
Executive Director or a connected
person are included. Shares or
share options which are subject to a
performance condition are not included.
Deferred shares and options which
are vested but unexercised are also
not included.
Chairman and Non-executive Directors’ fees
Not performance related.
No recovery or withholding
provisions apply.
When reviewing fee levels,
account is taken of market
movements in the fees of
Non-executive Directors,
Group Board Committee
responsibilities and ongoing
time commitments.
Actual fee levels are disclosed
in the Annual Remuneration
Report for the relevant financial
year.
To attract Non-
executive Directors
who have a broad
range of experience
and skills to provide
independent
judgement on issues of
strategy, performance,
resources and
standards of conduct.
Non-executive Directors may receive
fees paid monthly in cash which consist
of an annual basic fee and they may
receive additional fees for additional
responsibilities.
The Chairman’s fee is reviewed
annually by the Committee (without
the Chairman present).
Fee levels for the Non-executive
Directors are determined by the
Company Chairman and Executive
Directors.
In exceptional circumstances, if there is
a temporary yet material increase in the
time commitments for Non-executive
Directors, the Board may pay extra fees
to recognise that additional workload.
Non-executives ordinarily do not
participate in any pension, bonus
or share incentive plans. Travel,
accommodation and other business-
related expenses incurred in carrying
out the role will be paid by the Company
including, if relevant, any gross-up
for tax.
As was disclosed in the prospectus
prepared on Admission, Lydur
Gudmundsson is currently employed
to provide consulting services to the
Group for an annual fee. He receives
medical cover for the benefit of his
family in the UK.
Robert Berlin does not receive any fees
from the Group in respect of his role as
Non-executive Director.
59
DIRECTORS’ REMUNERATION REPORT CONTINUED
Notes to the policy table
Recovery and withholding
Awards under the Annual Bonus Plan, the Deferred Annual
Bonus Plan and the Long-Term Incentive Plan are subject to
recovery and withholding provisions which permit the Committee,
in its discretion, to reduce the size of any future bonus or share
award granted to the employee, to reduce the size of any granted
but unvested share award held by the employee, or to require
the employee to make a cash payment to the Company. The
circumstances in which the Company may apply the recovery
and withholding provisions are the discovery of a material
misstatement of financial results, a miscalculation or error in
assessing any condition (including any performance condition)
applying to the award, or in the event of serious misconduct
committed by the employee.
In respect of cash bonus payments under the Annual Bonus Plan,
the recovery and withholding provisions apply for one year from
the date of payment of the bonus (or, if later, the date of
publication of the Company’s financial results for the year
following the relevant year over which the bonus was earned).
In respect of share awards under the Deferred Annual Bonus Plan
and the Long-Term Incentive Plan, the recovery and withholding
provisions apply up until the third anniversary of the date on which
the relevant award vests, although the Committee may extend this
period for a further two years if there is an ongoing investigation
into the circumstances of any event that, if determined to have
occurred, would permit the Committee to operate the recovery
and withholding provisions.
Performance conditions
The choice of performance metrics applicable to the annual
bonus scheme reflect the Committee’s belief that any incentive
compensation should be appropriately challenging and tied to
both the delivery of key financial targets and individual and/or
strategic performance measures intended to ensure that
Executive Directors are incentivised to deliver across a range of
objectives for which they are accountable. The Committee has
retained some flexibility on the specific measures which will be
used to ensure that any measures are fully aligned with the
strategic imperatives prevailing at the time they are set.
The targets for the bonus scheme for the forthcoming year will
be set out in general terms, subject to limitations with regards
to commercial sensitivity. The full details of the targets will be
disclosed in the Directors’ Remuneration Report when they are
in the public domain, usually following the end of the relevant
financial year.
The choice of the performance conditions applicable to the
LTIP awards will be aligned with the Company’s objective of
delivering superior levels of long-term value to shareholders.
The Committee has retained flexibility on the measures which will
be used for future award cycles to ensure that the measures are
fully aligned with the strategy prevailing at the time the awards
are granted. Notwithstanding this, the Committee would, if
appropriate, seek to consult with major shareholders in advance
of any material change to the choice or weighting of the LTIP
performance measures.
The Committee will review the calibration of targets applicable
to the annual bonus and the LTIP annually to ensure they remain
appropriate and sufficiently challenging, taking into account the
Company’s strategic objectives and the interests of shareholders.
Differences in Remuneration Policy between Executive Directors
and other employees
The overall approach to reward for employees across the
workforce is a key reference point when setting the remuneration
of the Executive Directors. When reviewing the salaries of the
Executive Directors, the Committee pays close attention to pay
and employment conditions across the wider workforce and in
normal circumstances the increase for Executive Directors will
be no higher than the average increase for the general workforce.
The key difference between the remuneration of Executive
Directors and that of our other employees is that, overall, at
senior levels, remuneration is increasingly long term, and ‘at risk’
with an emphasis on performance-related pay linked to business
performance and share-based remuneration. This ensures that
remuneration at senior levels will increase or decrease in line
with business performance and provides alignment between the
interests of Executive Directors and shareholders. In particular,
long-term incentives are provided only to the most senior
executives as they are reserved for those considered to have the
greatest potential to influence overall levels of performance.
Committee discretion in operation of variable pay schemes
The Committee operates under the powers it has been delegated
by the Group Board. In addition, it complies with rules that are
either subject to shareholder approval (Long-Term Incentive Plan
and Deferred Share Bonus Plan) or by approval of the Group
Board (annual performance bonus scheme). These rules provide
the Committee with certain discretions which serve to ensure that
the implementation of the Remuneration Policy is fair, both to the
individual Director and to the shareholders. The Committee also
has discretion to set components of remuneration within a range,
from time to time. The extent of such discretion is set out in the
relevant rules, the maximum opportunity or the performance
metrics section of the policy table above. To ensure the efficient
administration of the variable incentive plans outlined above, the
Committee will apply certain operational discretions.
60
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE These include the following:
• selecting the participants in the plans on an annual basis
• determining the timing of grants of awards and/or payments
• determining the quantum of awards and/or payments (within
the limits set out in the policy table
• determining the choice of (and adjustment of) performance
measures and targets for each incentive plan in accordance
with the policy set out above and the rules of each plan
• determining the extent of vesting based on the assessment
of performance and discretion relating to measurement of
performance in certain events such as a change of control
or reconstruction
• whether malus and clawback shall be applied to any award
in the relevant circumstances and, if so, the extent to which it
shall be applied
• making the appropriate adjustments required in certain
circumstances, for instance for changes in capital structure
• determining ‘good leaver’ status for incentive plan purposes
and applying the appropriate treatment
• undertaking the annual review of weighting of performance
measures and setting targets for the annual bonus plan and
other incentive schemes, where applicable, from year to year
If an event occurs which results in the Annual Bonus Plan or
LTIP performance conditions and/or targets being deemed no
longer appropriate (e.g. material acquisition or divestment), the
Committee will have the ability to adjust appropriately the
measures and/or targets and alter weightings, provided that the
revised conditions are not materially less challenging than the
original conditions. Any use of the above discretion would, where
relevant, be explained in the Annual Report on Remuneration and
may, as appropriate, be the subject of consultation with the
Company’s major shareholders.
Legacy arrangements
For the avoidance of doubt, the Committee may approve
payments to satisfy commitments agreed prior to the listing of
the Company in November 2017 that have either been disclosed
to shareholders in the prospectus or formed part of the pre-IPO
remuneration policy. The Committee may also approve payments
outside this Remuneration Policy in order to satisfy legacy
arrangements made to an employee prior to (and not in
contemplation of) promotion to the Group Board.
All historic awards that were granted in connection with or prior
to listing but which remain outstanding, remain eligible to vest
based on their original award terms.
Remuneration scenarios for Executive Directors
The charts below show an estimate of the 2018 remuneration
package for each Executive Director under three assumed
performance scenarios. These scenarios are based upon the
Remuneration Policy set out above.
The scenarios in the graphs below are defined as follows:
Below target (comprising fixed pay only):
• Base salary as at 1 January 2018
• Benefits: estimated value provided under the policy
• Pension: 15% of salary contribution for the Chief Executive
Officer, 20% of salary for the Chief Financial Officer
Target:
• Fixed pay as set out above
• Assumes bonus pay out of 50% of 2018 maximum bonus
opportunity levels
• Assumes 25% of the LTIP vests (note: the Chief Executive
Officer does not participate in the LTIP)
Maximum:
• Fixed pay as set out above
• Assumes 100% of maximum bonus pay out (80% of salary for
CEO and 125% of salary for Chief Financial Officer)
• Assumes 100% of the LTIP vests (assuming a 150% of salary
grant for the Chief Financial Officer. The Chief Executive Officer
does not participate in the LTIP)
No share price growth has been factored in to the chart, and all
amounts have been rounded to the nearest £1,000.
Remuneration (£000s)
£1,164
26%
74%
£864
100%
£1,464
41%
59%
£1,039
17%
28%
55%
£572
100%
£1,857
38%
31%
31%
Minimum
Target
Chief Executive
Officer
Maximum
Minimum
Maximum
Target
Chief Financial
Officer
Fixed pay
Annual bonus
Long-term incentives
61
DIRECTORS’ REMUNERATION REPORT CONTINUED
Other remuneration policies
Remuneration for new appointments
Where it is necessary to appoint or replace an Executive Director, the Committee’s approach when considering the overall remuneration
arrangements in the recruitment of a new Executive Director is to take account of the calibre, expertise and responsibilities of the
individual, his or her remuneration package in their prior role and market rates. Remuneration will be in line with our policy and the
Committee will not pay more than is necessary to facilitate recruitment.
The remuneration package for a new Executive Director will be set in accordance with the terms of the Company’s approved
remuneration policy in force at the time of appointment. Further details are provided below:
Salary
The Committee will set a base salary appropriate to the calibre, experience and responsibilities of the new
appointee. In arriving at a salary, the Committee may take into account, amongst other things, the market
rate for the role and internal relativities.
The Committee has the flexibility to set the salary of a new Executive Director at a lower level initially, with
a series of planned increases implemented over the following few years to bring the salary to the desired
positioning, subject to individual performance.
In exceptional circumstances, the Committee has the ability to set the salary of a new Executive Director at a
rate higher than the market level to reflect the criticality of the role and the experience and performance of
the individual.
Benefits
Benefits will be consistent with the principles of the policy set out on page 56. The Company may award
certain additional benefits and other allowances including, but not limited to, those to assist with relocation
support, temporary living and transportation expenses, educational costs for children and tax equalisation to
allow flexibility in employing an overseas national.
Pension benefits
A maximum pension contribution of 15% of salary may be payable for external appointments.
For an internal appointment, his or her existing pension arrangements may continue to operate.
Any new Executive Director based outside the UK will be eligible to participate in pension or pension
allowance, insurance and other benefit programmes in line with local practice.
The maximum bonus oppxortunity is 150% of base salary.
The maximum opportunity is 200% of base salary which may be used on recruitment and on an ongoing basis,
if appropriate.
Annual bonus
Long-Term
Incentive Plan
Replacement awards
In addition to the above, the Committee may offer additional cash and/or share-based elements in order to
‘buy-out’ remuneration relinquished on leaving a former employer.
In the event that such a buy-out is necessary to secure the services of an Executive Director then the structure
of any award or payment will mirror, as far as is possible, the arrangements in place at the incoming
Executive Director’s previous employer.
Any share awards made in this regard may have no performance conditions, or different performance
conditions, or a shorter vesting period compared to the Company’s existing plans, as appropriate.
Shareholders will be informed of any buy-out arrangements at the time of the Executive Director’s
appointment.
Notice periods
Notice periods shall be up to 12 months.
Depending on the timing and responsibilities of the appointment, it may be necessary to set different annual bonus/LTIP performance
measures and targets as applicable to other Executive Directors.
The terms of appointment for a Non-executive Director would be in accordance with the remuneration policy for Non-executive
Directors as set out in the policy table.
62
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE
Termination and loss of office payments
The Group’s policy on remuneration for Executive Directors who
leave the Group is consistent with general market practice and is
set out below. The Committee will exercise its discretion when
determining amounts that should be paid to leavers, taking into
account the facts and circumstances of each case.
It is the Company’s policy that the period of notice for Executive
Directors will not normally exceed 12 months and, accordingly,
the employment contracts of the Executive Directors are
terminable on 12 months’ notice by either party. In the event of
an Executive Director’s departure, a payment in lieu of notice
may be payable. The Company may pay the value of the Executive
Director’s base salary together with accrued holiday entitlement.
The Company is unequivocally against rewards for failure;
the circumstances of any departure, including the individual’s
performance, would be taken into account in every case. Statutory
redundancy payments may be made, as appropriate. Service
agreements may be terminated without notice and without
payment in lieu of notice in certain circumstances, such as gross
misconduct. The Company may require the Executive Director
to work during their notice period or may choose to place the
individual on garden leave, for example, to ensure the protection
of the Company’s and shareholders’ interests where the Executive
Director has access to commercially sensitive information.
Except in the case of gross misconduct or resignation,
the Company may at its absolute discretion reimburse for
reasonable professional fees relating to the termination of
employment and, where an Executive Director has been required
to re-locate, to pay reasonable repatriation costs, including
possible tax exposure costs.
Ordinarily, Executive Directors have no entitlement to a
bonus payment in the event that they cease to be employed
by the Group or are under notice of termination of employment
at the date that their bonus would otherwise be paid. However,
they may be considered for a bonus payment by the Committee
in “good leaver” circumstances (i.e. death, injury, disability,
retirement, their employing company or the business for
which they work being sold out of the Group or in other
circumstances at the discretion of the Remuneration
Committee). Any such bonus payment would ordinarily be
subject to a pro-rata reduction based on period worked in the
relevant year, and there would be no requirement for any portion
of such bonus payment to be deferred into an award over shares
under the Deferred Annual Bonus Plan.
In the event of an Executive Director’s departure, any outstanding share awards will be treated in accordance with the plan rules
as follows:
Plan
Deferred Annual
Bonus Plan (DABP)
Treatment on cessation
As a general rule, a DABP award will lapse upon a participant ceasing to hold employment or ceasing to be a
Director within the Group (where relevant).
In the event of a participant’s death, injury, disability, retirement, their employing company or the business for
which they work being sold out of the Group or in other circumstances at the discretion of the Remuneration
Committee, awards will not be forfeited but will instead normally vest in full on the original vesting date (or on
the date of cessation if the Remuneration Committee so determines) to such extent (which may include the
full extent of the award) as the Remuneration Committee determines appropriate.
Long-Term
Incentive Plan
In exceptional circumstances, the Remuneration Committee may allow the awards to vest on cessation of the
participant’s employment.
As a general rule, an LTIP award will lapse upon a participant ceasing to hold employment or ceasing to be a
Director within the Group (where relevant).
However, if the participant ceases to be an employee or a Director within the Group because of their death,
injury, disability, retirement, their employing company or the business for which they work being sold out of
the Group or in other circumstances at the discretion of the Remuneration Committee, then their award will
vest on the date when it would have vested if they had not so ceased.
The extent to which an award will vest in these situations will depend upon two factors:
i) the extent to which the performance conditions (if any) have been satisfied at that time and
ii) the pro-rating of the award by reference to the period of time served in employment during the normal
vesting period, although the Remuneration Committee can decide to reduce or eliminate the pro-
rating of an award if it regards it as appropriate to do so in the particular circumstances
Alternatively, if a participant ceases to be an employee or Director in the Group for one of the ‘good leaver’
reasons specified above (or in other circumstances at the discretion of the Remuneration Committee), the
Remuneration Committee can decide that their award will vest on cessation, subject to:
i) the performance conditions measured at that time and
ii) pro-rating by reference to the time of cessation as described above
Such treatment shall also apply in the case of death.
63
DIRECTORS’ REMUNERATION REPORT CONTINUED
Executive Directors’ service contracts
In accordance with long-established policy, all Executive Directors have rolling service agreements which may be terminated in
accordance with the terms of these agreements. Directors’ service agreements are kept for inspection by shareholders at the
Company’s registered office.
Name
Date of joining Bakkavor
Date of service contract
Notice period
Agust Gudmundsson
1 August 1986 (founder)
18 December 2011, as amended
by a variation letter dated 2
October 2017
12 months either party
Peter Gates
9 November 2010
2 October 2017
12 months either party
Policy on external appointments
The Board believes that it may be beneficial to the Group for executives to hold Non-executive Directorships outside the Group. Any such
appointments are subject to approval by the Group Board and the Director may retain any fees received at the discretion of the Group
Board. Neither Executive Director currently holds any outside directorships.
Non-executive Directors’ terms of engagement
Each of the Non-executive Directors is engaged under a market standard Non-executive Director appointment letter, which states that
the appointment will continue for a renewable three-year term provided that the appointment must not continue for more than nine
years in total. In any event, each appointment is terminable by either party on one month’s written notice. All Non-executive Directors
are subject to annual re-election at each AGM.
The dates of appointment of each of the Non-executive Directors serving at the date of this report are summarised in the table below.
Non-executive Directors
Simon Burke (Chairman)
Robert Berlin
Sue Clark
Date of joining Bakkavor
1 December 2016
22 January 2016
20 October 2017
Lydur Gudmundsson
1 August 1986 (founder)
Denis Hennequin
Todd Krasnow
20 October 2016
22 January 2016
Date of contract or date of appointment
20 October 2017
28 September 2017
20 October 2017
20 October 2017
20 October 2017
20 October 2017
The Chairman, in consultation with the Executive Directors, is responsible for proposing changes to the Non-executive Directors’
fees. The Senior Independent Director, in consultation with the Executive Directors, is responsible for proposing changes to the
Chairman’s fees.
In proposing such fees, account is also taken of the time commitments of the Group’s Non-executive Directors. The decision on
fee changes is taken by the Group Board as a whole. Individual Non-executive Directors do not take part in discussions in relation to
their own remuneration.
64
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE Independent advisers
The Committee takes account of information from both
internal and independent sources, including New Bridge Street
(“NBS”) (Aon plc’s executive remuneration consultancy) who
act as the Committee’s adviser. NBS advised on remuneration
arrangements in advance of the listing and continues to advise
the Committee on all aspects of senior executive remuneration.
Since listing, NBS has assisted with the drafting of the
Remuneration Policy and has kept the Committee up to date on
remuneration trends and corporate governance best practice.
NBS is a founder member of the Remuneration Consultants’
Group and complies with its Code of Conduct, which sets out
guidelines to ensure that its advice is independent and free of
undue influence. The Committee reviews the performance and
independence of its advisers on an annual basis. During the period
since listing, Bakkavor incurred fees of £18,000 from NBS relating
to Remuneration Committee advice.
ANNUAL REPORT ON REMUNERATION
This part of the report has been prepared in accordance
with Part 3 of The Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013
and Rule 9.8.6 of the Listing Rules. The Annual Report on
Remuneration and the Annual Statement by the Chairman of
the Remuneration Committee will be put to a single advisory
shareholder vote at the AGM on 23 May 2018.
REPORT OF THE REMUNERATION COMMITTEE
(“THE COMMITTEE”)
Committee membership
Chair
Denis Hennequin
Members
Sue Clark
Todd Krasnow
The biographies of the Committee members are set out on
pages 38 to 39.
Members of management including the Chief Executive Officer,
the Chief Financial Officer, the Group HR Director and the Head
of Reward are invited to attend meetings where appropriate.
The Group HR Director is the secretary to the Committee.
Attendees are not involved in any decisions, and are not present
for any discussions regarding their own remuneration. The
Company Chairman may attend meetings but is not present
when his own remuneration arrangements are being decided.
After each meeting, the Chair of the Committee presents a report
on its activities to the Group Board.
No conflicts of interest have arisen during the period and none of
the members of the Committee has any personal financial interest
in the matters discussed, other than as shareholders. The fees of
the Non-executive Directors are determined by the Group Board
on the joint recommendation of the Chairman and the Chief
Executive Officer/Executive Directors.
Meetings attendance
(since the IPO and for the year ended 30 December 2017)
The Committee met on 20 December 2017.
Sue Clark
Denis Hennequin
Todd Krasnow
Attendance
1 out of 1
1 out of 1
1 out of 1
65
DIRECTORS’ REMUNERATION REPORT CONTINUED
Activity in the period
The Committee’s principal function is to support Bakkavor’s strategy by ensuring that those individuals responsible for delivering the
strategy are appropriately incentivised and rewarded through the operation of Bakkavor’s Remuneration Policy. In determining the
Group’s policy, and in constructing the remuneration arrangements for Executive Directors and senior employees, the Group Board,
advised by the Committee, aims to provide remuneration packages that are competitive and designed to attract, retain and motivate
Executive Directors and senior employees of the highest calibre.
