Bakkavor Group Annual Report 2018

FY2018 Annual Report · Bakkavor Group

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ALL ABOUT
FRESH

ANNUAL REPORT AND ACCOUNTS 2018

CONTENTS

OVERVIEW
At a Glance

STRATEGIC REPORT
About Bakkavor
Chairman’s Letter
Our Business Model
Market Review
Our Strategy
Chief Executive’s Review
Key Performance Indicators
Risk Management
Financial Review
Corporate Responsibility

GOVERNANCE
Chairman’s Letter on Corporate Governance
Corporate Governance Compliance Statement
Group Board
Management Board
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

4
6
8
12
14
17
24
25
31
35

47
48
50
52
53
70
90
94

95
102

103
104
105
106
107
151
151
152

157

2018 HIGHLIGHTS

GROUP REVENUE
£1,855.2m

ADJUSTED EBITDA1
£153.5m

OPERATING PROFIT
£85.6m

NET CASH FROM OPERATIONS
£99.1m

BASIC EPS
11.6p

2.2%

0.6%

11.0%

6.1%

5.8p

FIND OUT MORE ABOUT OUR BUSINESS AT 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.

1. 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 40 of the Notes to the Consolidated
Financial Statements.

AT BAKKAVOR, WE’RE ALL ABOUT

FRESH

FRESH IDEAS
With fresh ways of thinking.

FRESH FACES
Creating fresh prepared food.

FRESH INVESTMENTS
To support fresh partnerships.

FRESH COMMITMENT
To fresh new tastes.

FRESH ENGAGEMENT
Through fresh approaches.

FRESH DEDICATION
To global fresh ambitions.

OVERVIEW
AT A GLANCE

CREATING QUALITY
FRESH PREPARED FOOD

Bakkavor is the leading provider of fresh prepared food
(“FPF”) in the UK, with a growing international presence
in the US and China. Over 19,000 employees operate from
43 locations to develop and produce innovative FPF for
a wide variety of occasions and budgets. These locations
include: 25 factory sites, three distribution centres and
a head office in the UK; five factories in the US; and nine
factories in China.

Over

19,000

employees worldwide

factories

distribution
centres

Portfolio of
around

500

products in
the US

Created
around

140

new products in
the US

2 Bakkavor Group plc – 2018 Annual Report

Portfolio
of around

2,000

products in
the UK

Created
over

500

new products in
the UK

factories

INTERNATIONAL

CHINA

factories

Created
over

220

new products in
China

Portfolio
of around

500

products in
China

PARTNERING WITH OUR CUSTOMERS

Our customers include all
the well-known UK grocery
retailers as well as some of
the world’s best-known
international food brands.

Our deep understanding of
consumer food choices
enables us to create innovative
products that set us apart
from our competitors.

These products cover a range
of categories including meals,
desserts, pizza & bread
and salads.

INTERNATIONAL

www.bakkavor.com 3

STRATEGIC REPORT
ABOUT BAKKAVOR

ONE OF THE LARGEST INTERNATIONAL
FOOD MANUFACTURERS

UK
We employ approximately 17,000 people
in the UK and are the number one producer
by market share in each of the four UK FPF
categories: meals, salads, desserts and
pizza & bread.

Our customers include all the well-known
UK grocery retailers, who sell our products
under their own respective brands. In 2018,
we developed over 500 new products in the
UK in partnership with them.

We operate a complex operating model,
and our sites are operational 24 hours a
day, 364 days a year. Given the short shelf
life of products, our sites receive orders
‘on-the-day, for-the-day’. In order to
fulfil orders on time and in full, labour
and materials are arranged in advance,
which requires a skilled planning process.

Strategic positioning
• Operating in attractive markets
• Leading position across all four

product categories

• Strong insight, innovation and new

product development focus
• Long-standing partnerships

with customers

INTERNATIONAL
Our International business comprises the
FPF market in the US and the foodservice
market in China.

We employ over 600 people in the US and
over 2,000 in China, having operated in both
countries for more than 10 years.

We believe we are well placed to influence
and develop these markets by leveraging
our UK expertise. Both markets have
demonstrated a growing demand for fresh,
high-quality, healthy and convenient
food options.

In 2018, our International business
expanded its presence with the addition
of five new factories – three in China and
two in the US.

Strategic positioning
• Strong understanding of markets
and long-established presence
• Ability to capitalise on UK expertise

and insight for competitive advantage

• Significant opportunities for growth
• Increased purchasing power for

raw materials

BUSINESS ACTIVITIES
We are the leading provider of FPF in the
UK, with a growing international presence
in the US and China. Our 19,000 employees
operate from 43 locations to develop and
produce innovative FPF for a wide variety
of occasions and budgets. These locations
include: 25 factory sites, three distribution
centres and a head office in the UK; five
factories in the US; and nine factories
in China.

In the UK and the US, we work with
leading grocery retailers to support them
in differentiating their product offering
by focusing on their own-label brands.
In China, we supply foodservice operators.

In partnership with our customers, we have
led the way in developing the FPF market
in the UK – one of the largest and most
dynamic of its kind in the world.

We have used this expertise to grow and
develop our presence in the US and China,
with both markets showing strong growth
in the high-quality, fresh, convenience
food sector.

Our proven business model – combined
with our extensive insight into consumer
trends and an ability to turn this insight into
creative commercial products – gives the
Group a clear competitive advantage in the
FPF market.

We report our business performance under
two segments: UK and International.

GROUP REVENUE

ADJUSTED EBITDA1

11%

89%

96%

UK: £1,653.6m

International: £201.6m

UK: £147.7m

International: £5.8m

1. 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 40 of the
Notes to the Consolidated Financial Statements.

4 Bakkavor Group plc – 2018 Annual Report

LEADING THE WAY

OUR VISION
Our vision is to lead the way in bringing great-tasting fresh prepared food to people
around the world.

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 and investors, in the
communities in which we operate, and with each other.

OUR VALUES

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.

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.

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.

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.

INNOVATION
We thrive on new challenges, looking for
innovative ways to grow and improve our
business further.

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 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 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.

www.bakkavor.com 5

STRATEGIC REPORT
CHAIRMAN’S LETTER

ROBUST PERFORMANCE IN A
DIFFICULT MARKET ENVIRONMENT

business which will add to the quality and
breadth of our current desserts offering.

Our International business, while much
smaller than the UK business, is growing
in line with our ambitious plans and passed
important milestones this year. In China, we
continued to expand alongside existing and
new customers, and our headcount in China
passed 2,000 during the year. We also
opened a major new state-of-the-art facility
in Shanghai, focused on salad products,
as well as entering the bakery market for
the first time.

In the US, we strengthened relationships
with existing key customers, as well
as starting to work with new ones.
Most importantly, our new Texas facility,
dedicated to supplying a range of fresh
prepared foods for a single retailer,
began production in the autumn and is
now building output, working hand-in-hand
with this important new customer.

OUTLOOK
I have referred to market challenges in the
UK and looking ahead in the short term we
expect these to continue. Our focus remains
on the long-term, sustainable growth of our
business and current conditions will not
deflect us from that aim. We will be alert for
growth opportunities and we will continue
to move ahead at pace in our two very
attractive overseas markets.

PEOPLE
Bakkavor employs more than 19,000 people
across our Group, including 17,000 in the
UK. I’m proud of the way that all our people
work together to make great-tasting food
consistently and safely. Many of them have
done so despite the uncertainty created for
them personally by the Brexit process.
We are very pleased to continue to support
them as this situation develops. We do well
to remember that it is their work that
creates our results and our value and
I thank them for it.

OUR WIDER SOCIAL IMPACT
We recognise the responsibility we have
as a food manufacturer to operate our
business in a sustainable way. Towards the
end of the year, we undertook a review of
our approach to corporate responsibility,

including development of a Group-wide
strategy and set of sustainability priorities.
We will provide further information on our
progress in 2019 and recognise there is
much more we can be doing to commit
to this agenda in the years ahead.

To support both our people and our
communities, we put in place two new
charity partnerships to begin in January
2019, with FareShare, a UK charity aimed
at relieving poverty and reducing food
waste, and Action Against Hunger, a global
charity committed to ending world hunger.

In addition, we are also well aware that we
have a clear part to play within the industry
to work alongside retailers to reduce food
waste. To that end, in the UK we added
our support to the Food Waste Reduction
Roadmap, a WRAP and IGD initiative
to support waste reduction in the UK.

BOARD
Our relatively new Board has come together
very well and is providing a good level
of both challenge and support to the
Executive. At the start of April, Jane Lodge
joined as an Independent Non-executive
Director, and as Chair of our Audit and Risk
Committee. In July, Patrick Cook also joined
our Board as a Non-executive Director,
replacing Bob Berlin. I am delighted to
welcome them both, and also to thank Bob
for his input and support, particularly during
our preparations for the IPO in 2017.

DIVIDEND
Following payment of our interim dividend
of 2 pence per Ordinary share in October
2018, the Board is proposing a final dividend
of 4 pence per Ordinary share, payable on
29 May 2019 to shareholders on the register
at 3 May 2019. This takes the total dividend
for the year to 6 pence per ordinary share.

SIMON BURKE
Chairman

5 April 2019

“Our focus remains on the
long-term, sustainable
growth of our business and
current conditions will not
deflect us from that aim.”

OVERVIEW
Overall, we made good progress with our
strategic plans and delivered a robust
performance in a difficult market
environment. Group revenue increased by
2.2% to £1,855.2 million, adjusted EBITDA1
increased by 0.6% to £153.5 million,
and operating profit decreased by 11.0%
to £85.6 million. Our focus on strong cash
generation continued, with net cash from
operations up 6.1% to £99.1 million in
the year.

Conditions in the UK, our largest market,
have not been easy in 2018, and we have
had to work hard to manage the impact of
inflation, whilst also dealing with the effects
of economic and political uncertainty. As in
previous years, the long-term basis and
strength of our key trading relationships
has helped both to mitigate the impact of
these factors and to create opportunity for
growth and development.

Market conditions have, however, provided
openings in the year to build our position
in key areas. A good example is in the
desserts category, where the creation of
additional capacity at Newark will enable
us to serve our customers in new areas.
We were also delighted to complete the
acquisition of Haydens Bakery; a fine

6 Bakkavor Group plc – 2018 Annual Report

FRESH IDEAS

WITH FRESH WAYS OF THINKING

Georgia Papworth, Insights team,
Bakkavor UK
I joined Bakkavor’s Insights team in 2017.
I love what we do; working with our
customer marketing colleagues and sharing
our research and thoughts on emerging
trends and exciting new food developments.

Our passion for innovative food and
knowledge of what sells keeps us ahead of
the market and allows us to respond really
quickly to changing consumer lifestyles.

OUR VEGAN BUTTERNUT SQUASH
NUT ROAST WAS A BIG HIT OVER
CHRISTMAS AND IS JUST ONE OF
THE TASTY PRODUCTS WE MAKE
TO MEET THE GROWING TREND
FOR VEGAN FOODS.

STRATEGIC REPORT
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 both commercially
successful 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 provide both 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 our colleagues

• Investing in our communities, working

collaboratively to promote the
sustainable growth of the food industry

READ MORE ABOUT OUR STAKEHOLDER
ENGAGEMENT ON PAGE 10.

HOW WE
CREATE
VALUE

1. INSIGHT AND INNOVATION
We use insights gained through our 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 taste great,
are commercially viable and reinforce
our market-leading positions.

2. DEDICATED TEAMS AND PLANS
We recognise that our relationships with
customers and the service we provide are
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, that work with our
strategic customers and ensure we meet
their exacting standards.

8 Bakkavor Group plc – 2018 Annual Report

A B OUT FRESH

. I N S I G H T AND INNOVATION

O U R VALUES

i g h t,
g i t r
g i t r i g ht
Gettin
kee pi n

Custo

LLENCE

E
C
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Y E
T
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F
A
S
D
O
O
F

I
n
n
o
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Teamwork

FACTURING

A
M
S

A
N
D
P
L
A
N
S

G
NIN

N D PLAN

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d
u

C a n-do attit

G A

R I N

P R O C

3 .

3. 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 around 50 countries
with no single supplier accounting for more
than 5% of UK 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, with a mix of both
permanent employees and agency workers
to meet seasonal demand.

4. COMPLEX MANUFACTURING
Our UK factories are operational 24/7, 364
days a year, providing approximately 2,000
different short shelf-life products to
customers every day.

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.

Essential to the success of our 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.

5. FOOD SAFETY EXCELLENCE
We manufacture food that is not only
great-tasting for consumers, but also
meets the highest standards of safety.

Sites are audited regularly, often on an
unannounced basis, by internal food safety
experts, customers and independent bodies
for compliance with food safety standards.

In the UK, we employ more than 500 food
safety professionals and conduct over 1,500
in-house microbiology and chemistry tests
every day in our own laboratories.

www.bakkavor.com 9

STRATEGIC REPORT
OUR BUSINESS MODEL CONTINUED

CREATING VALUE FOR OUR
STAKEHOLDERS

We believe it is important to listen and engage with our stakeholders as we will only be able
to build a sustainable business with their input, cooperation and trust.

STAKEHOLDER

HOW WE ENGAGE

WHAT WE DID IN 2018

CUSTOMERS

SUPPLIERS

INVESTORS

• Dedicated customer champions
at senior business director level

• Supplier business reviews
• Insights team
• New Product Development team
• Technical team
• Customer site audits

• Procurement Leadership team
• Dedicated Group buyers
• Bakkavor Supplier Conference
• Technical audits
• Regular supplier visits
• New product development
• Cost/quality improvement initiatives
• Inbound logistics
• Technological innovation
• Industry conferences
• Social events

• Annual General Meeting
• Annual Report & Accounts
• Financial results releases
presentation and audio cast

• Investor roadshows
• Investor conferences
• Factory site visits
• Hosted events
• One-to-one calls

We evolved our UK operational structure to incorporate

a more customer focused leadership team.

We undertook an extensive supplier business review with one
of our major customers to secure further business.

After many years of planning, we opened a new factory in Texas
dedicated to an important new customer.

Alongside many of our customers, we committed to adopt the
United Nations Sustainable Development Goal 12.3 “to halve
food waste across the supply chain by 50% by 2030.”

We held our first Bakkavor UK Supplier Conference

to set out our future approach to responsible sourcing.
Over 420 supplier representatives attended the event,
with presentations from our Chief Executive Officer, UK Chief
Operating Officer and the Responsible Sourcing Steering Group.

In China, we continued to work with growers to improve supply
chain integrity and overall product quality. During the year,
we invested in state-of-the-art hydroponics technology to
further improve quality of supply and seasonal availability
of ingredients.

We held five Investor roadshow events across London,

Edinburgh, Boston and New York and attended a number
of investor conferences throughout the year.

We hosted seven investor site visits at UK sites, plus an investor
and analyst ‘Christmas-party-food-range’ launch event.

We held over 100 one-to-one investor and analyst calls.

COLLEAGUES

• Group awards
• Site awards such as Long Service

We rolled out our Employee Engagement Survey to our

International colleagues.

and Living our Values
• Community activities
• Employee Engagement Survey
• Site Employee Forum (“SEF”)

Representatives

• CEO messages to employees
• Intranet
• Group newsletter
• Subsidised staff shops
• Internal conferences
• Annual appraisals

• School partnerships
• Charity fundraising
• Employee volunteering
• Local awards sponsorship
• Hosting community events
• Social media

We continued to support and advise our employees during
the ongoing uncertainty surrounding Brexit.

We further developed our apprenticeship and graduate
recruitment programmes both in the UK and internationally.

We continued to improve our staff facilities across our sites,
particularly in China where we made a number of
well-received improvements.

In July, we hosted our annual ‘Fun Weekend’ in Spalding,
Lincolnshire, for employees and the local community,
which raised over £25,000 for charity.

We announced two new three-year charity partnerships with
FareShare and Action Against Hunger.

COMMUNITIES

10 Bakkavor Group plc – 2018 Annual Report

FRESH FACES

CREATING FRESH PREPARED FOOD

Finlay Galbraith, Apprentice
Development Chef, Bakkavor UK
I’m currently on my first year of the
Apprenticeship Programme, learning to
become one of Bakkavor’s development
chefs. I’ve always loved food and trying out
different dishes, so it’s great to be able to
work with like-minded people who are
passionate about culinary excellence and
creating great-tasting new recipes using
fresh ingredients. It’s even more rewarding
to see our products on supermarket shelves.

OUR WOOD-FIRED FIG,
PROSCIUTTO, DI SPECK AND
GORGONZOLA PIZZA SHOWS
HOW WE ARE CREATING NEW
RECIPES FOR CONSUMERS
WHO INCREASINGLY WANT
TO BE INSPIRED BY EXCITING
NEW FLAVOURS AND FRESH
QUALITY INGREDIENTS.

STRATEGIC REPORT
MARKET REVIEW

UNDERSTANDING
OUR MARKET

Our aim is to understand
consumer diversity and
deliver commercially
successful products across
three distinct markets.

Across the UK, US and China,
our consumers consistently
look for three key features
of fresh prepared food:
taste, fresh and healthy
and convenience.

Our Bakkavor Insights
teams are focused on
ensuring products reflect
these features and also
match the changing
consumer lifestyles and
trends particular to each
region.

OUR KEY MARKET DRIVERS

TASTE

Shoppers are
cooking less,
but looking to
be inspired

FRESH &
HEALTHY

People are more
conscious of health
and wellbeing

CONVENIENCE

Changing consumer
shopping and
eating behaviour

12 Bakkavor Group plc – 2018 Annual Report

TASTE
The combination of romaine lettuce,
parmesan cheese and anchovies brought
together as the Caesar salad is famous
across the globe. In the UK, our team
created the iconic chicken caesar wrap
from the original recipe, and it has now
been a successful product for our major
retail customers for many years. Purchased
as a lunch option from the ‘Food to Go’
counters in our major retail customers, it is
primarily eaten on-the-go and straight from
the pack.

In China, we modified the chicken caesar
wrap to suit the local market. Working with
our customers we developed the wrap into
a popular, smaller breakfast option, often
served heated. In response to its success,
we have created further products in the
year by mixing Asian flavours with western
cuisines, including the mala chicken wrap
and the five-spice beef wrap.

The bread category is another example of
where we are rolling out our UK expertise
internationally. We successfully introduced
chilled garlic bread to the UK palate over
a decade ago; a product now purchased
by over 60% of the households in the UK.
As we know that chilled breads are not
a well-known concept in the US, we have
used our expertise in this category instead
to successfully fill the gap for premium
topped ambient breads. Similarly in China,
we know that the consumer enjoys a much
softer, lighter bread eat, and our new facility
is focused on achieving distinctive products
that meet this preference.

FRESH & HEALTHY
Over half of consumers cite health
considerations as a factor in their
purchase decisions. Whilst in the UK
this simply meant low-calorie and low-fat
ranges a decade ago, this view has
developed further. For example, vegan food
has emerged in the last year to become
a mainstream staple. As such, we have
launched an increasing number of ranges
which cater for consumers who are looking
for new and innovative plant-based
convenience across wraps, pizzas and
ready meals.

In the US, we are focusing on the
importance of ingredients and bringing
many of the trends which have proved
successful in the UK to drive fresh growth
in a geography where frozen and ambient
have historically been dominant. With this
in mind, we have developed a new brand
in meals and dips.

Similarly in China, whilst the demand for
healthy and fresh food solutions is high,
the FPF market accounts for a much
smaller share of consumer spend than
in the UK. The key to unlocking growth
is consumer trust. The team in China have
worked to create and launch a new brand
called Fresh Kitchen to give a clear brand
identity to healthy and fresh products.
Fresh Kitchen is now established as
a convenience retail range with a branded
fresh food counter and food-to-go fixture,
and the first online products
have now launched.

CONVENIENCE
Consumers want us to help make their
lives easier and help them get time back.
Fresh, quality food, combined with
convenience, is a recipe for success.

In the UK, over two-thirds of our consumers
tell us they are always busy. For some,
shopping online helps them plan their time
better, while for others the ability to pop into
a small store on the way home is a daily
helping hand. Whichever way our
consumers choose to shop, we try to
ensure our ranges are easy to access.

In the US, consumers eat out as often as
they eat at home. Again, this behaviour has
shaped the market, which is still dominated
by large stores, which must work hard to
inspire consumers against a strong
foodservice sector. Perimeter shopping for
fresh meals is growing rapidly and store
formats are changing to allow shoppers
access to FPF more easily.

In China, foodservice outlets and coffee
channels dominate the landscape. For the
foodservice channel, offering products that
can be easy to use in store is important.
In order to achieve freshness and
convenience, we deliver products like leaf
base, mix grains and dressings in individual
ingredient bags to our customers. The
consumer can then be served a finished
meal in a quick and simple way.

HOW WE ARE RESPONDING

WE REDEFINE TASTE

It’s about exploring and discovering
flavours you will love

WE MAKE FRESH RELEVANT

It’s about health, trust,
honesty and integrity

WE GIVE PEOPLE MORE TIME

It’s about buying time
with family and friends
or for yourself

WE CREATE MEAL SOLUTIONS

It’s about providing
accessible options no matter
what the occasion

WE ENABLE PEOPLE TO
MAKE A DIFFERENCE

It’s about being able
to meet the demands of the
socially-conscious

www.bakkavor.com 13

STRATEGIC REPORT
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 constant 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 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
and our commitment to
operational excellence.

STRATEGY IN ACTION
• Whilst the UK operating environment has
been challenging due to ongoing cost
inflation and an intensely competitive
market, we have maintained our number
one position in the UK FPF market.
• We strengthened our long-standing

customer relationships and the breadth
and depth of our category offering.
• We put in place a number of pricing

mechanisms with our key customers
to better manage inflationary pressures.

• We continued to invest in consumer

insight and product innovation and have
launched a number of new ranges in
response to trends such as vegan and
‘free from’.

• We strengthened our desserts
capabilities with the acquisition
of Haydens in Devizes, as well as the
ongoing expansion of our desserts site in
Newark. Both provide increased capacity,
market-leading innovation and state-of-
the-art automation.

STRATEGIC PRIORITIES FOR 2019
• We continue to focus on working

alongside our customers to navigate
ongoing market uncertainty and low
levels of consumer confidence.
• We continue to review the potential

impacts on the business of Brexit and will
update operational plans accordingly to
limit any impact.

• We continue to review new ways to gather
consumer insight given the rapid growth
of customer data and emergence of
new technologies.

• We remain focused on maximising the
returns from our investments and, in
particular, driving our growth in the
desserts category.

• We continue to review site capacity and

capabilities in order to optimise
efficiencies and maximise profitability
across our estate.

• We continue to embed our new UK

leadership structure.

14 Bakkavor Group plc – 2018 Annual Report

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
providing nationwide supply

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
• Strong underlying volume growth with

STRATEGIC PRIORITIES FOR 2019
• In the US:

all key customers:

• In the US:

– We developed a partnership with

a significant new customer in Texas
and opened a dedicated site for this
customer in October 2018.

– We continued to focus on developing
our position in ‘super’ categories –
dips, soups, sauces and ready meals.
This included a major project on
improving hummus capability.

• In China:

– We continue to build our presence in
the ‘super’ categories, through both
East and West Coast supply.
– We are investing in our hummus

processing capability and diversifying
our offering to include hummus meals.
– We are committed to investing behind
our meals category core capabilities
to develop our strategic partnerships.
– We continue to focus on optimising site

performance, including access to
skilled and relevant labour.

– Our large scale investment in a

• In China:

– We remain focused on leveraging

recent large-scale investment in new
facilities to deliver growth with existing
customers in our current categories.

– We continue to expand our core
category offering and review new
opportunities within the marketplace.
– We continue to test other channels in
the market as we leverage capacity.
• In both markets, a key focus is leveraging
our UK expertise to ensure successful
launches of the speciality bread category.

STRATEGIC PRIORITIES FOR 2019
• We continue to actively seek opportunities
for further efficiency improvements in
order to optimise profitability.

• In the context of the current labour
environment, we remain focused on
opportunities to reduce our reliance
on labour and improve process
standardisation across the Group.

• The operational finance team continues
to build an extensive pipeline of projects
and capital investment opportunities.

state-of-the-art factory in Shanghai
came online in the second half of 2018
and provides increased capability.
We also invested in a new facility in
Chengdu. Both investments provide
increased capacity to support
customer growth plans.

– We continued to develop our supply

chain capabilities to bring more of our
raw materials in-house, including
investment in hydroponics technology.

• In both markets, we developed our
category presence in the premium
artisan breads market, with the opening
of new bakeries in Taicang, outside
Shanghai, and Charlotte, North Carolina.

STRATEGY IN ACTION
• Our operational finance team remains
focused on identifying instances of
operational excellence that can be
replicated across the Group. The team
adopts a three-pillar approach, focused
on intervention, improvement and
investment. We bolstered the team
during the year to provide us with greater
strength and expertise in this area.
• We delivered a number of efficiency
improvements in the year through
automation, energy savings and
reduced waste.

• In the UK, we reviewed the organisational
structure of the business to leverage
our asset base more effectively and
strengthen our customer partnerships.

• We leveraged UK expertise to support
our international operations, including
dedicated resource embedded within
new site investments.

FOR MORE INFORMATION ON HOW WE ALIGN OUR STRATEGIC PRIORITIES TO OUR PRINCIPAL RISKS, SEE PAGE 27.

www.bakkavor.com 15

FRESH INVESTMENTS

TO SUPPORT FRESH PARTNERSHIPS

Gary McEvoy, General Manager,
Bakkavor US
I run our new site in Texas – a dedicated
factory for a major retailer, which we opened
in October 2018. It’s been great to see the
development project unfold and exciting
to see the significant change taking place
across their stores as they prepare to offer
more and more fresh prepared food to
consumers. This is the way stores are
changing in the US and it’s great to be part
of that shift. It’s also been hugely helpful
to take advice from our UK teams!

IN 2014, WE WORKED CLOSELY
WITH A CUSTOMER TO LAUNCH
THE FIRST FRESH BURRITO
PRODUCT IN THE US AND WE
CONTINUE TO EXPAND AND
SUCCESSFULLY DEVELOP THIS
PRODUCT RANGE TODAY.

STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW

WE DELIVER THE BEST FOR OUR
PEOPLE AND CUSTOMERS

“We delivered a robust
performance in 2018,
successfully driving
growth across our UK and
International businesses
against a backdrop of
significant market challenges.
This reflects our market-
leading expertise in
producing great-tasting
fresh food, the quality
of our people and our
strong partnerships
with customers.”

A YEAR OF FURTHER STRATEGIC
PROGRESS
I am pleased to report that we made further
strategic progress in 2018. We continued
to focus on the drivers of long-term
sustainable growth: leveraging our number
one position in the UK fresh prepared food
market, accelerating growth in high-
potential international markets and further
improving our operational efficiency.