The Committee considered the following items during the period:
• setting a Remuneration Policy that is designed to promote the long-term success of the Company;
• ensuring that the remuneration of the Executive Directors and other senior executives reflects both their individual performance and
their contribution to the overall Group results;
• determining the terms of employment and remuneration of the Executive Directors and senior executives, including recruitment and
retention terms;
• approving the design and performance targets of any annual incentive schemes that include the Executive Directors and senior executives;
• agreeing the design and performance targets of all share incentive plans;
• assessing the appropriateness and subsequent achievement of the performance targets related incentive plans; and
• recommending to the Board the fees to be paid to the Chairman. The Chairman is excluded from this process.
The Committee is formally constituted and operates on written terms of reference, which are modelled on the Governance Code and
are available on Bakkavor’s website, www.bakkavor.com.
Single total figure of Directors’ remuneration – year ended 30 December 2017 (audited)
The total remuneration of the individual Directors who served during the financial year is shown below. Total remuneration is the sum
of emoluments plus Company pension contributions for the 2017 financial year. Only 2017 data has been included as the Company listed
on the Main Market of the London Stock Exchange on 16 November 2017.
Base salary
£000
Benefits9
£000
Bonus
£000
LTIP
£000
Pension
entitlements
£000
Other
£000
Total
remuneration
£000
Executive Directors
Agust Gudmundsson1
Peter Gates2
Non-executive Directors
Simon Burke (Chairman)3
Robert Berlin6
Sue Clark8
Lydur Gudmundsson4
Denis Hennequin7
Todd Krasnow5
750
467
86
–
14
245
70
100
1,732
1
12
–
–
–
1
–
–
14
170
138
–
–
–
–
–
–
308
–
–
–
–
–
–
–
–
–
113
93
–
–
–
–
–
–
206
29
200
–
–
–
28
–
500
757
1,063
910
86
–
14
274
70
600
3,017
Notes to the remuneration table
1 Agust Gudmundsson’s base salary was set at £750,000 on 1 January 2017. Agust was eligible for Director fees, pension and life assurance in Iceland in 2017 and
the value of this is shown in the ‘Other’ column. These arrangements ceased as of 30 December 2017.
2 Peter Gates’s base salary was set at £467,000 on 1 January 2017. Prior to Admission, according to an arrangement entered into on 16 March 2017, the Chief
Financial Officer was eligible to receive a retention bonus of £200,000 in January 2018 subject to continued employment. This type of arrangement does not form
part of the new remuneration policy and will not continue in 2018. He was appointed to the Board on 20 October 2017 but he was the Group CFO for the whole of
2017 and therefore the amounts in the above table represent his remuneration for 2017.
3 Simon Burke joined the Group in December 2016 and became a Non-executive Director in February 2017 and his fee was set at £70,000. On 20 October 2017
Simon Burke was appointed Chairman and his fee was increased to £200,000 p.a. The above reflects his fees for the whole of 2017.
4 Lydur Gudmundsson’s fee was £40,000 until 19 October 2017 and then was increased to £70,000 p.a. with effect from 20 October 2017. In addition, given his
unique expertise and insight into the Company’s business as a founder of the Bakkavor Group, pursuant to an agreement between Lydur Gudmundsson and
Bakkavor Iberica S.L., and a service agreement between Bakkavor Iberica S.L. and Bakkavor Holdings Limited, Lydur Gudmundsson will continue to be
employed to provide consulting services to the Group for a fee of €230,000 per annum. The exchange rate used to convert to GBP for the above table is £1:€1.1408.
Lydur Gudmundsson is also entitled to medical coverage in the UK for the benefit of his family. Lydur was eligible for Director fees, pension and life assurance
in Iceland in 2017 disclosed in the ‘other’ column. These arrangements ceased as of 30 December 2017.
5 Pursuant to a pre-existing commitment with Bakkavor Holdings Limited, on 9 October 2017, Todd Krasnow was granted a cash bonus award in the amount of
£500,000 payable immediately prior to Admission in recognition of his past services as a Non-executive Director of the Group since January 2016. Todd Krasnow
has advised the Company that he intends to use the net cash amount (after taking account of any applicable tax and other charges) to purchase the Company’s
shares following Admission through open market purchases.
6 Robert Berlin receives no fee for his services.
7 Denis Hennequin joined the Group in November 2016 and became a Non-executive Director in February 2017 and his fee was set at £70,000. The above reflects his
fees for the whole of 2017.
8 Sue Clark joined the Board on 20 October 2017 and her fee is £70,000 p.a.
9 For Executive Directors, taxable benefits include car allowance and private medical cover.
66
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE
2017 Annual bonus (audited)
In 2017, employees were eligible for an annual discretionary cash bonus, whereby performance objectives were established
at the beginning of the financial period by reference to suitably challenging corporate goals over the 12 month period.
The Committee has consistently set stretching corporate goals, which for 2017 comprised Group EBITDA and revenue for
the Chief Executive Officer, and Group adjusted EBITDA, adjusted EBITDA margin, revenue growth and working capital for the
Chief Financial Officer.
In 2017 the annual bonus performance-related outcomes were as follows:
Chief Executive Officer (maximum 67% of salary — £500,000)
Metrics
Group adjusted EBITDA (pre CEO bonus provision)
Revenue
Total (% of max)
Weighting
Threshold
(0%)
Maximum
(100%)
Actual
performance
% outcome
£149.6m
70%
£152.9m
30% £1,822.0m £1,839.5m £1,814.8m
£156.6m
48%
0%
34%
Bonus is payable on a straight-line basis for performance between threshold and maximum.
Chief Financial Officer (maximum 59% of salary — £275,000)
Metrics
Group adjusted EBITDA (pre performance bonus provision)
Adjusted EBITDA margin (pre performance bonus provision)
Revenue growth
Working capital
Total
Weighting
Target
(100%)
Actual
performance
% outcome
25%
25%
25%
25%
£164.6m
8.6%
6%
Positive
inflow
£156.5m
8.6%
4.6%
£8.6m
0%
100%
0%
100%
50%
For the Chief Financial Officer, the bonus plan comprised four measures each with a single hurdle. For 2018, a sliding scale of targets
will apply to financial metrics.
The resulting annual bonus awards were as follows:
Agust Gudmundsson
Peter Gates
Non-financial
performance
Financial performance related
related Total cash bonus
Maximum
opportunity
% salary
67%
59%
Actual % of
salary
22.7
29.4
Total
awarded
£170,000
£137,500
Total
Total
awarded
n/a
£200,000
awarded
£170,000
£337,500
Consistent with the approach set prior to Admission, bonuses in relation to 2017 are paid entirely in cash and will become payable in
early 2018.
Long-Term Incentive Plan
Awards with performance periods ending in the year (audited)
There were no long-term incentive awards capable of vesting in relation to performance in the year.
Awards granted in the year
The Company granted a number of share options to employees since July 2017 prior to Admission, as set out in the prospectus.
This included an award to Peter Gates under the Bakkavor Group Limited 2017 Long-Term Incentive Plan. These options were granted
in anticipation of the IPO and therefore the face value of the options at that time are not available. Further details are set out below.
Peter Gates
Date of grant
Number of
awards
Exercise price
Vesting date
Expiry date
3 July 2017
1,222,515
£0.764
April 2020
July 2027
The awards will vest following the publication of the Company’s audited financial results for the 2019 financial year, subject to continued
service and the satisfaction of the two conditions as set out below:
1. 50% vests in April 2020 provided a liquidity event (i.e. IPO or company sale) has occurred since the date of grant.
2. Provided that condition 1 above has been met a further 25% vests in April 2020 if EBITDA for financial year 2019 is at least
£175 million and a further 25% vests on a sliding scale for EBITDA of between £175 million and £190 million.
67
DIRECTORS’ REMUNERATION REPORT CONTINUED
The awards were granted prior to IPO and do not form part of
the future Remuneration Policy to be approved at the 2018 AGM.
However, these awards will be able to vest on their original terms
as agreed prior to policy approval.
Payments to former Directors and for loss of office (audited)
No payments were made to former Directors of the Company
or in relation to loss of office during the year.
External directorships
None of the Executive Directors currently hold Non-executive
Directorships at any other companies outside the
Bakkavor Group.
Statement of Directors’ shareholdings and share
interests (audited)
The share interests of each Director as at 30 December 2017
(together with interests held by his or her connected persons) are
set out in the table below. As a direct link between executive
remuneration and the interests of shareholders, the Committee
has implemented shareholding guidelines for Executive Directors
and key senior employees. The guidelines require that Executive
Directors build up and maintain an interest in the ordinary shares
of the Company that is 200% of their annual base salary, and
retain half of any vested deferred bonus and Long-Term Incentive
Plan awards (net of any taxes due) until this guideline is met.
Shareholdings for Directors who have held office during the period
ended 30 December 2017 are set out as a percentage of salary or
fees in the table below. During the period from 30 December 2017
to the publication of this report, there have been no changes in the
Directors’ share interests. None of the Directors hold any loans
against their shares or otherwise use their shares as collateral.
Performance graph and table
The chart below shows the Company’s TSR performance
compared with that of the FTSE 250 Index (excluding investment
trusts) over the period from the date of the Company’s admission
to the London Stock Exchange to 30 December 2017.
TSR is defined as the return on investment obtained from holding
a company’s shares over a period. It includes dividends paid, the
change in the capital value of the shares and any other payments
made to or by shareholders within the period.
Total shareholder return
Source: Datastream (Thomson Reuters)
110
110
108
108
106
104
)
d
e
s
a
b
e
r
(
)
£
(
e
u
l
a
V
106
104
102
102
100
100
15 Nov 2017
1 Dec 2017
15 Dec 2017
30 Dec 2017
Bakkavor Group
FTSE 250 excl. Investment Trusts
Beneficially owned shares
30 December
2017
Value of owned
shares as a %
of salary
Unvested shares
with performance
conditions
145,333,130
nil
37,399%
n/a
–
1,222,515
This graph shows the value, by 30 December 2017, of £100 invested in Bakkavor
Group from the date of Admission compared with the value of £100 invested in
the FTSE 250 excluding Investment Trusts on a daily basis.
Aligning pay with performance
The total remuneration figure for the Chief Executive Officer in
2017 is shown in the table below, along with the value of bonuses
paid, and Long-Term Incentive Plan vesting, as a percentage of
the maximum opportunity.
Executive Directors
Agust Gudmundsson
Peter Gates1
Non-executive
Directors
Simon Burke
(Chairman)
Robert Berlin
Sue Clark
Lydur Gudmundsson
Denis Hennequin
Todd Krasnow
50,000
n/a
n/a
145,333,130
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
–
–
–
–
–
–
1 Peter Gates was granted awards under the Company’s pre-IPO share plan
prior to Admission. Details of these awards are set out on page 67.
68
Bakkavor Group plc — 2017 Annual Report
Chief Executive Officer
Total remuneration (£000)
Actual bonus (% of the maximum)
LTIP vesting (% of the maximum)
2017
£1,063,000
34%
N/A1
1 No LTIP awards were eligible to vest over the period. The Chief Executive
Officer does not participate in any share award schemes.
Percentage change in remuneration of the
Chief Executive Officer
As this is the first period reported since listing it is not possible to
provide meaningful comparative data. However, full disclosure of
the year-on-year movement will be provided in future
remuneration reports.
Relative importance of spend on pay
As the Company listed during 2017, there is no disclosure relating
to the percentage change in dividend distributions between 2016
and 2017. However, full disclosure of the year-on-year movement
will be provided in future remuneration reports.
GOVERNANCE
STATEMENT OF IMPLEMENTATION OF
REMUNERATION POLICY IN 2018
Annual base salary
The Committee reviews the Executive Directors’ base salaries
on an annual basis, with any increases taking effect from
1 January each year. Salaries were set at IPO and no increase
is proposed for 2018. Base salaries effective from 1 January 2018
are set out below.
Executive Directors
Agust Gudmundsson
Peter Gates
Base salary
2017
Base salary
2018
£750,000
£467,000
£750,000
£467,000
Benefits and pension
No changes are proposed to the provision of pension and benefits
for 2018. Executive Directors will continue to receive benefits that
include family private medical insurance, life assurance, income
protection, health screening and company car/car allowances.
The Executive Directors will continue to receive a cash allowance
in lieu of pension equal to 15% per annum for the Chief Executive
Officer and 20% of base salary per annum for the Chief Financial
Officer, in line with the policy.
Bonus
The 2018 annual bonus maximum as a percentage of base salary
is as follows:
Executive Directors
Agust Gudmundsson
Peter Gates
Maximum
2018
80% of salary
125% of salary
Awards will be subject to an underlying performance override
enabling them to be scaled back to reflect the Group’s underlying
performance as well as malus and clawback.
In line with the Remuneration Policy, one-third of any bonus
earned will be deferred for three years, conditional upon
continued employment. Deferral for the Chief Executive Officer
will be in cash (given his current shareholding), whereas the
Chief Financial Officer’s deferral will be in shares.
Long-Term Incentive Plan
The Committee intends to grant awards of nil cost options
under the Long-Term Incentive Plan to the Chief Financial Officer,
in line with the policy set out in this report. Reflecting his founder
status and his current shareholding, the current Chief Executive
Officer does not participate in the Long-Term Incentive Plan.
The awards granted to the Chief Financial Officer will have a
face value of 150% of salary, with the exact number of shares
to be granted to be determined with reference to the prevailing
share price around the date of grant.
Vesting of the 2018 awards will be contingent on the
following performance measures (each measure applies
to 50% of an award):
Adjusted Earnings per Share (EPS):
Percentage of vesting of relevant
portion of award*
Adjusted EPS In 2020
0%
25%
100%
Less than 16.5 pence
16.5 pence
Equal to or more than 18.6 pence
Total Shareholder Return (TSR):
Percentage of vesting of relevant
portion of award*
Relative TSR ranking against a bespoke
group of companies for the period
1 January 2018 to 30 December 2020
Below median
Median
Upper quartile
For 2018, the annual bonus for the Executive Directors will
comprise three elements as set out below which are all key
performance indicators of the business.
0%
25%
100%
• Adjusted EBITDA (50%)
• Revenue (25%)
• Free Cash Flow excl. development projects (25%)
It is not possible to disclose specific targets in advance as this
would give a clear indication of the Group’s business objectives,
which are commercially sensitive. However, full details of the
targets and performance against them will be disclosed in next
year’s Annual Report.
* Vesting on a straight-line basis in between threshold and stretch
69
DIRECTORS’ REMUNERATION REPORT CONTINUED
The Remuneration Committee considered carefully an appropriate peer group for these awards. It was felt that a pan-sector group
such as the FTSE 250 was not appropriate given the different types of companies in the index and that a group formed of pure UK food
producers was too small. Therefore, a hybrid group has been chosen which includes food producers, beverage companies, food and
drug retailers and a selection of restaurant and bar companies. The 2018 comparator group comprises:
Associated British
Foods
Cranswick
Fuller, Smith &
Turner
McColl’s Retail
Group
Restaurant Group
Unilever
Barr (A G)
Dairy Crest Group
Greencore Group
Mitchells & Butlers
Sainsbury (J)
Wetherspoon (JD)
Booker Group
Devro
Greene King
Morrison (Wm)
Supermarkets
SSP Group
Whitbread
Britvic
Diageo
Greggs
Ocado Group
Stock Spirits Group
DP Eurasia
Coca-Cola HBC AG
Domino’s Pizza
Group
Hilton Food Group
Premier Foods
Tate & Lyle
Compass Group
E.I. Group
Marston’s
PureCircle
Tesco
Awards are subject to a two-year holding period following the three-year performance period as well as malus and clawback. In
addition, before an award vests the Committee must be satisfied that the underlying performance of the Group is satisfactory. The
Committee believes that having a performance override is an important feature of the plan as it mitigates the risk of unwarranted
vesting outcomes.
Non-executive Directors’ fees
Non-executive and Chairman fees for 2018 remain unchanged
since Admission, and are as follows:
Chairman
Base Non-executive Director fee
Notes:
Todd Krasnow’s annual fee is £100,000 p.a.
Fee
£200,000
£70,000
Robert Berlin does not receive any fees for his role as Non-executive Director.
Given his unique expertise and insight into the Company’s business as a
founder of the Bakkavor Group, pursuant to an agreement between Lydur
Gudmundsson and Bakkavor Iberica S.L., and a service agreement between
Bakkavor Iberica S.L. and Bakkavor Holdings Limited, Lydur Gudmundsson is
employed to provide consulting services to the Group for a fee of €230,000 per
annum. Lydur Gudmundsson is also entitled to medical coverage in the UK for
the benefit of his family.
No additional fee is payable to any Non-executive Directors
for additional responsibilities such as serving on a committee
of the Group Board. Each Non-executive Director is also entitled
to reimbursement of reasonable expenses, including transatlantic
travel expenses.
On behalf of the Board
Denis Hennequin
Chair of the Remuneration Committee
9 April 2018
70
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their report, together with the Group
Financial Statements, for the year ended 30 December 2017.
Results
The results for the year ended 30 December 2017 are set out in
the Financial Statements on page 82.
Directors’ Report content
The Strategic Report, the Corporate Governance Report and
the Directors’ Remuneration Report are all incorporated by
reference into this Directors’ Report, and should be read as
part of this report.
Registered office
Bakkavor Group plc is incorporated as a public limited company
and is registered in England with the registered number
10986940. Bakkavor Group plc’s registered office is Fitzroy Place,
5th Floor, 8 Mortimer Street, London, W1T 3JJ. Our registrars are
Equiniti Limited, located at Aspect House, Spencer Road, Lancing,
West Sussex, BN99 6DA.
Strategic Report
Section 414A of the Companies Act 2006 requires the
Directors to present a Strategic Report in the Annual Report
and Financial Statements. The information can be found on
pages 4-36.
Disclosures required pursuant to Listing Rule 9.8.4R
In compliance with the FCA’s Listing Rules, the information
in Listing Rule 9.8.4R to be included in the Annual Report and
Accounts where applicable can be found on the following pages:
Listing Rule Detail
Page reference
9.8.4R (1) (2),
(5-14) (A) (B)
Not
applicable
Not applicable
9.8.4R (4)
Long-Term
Incentive
Schemes
Page 58 of the Directors’
Remuneration Report
Corporate Governance statement
In compliance with the FCA’s Disclosure Guidance and
Transparency Rule 7.2.1, the required disclosures are set out in
this Directors’ Report and in the Corporate Governance Report.
Management Report
For the purposes of the FCA’s Disclosure Guidance and
Transparency Rules 4.1.5R (2) and 4.1.8, this Directors’
Report and the Strategic Report on pages 4-36 comprise the
Management Report.
Dividend
No dividend will be declared in respect of the financial year 2017.
The Group has confirmed its intention that a dividend equivalent to
40% of Adjusted Profit after Tax for the financial year 2018 will be
paid, with an interim payment in September 2018 of approximately
one third of the expected total for the year.
Articles of Association
The Group’s Articles of Association (“the Articles”) are
available from the Group’s website, or by writing to the General
Counsel and Company Secretary at the Group’s registered office.
The Articles can also be obtained from the UK Registrar of
Companies. The Articles may be amended by special resolution
of the shareholders.
Board of Directors
The powers of the Directors are set out in the Schedule of Matters
Reserved for the Group Board which is available for review on the
Company’s website.
Bakkavor Holdings Limited (formerly Bakkavor Group Limited)
Registered number: 06215286
Directors in year
Simon Burke (appointed 1 February 2017)
Agust Gudmundsson (appointed 17 April 2007)
Robert Berlin (appointed 22 January 2016)
Lydur Gudmundsson (appointed 8 October 2009)
Denis Hennequin (appointed 1 February 2017)
Todd Krasnow (appointed 22 January 2016)
Bakkavor Group plc
Registered number: 10986940
Directors in year
Simon Burke (appointed 20 October 2017)
Agust Gudmundsson (appointed 28 September 2017)
Robert Berlin (appointed 28 September 2017)
Sue Clark (appointed 20 October 2017)
Peter Gates (appointed 20 October 2017)
Lydur Gudmundsson (appointed 20 October 2017)
Denis Hennequin (appointed 20 October 2017)
Todd Krasnow (appointed 20 October 2017)
71
DIRECTORS’ REPORT CONTINUED
Directors’ share interests
The interests of the Directors at 30 December 2017 and as at the date of the publication of this report were:
Name
Simon Burke
Agust Gudmundsson
Lydur Gudmundsson
Number of shares
% of voting rights
Number of shares
% of voting rights
30 December 2017
Date of publication of Annual Report
50,000
145,333,130
145,333,130
0.009%
25.1%
25.1%
50,000
145,333,130
145,333,130
0.009%
25.1%
25.1%
Directors’ insurance and indemnities
Bakkavor has made qualifying third party provisions (as defined
in the Companies Act 2006) for the benefit of its Directors.
These provisions remain in force at the date of this Annual Report.
In accordance with the Articles, and to the extent permitted by
law, Bakkavor may indemnify its Directors out of its own funds
to cover liabilities arising as a result of their office. Bakkavor
holds Directors’ and Officers’ Liability Insurance cover for any
claim brought against Directors or officers for wrongful acts in
connection with their positions, but the cover does not extend to
claims arising from dishonesty or fraud.
Appointment and retirement of Directors
The rules governing the appointment and replacement of
Directors are set out in the Articles and governed by the
Governance Code, the Companies Act 2006 and related legislation.
At the AGM, all Directors will offer themselves for election to the
Group Board. Biographical details of all Directors are set out on
pages 38 to 39. Subject to applicable law, the Articles and any
directions given by special resolution, the business of the Group
will be managed by the Group Board which may exercise all power
of the Group.
Share capital and capital structure
The Company’s issued share capital as at the date of publication
of the Annual Report is 579,425,585 ordinary shares of £0.02 each.
Details of the Company’s issued share capital are also shown in
Note 31 to the Consolidated Financial Statements.
The Company has one class of ordinary shares which carries
no right to fixed income. Each share is non-redeemable and
carries equal voting rights and ranks for dividends and capital
distributions, whether on a winding up or otherwise.
Details of employee share schemes are set out in Note 36 to the
Consolidated Financial Statements.
There are no specific restrictions on the size of a holding nor on
the transfer of shares, which are both governed by the general
provisions of the Articles and prevailing legislation, other than as
set out in the sections on controlling shareholders and lock-up
arrangements below.
Under the Company’s Articles, the Group Board has general
and unconditional authority for each prescribed period to exercise
all the powers of the Company to allot shares in the Company
or to grant rights to subscribe for or to convert any security into
shares in the Company in accordance with section 551 of the
Companies Act 2006. A renewal of this authority will be proposed
at the AGM on 23 May 2018. The Company will also seek authority
to purchase its own shares within certain limits and as permitted
by the Articles, at the AGM on 23 May 2018.
72
Bakkavor Group plc — 2017 Annual Report
Significant agreements and change of control
There are a number of agreements that take effect, alter or
terminate upon a change of control of the Company such as
commercial contracts, property lease arrangements and
employees’ share plans. None of these are considered to be
significant in terms of their likely impact on the business of the
Group as a whole.
The agreement which governs the Company’s Term Loan and
Revolving Credit Facilities (“Facilities Agreement”) provides that,
on a change of control, any lender may on notice cancel its
commitments under the Facilities Agreement. In the event of
a takeover, the exercise by the lenders under the Facilities
Agreement of the right to cancel could have a significant impact
on the business of the Group, as the outstanding amounts
thereunder would become due and payable.
The Directors are not aware of any agreements between the
Company and its Directors or employees that provide for
compensation for loss of office or employment that occurs
because of a takeover bid.
Controlling shareholders
Shortly prior to the IPO, Bakk AL Holdings Limited (an entity in
which Agust Gudmundsson and Lydur Gudmundsson each held
a 50% interest) owned 59.5% and BP-PE5 L.L.C. (“BP-PE5”), an
entity managed indirectly by the Baupost Group, owned 40.5% of
the issued share capital of Bakkavor Holdings Limited (formerly
Bakkavor Group Limited).
In anticipation of and following the IPO, the Group completed
a reorganisation of its corporate structure. The reorganisation,
which was contemplated in the prospectus published by the
Group on 10 November 2017 in relation to its IPO, involved the
transfer of the shares held by Bakk AL Holdings Ltd. first to
Milu Trading Inc. (the common investment vehicle of Agust and
Lydur Gudmundsson), and then to the separate corporate holding
structures of each of Agust Gudmundsson (with the relevant
shares in Bakkavor Group plc being held by Carrion Enterprises
Limited) and Lydur Gudmundsson (with the relevant shares in
Bakkavor Group plc being held by Umbriel Ventures Limited).
Following the IPO, Agust and Lydur Gudmundsson each indirectly
held 25.1% of the issued share capital in Bakkavor Group plc
and BP-PE5 held 24.8% of the issued share capital of Bakkavor
Group plc.
GOVERNANCE Lock-up arrangements
The Group has agreed that, subject to certain exceptions,
during the period of 180 days from the date of the IPO, it would
not, without the prior written consent of the Joint Global Co-
ordinators and Peel Hunt, issue, offer, sell or contract to sell, or
otherwise dispose of, directly or indirectly, or announce an offer
of any shares (or any interest therein or in respect thereof) or
enter into any transaction with the same economic effect as any
of the foregoing.
Bakkavor’s Selling Shareholders (Bakk AL Holdings Limited
and BP-PE5) and its Directors agreed that, subject to certain
exceptions, during the period of 180 days in respect of the Selling
Shareholders, and 365 days in respect of the Directors, in each
case from the date of the IPO, they will not, without the prior
written consent of the Joint Global Coordinators and Peel Hunt,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce an offer of any shares (or any interest
therein in respect thereof) or enter into any transaction with the
same economic effect as any of the foregoing.
Relations with shareholders
The Group Board supports the aims of the Governance Code and
the UK Stewardship Code to promote engagement and interaction
between listed companies and their major shareholders.
The Group Board welcomes the opportunity for investors and
shareholders to engage directly with the Chairman and Senior
Independent Director in addition to the Chief Executive Officer and
Chief Financial Officer. An appropriate range of investor relations
events around the publication of the full-year and half-year results
has been scheduled in 2018, and the Head of External Affairs will
manage this process, including updates to the Group Board.
AGM
The AGM will be held on 23 May 2018 and is an opportunity
for shareholders to vote on aspects of the business in person.
The Group Board values the AGM as an opportunity to meet
with shareholders and to take their questions. Full details of the
resolutions to be proposed at the AGM, shareholders’ rights with
respect to attendance, participation in the meeting and the
process for submission of proxy votes in advance of the meeting
will be set out in the Notice of AGM.
Additional information for shareholders is contained on
our website https://www.bakkavor.com/investors/shareholder-
information.agm
Major interests in shares
The Group has been notified in accordance with the FCA’s
Disclosure Guidance and Transparency Rules, or was otherwise
aware, that the following held, or were beneficially interested in,
3% or more of Bakkavor’s issued ordinary shares:
30 December 2017
Date of publication
of Annual Report
Number
of ordinary
shares
145,333,130
% of
Number
voting
of ordinary
rights
shares
25.1 145,333,130
% of
voting
rights
25.1
145,333,130
25.1 145,333,130
25.1
143,902,928
24.8 143,902,928
24.8
Name
Carrion
Enterprises
Limited (corporate
holding structure
of Agust
Gudmundsson)
Umbriel Ventures
Limited (corporate
holding structure
of Lydur
Gudmundsson)
BP-PE5 L.L.C (the
Baupost Group)
Employees with disabilities
Applications for employment by prospective employees with
disabilities are always fully considered. On occasions where
existing employees develop a disability, every effort is made to
ensure that their employment with the Group continues, and any
reasonable adjustments are made and appropriate training is
provided. It is the policy of the Group that the training, career
development and promotion of employees with disabilities should,
as far as possible, be the same as that of our other employees.
Employee consultation
The Group places considerable value on the involvement of its
employees, and has continued to keep them informed on matters
affecting them as employees and on the various factors affecting
the performance of the Group. It does this through a formal
process of SEFs where representatives meet annually with the
Chief Executive Officer to review business performance. The
Group also works closely with Union representatives on
recognised sites. Employee feedback is sought on a regular
basis via the ‘all Employee Engagement Survey’ and this is used
to develop site specific action plans. Formal briefing processes
occur at each location and are supported by the Company
magazine, which includes highlights of the Group’s latest
published financial results.
73
DIRECTORS’ REPORT CONTINUED
Charitable donations
Bakkavor supports a number of national and local causes with
the chosen charities for 2017 being The Prince’s Trust and The
Prince’s Countryside Fund. In addition, our employees raise
money at each factory site for local causes of their choice.
Bakkavor aims to promote economic and social wellbeing around
all of our locations and is active in supporting local community
projects and initiatives, including supporting a number of local
schools and investing in young talent.
Political donations
No political donations were made during the financial year.
Going concern
Bakkavor’s business activities, together with factors likely to affect
its future development, performance and position, are set out in
the Strategic Report on pages 4 to 36. The financial position of the
Company, its cash flows, liquidity position and borrowing facilities,
as well as the Company’s objectives, policies and processes for
managing capital, are described on pages 26 to 28 and in Note 30.
Financial risk management objectives, and exposures to credit
risk and liquidity risk are described in Note 30. The Directors
consider that the Company’s business activities and financial
resources ensure that it is well placed to manage its business
risks successfully.
The Directors are satisfied that:
• The Company’s activities are sustainable for the foreseeable
future, and that the business is a going concern
• It is appropriate to continue to adopt a going concern basis in
the preparation of the Financial Statements
Viability statement
In line with Provision C.2.2 of the Governance Code, the Directors
have carried out a rigorous review of the prospects of the current
business, and its ability to meet its liabilities as they fall due over
the medium term. Whilst the Group has a longer-term financing
structure in place with the first debt maturity being June 2021,
the business operates in a fast-moving sector with a high level
of products introduced each year. The Group has to adapt to
meet the changing needs of customers and consumers,
therefore the Directors concluded that a three-year time frame
is an appropriate period for this assessment, as this is the period
over which the Directors can realistically set the strategic plan
for the Group.
The Directors assessed the principal risks to the business as
set out in the ‘Risk Management’ section on pages 21 to 25 of
the Annual Report, and the key mitigating actions used to
address them.
As a food producing business, food safety and integrity are of
paramount importance, and while each of the principal risks and
uncertainties could have an impact on the Group’s performance,
it was considered that risks such as the vulnerability of the
Group’s cost base and margin to fluctuations in the price and
availability of raw materials, the impact of higher labour costs,
and scarcity of labour, and any breakdown or failure in the
Group’s information technology systems would most likely
threaten the Group’s longer-term viability.
For each of the principal risks, action plans have been developed
to mitigate the risk with a clear allocation of responsibilities for
mitigation and the timescales for completion. Based on the
results of this analysis, the Directors have concluded that they
have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due over
the three-year period of their assessment.
Directors’ statement as to the disclosure of information
to the Auditor
So far as each person who was a Director at the date of approving
this report is aware, there is no relevant audit information, being
information needed by the Auditor in connection with preparing
their report, of which the Auditor is unaware. Each Director has
taken all the steps that he or she is obliged to take as a Director
in order to make himself or herself aware of any relevant audit
information, and to establish that the Company’s Auditor is aware
of that information. This confirmation is given pursuant to section
418 of the Companies Act 2006 and should be interpreted in
accordance with and subject to these provisions.
Subsequent events
Please refer to Note 39 of the Financial Statements.
Simon Witham
General Counsel and Company Secretary
9 April 2018
74
Bakkavor Group plc — 2017 Annual Report
GOVERNANCE
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with applicable law
and regulation.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law, the Directors
are required to prepare the Group Financial Statements in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union and Article 4 of the
IAS Regulation and have also chosen to prepare the Company
Financial Statements in accordance with the Financial Reporting
Standard 101 Reduced Disclosure Framework.
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 Group and the Company, and of
the profit or loss of the Group and Company for that period.
In preparing the Company Financial Statements, the Directors are
required to:
• Select suitable accounting policies and apply them consistently
• State whether the Financial Reporting Standard 101 Reduced
Disclosure Framework has been followed, subject to any
material departures disclosed and explained in the Financial
Statements
• Make judgements and accounting estimates that are
reasonable and prudent
• Prepare the Financial Statements on a going concern basis,
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Company’s website. Legislation in the UK governing the
preparation and dissemination of Financial Statements may
differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• The Financial Statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss of
the Group and the Company and the undertakings included in
the consolidation taken as a whole
• The Strategic Report includes a fair review of the development
and performance of the business and the position of the
Group and the Company and the undertakings included in
the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face
• The Annual Report and Financial Statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Group
and Company’s performance, business model and strategy.
On behalf of the Group Board
In preparing the Group Financial Statements, International
Accounting Standard 1 requires that Directors:
• Properly select and apply accounting policies
Agust Gudmundsson
Chief Executive Officer
• Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information
9 April 2018
• Provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance
• Make an assessment of 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 and
Company’s transactions, and to disclose with reasonable
accuracy at any time the financial position of the Group and
Company and enable them to ensure that the Financial
Statements and the Directors’ Remuneration Report comply
with the Companies Act 2006.
The Directors are also responsible for safeguarding the assets of
the Group and Company, and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
75
AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC
Report on the audit of the Financial Statements
Opinion
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
30 December 2017 and of the Group’s profit for the period
then ended;
• the Group Financial Statements have been properly prepared
in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the Parent Company Financial Statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice including Financial Reporting
Standard 101 “Reduced Disclosure Framework”; and
• the Financial Statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group Financial Statements, Article 4 of the
IAS Regulation.
We have audited the Financial Statements of Bakkavor Group plc
(the ‘Parent Company’) and its subsidiaries (the ‘Group’) which
comprise:
• the Consolidated income statement;
• the Consolidated statement of comprehensive income and
expense;
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described
in the auditor’s responsibilities for the audit of the Financial
Statements section of our report.
We are independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the Financial Statements in the UK, including the FRC’s
Ethical Standard as applied to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the
Group or the Parent Company.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in
the current period were:
• valuation of the Group’s accruals for
volume related rebates; and
• the risk of impairment of tangible and
intangible assets in the US.
The materiality that we used in the
current period was £4.5m, which was
determined on the basis of adjusted profit
before tax.
Our Group audit scope has been designed
to focus on the risks identified across the
Group with audit procedures covering
83% of adjusted profit before tax, 87% of
net assets and 72% of revenue. Our work
has included visiting 10 out of 39 locations
across the Group.
We confirm that we have nothing
material to report, add or draw
attention to in respect of these
matters.
• the Consolidated and Parent Company statements of financial
Materiality
position;
• the Consolidated and Parent Company statements of changes
in equity;
• the Consolidated cash flow statement; and
Scoping
• the related Notes 1 to 41 of the Consolidated Financial
Statements and notes 1 to 9 of the Parent Company Financial
Statements.
The financial reporting framework that has been applied in the
preparation of the Group Financial Statements is applicable law
and IFRSs as adopted by the European Union. The financial
reporting framework that has been applied in the preparation of
the Parent Company Financial Statements is applicable law and
United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework” (United Kingdom Generally
Accepted Accounting Practice).
Conclusions relating to principal risks, going concern and viability statement
Going concern
We have reviewed the Directors’ statement in Note 2 to the Financial Statements about
whether they considered it appropriate to adopt the going concern basis of accounting in
preparing them and their identification of any material uncertainties to the Group’s and
Parent Company’s ability to continue to do so over a period of at least 12 months from the
date of approval of the Financial Statements.
We are required to state whether we have anything material to add or draw attention to in
relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is
materially inconsistent with our knowledge obtained in the audit.
76
Bakkavor Group plc — 2017 Annual Report
FINANCIAL STATEMENTS We confirm that we have
nothing material to report, add
or draw attention to in respect of
these matters.
Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and the
Parent Company’s ability to continue as a going concern, we are required to state whether
we have anything material to add or draw attention to in relation to:
• the disclosures on pages 21-25 that describe the principal risks and explain how they
are being managed or mitigated;
• the Directors’ confirmation on page 74 that they have carried out a robust assessment
of the principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity; or
• the Directors’ explanation on page 74 as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to report whether the Directors’ statement relating to the prospects of
the Group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledgde
obtained in the audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial
Statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Valuation of the Group’s accruals for volume related rebates
Key audit matter description
The Group provides incentives to customers in the form of volume related rebates,
marketing and promotional funding, discounts or lump sum incentives (“customer
deductions”). As described in the accounting policies these are treated as a reduction
in revenue. The customer deduction arrangements with customers are accounted for
at both site and at Group level. The site level arrangements have limited complexity
and do not require significant judgement. However, Group level accruals for volume
related rebate arrangements that cover multiple sites and product categories are
more complex. Accruals are made under these arrangements based on how likely
it is that the criteria set out in the arrangement will be met and may rise as a
proportion of sales as higher quantities are sold.
There is complexity in the accruals for volume related rebates that gives rise
to management judgement and scope for fraud and error in the accounting for
these balances.
Judgement is required in estimating the expected level of rebates for the rebate
year, driven by the forecast sales volumes and ongoing negotiations with the Group’s
customers. There is judgement over the contractual relationships that the Group has
with its customers.
Further details are included in the Audit Committee report on page 48 (as they are
considered a significant judgement) and the Accounting Policies in Notes 2 and 3 to
the Financial Statements.
77
AUDITOR’S REPORT CONTINUED
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC CONTINUED
How the scope of our audit
responded to the key audit matter
The following procedures have been designed and performed in order to respond to the
key matter outlined above:
• we assessed the design and implementation of controls over the customer deduction
process, including the process for matching amounts accrued with amounts claimed
by the customer;
• we reviewed correspondence with the customers and minutes of meetings held;
• we assessed the adequacy of the accruals made in the current period by reviewing the
agreements with customers and determining whether the accrual has been calculated
using the terms and conditions of the relevant arrangements or latest status of customer
negotiations;
• we assessed the appropriateness of forecasts made by management which underpin
the calculation of the accruals;
• we retrospectively reviewed the historical accuracy of the accruals made and compared
to amounts subsequently settled; and
• we assessed the disclosures of these arrangements in the Financial Statements.
Key observations
Whilst we identified some prudence in the Group’s estimation methodology for amounts to
be accrued, we concurred with management that the revenue recognition approach in the
Financial Statements was appropriate.
The risk of impairment of tangible and intangible assets in the US
Key audit matter description
The Group has goodwill of £647.2m, as set out in Note 15 to the Financial Statements.
The Group has one cash-generating unit (“CGU”), the US, where reasonably possible
changes in financial performance could result in impairment. At 30 December 2017, the
Group recognised goodwill and intangibles of £48.3m and tangible assets of £14.9m in
relation to this CGU.
The US CGU has a relatively low level of headroom and the highest sensitivity to the
underlying assumptions. Further details are included in Note 15.
The key audit matter identified is in respect of management’s judgements in relation to the
value in use calculation for the cash-generating unit to which the assets relate. Specifically,
the key audit matter is focused on the underlying assumptions used in determining the
recoverable value of the assets such as discount rates, growth rates and longer-term
financial performance.
These items are all subjective and could lead to an impairment charge if incorrect. Due to the
judgemental nature of the assumptions, a fraud risk has been identified due to the risk of bias
within assumptions adopted.
This matter has been identified by management within the Audit and Risk Committee
report on page 48 and disclosed as a critical accounting judgement within Note 3 to the
Financial Statements.
How the scope of our audit
responded to the key audit matter
The following procedures have been designed and performed in order to assess the
reasonableness of the key assumptions and the estimates of future cash flows for the
underlying business:
• we assessed the design and implementation of controls over the intangible and tangible
fixed asset impairment review process;
• we compared the actual results to forecast to assess historical forecasting accuracy;
• we considered whether the implied earnings multiple indicates bias within management’s
forecasts;
• we used internal valuation experts to determine whether management’s discount rate is
appropriate;
• we performed sensitivity analysis by reducing cash inflows and increasing the discount
rate; and
• we assessed the disclosures relating to the impairment review in the Financial Statements.
78
Bakkavor Group plc — 2017 Annual Report
FINANCIAL STATEMENTS
Key observations
From our work on this key audit matter we have noted that:
• the discount rate used by management to estimate the recoverable value of the CGU
falls within our expected range based on the independent analysis completed; and
• the earnings multiples inferred from the cash flow forecasts fall within the range of
comparative peer group entities operating within the same market.
We have gained sufficient assurance that the underlying assumptions for the US CGU
are reasonable and supportable at the assessment date.
Our application of materiality
We define materiality as the magnitude of misstatement in
the Financial Statements that makes it probable that the
economic decisions of a reasonably knowledgeable person
would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the
results of our work.
We agreed with the Audit and Risk Committee that we would
report to the Committee all audit differences in excess of
£0.23m, as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also
report to the Audit and Risk Committee on disclosure matters
that we identified when assessing the overall presentation of
the Financial Statements.
Based on our professional judgement, we determined
materiality for the Financial Statements as a whole as follows:
Group materiality
£4.5m
Basis for determining
materiality
Rationale for the
benchmark applied
5% of adjusted profit before tax.
Adjusted profit before tax is
defined as profit before tax
adjusted for financing costs and
other gains and losses (arising
from the financing structure prior
to the March 2017 refinancing)
and exceptional items.
We consider that a profit
benchmark is appropriate
in determining materiality
given investor focus on the
performance of the business. We
have used adjusted profit before
tax which reflects the underlying
performance of the business and
reduces the risk of volatility.
An overview of the scope of our audit
Our Group audit scope has been designed to focus on the
risks identified across the Group with audit procedures covering
83% of adjusted profit before tax, 87% of net assets and 72% of
revenue. Our work has included visiting 10 locations out of 39
across the Group using component materiality of up to £2.0m.