Once again, our excellent customer
relationships, together with our scale and
expertise, reinforced our market-leading
position across our fresh prepared
food categories.

Group reported revenue increased by 2.2%
from £1,814.8 million to £1,855.2 million
in 2018, with like-for-like revenue1 up 3.2%
in the year to £1,842.0 million. This was
a robust performance given the continued
challenging market conditions in the UK,
especially the high levels of inflation and
weak consumer confidence.

Adjusted EBITDA1 increased by 0.6% from
£152.6 million to £153.5 million in 2018.
Operating profit decreased by 11% from
£96.2 million to £85.6 million in 2018. This
decrease was primarily due to an increase
in pre-commissioning and start-up costs
for the International business. Trading
performance before these costs, in an
environment of limited volume growth,
improved slightly compared with the prior
year as efficiency benefits and a tight
control of overheads helped offset
inflationary pressures.

The business generated strong free
cash flow1 of £55.1 million compared
to £71.1 million in the prior year.
The decrease was largely due to higher
capital expenditure and a small working
capital outflow in the year.

GROUP FINANCIAL HIGHLIGHTS
£ million

Revenue
Like-for-like revenue1
Adjusted EBITDA1
Adjusted EBITDA margin1
Operating profit

We should all feel proud of our ability
to maintain our profitability in these
challenging times. To achieve so much is
testament to the skills and commitment of
over 19,000 people across our Group which,
together with our focus on operational
excellence, give me confidence in our
long-term future.

BUILDING FOR THE FUTURE
In the UK, we continued to leverage our
number one position, further increasing
our overall market share. In particular,
we extended our leading position in the
desserts category supported by a major
investment at our site in Newark and the
acquisition of Haydens Bakery Limited in
September 2018 for a total consideration
of £11.4 million. With Haydens, there is
clear alignment in values and customer
mix and the integration of the business is
well under way. We extend a warm
welcome to the team of around 480 people
based in Devizes, Wiltshire, who are now
part of the Bakkavor Group. In the UK,
we also completed the sale in July 2018 of
Anglia Crown Limited, a non-core business
focusing on the provision of frozen and
chilled meals to hospitals and care homes.

During the year we made good progress
on delivering our international strategy of
long-term sustainable growth. In particular,
I am pleased to report that, in the US, we
opened two new factories in San Antonio
and Charlotte, continuing to build our
presence in this important market and
introducing the premium artisan bread
category to US consumers.

In China, we continue to invest and support
our customers’ ambitious growth plans,
bringing Western-style foods and technical
standards to this market. We recently
completed the construction of our new
state-of-the-art facility in Shanghai, which
will bring us much-needed additional
capacity in this important region.

2018
1,855.2
1,842.0
153.5
8.3%
85.6

2017

1,814.8
1,784.6
152.6
8.4%
96.2

Change

2.2%
3.2%
0.6%
(10)bps
(11)%

1. 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 40 of the Notes
to the Consolidated Financial Statements.

www.bakkavor.com 17

STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW CONTINUED

A CAUTIOUS OUTLOOK
Our performance in 2018 was determined
by challenging market fundamentals and
our Group remained extremely focused
on mitigating these impacts where possible.
I am encouraged by what was achieved
in light of such significant challenges.

Subdued consumer confidence and
inflationary pressures have continued into
2019 and, therefore, we remain cautious
and expect little improvement in underlying
market conditions. Consequently,
we expect limited growth in the UK and
a corresponding decline in the Group’s
EBITDA margin in the first half of the year.

However, in the second half, we anticipate
an uplift in UK revenues as we benefit from
recently secured new business. Given this
additional volume, together with the
actions we are taking to protect profitability,
we expect a significant improvement in our
trading in the second half of the year and
our full-year Group performance to be
broadly in line with 2018.

Looking further ahead, we remain confident
that our strategy, combined with our scale
and expertise, leaves us well-placed to
capitalise on further growth opportunities
within the attractive FPF market, both in the
UK and overseas.

BOARD CHANGES
During the year, there were a number
of changes to both the Board and
Management Board. In April, the Board was
further strengthened with the appointment
of Jane Lodge, a highly experienced
finance professional, as an Independent
Non-executive Director and Chair of the
Audit and Risk Committee. In July, Patrick
Cook joined the Board as a Non-executive
Director, replacing Bob Berlin. Patrick is
a Principal at The Baupost Group and has
significant investment experience across
the food sector.

At a Management Board level, we were
pleased to welcome Donna-Maria Lee
as Group HR Director, replacing Pippa
Greenslade who retired in September.
I would like to thank Pippa for the invaluable
contribution she made to the Group during
her time with us. Since joining, Donna-
Maria has made a strong impression and
I am confident her wealth of experience will
help us develop and grow our Group both
in the UK and internationally. After the year
end, we announced a change to the US
senior management team: Ben Waldron,
previously Head of Strategic Development,
has relocated to Charlotte, North Carolina
as President of Bakkavor US and has
replaced Ivan Clingan, who will be returning
to the UK following his three-year
assignment. I extend my sincere thanks
to Ivan for the valuable contribution he
has made in helping to grow Bakkavor’s
presence in the US over the past three
years. I am also delighted that Ben will
be heading up the US business, and under
his leadership I am confident that it will
continue to grow from strength to strength
in the years ahead.

INNOVATION DRIVES SUCCESS
Innovation is one of our core values and
developing an innovative culture is key to
our success. It is not just about introducing
new products to market, but about
challenging ourselves to think differently.
Particular highlights in the year included
a new vegan range in the UK, the launch
of the Fresh Kitchen brand across 1,000
convenience stores in China and an exciting
new range of breakfast products in the US.

To celebrate this commitment to innovation
and share success across the Group,
we held our seventh Bakkavor Innovation
Awards in November. We received a record
number of more than 100 entries this year
from all parts of the business, reflecting the
extent to which innovation and these awards
are firmly embedded in everything we do.

A COMMITTED WORKFORCE
Our success is driven by the passion,
dedication and commitment of all our
people throughout the Group. I would like
to thank everyone for their efforts and for
the valuable contribution they make at
Bakkavor. While I am in no doubt that we
will face fresh challenges in 2019, I am
confident we can deliver further success
given the strength and depth of capabilities
we have right across the Group.

To strengthen our workforce, we are
continuing to focus on a wide range of
initiatives to improve employee retention,
minimise recruitment costs and heighten
engagement across sites. In the UK,
we have focused much time on our regional
recruitment processes and also on labour
planning to ensure delivery during peak
times. We also continue to work closely with
workforce providers to position ourselves
as an employer of choice.

In addition, the safety of everyone who
works on our sites remains an absolute
priority. Unfortunately, during the year,
we have seen an increase in reported
major accidents across our sites and,
as a consequence, we have focused on
reinforcing the importance of adhering
to established health and safety practices.

18 Bakkavor Group plc – 2018 Annual Report

OPERATIONAL REVIEW

UNITED KINGDOM
The UK is Bakkavor’s largest market,
representing around 89% of overall Group
sales. Producing innovative food that offers
quality, choice, convenience and freshness
for consumers is the foundation of our
success and continued to drive our
performance in the UK.

Against a backdrop of challenging market
conditions, we reinforced our leading
position across the attractive FPF
categories, continued to work in close
partnership with our strategic customers
and gained overall market share during
the year.

We produce over 2,000 short shelf-life
products, the majority of which are
manufactured and delivered to our
customers every day. Our proven operating
model in dealing with complexity, scale and
agility continued to give us a unique
competitive advantage and enabled us to
respond and adapt quickly to deliver
outstanding service levels in 2018.

Focused on optimising performance
Our UK business generated £1,653.6 million
of reported revenue in 2018, up 1.1%
compared to the prior year. Like-for-like
revenue1 was £1,635.0 million, 1.8% up
on 2018.

As expected, the start of the year saw
a period of low volume growth as a
consequence of further retail price inflation
and subdued consumer sentiment.
Volumes picked up from April through the
summer period, helped by better weather
and events such as the Royal Wedding and
World Cup. However, from September
consumer confidence noticeably weakened
across the grocery sector as shoppers
reverted to more cautious spending
patterns. With underlying market growth
limited, volume uplifts in our UK business
in the second half of 2018 were largely due
to a number of business wins in our
core categories.

Adjusted EBITDA1 for the year was
£147.7 million, up on the £145.2 million
reported in 2017. The year saw further
significant raw material inflation, driven
particularly by dairy products in the first
half and protein and vegetables in the final
quarter. The scale and expertise of our
central procurement team enabled us to
leverage our buying power and limit the
consequences of these industry-wide cost
pressures. In parallel, our commercial
teams continued to work closely with our
customers, reviewing product design,
promotional strategies and pricing to
minimise the inflationary impact.

The UK business also continued to be
impacted by rising labour costs. In a
period of high employment and wage
growth at a 10-year-high, we also saw
particular pressures from further increases
in the National Living Wage, a step-up
in auto-enrolment pension contributions
and the full-year impact of the
Apprenticeship Levy.

The combination of limited volume growth
and an inflationary environment resulted in
margins being under pressure throughout
the year. However, through a combination
of productivity improvements and tight
cost control across the business we were
able to maintain the adjusted EBITDA1
margin at 8.9%.

UK FINANCIAL HIGHLIGHTS
£ million

Revenue
Like-for-like revenue1
Adjusted EBITDA1
Adjusted EBITDA margin1
Operating profit

As we continue to focus on new ways to
optimise business performance, in the
latter part of 2018 we reviewed the
organisational structure of our UK
business and introduced a simplified model
in early 2019. The new structure will enable
us to leverage our asset base more
effectively under our four key categories
and further strengthen our strategic
customer partnerships.

In addition, our operational teams remain
focused on reviewing capacity and
capabilities across our sites to optimise
efficiencies and maximise profitability.
As a consequence of this ongoing process,
we have started a consultation process
regarding the proposed closure of one our
meals sites in Lincolnshire. This business
has experienced a number of challenges in
recent years such that it was loss-making
in 2018, with a further decline expected
in 2019.

2018

1,653.6
1,635.0
147.7
8.9%
99.8

2017

Change

1,636.3
1,606.1
145.2
8.9%
94.9

1.1%
1.8%
1.7%
–
5.2%

www.bakkavor.com 19

STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW CONTINUED

Supporting our customers’
growth plans
We partner with all the major UK grocery
retailers and 85% of UK revenues were
generated from our four largest customers:
Tesco, M&S, Sainsbury’s and Waitrose.
These four long-term partnerships, each
with a dedicated team, a bespoke plan
and a long-term strategic vision for FPF,
continue to form the core of our business.

Our product portfolio remains well
balanced across categories, price points
and seasonal changes in consumer eating
patterns. This year-round offering,
combined with the strength of our operating
model for producing FPF products at scale,
continued to give us a competitive
advantage in the UK market.

For example, unusually cold weather in
February and March, followed by record
summer temperatures, presented
considerable challenges to our salads
supply chain. However, our central
procurement expertise, combined with
strong relationships with growers, enabled
us to maintain production and continuity of
supply. The summer months also saw our
customers launch a number of promotional
and marketing initiatives based around
major events including the Royal Wedding
and World Cup. These events generated
a material uplift in volumes and it is thanks
to our proven operating model that we were
able to manage the short-term spikes
in demand.

Our extensive knowledge and experience of
great-tasting food, combined with our ability
to anticipate the latest food trends, is widely
recognised by our customers. For example,
our expertise in new product development
enabled us to work with one of our strategic
customers in refreshing almost 250 of its
products across multiple categories as part
of a major relaunch of its own label offering.
In addition, during the Christmas period,
which is always a busy time in our business,
we once again showcased a number of
innovative seasonal items across our core
categories, many of which were well
publicised in the media.

Consumer trust in food quality is a key part
of our business model. During the year,
we had numerous unannounced technical
audits at our sites from our central team,
our customers and external bodies, all of
which confirmed we are operating to the
highest standards.

Looking forward, there remains a high level
of uncertainty surrounding the outcome of
Brexit. We continue to review the potential
impacts on the business and update our
operational plans accordingly to limit any
possible risks. These include the
implementation of an enhanced employee
retention programme and taking measures
to minimise disruption to our raw materials
supply chain.

Investing in capacity and capability
During 2018, we made further investments
in the UK to both manage our capacity and
support our customers’ growth plans. For
example, we have an ongoing programme
to enhance our leaf processing capabilities
which is due to be completed in early 2019.
Furthermore, our capital investment plans
continued to target efficiency benefits
through numerous automation projects
across the manufacturing and
packing process.

In 2017, we announced our intention to
invest £35 million to expand our desserts
site in Newark, increasing capacity and
capability to support a major business win
and introducing state-of-the-art automation
to support efficiency. The investment,
which markedly strengthens our desserts
business, is now in its final phase of
development and is expected to be fully
operational in Q3 2019.

During the year, we also broadened our
desserts offering through the acquisition
of Haydens from Real Good Food PLC for
a total consideration of £11.4 million.
Haydens is a leading manufacturer of sweet
bakery products for the major UK grocery
retailers and also provides a distribution
operation for a leading retailer. A recent
capital investment of £15 million into the
site by its previous owners transformed
Haydens into a best-in-class bakery
operator. This acquisition further increases
the scale of our bakery desserts offering
and has already started to realise
operational synergies following
a smooth integration.

20 Bakkavor Group plc – 2018 Annual Report

INTERNATIONAL
Bakkavor’s strategy to accelerate its
performance in the US and China is borne
of over 10 years of operating in these
regions, where we have developed a strong
understanding of these markets and their
growth potential.

The FPF markets in these two regions are
significantly underserved when compared
with the UK. Bakkavor has established
itself as a pioneer in leveraging its UK
expertise to drive the FFP proposition in the
US, and in supplying foodservice chains in
China with high standards of food safety
and quality.

Delivering good underlying
volume growth
Our International segment now
represents around 11% of Group revenue.
Both businesses continue to operate in
highly attractive markets and delivered
good underlying volume growth in the year.

The International segment generated
£201.6 million in revenue in the year
compared with £178.5 million in the
prior year. On a like-for-like1 basis,
revenues increased by 16% in the year
to £207.0 million.

Adjusted EBITDA1 for our International
segment was £5.8 million for the year,
compared with £7.4 million in 2017.
Both businesses have been particularly
impacted by rising labour costs and further
investment in our technical infrastructure
to support the pace of growth.

Whilst we have continued to invest in
operations and infrastructure in both
regions, it has also been a year of transition
for our US business, and this has had an
impact on overall profitability. Operating
profit decreased by £15.5 million from
a £1.3 million profit in 2017 to a loss of

£14.2 million. This decrease was primarily
due to the start-up and pre-commissioning
of factories in the US and China, combined
with disruption costs incurred as we
repurposed part of an existing US site to
capitalise on the growing prepared
meals market.

United States
In the US, consumers continue to move
away from frozen and long-life products in
favour of fresh and healthy chilled products.
US retailers in turn continue to develop
their chilled proposition to capitalise on this
increased demand by extending the range
they offer and giving it greater prominence
in-store – our largest customer in Texas for
example has invested heavily to reconfigure
stores to showcase their offering. These
dynamics have supported significant
revenue growth in 2018 for our US business.

As we expand and develop our product
range across sites, this pace of change can
present operational challenges. During the
year, we reviewed the manufacturing
processes behind some of our key products,
particularly hummus, to improve quality
and reinforce leading technical standards.
In the short term, this led to an increase in
operating costs while we embed these
changes to our processes, but we expect
this project to be completed by the autumn
of 2019 when we will start to realise
the benefits.

In addition, we made substantial changes
to our site in California, repurposing part
of the factory to give us the capabilities to
manufacture ready meals in volume and,
as expected, this project caused some level
of disruption. Construction work is largely
completed, and we will now be focused on
building up sales volumes and
improving efficiencies.

INTERNATIONAL FINANCIAL HIGHLIGHTS
£ million

Revenue
Like-for-like revenue1
Adjusted EBITDA1
Adjusted EBITDA margin1
Operating profit

2018
201.6
207.0
5.8
2.9%
(14.2)

2017

178.5
178.5
7.4
4.1%
1.3

Change

12.9%
16.0%
(21.6)%
(120)bps

–

In October, we officially opened a new
factory in San Antonio dedicated to
supplying a key customer with an increased
range of fresh meals. The range has been
extended following completion of our new
facility, and we have a joint business plan
in place with the customer to drive future
growth. The project, which benefited from
our UK expertise across key functions,
was delivered on time and to budget.

We also opened another new factory in
Charlotte, North Carolina, to manufacture
a range of high-quality artisan breads that
can be distributed nationally across the US.
We are in the final stages of commissioning
the site and expect to launch these products
during Q2 2019 in response to good levels
of interest from a number of
potential customers.

www.bakkavor.com 21

STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW CONTINUED

China
In China, we continued to develop our
presence in the foodservice markets as
our key customers rapidly expand their
store and restaurant portfolios. Looking
ahead, this gives us a platform to continue
our investment programme to keep pace
with our customers’ growth ambitions.

Our Chinese business reported a good
year with strong growth on the back
of significant planned investment.
Our reputation and credibility continue
to improve in this dynamic market, and
the transfer of our UK expertise has
been an important factor in this success.
We continue to develop our ‘on the ground’
insights capabilities and, in addition, our
investment in new product development
capabilities has broadened our offering to
major customers, including for example
the development of a fresh soup offering.

This year has seen the introduction of
three new factories in China. The first
is a new state-of-the-art, multi-product
and multi-customer factory in Shanghai.
The site is now in early production
phase delivering a range of salad and
‘Food to Go’ products and will provide
much-needed additional capacity in this
high-growth market.

Secondly, we completed an investment
in a new high-quality bread facility near
Shanghai which gives our Chinese business
the opportunity to capitalise on the Group’s
in-depth knowledge of this category. Finally,
we invested in a new facility in Chengdu,
Western China, to supply a number of our
customers as they expand in this vibrant
region. In addition, we continue to operate
from our facility in Hong Kong and maintain
our 45% share of La Rose Noire.

We also continue to develop our supply
chain and bring more of our raw material
supply in-house. For example, we are
investing in an innovative greenhouse
complex using the latest hydroponics
technology that both improves quality
and broadens seasonal availability.

AGUST GUDMUNDSSON
Chief Executive Officer

5 April 2019

22 Bakkavor Group plc – 2018 Annual Report

FRESH COMMITMENT

TO FRESH NEW TASTES

Kendra Shan, Technical Director,
Bakkavor China
I work at the Haimen factory in Shanghai
which has recently been expanded and
equipped with the latest technology and
processing capability. The factory is unique
in China and gives us a real point of
difference in food technical standards
and quality.

THROUGH OUR ‘FRESH KITCHEN’
BRAND WE ARE BRINGING
WESTERN-STYLE, FRESH,
CONVENIENT FOOD-TO-GO
PRODUCTS SUCH AS CHICKEN
CAESAR SALADS AND WRAPS
TO THE CHINESE CONSUMER.

STRATEGIC REPORT
KEY PERFORMANCE INDICATORS

MEASURING OUR PROGRESS

We measure our progress by focusing on a number of financial and non-financial
performance measures which support our strategy. Four of these form the basis of our
employee incentive plans.

REPORTED REVENUE2

LIKE-FOR-LIKE REVENUE1

ADJUSTED EBITDA1,2

+2.2%

2018

2017

+3.2%

+0.6%

£1,855.2m

2018

£1,842.0m

2018

£1,814.8m

2017

£1,784.6m

2017

£153.5m

£152.6m

The increase in 2018 was largely due to price
increases and business wins in the UK and strong
growth in both the US and China, where sales
volumes increased across all key customers.

Revenue growth at a constant currency excluding
acquisitions, closed and sold businesses was due
to higher prices in the UK and an increase in
volumes across the business.

The small increase was due to efficiency benefits
and a tight control of overheads more than
offsetting the inflationary pressures in the year.

FREE CASH FLOW2

ADJUSTED EARNINGS
PER SHARE1,2

LEVERAGE RATIO (NET DEBT /
ADJUSTED EBITDA1)

-£16m

2018

2017

+1.4p

-0.2x

£55.1m

2018

14.7p

2018

£71.1m

2017

13.3p

2017

2.0x

1.8x

This was lower in 2018, largely due to expenditure
on core capital (excluding development projects)
being £4.6 million higher than 2017. There was
also a small working capital outflow this year,
largely due to an increase in inventory for new
international factories.

This increase reflects both the improvement
in trading for the business and a reduction in
finance costs in the year. Basic earnings per
share has increased from 5.8p for 2017 to 11.6p
in 2018 due to lower Other items and the benefit
from the refinancing and the primary proceeds
received from the public listing in 2017.

As expected, the leverage ratio has increased
largely due to the expenditure on the development
projects. It remains within the Group’s target
range of 1.5 - 2.0 times.

ACCIDENTS RESULTING
IN LOST TIME > 7 DAYS
(PER 100K EMPLOYEES)

UK EMPLOYEE TURNOVER2

UK TOTAL GROSS
CARBON EMISSIONS

+5.3%

2018

2017

-0.6%

-8.4%

400

2018

22.1%

2018

176,733

380

2017

22.7%

2017

192,998

There was an increase of 5.3% in accidents
resulting in lost time of greater than seven days.
The Group continues to focus on a number
of initiatives to improve on this result.

The Group recognises the importance of
attracting and retaining a skilled workforce
and during 2018 the UK business introduced
a number of new initiatives to improve
performance in this area.

Emissions in the UK decreased by 8.4% in 2018
as we moved to a renewable electricity supply
contract across our sites. During the year, the
Group captured carbon emissions from its US
and China sites and, combined with the UK, Total
Group Gross emissions was reported as 232,788.

1. Alternative Performance Measures (“APMs”), including ‘like-for-like’, ‘adjusted’

2. The Group’s bonus scheme and long-term incentive awards are based

and ‘underlying’ are used as a guide to performance. The definitions and
calculations for APMs are set out in Note 40 of the Notes to the Consolidated
Financial Statements.

on performance across a selection of four KPIs. See pages 75 to 76 in the
Remuneration Report.

The KPIs set out above are those that are reported internally in the business.

24 Bakkavor Group plc – 2018 Annual Report

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 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 clear policies as to what can be
considered an acceptable level of risk.

Bakkavor maintains a formal Risk
Register which is updated regularly and
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 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 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 each risk, with clear
allocation of responsibilities and timescales
for completion. Progress towards
implementing these plans is monitored and
reported back to the Board through the
Audit and Risk Committee as part of
a structured business review.

v i e w p r o cess

Ris k r e

RISK
MANAGEMENT
PROCESS

r
a
t

e
g
y

i
t
i

e s s m ent

R i s k a
2

The process begins with the
evaluation of the most significant
strategic risks for Bakkavor.

Senior Management must regularly
assess risks for potential impact.

Action plans for mitigating
significant risks are developed
and implemented.

The Audit and Risk Committee,
delegated by the Board, is
responsible for the independent
review of the effectiveness of risk
management and the internal
control system.

www.bakkavor.com 25

STRATEGIC REPORT
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 policies for
ensuring workplace safety.

Food safety – The Group aims to deliver
food products with the highest levels
of safety and integrity. Bakkavor applies
food safety procedures when designing and
managing all of its sites, including rigorous
testing and Hazard Analysis Critical Control
Point management systems.

Food quality – The Group maintains
strict controls regarding the authenticity,
quality and labelling 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 practical 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 has been invested 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 minimise
exposure in these two key markets.

2019 PLAN
Following the IPO in November 2017,
the Group is now subject to increased
regulation as a listed company and has
appointed a Head of Risk to lead the
development of its internal controls.

Brexit continues to be an area of focus
given the relative scale of our UK business.
The resulting uncertainty has affected the
value of sterling and labour retention in
particular and further developments
continue to be monitored closely.
During the year the Group established
a working group made up of senior
members of key functions to keep under
review developments surrounding Brexit.
Bakkavor was also awarded Authorised
Economic Operator status during the year
which we believe will help speed up the
importing process in the event of border
controls being introduced.

RISK ASSESSMENT MAP

)
n
o
i
t
a
g
i
t
i

m
r
e
t
f
a
(
d
o
o
h
i
l
e
k
L

Business impact (after mitigation)

26 Bakkavor Group plc – 2018 Annual Report

Food safety and integrity

Raw material and input
cost inflation
Reliance on a small number
of key customers

Manpower scarcity and costs

IT systems and cyber risk

Health and safety

Recruitment and retention
of key employees

Investment and development

Liquidity, interest rates, exchange
rates and covenant compliance

Brexit disruption

Disruption to Group operations

Sustainability

Consumer behaviour and demand

Competitors

In 2018, the Group extended its principal risks and uncertainties to include investment and development, Brexit disruption, disruption to
Group operations, sustainability, consumer behaviour and demand, and competitors.

PRINCIPAL RISKS AND UNCERTAINTIES
Change in risk level over past 12 months

Key

Change in risk level over past 12 months

Link to strategic priorities

higher

level

lower

1
Leveraging number one
position in the UK

2
Accelerating growth in
high-potential
international markets

3
Improving
operational efficiency

RISK AREA

RISK DESCRIPTION

MITIGATING CONTROLS

RISK TREND 2018

Food safety
and integrity

1 2 3

Millions of people eat our products
every day. We have a duty to make
food that is safe and is clearly and
correctly labelled.

Consumer safety and confidence 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.

Raw material
and input
cost inflation

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.

Stringent food safety policies in place

throughout the organisation and use of
Hazard Analysis Critical Control Point
principles to identify and control food
safety risks.

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 Board and immediate
reporting of significant issues.

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.

The level of risk has
remained unchanged.

The risk has
marginally
increased due to
ongoing uncertainty
around Brexit.

Reliance on a
small number of
key customers

We work with four of the largest food
retailers in the UK and a significant
proportion of our revenue is from
these customers.

Partnership model in place with customers.
In the UK, customer-specific champions
and teams manage strategic
customer relationships.

Customer

concentration has
remained unchanged.

1 3

Any major customer loss would
have a significant negative impact
on our business.

Relationships with all grocery retailers
beyond the four largest gives breadth
of cover.

Strong reputation for 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.

www.bakkavor.com 27

STRATEGIC REPORT
RISK MANAGEMENT CONTINUED

RISK AREA

RISK DESCRIPTION

MITIGATING CONTROLS

RISK TREND 2018

Manpower
scarcity and
costs

1 2 3

Manpower scarcity and higher labour

Specific campaigns and focus groups

costs could affect the Group’s
business and future profitability.
The Group competes with other
manufacturers for good and reliable
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
elsewhere in the European Union.

in place targeting recruitment of future
employees and building attractiveness
of careers in the 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.

IT systems
and cyber risk

1 2

Unauthorised access of the Company’s
Information Technology (“IT”) systems
could lead to breaches of data
protection and release of market
sensitive information.

Group Information Systems (“IS”) manage
access to business data in the UK through
strong password protection, role-based
access to business systems and policies
to ensure appropriate use.