Nine of these locations were in the UK and we determined that
four of these sites were significant.
Our audit work has included the use of a component auditor,
which forms part of the Deloitte member firm network. We
planned and reviewed the component auditor’s work, issuing
instructions to them and evaluating the results of the work
performed; this included a visit to the component during the
period. The parent company materiality was £4.3m, determined
on the basis of 2% of net assets and capped at 95% of group
materiality. The parent company is non-trading and acts as a
holding company.
Our Group audit was scoped by obtaining an understanding of
the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group
level. Based on that assessment, we focused our Group audit
scope primarily on the audit work at 10 locations.
At the Group’s head office we tested the consolidation
process and carried out analytical procedures to confirm our
assessment that there were no significant risks of material
misstatement of the remaining components not subject to
audit or review procedures.
79
AUDITOR’S REPORT CONTINUED
The Parent Company was incorporated on 28 September 2017
and on 10 November 2017 acquired the Group headed by
Bakkavor Holdings Limited (formerly Bakkavor Group Limited).
As the Parent Company was not a business at the time of
the acquisition, merger accounting has been applied and the
results presented by the Group are for the 52 weeks ended
30 December 2017.
Other information
The Directors are responsible for the other information. The other information comprises the information
included in the Annual Report including the Strategic Report and the Directors’ Report, other than the
Financial Statements and our auditor’s report thereon.
We have nothing to
report in respect of
these matters.
Our opinion on the Financial Statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the Financial
Statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the Financial Statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• fair, balanced and understandable – the statement given by the Directors that they consider the Annual Report
and Financial Statements taken as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s performance, business model and strategy,
is materially inconsistent with our knowledge obtained in the audit; or
• Audit and Risk Committee reporting – the section describing the work of the Audit and Risk Committee does
not appropriately address matters communicated by us to the Audit and Risk Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’
statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing
Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Responsibilities of Directors
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, and for such internal control as the Directors
determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether
due to fraud or error.
In preparing the Financial Statements, the Directors are
responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing as
applicable matters related to going concern and using the going
concern basis of accounting unless the Directors either intend
to liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit
of the Financial Statements
Our objectives are to obtain reasonable assurance about
whether the Financial Statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these Financial Statements.
A further description of our responsibilities for the audit of the
Financial Statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
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.
80
Bakkavor Group plc — 2017 Annual Report
FINANCIAL STATEMENTS REPORT ON OTHER LEGAL AND
REGULATORY REQUIREMENTS
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course
of the audit:
• the information given in the Strategic Report and the Directors’
Report for the financial period for which the Financial
Statements are prepared is consistent with the Financial
Statements; and
• the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group
and of the Parent Company and their environment obtained in
the course of the audit, we have not identified any material
misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the 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.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if
in our opinion certain disclosures of Directors’ remuneration
have not been made or the part of the Directors’ Remuneration
Report to be audited is not in agreement with the accounting
records and returns
Other matters
Auditor tenure
The Company was incorporated on 28 September 2017 and
acquired the Group headed by Bakkavor Holdings Limited.
Following the recommendation of the Audit and Risk Committee,
we were appointed by the Board of Directors on 11 December
2017 to audit the Financial Statements for the period ending
30 December 2017 and subsequent financial periods. The period
of total uninterrupted engagement including previous renewals
and reappointments of the firm to the Company is one year,
covering the period to 30 December 2017.
Prior to our appointment to the Company we have been the
auditor of the Group headed by Bakkavor Holdings Limited.
The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is 13 years, covering
the periods ending 31 December 2005 to 30 December 2017.
We have nothing to report in respect of these matters.
We have nothing to report in respect of these matters.
Consistency of the audit report with the additional report
to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to
the Audit and Risk Committee we are required to provide in
accordance with ISAs (UK).
William Smith MA FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
9 April 2018
81
CONSOLIDATED INCOME STATEMENT
52 WEEKS ENDED 30 DECEMBER 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
52 WEEKS ENDED 30 DECEMBER 2017
£ million
Profit for the period
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain/(loss) on defined benefit pension schemes
Tax relating to components of other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Net exchange gains recycled to income statement on disposal of subsidiaries
Total other comprehensive income
Total comprehensive income
The notes to the accounts form an integral part of the Consolidated Financial Statements.
Notes
37
12
52 weeks ended
53 weeks ended
30 December
31 December
2017
31.0
12.3
(2.1)
10.2
(7.6)
–
(7.6)
2.6
33.6
2016
51.3
(7.6)
1.4
(6.2)
16.5
(2.5)
14.0
7.8
59.1
£ million
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Other administrative costs
Profit on disposal of subsidiary
Share of results of associates after tax
Operating profit/(loss)
Investment revenue
Finance costs
Other gains and (losses)
Profit/(loss) before tax
Tax (charge)/credit
Profit/(loss) for the period from continuing
operations
Discontinued operations
52 weeks ended 30 December 2017
53 weeks ended 31 December 2016
Notes
Underlying
activities
Other items1
(Note 7)
Total
Underlying
activities
Other items1
(Note 7)
Total
4,5
1,814.8
(1,329.1)
485.7
(77.2)
(297.5)
–
0.6
111.6
–
(21.8)
(5.0)
84.8
(14.3)
32
19
5,9
10
11
12
–
–
–
–
(15.4)
–
–
(15.4)
–
(13.2)
(17.2)
(45.8)
6.3
1,814.8
1,763.6
(1,329.1)
(1,275.9)
485.7
(77.2)
(312.9)
–
0.6
96.2
–
(35.0)
(22.2)
39.0
(8.0)
487.7
(78.0)
(302.8)
–
0.7
107.6
0.1
(36.6)
3.8
74.9
(13.7)
–
–
–
–
(16.2)
0.1
–
(16.1)
–
(2.2)
6.5
(11.8)
1.4
1,763.6
(1,275.9)
487.7
(78.0)
(319.0)
0.1
0.7
91.5
0.1
(38.8)
10.3
63.1
(12.3)
70.5
(39.5)
31.0
61.2
(10.4)
50.8
Profit for the period from discontinued operations
13,32
–
–
–
–
0.5
0.5
Profit/(loss) for the period attributable to equity
holder of the parent company
6
70.5
(39.5)
31.0
61.2
(9.9)
51.3
Earnings per share
From continuing operations
Basic and diluted
From continuing and discontinued operations
Basic and diluted
14
14
5.8p
5.8p
8.8p
8.9p
1 The Group presents its income statement with three columns. The Directors consider that the underlying activities results better represent the ongoing operations and
key metrics for the Group. Other items include exceptional items, impairment of assets, disposals of subsidiaries and associates, one-off finance costs relating to
redemptions and other refinancing activities and fair value adjustments relating to items, which are considered significant in nature and are important to users in
understanding the business. Details of the alternative performance measures that the Group uses can be found in Note 41.
The notes to the accounts form an integral part of the Consolidated Financial Statements.
82
Bakkavor Group plc — 2017 Annual Report
82 | Bakkavor Group plc
83
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
52 WEEKS ENDED 30 DECEMBER 2017
£ million
Profit for the period
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain/(loss) on defined benefit pension schemes
Tax relating to components of other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Net exchange gains recycled to income statement on disposal of subsidiaries
Total other comprehensive income
Total comprehensive income
The notes to the accounts form an integral part of the Consolidated Financial Statements.
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
Notes
31.0
51.3
37
12
12.3
(2.1)
10.2
(7.6)
–
(7.6)
2.6
33.6
(7.6)
1.4
(6.2)
16.5
(2.5)
14.0
7.8
59.1
83
83
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 DECEMBER 2017
£ million
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in associates
Other investments
Deferred tax asset
Retirement benefit asset
Derivative financial instruments
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
Derivative financial instruments
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
Total equity
Notes
30 December
2017
31 December
2016
15
16
17
19
20
26
37
25
21
22
23
25
28
24
27
29
25
28
24
27
29
25
26
37
31
31
31
31
31
647.2
2.6
337.5
12.0
0.1
3.2
5.2
0.1
1,007.9
54.8
147.9
20.9
1.6
225.2
651.5
3.6
304.5
13.3
0.1
1.6
–
0.3
974.9
59.2
190.7
22.5
2.8
275.2
1,233.1
1,250.1
(393.4)
(3.7)
(1.5)
(0.8)
(3.1)
(0.6)
(0.7)
(403.8)
(0.4)
(282.1)
(3.1)
(14.6)
(0.2)
(16.6)
–
(2.2)
(319.2)
(723.0)
510.1
11.6
366.1
(130.9)
–
26.1
237.2
510.1
(432.1)
(4.6)
(12.9)
(0.7)
(3.4)
–
(0.7)
(454.4)
(0.4)
(371.8)
(4.0)
(11.2)
(0.1)
(16.6)
(10.0)
(2.8)
(416.9)
(871.3)
378.8
1.0
–
54.9
98.8
33.7
190.4
378.8
The Financial Statements of Bakkavor Group plc and the accompanying notes, which form an integral part of the Consolidated Financial
Statements, were approved by the Board of Directors on 9 April 2018. They were signed on behalf of the Board of Directors by:
A Gudmundsson
Chief Executive Officer
P Gates
Chief Financial Officer
84
Bakkavor Group plc — 2017 Annual Report
84 | Bakkavor Group plc
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
52 WEEKS ENDED 30 DECEMBER 2017
Equity attributable to owners of the parent
Share capital
Share
premium
Merger
reserve
Capital
reserve
Translation
reserve
Retained
earnings
£ million
Balance at 27 December 2015
Profit for the period
Other comprehensive income/(expense) for the period
Total comprehensive income for the period
Share buyback
Balance at 31 December 2016
Profit for the period
Other comprehensive income/(expense) for the period
Total comprehensive income/(expense) for the period
Issue of share capital (Note 31)
Share issue costs (Note 31)
Movement in merger reserve due to corporate restructure
(Note 31)
Credit for share-based payments (Note 36)
Deferred tax on share schemes
Balance at 30 December 2017
1.2
–
–
–
(0.2)
1.0
–
–
–
10.6
–
–
–
–
–
–
–
–
–
–
–
–
–
374.1
(8.0)
–
–
–
54.9
98.6
–
–
–
–
54.9
–
–
–
–
–
–
–
–
0.2
98.8
–
–
–
–
–
(185.8)
(98.8)
–
–
–
–
–
11.6
366.1
(130.9)
The notes to the accounts form an integral part of the Consolidated Financial Statements.
19.7
–
14.0
14.0
–
33.7
–
(7.6)
(7.6)
–
–
–
–
–
179.1
51.3
(6.2)
45.1
(33.8)
190.4
31.0
10.2
41.2
–
4.6
–
0.8
0.2
Total
equity
353.5
51.3
7.8
59.1
(33.8)
378.8
31.0
2.6
33.6
384.7
(3.4)
(284.6)
0.8
0.2
26.1
237.2
510.1
85
85
CONSOLIDATED STATEMENT OF CASH FLOWS
52 WEEKS ENDED 30 DECEMBER 2017
£ million
Net cash generated from operating activities
Investing activities:
Interest received
Dividends received from associates
Purchases of property, plant and equipment
Proceeds on disposal of property, plant and equipment
Disposal of subsidiary net of cash disposed of
Net cash used in investing activities
Financing activities:
Proceeds on issue of shares (net)
Share buyback
Increase in borrowings
Repayments of borrowings
Repayments of obligations under finance leases
Net cash used in financing activities
Net 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.
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
93.4
112.1
Notes
33
31
–
0.7
(79.1)
2.5
–
(75.9)
96.6
–
325.0
(439.4)
(0.8)
(18.6)
(1.1)
22.5
(0.5)
20.9
0.1
0.3
(67.3)
0.1
2.4
(64.4)
–
(33.8)
–
(90.0)
(0.5)
(124.3)
(76.6)
97.0
2.1
22.5
86
Bakkavor Group plc — 2017 Annual Report
86 | Bakkavor Group plc
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
52 WEEKS ENDED 30 DECEMBER 2017
1. GENERAL INFORMATION
The Company was incorporated as a public limited company on 28 September 2017. On 9 October 2017 the Company’s name was changed from
Diamond Newco plc to Bakkavor Group plc.
The Company acquired, by way of share for share exchange, the entire issued share capital of Bakkavor Holdings Limited on 10 November 2017.
Under IFRS, the Group reconstruction is treated as a common control transaction, for which there is no specific accounting guidance.
Consequently, the Board of Directors have had regard to the guidance in IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’
on the selection of accounting policies. The integration of the Company has been accounted for using merger accounting principles. The policy,
which does not conflict with IFRS, reflects the economic substance of the transaction.
The adoption of merger accounting presents the Company as if it had always been the parent undertaking of the Group. As the Company was not
incorporated until 28 September 2017, the consolidated results and details of the financial position prior to this date reflect those presented
previously as the results and financial position of Bakkavor Holdings Limited, the former parent of the Group.
The Company became listed on the London Stock Exchange on 16 November 2017 as part of an Initial Public Offering (also referred to as public
listing in these Financial Statements). The Company’s subsidiaries, both direct and indirect, at this date are listed in Note 5 to the Company only
Financial Statements.
The principal activities of the Company and its subsidiaries (the ’Group’) comprise the preparation and marketing of fresh prepared food and the
marketing and distribution of fresh produce. These activities are undertaken in the UK, US and China and products are primarily sold through high-
street supermarkets.
In the current period, the Group has adopted the following Standards and Interpretations with no material impact on the Financial Statements
of the Group.
Amendments:
IAS 7
IAS 12
Disclosure initiative
Recognition of Deferred Tax Assets for Unrealised Losses
At the date of authorisation of these Financial Statements, the following Standards and Interpretations relevant to the Group 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 15
IFRS 16
Amendments:
IFRS 2
IFRS 15
IFRIC 22
Various
Various
Financial Instruments
Revenue from Contracts with Customers
Leases
Classification and Measurement of Share-based Payment Transactions
Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’
Foreign Currency Transactions and Advance Consideration
Annual Improvements to IFRS Standards 2014–2016 cycle
IFRS 10, IFRS 12 and IAS 28: Investment Entities, Applying the Consolidation Exception
With the exception of IFRS 9 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 but at this time it
is not practical to quantify the future impact as further work is required to be conducted to complete the review and complete the assessment.
Management’s preliminary assessment is that the adoption of IFRS 15 will have no material impact on the current revenue recognition under IAS 18
‘Revenue’. The principal reason for this is that the Group only has an enforceable right to bill once the product is delivered to the customer. Further
work is still required to complete the assessment of the impact of IFRS 15 on the Group and to put in place processes to capture the additional
disclosures required under IFRS 15.
The implementation of IFRS 16 will require the recognition of the Group’s operating leases (with the exception of short-term and immaterial leases)
in the statement of financial position. Furthermore, it is expected that operating profit will increase alongside an increase in finance costs resulting
from the unwind of the lease liability. Initial assessments of the impact of IFRS 16 are ongoing and therefore it is not practicable to provide a
quantification of the impact on the Financial Statements. Details of the Group’s operating lease arrangements are included in Note 35.
87
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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 (which are stated at
fair value) and the valuation of the retirement benefit asset/obligation. The deferred tax liability as at 31 December 2016 has been grossed up to
show the deferred tax asset of £1.6 million on the face of the statement of financial position in order to comply with the current period presentation.
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 April 2019.
The Directors, in their detailed consideration of going concern, have reviewed the Group’s future revenue projections and cash requirements, which
they believe are based on prudent interpretations of market data and past experience. The Directors have also considered the Group’s level of
available liquidity under its financing arrangements and consider that adequate headroom is available based on the forecasted cash requirements
of the business.
Consequently, the Directors consider that the Company and the Group has adequate resources to meet its liabilities as they fall due for the
foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.
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 52 or 53-week period ending on the Saturday nearest to 31 December. Where
the fiscal year 2017 is quoted in these Financial Statements this relates to the 52-week period ended 30 December 2017. The fiscal year 2016 relates
to the 53-week period ended 31 December 2016.
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 has 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 Group 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 Group.
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 that qualify as measurement period adjustments are adjusted retrospectively, with corresponding
adjustments against goodwill. The subsequent accounting for changes in fair value of the contingent consideration that do not qualify as
measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is
not remeasured at subsequent reporting dates. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent
reporting dates in accordance with IAS 39 or IAS 37, as appropriate.
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.
88
Bakkavor Group plc — 2017 Annual Report
88 | Bakkavor Group plc
FINANCIAL STATEMENTS
Goodwill
Goodwill is initially recognised and measured as set out above in the ‘Business combinations’ note.
Goodwill is assumed to have an indefinite life as the acquired business is expected to trade for the foreseeable future and therefore 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 ‘Investments in associates’ note below.
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 is shown separately from
continuing operations in the income statement and statement of comprehensive income. For details of discontinued operations see Note 13.
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 customer deductions and 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 and
• 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.
Customer deductions
Consistent with standard industry practice, the Group has arrangements with its customers providing volume-related rebates, marketing and
promotional funding contributions, discounts or lump sum incentives. These costs are recognised as a reduction to revenue as they are considered
to be an adjustment to the selling price for the Group’s products. Sometimes the payment of this support is subject to the Group’s customers
performing specified actions or satisfying certain performance conditions associated with the purchase of products from the Group. These include
achieving agreed purchase volume targets and providing promotional marketing materials/activities. Whilst there is no standard definition, these
amounts payable to customers are generally termed as “customer deductions”.
The Group recognises these costs as a deduction from revenue based upon the terms of the relevant arrangement in place. Amounts payable
relating to customer deduction arrangements are recognised within accruals except in cases where the Group has a legal right of set-off and
intends to offset against amounts due from that customer.
89
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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 dates 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 and updated products. Expenditure
on research and development, where development costs do not meet the recognition criteria of IAS 38, is recognised as an expense in the period in
which it is incurred.
Exceptional items
Exceptional items are those that, in management’s judgement, should be disclosed by virtue of their nature or amount. Exceptional items will
typically include major restructuring programmes, legal cases, corporate transaction costs and pre-commissioning and start-up costs for new
manufacturing facilities.
Operating profit
Operating profit is stated after charging exceptional items, impairment of assets, profit/loss on the 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 pension 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.
90
Bakkavor Group plc — 2017 Annual Report
90 | Bakkavor Group plc
FINANCIAL STATEMENTS
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. Remeasurement, comprising actuarial gains and losses, the effect of changes to the asset
ceiling (if applicable) and the return on plan assets (excluding interest), are recognised outside of the income statement and presented in the
statement of comprehensive income.
Defined benefit cost are categorised as follows:
• Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements);
• Net interest expense or income; and
• Remeasurement
Past service costs are recognised in profit or loss on the earlier of:
• The date of the plan amendment or curtailment; and
• The date that the Group recognises restructuring-related costs or termination benefits
The Group recognises the first two components of defined benefit costs in the income statement.
The retirement benefit recognised in the statement of financial position represents the present value of the defined benefit obligation as reduced by
the fair value of scheme assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future
contributions to the scheme.
Share-based payments
An expense is to be recognised for goods or services acquired in a share based transaction when the goods are obtained or the service received.
The credit will be booked as either a liability or equity depending on the type of share-based payment.
Equity- settled share-based payment transactions are transactions where Group shares are issued as consideration for goods or services. They are
measured in the income statement at the fair value of the equity instrument granted at the date of grant with the corresponding amount booked to
equity. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight line basis over the vesting
period, based on the Group’s estimate of shares that will eventually vest. The fair value calculation should reflect market based performance
conditions. The total expense will be reduced by estimates of options that will not vest (due to leavers or not meeting non-market based
performance criteria). Estimates of non-vesting are to be recalculated at each measurement date. For grants of equity instruments with market
conditions, the entity shall recognise the goods and services from a counterparty who satisfies other vesting conditions, regardless of whether that
market condition is satisfied.
When options are exercised the share-based payment charge recognised in equity is transferred to share capital or share premium on the issue of
new shares or if the shares are purchased from the market to retained earnings to the extent it exceeds the cash paid.
Cash-settled share-based payment transactions arise where the Group pays a cash amount calculated by reference to the price of Group shares as
consideration. The fair value of cash-settled options are calculated in line with the equity settled guidance but are revalued at each reporting date
until the liability is settled. Any changes in fair value are recognised in profit or loss for the period. The liability is extinguished on exercise.
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 period. 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 periods 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.
Tax returns are prepared to adhere to tax rules and regulations and with all transactions being fully disclosed to the tax authorities. However, the
complex nature of tax sometimes means that the legislation is open to interpretation. In such cases, judgement is required to quantify the tax
liability to be reflected in the Financial Statements. If there is a reasonable possibility that tax authorities may take a different view from the position
taken in the filed returns then this will be reflected in the Financial Statements in the form of a tax provision. In such cases, this provision will
represent the full amount of any potential liability until the matter is agreed with the tax authorities.
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 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.
91
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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 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.