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.

The Group IS department has delivered
Disaster Recovery (“DR”) for all critical
systems in the UK and is working towards
delivering DR for other important systems.

Group IS has strict policies and actively
ensures UK IS infrastructure and equipment
are sufficiently protected against malicious
cyber attacks.

Local teams in the US and China are
developing our IS infrastructure capabilities.

Brexit concerns have
increased the risk.

Cyber threats have
become more
common in the wider
economy. Whilst the
Group has increased
investment in this
area, overall the
risk has marginally
increased.

H&S and environmental impacts are

managed locally by our teams and managed
by the Group’s in-house experts who embed
and monitor practices.

The level of risk has
remained unchanged.

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.

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.

The risk is marginally
higher due to an
increased requirement
for skilled labour
across our
international
businesses.

Health and
safety

1 2

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.

Recruitment
and retention
of key
employees

1 2 3

We have a highly experienced
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.

28 Bakkavor Group plc – 2018 Annual Report

RISK AREA

RISK DESCRIPTION

MITIGATING CONTROLS

RISK TREND 2018

Investment
and
development

1 2 3

Much of our future growth will
be delivered from new factory
builds and acquisitions. This adds
a level of execution risk to
continuing operations.

Detailed planning and sharing of best

practice within the Group minimises risk.

Increased investment
in development
projects has increased
execution risk.

Liquidity,
interest rates,
exchange
rates and
covenant
compliance

To achieve our growth objectives,
we require a strong
financial platform.

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.

Financial results, projections and covenant

performance reviewed regularly.

Liquidity metrics have
remained unchanged.

Open and regular dialogue with
our lenders and an active investor
engagement programme.

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.

Brexit
disruption

It is possible that the way in which
Brexit is delivered will result in
disruption at the UK ports leading to
increasing costs and availability
problems, especially with short life
raw materials, which ultimately might
impact sales volumes.

We have recently obtained AEO status which
should help us streamline and simplify our
import processes.

Longer-life packaging and raw material
stocks will be increased as necessary.

Current uncertainty

regarding the outcome
of Brexit has increased
the risk.

Disruption
to Group
operations

Catastrophic damage to one of our
food factories by fire, flood or IS
disruption would interrupt supplies.

Building and property management

protocols are employed and audited in
conjunction with our property insurers.

The level of risk has
remained unchanged.

1 2

Business continuity plans are in place and
for many products alternative Bakkavor
factories could supply in the event of
a major issue.

Sustainability

1 2 3

To continue with our growth agenda
we must ensure that the business
is developing in a sustainable way.

We are increasing our focus and monitoring
of performance and development in relation
to carbon, waste, water, plastics and
responsible sourcing.

Consumer
behaviour and
demand

Changes in consumer demand due to
a serious change in the UK economy
or other consumption factors could
impact our plans.

We work closely with our customers to adapt

to changing consumer trends.

Competitors

1 2

The Group operates in a highly
competitive market.

Developing and maintaining strong

working relationships with our customers
underpinned by high service levels
and constant product development
and innovation.

Increased pressure
from our customers
and consumers
to demonstrate
sustainability has
increased the risk.

Higher prices arising
from weaker sterling
and changing
demand focus has
increased risk.

The level of risk has
remained unchanged.

www.bakkavor.com 29

STRATEGIC REPORT
RISK MANAGEMENT CONTINUED

VIABILITY STATEMENT
In line with Provision C.2.2 of the
Governance Code, the Directors have
carried out a thorough review of the
prospects of the Group and its ability to
meet its liabilities through to at least the
end of December 2021.

The business operates in a fast-moving
sector with a high number of products
introduced each year. The Group has to
adapt to meet the changing needs of
customers and consumers; therefore the
Directors have 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 have assessed the
principal risks to the business and the key
mitigating actions used to address them.
This assessment included the potential
disruption to the business arising from the
way in which Brexit is ultimately delivered.
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.

Whilst all the risks identified, including food
safety and integrity, could have an impact
on the Group’s performance, the specific
risks which could potentially impact the
Group’s financial position include a
reduction in sales volumes, 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.

As part of the Group’s annual strategic
planning the Group prepares a detailed
financial model which forecasts the
consolidated Income Statement, Balance
Sheet, Cash Flow, covenant performance
and liquidity requirements of the Group for
a three-year period. Sensitivity analysis is
performed on this model taking account of
the potential financial impact of the specific
risks outlined above, including Brexit.

The majority of the Group’s debt facilities
mature in June 2021, and therefore these
facilities will need to be refinanced during
2020. Based on current trading
performance and future expected trading,
the Directors do not see any reason why the
debt facilities will not be refinanced on
similar terms to those currently in place.

Having taken account of the sensitivity
analysis and the availability of adequate
financing facilities, the Directors consider
that the Group will be able to continue in
operation over the three-year period to the
end of December 2021.

30 Bakkavor Group plc – 2018 Annual Report

STRATEGIC REPORT
FINANCIAL REVIEW

ROBUST PERFORMANCE IN
A CHALLENGING ENVIRONMENT

DISTRIBUTION COSTS
Distribution costs for the year were flat
compared to 2017 at £77.2 million.

OTHER ADMINISTRATIVE COSTS
Administrative costs increased by
£6.7 million, or 2.1%, from £312.9 million
in 2017 to £319.6 million in 2018.

Administrative costs for underlying
activities excluding Other items increased
by £0.6 million, or 0.2%, from £297.5 million
in 2017 to £298.1 million in 2018. This was
primarily due to tight control over costs
in the UK more than offsetting the
increases in infrastructure costs for
the International businesses.

ADJUSTED EBITDA1
Adjusted EBITDA1 increased by £0.9 million,
or 0.6%, from £152.6 million in 2017 to
£153.5 million in 2018.

This small increase was due to efficiency
benefits and a tight control of overheads
more than offsetting the inflationary
pressures in the year.

OTHER ITEMS
Included within Other administrative
costs are Other items which are adjusted
for in determining the Group’s APMs
as management consider they should
be disclosed by virtue of their nature or
amount to determine the underlying
performance of the business. Other items
comprise the following:

£ million

Public listing costs
Restructuring costs
Legal cases
New site costs
Disruption costs
Onerous lease provision
GMP equalisation
Impairment
Gain on bargain purchase

2018
–
–
–
12.4
2.6
1.7
2.6
3.5
(1.3)
21.5

2017

10.4
3.1
0.6
1.3
–
–
–
–
–
15.4

This like-for-like revenue1 increase for the
year was split equally between the impact
of higher prices and volumes. The raw
material inflation seen last year continued
into 2018 and consequently further
significant price increases were recovered
from customers, particularly in the first
half of the year. Volume growth has been
limited for the year as a whole as consumer
confidence weakened in the current
economic environment. The growth that
has been seen in the second half of 2018
was largely due to business wins in our
core categories.

INTERNATIONAL
In the International segment, reported
revenue increased by £23.1 million,
or 12.9%, to £201.6 million in 2018 from
£178.5 million in 2017. The strengthening
of Sterling in the year adversely impacted
reported revenue in 2018 by £5.4 million.

Like-for-like revenue1, which is at
constant currency, increased by 16.0%,
from £178.5 million in 2017 to £207.0 million
in 2018. The increase was primarily due to
strong growth in both the US and China,
where sales volumes increased across all
key customers helped by a broader offering
in these two markets.

COST OF SALES
Cost of sales increased by £39.5 million,
or 3.0%, from £1,329.1 million in 2017 to
£1,368.6 million in 2018.

Costs increased partly from the volume
growth in the year. However, the majority
of the increase was due to further raw
material inflation driven by dairy products
in the first half and protein and vegetables
in the final quarter. This was combined
with the impact of further increases in
the National Living Wage and pension
auto-enrolment on labour costs in the UK.

GROSS PROFIT
Gross profit increased by £0.9 million,
or 0.2%, from £485.7 million in 2017 to
£486.6 million in 2018.

This marginal increase was due to the
benefits from the sales volume uplift being
slightly more than the increase in raw
material and direct labour costs.

1. 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 40 of the Notes to the
Consolidated Financial Statements.

www.bakkavor.com 31

“The Group delivered a robust
performance in 2018 given
the continued challenging
market conditions in the UK,
with a combination of high
levels of inflation and weak
consumer confidence.”

REVENUE
Reported revenue increased by
£40.4 million, or 2.2%, from £1,814.8 million
in 2017 to £1,855.2 million in 2018.

Like-for-like revenue1 was up 3.2%, from
£1,784.6 million in 2017 to £1,842.0 million
in 2018. This increase was primarily due
to good growth in the Group’s operating
segments, as described below.

SEGMENTAL BREAKDOWN

UK
In the UK segment, reported revenue
increased by £17.3 million, or 1.1%, from
£1,636.3 million in 2017 to £1,653.6 million
in 2018.

Like-for-like revenue1, which excludes
Anglia Crown and Melrow Salads that were
sold and closed in July 2018 and November
2017 respectively and Haydens Bakery
which was acquired in September 2018,
increased by 1.8%, from £1,606.1 million
in 2017 to £1,635.0 million in 2018. Anglia
Crown contributed revenues of £6.2 million
in 2018 for the period up to its sale. Haydens
Bakery contributed £12.4 million to reported
revenue in the four-month period following
its acquisition.

STRATEGIC REPORT
FINANCIAL REVIEW CONTINUED

2018
The Group has incurred £21.5 million of net
costs presented as Other items in 2018
of which £12.4 million related to the initial
start-up and pre-commissioning costs
of new factories in the US and China and
£2.6 million for disruption costs as the
existing factory in California was
repurposed for ready meal manufacturing.
In addition, an onerous lease provision
of £1.7 million was made in respect of the
Group’s non-core UK fast casual restaurant
business and there was a charge of
£2.6 million in respect of meeting the
change in Guaranteed Minimum Pension
(“GMP”) for the defined benefit pension
scheme which came into force from
October 2018. The Group has also incurred
an impairment charge of £3.5 million in the
year in respect of tangible fixed assets as
the relevant assets no longer have any
future value to the Group, and also recorded
a gain of £1.3 million on the acquisition
of Haydens in September 2018.

2017
In 2017, the Group incurred costs presented
as Other items of £15.4 million, of which
£10.4 million were in connection with the
public listing in November 2017, and
restructuring costs of £3.1 million in the
year related to the cost of closing a site in
the UK and moving related operations to
other sites. The remaining costs related
to the Group’s US business, of which
£1.3 million was in respect of initial start-up
costs for a new factory and the remaining
£0.6 million was due to ongoing
employment litigation.

SHARE OF RESULTS OF
ASSOCIATES AFTER TAX
Share of results of associates
after tax decreased by £0.2 million from
£0.6 million in 2017 to £0.4 million in 2018.
This decrease was due to an increase
in the cost base of the Group’s associate La
Rose Noire Limited as it continues to
expand its operations.

OPERATING PROFIT
Operating profit decreased by £10.6 million,
or 11.0%, from £96.2 million in 2017 to
£85.6 million in 2018 with margins
decreasing by 70 basis points to 4.6%,
primarily due to the performance of the
International businesses and a number
of Other items as explained above.

The operating profit for the UK segment,
which is after a loss of £4.6 million from the
sale of the Anglia Crown business in July
2018, increased by £4.9 million in the year
from £94.9 million in 2017 to £99.8 million
mainly due to a small improvement
in trading performance and a reduction
in the UK Other items in the year.

For the International segment operating
profit decreased by £15.5 million from
a £1.3 million profit in 2017 to a loss of
£14.2 million. This decrease was primarily
due to an increase in International costs
for the start-up and pre-commissioning
of factories in the US and China combined
with disruption costs incurred as we
repurposed part of an existing US site
to capitalise on the growing prepared
meals market.

Before Other items and the loss on disposal
of a subsidiary, which are not expected
to reoccur, the operating margins for 2018
were 10 basis points lower than 2017
at 6.0%.

FINANCE COSTS
Finance costs significantly decreased by
£21.8 million, or 62.3%, from £35.0 million
in 2017 to £13.2 million in 2018. The
decrease is largely due to 2018 reflecting
the full-year benefits of the refinancing
of the Group’s lending facilities carried out
in March 2017 and the initial benefit from
the primary proceeds from the public listing
that year. In addition, 2017 included the
payment of a call premium of £9.9 million
in respect of the early redemption of the
2020 Senior Secured Notes and accelerated
amortisation of £3.3 million for refinancing
fees in relation to the previous debt,
following the refinancing that year.
Excluding these costs and the capitalisation
of interest for qualifying assets, finance
costs decreased by £7.3 million in 2018,
which reflects the benefits of lower average
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 £27.7
million, from a loss of £22.2 million in 2017,
to a profit of £5.5 million in 2018. This
change was primarily due to the inclusion
of a £17.2 million non-cash loss in 2017
on the fair value of the call option within
the 2020 Senior Secured Notes following
redemption of the Notes in March 2017
which reversed previous gains. In addition,
in 2018 our results included a £4.2 million
gain on the release of an amount in other
payables, held at fair value, in respect of
a potential liability for a disputed historical
claim which has not materialised and is
now time-barred. The Group also recorded
mark-to-market gains of £1.1 million on its
financial derivatives in 2018 compared to
a loss of £2.1 million for 2017, and foreign
exchange losses of £2.9 million in 2017 that
reversed to a £0.2 million gain in 2018.

TAX
The Group tax charge for the year was
£10.7 million, which was an increase of
£2.7 million over last year. The £10.7 million
charge represents an effective tax
rate of 13.7% on profit before tax of
£77.9 million. Most of the Group’s profits
were earned in the UK, where the statutory
tax rate was 19% for 2018. The main reason
for the lower effective rate was because of
the increased recognition of deferred tax
assets in respect of losses in overseas
subsidiaries. These are only recognised to
the extent that the losses are expected to be
used against future profits. Excluding Other
items, the effective tax rate was 14.9%. It is
expected that the effective tax rate will rise
to between 15% and 16% in 2019.

PROFIT FOR THE PERIOD
As a result of the foregoing, profit for
the period increased by £36.2 million,
or 116.8%, from £31.0 million in 2017 to
£67.2 million in 2018. Excluding the impact
of Other items, the profit for the year has
increased by £14.4 million to £84.9 million.

EARNINGS PER SHARE
Basic earnings per share has increased
from 5.8 pence for 2017 to 11.6 pence
in 2018, reflecting a marginal improvement
in trading performance, lower Other items
and the benefit from the refinancing and
the primary proceeds received from
the public listing from 2017.

32 Bakkavor Group plc – 2018 Annual Report

CAPITAL, DEBT AND LEVERAGE
At 29 December 2018 the Group had
committed debt facilities of £447.5 million
comprising a revolving credit facility of
£200 million maturing in June 2021 and
term loans totalling £247.5 million, of which
£210 million mature in June 2021 with the
balance maturing in June 2024.

Whilst the Group has continued to generate
good free cash flow in 2018, payments of
£52.1 million have been made in the year in
respect of the four key development
projects identified at the time of the public
listing. The finance for these projects was
raised from the primary proceeds from the
public listing in November 2017 and the
final payments for these projects are due to
be made by Q3 2019. In addition, the Group
has funded the acquisition of Haydens
Bakery in the year at a cost of £10.9 million.
These payments, combined with the interim
dividend paid of £11.6 million and payments
for Other items, have resulted in an
increase of £38.8 million in operational net
debt to £309.3 million. Leverage (the ratio of
operational net debt to adjusted EBITDA)
was 2.0 times at December 2018 and,
as expected, is an increase from the
1.8 times at the end of 2017, largely due
to the expenditure on the development
projects. It remains 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 CAPITAL1
The increase in invested capital in 2018
has resulted in a decrease in the Group’s
Return on Invested Capital1 (“ROIC”) from
12.2% in 2017 to 11.6% in 2018. Over the
medium term, the Group plans to continue
to spend circa 3.5% per annum of revenues
on capital investment and would also expect
the key development projects to deliver
improvements in returns.

PENSIONS
Under the IAS 19 valuation principles that
are required to be used for accounting
purposes, the Group recognised a deficit
of £0.5 million for the UK defined benefit
scheme as at 29 December 2018 (2017:
surplus of £5.2 million).

The movement from a surplus in the prior
year to a small deficit is largely due to
a 1.1% increase in liabilities, amounting
to £2.6 million, to meet the equalisation
requirements for GMP following the Lloyds
Banking Group ruling in October 2018.

The Group and the Trustee agreed in
April 2017 the triennial valuation of the
UK defined benefit pension scheme as at
30 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 £3.5 million payable for
the year ending 31 March 2019.

DIVIDEND
The Group paid an interim dividend of
2 pence per Ordinary share on 5 October
2018 and will propose a final dividend of
4 pence per Ordinary share at the
Company’s AGM on 23 May 2019. This will
result in a total dividend for financial year
2018 of 6 pence per Ordinary share. The
Board expects to maintain a progressive
dividend policy in the medium term.

PETER GATES
Chief Financial Officer

5 April 2019

Adjusted earnings per share1, which is
calculated before Other items, has
increased from 13.3 pence for 2017 to
14.7 pence in 2018 which reflects both the
improvement in trading for the business
and a reduction in finance costs in the year.
The weighted average number of shares
for 2018 was 579,425,585 and for 2017
was 530,738,162. The weighted average
was lower in 2017 as the primary shares
in the public listing were issued in
November 2017.

CASH FLOW
Net cash from operating activities, which
is calculated before capital expenditure but
after payments for Other items, increased
by £5.7 million from £93.4 million in 2017
to £99.1 million. This was largely due to
the significant reduction in interest costs,
including refinancing fees, of £25.7 million
more than offsetting the working capital
increase in the year of £14.2 million and
the increase in tax paid of £2.8 million.

Net cash used in investing activities
increased by £47.8 million in the year
from £75.9 million in 2017 to £123.7 million
in 2018. The increase is primarily due to
a £29.0 million increase in payments for the
Group’s four key development projects,
and an £8.5 million payment for the
acquisition of Haydens Bakery in the year
and a £3.2 million cash contribution paid to
the new owners of Anglia Crown that was
sold during the year.

Free cash flow1 for the year, which is the
key measure the Directors use to manage
cash flow in the business, was £16.0 million
lower than the previous year at
£55.1 million. This was largely due to
expenditure on core capital (excluding
development projects) being £4.6 million
higher than 2017 as a number of projects
were re-phased from the latter half of 2017
and into 2018. Working capital remains
tightly managed but there was a small
outflow this year of £7.8 million as we
increased our inventory for certain
ingredients to obtain favourable pricing
and our new international factories opened
towards the end of the year. Interest
payments were £9.4 million lower this year
as we saw the full-year benefits from the
refinancing in March 2017 and a temporary
benefit from the primary proceeds received
from last year’s public listing.

1. 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 40 of the Notes to the
Consolidated Financial Statements.

www.bakkavor.com 33

FRESH ENGAGEMENT

THROUGH FRESH APPROACHES

Matt White, Director of Fundraising and
Communications, Action Against Hunger
We’re very excited to be partnering with
Bakkavor and grateful for the Group’s
support. Money raised will go towards
our vital work helping children who are
suffering with severe acute malnutrition,
a preventable and treatable condition that
still kills two million children every year.
Bakkavor’s commitment is set to make
a huge difference.

WE SHARE SURPLUS FOOD WITH
CHARITIES AND ORGANISATIONS
WHO REDISTRIBUTE IT TO THOSE
IN MOST NEED. WE ARE ALSO
WORKING WITH THE CHARITIES
ACTION AGAINST HUNGER AND
FARESHARE TO TACKLE THE
GLOBAL ISSUE OF HUNGER.

STRATEGIC REPORT
CORPORATE RESPONSIBILITY

MAKING A DIFFERENCE
IN A SUSTAINABLE WAY

Bakkavor is committed to
being a socially responsible
business at every level;
actively engaging with all
stakeholders to ensure
that we make a difference
every day.

We take seriously the significant trust
placed in us by our stakeholders and
remain focused on continuing to shape and
develop our Corporate Responsibility (“CR”)
strategy and framework in the years ahead.

OUR FRAMEWORK
Our CR framework covers the four key
areas of Food Safety and Integrity,
Environment, Workplace and Community.
In 2018, we extended this framework
across our international operations and
put in place a process to measure carbon
emissions and waste data across the
Group’s businesses.

We undertook a light materiality
assessment at the end of 2018 to better
understand our key sustainability priorities,
not just in the UK but also across our
international businesses. The assessment,
which was conducted by an external agency,
will be used during 2019 to set a Group CR
strategy and review our reporting
framework and priorities.

Food
safety and
integrity

Community

CORPORATE
RESPONSIBILITY
FRAMEWORK

Environment

Workplace

GOVERNANCE OF CORPORATE
RESPONSIBILITY
CR is monitored by the Senior Management
team and reported to the Board. The Board
reviews the progress of 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.

We also have a Bakkavor Code of Conduct
in place to support good governance of
behaviours. It reflects our core values and
underpins our culture by defining how we
do business and how our employees should
act on a day-to-day basis. The Code
includes policies and procedures such as
anti-bribery and business ethics, IT usage
policy and statements supporting our
commitment to acting professionally,
fairly and with integrity.

NON-FINANCIAL INFORMATION STATEMENT
The table below sets out where stakeholders can find information in our strategic report that relates to non-financial matters
as required under the Non-Financial Reporting Directive requirements.

Reporting requirement

Environmental matters

Some of our relevant policies
Group Environmental policy1

Employees

Human rights

Social matters
Anti-bribery and corruption
Business model
Non-financial KPIs

Code of Conduct1
Group Health and safety policy1

Code of Conduct1
Modern Slavery Policy2
Code of Conduct1
Anti-bribery and corruption policy1

Where to read in this report about our impact,
including the principal risks relating to these matters

Sustainability approach
Waste and Food Waste
Carbon footprint
Risk – Sustainability
Diversity
Health and safety
Risk – Health and safety
Governance
Supply chain integrity
Community engagement
Governance
Our business model
Key Performance Indicators

Page

38
38
39
29
40
42-43
28
35, 57
36
46
35, 68
8-10
24

1. Available to all employees through the Bakkavor Intranet. Not published externally.
2. Available both on our website www.bakkavor.com and available to employees through the intranet.

www.bakkavor.com 35

STRATEGIC REPORT
CORPORATE RESPONSIBILITY CONTINUED

FOOD SAFETY AND INTEGRITY
Our passion for food is core
to our business; a passion
which is only realisable
if customers and consumers
continue to trust the highest
standards of quality
and integrity of our food.
We value the importance
of being a trusted partner
to our customers, their
consumers, our suppliers
and the communities
in which we operate.

FOOD SAFETY EXPERTISE
At Bakkavor we are focused on making food
that is great-tasting for consumers whilst
meeting 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 we operate.

In the UK, as well as having food safety
experts at each of our sites, we have
a dedicated central technical team
overseeing operations. The 63 people
in this team are experts in microbiology,
chemistry, produce, pesticides, process
innovation and all aspects of designing
and maintaining chilled food factories to
the highest standards.

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

The Group uses Hazard Analysis and
Critical Control Points (“HACCP”) principles
to identify any potential food safety risks and
ensure they are effectively controlled when
developing and manufacturing its products.
These procedures form the backbone of
Bakkavor’s Quality Management Systems
and Standards. In total, Bakkavor employs
more than 500 food safety professionals.

Sites are audited regularly, often on an
unannounced basis, by internal food safety
experts, customers and independent bodies
for compliance with food safety standards.

In the UK, the Group conducts over 1,500
in-house microbiology and chemistry tests
every day. It is this detailed approach that
ensures that 21 of the Group’s UK
manufacturing sites hold certification at ‘A’
grade against the British Retail Consortium
Global Standard – Food Safety.

In the US, we ensure that our facilities
adhere to the highest food safety standards
set by institutions including US Food Safety
and USDA. In 2018, our two new US sites
both received the approvals required by
customers and regulators. During the year,
the US business experienced a product
recall due to a contamination in raw
materials from the supplier; risk controls

were tested and the business responded
well with minimal operational impact.

In China, we passed the American Institute
of Bakery Audit, a very high food safety
standard in the bakery industry. Our site in
Hong Kong gained accreditation in HACCP,
and received an ISO22000, a Food Safety
Management System Certification
by the International Organization
for Standardization.

NUTRITION
As a leading food producer, we recognise
the significant role 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 collaborated with our
customers in responding to healthy eating
trends by reviewing salt, sugar and
saturated fat levels in our food. We
introduced new healthy food options
including several well-publicised and
successful vegan ranges and products.

36 Bakkavor Group plc – 2018 Annual Report

RESPONSIBLE SOURCING
We source over 5,000 ingredients from
around the world and 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 help ensure
year-round supply.

To maintain the security and quality of
our supply chain, we have a Responsible
Sourcing Steering Group comprising senior
members from our procurement, technical
and HR teams. Our dedicated Responsible
Sourcing Manager co-ordinates the work
between these functions and our customers
in the UK.

The team developed our responsible
sourcing model, taking a risk-assessed
approach to our operations and supply
chain. The model focuses on four key areas:

• Threats and vulnerability – we assess

our suppliers to ensure we have a robust
supplier base, where suppliers are
like-minded, want to grow with us and
can invest in growth. They must deliver
outstanding customer service, at the right
quality, with the right capabilities and
demonstrate that material availability
isn’t a risk.

• Human rights and people – we ensure

our suppliers follow the same principles
as Bakkavor. These include customer
requirements and compliance with all
legal requirements (e.g. Human Rights
Act, Modern Slavery Act, the ETI base
code, UN Guiding Principles etc).

• Raw material integrity – we work with
our suppliers to prevent food fraud
(i.e. substitution and adulteration).
This ensures the right materials come
into our business from trusted suppliers.
To support this, in 2018 we increased our
horizon scanning intelligence to gather
information concerned with emerging
trends, issues and uncertainties that
the future may bring. We assess their
potential impact on our business and use
the information to target our approach on
testing materials or to conduct routine
trace exercises on our supply base.

FOOD SAFETY AND INTEGRITY PRIORITIES FOR 2019

• Ensure our risk assessment

processes and analytical methods
that support raw material and
product integrity continue to be
robust, challenging, effective and
efficient in a rapidly evolving area.
• Continue to develop our internal

laboratory expertise, increasing our
in-house allergen testing capability
to provide a high calibre, expert
service in this important area.
• Gain independent assessment

for the operation of our
governance processes.

• Environmental sustainability – we are

committed to reducing our impact on the
environment to assure the long-term
sustainability and resilience of our supply
chain. We are assessing environmental
sustainability risks in our supply chain,
identifying the ‘hotspots’ and working
collaboratively with suppliers on
action plans.

In March, we held our first supplier
conference to set out Bakkavor’s
approach to responsible sourcing in the
UK. Over 420 suppliers attended the event,
with presentations from the Chief Executive
Officer, Chief Operating Officer UK, and
Bakkavor’s Responsible Sourcing
Steering Group.

• Continue to review and enhance
our Learning and Development
programme in food safety to
ensure we develop the best food
safety experts for our business.
• Deliver on the action plans set
by the Responsible Sourcing
Steering Group.

• Deliver on the action plans

for human rights and modern
slavery and show that progress
has been made.

Human rights and
modern slavery
Human rights underpin our Responsible
Sourcing Model, which is at the heart of
Bakkavor’s core values. We are committed
to the highest standards of ethics and
integrity and do not tolerate slavery and
forced or trafficked labour within our
business or anywhere in our supply chain.

During 2018, we continued to develop
our approach to tackling issues of modern
slavery, recognising the need to build
capability at all levels in our business and in
our supply chain. We continued to train our
HR and operational employees to recognise
the indicators of modern slavery and raise
concerns to address potential issues.

In line with the Modern Slavery Act 2015,
we produced our second Modern Slavery
Statement in 2018. This is available on
our website and details developments
during 2017, including an outline of our
commitment structure in line with the
requirements of the Act.

We implemented the ‘Stronger Together
Progress Monitoring Tool’ for the Group.
This was followed by the ‘Stronger Together
Organisational Performance Assessment’,
a two-day assessment by an external social
compliance auditor, which provided us with
detailed gap analysis. From this we have
been able to further build and reinforce
robust action plans for our own businesses
and supply chain.

www.bakkavor.com 37

STRATEGIC REPORT
CORPORATE RESPONSIBILITY CONTINUED

ENVIRONMENT
Bakkavor undertakes
practical actions 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
potential direct and indirect impacts on the
environment. We encourage environmental
efficiency through a Group-wide focus on
the four main areas of waste, water, energy
efficiency and packaging. We are continuing
to improve our environmental performance
through sustainability initiatives and have
made particularly good progress in the UK
this year in reducing food waste.

We are in the process of launching
an ‘Environmental Governance and KPI
Tracker’ for the UK business. This system
will enable our operational and Group
teams to identify best practice and
opportunities to deliver value for the
environment and for the business.

We are committed to making the best
possible use of any surplus food. This may
be through redistribution of surplus food
and ingredients to our employees,
to charities or for use in animal feed.

In the UK, Bakkavor provides significantly
subsidised surplus food to Company Shop,
the largest redistributor of surplus food to
those in need in the UK. In 2018,
approximately 1,350,000 meal equivalents
were allocated to Company Shop.

Bakkavor also redistributes surplus food
to employees at discounted prices via staff
shops at a number of its UK sites. This is
a very popular ‘not-for-profit’ initiative,
with funds raised allocated to local
community initiatives.

In addition to providing subsidised food,
the UK business also donated meals to
FareShare during the year. FareShare
is a UK charity that distributes meals to
community groups through a network.
We also donated almost 86,000 meals
in 2018 to Peterborough Soup Kitchen.

Finally, in the UK we also redirected around
30,400 tonnes of manufacturing waste such
as unused bread and pastry doughs and
vegetable and fruit trimmings to be used
as animal feed.

In the US, approximately 100 pounds of
food per week is donated and distributed
to various local organisations including
a women’s shelter, a half-way house,
Open Arms Ministry, the Community
Kitchen and Meals on Wheels.

WASTE
In the UK, we have a long-standing track
record of reducing waste by maximising
recycling and making the best use of
materials and resources.

Given the nature of our business,
we continue to review our approach to
food waste reduction and redistribution
across all our operating sites.

The United Nations Sustainable
Development Goal 12.3 sets an ambitious
target “to halve food waste across the
supply chain by 50% by 2030”. In the UK,
Bakkavor has committed to adopt the
12.3 target, measuring and publicly
reporting its progress. The UK business
has also been a leading member of an
industry group working with the Waste
and Resources Action Programme and the
Institute of Grocery Distribution to develop
the ‘Food Loss and Waste Standard’
(“FLWS”), a platform for measuring and
reporting food waste and delivering
improvements across the industry.

Food waste as a percentage of total UK
food produced

Target to reduce
by 50% by 2030

2018

2017

0.1%
improvement
versus 2017

9.1%

9.2%

In 2018, UK food waste was calculated in
accordance with the FLWS at 9.1% of total
food produced, representing a 0.1%
improvement against the comparable year.

38 Bakkavor Group plc – 2018 Annual Report

GREENHOUSE GAS EMISSION STATEMENT
Bakkavor has this year extended its data
capture process to record its carbon
emissions in the US and China, having
previously only captured data in the UK.

Greenhouse gas (“GHG”) emissions for
the year to December 2018 have been
measured and 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 total gross GHG emissions reported
include all Scope 1 and Scope 2 emissions
for the Bakkavor Group globally. This
covers all 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.

Scope 1 emissions are those that directly
release GHGs and include fuel consumed by
our manufacturing facilities, offices,

UK GREENHOUSE GAS EMISSIONS

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).

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.

The Group’s environmental management
system is based on ISO 14001.

The table below shows GHG emissions for
Bakkavor Foods Limited.

Emissions in the UK decreased between
2017 and 2018 by 30% as we moved to
a renewable electricity supply contract
across our sites to support our programme
to reduce greenhouse gases.

Bakkavor Foods Limited (UK)

Scope 1: Emissions from combustion of fuel and operation of facilities
Scope 2: Emissions from purchased electricity and cooling
Total gross emissions
Green tariff
Total annual net emissions
Intensity Ratio (gross tCO2e/£m turnover)

GLOBAL GREENHOUSE GAS EMISSIONS

Bakkavor Group

Scope 1: Emissions from combustion of fuel and operation of facilities
UK
US
China
Total Scope 1 emissions
Scope 2: Emissions from purchased electricity and cooling
UK
US
China
Total Scope 2 emissions
Total gross emissions
Green tariff
Total annual net emissions
Intensity Ratio (gross tCO2e/£m turnover)

As part of our strategy in the UK to
move towards a lower carbon footprint
infrastructure and to drive energy efficiency,
and in compliance with climate change
regulations (F Gas Regulations), we have
invested in a natural gas (ammonia)
refrigeration plant at our Newark desserts
site. This plant is significantly more efficient
and will have a positive impact on total
energy usage. It enables further integration
of services (heat recovery and the full
conversion of the Newark site to ammonia)
and expansion to support growth. The
ammonia plants and rollout plan represent
the Group’s significant investment in the
future sustainability of operations.

The table below also shows GHG emissions
for the Group as a whole. This is the first
year that Group emissions have been
reported so no comparative data is available.

The 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.

2018 emissions
tCO2e
110,241
66,492
176,733
56,900
119,833
106.9

2017 emissions
tCO2e
112,392
80,606
192,998
22,747
170,251
117.9

2018 emissions
tCO2e

110,241
5,957
7,017
123,215

66,492
7,050
36,031
109,573
232,788
56,900
175,888
125.5

www.bakkavor.com 39

STRATEGIC REPORT
CORPORATE RESPONSIBILITY CONTINUED

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.

We will do all that we can to ensure that
everyone has an equal chance to apply and
be selected for jobs and an equal chance to
be trained and promoted when they work
for the Group.

This year, Bakkavor started a ‘Diverse Roots
into Employment’ project which involves
exploring different ways to recruit
employees while supporting communities.

Our Bakkavor Pizza site in Holbeach worked
with Centre-Point Outreach, a local charity
which supports homeless and
disadvantaged people in Boston,
Lincolnshire. With help from the Group’s
Central Resourcing team, Bakkavor Pizza
assisted 17 people into employment and
permanent accommodation.

We have also started working in partnership
with an Open Prison in Lincolnshire and will
be offering open residents rehabilitation
placements within two of our Lincolnshire
sites. The placements can last from
six to 18 months and give the residents
an opportunity to adapt to life back in
a community in preparation for their
release and possible future employment
with Bakkavor.

DEVELOPING A SUSTAINABLE
TALENT PIPELINE
At Bakkavor, people are at the heart of our
business. It is important that we remain
focused on being the local Employer of
Choice for both existing and new talent.

In an increasingly competitive market,
one of our priorities for 2018 was to further
develop our centralised resourcing model
to attract talent and support business
growth. We have expanded this model
to include salaried recruitment and are
piloting this across several UK sites with
the aim of rolling this out in April 2019.

GRADUATE & APPRENTICE
PROGRAMMES
Over 250 people in the UK are currently part
of the Bakkavor Apprenticeship
Programme, which covers a broad range of
training specialisms including Engineering,
Manufacturing and Product Development.
We are passionate about our Apprenticeship
Programme, continuing to add more areas
of specialism and increasing the number
of places available every year. In 2018,
we welcomed 26 new apprentices to the
Group who are contributing to key business
activities and projects whilst studying
towards a relevant, nationally recognised
qualification. We are very proud that one
of our Engineering apprentices jointly won
Young Apprentice of the Year at the
‘Appetite for Engineering’ industry event
in October 2018.

We are committed to the long-term role
of apprenticeships within our business and
work closely with the National Skills
Academy, developing new standards,

reviewing existing standards and providing
support to training providers through
Industry Skills Partnership groups.

Our Graduate Programme has provided
over 300 graduates with the opportunity to
learn and develop in a wide range of roles
across the Group. The programme
continues to provide a vital talent pipeline
for our future leaders. In 2018, 21 UK
graduates joined the business across the
seven schemes we have available.

This year, we welcomed four International
Graduates to support our growth in Asia.
The programme has four schemes –
Commercial, Technical, Development and
Marketing and involves a one-year
placement in the UK, before graduates
relocate to China or Hong Kong to
complete the remaining two years of the
International Programme.

TRAINING & DEVELOPMENT
Our company values are embedded in all
the training that is completed at Bakkavor,
from a day one induction through to
our management programmes and
functional training.

We are committed to the training and
development of all our employees to ensure
they know how to do their job safely and to
the best of their ability. We have an in-house
e-learning Bakkavor Training System
(“BTS”) which enables us to monitor
compliance and plan and record training for
factory site-based colleagues. In 2018, the
training system was developed further so
we will be able to extend the BTS to cover
our agency workers. The Group has also
enhanced the e-learning system to include

WORKPLACE RECRUITMENT, RETENTION AND DEVELOPMENT
PRIORITIES FOR 2019
• To increase awareness of apprenticeship and early careers programmes in the UK

and internationally

• To continue to develop internal talent and succession plans to support business

and international mobility

• To further develop our centralised resourcing model to include salaried as well as
weekly paid colleagues to support business growth, streamline process and drive
down cost

• To work with line managers in developing their leadership capability and to

support business change

• To support our colleagues around the impact of Brexit, whilst driving employee

retention and engagement

40 Bakkavor Group plc – 2018 Annual Report

EMPLOYEE ENGAGEMENT
Bakkavor has a proud history of asking
employees for honest feedback on their
experiences of working with us. Where
possible, we use this feedback to make
important changes to work practices, which
in turn creates a workplace where people
enjoy their jobs, feel that they are making a
meaningful contribution and are recognised
for outstanding work.

We measure our engagement levels
through an Employee Engagement Survey
conducted every year. This year,
we conducted a full survey in the UK and
rolled out the survey to our international
businesses. The survey was undertaken
between January and March, with an
87% response rate. In 73% of the questions
asked, we had a higher engagement score
than was reported the previous year.

The Group’s approach to management
and leadership training and development
has been further developed this year with
two new programmes being introduced.
Our highly effective ‘Recipes for Success’
and ‘Managing for Results’ programmes
are delivering results through managers
completing improvement projects as part
of their learning. The development of our
senior leaders continued, focusing on
individual coaching and an alumni event
spearheaded by our CEO.

Specific functional training is provided to
managers working in our offices. In 2018
we enhanced the training and development
provided to our Commercial Managers and
we now offer four programmes focusing on
category management, commercial
thinking, negotiation skills and joint
business planning. Our managers in the
development function have also benefited
from targeted training in sensory analysis.

COMMUNITY ENGAGEMENT
In 2018, we continued to support the IGD
Feeding Britain’s Future Programme,
with 10 fledgling school partnerships now
in place and over 300 school students
engaged. The programme, working in
secondary schools, brings the industry
together to inspire the next generation and
equip them with skills for work. They bring
to life the ‘world of work’, highlight the skills
required to succeed in the workplace and
showcase the variety of roles available in
the food and grocery industry.

Partnerships are long-term and build
bespoke relationships between our
Bakkavor sites and secondary schools in
our local communities. Partnership
activities are varied and include factory site
visits for different student groups such as
food technology, engineering, business
studies, marketing and design technology.
Other activities include NPD project-based
competitions and lessons in bringing the
curriculum to life, interview skills and
practice assessments.

a business tool to help with planning labour
and analyse skill requirements.

Bakkavor has a long established
relationship with the University of Lincoln.
The University has supported us in
developing English language workshops for
colleagues for whom English is not their
first language and these workshops have
been successfully piloted this year. We are
also recruiting our own English language
trainers to deliver the training and support
colleagues with coaching in the workplace.

We have continued to focus on developing
our existing talent by introducing a
structured approach to talent planning.
We have recently redeveloped a succession
plan which identifies both our present and
future talent as well as the challenges we
face in our talent pipeline. We have also
undertaken a full review of job families and
career pathways to ensure they are modern
and fit for future talent development in
Manufacturing, Process, Development
and Commercial.

“We are delighted
that Simran Padam,
our Commercial
Management
Accountant at Bakkavor
Pizza & Bread in
Harrow, obtained
joint-first position
for the August 2018
CIMA Strategic Case
Study Exam.”

Simran started with Bakkavor on the
Graduate Scheme in September 2015
after achieving a 2:1 in Accounting
and Finance from the University of
Huddersfield. She spent her first year
at Bakkavor Meals, London, as an
Assistant Management Accountant
then progressed to an Assistant
Financial Accountant in her second
year, based at Bakkavor Desserts,
Newark, before moving to Harrow
to complete her third year on
the scheme.

www.bakkavor.com 41

STRATEGIC REPORT
CORPORATE RESPONSIBILITY CONTINUED

Some of the key themes coming from
our latest survey in the UK include
employees reporting having the resources
and information they need, a strong
customer focus, a clear understanding
of accountabilities and how their work
contributes to company goals. In our
US sites, the strengths from the survey
included employee benefits, high-quality
products and services as well as employees
feeling they are provided with the
opportunities to do challenging and
interesting work. Bakkavor Asia also had
promising results where employees felt
there is a clear direction, quality customer
focus and that they have the correct
resources to do their job.

The results of our Engagement Surveys
enable us to define clear plans for
improvement. For example, when the
difference in facilities from one site to
another was identified, a review across sites
was carried out and a common Bakkavor
standard subsequently developed. This has
resulted in the recent refurbishment of
canteen facilities at our Bakkavor Bread site
in Aston, Cheshire, and investment in
various other factory initiatives targeted at
improving workplace engagement.

BREXIT EMPLOYEE SUPPORT
Around half of our UK workforce are
EU nationals. Whilst the implications of
Brexit are still unknown, we are committed
to keeping our employees engaged and
supporting them through any Brexit
developments. Following the referendum
result to leave the EU, we devised four
work streams:

• Helping EU nationals stay in the UK –
including workshops explaining their
rights, the settlement process and
its requirements and English
language support.

• Employee experience – updating

our facilities, our induction programme
and running inclusion workshops.
• Manpower agency development –
developing a strategic partnership
approach with agencies and creating
a Bakkavor Passport.

• Employee terms and conditions – looking

at terms and conditions across sites.

EMPLOYEE FORUMS
Bakkavor is committed to providing open
channels of communication to promote
effective employee engagement across
the Group. Each of our sites has a Site
Employee Forum (“SEF”), made up of
representatives and members of the site
management team. SEF meetings are held
regularly throughout the year where
matters of common concern are discussed
and where learnings, best practice and
ideas are shared.

Throughout 2018, events were organised
to support our SEF representatives across
our UK businesses. Business Employee
Forums (“BEFs”) were held for all of our UK
operational sectors and Group Employee
Forum (“GEF”) regional ‘huddles’ also took
place in London, Spalding and Crewe.
These proved excellent opportunities for
representatives to network with their
colleagues, discuss positive initiatives and
challenges, and set objectives with
management for 2019.

Our annual GEF Conference took place
in May 2018. Each SEF is represented at
the Conference and over the two-day event
there were presentations (including
business updates from our CEO and CFO)
and interactive sessions to support our
SEFs. As part of this year’s conference,
a ‘SEF Effectiveness Model’ was developed
for our representatives to use as a
self-audit tool so to benchmark themselves
against a clear set of criteria and devise
action plans to progress their roles.

RECOGNITION THROUGH AWARDS
As a Group, we hold two main awards
ceremonies annually – our Group
Responsibility Awards and the Group
Innovation Awards – to recognise the
great work our people are doing every day.
Both ceremonies reflect the importance of
our core values and how they are embedded
across the Group. Our businesses also
celebrate and recognise hard work and
commitment at their sites through Values
and Long Service Awards, with a particular
highlight being the recognition of one of the
Group’s longest serving employees who
retired in 2018 after working 48 years at our
Bakkavor Spalding site in Lincolnshire.

42 Bakkavor Group plc – 2018 Annual Report

EMPLOYEE HEALTH AND SAFETY
Bakkavor promotes a proactive safety
awareness and accident prevention
culture by empowering employees to
do the right thing, raise risk awareness
and actively support solutions to improve
the Group’s performance.

The health and safety culture is based on
strong governance processes and driven
by the Group Board. Bakkavor has health
and safety teams in place that define
standards and monitor compliance with its
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 requirements.

Systems include comprehensive audits
and unannounced ‘safe site’ inspections
carried out by qualified experts,
performance monitoring and reporting and
a well-established process for capturing
and sharing good practice and learnings.
In 2018, we recruited two more people onto
our central Health and Safety team
providing further support in governance
auditing and enabling additional expert
support to our businesses.

To foster and embed a positive approach
to workplace health and safety across the
Group, we have a H&S Forum and our central
H&S team provide regular updates and
guidance. The team attends our Engineering
discussion group and our Manufacturing
Forum and communicates key risks and
shares best practice initiatives at the
Group’s annual GEF Conference. In 2018,
the team also visited our China sites to
support development of H&S governance,
reporting processes and discuss common
key H&S risks.

At the annual Group Responsibility Awards
there are two H&S award categories –
H&S Culture and H&S Innovation. In 2018,
the Health and Safety Culture Award
was presented to Bakkavor Desserts
Highbridge, who were recognised for having
made a step change in safety performance
by engaging employees across the business
and developing a safety culture. The Health
and Safety Innovation Award was presented
to Bourne Prepared Produce, who
developed a loading cradle to reduce the
risk of injury through heavy lifting.
This innovation has now been shared at our
H&S Forum so that it can be rolled out in
other businesses across the Group.

In 2018, our commitment to ensuring a safe
working environment for everyone on our
sites was externally recognised with four
awards from the Royal Society for the
Prevention of Accidents (“RoSPA”).

As part of our drive towards an accident
prevention culture, we continued to focus
on reducing risk associated with workplace
transport, raising awareness of machinery
safety and the risks associated with working

at height and electrical safety. For example,
we held workshops on the appropriate
selection and use of equipment for working
at height to minimise risks of falling, and a
UK H&S induction pack is being developed
by the central team which will be rolled out
across the Group in 2019.

To help prevent machinery accidents
in 2018, we continued the rollout of the
machinery safety workshops, with a further
727 employees being trained in 2018.
In 2018, the total number of accidents in the
UK business was 1,712, an 8% improvement
on the prior year. The total number of
accidents in the UK resulting in more than
seven days of lost time was 68 compared
with 66 in the prior year.

The number of major accidents recorded
in the UK business was 16 in 2018,
compared with seven in 2017. An analysis
of these major accidents highlighted an
increase in the incidents involving
pedestrians and mechanical handling
equipment, manual handling and falls from
the height of low level steps. These topics
are a key focus of our Group governance
processes and continue to be priorities for
action in 2019.

Whilst we will always work towards having
no major accidents in our business, we are
reassured that the 2018 performance
represents a 53% outperformance against
the HSE industry average. This is calculated
per 100,000 employees and based on the
information in the table below.

UK WORKPLACE ACCIDENTS

Major* accidents per 100k employees
>7 days lost-time accidents per 100k employees
Total accidents per 100k employees

2018
94
400
10,068

2017

40
380
10,745

* Number of ‘major’ accidents/specified injuries as defined by the Health and Safety Executive.

WORKPLACE HEALTH AND SAFETY PRIORITIES FOR 2019
• Maintaining our focus on reducing key business risks, specifically through robust
delivery of the Group governance processes, business unit internal auditing and
sharing good practice and learnings across the Group.

• Ensuring Health and Safety Management is effectively designed into

capital/change projects across the Group.

• Further developing health and safety training and risk reduction workshops

for people who are more at risk due to the nature of their roles and where they
perform them, e.g. teams working near vehicles, with machinery and working
at height/using steps.

www.bakkavor.com 43

STRATEGIC REPORT
CORPORATE RESPONSIBILITY CONTINUED

EMPLOYEE DATA
The Group employed 19,842 employees in total. Approximately 98% of employees are
considered permanent.

BY LOCATION

United Kingdom
US
China
Continental Europe
Total number of employees

BY FUNCTION

Production
Management and administration
Sales and distribution
Total number of employees

2018
17,004
635
2,181
22
19,842

2018
16,706
2,183
953
19,842

2017

17,348
595
1,628
22
19,593

2017

16,653
1,992
948
19,593

In 2018, the Group reported employee turnover in the UK of 22.1%, compared to 22.7%
in 2017, representing a 0.6% improvement.

Turnover includes voluntary and involuntary leavers and excludes employees on fixed
term contracts and those affected by redundancy. In 2018, the average length of service
of employees in production was seven years, while that of employees in management and
administration was eight years.

BY GENDER

Female
Male
Total number of employees

2018
UK
7,055
9,949
17,004

2018
International
1,643
1,195
2,838

2017
UK

2017
International

7,116
10,232
17,348

1,273
972
2,245

SENIOR MANAGEMENT BY GENDER

Female
Male
Total

2018 Board and
Management
Board
3
10
13

2017 Board and
Management
Board

2
10
12

Bakkavor is committed to advancing and raising the profile of gender equality across the
Group. The Bakkavor UK Gender Pay Report 2018 is available on the Group website as part
of our legal requirement as a company with more than 250 employees. A summary of the
report is shown on the following page.

44 Bakkavor Group plc – 2018 Annual Report

UK GENDER PAY REPORT 2018 SUMMARY
Our overall mean gender pay gap for 2018 is 9.9%, which is an
improvement of 0.9% from the previous year. This figure is lower
than both the published 2017 national average and the UK
manufacturing sector average.

However, we know we need to do more to help reduce the gap
and to ensure we are at the forefront of positive change.

In common with most employers with a gender pay gap, whilst
the data is nuanced, the overall reason for the gap is an under-
representation of women at senior levels and a higher number
of women at more junior levels. During the last 12 months since
our 2017 Gender Pay Report was published we have:

• Established a set of metrics to monitor our diversity;
• Reviewed our approach to flexible working and piloted

several initiatives;

• Designed and delivered a new female mentoring programme
with junior female managers being mentored by leaders to
prepare them for more senior roles;

• Developed training in unconscious bias for all leaders involved

in early career selection (Graduate and Apprenticeship
programmes) in addition to focusing on gender diversity in
those programmes;

• Reviewed our reward arrangements to ensure they are free from

• Reviewed and revised several of our job families and created

career pathways to ensure that career opportunities are visible.

Whilst we are pleased that a number of actions are in place and our
gender pay gap has narrowed, we also recognise that as well as
putting these initiatives in place, improving our gender pay position
also requires longer term change. Our focus in 2019 and future
years will be on the following:

• Continuing to monitor and review our diversity metrics and
using our data to ensure equity in our reward arrangements
at all levels;

• Working to remove any barriers to career progression,
• Looking at working patterns or geographical locations;
• Further roll-out of our female mentoring programme across

all functions;

• Continuing to drive our inclusion training programme at site level

which focuses on unconscious bias and subjectivity;

• Continuing our progress with flexible working to support and

promote female retention and career progression; and

• Continuing to focus on gender diversity in our entry

level programmes.

gender bias; and

3RD QUARTILE

GENDER PAY DATA
The information below is a summary of the data available in our
online report. This comprises the mean and median gender pay
gap; the mean and median gender bonus gap; the proportion of
males and females receiving a bonus payment; and the proportion
of males and females in each pay quartile.

The results focus on our total UK business, which is the best
indicator of our overall gender pay position.

Mean pay gap
Median pay gap

9.9%
8.4%

The quartile split confirms that we have more men in senior roles,
which is the primary driver of our gender pay gap.

1ST QUARTILE
(LOWEST PAID)

2ND QUARTILE

51%

49%

35%

65%

4TH QUARTILE
(HIGHEST PAID)

44%

56%

31%

69%

60.7%
11.6%

Women

Men

GENDER BONUS DATA

Mean bonus gap
Median bonus gap

The underlying gender bonus gap reflects a higher proportion of
men in senior roles. The significant increase in our gender bonus
gap in 2018 reflects the payment of accrued LTIP bonuses.

PROPORTION OF MEN
RECEIVING A BONUS

PROPORTION OF WOMEN
RECEIVING A BONUS

www.bakkavor.com 45

STRATEGIC REPORT
CORPORATE RESPONSIBILITY CONTINUED

COMMUNITY
We aim to support the
communities in which we
work, giving opportunities
to support the causes and
projects that are important
to our people.

CORPORATE CHARITABLE
SUPPORT
Bakkavor develops corporate charity
relationships as an opportunity to foster
positive workplace engagement and the
chance to ‘make a difference’.

Over the past four years our chosen
charities have been The Prince’s Trust
and The Prince’s Countryside Fund and we
have valued the way we have been able to
engage with both charities to raise funds
for their causes.

In 2018, in support of the Prince’s Trust,
we undertook many initiatives raising over
£16,000 for the charity through employee
engagement as well as a financial
contribution from the Group. Events
included the ‘Palace to Palace Cycle
Challenge’, the ‘Future Steps Challenge’
and our Group Marketing team undertook
a 24 hour 10k marathon.

As part of the partnership arrangement,
we have supported the Trust’s XL
Programme through hosting World of Work
tours at our sites. We held our 17th World of
Work Tour at our Bakkavor Pizza & Bread
business in Crewe. These tours are aimed
at giving disadvantaged students first-hand
experience of working within the
food industry.

The Prince’s Countryside Fund has been the
chosen charity for our graduates. Both our
first and second year graduates organised
various fundraising activities including a
Champagne and Canapes Charity Auction
Evening and a Canoeing Competition. As a
result, more than £5,000 was raised and
donated to the charity, in addition to the
Group’s contribution.