Capitalised borrowing costs
Borrowing costs incurred in financing the construction of qualifying assets such as property, plant and equipment are capitalised up to the date at
which the relevant asset is substantially complete. Borrowing costs are calculated using the Group’s weighted average cost of borrowing during the
period of capitalisation. All other borrowing costs are recognised in the income statement in the period in which they are incurred.
Other intangible assets
Intangible assets, none of which are internally generated, 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 and is charged to Other
administrative costs in the income statement.
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’.
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.
92
Bakkavor Group plc — 2017 Annual Report
92 | Bakkavor Group plc
FINANCIAL STATEMENTS
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 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 measurement
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into levels 1 to 3 based on the degree to which
fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indications 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 uncollectable, 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.
93
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 cap 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. Embedded derivatives are not presented separately from the host in the statement of financial position, the assessment regarding
classification as current or non-current is based on the cash flows of the whole hybrid arrangement as the embedded derivatives cannot be settled
separately from the host contract.
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.
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
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:
Critical judgements in applying the Group’s accounting policies
There are no critical judgements to be disclosed.
Key sources of estimation uncertainty
Pensions
The Group maintains a defined benefit pension plan for which it has recorded a pension asset/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 37.
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 key estimates that can impact the value in use calculations are changes to the growth rates applied to derive a
five-year forecast, or a movement in the discount rate applied to the future cash flows. These are key estimates as they are subjective in nature and
significant assumptions are required and any changes to assumptions may lead to impairment charges being recognised. The Group has
considered the impact of the assumptions used in the International CGU calculations and has conducted sensitivity analysis on the impairment test
of the International CGU carrying value. See Notes 15 and 16 for further details.
94
Bakkavor Group plc — 2017 Annual Report
94 | Bakkavor Group plc
FINANCIAL STATEMENTS
Customer deductions
Management is required to make estimates in determining the amount and timing of recognition of customer deductions due in respect of sales to
its customers. In determining the amount of customer deductions due for volume-related allowances in any period, management estimate whether
customers will meet the purchase target volumes by the end of the arrangement, based on historical and forecast performance, and recognises
this cost as a deduction from revenue over the period of the relevant arrangement. Where there are ongoing negotiations with customers over the
level of deduction, the Group makes its best estimate of the outcome based on a range of factors, including the latest negotiation positon, past
history and economic factors such as price inflation or deflation.
4. SEGMENTAL 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: The preparation and marketing of fresh prepared foods and fresh produce for distribution in the UK.
• International: The preparation and marketing of fresh prepared foods and fresh produce outside the UK.
The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’ as defined in Note 41.
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 segmental information for the period to 30 December 2017:
£ million
Revenue
Adjusted EBITDA
Depreciation
Amortisation
Exceptional items (Note 7)
Share scheme charges
Loss on disposal of property, plant and equipment
Share of results of associates
Operating profit
Finance costs
Other gains and (losses)
Profit before tax
Tax
Profit for the period
Other segment information:
Capital additions
Interests in associates
Total assets
Non-current assets
UK
International
Un-allocated
1,636.3
145.2
(35.6)
(0.1)
(13.5)
(0.8)
(0.3)
–
94.9
52.4
–
1,074.1
896.2
178.5
7.4
(4.0)
(0.6)
(1.9)
–
(0.2)
0.6
1.3
25.3
12.0
136.4
111.6
–
–
–
–
–
–
–
–
–
–
–
22.6
0.1
Total
1,814.8
152.6
(39.6)
(0.7)
(15.4)
(0.8)
(0.5)
0.6
96.2
(35.0)
(22.2)
39.0
(8.0)
31.0
77.7
12.0
1,233.1
1,007.9
All of the Group’s revenue is derived from the sale of goods in 2017. There were no inter-segment revenues. The un-allocated amount of £0.1
million in non-current assets relates to derivative financial instruments.
95
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
4. SEGMENTAL INFORMATION (CONTINUED)
The following table provides an analysis of the Group’s segmental information for the period to 31 December 2016:
£ million
Revenue
Adjusted EBITDA
Depreciation
Amortisation
Exceptional items (Note 7)
Impairment of assets (Note 7)
Loss 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:
Capital additions
Interests in associates
Total assets
Non-current assets
UK
International
Un-allocated
Total Group
Discontinued
operations
Continuing
operations
1,589.9
137.7
(33.1)
(1.6)
(8.0)
(8.2)
–
–
–
86.8
173.7
8.7
(4.1)
(0.6)
–
–
(0.1)
0.6
0.7
5.2
–
–
–
–
–
–
–
–
–
–
1,763.6
146.4
(37.2)
(2.2)
(8.0)
(8.2)
(0.1)
0.6
0.7
92.0
0.1
(38.8)
10.3
63.6
(12.3)
51.3
59.9
–
1,104.3
877.2
8.3
13.3
120.2
97.4
–
–
25.6
0.3
68.2
13.3
1,250.1
974.9
–
–
–
–
–
–
–
0.5
–
0.5
–
–
–
0.5
–
0.5
–
–
–
–
1,763.6
146.4
(37.2)
(2.2)
(8.0)
(8.2)
(0.1)
0.1
0.7
91.5
0.1
(38.8)
10.3
63.1
(12.3)
50.8
68.2
13.3
1,250.1
974.9
All of the Group’s revenue is derived from the sale of goods in 2016, except for the £0.1 million investment revenue. There were no inter-segment
revenues. Discontinued operations relate to the Group’s International segment. The un-allocated amount of £0.3 million in non-current assets
relates to derivative financial instruments.
Major customers
In 2017 the Group’s four largest customers accounted for 77.5% (2016: 77.5%) of total revenue from continuing operations. The Group does not
enter into long-term contracts with its retail customers.
Each of these four customers accounts for a significant amount of the Group’s revenue and are all in the UK segment. The percentage of Group
revenue from these customers is as follows:
£ million
Customer A
Customer B
Customer C
Customer D
5. REVENUE
£ million
Continuing operations
Sale of goods
Investment revenue
96
Bakkavor Group plc — 2017 Annual Report
96 | Bakkavor Group plc
2017
30.2%
25.9%
11.5%
9.9%
2016
30.5%
25.5%
11.5%
10.0%
2017
2016
1,814.8
–
1,814.8
1,763.6
0.1
1,763.7
FINANCIAL STATEMENTS
6. PROFIT FOR THE PERIOD
Profit 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 an expense
Amortisation of intangible assets
Impairment of assets (Note 7)
Exceptional items (Note 7)
Loss on disposal of property, plant and equipment
Profit on disposal of subsidiary (Note 32)
Share scheme charges (Note 36)
Foreign exchange losses (Note 11)
Staff costs (Note 8)
The analysis of the Auditor’s remuneration is as follows:
£ million
The audit of the Company’s Consolidated Financial Statements
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Tax services
Audit related assurance services
Other assurance services
Total non-audit fees
2017
2016
38.8
0.8
9.3
863.3
3.4
0.7
–
15.4
0.5
–
0.8
2.9
36.4
0.8
8.9
813.5
1.5
2.2
8.2
8.0
0.1
(0.1)
–
0.8
460.4
442.5
2017
2016
0.1
0.3
0.4
0.4
0.3
0.5
1.2
0.1
0.3
0.4
0.7
–
–
0.7
Audit related assurance services represent the fee for the audit of the Consolidated Financial Statements for the 26 week period ended 01 July 2017
required for the public listing. Other assurance services relates to assurance work carried out for the public listing. The £0.8 million for audit related
assurance services and other assurance services has been charged to share premium.
All non-audit services provided in the current year were incurred prior to the public listing in November 2017.
97
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
7. OTHER ITEMS
The Group’s financial performance is analysed in two ways; underlying performance (which does not include other items), and other items.
Underlying performance is used by management to monitor financial performance as it is considered to aid comparability of the financial
performance of the Group from year to year and it excludes items that are considered not to arise directly from trading activities.
Other items include exceptional items, impairment of assets, profit or loss on the disposal of subsidiaries, expenses relating to the refinancing of
debts and fair value adjustments relating to items, which are considered significant in nature and are important to users in understanding the
business. Further information on the profit on disposal of subsidiaries in the prior year can be found in Note 32. Further information on the
refinancing expenses included within other items can be found in Notes 10 and 11.
Included within Other administrative costs are exceptional items and impairment of assets.
Other administrative costs
Other administrative costs include items that, in management’s judgement, should be disclosed by virtue of their nature or amount. Exceptional
items will typically include major restructuring programmes, legal cases, corporate transaction costs and pre-commissioning and start-up costs
for new manufacturing facilities. Exceptional items included within other administrative costs are as follows:
£ million
Continuing operations
Public listing costs
Transaction costs
Restructuring costs
Legal cases
New site costs
2017
2016
10.4
–
3.1
0.6
1.3
15.4
–
5.2
1.3
1.5
–
8.0
2017
The Group has incurred exceptional costs of £15.4 million, of which £10.4 million relates to costs incurred for the public listing in the year and £3.1
million relates to the cost of closing a site in the UK and moving related operations to other sites. The remaining exceptional costs relate to the
Group’s International segment of which £1.3 million are in respect of initial start-up costs for the opening of a new site in the US with the remaining
costs of £0.6 million due to on-going employment litigation in the US.
2016
In 2016 the Group incurred exceptional costs of £8.0 million, of which £5.2 million relate to the fees incurred in that year in connection with the
transactions that resulted in Bakk AL Holdings Limited owning 100% of the Company and becoming the parent company of the Group. Costs of £1.3
million were attributable to redundancy costs arising from business losses in one of the Group’s UK operations. The remaining £1.5 million related
to legal and other costs in respect of an intellectual property dispute, at another UK business, that has now been concluded.
Impairment of assets
The charge for the impairment of assets has also been included in other administrative costs as follows:
£ million
Continuing operations
Impairment of property, plant and equipment
2017
2016
–
–
8.2
8.2
The annual impairment review of the carrying value of goodwill and intangible assets has resulted in no impairment charge being recognised within
the Group (2016: £nil).
During the period, the Group has made no impairment (2016: £8.2 million within the UK segment) of property, plant and equipment. Impairment in
the prior period followed a review which highlighted a number of assets whose carrying values were greater than their recoverable amounts.
98
Bakkavor Group plc — 2017 Annual Report
98 | Bakkavor Group plc
FINANCIAL STATEMENTS
8. STAFF COSTS
The average monthly number of employees (including executive Directors) during the period 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 37)
Details of the emoluments paid to Directors are included on page 66 of the Directors remuneration report.
9. INVESTMENT REVENUE
£ million
Continuing operations
Interest on bank deposits
10. FINANCE COSTS
£ million
Continuing operations
Interest on borrowings
Interest on obligations under finance leases
Amortisation of refinancing costs
Call premium on redemption of Senior Secured Notes
Unwinding of discount on provisions (Note 29)
Total interest expense
Less: amounts included in the cost of qualifying assets
2017
Number
2016
Number
16,653
1,992
948
19,593
16,280
1,740
925
18,945
2017
2016
409.3
44.0
7.1
460.4
394.9
40.2
7.4
442.5
2017
2016
–
–
0.1
0.1
2017
2016
19.9
0.2
4.9
9.9
0.3
35.2
(0.2)
35.0
34.0
0.2
2.8
1.5
0.3
38.8
–
38.8
The call premium of £9.9 million (2016: £1.5 million) and the £3.3 million (2016: £0.7 million) of accelerated amortisation of refinancing fees
(included in the £4.9 million above (2016: £2.8 million)) relating to the redemption of the 2018 and 2020 Senior Secured Notes have been classed as
other items in the consolidated income statement, as this related to the previous financing structure.
Borrowing costs included in the cost of qualifying assets during the year arose on the general borrowing pool and are calculated by applying a
capitalisation rate of 2.8% to expenditure on such assets.
99
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
11. OTHER GAINS AND (LOSSES)
£ million
Continuing operations
Foreign exchange losses
Change in the fair value of derivative financial instruments
Change in fair value of call option (Note 24)
2017
2016
(2.9)
(2.1)
(17.2)
(22.2)
(0.8)
4.6
6.5
10.3
Other gains and (losses) for the 52 weeks ended 30 December 2017 includes a loss of £17.2 million (2016: gain of £6.5 million) for the reversal of the
mark-to-market asset held at 31 December 2016 in respect of the call option for the 2020 Senior Secured Notes, following the redemption of those
Notes in March 2017. This loss in 2017 and gain in 2016 have been classified as other items in the consolidated income statement due to the fact
that this related to the previous financing structure.
12. TAX
£ million
Continuing operations
Current tax:
Current period
Prior period adjustment
Total current tax charge
Deferred tax:
Deferred tax relating to the origination and reversal of temporary differences in the period
Deferred tax relating to changes in tax rates
Change in US tax rate
Prior period adjustment
Benefit arising from previously unrecognised temporary differences of a prior period
Unrecognised tax loss originating in the current period
Total deferred tax credit (Note 26)
2017
2016
12.2
(0.4)
11.8
(3.0)
(0.3)
0.7
–
(1.6)
0.4
(3.8)
11.9
0.5
12.4
3.0
(0.8)
–
(0.2)
(2.8)
0.7
(0.1)
Tax charge for the period
8.0
12.3
Corporation tax is calculated at 19.25% (2016: 20%) of the estimated assessable profit for the period. Taxation for other jurisdictions is calculated at
the rates prevailing in the respective jurisdictions.
The overall tax charge in 2017 was £8.0 million (2016: £12.3 million) which, on a profit of £39.0 million, represented an effective rate of 20.5%. (2016:
19.6%) As the statutory UK corporation tax rate for the period was 19.25%, one would expect a tax charge of £7.5 million.
There were several reasons for the actual charge being £0.5 million higher than the expected charge. The most significant item was the unusually
high level of costs incurred in 2017 which were disallowed for tax purposes. These primarily related to the costs of the Initial Public Offering. The tax
effect of these permanent differences was an overcharge of £1.8 million. On the other hand, this year we have recognised more US tax losses as
deferred tax assets. This amounted to an undercharge of £1.6 million. Other reconciling items are shown in the table below.
Overseas tax rates which are different from the UK rate do not have a material impact on the tax charge and it is expected that this will continue to
be the case in future. This is particularly so now that the US federal rate is 21%, which is close to the UK statutory rate of 19%.
Note 7 refers to exceptional costs of £15.4 million. Had these not been incurred, the tax charge would have been £8.4 million, representing an
effective rate of 15.4%. As the UK statutory rate was 19.25%, this would indicate a charge of £10.5 million. The primary reason for the undercharge
of £2.1 million was the recognition of the US tax losses amounting to £1.6 million.
100
Bakkavor Group plc — 2017 Annual Report
100 | Bakkavor Group plc
FINANCIAL STATEMENTS
The charge for the period can be reconciled to the profit per the consolidated income statement as follows:
Profit before tax:
Tax charge at the UK corporation tax rate of 19.25% (2016: 20%)
Non-deductible expenses
Change in US tax rate
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
Deferred tax change in rate
Tax charge and effective tax rate for the period
2017
£ million
39.0
7.5
1.8
0.7
(0.4)
0.4
(1.6)
(0.1)
(0.3)
8.0
2017
%
100.0
19.3
4.6
1.8
(1.0)
1.0
(4.1)
(0.3)
(0.8)
20.5
2016
£ million
63.1
12.6
2.0
–
0.3
0.7
(2.8)
0.3
(0.8)
12.3
2016
%
100.0
20.0
3.1
–
0.5
1.1
(4.4)
0.5
(1.3)
19.5
In 2017 the tax risk provision was £nil (2016: £0.4 million) because it is considered unlikely that the tax authorities will take a different approach to
any material calculations of tax liability. There are currently no open disputes with any tax authorities in any of the countries in which we operate.
It is anticipated that the effective tax rate in the medium term will be lower than the UK corporation tax rate of 19%. This is mainly because of the
increasing recognition of tax losses together with a lower level of expected costs that will be disallowed for tax.
In recent years there has been a concerted effort, led by the OECD, to reduce tax avoidance by multinational companies. Such avoidance has been
thought possible on an international scale mainly because countries have different tax rates and differing rules as to what is (or is not) subject to tax
in their jurisdiction. Multinational companies have, arguably, been able to benefit from such inconsistencies. The OECD compiled a list of fifteen
actions to combat such tax avoidance. This is known as the "BEPS" (Base Erosion / Profit Shifting) Project. Anti-avoidance principles are first agreed
internationally by the OECD members and then each country incorporates those principles into its domestic legislation.
None of the fifteen BEPS actions is expected to have any material effect on Bakkavor.
Significant changes were made to US tax legislation in December 2017. The US federal tax rate was reduced from 35% to 21% with effect from
1 January 2018. For 2017 this meant that our tax charge was £2.5 million higher than it would have been had the rate not been reduced. This is
because our US tax losses, accounted for as assets, would be used at 21% in the future and were therefore recognised at this lower rate. However,
in future years the lower US tax rate should reduce our tax charge. There were several other tax measures introduced in that legislation. These
included limits to the deductions allowed for interest payments and restrictions on the use of trading losses. None of these other measures is
expected to have a material impact on our future tax charge.
In addition to the amount charged to the consolidated income statement, a £2.1 million charge (2016: £1.4 million credit) relating to tax on the
defined benefit pension scheme actuarial surplus has been recognised directly in other comprehensive income. Also, a deferred tax credit of £0.2
million (2016: £nil) has been recognised in equity in relation to share schemes under IFRS 2.
The UK corporation tax rate reduced from 20% to 19% from 1 April 2017. In accordance with the Finance Act 2016, the UK corporation tax rate will
reduce to 17% in 2020.
Deferred tax has been calculated at the tax rate applicable for the period in which the temporary differences are expected to reverse.
13. DISCONTINUED OPERATIONS
2017
There were no discontinued operations in the period.
2016
In July 2016, the Group received a further £0.5 million cash consideration in relation to its French and Spanish businesses that were sold in April
2013. This has been disclosed in the consolidated income statement within discontinued operations as these businesses were classed as
discontinued in 2013.
101
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14. EARNINGS PER SHARE
The calculation of earnings per Ordinary share is based on earnings after tax and the weighted average number of Ordinary shares in issue during
the period.
For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all potentially dilutive
Ordinary shares.
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings
£ million
Profit attributable to equity shareholders of the Company
Adjustments to exclude profit for the period from discontinued operations
Earnings from continuing operations for the purpose of earnings per share
Number of shares
‘000
Weighted average number of Ordinary shares
Effect of potentially dilutive Ordinary shares
Weighted average number of Ordinary shares including dilution
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
31.0
–
31.0
51.3
(0.5)
50.8
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
530,738
578,645
857
–
531,595
578,645
The weighted average number of shares in the current and prior year has been adjusted to account for the 5 for 1 share split that occurred in
November 2017.
Continuing operations
Basic and diluted earnings per share
Continuing and discontinued operations
Basic and diluted earnings per share from continuing and discontinued operations
Discontinued operations
Basic and diluted earnings per share from discontinued operations
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
5.8p
5.8p
–
8.8p
8.9p
0.1p
The Group calculates Adjusted basic earnings per Ordinary share and details of this can be found in Note 41, Alternative performance measures.
102
Bakkavor Group plc — 2017 Annual Report
102 | Bakkavor Group plc
FINANCIAL STATEMENTS
15. GOODWILL
£ million
Cost
At 27 December 2015
Exchange differences
At 31 December 2016
Exchange differences
At 30 December 2017
Accumulated impairment losses
At 27 December 2015
Exchange differences
At 31 December 2016
Exchange differences
At 30 December 2017
Carrying amount
At 30 December 2017
At 31 December 2016
693.8
10.7
704.5
(4.8)
699.7
(50.9)
(2.1)
(53.0)
0.5
(52.5)
647.2
651.5
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. The carrying value of goodwill has been allocated to CGU groupings as follows:
£ million
UK
International
30 December
2017
31 December
2016
601.5
45.7
647.2
601.5
50.0
651.5
The International CGU relates to the US business.
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 (2016: £nil).
The key assumptions used in the impairment reviews were as follows:
• Discount rates: Management uses pre-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 8.3% to 9.7% (2016: 9.1% to 10.8%).
• 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 has prepared cash flow forecasts derived from the most recent financial
budget approved by management for next year as determined by the business units, and extrapolated cash flows for the following four years based
on an estimated growth rate, to provide a five-year forecast. Cash flows are then extrapolated using a perpetuity growth rate of 1.7% (2016: 2.0%).
The Group has conducted a sensitivity analysis on the impairment test of each CGU’s carrying value. The assumptions used, and the impact of
sensitivities on these assumptions, are shown below:
£ million
Headroom of impairment test based on management assumptions
UK
International
802.7
13.3
The pre-tax discount rate ranges from 8.3% to 9.7%. If the pre-tax discount rate in certain parts of the International CGU were to be increased by 0.5%
from 9.7% to 10.2% then there would be no impairment charge. An increase to the pre-tax discount rate from 9.7% to 11.0% would result in no
headroom. The perpetuity growth rate included in future cash flows is 1.7%. A decrease to the perpetuity growth rate to 0.4% would result in no
headroom.