The partnership agreements with
these charities came to an end in 2018.
We therefore undertook a review of
charities to support at a corporate level,
seeking a global charity that focuses on
tackling social issues which all our sites
could support and a UK-based charity, given
that 89% of our revenue is generated in the
UK. From January 2019, we have agreed
three-year partnerships with Action Against
Hunger and FareShare. Action Against
Hunger works across nearly 50 countries
to lead the global fight against hunger and
malnutrition. FareShare saves good food
destined for waste and sends it to charities
and community groups who transform it
into nutritious meals for vulnerable people.

LOCAL CHARITY SUPPORT
We encourage our sites to support charities
which make a real difference within their
local communities and that matter most
to our employees. SEF representatives are
heavily involved in organising activities
to fundraise or volunteer with community
sustainability projects.

One of the biggest local site fundraisers
takes place annually at the Spalding Fun
Weekend and Party in the Park sponsored
by Bakkavor for employees, their families
and members of the public. In 2018, the
success of the event resulted in £25,000
being donated to two local charities in the
Lincolnshire region – WWII Memorial Fund
and Boston’s Salvation Army. We also
donated monies to other charities and local
groups that attended the event.

At our annual Group Responsibility Awards
we recognise all the hard work and
commitment from our sites to engage and
support their communities by presenting
a Good Neighbour Award to the business
which has made the most impact. In 2018,
the Award was presented to Bakkavor Pizza
Harrow site who demonstrated through
their ‘Harrow Cooking’ initiative local
engagement with the Council, a community
group, school children, members of the
public and local businesses. They organised
events such as pizza cooking lessons,
an arts and food Pizza Party, and handed
out over 400 pizza slices to residents and
commuters at their local train station.

46 Bakkavor Group plc – 2018 Annual Report

GOVERNANCE
CHAIRMAN’S LETTER ON CORPORATE GOVERNANCE

CHAIRMAN’S LETTER ON
CORPORATE GOVERNANCE

BOARD CHANGES
There have been a number of changes to
the Board during the year. I am delighted to
welcome Jane Lodge, who joined the Board
as an Independent Non-executive Director
in April 2018 and has assumed the role of
Chair of the Audit and Risk Committee.
Jane’s extensive experience of the food
industry as an Audit Partner and a
Non-executive Director will be of significant
benefit to the Board and equips her well to
guide the Audit and Risk Committee in the
years ahead.

In July 2018, Bob Berlin informed us of his
decision to stand down from the Board.
I would like to thank Bob for his contribution
as a Board member and for his support for
Bakkavor through its journey to becoming a
public listed company. He was replaced as
the representative of BP-PE5 L.L.C (the
Baupost Group) on the Board by Patrick
Cook, who joined as a Non-executive
Director. I welcome Patrick, who is a
Principal at the Baupost Group and has
significant investment experience across
the food sector.

GOVERNANCE AND RISK
During the year the Board was kept up
to date on the developments and changes
to the corporate governance landscape
and the Governance Code. In July 2018,
the Financial Reporting Council (“FRC”)
published its new Governance Code which
will apply to financial periods commencing
on or after 1 January 2019. For Bakkavor,
this will therefore not formally apply until
our financial year ending December 2020,
but this will be an area of focus for the
Board and its Committees over the next
year and we will endeavour to meet the
requirements during 2019.

As a Company, we have a long-standing
commitment to high standards of corporate
responsibility, which includes considering
the interests of a broad stakeholder group
in making business decisions. The Board
remains focused on all Bakkavor’s
stakeholders, including its employees,
customers, shareholders and the
communities it is part of. You can read
about our stakeholder engagement on
page 10 and also in the CR section.

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.
Bakkavor is now fully compliant in
this respect.

We continue to develop and embed our risk
function, and appointed a Head of Risk
during the year, who is responsible for
making risk consideration an important part
of daily decision-making, and improving the
identification, mitigation and reporting of
risk to the business and the Board.

BOARD EVALUATION
One of my responsibilities is to ensure
that the Board is performing effectively,
and we carry out an annual review of this,
facilitated internally, and an external review
every three years. The review in 2018 was
conducted internally, with a positive outcome.
There were some constructive suggestions
and these will be implemented in 2019.
You can read more about the evaluation
process on page 60. I am satisfied that our
governance structures remain effective
and support the business.

LOOKING AHEAD
We are making good progress to develop
our governance processes. They provide an
appropriate platform from which to manage
the business. I am confident this will help
to improve performance and enable us to
stay aligned with best practice over the
coming years.

I would like to thank the Senior
Management team and the many
colleagues who have supported the
Board in this work.

SIMON BURKE
Chairman

5 April 2019

www.bakkavor.com 47

DEAR SHAREHOLDER
I am delighted to present
to you our second Annual
Report and Accounts
since we listed on the
London Stock Exchange
in November 2017.

In this section, which forms part of the
Directors’ Report, we provide details of
how the Company has applied the principles
of, and complied with, the UK Corporate
Governance Code 2016 (the “Governance
Code”) during the year.

Strengthening Bakkavor’s corporate
governance framework was a key focus
in 2018, following our Initial Public
Offering (“IPO”) in November 2017.

Good corporate governance makes
a positive contribution to the growth
and long-term success of any business.
Providing appropriate support, focused
oversight and constructive challenge are
critical elements of a well-functioning board.

Alongside this is the important role of
the Board in establishing and promoting
Bakkavor’s values, by creating the necessary
internal culture to enable us to meet the
requirements of our customers, employees,
shareholders and wider stakeholders, and
deliver long-term sustainable growth.

GOVERNANCE
CORPORATE GOVERNANCE COMPLIANCE STATEMENT

Governance Code Provision B.1.2 – at least half the Board, excluding the
Chairman, should comprise Non-executive Directors determined by the Board
to be independent.

The Group achieved full compliance with this provision following the appointment
of Jane Lodge, an Independent Non-executive Director, on 3 April 2018.

Governance Code Provision 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 to be independent on appointment as Chairman.

The Group achieved full compliance with this provision following the appointment
of Jane Lodge, an Independent Non-executive Director, who assumed the role of
Chair of the Audit and Risk Committee on 3 April 2018. At the same time, the
Company Chairman, Simon Burke, stepped down from the Audit and Risk
Committee.

Since 3 April 2018, and to the date of this report, the Company has complied in full
with the provisions of the UK Corporate Governance Code published in April 2016.
The Code is publicly available on the website of the Financial Reporting Council
at www.frc.org.uk.

GOVERNANCE SUMMARY
Our compliance with key areas of the Governance Code is summarised
as follows:

• Independence: Over half of our Board comprises Independent

Non-executive Directors and the composition of all Board Committees
complies with the Code.

• Senior Independent Director: Our Senior Independent Director is

Denis Hennequin.

• Accountability and election: There is clear separation of duties between
the Chairman and Chief Executive Officer roles and all the Directors are
to stand for annual re-election.

• Evaluation: An internally facilitated performance evaluation of the Board

and its Committees was undertaken during the year.

• Experience: The Audit and Risk Committee Chair met the specific

requirements with regard to recent and relevant financial experience
throughout 2018.

• Auditor tenure: Deloitte LLP (“Deloitte”) is our current External Auditor.

Bakkavor has not run a competitive audit tender process in the last
10 years and was required to carry one out after becoming a Public
Interest Entity as defined under the Companies Act 2006. Following a
competitive audit tender process, PricewaterhouseCoopers LLP (“PwC”)
will be appointed as External Auditor for the 2019 financial year.

• Non-audit services policy: Details on the non-audit services policy are

provided within this report.

• Internal Audit: Details of the Internal Audit function are provided within

this report.

• Performance-related pay: Our reward framework is simple, transparent

and designed to support and drive our business strategy.

THIS REPORT’S
KEY FEATURES

Over the next few pages we look at
the Board: its role, performance and
oversight. We provide detail on Board
activities and discussions during the year
(pages 56 to 58), the actions arising from
these and the progress made against
them. We also provide insight on Director
independence, effectiveness and our
Board evaluation.

In line with last year, we have used the
key themes of the Governance Code to
articulate the Board’s activities during
the year:

LEADERSHIP
The Board rigorously challenges
strategy, performance, responsibility
and accountability to ensure that every
decision we make is of the highest
quality. See page 56.

EFFECTIVENESS
The Board continuously evaluates the
balance of skills, experience, knowledge
and independence of the Directors.
See pages 59 and 60.

ACCOUNTABILITY
All Board decisions are taken within the
context of the risks involved. Effective
risk management is central to achieving
our strategic objectives. See page 61.

REMUNERATION
Having a formal and transparent
procedure for developing policy on
remuneration for Executive Directors is
crucial. Bakkavor’s Remuneration Policy
aims to attract, retain and motivate
by linking reward to performance.
See pages 72 to 82.

48 Bakkavor Group plc – 2018 Annual Report

FRESH DEDICATION

TO GLOBAL FRESH AMBITIONS

Donna-Maria Lee, Group HR Director
Since joining Bakkavor this year, I’ve had
the fantastic opportunity to visit many of our
sites and importantly to meet many of our
people. Their passion for what they do and
their commitment to our values is inspiring.
I want to harness this enthusiasm to develop
a culture that is forward-looking, that
positively embraces change, and where
innovation is the work of everybody, all of
the time.

WE ARE PROUD THAT WE HAVE
A DIVERSE WORKFORCE ACROSS
OUR GLOBAL BUSINESS. THEY
ARE THE SPECIAL INGREDIENTS
THAT MAKE US A SUCCESS.

GOVERNANCE
GROUP BOARD

Board Committees:

PETER GATES

TODD KRASNOW

Nomination Committee

Report on page 63

Audit and Risk Committee

Report on page 65

Remuneration Committee

Report on page 70

Chief Financial Officer

Appointment: Peter joined
Bakkavor in 2010 as Chief
Financial Officer and was
appointed to the Group
Board in 2017.

Skills and experience: 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.

External appointments:
Peter currently has no
external appointments.

Independent
Non-executive Director

Appointment: Todd has served
as a Non-executive Director of
Bakkavor since January 2016.

Skills and experience: Todd
holds a Bachelor’s degree from
Cornell University and an MBA
from Harvard Business School
and has been a senior executive
at a number of multi-national
companies, with extensive
experience in the retail and
consumer services sectors.

External appointments:
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.

AGUST
GUDMUNDSSON

Chief Executive Officer

SIMON BURKE

Independent
Non-executive Chairman

Appointment: 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.

Skills and experience:
Agust received his education
from the College of Ármúli
in Reykjavik, Iceland.

External appointments:
Agust currently has no
external appointments.

Appointment: Simon has
served as a Non-executive
Director of Bakkavor since
February 2017 and was
appointed as Chairman
in October 2017.

Skills and experience: Simon
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.

External appointments:
Simon is 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.

50 Bakkavor Group plc – 2018 Annual Report

JANE LODGE

DENIS HENNEQUIN

SUE CLARK

LYDUR GUDMUNDSSON

PATRICK L. COOK

Independent
Non-executive Director

Non-Independent
Non-executive Director

Appointment: Lydur is
one of the founders of Bakkavor.
He served as Chief Executive
Officer from 1986 to 2006 and
Non-executive Chairman from
2006 to 2017. He served as
Chairman of Exista from
2006 to 2010.

Skills and experience:
Lydur has unique expertise
and insight into the Company’s
business as a founder of the
Bakkavor Group. He received his
education from the Commercial
College of Iceland.

External appointments:
Lydur currently has no
external appointments.

Appointment: Patrick Cook
has served as a Non-executive
Director of the Bakkavor Group
since July 2018.

Skills and experience:
Patrick received his education
from Vanderbilt University in
Tennessee, United States
and is a senior investment
professional with significant
direct investing experience
in food companies.

External appointments:
Patrick is currently a Principal
of the Baupost Group.

Appointment: Jane has served
as a Non-executive Director of
Bakkavor since April 2018.

Appointment: Denis has served
as a Non-executive Director of
Bakkavor since February 2017.

Appointment: Sue has served
as a Non-executive Director of
Bakkavor since October 2017.

Skills and experience:
Jane spent 25 years at Deloitte
& Touche LLP, the audit, tax,
consulting, enterprise risk
and financial advisory services
provider, progressing to a
Senior Audit Partner working
for major corporates. She
served as the first female
Partner to sit on the Deloitte
UK Board, overseeing
management strategy,
acquisitions, performance
against plan and admission
of new partners. She was also
the manufacturing and industry
lead Partner, providing best
practice and insights across
the Deloitte businesses of tax,
auditing, consulting, and
corporate finance. Jane left
Deloitte in 2011 to build a
Non-executive portfolio.

External appointments: Jane
is currently a Non-executive
Director and Chair of the Audit
Committees at Costain plc,
DCC plc, Devro plc and
Sirius Minerals Plc.

Skills and experience: Denis
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.

External appointments: Denis
is currently a Non-executive
Director of Eurostar International
Limited and a founding partner
of investment fund French Food
Capital since 2017.

Skills and experience: Sue
holds a Master of Business
Administration from Heriot
Watt University and a Bachelor
of Science from Manchester
University. She was formerly
Managing Director of SABMiller
Europe from 2012 to 2016,
where she returned the region
to growth. 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.

External appointments:
Sue is currently a Non-
executive Director on the
boards of Akzo Nobel, Tulchan
Communications LLP, Imperial
Brands plc and Britvic plc,
where she also chairs the
Remuneration Committee.

www.bakkavor.com 51

GOVERNANCE
MANAGEMENT BOARD

AGUST GUDMUNDSSON

PETER GATES

MIKE EDWARDS

Chief Executive Officer

Chief Financial Officer

Chief Operating Officer, UK

See Group Board profile on page 50

Mike joined Bakkavor in 2001 from Heinz.
During his career at Bakkavor he has held
a number of senior roles and was appointed
UK Chief Operating Officer in 2014.
Mike has overall responsibility for the
UK operations.

BEN WALDRON

EINAR GUSTAFSSON

DONNA-MARIA LEE

President, Bakkavor US

Managing Director, Bakkavor China

Group Human Resources Director

Ben joined Bakkavor in 2012 from Ernst &
Young LLP. He initially joined as Group
Financial Controller before taking on the
role of Head of Strategic Development,
working closely with the Management
Board to advance the Group’s strategic
objectives for future growth. More recently,
he led the acquisition of Haydens in the UK
and the disposal of Vaco and Anglia Crown,
as well as supporting the business in its
IPO. Ben has overall responsibility for the
US operations.

Einar joined Bakkavor in 2005. 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. Prior
to joining, Einar was at Deloitte LLP.

Donna-Maria Lee joined Bakkavor Group
plc in September 2018. Donna-Maria worked
for over 25 years within manufacturing,
consumer and corporate functions.
Prior to joining Bakkavor, she was Senior
Vice President, Global HR, Burberry plc,
accountable for the overall HR strategy,
people and change agenda.

52 Bakkavor Group plc – 2018 Annual Report

GOVERNANCE
CORPORATE GOVERNANCE REPORT

OUR GOVERNANCE
FRAMEWORK

The Chairman of each Committee reports to the Board on the matters discussed at
Committee meetings. Reports from each Board Committee Chair, including information on
the Committees’ respective composition and activities in the year, can be found in the
sections relating to each Committee within this report.

THE BOARD

CHAIRED BY SIMON BURKE

Accountable to shareholders for the long-term sustainable success of the Group.
This is achieved through setting out the strategy, monitoring the strategic objectives
and providing oversight of the implementation by the management team.

AUDIT AND RISK
COMMITTEE

NOMINATION
COMMITTEE

REMUNERATION
COMMITTEE

DISCLOSURE
COMMITTEE

CHAIRED BY
JANE LODGE

CHAIRED BY
TODD KRASNOW

CHAIRED BY
DENIS HENNEQUIN

CHAIRED BY
SIMON BURKE

The Nomination Committee
reviews the structure, size
and composition of the
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.

The Audit and Risk
Committee’s role is to
assist the 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. The
Audit and Risk Committee
will normally meet not less
than four times a year.

The Remuneration
Committee recommends
the Group’s policy on
Executive remuneration,
determines the levels of
remuneration for Executive
Directors and the Chairman,
and prepares an annual
remuneration report
for approval by the
shareholders at the Annual
General Meeting (“AGM”).
The Remuneration
Committee will normally
meet not less than three
times a year.

The Disclosure Committee
comprises the Chairman,
the Chief Executive Officer,
the Chief Financial Officer
and the General Counsel &
Company Secretary. Other
Directors, representatives
from the Company’s
brokers, members of the
Company’s Senior
Management and other
external advisers may
attend meetings in whole
or in part, if invited. The
Disclosure Committee
oversees the Company’s
compliance with its
disclosure obligations.

THE MANAGEMENT BOARD

CHAIRED BY AGUST GUDMUNDSSON

The Management Board implements the strategic objectives set by the Board and delegates
to management the detailed planning and implementation of those objectives and policies, in accordance with
appropriate risk parameters.

www.bakkavor.com 53

GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED

LEADERSHIP

THE ROLE AND
RESPONSIBILITIES
OF THE BOARD
The 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
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 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 Board
also receives regular presentations
from key Group heads of functions.

Decisions reserved for the 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 Board is available for review
on the Company’s website at
www.bakkavor.com/investor-relations/
governance.

THE MANAGEMENT BOARD
The Board is supported by the
Management Board, which implements
the strategic objectives set by the Board,
and determines investment policies and
delegates to Senior Management the
detailed planning and implementation of
those objectives and policies in accordance
with appropriate risk parameters.

The Management Board monitors
compliance with policies and
achievement against objectives
by holding Senior Management
accountable for its activities through
monthly and quarterly performance
reporting and budget updates.

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 Board

• Executing actions in relation to key

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

Management Board members attend
Board meetings as required to present
and discuss matters relating to their
business areas and functions.

COMMITTEES
The Board has established three
Board Committees which comprise:
the Audit and Risk Committee,
the Nomination Committee and the
Remuneration Committee, comprising
only Non-executive Directors. Each
Committee has agreed Terms of
Reference which were approved by the
Board and are available on our website:
www.bakkavor.com/investor-relations/
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
Management, including undertaking
appropriate searches for new
Directors as required.

The Board has also established a
Disclosure Committee which comprises
the Chairman, Chief Executive Officer,
Chief Financial Officer and the General
Counsel & Company Secretary.
The Disclosure Committee oversees
the Company’s compliance with its
disclosure obligations under the
Market Abuse Regulation (“MAR”).

54 Bakkavor Group plc – 2018 Annual Report

KEY ROLES AND RESPONSIBILITIES

Chairman

Chief Executive Officer

Chief Financial Officer

Non-executive Directors

Senior Independent Director

General Counsel
& Company Secretary

The Chairman, Simon Burke, is responsible for leading the Board and creating the right conditions
to ensure the Board’s effectiveness in all aspects of its role, including its membership and that of
its Committees.

The Chairman sets the Board’s agenda, in consultation with the Chief Executive Officer and
the General Counsel & Company Secretary, taking full account of 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 Board,
Senior Management, shareholders and other major stakeholders.

The Chairman has a close working relationship with the Chief Executive Officer and the General
Counsel & Company Secretary to ensure that the strategies and actions agreed by the Board are
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 Board
as a whole, the Committees and the interaction between the Executive and Non-executive Directors.

The Chief Executive Officer, Agust Gudmundsson, has specific responsibility for recommending the
Group’s strategy to the Board and for implementing the strategy once approved. In undertaking such
responsibilities, the Chief Executive Officer takes advice from and is provided with support by the
Management Board 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
Board level.

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, is also responsible for the Group Treasury, Tax, Legal, Corporate Affairs,
and Information Security systems.

The role of the Non-executive Directors is to offer guidance and advice to the 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.

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.

The General Counsel & Company Secretary, Simon Witham, supports and works closely with
the Chairman, the Chief Executive Officer and the Board Committee Chairs in setting agendas for
meetings of the Board and its Committees. He supports the accurate, timely and clear flow of
information to and from the Board and its Committees, and between Directors and Senior
Management. The General Counsel & Company Secretary also advises the Board on corporate
governance issues and is responsible for administering Bakkavor’s Share Dealing Code and
organising the AGM.

www.bakkavor.com 55

GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED

BOARD ACTIVITIES

TOPIC

Strategy
• Agreed the strategic plan

for the UK.

• Reviewed the Group’s

International operations in
the US and China and set
the strategy for the future.
• Discussed the Group’s capital

structure and financial
strategy, including capital
investments, shareholder
returns and the dividend policy.

KEY ACTIVITIES
AND DISCUSSIONS IN 2018

• Discussed and agreed the forward-looking

strategic priorities for the UK, including new
business opportunities.

• Reviewed and approved the acquisition of

Haydens Bakery and the sale of Anglia Crown.
• Reviewed financial Key Performance Indicators

(“KPIs”).

• Reviewed and approved key investment projects

in the UK.

• Discussed and agreed the forward-looking

KEY PRIORITIES IN 2019

• Consider acquisitions and divestments
for the UK, US and China as identified
and determine appropriate course
of action.

• Establish detailed implementation
plans taking account of strategic
importance and capital allocation, and
ensure there are robust processes in
place to manage and monitor their
delivery.

strategic priorities in the US, including new business
opportunities and important expansion projects.

• Keep financial KPIs under review.
• Keep the Group’s dividend policy

• Discussed and agreed the forward-looking

under review.

strategic priorities in China, including new business
opportunities and important expansion projects.

• Continue diligent management of costs.

• Reviewed the Group’s cash flow position and

the Group’s dividend policy in the context of the
wider market and the Group’s agreed capital
allocation priorities.

• Reviewed and agreed the payment of an interim
dividend of 2 pence per share in line with the
Group’s current dividend policy.

• Discussed the continuation of investing in the
business for growth, underpinned by strong
investment principles.

• Discussed the balance sheet strategy, capital

efficiency and the leverage position of the Group.

Financial performance,
business, operational
highlights and
current trading
• Received reports from the
Chief Executive Officer and
Chief Financial Officer and
business updates from
the Management Board.

Stakeholders
• Engaged with investors and

other stakeholders.

• Reviewed financial performance in the UK,

• Continue to review the financial

performance, business operational
highlights and trading throughout
the year.

US and China.

• Received updates on performance against the prior

year and against the budget.

• Approved the 2019 budget.
• Carried out a comprehensive review of the fresh
prepared food (“FPF”) market, environment,
and impact on consumers and customers.

• Reviewed Group Treasury Management.
• Approved the introduction of a supplier

invoice financing scheme.

• Encouraged strong engagement with investors and

other stakeholders.

• Discussed investor relations, including feedback
following investor roadshows, and presentations/
updates from the Company’s brokers.

• Engaged with individual shareholders at the AGM.

• Continue to work actively to engage with
the Group’s stakeholders throughout
the year.

• Review the level of institutional holdings
and consider actions to broaden the
Group’s shareholder base further.

56 Bakkavor Group plc – 2018 Annual Report

KEY PRIORITIES IN 2019

• Continue to review key risks and ensure
that the Group remains at the forefront
of developing and embedding best
practice for risk management.

TOPIC

Risk and risk management
• Carried out a risk assessment
and reviewed the Group Risk
Register and the technical
issues affecting the UK.

KEY ACTIVITIES
AND DISCUSSIONS IN 2018

• Carried out a robust assessment of principal key

risks (see pages 25 to 29), monitored and reviewed
the internal controls process, and assessed the Group
risk profile by identifying where the business’s key
risks lay, aligning them with the business’s risk
appetite and highlighting how to target and
mitigate those risks effectively.

• Reviewed the potential impact of Brexit to the business.
• Received monthly Technical updates for the UK,

US and China, monitoring health and safety and food
safety issues.

• Carried out an in-depth review of the Technical issues

affecting the UK, covering food safety, health and
safety, the environment and a review of the Group’s
Crisis Management System.

• Reviewed the Group’s supply chain management and

discussed the systems in place to mitigate supply risks.

• Discussed the impact of cyber risk, following

a robust review of this area conducted by the Audit
and Risk Committee.

Governance
• Considered governance and

regulatory changes.

• Reinforced compliance with
the Group’s Code of Conduct.

• Considered the new regulations affecting the

• Ensure that the Company remains

Company, such as changes to the Governance Code,
the annual Modern Slavery Statement and compliance
with the General Data Protection Regulations (“GDPR”).

• Received governance updates and training

throughout the year including Market Abuse
Regulation (“MAR”) training.

• Reinforced compliance with Bakkavor’s Code of
Conduct, a document which sets out the Group’s
culture and values, as well as its key policies and
procedures, all in accordance with the principles
of good corporate governance.

• Reviewed and approved the 2017 and 2018 Annual
Report and the 2018 half-year results. The Board
agreed that, taken as a whole, the 2017 and 2018
Annual Reports were fair, balanced and understandable.

at the forefront of developing
and embedding best practice in
responsible business behaviour.
• Further understanding and planning
actions in relation to new regulations
over the period.

• Maintain and enhance Bakkavor’s

culture and values and key policies and
procedures and ensure these are rolled
out to acquired businesses.

• Continue to strengthen internal controls

and reporting.

www.bakkavor.com 57

GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED

BOARD ACTIVITIES CONTINUED

TOPIC

Leadership and employees
• Group Human Resources

Director updates.

• Succession, talent development

and diversity.

• Employee engagement.

KEY ACTIVITIES
AND DISCUSSIONS IN 2018

• Received regular updates from the Group Human
Resources Director highlighting issues throughout
the Group such as the National Living Wage increase,
gender pay disparities, employee turnover and
whistleblowing.

• Discussed specific programmes to support EU

employees in preparation for Brexit.

• Discussed the effective and sustainable management
of general talent pipeline and retention for the UK,
US and China.

• Discussed Senior Management development

and succession.

• Evaluated the results of the annual Employee

Engagement Survey from colleagues across the
business, and discussed areas for improvement.

KEY PRIORITIES IN 2019

• Continue to focus on general succession

planning and talent development.
• Undertake a comprehensive review
of succession planning and talent
development among Senior Management
during the year, with clear development
plans produced.

• Evaluate the results of the annual
Employee Engagement Survey.

Board development
• Composition, balance
and effectiveness.

• Continued to focus on the composition, balance and

effectiveness of the Board.

• Reviewed the Board composition and discussed and
acted on the recommendations of the Nomination
Committee, including the appointment to the Board
of Jane Lodge and Patrick Cook.
• Approved a Board diversity policy.
• Undertook an internal evaluation of the Board, its
Committees and the Chairman and developed an
action plan following constructive suggestions
resulting from the evaluation.

• Continue to support and encourage
the professional development of
Board members to provide them with
the relevant skills needed.

• Use visits by the Board to operational
sites to promote understanding of
the business.

• Carry out an annual evaluation

of the Board, its Committees and
the Chairman’s performance.

BOARD AND COMMITTEE
MEETING ATTENDANCE
In 2018, the Board held nine
regular meetings. In addition,
the Board will meet when
necessary between scheduled
meetings to discuss important
ad hoc 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.

Total number of meetings in 2018

Executive Directors
Agust Gudmundsson
Peter Gates1
Non-executive Directors
Robert Berlin2
Simon Burke
Sue Clark3
Patrick Cook 4
Lydur Gudmundsson
Denis Hennequin
Todd Krasnow5
Jane Lodge6

Board

9
Scheduled
meetings
attended

Annual General
Meeting

Scheduled
meetings eligible
to attend

9
9

5
9
9
4
9
9
9
7

9
8

4
9
8
4
9
9
8
7

1
1

1
1
1
N/A
1
1
1
1

1. Peter Gates was unable to attend the Board meeting in March 2018 due to illness.
2. Robert Berlin resigned from the Board in July 2018, and was therefore only eligible to attend five Board meetings.
3. Sue Clark was unable to attend the Board meeting in June 2018 due to prior commitments which had been booked prior

to the meeting being rescheduled for this date.

4. Patrick Cook was appointed to the Board in July 2018 and was therefore only eligible to attend four Board meetings.
5. Todd Krasnow was unable to attend the Board meeting in January 2018 due to prior commitments.
6. Jane Lodge was appointed to the Board in April 2018 and was therefore only eligible to attend seven Board meetings.

58 Bakkavor Group plc – 2018 Annual Report

EFFECTIVENESS

BOARD COMPOSITION
The 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 & Company Secretary.

The Board operates a clear division of
responsibilities between the Chairman
and the Chief Executive Officer.

It is a core feature of good corporate
governance that the 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
Board and its Committees under review
and make recommendations to the Board
where changes are appropriate to maintain
that balance. The 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 50 to 51.

It is Bakkavor’s policy, in line with
the Governance Code, that proposed
appointments to the 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
Board. More information on this and the
Group’s diversity statement can be found
in the report of the Nomination Committee
on page 63.

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
Board’s decision-making.

Bakkavor is considered to be fully compliant
with the Governance Code, which requires
that at least half of the Board, excluding the
Chairman, should comprise Non-executive
Directors who are determined by the Board
to be independent.

The independence of the Non-executive
Directors was considered by the Board
as part of the Board effectiveness review.
In determining whether they remain
independent, the Board considered factors
such as length of tenure and relationships
or circumstances which are likely to
affect or appear to affect a Director’s
judgement. With the exception of Lydur
Gudmundsson (formerly the Chairman of
Bakkavor) and Patrick Cook (representative
of the Baupost Group), all of the Non-
executive Directors are considered to be
independent in character and judgement
and 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 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 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 Board and approved
where appropriate.

INSIDE INFORMATION AND
SECURITIES DEALINGS
Bakkavor has 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 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
Board has the right balance of individuals
to be able to discharge its responsibilities.
The Board reviews Senior Management
performance and actively seeks to ensure
they are mentored. The Board regularly
reviews its own composition.

INDUCTION
Following appointment, each Director
receives a comprehensive and formal
induction to familiarise them with their
duties and Bakkavor’s business operations
and risk and governance arrangements.
The induction programme, which is
co-ordinated by the Group HR Director
and the General Counsel & Company
Secretary, includes briefings on industry
and regulatory matters relating to
Bakkavor, as well as meetings with Senior
Management in key areas of the business.

www.bakkavor.com 59

GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED

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.

BOARD EVALUATION
The Governance Code recommends that
the Board should undertake a formal
and rigorous annual evaluation of its own
performance and that of its Committees
and individual Directors. The Board’s
evaluation of its own performance
provides an opportunity to consider
ways of identifying greater efficiencies,
maximising strengths and highlighting
areas for further development.

ANNUAL RE-ELECTION OF
THE BOARD
In compliance with the Governance Code,
all Directors will retire and offer themselves
for re-election at each year’s AGM. At our
first AGM, held on 23 May 2018, each
Director offered himself or herself
for election as a Director.

The Board conducted an internal review
led by the Chairman with the support of
the General Counsel & Company Secretary
during the year. The review was conducted
by means of an online questionnaire. It was
carefully structured and designed to enable
the Board to comment on all aspects of the
Board’s performance, as well as assist in
identifying any potential for improvement in
the process of the Board and its Committees.
The questionnaire also focused on, amongst
other matters, the Board composition, the

process of meetings, the timeliness
and quality of the information it receives
and overall Board behaviours and activities.

The results of the review were considered
by the General Counsel & Company
Secretary, the Chairman and the
Nomination Committee, following which
they were discussed at the subsequent
Board meeting. A number of key actions
were identified following the evaluation,
as set out below.

The Board Committees were also reviewed
and were found to be highly regarded in
terms of effectiveness and decision-making.
The Chairman is highly regarded and
considered to exhibit a leadership style
which promotes effective decision-making,
constructive debate and ensures the Board
works as a team.

Having considered the findings of the review,
the Directors were satisfied that the Board
operated effectively in 2018 and there were
no areas of concern.

Recommendations arising from the 2018 review
Review the annual Board and Committee meetings calendar.

Review the Board papers to ensure greater consistency and
ensure Board members have sufficient time to review the
papers in advance of meetings.
Non-executive Directors’ visibility around the business.

Agreed actions for 2019
Following discussion with the Directors and the General Counsel
& Company Secretary to canvass views, it was decided that the
schedule of meetings would remain the same but would be
reviewed again in the following year.
The General Counsel & Company Secretary will work with
colleagues on guidance to ensure greater consistency of Board
papers and will ensure they are circulated in a timely manner.
Further site visits for Non-executive Directors to be scheduled

during the year.

Review of the Board agenda.

Board agenda items will be varied to ensure sufficient time for

presentations from management.

Increased focus on Senior Management succession planning and
talent development.

An in-depth discussion on Senior Management succession

planning will be included in the Board agenda during the year.

60 Bakkavor Group plc – 2018 Annual Report

ACCOUNTABILITY

INTERNAL CONTROLS OVER
FINANCIAL REPORTING
The Group’s financial reporting process
has been designed to provide assurance
regarding the reliability of the financial
reporting and preparation of its Financial
Statements, including Consolidated
Financial Statements, for external purposes
in accordance with 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 allow 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 70 to 89.

SHAREHOLDER AND
STAKEHOLDER ENGAGEMENT
It is the role of the 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 stakeholders and
shareholders. Further information is
available on page 10.

The 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 Board develop an understanding of
the views of shareholders, there is regular
dialogue with institutional investors and
shareholders, presentations by Senior
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.

Throughout the year, the Chairman,
Chief Executive Officer, Senior Independent
Director, Chief Financial Officer and Head
of Corporate Affairs met regularly with
Bakkavor’s largest institutional and
market analysts to discuss governance
developments (including the Remuneration
Policy), business strategy and
financial performance.

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 94 and a statement regarding
the use of the going concern basis in
preparing these Financial Statements is
provided in the Directors’ Report on page 93.

RISK MANAGEMENT AND
INTERNAL CONTROL
The 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 control
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 Board regularly reviews
and monitors the Group’s risk management
and internal control systems and the
effectiveness with which it manages
the principal risks faced by the Group.

The Directors confirm that the 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 control, is outlined
in the ‘Risk Management’ section on pages
25 to 29 and in the ‘Viability Statement’
on page 30.

www.bakkavor.com 61

GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED

AGM
Bakkavor’s AGM provides the Board with
the opportunity to communicate with private
and institutional investors and it sets aside
time at the meeting for shareholders to
ask questions.

At the AGM, the Chairman provides a
brief summary of the Company’s activities
during the previous year. All resolutions at
the 2018 AGM were voted on by a show of
hands. As recommended by the Governance
Code, all resolutions were voted on
separately and the final voting results,
which included all votes cast for, against
and withheld, were released to the London
Stock Exchange as soon as practicable after
the meeting.

Our next AGM will be held on Thursday
23 May 2019. Full details are contained
in the Notice of Meeting available on our
website and, where applicable, posted
with this Annual Report.

MAJOR INTERESTS IN SHARES
The Group has been notified in accordance with the Financial Conduct Authority’s (“FCA”)
Disclosure Guidance and Transparency Rules (“DTRs”), or was otherwise aware, that the
following held, or were beneficially interested in, 3% or more of Bakkavor’s issued
ordinary shares:

Name

Carrion Enterprises Limited
(corporate holding structure of
Agust Gudmundsson)
Umbriel Ventures Limited
(corporate holding structure of
Lydur Gudmundsson)
BP-PE5 L.L.C
(corporate holding structure of
the Baupost Group)

29 December 2018

Date of publication
of Annual Report

Number
of Ordinary shares

% of
voting
rights

Number
of Ordinary shares

% of
voting
rights

145,333,130

25.1

145,333,130

25.1

145,333,130

25.1

145,333,130

25.1

143,832,928

24.8

143,832,928

24.8

62 Bakkavor Group plc – 2018 Annual Report

REPORT OF THE
NOMINATION COMMITTEE

ACTIVITIES DURING THE YEAR

Appointments to the Board
During the year, Jane Lodge was appointed
as an Independent Non-executive Director
and Chair of the Audit and Risk Committee.
Patrick Cook was appointed as a Non-
executive Director after being proposed
by the Baupost Group as their nominee
director and objectively assessed and
approved by the Nomination Committee.
Together they bring skills, experience
and behaviours that will complement
the existing members of the Board.

Following these changes, the Board
consists of a Non-executive Chairman, two
Executive Directors and six Non-executive
Directors, four of whom are independent.

Appointments to the Board are made on
merit against objective criteria and with
due regard to the benefits of diversity
on the Board. The Committee leads the
process for recognising the need for Board
appointments and for the recommendation
to the Board of candidates for their
subsequent appointment. When considering
the appointment of Non-executive
Directors, the Committee takes into
account independence and the provision of
an effective and constructive relationship
with the Executive Directors.

COMMITTEE MEMBERSHIP
The Nomination Committee consists of the
Chairman, two Independent Non-executive
Directors, and one Non-Independent
Non-executive Director, who together
bring a diverse and complementary
range of backgrounds, personal attributes
and experience. The biographies of the
Committee members are set out on
pages 50 to 51.

ROLE OF THE NOMINATION
COMMITTEE
The principal role and responsibilities of the
Committee include:

• Reviewing the composition of the Board
and 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 Board suitable candidates to fill
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

• Overseeing succession planning at

Board and Senior Management level

The Terms of Reference of the Committee
are available on Bakkavor’s website.

Member

Todd Krasnow (Chair)
Sue Clark
Lydur Gudmundsson
Denis Hennequin
Robert Berlin1

Member since

20 October 2017
20 October 2017
20 October 2017
20 October 2017
20 October 2017

Scheduled meetings
eligible to attend

Scheduled meetings
attended

2
2
2
2
1

1. Robert Berlin resigned from the Board of Bakkavor Group plc and as a member of the Nomination

Committee on 11 July 2018.

“The Nomination Committee
has the key role of ensuring
we have the right skills on
the Board to deliver the
Group’s strategy and deal
with changes in the
business environment.”

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 activities in 2018.

Bakkavor’s Nomination Committee was
set up in October 2017 in anticipation
of the IPO, and its first meeting was on
28 March 2018.

The Nomination Committee plays a pivotal
role in appointing Directors to the Board. It
is important that the Board sets the correct
‘tone from the top’ and that our Directors
lead by example and ensure that good
standards of behaviour flow throughout
the organisation.

www.bakkavor.com 63

GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED

Board evaluation process
The Nomination Committee regards the
Board evaluation process as an important
means of monitoring the composition and
structure of the Board. Full details of the
Board evaluation process and the resulting
action plan are on page 60. The Nomination
Committee is satisfied that the Board
operated effectively in 2018 and that
there were no areas of concern.

Nomination Committee evaluation
The Nomination Committee’s performance
was considered as part of the overall Board
evaluation. The Committee’s evaluation
was based around the 12 questions for
nomination committees posed by the EY
and ICSA 2016 report, ‘The Nomination
Committee: coming out of the shadows’.
The report, which was based on a series
of roundtable discussions with industry
leaders, focused on the role of the
nomination committee and how boards
could improve this work. The evaluation
concluded that the Committee was
fulfilling its duties effectively.

Succession planning
Succession planning for the Board and
Senior Management is focused on ensuring
the right mix of skills and experience. There
have been positive discussions about talent
management, succession planning and the
shape of the Board during the year. Further
work will be undertaken in the year ahead
to extend the Nomination Committee’s work,
specifically around contingency planning for
Executive Directors and succession and
development insight, with a view to
further strengthen succession planning
for the Executive Directors and
Senior Management.

TODD KRASNOW
Chair, Nomination Committee

5 April 2019

The Nomination Committee considers
that the membership of the Board and its
Committees is well balanced in terms
of skills, effectiveness, experience
and independence.

Board diversity
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. During the year, the
Company also adopted a Board diversity
policy which sets out the Board’s ambitions
and objectives regarding diversity at
Board level. It is the responsibility of the
Nomination Committee to implement and
monitor the objectives set out in this policy
and periodically to review it.

The Directors recognise the importance
of diversity and understand the significant
benefits that come with having a diverse
Board. The 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 identifying the areas on which we
will focus. Further details of this can be
found on page 45.

We will continue to appoint on merit,
based on the skills and experience required
for the proper discharge of responsibilities
as a member of the Board, while giving
consideration to gender and other forms
of diversity when the Committee reviews
the Board’s composition.

For appointments to the Board, Bakkavor
uses executive search firms who have signed
up to a 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 that both male and female
candidates are considered for positions.

64 Bakkavor Group plc – 2018 Annual Report

REPORT OF THE AUDIT
AND RISK COMMITTEE

ROLE OF THE COMMITTEE
The Committee’s Terms of Reference are
available on the investor section of the
Bakkavor website.

The Audit and Risk Committee provides an
independent overview of the effectiveness
of the Group’s 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 Board on significant
financial reporting issues and judgements

• Monitoring and reviewing and, where

appropriate, making recommendations
to the Board on the adequacy and
effectiveness of Bakkavor’s internal
control and risk management systems

• 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 in detail the identified 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
• Reviewing the content of the Annual

Report and advising the Board whether
it is fair, balanced and understandable

• Recommending to the 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,
is approved by the Committee.

Following each Committee meeting, a
verbal report is made to the Board in which
I describe the proceedings of the Committee
meeting and make recommendations to the
Board as appropriate.

The Committee discharges its responsibilities
through a series of scheduled meetings
during the year, the agendas for which
include risk management processes, the
programme of Internal Audit and assurance
work, in-depth discussions on key financial
and other risk areas, and work related
to events in the financial calendar of
the Company.

The biographies of the Committee members are set out on pages 50 to 51.

Member
Jane Lodge (Chair)1
Simon Burke2
Denis Hennequin3
Sue Clark

Member since

3 April 2018
20 October 2017
20 October 2017
20 October 2017

Scheduled meetings
eligible to attend

Scheduled meetings
attended

3
2
5
5

3
2
4
5

1. Jane Lodge was appointed to the Board and as Chair of the Audit and Risk Committee on 3 April 2018, and

was therefore only eligible to attend three meetings.

2. Simon Burke was the Chairman of the Audit and Risk Committee until the appointment of Jane Lodge
on 3 April 2018, and was therefore only eligible to attend two Audit and Risk Committee meetings.

3. Denis Hennequin was unable to attend the Audit and Risk Committee meeting in June 2018 due to illness.

www.bakkavor.com 65

“The Audit and Risk
Committee’s remit covers
accounting and financial
reporting, internal controls
and the External Audit.
A particular focus during
the year was the tender
for the External Audit.”

CHAIRMAN’S OVERVIEW
I am pleased to present the report of the
Audit and Risk Committee for the year
ended 29 December 2018. This report
describes the Committee’s responsibilities
and key activities over the year.

In advance of Bakkavor’s IPO, the Audit
and Risk Committee was set up and chaired
by the Company Chairman, Simon Burke.
I was appointed to the Board on 3 April 2018
and I assumed the role of Chair of the Audit
and Risk Committee. At the same time,
Simon Burke stepped down from the
Audit and Risk Committee ensuring full
compliance with the Governance Code
provision C.3.1 that the Company
Chairman may not chair the Audit and
Risk Committee.

COMMITTEE MEMBERSHIP
The Audit and Risk Committee comprises
three Independent Non-executive Directors,
including myself as Chair, who provide the
range of financial and commercial expertise
necessary to meet its responsibilities in a
robust and independent manner. I spent
25 years at Deloitte & Touche LLP, and have
significant financial experience in the UK
listed environment, enabling me to fulfil
my role as Audit and Risk Committee Chair.

GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED

Members of Senior Management are invited
to attend Committee meetings as and when
their specialist technical knowledge is
required. The Committee also meets
privately, without management present,
and separate private sessions attended by
the lead audit partner from the Company’s
External Auditor are held at the time of
each meeting. As Committee Chair, I also
regularly meet on a one-to-one basis with
the Chief Financial Officer, the Group Head
of Risk, representatives from the Internal
Audit function and other members of Senior
Management. Scheduling meetings in this
way enables me better to understand any
key issues and areas of concern, and allows
sufficient time to facilitate meaningful
discussion during the subsequent meeting.

The Committee has four scheduled
meetings a year and will additionally
meet if and when required.

AUDIT AND RISK COMMITTEE
EVALUATION
The Committee carried out an internal
evaluation of its own performance which
was also considered as part of the overall
Board evaluation. The findings concluded
that the Committee was fulfilling its
duties effectively.

ACTIVITIES DURING THE YEAR

External Audit
The Committee has primary responsibility
for overseeing the relationship with, and
performance of, the External Auditor.
This includes making the recommendation
on the appointment, reappointment and
removal of the External Auditor, assessing
its independence on an ongoing basis and
negotiating the audit fee.

Deloitte LLP (“Deloitte”) was appointed as
the External Auditor of Bakkavor in 2005.
The current lead audit Partner, William
Smith, was appointed in September 2016.

Effectiveness of the External
Audit process
During the year, an assessment of the
quality and effectiveness of the External
Audit process was undertaken. The primary
purpose of this assessment was to gain
assurance that the External Auditor had
conducted a comprehensive, appropriate
and effective audit. Through a constructive,

honest and open dialogue with the
External Auditor about its performance,
the objectives of the process were to assess
each phase of the audit process against a
quality framework and discuss with the
External Auditor what areas had worked
well and what could be improved.

The findings of the assessment were
discussed at a Committee meeting, with
the Committee concluding that the audit
process was robust, challenging and
appropriately targeted to focus on the
key areas of audit risk.

External Audit tender process
As advised last year, Bakkavor became
a constituent of the FTSE 250 at the end
of February 2018, and 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 had not run a competitive audit
tender process in the last 10 years and was
therefore required to carry one out for its
first audit after it became a PIE.

During the year, the Committee undertook
a full tender process in respect of External
Audit services in compliance with legislation
and FRC guidance on best practice, in
particular ensuring independence in
respect of potential audit ﬁrms.

Interested firms were subsequently
requested to complete a detailed response
to a Request For Proposal (“RFP”), and
following this a full tender process of
firms shortlisted based on the responses
to the RFP was undertaken. The tendering
firms were judged on objective criteria
determined in advance of the process,
together with the findings and conclusions
of published inspection reports on the
audit firms.

Whilst the Committee appreciated
the quality of the proposals presented
by all the tendering firms, it considered
that the submission and team from
PricewaterhouseCoopers LLP (“PwC”)
best met the predefined criteria it had set.
It therefore recommended to the Board
that PwC be appointed as the Company’s
External Auditor with effect from the

beginning of the 2019 financial year.
To ensure a smooth transition, Deloitte
remained as the Company’s External
Auditor for the financial year ended 29
December 2018. PwC observed Deloitte on
the audit and is taking full responsibility for
the audit with effect from the beginning of
the 2019 financial year.

The Committee confirms that there are no
contractual obligations which restrict the
choice of External Auditor.

Non-audit services are provided in
accordance with the Group’s policy and in
light of the detailed understanding of the
Group and expertise in the relevant areas.
Further details can be found in Note 6 to
the Consolidated Financial Statements.

Internal Audit
The Internal Audit services have
been outsourced to RSM, with overall
responsibility and direction for the Group’s
Internal Audit function being retained by the
Head of Risk who reports to the Audit and
Risk Committee. The Internal Audit function
provides assurance over the effectiveness
of key internal controls as identified as part
of the risk assessment process and reports
to the Head of Risk throughout the year and
to the Committee at least four times a year.

During the year, a review of the services
provided by RSM was undertaken to widen
the scope of the Internal Audit function and
improve the focus and effectiveness of the
Internal Audit approach. A decision was
made to run a competitive tender process
and firms (including RSM) were invited to
tender for this business. Firms provided
detailed proposals and had the opportunity
to meet Senior Management to
raise questions.

The Committee considered the submission
from KPMG LLP (“KPMG”) to be particularly
strong with a robust approach to risk-based
audits. It therefore recommended that KPMG
be appointed to provide Internal Audit
support to the Company with effect from
the beginning of the 2019 financial year.

Risk and internal controls
During the year, we continued to enhance
our risk management and internal control
framework, particularly around the focus of
risk discussions both at operating company
and Board level. In order to support the
Board’s robust assessment of the principal

66 Bakkavor Group plc – 2018 Annual Report

risks, the Committee reviewed the Group
Register identifying the top risks faced by
the Group, and discussed the quantification
of these risks and mitigating actions. It has
been important for the Committee to gain
a good understanding of the risks and
emerging risks for the Group and our
industry, in addition to the measures
being taken to address potential areas
of vulnerability. The Committee has

challenged both Internal Audit and Senior
Management on the effectiveness of
controls in place and it is satisfied that
measures are being taken to minimise
the Group’s vulnerability to these risks.

There has been an increasing focus on
Information Security (“IS”) risks and cyber
security over recent years, and this has
continued to be a key area of focus by the

Committee during the year, with a number
of presentations on this topic at Committee
meetings. Considerable time has also been
spent discussing cyber security risk, with a
growing focus on the handling of personal
data we hold on our customers and our
colleagues, which the Committee
recognises is an evolving and complex
risk area for many businesses.

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
Principal risks and viability
The Directors are required to make
a statement in the Annual Report as
to the longer-term viability of the Group.

Fair, balanced and understandable
reporting
The Group is required to ensure that
its external reporting is fair, balanced
and understandable.

Risk management and internal control
The Committee is required to assist
the Board in the annual review of the
effectiveness of the Company’s risk
management process and internal
control systems.

Role of the Committee

Conclusion/action taken

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
Board for approval. For further information
on the Viability Statement see page 30.

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.

The Committee agreed to recommend to
the Board the Annual Report statements
relating to the effectiveness of the risk
management process and internal
control systems.

At the request of the Board, the Committee
assessed, through discussion with and
challenge of Senior 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 Auditor, who
took this into account when conducting its
audit. It also established through reports
from Senior Management that there were
no indications of fraud relating to financial
reporting matters.

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 on page 61 of the Corporate
Governance Report within the Annual Report.

www.bakkavor.com 67

GOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED

Reporting issue
Whistleblowing and anti-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.

Internal Audit
The Committee is required to oversee the
performance, resourcing and effectiveness
of the Internal Audit function.

Role of the Committee

Conclusion/action taken

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 concluded that
whistleblowing and anti-bribery processes
were in place and would be kept under
review for potential improvements.
Following developments and changes
introduced to the corporate governance
landscape in 2018, the Committee
recognises that, going forward,
whistleblowing will be regularly
monitored by the Board.

The Company’s Internal Audit services
are outsourced to an external provider.
The external provider has the skills and
experience required to carry out Internal Audit
reviews across the Company’s operational
business units with overall responsibility and
direction being retained by the Head of Risk.
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.

The Committee reviewed the effectiveness
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
2019 and, following an Internal Audit tender
process during 2018, the Company’s
Internal Audit services will be provided
by KPMG from 2019 onwards, with overall
responsibility being retained by the Head
of Risk.

Oversight of External Auditor
The Committee is required to oversee the
work and performance of Deloitte as External
Auditor, including the maintenance of audit
quality during the period.

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.

The Committee met with the key members
of the Deloitte audit team to discuss the
2018 audit plan and agree areas of focus.

It assessed regular reports from Deloitte
on the progress of the 2018 audit and any
material issues identified. It debated the
draft audit opinion for the 2018 year end.
The Committee was also briefed by Deloitte
on critical accounting estimates, where
significant judgement is needed.

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 its Audit and
Risk Committee report on the 2018
Financial Statements which highlighted
any matters arising from the audit work
undertaken by the External Auditor.

The Committee undertook a thorough
assessment of the quality and effectiveness of
Deloitte as External Auditor and, following the
review, the Committee was satisfied that the
External Audit had provided appropriate focus
on those areas identified as the key risk areas
to be considered by the Committee.

68 Bakkavor Group plc – 2018 Annual Report

Role of the Committee

Conclusion/action taken

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 2018 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 services
to be provided by the External Auditor. The
Committee ensured that firms other than
the External Auditor 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 in accordance with the policy
during the year.

During the year, non-audit fees of
£0.1 million were paid to Deloitte, as
discussed in Note 6 to the Consolidated
Financial Statements.

The Committee continues to follow the
statutory guidance to seek to reduce
the reliance on the External Auditor
for non-audit work.

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 cash
flow forecast 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 29 December 2018 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 29 December 2018.
The Committee reviewed and approved
the associated disclosure in the
Financial Statements.

The Committee challenged management
on the logic that had been applied to
determine the level of accruals held
at 29 December 2018 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.

Reporting issue
Audit and audit-related fees
To approve audit and audit-related fees
which include the statutory audit of
the Group and its subsidiaries.

Non-audit fees
To prevent the objectivity and independence
of the External Auditor becoming
compromised, the Committee has a formal
policy governing the engagement of the
External Auditor 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 regulations on the
statutory audit of public interest entities.

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.
Issues that were considered most
significant in preparing the Annual Report
and Financial Statements:
• Impairment of goodwill
and intangible assets
The Group had significant amounts
of goodwill and intangible assets as at
29 December 2018 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.

JANE LODGE
Chair, Audit and Risk Committee

5 April 2019

www.bakkavor.com 69

GOVERNANCE
DIRECTORS’ REMUNERATION REPORT

DIRECTORS’
REMUNERATION REPORT

ANNUAL STATEMENT

The Committee is formally constituted and
operates on written Terms of Reference
which are available at www.bakkavor.com.

The Committee considered the following
items during the period:

• Finalising the Remuneration Policy in

advance of the 2018 AGM

• Agreeing Executive Director base salary

levels from 1 January 2018

• Agreeing performance against the

targets and payout for the 2017 annual
bonus awards

• Setting the performance targets for

the 2018 annual bonus

• Agreeing the award levels and

performance targets for the 2018
LTIP awards

• The impact of the new UK Corporate
Governance Code and a number of
changes to the disclosure requirements
in respect of the 2020 Directors’
Remuneration Report

REMUNERATION IN 2018
By way of context and as stated in the
front part of the Annual Report, Bakkavor
performed in line with the Board’s
expectations and delivered a robust
performance in light of challenging
market conditions, particularly in the UK.