103
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16. OTHER INTANGIBLE ASSETS
£ million
Cost
At 27 December 2015
Exchange differences
At 31 December 2016
Exchange differences
At 30 December 2017
Accumulated amortisation and impairment
At 27 December 2015
Charge for the period
Exchange differences
At 31 December 2016
Charge for the period
Exchange differences
At 30 December 2017
Carrying amount
At 30 December 2017
At 31 December 2016
Customer
relationships
Customer
contracts
87.6
1.1
88.7
(0.6)
88.1
(82.5)
(2.2)
(0.4)
(85.1)
(0.7)
0.3
(85.5)
2.6
3.6
1.6
–
1.6
–
1.6
(1.6)
–
–
(1.6)
–
–
(1.6)
–
–
Total
89.2
1.1
90.3
(0.6)
89.7
(84.1)
(2.2)
(0.4)
(86.7)
(0.7)
0.3
(87.1)
2.6
3.6
104
Bakkavor Group plc — 2017 Annual Report
104 | Bakkavor Group plc
FINANCIAL STATEMENTS
17. PROPERTY, PLANT AND EQUIPMENT
£ million
Cost
At 27 December 2015
Additions
Disposals
Disposal of subsidiary
Reclassifications
Exchange differences
At 31 December 2016
Additions
Disposals
Reclassifications
Exchange differences
At 30 December 2017
Accumulated depreciation and impairment
At 27 December 2015
Charge for the period
Impairment
Disposals
Disposal of subsidiary
Reclassifications
Exchange differences
At 31 December 2016
Charge for the period
Disposals
Reclassifications
Exchange differences
At 30 December 2017
Carrying amount
At 30 December 2017
At 31 December 2016
Land and
buildings
Plant and
machinery
Fixtures and
equipment
191.8
5.0
–
(7.0)
0.1
4.8
194.7
9.4
(6.2)
3.9
(1.6)
200.2
363.1
58.2
(2.8)
(16.3)
–
6.8
409.0
58.5
(20.5)
(7.5)
(2.4)
437.1
(102.8)
(189.3)
(5.8)
(0.6)
–
7.2
(0.1)
(2.5)
(26.3)
(7.4)
2.6
10.6
0.2
(4.1)
(104.6)
(213.7)
(7.5)
4.5
(0.1)
0.7
(25.9)
19.4
(0.2)
1.3
61.8
5.0
(0.6)
(1.3)
(0.1)
1.0
65.8
9.8
(3.8)
3.6
(0.4)
75.0
(43.4)
(5.1)
(0.2)
0.6
2.1
0.1
(0.8)
(46.7)
(6.2)
3.7
0.3
0.2
Total
616.7
68.2
(3.4)
(24.6)
–
12.6
669.5
77.7
(30.5)
–
(4.4)
712.3
(335.5)
(37.2)
(8.2)
3.2
19.9
0.2
(7.4)
(365.0)
(39.6)
27.6
–
2.2
(107.0)
(219.1)
(48.7)
(374.8)
93.2
90.1
218.0
195.3
26.3
19.1
337.5
304.5
The carrying value of the Group’s plant and machinery includes an amount of £3.7 million (2016: £4.6 million) in respect of assets held under
finance leases.
At 30 December 2017, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£7.6 million (2016: £2.6 million).
The carrying value of the Group’s property, plant and equipment includes an amount of £23.1 million (2016: £nil) in respect of assets under the
course of construction.
During 2017, the Group has made no impairment of land and buildings (2016: £0.6 million), £nil (2016: £7.4 million) of plant and machinery and £nil
(2016: £0.2 million) of fixtures and equipment. These impairments are recognised within ‘Other administrative costs’ in the consolidated income
statement in the ‘Other items’ column. The impairments were all in the UK sector and arose from site restructurings which resulted in redundant
assets. The impairments were determined by comparing the carrying values of the assets with their recoverable amount i.e. the higher of the asset’s
fair value less costs of disposal and its value in use. The recoverable amount in the case of each asset was its fair value less costs of disposal.
18. SUBSIDIARIES
The Group consists of a parent company, Bakkavor Group plc, incorporated in the UK, and a number of subsidiaries and associates held directly
and indirectly by Bakkavor Group plc. Note 5 to the Company’s separate Financial Statements provides details of the interests in subsidiaries.
105
105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
19. INTERESTS IN ASSOCIATES
Details of the associated undertakings of the Group at 30 December 2017 were as follows:
Place of registration
and operation
Principal activity
2017
2016
Method of
accounting
Proportion of Ordinary shares
Hong Kong
Producer of bakery and pastry products
45%
45%
Equity
La Rose Noire
Limited
10.7
0.7
2.2
(0.3)
13.3
0.6
(1.2)
(0.7)
12.0
Non-listed
investments held
at cost
0.1
0.1
30 December
2017
31 December
2016
47.4
1.7
5.7
54.8
50.9
2.0
6.3
59.2
Name of associate
La Rose Noire Limited
£ million
Associates that are not individually material
At 27 December 2015
Share of profit after tax
Exchange differences
Dividend payment
At 31 December 2016
Share of profit after tax
Exchange differences
Dividend payment
At 30 December 2017
20. OTHER INVESTMENTS
£ million
At 31 December 2016
At 30 December 2017
21. INVENTORIES
£ million
Raw materials and packaging
Work-in-progress
Finished goods
106
Bakkavor Group plc — 2017 Annual Report
106 | Bakkavor Group plc
FINANCIAL STATEMENTS
22. TRADE AND OTHER RECEIVABLES
£ million
Amounts receivable from trade customers
Allowance for doubtful debts
Net amounts receivable from trade customers
Other receivables
Prepayments
30 December
2017
31 December
2016
120.8
(1.5)
119.3
19.1
9.5
147.9
163.3
(1.1)
162.2
17.9
10.6
190.7
The Group has a £50 million (2016: £50 million) receivables securitisation facility which it can draw against, up to a maximum of 72% of the net
eligible receivables balance for certain UK customers. As at 30 December 2017 the Group had not drawn against this facility (2016: £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 Group also uses non-recourse invoice discounting facilities.
The average credit period taken on sales of goods is 23 days (2016: 32 days). An allowance has been made for estimated irrecoverable amounts
from the sale of goods of £1.5 million (2016: £1.1 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 Other receivables amount mainly relates to non-specific amounts, the largest of which is recoverable VAT.
The following table is an ageing analysis of net 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
30 December
2017
31 December
2016
102.5
14.2
1.3
0.6
0.7
137.1
23.6
0.7
0.5
0.3
119.3
162.2
There was no impact from trade receivables renegotiated in 2017 that would otherwise have been past due or impaired (2016: no impact).
The major customers of the Group, representing 77.5% (2016: 77.5%) of the Group’s revenue from continuing operations 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 Group does not consider that it is exposed to any significant credit risk and therefore the carrying
amount of trade receivables represents the expected recoverable amount and there is no further credit risk exposure.
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
30 December
2017
31 December
2016
(1.1)
(1.3)
0.4
0.3
0.2
(1.5)
(0.6)
(0.7)
–
0.1
0.1
(1.1)
107
107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23. CASH AND CASH EQUIVALENTS
£ million
Cash and cash equivalents
30 December
2017
31 December
2016
20.9
22.5
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
The interest rates and currency profile of the Group’s borrowings at 30 December 2017 were as follows:
Facility
Receivables Securitisation Facility
Term Loan A
Term Loan B
Revolving Credit Facility (RCF)
Currency
GBP
GBP
GBP
GBP
Facility
amount
£ million
50.0
210.0
37.5
200.0
Amount drawn
down at year end
£ million
Interest rate
Non-utilisation
fee Maturity date
– Libor plus margin of 2.85%
1.4% February 2018
210.0 Libor plus a margin of 2.25%
37.5 Libor plus a margin of 4.25%
40.01 Libor plus a margin of 2.25%
N/A June 2021
N/A June 2024
0.79% June 2021
1 A further £5.4 million has been drawn down in RCF ancillary facilities at the year end.
Refinancing of debt facilities
On 23 March 2017, the Group completed a refinancing of its existing debt facilities with a new £485 million corporate loan facility. The agreement
comprises revolving credit facilities of £200 million maturing in June 2021, and term loans totalling £285 million, of which £210 million will mature in
June 2021 with the balance maturing in June 2024. The Group has used the funds from the refinancing to repay in full previous bank debt, redeem
all outstanding Senior Secured Notes maturing in 2018 and 2020 and pay associated fees. This new funding structure provides the Group with a
significant reduction in interest costs whilst extending the maturity of the funding commitments.
Bakkavor Group bank facilities
The Group’s total banking facilities amount to £447.5 million (2016: £205 million) comprising (i) a £247.5 million term loan (2016: £135 million term
loan), split £210 million and £37.5 million maturing in June 2021 and June 2024 respectively and (ii) £200 million Revolving Credit Facilities (‘RCF’)
(2016: £70 million RCF), which includes an overdraft and money market facility of £16.5 million (2016: £16.5 million) and further ancillary facilities of
£8.7 million (2016: £12.4 million).
Following the public listing, the Group has repaid £37.5 million of the term loan as at 30 December 2017 and therefore the balance owing at that
date was £247.5 million. At 30 December 2017 the Group had drawn £40 million under the RCF and overdraft facilities (2016: £nil) and £5.4 million
(2016: £4.6 million) of the ancillary facilities.
The interest rate payable on the term loan at 30 December 2017 was Libor plus a margin of 2.25% for the £210 million maturing in June 2021 and
Libor plus a margin of 4.25% for the £37.5 million maturing in June 2024 (2016: Libor plus a margin of 2.50%).
The bank facilities are unsecured following the public listing.
Bakkavor Group receivables securitisation facility
The Group had a £50 million (2016: £50 million) receivables securitisation facility that matured in February 2018 and has not been renewed. The
maximum drawing of the facility depends on the size of the Group’s receivable book for certain UK customers 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 for the relevant customers 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%
(2016: Libor plus a margin of 2.85%). As at 30 December 2017, the Group had no drawings under this facility (2016: £nil). The facility is subject to
a non-utilisation fee of 1.4% (2016: 1.4%). The facility was secured by floating charges over the assets of Bakkavor Central Finance Limited until the
facility expired in February 2018.
Bakkavor Group Senior Secured Notes
8.25% Senior Secured Notes
In the prior year, the Group had outstanding £117 million of 8.25% Senior Secured Notes due 2018 following the early repayment of £75 million of
the Notes in February 2016. The Notes and associated fees were repaid as part of the refinancing on 23 March 2017.
8.75% Senior Secured Notes
The Group had outstanding £150 million of 8.75% Senior Secured Notes due 2020 in the prior year. The Notes and associated fees were repaid as
part of the refinancing on 23 March 2017.
108
Bakkavor Group plc — 2017 Annual Report
108 | Bakkavor Group plc
FINANCIAL STATEMENTS
£ million
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
As at 30 December 2017 and 31 December 2016 all of the Group’s borrowings were denominated in Sterling.
The weighted average interest rates paid were as follows:
Senior Secured Notes and bank loans
30 December
2017
31 December
2016
283.6
–
–
283.6
1.5
–
245.6
36.5
283.6
1.5
282.1
283.6
135.2
119.9
129.6
384.7
12.9
241.1
130.7
–
384.7
12.9
371.8
384.7
30 December
2017
%
31 December
2016
%
2.94
6.64
The Group had an interest rate swap of £63.2 million in place which matured in September 2016. This was replaced by a £75 million
notional principal interest rate cap that matures in October 2019. 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 fair value of the Group’s borrowings is as follows:
£ million
Fair value of the Group’s borrowings
30 December
2017
31 December
2016
287.5
413.8
The 2018 and 2020 Senior Secured Notes were listed on the Irish Stock Exchange until March 2017 and were actively traded. The best indication,
therefore, of the fair value of these debt instruments is considered to be the list price at the relevant period end. The remaining debt is regularly
refinanced with interest rates that are in-line with the market rate for similar debt instruments and as a result of this the Directors estimate that
the carrying value of this debt approximates its fair value.
The 8.75% Senior Secured Notes due in 2020 contained 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 31 December 2016 the fair value of the call option amounted to an asset of £17.2 million with a gain of £6.5
million recognised in the period in Other gains and (losses) in the income statement. Following the repayment of the 8.75% Senior Secured Notes
on 23 March 2017 a loss of £17.2 million was presented as an ‘other item’ in Other gains and (losses) in the consolidated income statement in 2017.
109
109
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
30 December
2017
31 December
2016
20.9
–
–
(1.5)
(0.8)
(2.3)
(287.5)
5.4
–
(3.1)
(285.2)
(266.6)
22.5
(10.0)
1.9
(4.8)
(0.7)
(13.6)
(390.9)
1.9
17.2
(4.0)
(375.8)
(366.9)
Statutory net debt is the net of cash and cash equivalents, prepaid fees to be amortised over the term of outstanding borrowings, outstanding
borrowings, interest accrued on borrowings, finance lease liabilities and any fair value balances related to borrowings.
25. DERIVATIVE FINANCIAL INSTRUMENTS
Held-for-trading derivatives that are not designated in hedge accounting relationships:
£ million
Interest rate contracts
Included in non-current assets
Foreign currency contracts
Included in current assets
Foreign currency contracts
Included in current liabilities
Foreign currency contracts
Included in non-current liabilities
Total
Further details of derivative financial instruments are provided in Note 30.
30 December
2017
31 December
2016
0.1
0.1
1.6
1.6
(0.6)
(0.6)
(0.2)
(0.2)
0.9
0.3
0.3
2.8
2.8
–
–
(0.1)
(0.1)
3.0
110
Bakkavor Group plc — 2017 Annual Report
110 | Bakkavor Group plc
FINANCIAL STATEMENTS
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 27 December 2015
Credit/(charge) to income –
continuing operations
Credit to equity
At 31 December 2016
(Charge)/credit to income –
continuing operations
Exchange differences
(Charge)/credit to equity
At 30 December 2017
Accelerated
tax
depreciation
Fair value
gains
Intangibles
Provisions
Impairment
losses
Retirement
benefit
obligations Share scheme
US tax losses
and accrued
interest
(16.5)
(
)
0.8
–
(15.7)
(0.8)
–
–
(1.6)
(2.1)
–
(3.7)
3.5
–
–
(16.5)
(0.2)
(0.4)
(
)
0.3
–
(0.1)
0.1
–
–
–
0.5
(
)
0.5
–
1.0
(0.3)
–
–
0.7
0.8
0.7
(0.6)
–
0.2
(0.2)
–
–
–
(0.4)
1.4
1.7
(0.5)
–
(2.1)
(0.9)
–
–
–
–
0.1
–
0.2
0.3
–
1.6
–
1.6
1.9
(0.3)
–
3.2
Total
(16.5)
(
)
0.1
1.4
(15.0)
3.8
(0.3)
(1.9)
(13.4)
Certain deferred tax assets and liabilities have been offset where the Group has a legally enforceable right to do so. The following is the analysis of
the deferred tax balances (after offset) for financial reporting purposes:
£ million
Deferred tax asset
Deferred tax liabilities
30 December
2017
31 December
2016
3.2
(16.6)
(13.4)
1.6
(16.6)
(15.0)
At the statement of financial position date the Group had unused tax losses of £45.1 million (2016: £52.3 million) available for offset against future
taxable 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
£ 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
Minimum lease payments
Present value of minimum lease
payments
30 December
2017
31 December
2016
30 December
2017
31 December
2016
0.9
2.5
0.9
4.3
(0.4)
3.9
0.9
3.1
1.3
5.3
(0.6)
4.7
0.8
2.3
0.8
3.9
3.9
0.8
3.1
3.9
0.7
2.8
1.2
4.7
4.7
0.7
4.0
4.7
The weighted average lease term outstanding is 5.6 years (2016: 6.3 years). For the 52 weeks ended 30 December 2017, the weighted average
effective borrowing rate was 4.45% (2016: 4.64%). 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.
111
111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
28. TRADE AND OTHER PAYABLES
£ million
Trade payables
Social security and other taxation
Other payables
Accruals
Less: amounts due after one year
Other payables
Trade and other payables due within one year
30 December
2017
31 December
2016
209.0
2.2
29.2
153.4
393.8
(0.4)
393.4
215.8
1.9
25.0
189.8
432.5
(0.4)
432.1
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for
trade purchases is 57 days (2016: 59 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 27 December 2015
Utilisation of provision
Additional provision in the year
Release of provision
Unwinding of discount
At 31 December 2016
Included in current liabilities
Included in non-current liabilities
At 31 December 2016
Utilisation of provision
Additional provision in the year
Release of provision
Unwinding of discount
At 30 December 2017
Included in current liabilities
Included in non-current liabilities
Onerous leases
Dilapidation
provisions
1.0
(0.6)
1.2
–
–
1.6
0.6
1.0
1.6
(0.5)
0.4
(0.3)
–
1.2
0.8
0.4
13.1
(0.1)
2.2
(2.5)
0.3
13.0
2.8
10.2
13.0
–
4.3
(1.1)
0.3
16.5
2.3
14.2
Total
14.1
(0.7)
3.4
(2.5)
0.3
14.6
3.4
11.2
14.6
(0.5)
4.7
(1.4)
0.3
17.7
3.1
14.6
Onerous lease provisions mostly relate to two vacant properties where leases end in 2019 and 2020. The provisions will be utilised over the term of
the individual leases to which they relate.
Dilapidation provisions relate to estimated 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, being 2 to 33 years.
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.
112
Bakkavor Group plc — 2017 Annual Report
112 | Bakkavor Group plc
FINANCIAL STATEMENTS
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
30 December
2017
31 December
2016
287.5
(20.9)
266.6
510.1
389.4
(22.5)
366.9
378.8
34.3%
49.2%
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 payables
Other financial liabilities at amortised cost:
Trade payables
Other payables
Accruals
Borrowings
Finance leases
30 December
2017
31 December
2016
1.7
–
119.3
19.1
20.9
161.0
3.1
17.2
162.2
17.9
22.5
222.9
30 December
2017
31 December
2016
0.8
4.3
209.0
24.9
153.4
283.6
3.9
679.9
0.1
4.3
215.8
20.7
189.8
401.9
4.7
837.3
The fair value of loans and receivables approximates to their carrying value due to the short-term nature of the receivables. Fair values for the
derivative financial instruments, other payables and the call option on the Senior Secured Notes due 2020 have been determined as level 2 under
IFRS 7 ‘Financial Instruments: Disclosures’. Quoted prices are not available for the derivative financial instruments and so valuation models are
used to estimate fair value. The models calculate the expected cash flows under the terms of each specific contract and then discount these values
back to a present value. These models use as their basis independently sourced market parameters including, for example, interest rate yield
curves and currency rates. The call option fair value used an estimate of the Company’s credit spread at the valuation date with the main valuation
input being the GBP Interest rate swap curve.
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.
There have been no changes to fair values as a result of a change in credit risk of the Group or the Group’s customers.
113
113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
30. FINANCIAL INSTRUMENTS (CONTINUED)
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 and mitigate against these risks where possible and does this by constantly monitoring and
using a range of measures including 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.
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 caps 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 in 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 30 December 2017, the Euro strengthened against Sterling by 4.0%, with the closing rate at €1.1249 compared to
€1.1715 at the prior period end. The average rate for the 52 week period to 30 December 2017 was €1.1408, a 6.8% strengthening of the Euro versus
the prior period.
In the same period the US dollar weakened against Sterling by 9.4%, with the closing rate at $1.3522 compared to $1.2357 at the prior period end.
The average rate for the period to 30 December 2017 was $1.2896, a 4.7% strengthening of the US dollar versus the prior period.
The net foreign exchange impact on profit from transactions is a loss of £2.9 million (2016: loss of £0.8 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, as it 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/equity where Sterling strengthens 10% against the relevant currency.
£ million
Euro
USD
HKD
RMB
Profit or (loss)
10% strengthening
Profit or (loss)
10% weakening
30 December
2017
31 December
2016
30 December
2017
31 December
2016
(7.9)
(2.4)
(0.1)
(0.4)
(6.1)
(1.5)
(0.2)
(0.1)
9.7
2.9
0.2
0.5
7.4
1.8
0.3
0.2
114
Bakkavor Group plc — 2017 Annual Report
114 | Bakkavor Group plc
FINANCIAL STATEMENTS
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 and minimise the
exposure generated.