In respect of remuneration paid for 2018:

• No base salary increase was awarded from
1 January 2018 (Agust Gudmundsson’s
salary was £750,000 while Peter Gates’
salary was £467,000)

• As a result of the threshold EBITDA
target not being achieved for 2018,
no annual bonus was awarded to the
Executive Directors for the year just ended

• No LTIP awards vested during the
year (the first such awards held by
an Executive Director will vest in 2020)

APPLICATION OF REMUNERATION
POLICY FOR 2019
The Remuneration Committee intends
to operate the Remuneration Policy for
Executive Directors for 2019 on a similar
basis to 2018 as follows:

• Executive Director basic salaries

were increased from 1 January 2019
(the normal salary review date) by 2.5%,
in line with the budgeted general salaried
workforce increase

• Annual bonus provision will remain at 80%
of salary for the Chief Executive Officer
and 125% of salary for the Chief Financial
Officer and targets will continue to
measure Adjusted EBITDA, Revenue and
Free Cash Flow (excluding development
projects). Additionally, a new strategic
employee engagement target will be
added, measured through employee
turnover. This brings the bonus criteria
in line with the broader workforce.
No changes will be made to the deferral,
whereby one-third of any bonus earned
will be deferred for three years with
vesting conditional upon continued
employment. Any deferral for the Chief
Executive Officer will continue to be in
cash (given his current shareholding),
whereas any deferral for the Chief
Financial Officer will be in shares

• LTIP awards will be granted in 2019 at
150% of salary for the Chief Financial
Officer (the Chief Executive Officer does
not receive LTIP awards). Targets will
continue to measure EPS and relative
TSR and a two-year post-vesting holding
period will continue to apply to awards
granted to Executive Directors

SHAREHOLDER FEEDBACK
Our three-year Remuneration Policy was
well received by shareholders at the 2018
AGM, and the Committee was pleased to
note the very high levels of shareholder
support for both the advisory vote on our
Directors’ Remuneration Report and the
binding vote on the Remuneration Policy.

CONCLUSION
The Committee recognises the importance
of maintaining a close relationship with
shareholders in facilitating the work of the
Committee in operating the Remuneration
Policy. Therefore, if you have any comments
or feedback on this report or our policy more
generally, then please let me know through
the General Counsel & Company Secretary.

I look forward to receiving your support at
the 2019 AGM.

DENIS HENNEQUIN
Chair, Remuneration Committee

5 April 2019

CHAIRMAN’S OVERVIEW

As the Chair of the
Remuneration Committee,
I am pleased to present,
on behalf of the Board, the
Directors’ Remuneration
Report for the year ended
29 December 2018. 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, which was approved by
shareholders at the 2018 AGM

• 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
Remuneration Policy in 2019

As the Remuneration Policy was approved
by shareholders last year, there will only
be one remuneration-related vote at the
2019 AGM, being the advisory vote on the
Directors’ Remuneration Report excluding
the Policy (i.e. the Annual Statement and
Annual Report on Remuneration).

THE COMMITTEE
The Committee is Chaired by Denis
Hennequin and its members are Sue
Clark and Todd Krasnow. It met four times
during 2018.

70 Bakkavor Group plc – 2018 Annual Report

AT A GLANCE SUMMARY

WHAT OUR EXECUTIVE DIRECTORS EARNED DURING 2018
The following table provides a summary of total remuneration for 2018. Further details are set out in the Annual Report on Remuneration
on page 83.

£000
Executive Directors
Agust Gudmundsson

Peter Gates

Base salary

Benefits

Bonus

LTIP

Pension
entitlements

Other

Total
remuneration

2018
2017
2018
2017

750
750
467
467

1
1
12
12

–
170
–
138

–
–
–
–

113
113
93
93

–
29
–
200

864
1,063
572
910

2018 annual bonus
Metrics

Group adjusted EBITDA (pre bonus provision)
Revenue
Free Cash Flow (excluding development projects)
Total (% of max)

No annual bonus is payable for 2018.

Weighting

% outcome

50%
25%
25%
100%

0%
0%
0%
0%

LTIP awards vesting
No LTIP awards vested or will vest in respect of performance to 29 December 2018.

HOW OUR EXECUTIVE DIRECTORS WILL BE PAID DURING 2019
A summary of how the Committee intends to operate the Remuneration Policy for 2019 is as follows:

Component

Base salary
(2.5% increase from 1 January 2019)
Pension (% of salary)
Annual bonus max (% of salary)
LTIP award (% of salary)
Shareholding guidelines (% of salary)

1. The CEO does not participate in the LTIP.

Agust Gudmundsson

£768,750

15%
80%
n/a1
200%

Peter Gates

£478,675

20%
125%
150%
200%

www.bakkavor.com 71

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, it has considered
the new provisions in the UK Corporate
Governance Code in 2018. As a result, it has
formalised a number of existing, and will
be introducing a number of new, initiatives
to ensure that the employee voice is heard
in the boardroom.

The 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 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.

GOVERNANCE
DIRECTORS’ REMUNERATION REPORT CONTINUED

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 UK
Corporate Governance
Code and the voting
guidelines of major UK
institutional investor bodies.

The following Policy was approved by
shareholders in a binding vote at the 2018
AGM (23 May 2018). It is intended that the
Policy will operate for three years from
the date of approval. The Policy that was
approved, with minor updates where
appropriate (e.g. remuneration scenario
charts and Non-executive Director terms
of engagement), is set out below.

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 scope
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

• 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 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
each 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.

72 Bakkavor Group plc – 2018 Annual Report

REMUNERATION POLICY TABLE
The table below sets out, for each element of pay, a summary of how remuneration is structured since listing and how it supports the
Company’s strategy.

Operation

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
each 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.

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.

Maximum opportunity

Performance metrics

Executive Directors’
performance is a factor
considered when
determining salaries.

No recovery or withholding
provisions apply.

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.

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.

www.bakkavor.com 73

GOVERNANCE
DIRECTORS’ REMUNERATION REPORT CONTINUED

Purpose and link to strategy
Benefits
Benefits in kind
offered to Executive
Directors are provided
to assist with retention
and recruitment.

Pensions
The Group aims to
provide a contribution
towards life in
retirement.

Operation

Maximum opportunity

Performance metrics

The Company aims to offer
benefits that are in line with
typical market practice.

The main benefits currently
provided include:

• Family private medical insurance
• 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.

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.

The value of each benefit is not
predetermined and is typically
based upon the cost to the Group.

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.

Up to 15% of base salary per annum
contribution for the current Chief
Executive Officer and 20% of base
salary per annum contribution for
the current Chief Financial Officer.

A maximum 15% of salary
contribution applies to new Directors.

Not performance-related.

No recovery or withholding
provisions apply.

74 Bakkavor Group plc – 2018 Annual Report

Operation

Purpose and link to strategy
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.

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.

Delivery of a proportion
in deferred bonus
shares provides a
retention element
and alignment
with shareholders.

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.

Maximum opportunity

Performance metrics

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.

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’
on page 78 for further detail).

www.bakkavor.com 75

GOVERNANCE
DIRECTORS’ REMUNERATION REPORT CONTINUED

Operation

Purpose and link to strategy
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.

76 Bakkavor Group plc – 2018 Annual Report

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.

LTIP awards will normally
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 future awards 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’
on page 78 for further detail).

Operation

Purpose and link to strategy
All-employee share schemes
Encourage employee
share ownership
and therefore
increase alignment
with shareholders.

The Company may, from time to time,
operate tax-approved share plans (such
as the HMRC-approved Save As You Earn
Option Plan and Share Incentive Plan)
for which Executive Directors could
be eligible.

Share ownership guidelines
Encourage Executive
Directors to build
a meaningful
shareholding in
the Group so as to
further align their
interests with those
of 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.

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
To attract Non-executive
Directors who have
a broad range of
experience and skills.

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.

To provide the Group with
access to independent
judgement on issues of
strategy, performance,
resources and standards
of conduct.

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 a Non-executive
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.

Maximum opportunity

Performance metrics

The schemes are subject to the
limits set by HMRC from time
to time.

Not performance-related.

No recovery or withholding
provisions apply.

Executive Directors are required to
build and retain a shareholding in
Bakkavor equivalent to at least
200% of their base salary.

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, Board
Committee responsibilities and
ongoing time commitments.

Actual fee levels are disclosed in
the Annual Remuneration Report
for the relevant financial year.

www.bakkavor.com 77

GOVERNANCE
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 Board.
In addition, it complies with rules that are
either subject to shareholder approval
(Long-Term Incentive Plan and Deferred
Share Bonus Plan) or to approval by the
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 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.

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 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

78 Bakkavor Group plc – 2018 Annual Report

• 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.

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.

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

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 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 2019 remuneration package for each Executive Director under three assumed performance
scenarios. These scenarios are based upon the Remuneration Policy set out above.

£1,500

£1,193

41%

£885

100%

26%

74%

59%

£2,262

16%

32%

£1,903

38%

£1,065

17%

28%

55%

£586

100%

31%

26%

31%

26%

Share price growth

Long-term incentives

Annual bonus

Fixed pay

All amounts have been rounded to the

nearest £1,000.

Minimum

Target

Maximum

Maximum
with share
price growth

Minimum

Target

Maximum

Maximum
with share
price growth

Chief Executive Officer

Chief Financial Officer

The scenarios used in the graphs above are defined as follows:

Below Target

Target

Maximum

Base salary
Benefits
Pension

Bonus

As at 1 January 2019
Estimated value for 2019
CEO: 15% of salary
CFO: 20% of salary
0% of Maximum

As at 1 January 2019
Estimated value for 2019
CEO: 15% of salary
CFO: 20% of salary
50% of Maximum

LTIP (CFO only)

0% of Maximum

25% of Maximum

As at 1 January 2019
Estimated value for 2019
CEO: 15% of salary
CFO: 20% of salary
100% of Maximum
CEO: 80% of salary
CFO: 125% of salary
100% of Maximum
CFO: 150% of salary

Maximum
with share price growth

As at 1 January 2019
Estimated value for 2019
CEO: 15% of salary
CFO: 20% of salary
As per Maximum

As per Maximum albeit a
50% share price increase
over 3 years is assumed

www.bakkavor.com 79

GOVERNANCE
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.

Benefits

Pension benefits

Annual bonus
Long-Term
Incentive Plan
Replacement
awards

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 will be consistent with the principles of the policy set out on page 74. 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.
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 opportunity 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.
In addition to the above, the Committee may offer additional cash and/or share-based elements in order to
‘buyout’ remuneration relinquished on leaving a former employer.

In the event that such a buyout 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 with the Company’s existing plans, as appropriate.

Notice periods

Shareholders will be informed of any buyout arrangements at the time of the Executive Director’s appointment.
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.

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
on page 81. 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.

80 Bakkavor Group plc – 2018 Annual Report

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 relocate, 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 the 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:

Deferred Annual
Bonus Plan (“DABP”)

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.

In exceptional circumstances, the Remuneration Committee may allow the awards to vest on cessation of the
participant’s employment.

Long-Term
Incentive Plan

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:

• The extent to which the performance conditions (if any) have been satisfied at that time
• 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:

• The performance conditions measured at that time
• Pro-rating by reference to the time of cessation as described above.

Such treatment shall also apply in the case of death.

www.bakkavor.com 81

GOVERNANCE
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)

Peter Gates

9 November 2010

18 December 2011,
as amended by a
variation letter dated
2 October 2017
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 Board and the Director may retain any fees received at the discretion of the Board. Neither
Executive Director currently holds any external Non-executive 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 Director

Simon Burke (Chairman)
Sue Clark
Patrick Cook
Lydur Gudmundsson
Denis Hennequin
Todd Krasnow
Jane Lodge

Date of joining Bakkavor

1 December 2016
20 October 2017
12 July 2018
1 August 1986 (founder)
20 October 2016
22 January 2016
3 April 2018

Date of contract or date of appointment

20 October 2017
20 October 2017
12 July 2018
20 October 2017
20 October 2017
20 October 2017
3 April 2018

The Chairman, in consultation with the Executive Directors, is responsible for proposing changes to the Non-executive Directors’ fees.
The Remuneration Committee 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 Board as a whole. Individual Non-executive Directors do not take part in discussions in relation to their
own remuneration.

82 Bakkavor Group plc – 2018 Annual Report

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 Statement and Annual Report on Remuneration
will be put to a single advisory shareholder vote at the AGM on 23 May 2019.

REPORT OF THE REMUNERATION COMMITTEE (“THE COMMITTEE”)

COMMITTEE MEMBERSHIP
Chair
Members

Denis Hennequin
Sue Clark, Todd Krasnow

The biographies of the Committee members are set out on pages 50 to 51.

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.

MEETING ATTENDANCE FOR THE YEAR ENDED 29 DECEMBER 2018
The Committee met four times during the year.

Denis Hennequin (Committee Chair)
Sue Clark
Todd Krasnow

Attendance

4 out of 4
4 out of 4
4 out of 4

Independent advisers
The Committee takes account of information from both internal and independent sources, including FIT Remuneration LLP (“FIT”)
which acts as the Committee’s adviser. FIT, which replaced Aon New Bridge Street as adviser during the year as a result of a tender
process, advised the Committee on all aspects of senior executive remuneration, including remuneration trends and corporate governance
best practice.

FIT 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. Bakkavor incurred fees of £18,000 exc. VAT from FIT during 2018, relating to Remuneration Committee advice,
while fees of £56,900 exc. VAT were incurred from New Bridge Street (“NBS”) during 2018 prior to FIT taking over. Both FIT and NBS billed
on a time and materials basis. Neither FIT nor NBS provided any other services to Bakkavor during 2018.

www.bakkavor.com 83

GOVERNANCE
DIRECTORS’ REMUNERATION REPORT CONTINUED

SINGLE TOTAL FIGURE OF DIRECTORS’ REMUNERATION – YEAR ENDED 29 DECEMBER 2018 (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 2018 financial year.

£000
Executive Directors

Agust Gudmundsson1

Peter Gates2, 3

Non-executive
Directors

Simon Burke
(Chairman)4

Robert Berlin7

Sue Clark9

Patrick Cook11

Lydur Gudmundsson2, 5

Denis Hennequin8

Todd Krasnow6

Jane Lodge10

Total

2018
2017
2018
2017

2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017

Base salary

Benefits

Bonus

LTIP

Pension
entitlements

Other

Total
remuneration

750
750
467
467

200
86
–
–
70
14
–
–
274
245
70
70
100
100
52
–
1,983
1,732

1
1
12
12

–
–
–
–
–
–
–
–
1
1
–
–
–
–
–
–
14
14

–
170
–
138

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
308

–
–
–
–

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-

113
113
93
93

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
206
206

–
29
–
200

–
–
–
–
–
–
–
–
–
28
–
–
–
500
–
–
–
757

864
1,063
572
910

200
86
–
–
70
14
–
–
275
274
70
70
100
600
52
–
2,203
3,017

Notes to the remuneration table
1.

In addition to base salary, Agust Gudmundsson was eligible for Director fees, pension and life assurance in Iceland in 2017 and the value of this is shown in the
‘Other’ column for 2017 (these arrangements ceased as of 30 December 2017).

2. For Executive Directors, taxable benefits comprise car allowance (CFO only) and private medical cover. Lydur Gudmundsson is also entitled to medical coverage in

the UK for the benefit of his family.

3. Prior to Admission, according to an arrangement entered into on 16 March 2017, the Chief Financial Officer received a retention bonus of £200,000 in January 2018
subject to continued employment (see “Other“ column for 2017). This type of arrangement does not form part of the current Remuneration Policy and will not be
repeated. Peter Gates was appointed to the Board on 20 October 2017 but was the Group CFO for the whole of 2017.

4. 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.

5. 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:€1.13. 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).
6. 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.

7. Robert Berlin received no fee for his services and left his post on 11 July 2018.
8. Denis Hennequin joined the Group in November 2016 and became a Non-executive Director in February 2017.
9. Sue Clark joined the Board on 20 October 2017.
10. Jane Lodge joined the Board on 3 April 2018 and her fee is £70,000 p.a.
11. Patrick Cook joined the Board on 12 July 2018, replacing Robert Berlin, and receives no fee for his services.

84 Bakkavor Group plc – 2018 Annual Report

2018 ANNUAL BONUS (AUDITED)
In 2018, employees were eligible for an annual 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. In 2018, the annual bonus targets and performance-
related outcomes were as follows:

Metrics

Group adjusted EBITDA (pre bonus provision)
Revenue
Free Cash Flow (excluding development projects)
Total (% of max)

Weighting

50%
25%
25%

Threshold
(0%)

£160m
£1,858m
£60m

Maximum
(100%)

£170m
£1,970m
£70m

Actual
performance

£154m
£1,855m
£55m

% outcome

0%
0%
0%
0%

In addition to the targets above, a minimum adjusted EBITDA of £156 million was required before any bonus was payable. This minimum
target was not met.

The resulting annual bonus awards were as follows:

Maximum bonus
potential
(% of salary)

Bonus award
(% of the
maximum)

Bonus award
(% of salary)

Total bonus
award

Amount
paid in cash

Amount to be
deferred

Agust Gudmundsson
Peter Gates

80%
125%

0%
0%

£0
£0

Normal deferral
currency where
relevant

Cash
Shares

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 the performance period ending in 2018.

Awards granted in 2018 (audited)
The following awards, structured as nil cost options, were made under the LTIP in 2018 (the Chief Executive Officer does not participate
in the LTIP):

Peter Gates

1. Based on the five-day average share price of £1.754 to 8 April 2018.

Date of grant

9 April 2018

Basis of award
(% of salary)

150%

Face value of
awards at grant
£700,5001

Number of shares
under award

Date of vesting

399,372

9 April 2021

These awards vest in 2021 subject to performance relating to (i) Adjusted Earnings per Share targets as to 50% of the award, and (ii) Relative
Total Shareholder Return targets as to the remaining 50% of the award. The details of these targets are shown in the tables below:

Adjusted EPS for 2020 (50% of award)

Portion of award vesting

Below 16.5 pence
16.5 pence
16.5 pence to 18.6 pence
18.6 pence

0%
25%
Pro-rata on straight-line basis between 25% and 100%
100%

Relative TSR2 from January 2018 to December 2020 (50% of award)

Portion of award vesting

Below median
Median
Between median and upper quartile
Upper quartile

0%
25%
Pro-rata on straight-line basis between 25% and 100%
100%

2. TSR is measured from January 2018 to December 2020 against the following companies: Associated British Foods, A.G Barr, Booker Group, Britvic, Coca-Cola HBC,
Compass Group, Cranswick, Dairy Crest Group, Devro, Diageo, Domino’s Pizza Group, DP Eurasia, EI Group, Fullers, Greencore Group, Greene King, Greggs, Hilton
Food Group, JD Wetherspoon, J Sainsbury, Marston’s, McColl’s Retail, Mitchells & Butlers, Morrisons, Ocado Group, Premier Foods, PureCircle, Restaurant Group,
SSP Group, Stock Spirits Group, Tate & Lyle, Tesco, Unilever and Whitbread.

www.bakkavor.com 85

GOVERNANCE
DIRECTORS’ REMUNERATION REPORT CONTINUED

Total Shareholder Return (“TSR”)
The chart on the right 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 29 December 2018. The FTSE 250 Index is considered by
the Board to be the most appropriate broad equity index
comparator for Bakkavor.

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.

120

110

100

)
d
e
s
a
b
e
r
(

)
£
(
e
u
l
a
V

15 Nov
2017

30 Dec
2017

29 Dec
2018

Bakkavor Group

FTSE 250 excl. Investment Trusts

Source : Datastream (Thomson Reuters)

Outstanding LTIP awards
Details of all outstanding share awards made to the Chief Financial Officer (the Chief Executive Officer does not participate in the LTIP) are
set out below:

Peter Gates

Award type

Pre-IPO LTIP
LTIP

Ex price

£0.764
£0

Grant date

3 July 2017
9 April 2018

Interest at
December
2017

1,222,515
–

Awards
granted in
the year

–
399,372

Awards
lapsed in
the year

Awards
vested in
the year

–
–

Interest at
December
2018
1,222,515
399,372

Date of
vesting/exercise
period
See Note 1
See Note 2

1. Pre-IPO LTIP 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:
• 50% vests in April 2020 provided a liquidity event (i.e. IPO or company sale) has occurred since the date of grant.
• 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.

2. See LTIPs granted in 2018 section above.

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 29 December 2018 (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 29 December 2018 are set out as a percentage of salary or fees
in the table below. During the period from 29 December 2018 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.

86 Bakkavor Group plc – 2018 Annual Report

Executive Directors
Agust Gudmundsson
Peter Gates
Non-executive Directors
Simon Burke (Chairman)
Robert Berlin
Sue Clark
Patrick Cook
Lydur Gudmundsson
Denis Hennequin
Todd Krasnow
Jane Lodge

Beneficially owned shares

29 December 2018

Value of owned shares
as a % of salary

200% of salary shareholding
guideline met?

Unvested shares with
performance conditions

145,333,130
nil

50,000
nil
nil
nil
145,333,130
nil
nil
nil

25,617%1
0%

n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a

Yes
No

–
–
–
–
–
–
–
–

–
1,621,887

–
–
–
–
–
–
–
–

1. Calculation based on share price of £1.322 as at 29 December 2018.

ALIGNING PAY WITH PERFORMANCE
The total remuneration figure for the Chief Executive Officer in 2018 and 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.

Total remuneration (£000)
Actual bonus (% of the maximum)
LTIP vesting (% of the maximum)

2018
£864,000
0%
n/a2

2017

£1,063,000
34%
n/a2

2. 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
The table below shows the percentage change in salary, benefits and annual bonus earned between the year ended 30 December 2017
and the year ended 29 December 2018 for the Chief Executive Officer compared to the average earnings of all of the Group’s other UK
employees. The Committee chose the Group’s UK employees for pay comparison with the Chief Executive Officer as the most meaningful
comparator group.

Salary
Benefits
Annual bonus

CEO

Company average

0%
0%
-100%

2.32%
n/a
n/a

The majority of employees do not receive benefits or annual bonus and so there is no meaningful data. An alternative comparator group
is the salaried employees for whom the percentage changes for salary, benefits and bonus were 2.32%, 0% and -100% respectively.

RELATIVE IMPORTANCE OF SPEND ON PAY
The following table shows the Company’s actual spend on pay for all Group employees relative to dividends:

Staff costs
Dividends3

Interim dividend paid on 5 October 2018.

2017

£460.4m
£0

2018
£485.1m
£11.6

% increase

5.4%
n/a

STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN 2019

ANNUAL BASE SALARY
Base salaries for the Executive Directors, effective 1 January 2019, are set out below.

Agust Gudmundsson
Peter Gates

Base salary 2018
£750,000
£467,000

Base salary 2019

% increase

£768,750
£478,675

2.5%
2.5%

Salary increases for the CEO and CFO are aligned to the budgeted salary increase for the salaried employees in 2019. Neither the CEO nor
CFO received a salary increase in the previous year.

www.bakkavor.com 87

GOVERNANCE
DIRECTORS’ REMUNERATION REPORT CONTINUED

BENEFITS AND PENSION
No changes are proposed to the provision of pension and benefits for 2019. 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 2019 annual bonus maximum, as a percentage of base salary, is as follows:

Agust Gudmundsson
Peter Gates

80% of salary
125% of salary

For 2019, the annual bonus for the Executive Directors will comprise four elements, as set out below, which are all key performance
indicators of the business.

• Adjusted EBITDA (40%)
• Revenue (20%)
• Free Cash Flow excl. development projects (20%)
• Employee engagement measured through staff turnover (20%)

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.

Awards for financial measures 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 2019 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*

0%
25%
100%

Adjusted EPS In 2021

Less than 16.5 pence
16.5 pence
Equal to or more than 18.6 pence

While the EPS target range is the same as that set for the 2018 LTIP awards, the target range is considered to be appropriate given that the
2018 LTIP awards are currently outside of the target range and in light of the current economic climate and prevailing analysts’ forecasts.

Total Shareholder Return (TSR):
Percentage of vesting of relevant portion of award*

0%
25%
100%

* Vesting on a straight-line basis

Relative TSR ranking against a bespoke
group of companies for the period
30 December 2018 to 1 January 2022

Below median
Median
Upper quartile

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, consistent with the 2018 awards, a hybrid group has been chosen which includes food producers, beverage
companies, food and drug retailers, and a selection of restaurants and bar companies.

88 Bakkavor Group plc – 2018 Annual Report

Cranswick

E.I. Group

JD Wetherspoon

Ocado Group

Tate & Lyle

The 2019 TSR comparator group comprises:

Associated
British Foods

A.G. Barr

Dairy Crest
Group

Booker Group

Devro

Britvic

Diageo

Coca-Cola
HBC AG

Compass
Group

Domino’s
Pizza Group

DP Eurasia

Fuller,
Smith & Turner

Greencore
Group

Greene King

Greggs

J Sainsbury’s

Premier Foods

Tesco

Marston’s

PureCircle

Unilever

McColl’s
Retail Group

Mitchells
& Butlers

Restaurant
Group

SSP Group

Whitbread

Hilton
Food Group

Morrison (Wm)
Supermarkets

Stock Spirits
Group

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 FOR 2019
Non-executive and Chairman fees for 2019 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

Patrick Cook 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 Board.
Each Non-executive Director is also entitled to reimbursement of reasonable expenses, including transatlantic travel expenses.

SHAREHOLDER VOTING
The Company is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there are substantial
votes against resolutions in relation to Directors’ remuneration, the Company seeks to understand the reasons for any such vote and will
report any actions in response to it. The following table sets out actual voting at the AGM on 23 May 2018 in respect of the Directors’
Remuneration Report for the year ended 30 December 2017 and the Remuneration Policy:

For
Against
Total votes cast (excluding withheld votes)
Total votes withheld
Total votes cast (including withheld votes)

On behalf of the Board

DENIS HENNEQUIN
Chair, Remuneration Committee

5 April 2019

Remuneration Policy

Remuneration Report

Total number of votes

% of votes cast

Total number of votes

% of votes cast

525,675,523
1,428,523
527,104,046
754,164
527,858,210

99.73
0.27

526,151,177
1,707,033
527,858,210
0
527,858,210

99.68
0.32

www.bakkavor.com 89

GOVERNANCE
DIRECTORS’ REPORT

DIRECTORS’ REPORT

The Directors present their
report, together with the Group
Financial Statements, for the
year ended 29 December 2018.

MANAGEMENT REPORT
For the purposes of DTR Rules 4.1.5R (2)
and 4.1.8, this Directors’ Report and the
Strategic Report on pages 4 to 46 comprise
the Management Report.