The following table details Sterling foreign currency contracts outstanding as at 30 December 2017:
Outstanding contracts
2017
2016
2017
2016
2017
2016
2017
2016
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
33.2
32.9
38.4
20.9
23.3
9.4
3.6
0.4
35.2
27.2
29.4
10.8
5.4
11.9
3.9
0.1
1.14
1.14
1.14
1.10
1.32
1.32
1.34
1.36
1.19
1.18
1.16
1.15
1.35
1.34
1.25
1.26
29.0
28.8
33.6
19.0
17.5
7.1
2.7
0.3
138.0
28.9
22.7
25.1
9.4
4.0
9.3
3.0
0.1
102.5
0.4
0.5
0.7
(0.2)
(0.3)
(0.2)
(0.1)
–
0.8
1.3
0.6
0.2
(0.1)
0.3
0.2
0.2
–
2.7
The following table details the US dollar foreign currency contracts outstanding as at 30 December 2017:
Outstanding contracts
Net Canadian dollars:
Less than 3 months
3 to 6 months
Foreign currency
(million)
Average
exchange rate
Contract value
(US$ million)
Fair value
(US$ million)
Fair value
(£ million)
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
1.4
–
2.1
1.1
1.29
–
1.33
1.33
1.1
–
1.1
2.8
1.4
4.2
–
–
–
–
–
–
–
–
–
–
–
–
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 and caps to minimise the risk associated with variable
interest rates. At the period end 26.1% (2016: 18.7%) of the Group’s borrowings were covered by an interest rate cap. During the period, the Group
has repaid the 8.25% and 8.75% fixed rate Senior Secured Notes that had balances outstanding in the prior year (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, as these are 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
It is assumed that all other variables remain the same when preparing the interest rate sensitivity analysis.
Profit/(loss)
30 December
2017
Profit/(loss)
31 December
2016
(2.3)
2.9
(0.9)
1.4
115
115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
30. FINANCIAL INSTRUMENTS (CONTINUED)
Interest rate risk management (continued)
Interest rate cap
The Group entered into an interest rate cap agreement. This is to mitigate the risk of changing interest rates on the outstanding variable rate
borrowings. The fair value of the interest rate cap 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 following table details the notional principal amounts and remaining terms of interest rate cap/swap contracts outstanding as at
30 December 2017:
Interest rate caps
Over 12 months
Average contract fixed
interest rate
Notional
principal amount
Fair value
2017
%
2016
%
2017
£ million
2016
£ million
2017
£ million
2016
£ million
0.75
0.75
75.0
75.0
0.1
0.3
The interest rate cap settles on a quarterly basis. The Group will receive payment if the three-month Libor rate exceeds the agreed cap of 0.75%.
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 77% (2016: 77%) 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. The Group’s
current bank credit limit consists of a £247.5 million term loan (2016: £135 million) and a £200 million RCF facility (2016: £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.
Commodity risk management
The Group acquires substantial quantities of raw materials for its operations. The Group is therefore 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 it also frequently tenders to benchmark market prices. In general
requirements are managed using contracts for periods of between three to twelve months forward. The Group also manages 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 to ensure that adequate liquidity is available to meet the maturity profiles of financial 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.
116
Bakkavor Group plc — 2017 Annual Report
116 | Bakkavor Group plc
FINANCIAL STATEMENTS
Maturity profile of financial liabilities
The following table illustrates the Group’s undiscounted contractual maturity for its financial liabilities when they fall due.
£ million
Due within one year:
Trade payables
Other payables
Accruals
Derivative financial instruments
Borrowings
Finance leases
Interest on borrowings
Total due within one year
In the second to fifth years inclusive:
Other payables
Derivative financial instruments
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
30 December
2017
31 December
2016
209.0
28.8
153.4
0.6
–
0.8
8.5
401.1
0.4
0.2
250.0
2.3
25.9
278.8
37.5
0.8
2.8
41.1
215.8
24.6
189.8
–
10.0
0.7
31.2
472.1
0.4
0.1
391.9
2.8
39.6
434.8
–
1.2
–
1.2
The weighted average interest rates for the Group’s borrowings are found in Note 24 and in Note 27 for finance leases.
Items of income, expense, gains or losses
The following table provides an analysis of the Group’s investment revenue, finance costs and changes in fair values by category of financial
instrument:
£ million
Interest revenue
On loans and receivables at amortised cost
Finance costs
On financial liabilities held at fair value through profit and loss
On financial liabilities held at amortised cost
Changes in fair values recognised in Other gains and (losses)
On financial liabilities held at fair value through profit and loss
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
–
–
(35.0)
(35.0)
0.1
(2.1)
(36.7)
(38.8)
(19.3)
11.1
117
117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31. SHARE CAPITAL AND RESERVES
Share capital
£ million
Issued and fully paid:
30 December
2017
31 December
2016
579,425,585 (2016: 104,774,006) Ordinary shares of £0.02 (2016: £0.01) each
11.6
1.0
As a result of merger accounting, it is necessary to present share capital as if merger accounting had been in place at 31 December 2016. The
104,774,006 shares (with a nominal value of £0.01) in Bakkavor Holdings Limited held by Bakk AL Holdings Limited were exchanged for 104,774,006
Ordinary shares (with a nominal value of £0.10) in Bakkavor Group plc. Prior to the public listing these shares were split into 523,870,030 Ordinary
shares with a £0.02 nominal value. As part of the public listing transaction 55,555,555 new shares were issued and made available to the public to
purchase.
The cash proceeds from the issue of new shares as part of the public listing was £100.0 million as the 55,555,555 shares were subscribed for at
£1.80 per share. Fees of £3.4 million were paid from these proceeds giving a net cash flow from the share issue of £96.6 million. These fees have
been charged against share premium.
All Ordinary shares of £0.02 (2016: £0.01) each are non-redeemable and carry equal voting rights and rank for dividends and capital distributions,
whether on a winding up or otherwise.
No dividends have been declared in the period ended 30 December 2017 (2016: £nil).
Share premium
The share premium represents amounts received in excess of the nominal value of shares issued, net of the direct costs associated with issuing
those shares.
£ million
Share premium arising on issue of 55,555,555 new shares
Share premium arising on share for share exchange
Expenses incurred on issue of equity shares
30 December
2017
31 December
2016
98.9
275.2
(8.0)
366.1
–
–
–
–
Share issue costs associated with existing shareholders totalled £4.6 million, in accordance with the Companies Act 2006 this has been reclassified
from retained earnings to share premium in addition to the £3.4 million of costs associated with the issue of new shares posted to share premium.
Merger reserve
The merger reserve was debited by £87.0 million as a result of the acquisition of Bakkavor Holdings Limited. An additional £98.8 million was also
debited to the reserve to eliminate the historic capital reserve which related to the previous group structure.
In 2007, a corporate reorganisation was completed to establish Bakkavor Group Limited as an intermediate holding company of the Group and was
accounted for using the principles of merger accounting.
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.
118
Bakkavor Group plc — 2017 Annual Report
118 | Bakkavor Group plc
FINANCIAL STATEMENTS
32. DISPOSALS
2017
There have been no disposals in the period.
2016
Disposal of subsidiary
On 1 August 2016, the Group completed the sale of the trade and assets of its Belgian fresh prepared food business, NV Vaco BV, to Culinor Food
Group for a cash consideration of €3.2 million (£2.7 million). The transaction has resulted in a profit on disposal of £0.1 million being recorded in the
consolidated income statement.
In July 2016, the Group received a further £0.5 million cash consideration in relation to its French and Spanish businesses that were sold in April
2013. This has been disclosed in the consolidated income statement within discontinued operations.
30 December
2017
31 December
2016
96.2
–
96.2
(0.6)
39.6
0.7
0.5
–
–
0.8
(2.9)
134.3
4.4
41.7
(40.4)
2.9
1.2
144.1
(11.9)
(38.8)
93.4
91.5
0.5
92.0
(0.7)
37.2
2.2
0.1
(0.6)
8.2
–
(1.5)
136.9
(3.4)
(12.6)
43.1
0.2
0.4
164.6
(
(13.3)
(39.2)
112.1
33. 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 on disposal of property, plant and equipment
Profit on disposal of subsidiaries (Note 32)
Impairment of assets
Share scheme charges
Net retirement benefits charge less contributions
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Increase in provisions
Increase in exceptional creditor
Cash generated by operations
Income taxes paid
Interest paid
Net cash from operating activities
Analysis of changes in net debt
£ million
Borrowings
Finance leases
Total liabilities from financing activities
Cash and cash equivalents
Net debt*
1 January 2017
Cash flow
Fair value gains
and losses
Exchange
movements
Other non-cash
movements
30 December
2017
(384.7)
(4.7)
(389.4)
22.5
(366.9)
114.4
0.8
115.2
(1.1)
114.1
(17.2)
–
(17.2)
–
(17.2)
–
–
–
(0.5)
(0.5)
3.9
–
3.9
–
3.9
(283.6)
(3.9)
(287.5)
20.9
(266.6)
* Includes accrued interest at 30 December 2017 of £1.5 million (2016: £4.8 million) and prepaid bank fees of £5.4 million (2016: £3.8 million).
119
119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
34. 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.
The Group has the following amounts of Letters of credit issued:
£ million
Letters of Credit
30 December
2017
31 December
2016
2.5
1.5
As at 30 December 2017, the Group had purchase commitments for the next 12 months to guarantee supply and price of raw materials of £96.5
million (2016: £102.4 million).
35. OPERATING LEASE ARRANGEMENTS
The Group as lessee
£ million
Continuing operations
2017
2016
Minimum lease payments under operating leases recognised as an expense in the period
12.2
12.1
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:
£ million
Operating leases which expire:
Within one year
Within two to five years
After five years
Land and buildings
Other
30 December
2017
31 December
2016
30 December
2017
31 December
2016
5.4
38.7
47.3
91.4
5.3
25.9
63.0
94.2
2.8
4.6
0.1
7.5
3.2
5.5
0.1
8.8
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.
36. SHARE-BASED PAYMENTS
The Company has a share option scheme for selected employees of the Group. Options granted under the scheme are exercisable at a discount to
the estimated price of the Company’s shares on the date of grant. If the options remain unexercised after a period of ten years from the date of
grant the options expire. Options may be forfeited if the employee leaves the Group before the options vest.
Details of the share options outstanding during the year are as follows:
£ million
Outstanding at the beginning of the period
Granted during the period
Outstanding at the end of the period
Exercisable at the end of the period
Number of
share options
Weighted average
exercise price
30 December
2017
31 December
2016
30 December
2017
31 December
2016
–
9,178,785
9,178,785
–
–
–
–
–
–
£0.68
£0.68
–
–
–
–
–
The options outstanding at 30 December 2017 had a weighted average exercise price of £0.68, and a weighted average remaining contractual life of
9.4 years. In 2017, options were granted on 3 July 2017 and 20 October 2017. The options granted on 3 July 2017 have two performance conditions
for vesting:
1. 50% vest provided that the individual is an employee in April 2020 and a liquidity event i.e. a public listing or company sale has occurred
by that date.
2. Provided that the first condition is met, a further 25% vest if Group Adjusted EBITDA for the 2019 financial year is £175 million with up to
a further 25% vesting on a sliding scale if Group Adjusted EBITDA is between £175 million and £190 million for that year.
120
Bakkavor Group plc — 2017 Annual Report
120 | Bakkavor Group plc
FINANCIAL STATEMENTS
The options granted on 20 October 2017 have no performance conditions other than the employee needs to be employed by the business at the
vesting date. The aggregate of the estimated fair values of the options granted in 2017 is £6.6 million.
Date of grant
3 July 2017
20 October 2017
20 October 2017
Number of
options
originally
granted
8,178,785
600,000
400,000
Contractual life
remaining (years)
Share price at date
of grant
Expected volatility
Expected life
remaining (years)
Risk-free rate
Expected dividend
yield
Fair value per
option
9.5
9.8
9.8
£1.44
£1.44
£1.44
38.2%
37.5%
37.7%
2.3
2.3
4.3
0.87%
0.47%
0.56%
2.75%
2.75%
2.75%
£0.65
£1.34
£1.26
The Group has used the binomial model to value its share awards.
The expected volatility is a measure of the amount by which a share price is expected to fluctuate during the period. It is typically calculated based
on statistical analysis of daily share prices over the length of the award period. Due to the recent listing of Bakkavor Group plc, this information is
not available. Instead it has been based on the volatility of an average of companies of a similar size that operate in a similar market.
The Group recognised total expenses of £0.8 million (2016: £nil) related to equity-settled share-based payment transactions in the period.
37. 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 contribution scheme net charge
Overseas defined contribution scheme net charge
UK defined benefit scheme net charge
Total charge
2017
6.1
–
1.0
7.1
2016
6.2
0.1
1.1
7.4
Defined contribution schemes
The total cost charged to income of £6.1 million (2016: £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. Included in accruals was £1.0 million at the
period end for the defined contribution schemes (2016: £1.0 million).
Defined benefit schemes
An actuarial valuation of Scheme assets and the present value of the defined benefit obligation for funding purposes was carried out as at 31 March
2016. The results were updated for IAS 19 ‘Employee Benefits’ purposes to 30 December 2017 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)
30 December
2017
31 December
2016
3.05%
2.40%
2.20%
3.10%
2.55%
2.25%
121
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
37. RETIREMENT BENEFIT SCHEMES (CONTINUED)
The mortality table is based on scheme-specific postcode-fitted SAPS 2 tables with a 96% multiplier for male members and a 95% multiplier for
female members. Future improvements are in line with the CMIB core 2015 improvements model with a 1.0% p.a. long-term trend from 2007
onwards, giving life expectancies as follows:
Member aged 45
Member aged 65
Males’ expected
future lifetime
2017
Males’ expected
future lifetime
2016
Females’
expected future
lifetime 2017
Females’
expected future
lifetime 2016
41.7
22.3
42.1
22.4
43.9
24.4
44.3
24.5
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Assumption
Change in assumption
Approximate impact on scheme liabilities
Discount rate
Rate of inflation
Life expectancy
Increase/decrease by 1.0%
Increase/decrease by 0.5%
Decrease £49.3 million/increase £66.0 million
Increase £21.4 million/decrease £20.1 million
Members assumed to be one year younger than their actual age
Increase £10.3 million
Amounts recognised in income in respect of these defined benefit schemes are as follows:
£ million
Net interest on net defined benefit asset/liability
Administration costs incurred during the period
Total charge
2017
0.2
0.8
1.0
2016
0.1
1.0
1.1
All of the charges for each period presented have been included in total administrative expenses. The actuarial gain of £12.3 million (2016: £7.6
million loss) has been reported in other comprehensive income.
The actual return on Scheme assets was an increase of £23.5 million (2016: £55.4 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
Scheme surplus/(deficit)
Related deferred taxation (liability)/asset (Note 26)
30 December
2017
31 December
2016
265.8
(260.6)
5.2
(0.9)
4.3
252.6
(262.6)
(10.0)
1.7
(8.3)
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.
The Scheme surplus has been recognised in accordance with IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their interaction’ as the Scheme’s terms and conditions allow the Group to have an unconditional right to a refund of
contributions when economic benefits are available.
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 gain – experience
Actuarial gain – demographic assumptions
Actuarial loss – financial assumptions
Closing balance
122
Bakkavor Group plc — 2017 Annual Report
122 | Bakkavor Group plc
30 December
2017
31 December
2016
(262.6)
(215.1)
(6.5)
13.4
–
1.0
(5.9)
(260.6)
(7.8)
15.6
6.6
–
(61.9)
(262.6)
FINANCIAL STATEMENTS
Movements in the fair value of scheme assets were as follows:
£ million
Opening balance
Interest income on scheme assets
Return on scheme assets 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
Corporate bonds
Index linked government bonds
Cash
Other
30 December
2017
31 December
2016
252.6
6.3
17.2
3.9
(13.4)
(0.8)
265.8
211.2
7.7
47.7
2.6
(15.6)
(1.0)
252.6
Fair value of assets
30 December
2017
31 December
2016
6.6
38.1
18.9
12.8
134.1
29.8
25.5
265.8
6.0
32.9
47.1
19.4
118.8
13.1
15.3
252.6
The fair values of the majority of the equity and bonds have been determined as level 2 instruments under IFRS 7 ‘Financial Instruments:
Disclosures’, except for most of the Index linked government bonds which have quoted prices in active markets and are classed as level 1.
Structured UK equity provides exposure to UK equities but is a derivative based solution and not a direct investment in equities. A proportion of the
Index linked government bonds are held as collateral against the Structured UK equity product.
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.
The Scheme invests in three 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 scheme specific funding requirements as outlined in
UK legislation. The most recent scheme specific funding valuation at 31 March 2016 was finalised in April 2017.
The Group and the Trustee 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 investing broadly 60% in growth-seeking assets and 40% 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 22 years.
The actual amount of employer contributions expected to be paid to the Scheme during 2018 is £3.8 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 2017 the total contributions made in respect of this benefit were £nil (2016: £nil).
The current deficit reduction contributions were agreed between the Group and the Trustee as part of the 2016 triennial valuation. The deficit
contributions will be paid over an eight year recovery period ending on 31 March 2024. The recovery contributions are paid monthly and the agreed
rates are £2.0 million in the year ended 31 March 2017, £4.5 million in the year ending 31 March 2018, £3.5 million in the year ending 31 March 2019
and £2.5 million per annum in subsequent years until 31 March 2024. £3.9 million was paid in the period to 30 December 2017.
123
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
38. 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 did not enter into any transactions with related parties who are not members of the Group.
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
Share-based payments1
2017
9.3
–
0.4
9.7
2016
6.1
0.1
–
6.2
1This is the income statement charge for the year which represents the fair value of the share-based payments to the Directors and senior
management. Details of the share-based payments are set out in Note 36.
39. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 27 March 2018 the Company completed a capital reduction which had been approved prior to the public listing and was set out in the public
listing prospectus. This has resulted in the transfer of £366.1 million from the share premium account to retained earnings.
40. CONTROLLING PARTY
These Financial Statements are the largest consolidated group financial statements in which the Company has been included.
At 30 December 2017, Carrion Enterprises Limited and Umbriel Ventures Limited together held 290,666,260 Ordinary shares representing 50.2% of
the total issued Ordinary share capital of Bakkavor Group plc. Two of the Company’s Directors, Agust Gudmundsson and Lydur Gudmundsson,
through their beneficial ownership of Carrion Enterprises Limited and Umbriel Ventures Limited are treated as acting in concert and are therefore
controlling shareholders of the Company.
41. ALTERNATIVE PERFORMANCE MEASURES
The Group uses various non-IFRS financial measures to help evaluate growth trends, assess operational performance and monitor cash
performance. The Directors consider that these measures enable investors to understand the ongoing operations of the business and are used by
management to monitor financial performance as it is considered to aid comparability of the financial performance of the Group from year to year
and it excludes items that are considered not to arise directly from trading activities.
Like-for-like (LFL) revenue
The Group defines LFL revenue as revenue from continuing operations adjusted for the share of revenue generated by associates, revenue
generated from businesses closed or sold in the current and prior year, revenue generated from businesses acquired in the current period, the
effect of foreign currency movements and the extra week of trading in 2016. The Directors believe LFL revenue is a key metric of the Group’s
revenue growth trend as it adjusts for the effects of any acquisitions, disposals, closures, currency fluctuations and compares comparable period
lengths thereby allowing for a more meaningful comparison of trends from period to period.
The following table provides the information used to calculate LFL revenue for the Group.
£ million
Statutory revenue
Week 53 revenue
Group revenue for 52 weeks
Share of revenue from associates
Revenue from closed and sold businesses
Effect of currency movements
Like-for-like revenue
124
Bakkavor Group plc — 2017 Annual Report
124 | Bakkavor Group plc
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
1,814.8
–
1,814.8
8.2
(15.0)
(7.7)
1,763.6
(28.2)
1,735.4
8.0
(34.9)
–
Change %
2.9%
4.6%
1,800.3
1,708.5
5.4%
FINANCIAL STATEMENTS
The following table provides the information used to calculate LFL revenue for the UK segment.
£ million
Statutory revenue
Week 53 revenue
Group revenue for 52 weeks
Revenue from closed and sold businesses
Like-for-like revenue
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
Change %
1,636.3
–
1,636.3
(15.0)
1,621.3
1,589.9
(26.2)
1,563.7
(17.9)
1,545.8
The following table provides the information used to calculate LFL revenue for the International segment.
£ million
Statutory revenue
Week 53 revenue
Group revenue for 52 weeks
Share of revenue from associates
Revenue from closed and sold businesses
Effect of currency movements
Like-for-like revenue
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
178.5
–
178.5
8.2
–
(7.7)
179.0
173.7
(2.0)
171.7
8.0
(17.0)
–
162.7
2.9%
4.6%
4.9%
Change %
2.8%
4.0%
10.0%
Adjusted EBITDA
The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’ as this measure excludes the impact of items that
hinder comparison of profitability year on year. EBITDA is generally defined as operating profit/(loss) before depreciation and amortisation. In
calculating Adjusted EBITDA, we further exclude share of results of associates, restructuring costs, asset impairments, share scheme charges
and those additional charges or credits that are considered significant or one-off in nature.
The following table sets forth a reconciliation from the Group’s Operating profit to Adjusted EBITDA.
£ million
Operating profit
Depreciation
Amortisation
Impairment of assets
EBITDA
Exceptional items
Loss on disposal of property, plant and equipment
Share scheme charges
Profit on disposal of subsidiaries
Share of results of associates after tax
Adjusted EBITDA
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
96.2
39.6
0.7
–
136.5
15.4
0.5
0.8
–
(0.6)
152.6
91.5
37.2
2.2
8.2
139.1
8.0
0.1
–
(0.1)
(0.7)
146.4
125
125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
41. ALTERNATIVE PERFORMANCE MEASURES (CONTINUED)
Operational net debt
Operational net debt excludes the impact of non-cash items on the Group’s statutory net debt and therefore the Directors use this measure as it
reflects actual net borrowings at the relevant reporting date and is most comparable with the Group’s free cash flow. The following table sets out
the reconciliation from the Group’s statutory net debt to the Group’s operational net debt.
£ million
Group statutory net debt
Unamortised fees
Interest accrual
Fair value of call option
Group operational net debt
30 December
2017
31 December
2016
(266.6)
(366.9)
(5.4)
1.5
–
(270.5)
(3.8)
4.8
(17.2)
(383.1)
Free cash flow
The Group defines free cash flow as the amount of cash generated by the Group after meeting all of its obligations for interest, tax and pensions and
after purchases of property, plant and equipment (excluding development projects), but before payments relating to historical UK liabilities and
refinancing fees. The Directors view free cash flow as a key liquidity measure, and the purpose of presenting free cash flow is to indicate the cash
available to pay dividends, repay debt or make further investments in the Group. The following table provides a reconciliation from net cash
generated from operating activities to free cash flow.
£ million
Net cash generated from operating activities
Interest received
Dividends received from associates
Purchases of property, plant and equipment
Purchases of property, plant and equipment relating to development projects
Proceeds on disposal of property, plant and equipment
Cash impact of exceptional items
One-off tax payments
Refinancing costs
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
93.4
–
0.7
(79.1)
23.1
2.5
14.2
–
16.3
71.1
112.1
0.1
0.3
(67.3)
–
0.1
7.6
4.1
1.5
58.5
Adjusted earnings per share
The Group calculates Adjusted basic earnings per Ordinary share by dividing Adjusted earnings by the weighted average number of Ordinary
shares in issue during the year. Adjusted earnings is calculated as profit attributable to equity holders of the Company adjusted to exclude other
items as presented in the consolidated income statement. The Directors use this measure as it tracks the underlying profitability of the Group and
enables comparison with the Group’s peer companies. The following table reconciles profit attributable to equity shareholders of the Company to
Adjusted earnings:
£ million
Profit attributable to equity shareholders of the Company
Adjustments to exclude profit for the period from discontinued operations
Earnings from continuing operations for the purpose of earnings per share
Exceptional items
Impairment of assets
Profit on disposal of subsidiary
Finance costs
Change in fair value of call option
Tax on the above items
Adjusted Earnings used for the adjusted earnings per share calculation
Add back: Tax on underlying activities
Adjusted profit before tax
126
Bakkavor Group plc — 2017 Annual Report
126 | Bakkavor Group plc
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
31.0
–
31.0
15.4
–
–
13.2
17.2
(6.3)
70.5
14.3
84.8
51.3
(0.5)
50.8
8.0
8.2
(0.1)
2.2
(6.5)
(1.4)
61.2
13.7
74.9
FINANCIAL STATEMENTS
Number of shares
‘000
Weighted average number of ordinary shares
Effect of dilutive ordinary shares
Weighted average number of diluted ordinary shares
Continuing operations
Adjusted basic and diluted earnings per share
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
530,738
578,645
857
–
531,595
578,645
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
13.3p
10.6p
Return on invested capital (ROIC)
The Group defines ROIC as Adjusted operating profit after tax divided by the average invested capital for the year. Adjusted operating profit after tax
is defined as operating profit from continuing operations excluding the impact of exceptional items, impairment of assets, and profit on disposal of
subsidiaries less tax at the Group’s effective tax rate. Invested capital is defined as total assets less total liabilities excluding net debt at the period
end, pension assets and liabilities (net of deferred tax) and fair values for derivatives not designated in a hedging relationship. The Group utilises
ROIC to measure how effectively it uses invested capital. Average invested capital is calculated by adding the invested capital at the beginning of the
period to invested capital at the end of the period and dividing the result by two.
The Directors believe that ROIC is a useful indicator of the amount returned as a percentage of shareholders’ invested capital. The Directors believe
that ROIC can assist analysts, investors and stakeholders to evaluate the Group’s profitability and the efficiency with which its invested capital is
employed.
The following table sets forth the calculations of adjusted operating profit after tax and invested capital used in the calculation of ROIC.
£ million
Operating profit
Exceptional items
Impairment of assets
Profit on disposal of subsidiaries
Adjusted operating profit
Taxation at the underlying effective rate
Adjusted operating profit after tax
Invested capital
Total assets
Total liabilities
Net debt at period end
Derivatives not designated as hedges
Retirement benefit scheme (surplus)/deficit
Deferred tax liability/(asset) on retirement benefit scheme
Invested capital
Average invested capital for ROIC calculation
ROIC (%)
52 weeks ended
30 December
2017
53 weeks ended
31 December
2016
96.2
15.4
–
–
111.6
(18.9)
92.7
1,233.1
(723.0)
266.6
(0.9)
(5.2)
0.9
771.5
761.2
12.2%
91.5
8.0
8.2
(0.1)
107.6
(19.7)
87.9
1,250.1
(871.3)
366.9
(3.0)
10.0
(1.7)
751.0
749.2
11.7%
127
127
COMPANY STATEMENT OF FINANCIAL POSITION
30 DECEMBER 2017
£ million
Non-current assets
Investment in subsidiaries
Current assets
Cash and cash equivalents
Amounts due from other Group companies
Deferred tax assets
Current liabilities
Other payables
Net assets
Equity
Share capital
Share premium
Merger reserve
Retained earnings
Total equity
Notes
30 December
2017
4
6
6
7
7
7
309.5
2.2
85.4
0.3
87.9
(0.4)
(0.4)
397.0
11.6
366.1
23.8
(4.5)
397.0
In accordance with the exemptions allowed by Section 408 of Companies Act 2006, the Company has not presented its own income statement or
statement of comprehensive income. The loss for the three month period was £10.1 million.
The Financial Statements of Bakkavor Group plc, company number 10986940, and the accompanying notes, which form an integral part of the
Company Financial Statements, were approved by the Board of Directors on 9 April 2018. They were signed on behalf of the Board of Directors by:
A Gudmundsson
Director
P Gates
Director
COMPANY STATEMENT OF CHANGES IN EQUITY
PERIOD FROM 28 SEPTEMBER 2017 TO 30 DECEMBER 2017
Share
premium
Merger
reserve
Retained
earnings
Share
capital
–
11.6
–
–
–
–
–
–
374.1
(8.0)
–
–
–
–
–
–
–
23.8
–
–
–
11.6
366.1
23.8
Total
equity
–
385.7
(3.4)
23.8
0.8
0.2
(10.1)
397.0
–
–
4.6
–
0.8
0.2
(10.1)
(4.5)
£ million
Balance at 28 September 2017
Issue of share capital (Note 7)
Share issue costs (Note 7)
Recognition of a merger reserve (Note 7)
Credit for share-based payments
Deferred tax on share schemes
Loss for the period
At 30 December 2017
128
Bakkavor Group plc — 2017 Annual Report
128 | Bakkavor Group plc
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
PERIOD FROM 28 SEPTEMBER 2017 TO 30 DECEMBER 2017
1. GENERAL INFORMATION
The Company was incorporated as a public limited company on 28 September 2017. On 9 October 2017 the Company’s name was changed from
Diamond Newco plc to Bakkavor Group plc.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company Financial Statements have been prepared in accordance with the Financial Reporting Standard 101 ‘Reduced Disclosure Framework’
(“FRS 101”) and the Companies Act 2006 and under the historical cost convention.
The Company Financial Statements are prepared on the going concern basis as set out in Note 2 to the Consolidated Financial Statements.
The Company has taken advantage of the following disclosure exemptions under FRS101:
• The requirement of IFRS 7 ‘Financial Instruments: Disclosures’;
• The requirements of paragraphs 91-99 of IFRS 12 ‘Fair Value Measurement’;
• The requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of:
– Paragraph 79(a) (iv) of IAS 1; and
– Paragraph 73(e) of IAS 16 ‘Property, Plant and Equipment’;
• The requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134-136 of IAS 1 ‘Presentation of Financial
Statements’;
• The requirement of IAS 7 ‘Statement of cash flows’;
• The requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’;
• The requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’;
• The requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more members of a
group; and
• The requirements of paragraphs 134(d) – 134(f) and 135(c) – 135(e) of IAS 36 ‘Impairment of Assets’.
The preparation of Financial Statements in conformity with FRS 101 did not require the use of any critical accounting estimates or any significant
areas of judgement.
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.
3. EMPLOYEES’, DIRECTORS’ AND AUDITOR’S REMUNERATION
Fees payable to the Company’s Auditor in respect of the audit of the Company’s Financial Statements for the period ended 30 December 2017 have
been borne by fellow Group Company Bakkavor Foods Limited. The Company has no employees and payments to Directors for the period ended
30 December 2017 have been borne by fellow Group company Bakkavor Foods Limited.
4. INVESTMENTS IN SUBSIDIARIES
£ million
Balance at 30 December 2017
Investment in
Group companies
309.5
The Company acquired by way of share for share exchange the entire issued share capital of Bakkavor Holdings Limited on 10 November 2017.
129
129
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
5. SUBSIDIARIES
As at 30 December 2017, Bakkavor Group plc held investments in the share capital of the following companies:
Name
Directly held investments:
Bakkavor Holdings Limited1
Indirectly held investments:
Bakkavor Finance (1) Limited1
Bakkavor Finance ehf3
Bakkavor Finance (2) Plc1
Bakkavor Finance (3) Limited1
Bakkavor London Limited1
Bakkavor Estates Limited2
Bakkavor Acquisitions (2008) Limited1
Bakkavor USA Inc4
Bakkavor USA Limited1
Bakkavor Foods USA Inc4
Bakkavor Foods Holdings LLC4
Bakkavor Invest Limited1
Bakkavor (Acquisitions) Limited1
Bakkavor Finance Limited2
Bakkavor Asia Limited1
Bakkavor China Limited1
Creative Food Group Limited5
Bakkavor Hong Kong Limited5
Creative Agriculture Holdings Limited5
Bakkavor China Holdings Limited5
Wuhan Bakkavor Food Company Limited6
Jiangsu Creative Agriculture Produce Development
Company Limited7
Shaanxi Bakkavor Food Company Limited8
Shanghai Creative Food Company Limited9
Beijing Bakkavor Food Company Limited10
Guangzhou Creative Food Company Limited11
Bakkavor (Shanghai) Management Company Limited12
Nantong Creative Agriculture Produce Development
Company Limited13
Fujian Bakkavor Food Company Limited14
Bakkavor (Taicang) Baking Company Limited15
Chengdu Bakkavor Foods Company Limited16
Bakkavor Limited1
Bakkavor (Jersey) Limited17
Bakkavor (Jersey Two) Limited17
Bakkavor Properties Limited1
Geest Corporation Inc18
Bakkavor Overseas Holdings Limited1
BV Foodservice Limited1
Bakkavor Foods Limited1
Place of registration and
operation Principal activity
UK Holding company
UK Holding company
Iceland Dormant holding company
UK Holding company
UK Holding company
UK Holding company
UK Property management
UK Holding company
USA Holding company
UK Holding company
USA Manufacture of custom and private label savoury and
bakery products
USA Holding company
UK Holding company
UK Holding company
UK Customer invoicing and financing of receivables
UK Holding company
UK Holding company
Hong Kong Production and manufacture of salad products
Hong Kong Preparation and marketing of fresh prepared foods
Hong Kong Production and manufacture of salad products
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
China Production and manufacture of salad products
China Production and manufacture of salad products
China Holding company
China Production and manufacture of salad products
China Production and manufacture of salad products
China Production and manufacture of bakery products
China Production and manufacture of salad products
United Kingdom Holding company
Jersey Dormant holding company
Jersey Dormant holding company
United Kingdom Non-trading
USA Dormant holding company
United Kingdom Non-trading
United Kingdom Non-trading
United Kingdom Preparation and marketing of fresh prepared foods
% of
voting
shares
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%
130
Bakkavor Group plc — 2017 Annual Report
130 | Bakkavor Group plc
FINANCIAL STATEMENTS
Name
Bakkavor Pension Trustees Limited1
Bakkavor European Marketing BV19
NV Bakkavor Belgium BV20
Bakkavor Fresh Cook Limited1
Anglia Crown Limited1
English Village Salads Limited1
Bakkavor Australia Pty Limited21
BV Restaurant Group Limited1
Bakkavor Iberica S.L.U.22
Bakkavor Central Finance Limited2
Notsallow 256 Limited1
Kent Salads Limited1
Laurens Patisseries Limited1
Hitchen Foods Limited1
Bakkavor Brothers Limited1
Cucina Sano Limited1
Butterdean Products Limited1
Exotic Farm Prepared Limited1
Exotic Farm Produce Limited1
La Rose Noire Limited23
Place of registration and
operation Principal activity
United Kingdom Pension trustee holding company
Netherlands Holding company
Belgium Non-trading
UK Preparation and marketing of fresh prepared foods
UK Preparation and marketing of fresh prepared foods
UK Non-trading
Australia Holding company
UK Production and distribution of fresh prepared foods
Spain Distribution
UK Customer invoicing and financing of receivables
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
Hong Kong Operation of bakery and food and beverage outlets
% of
voting
shares
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
45%
1 The registered address of all these Companies is Fitzroy Place, 5th Floor, 8 Mortimer Street, London, England, W1T 3JJ.
2 The registered address of these Companies is West Marsh Road, Spalding, Lincolnshire, England, PE11 2BB.
3 The registered address of this company is Thorvaldsensstræti 6, 6th floor, 101 Reykjavík, Iceland.
4 The registered address of these Companies is 18201 Central Avenue, Carson, California, 90746.
5 The registered address of these Companies is Units 1902-1912, 19/F., Eight Commercial Tower, No 8 Sun Yip Street, Chai Wan, Hong Kong.
6 The registered address of this company is Mujiajing ZhangDuHu Farm, Xinzhou District, Wuhan, China.
7 The registered address of this company is Agricultural Development Area, Changle Town, Haimen City, Jiangsu Province, China.
8 The registered address of this company is Qinghua Keji Garden, Middle of Shiji Road, Xianyang City, Shanxi Province, China.
9 The registered address of this company is No. 279 Jiaqian Road, Nanxiang Developing Area, Jiading District, Shanghai, China.
10 The registered address of this company is South Xitai Road, Da Sun Gezhuang Town, Shunyi District, Beijing, China.
11 The registered address of this company is No. 55 Banyutang Road, High Tech Development Area, Guangzhou, China.
12 The registered address of this company is Room 01, 3A Floor, Number 16 Lane 1977, Jinshajiang Road, Putuo District, Shanghai, China.
13 The registered address of this company is No. 18 Group, Lingshu Village, Dong Zaogang Town, Haimen City, Jiangsu Province, China.
14 The registered address of this company is Jiulong Industry Park of Hua An Economic Development Zone, China.
15 The registered address of this company is Taican City, No 29 Qingdao East Road, China.
16 The registered address of these Companies is 47 Esplanade, St Helier, Jersey, JE1 0BD.
17 The registered address of this company is Rong Tai Road, Cross-Striats Science & Technology Industry Development Park, Wenjiang District, Chengdu, China.
18 The registered address of this company is 251 Little Falls Drive, Wilmington, Delware, 19808, USA.
19 The registered address of this company is Prins Bernhardplein 200, 1097 JB Amsterdam, The Netherlands.
20 The registered address of this company is Lammerdries-Zuid 16F, 2250 Olen, Belgium.
21 The registered address of this company is Henry Davis York, 44 Martin Place, Sydney, NSW 2000, Australia.
22 The registered address of this company is Calle Cartagena 57, 1º D Torre Pacheco, Murcia CP 30700, Spain.
23 The registered address of this company is 2/F Corporation Squarem 8 Lam Lok Street, Kowloon Bay, Kowloon, Hong Kong. La Rose Noire is an associate company of
the Bakkavor Group.
6. FINANCIAL INSTRUMENTS
Foreign currency risk
The Company is not exposed to any significant foreign currency risk as principally all its balances are in Pounds Sterling.
Interest rate risk management
The Company has an intercompany loan receivable that has a fixed rate of interest. There are no further interest-bearing balances and therefore
the Company is not exposed to any interest rate risk.
131
131
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
6. FINANCIAL INSTRUMENTS (CONTINUED)
Categories of financial instruments
£ million
Financial assets
Loans and receivables at amortised cost:
Amounts due from other Group companies
£ million
Financial liabilities
Other financial liabilities at amortised cost:
Other payables
7. SHARE CAPITAL AND RESERVES
Share capital
Issued and fully paid:
Ordinary shares of £0.02 each
30 December
2017
85.4
30 December
2017
0.4
31 December 2017
Number
£ million
579,425,585
11.6
The 104,774,006 shares, held by Bakk AL Holdings Limited, in Bakkavor Holdings Limited were exchanged for 523,870,030 Ordinary shares in Bakkavor
Group plc. As part of the public listing, on 16 November 2017, the Company issued 55,555,555 new shares to the public which were subscribed for at
£1.80 per share.
No dividends have been declared in the period ended 30 December 2017. See Note 8 for details of a capital reduction which will enable the Company to pay
dividends in the future.
All Ordinary share of £0.02 each are non-redeemable and carry equal voting rights and rank for dividends and capital distributions, whether on a winding up
or otherwise.
Share premium
The share premium represents amounts received in excess of the nominal value of shares issued, net of the direct costs associated with issuing
those shares.
£ million
Share premium arising on issue of 55,555,555 new shares
Share premium arising on share for share exchange
Expenses incurred on issue of equity shares
30 December
2017
98.9
275.2
(8.0)
366.1
Share issue costs associated with existing shareholders totalled £4.6 million, in accordance with the Companies Act 2006 this has been reclassified from
retained earnings to share premium in addition to £3.4 million of costs associated with the issue of new shares posted to share premium.
Merger reserve
The merger reserve was created as a result of the acquisition of Bakkavor Holdings Limited and represents the difference between the carrying values of the
net assets of Bakkavor Holdings Limited and the value of the share capital and share premium arising on the share for share exchange that resulted in
Bakkavor Group plc acquiring Bakkavor Holdings Limited.
8. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 27 March 2018 the Company completed a capital reduction which had been approved prior to the public listing and was set out in the public
listing prospectus. This has resulted in the transfer of £366.1 million from the share premium account to retained earnings.
9. CONTROLLING PARTY
At 30 December 2017, Carrion Enterprises Limited and Umbriel Ventures Limited together held 290,666,260 Ordinary shares representing 50.2% of the
total issued Ordinary share capital of Bakkavor Group plc. Two of the Company’s Directors, Agust Gudmundsson and Lydur Gudmundsson, through
their beneficial ownership of Carrion Enterprises Limited and Umbriel Ventures Limited are treated as acting in concert and are therefore controlling
shareholders of the Company. These Financial Statements are the largest consolidated group financial statements in which the Company has been included.
132
Bakkavor Group plc — 2017 Annual Report
132 | Bakkavor Group plc
FINANCIAL STATEMENTS
COMPANY INFORMATION
ADVISERS AND REGISTERED OFFICE
SECRETARY
S Witham (appointed 28 September 2017)
REGISTERED OFFICE
Fitzroy Place 5th Floor
8 Mortimer Street
London
W1T 3JJ
COMPANY NUMBER
10986940
REGISTRAR
Equiniti Limited
Aspect House
Spencer Road
Lancing
BN99 6DA
BANKERS
Barclays Bank PLC
Multinational Corporates
One Churchill Place
London
E14 5HP
AUDITOR
Deloitte LLP
2 New Street Square
London
EC4A 3BZ
BROKERS
Citigroup Global Markets Limited
Citigroup Centre
33 Canada Square
London
E14 5LB
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
SOLICITORS
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London
EC4Y 1HS
FSC® – The Forest Stewardship Council® runs a global
certification system that ensures timber produced in
certified forests has been traced from the tree to the end
user. The FSC® certification claim can only be used by
certified printers. Thank you.
This report is available at:
www.bakkavor.com
Designed and produced by Black Sun Plc
133
B
A
K
K
A
V
O
R
G
R
O
U
P
P
L
C
—
A
N
N
U
A
L
R
E
P
O
R
T
A
N
D
A
C
C
O
U
N
T
S
2
0
1
7
SEE HOW IT’S MADE
blog.bakkavor.com