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.

CORPORATE GOVERNANCE
STATEMENT
Under the Financial Conduct Authority’s
Disclosure Guidance and Transparency
Rules (“DTR”) Rule 7, a requirement exists
for a corporate governance statement to
be included in this Directors’ Report. The
corporate governance statement explaining
how the Group complies with the Governance
Code is set out on page 48. A description
of the composition and operation of the
Board and its Committees is set out
on pages 53 to 55.

STRATEGIC REPORT
Section 414A of the Companies Act 2006
requires the Directors to present a Strategic
Report in the Annual Report and Financial
Statements. This information can be found
on pages 4 to 46.

We have chosen, in accordance with the
Act, to include certain information in our
Strategic Report or Financial Statements
that would otherwise be required to be
disclosed in the Directors’ Report.
These are as follows:

Subject matter

Important events since the
financial year end
Likely future developments
in the business
Research and development
Use of financial instruments
Employee involvement
Greenhouse gas emissions

Page

146

118
132
41
39

DISCLOSURES
This Directors’ Corporate Governance
report fulfils the requirements of the
directors’ report for the purposes of
the Companies Act 2006 (“the Act”).
The Strategic Report can be found on
pages 4 to 46, and encompasses our
corporate social responsibility report.

In line with the Regulations which implement
the European Union Accounting Directive
(SI 2015/980), a complete list of the Group’s
subsidiaries has been included on pages
153 to 154 to comply with s409 of the Act.

LISTING RULE 9.8.4R DISCLOSURES
Disclosures required pursuant to Listing Rule 9.8.4R of the UK Financial Conduct
Authority’s Listing Rules, can be found within the following sections of the Annual Report
and Accounts:

Listing Rule 9.8.4 Required Disclosure

Page reference

(1)
(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)
(10)

(11)
(12)

(13)

Interest capitalised and tax relief
Publication of unaudited
financial information
Details of long-term
incentive schemes

Note 9 to the Financial Statements
Not applicable

Note 35 to the Financial Statements
and Directors’ Remuneration Report
on pages 70 to 89

Waiver of emoluments by a Director Directors’ Remuneration Report

Waiver of future emoluments by
a Director
Non pre-emptive issues of equity
for cash
Non pre-emptive issues of equity
for cash by major subsidiary
undertakings
Parent participation in a placing
by a listed subsidiary
Contracts of significance
Provision of services by a
controlling shareholder
Shareholder waivers of dividends
Shareholder waivers of future
dividends
Agreements with controlling
shareholders

on pages 70 to 89
Not applicable

Not applicable

Not applicable
Not applicable

Not applicable

90 Bakkavor Group plc – 2018 Annual Report

RESULTS
The results for the year ended 29 December
2018 are set out in the Financial Statements
on page 102.

DIVIDEND
The Group has confirmed its intention that
a dividend equivalent to approximately 40%
of Adjusted Profit after Tax for the financial
year 2018 will be paid. An interim payment
of 2 pence per share was paid in September
2018 and a final dividend of 4 pence per
share has been proposed for approval at
the AGM on 23 May 2019 and will be payable
on 29 May 2019 to shareholders on the
register at 3 May 2019.

ARTICLES OF ASSOCIATION
The Articles of Association (“the Articles”)
are available from the Company’s website,
or by writing to the General Counsel &
Company Secretary at the Company’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.

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 or re-election
to the Board. Biographical details of all
Directors are set out on pages 50 to 51.

DIRECTORS’ SHARE INTERESTS
The interests of the Directors at 29 December 2018 and as at the date of the publication of
this report were:

29 December 2018

Date of publication of Annual Report

Name

Number of shares

% of voting rights

Number of shares

% of voting rights

Simon Burke
Agust Gudmundsson
Lydur Gudmundsson

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%

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.

Current Directors in year except as noted
Name

Appointed

Robert Berlin

Simon Burke
Sue Clark
Patrick Cook
Peter Gates
Agust Gudmundsson
Lydur Gudmundsson
Denis Hennequin
Todd Krasnow
Jane Lodge

28 September 2017 and resigned
on 11 July 2018
20 October 2017
20 October 2017
12 July 2018
20 October 2017
28 September 2017
20 October 2017
20 October 2017
20 October 2017
3 April 2018

Subject to applicable law, the Articles and
any directions given by special resolution,
the business of the Company will be
managed by the Board which may
exercise all power of the Company.

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.

Under the Company’s Articles, the 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 s551
of the Companies Act 2006. A renewal of
this authority will be proposed at the AGM
on 23 May 2019. 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 2019.

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 2 pence
each. Details of the Company’s issued
share capital are also shown in Note 29
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 35 to the Consolidated
Financial Statements.

www.bakkavor.com 91

GOVERNANCE
DIRECTORS’ REPORT CONTINUED

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 employee share plans.
None of these are considered to be
significant, except as explained below,
in terms of their likely impact on the
business of the Group as a whole.

The agreement that 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 immediately
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 Group’s listing on the
London Stock Exchange in November 2017,
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 Group’s
listing on the London Stock Exchange, the
Group completed a reorganisation of its
corporate structure.

Following the Group’s listing on the
London Stock Exchange, Agust and Lydur
Gudmundsson each indirectly held 25.1%
of the issued share capital in Bakkavor
Group plc, and BP-PE5 (the corporate
holding structure of the Baupost Group)
held 24.8% of the issued share capital
of Bakkavor Group plc.

LOCK-UP ARRANGEMENTS
The lock-up arrangements for the Company
and with certain shareholders which were
put in place at the time of the Company’s
listing on the London Stock Exchange
have now expired.

RELATIONS WITH SHAREHOLDERS
The 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 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 following the publication of the
full-year and half-year results have been
scheduled in 2019.

AGM
The AGM will be held on 23 May 2019
and is an opportunity for shareholders to
vote on aspects of the business in person.
The 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.

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.
For further information, see page 40.

92 Bakkavor Group plc – 2018 Annual Report

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 employee
forums 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 ‘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. For
further information, see page 42.

CHARITABLE DONATIONS
Bakkavor supports its chosen charities;
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.
In December 2018, the Group announced
two new charity partnerships with Action
Against Hunger and FareShare.

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. For further information,
see page 46.

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 46. 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 102 to 106 and in Note
28. Financial risk management objectives
and exposures to credit risk and liquidity
risk are described in Note 28. 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. For
further information, see page 30.

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 s418 of the Companies
Act 2006 and should be interpreted in
accordance with and subject to
these provisions.

SUBSEQUENT EVENTS
Please refer to Note 38 of the Group
Financial Statements.

SIMON WITHAM
General Counsel & Company Secretary

5 April 2019

www.bakkavor.com 93

GOVERNANCE
STATEMENT OF DIRECTORS’ RESPONSIBILITIES

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 (“IFRS”) 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

In preparing the Group Financial
Statements, International Accounting
Standard 1 requires that Directors:

• Properly select and apply

accounting policies

• Present information, including

accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information

• Provide additional disclosures

when compliance with the specific
requirements in IFRSs 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.

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

AGUST GUDMUNDSSON
Chief Executive Officer

5 April 2019

94 Bakkavor Group plc – 2018 Annual Report

FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC

REPORT ON THE AUDIT OF
THE FINANCIAL STATEMENTS

We have audited the Financial Statements
which comprise:

In our opinion:
• The Financial Statements of Bakkavor

Group Plc (the ‘Parent Company’) and its
subsidiaries (the ‘Group’) give a true and
fair view of the state of the Group’s and
of the Parent Company’s affairs as at
29 December 2018 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.

Summary of our audit approach

• The consolidated income statement;
• The consolidated statement of

comprehensive income and expense;
• The consolidated and Parent Company

statements of financial position;

• The consolidated and Parent Company

statements of changes in equity;

• The consolidated cash flow statement; and
• The related Notes 1 to 40 of the

Consolidated Financial Statements
and Notes 1 to 10 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).

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 Financial Reporting
Council’s (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.

Key audit matters

The key audit matters that we identified in the current period were:

• Valuation of the Group’s accruals for customer deductions
• The risk of impairment of tangible and intangible assets in the US
These are the same key audit matters as we identified in the prior year.

Materiality

Scoping

The materiality that we used for the Group Financial Statements was £4.8 million, 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 100% of adjusted profit before tax, 78% of net assets and 74% of revenue. Our work has included carrying
out audit procedures at 9 components out of 20 components identified across the Group.

Significant changes
in our approach

There have been no significant changes to our audit approach in the current year.

www.bakkavor.com 95

FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED

CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND THE 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 considered as part of our risk assessment the nature of the Group, its business model
and related risks including where relevant the impact of Brexit, the requirements of the
applicable financial reporting framework and the system of internal control. We evaluated
the Directors’ assessment of the Group’s and Parent Company’s ability to continue as a
going concern, including challenging the underlying data and key assumptions used to
make the assessment, and evaluated the Directors’ plans for future actions in relation
to their going concern assessment.

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.

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:

We confirm that we have nothing material

to report, add or draw attention to in respect
of these matters.

We confirm that we have nothing material
to report, add or draw attention to in respect
of these matters.

• The disclosures on pages 25 to 29 that describe the principal risks and explain how they

are being managed or mitigated;

• The Directors’ confirmation on page 93 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 93 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 knowledge
obtained in the audit.

96 Bakkavor Group plc – 2018 Annual Report

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 customer deductions

Key audit matter
description

How the scope
of our audit
responded to the
key audit matter

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 customer deductions 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 customer deductions 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 also judgement over the contractual
relationships that the Group has with its customers.

Further details are included in the Audit and Risk Committee report on page 69 (as they are considered a significant
judgement) and the Accounting Policies in Notes 2 and 3 to the Financial Statements.

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 that 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 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.

www.bakkavor.com 97

FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED

The risk of impairment of tangible and intangible assets in the US

Key audit matter
description

The Group has goodwill of £650.2 million (2017: £647.2 million), as set out in Note 13 to the Financial Statements.
The Group has one cash-generating unit grouping (“CGU grouping”), International (US only), where reasonably
possible changes in financial performance could result in impairment. At 29 December 2018 the Group recognised
goodwill and intangibles of £51.1 million and tangible assets of £57.1 million in relation to this CGU grouping.

The US CGU grouping has a relatively low level of headroom and the highest sensitivity to changes in the underlying
assumptions. Further details are included in Note 13.

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 grouping 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.

This matter has been identified by management within the Audit and Risk Committee report on page 69 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 used internal valuation experts to determine whether management’s discount rate is appropriate;
• We agreed long-term growth rates used in the impairment review to external sources of evidence;
• 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.

Key observations Whilst we identified differences between the rates used by management in the impairment review compared
to those suggested by our internal valuation specialists and other sources of evidence, we concluded that the
differences were not significant and would not have resulted in any impairment.

We obtained sufficient assurance that the underlying assumptions for the US CGU grouping are reasonable and
supportable at the assessment date and therefore concur with management’s conclusions that no impairment
should be recognised.

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.

Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:

Group Financial Statements

Parent Company Financial Statements

Materiality

£4.8 million (2017: £4.5 million)

£4.6 million (2017: £4.3 million)

Basis for determining materiality

5% of adjusted profit before tax
(2017: 5% of adjusted profit before tax).

Rationale for the benchmark applied

Adjusted profit before tax is defined as profit
before tax adjusted for other 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 as the benchmark which reflects
the underlying performance of the business
and reduces the risk of volatility.

98 Bakkavor Group plc – 2018 Annual Report

Determined on the basis of 2% (2017: 2%)

of net assets and capped at 95% (2017: 95%)
of Group materiality.

The Parent Company is non-trading
and acts as a holding company and
therefore we believe that net assets
is the appropriate benchmark.

We agreed with the Audit and Risk
Committee that we would report to the
Committee all audit differences in excess
of £0.24 million (2017: £0.23 million), 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.

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
100% (2017: 83%) of adjusted profit before
tax, 78% (2017: 87%) of net assets and 74%
(2017: 72%) of revenue. In addition, review
procedures covered components

OTHER INFORMATION

representing 16% (2017: 10%) of net assets
and 11% (2017: 6%) of revenue.

We identified 20 (2017: 21) components
that make up the Group, and the Group
engagement team carried out audit
procedures at nine (2017: nine) of these
components. Review procedures were
completed at an additional two (2017: one)
components by component auditors.

Our audit work has included the use of
two component auditors. We planned and
reviewed the component auditors’ work,
issuing instructions to them and evaluating
the results of the work performed; this
included a visit to one of the components
during the period and a review of
documentation as appropriate.

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 nine components.

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.

The Directors are responsible for the other information. The other information comprises
the information included in the Annual 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 position and 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.

www.bakkavor.com 99

FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT CONTINUED

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.

Details of the extent to which the audit was
considered capable of detecting irregularities,
including fraud, are set out below.

A further description of our responsibilities
for the audit of the Financial Statements
is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
Auditor’s Report.

EXTENT TO WHICH THE AUDIT
WAS CONSIDERED CAPABLE OF
DETECTING IRREGULARITIES,
INCLUDING FRAUD
We identify and assess the risks of material
misstatement of the Financial Statements,
whether due to fraud or error, and then design
and perform audit procedures responsive
to those risks, including obtaining audit
evidence that is sufficient and appropriate
to provide a basis for our opinion.

Identifying and assessing potential
risks related to irregularities
In identifying and assessing risks of material
misstatement in respect of irregularities,
including fraud and non-compliance with
laws and regulations, our procedures
included the following:

• Enquiring of management, internal

audit and the Audit and Risk Committee,
including obtaining and reviewing
supporting documentation, concerning
the Group’s policies and procedures
relating to:
• identifying, evaluating and complying

with laws and regulations and whether
they were aware of any instances
of non-compliance;

• detecting and responding to the

risks of fraud and whether they have
knowledge of any actual, suspected
or alleged fraud; and

• the internal controls established
to mitigate risks related to fraud
or non-compliance with laws
and regulations;

• Discussing among the engagement team
including significant component audit
teams and involving relevant internal
specialists, including tax, valuations,
pensions and IT regarding how and
where fraud might occur in the Financial
Statements and any potential indicators
of fraud. As part of this discussion,
we identified potential for fraud in
the valuation of the Group’s accruals
for customer deductions; and

• Obtaining an understanding of the legal
and regulatory frameworks in which the
Group operates, focusing on those laws
and regulations that had a direct effect on
the Financial Statements or that had a
fundamental effect on the operations of

the Group. The key laws and regulations
we considered in this context included
the UK Companies Act, Listing Rules,
pensions legislation, tax legislation
and health and safety legislation.

Audit response to risks identified
As a result of performing the above, we
identified valuation of the Group’s accruals
for customer deductions as a key audit
matter. The key audit matters section of
our report explains the matter in more
detail and also describes the specific
procedures we performed in response
to that key audit matter.

In addition to the above, our procedures
to respond to risk identified included
the following:

• Reviewing the Financial Statement

disclosures and testing to supporting
documentation to assess compliance
with relevant laws and regulations
discussed above;

• Enquiring of management, the Audit
and Risk Committee and in-house
and external legal counsel concerning
actual and potential litigation and claims;

• Performing analytical procedures

to identify any unusual or unexpected
relationships that may indicate risks
of material misstatement due to fraud;
• Reading minutes of meetings of those
charged with governance, reviewing
internal audit reports and reviewing
correspondence with HMRC; and

• In addressing the risk of fraud through
management override of controls,
testing the appropriateness of journal
entries and other adjustments; assessing
whether the judgements made in making
accounting estimates are indicative of a
potential bias; and evaluating the business
rationale of any significant transactions
that are unusual or outside the normal
course of business.

We also communicated relevant identified
laws and regulations and potential fraud
risks to all engagement team members
and significant component audit teams
including internal specialists, and remained
alert to any indications of fraud or non-
compliance with laws and regulations
throughout the audit.

100 Bakkavor Group plc – 2018 Annual Report

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 nothing to report in respect

of these matters.

• 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.

We have nothing to report in respect

of these matters.

OTHER MATTERS

Auditor tenure
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 two years, covering
the periods ending on 30 December 2017 and 29 December 2018.

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 14 years, covering the periods ending
31 December 2005 to 29 December 2018.

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).

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.

WILLIAM SMITH MA FCA (SENIOR STATUTORY AUDITOR)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom

5 April 2019

www.bakkavor.com 101

FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

52 WEEKS ENDED 29 DECEMBER 2018

£ million

Continuing operations

Revenue

Cost of sales

Gross profit

Distribution costs

Other administrative costs

Loss on disposal of subsidiary

Share of results of associates after tax

Operating profit/(loss)

Finance costs

Other gains and (losses)

Profit/(loss) before tax

Tax (charge)/credit

Profit/(loss) for the period attributable to equity
holder of the Parent Company

Earnings per share

Basic

Diluted

52 weeks ended 29 December 2018

52 weeks ended 30 December 2017

Notes

Underlying
activities

Other items1

Total

Underlying
activities

Other items1

Total

4,5

1,855.2

(1,368.6)

–

(21.5)

(4.6)

–

(26.1)

–

4.2

(21.9)

4.2

1,855.2

1,814.8

(1,368.6)

(1,329.1)

486.6

(77.2)

(319.6)

(4.6)

0.4

85.6

(13.2)

5.5

77.9

(10.7)

485.7

(77.2)

(297.5)

–

0.6

111.6

(21.8)

(5.0)

84.8

(14.3)

–

(15.4)

–

(15.4)

(13.2)

(17.2)

(45.8)

6.3

1,814.8

(1,329.1)

485.7

(77.2)

(312.9)

–

0.6

96.2

(35.0)

(22.2)

39.0

(8.0)

486.6

(77.2)

(298.1)

–

0.4

111.7

(13.2)

1.3

99.8

(14.9)

84.9

(17.7)

67.2

70.5

(39.5)

31.0

11.6p

11.5p

5.8p

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 items that are significant in nature and are important to users in understanding the business, including impairment of
assets, disposals of subsidiaries and associates, one-off finance costs relating to redemptions and other refinancing activities, and fair value adjustments. Details of the
alternative performance measures that the Group uses can be found in Note 40.

The Notes to the accounts form an integral part of the Consolidated Financial Statements.

102 Bakkavor Group plc – 2018 Annual Report

102 | Bakkavor Group plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE

52 WEEKS ENDED 29 DECEMBER 2018

£ million

Profit for the period

Other comprehensive (expense)/income

Items that will not be reclassified subsequently to profit or loss:

Actuarial (loss)/gain 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

Total other comprehensive income

Total comprehensive income

The Notes to the accounts form an integral part of the Consolidated Financial Statements.

52 weeks ended
29 December
2018

52 weeks ended
30 December
2017

Notes

67.2

31.0

(6.3)

1.0

(5.3)

7.7

2.4

69.6

12.3

(2.1)

10.2

(7.6)

2.6

33.6

www.bakkavor.com 103

103

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 29 DECEMBER 2018

£ 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
Translation reserve
Retained earnings

Total equity

Notes

29 December
2018

30 December
2017

13
14
15
17
18
24
36
23

19
20
21
23

22
25
27
23

26
22
25
27
23
24
36

29
29
29
29

650.2
3.0
426.9
12.5
0.1
19.6
–
0.2

647.2
2.6
337.5
12.0
0.1
3.2
5.2
0.1

1,112.5

1,007.9

62.8
142.7
12.4
1.9

219.8

54.8
147.9
20.9
1.6

225.2

1,332.3

1,233.1

(391.3)
(6.5)
(5.0)
(1.6)
(3.3)
–
(0.7)

(408.4)

(0.4)
(308.5)
(3.9)
(15.0)
–
(24.3)
(0.5)
(1.9)

(354.5)

(762.9)

569.4

11.6
–
(130.9)
33.8
654.9

569.4

(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

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 5 April 2019. They were signed on behalf of the Board of Directors by:

A GUDMUNDSSON
Chief Executive Officer

P GATES
Chief Financial Officer

104 Bakkavor Group plc – 2018 Annual Report

104 | Bakkavor Group plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

52 WEEKS ENDED 29 DECEMBER 2018

£ million

Balance at 1 January 2017

Profit for the period

Other comprehensive (expense)/income for the period

Total comprehensive (expense)/income for the period

Issue of share capital (Note 29)

Share issue costs (Note 29)

Movement in merger reserve due to corporate
restructure (Note 29)

Credit for share-based payments (Note 35)

Deferred tax on share schemes

Balance at 30 December 2017

Profit for the period

Other comprehensive income/(expense) for the period

Total comprehensive income for the period

Dividends paid (Note 29)

Cancellation of share premium account (Note 29)

Credit for share-based payments (Note 35)

Deferred tax on share schemes

Balance at 29 December 2018

Equity attributable to owners of the parent

Share capital

Share
premium

Merger
reserve

Capital
reserve

Translation
reserve

Retained
earnings

1.0

–

10.6

–

374.1

(8.0)

–

54.9

98.8

33.7

190.4

–

(185.8)

(98.8)

–

(7.6)

–

31.0

10.2

41.2

–

4.6

–

0.8

0.2

Total
equity

378.8

31.0

2.6

33.6

384.7

(3.4)

(284.6)

0.8

0.2

11.6

366.1

(130.9)

–

11.6

–

(366.1)

–

(130.9)

–

The Notes to the accounts form an integral part of the Consolidated Financial Statements.

26.1

237.2

510.1

–

7.7

–

67.2

(5.3)

61.9

(11.6)

366.1

1.5

(0.2)

67.2

2.4

69.6

(11.6)

–

1.5

(0.2)

33.8

654.9

569.4

www.bakkavor.com 105

105

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CASH FLOWS

52 WEEKS ENDED 29 DECEMBER 2018

£ million

Net cash generated from operating activities

Investing activities:

Dividends received from associates

Purchases of property, plant and equipment

Proceeds on disposal of property, plant and equipment

Acquisition of subsidiary

Disposal of subsidiary net of cash disposed of

Net cash used in investing activities

Financing activities:

Dividends paid

Proceeds on issue of shares (net)

Increase in borrowings

Repayments of borrowings

Repayments of obligations under finance leases

Net cash generated from/(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
29 December
2018

52 weeks ended
30 December
2017

99.1

93.4

Notes

0.7

(112.7)

–

(8.5)

(3.2)

0.7

(79.1)

2.5

–

(123.7)

(75.9)

(11.6)

–

28.7

–

(1.1)

16.0

(8.6)

20.9

0.1

12.4

–

96.6

325.0

(439.4)

(0.8)

(18.6)

(1.1)

22.5

(0.5)

20.9

106 Bakkavor Group plc – 2018 Annual Report

106 | Bakkavor Group plc

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

52 WEEKS ENDED 29 DECEMBER 2018

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 has 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 for the 52 weeks ended 30 December 2017 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:

IFRS 2

IFRIC 22

Various

Classification and Measurement of Share-based Payment Transactions

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’

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 European Union):

New or revised standards:

IFRS 9

IFRS 15

IFRS 16

IFRS 17

Amendments:

IFRS 9

IFRS 15

IAS 28

Various

IAS 19

IFRS 10

IFRIC 23

Financial Instruments

Revenue from Contracts with Customers

Leases

Insurance Contracts

Prepayment Features with Negative Compensation

Clarifications to IFRS 15 ‘Revenue from Contracts with Customers’

Long-term Interests in Associates and Joint Ventures

Annual Improvements to IFRS Standards 2015–2017 Cycle

IFRS 3 ‘Business Combinations’, IFRS 11 ‘Joint Arrangements’, IAS 12 ‘Income Taxes’ and IAS 23 ‘Borrowing Cost’

Plan Amendment, Curtailment or Settlement

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Uncertainty over Income Tax Treatments

With the exception of 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.

IFRS 9 FINANCIAL INSTRUMENTS
IFRS 9 ‘Financial Instruments’ addresses the classification, measurement and recognition of financial assets and liabilities. The standard replaces
IAS 39 ‘Financial Instruments: Recognition and Measurement’, and has been completed in a number of stages with the final version issued by the
IASB in July 2014. IFRS 9 introduces new rules for hedge accounting and a new impairment model for financial assets. The Group will apply the
standard for the reporting period commencing 30 December 2018. A complete review and assessment of IFRS 9 has been conducted with the
conclusion that the introduction of the standard will have no material impact on the Group.

www.bakkavor.com 107

107

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

1. GENERAL INFORMATION (CONTINUED)

IFRS 15 ‘REVENUE FROM CONTRACTS WITH CUSTOMERS’
IFRS 15 ‘Revenue from Contracts with Customers’ specifies how and when an IFRS reporter will recognise revenue as well as requiring such
entities to provide users of financial statements with more informative, relevant disclosures. The standard replaces IAS 18 ‘Revenue’ and IAS 11
‘Construction Contracts’. The Standard provides a single, principles-based five-step model to be applied to all contracts with customers. The Group
will apply the standard for the reporting period commencing 30 December 2018. Management’s assessment is that the adoption of IFRS 15 will
have no impact on the timing of revenue recognition compared with that adopted under IAS 18. The principal reason for this is that the Group only
has an enforceable right to bill once the product is delivered to the customer. A complete assessment has been carried out, focusing in particular
on variable consideration. Some agreements with customers offer discounts or volume rebates and the Group has reviewed these arrangements
and concluded that there will be no change to the timing of recognition of such variable consideration as a result of the introduction of IFRS 15.

GENERAL IMPACT OF APPLICATION OF IFRS 16 LEASES
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lessee accounting by
removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and a lease liability at the lease
commencement for all leases, except for short-term leases and leases of low-value assets.

The date of initial application of IFRS 16 for the Group is 30 December 2018.

The Group will apply IFRS 16 using the modified retrospective, asset equals liability approach with no restatement of the comparative information.

IMPACT OF THE NEW DEFINITION OF A LEASE
The Group will make use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease.
Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to leases entered or modified before
30 December 2018.

The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on the basis of
whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration.

The Group will apply the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modified on or after
30 December 2018. In preparation for the first-time application of IFRS 16, the Group has carried out an implementation project. The project has
shown that the new definition in IFRS 16 will not change significantly the scope of contracts that meet the definition of a lease for the Group.

IMPACT ON LESSEE ACCOUNTING
FORMER OPERATING LEASES
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance-sheet.

Applying IFRS 16, for all leases (except as noted below), the Group will:

a) recognise right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of

future lease payments;

b) recognise depreciation of right-of-use assets and interest on lease liabilities in the consolidated income statement; and

c) separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating

activities) in the consolidated statement of cash flows.

Lease incentives (e.g. free rent period) are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under
IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expense on a straight-line basis.

Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36 ‘Impairment of Assets’. This replaces the previous
requirement to recognise a provision for onerous lease contracts.

For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture),
the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense will be presented within other
expenses in the consolidated income statement.

FORMER FINANCE LEASES
The main difference between IFRS 16 and IAS 17 with respect to assets formerly held under a finance lease is the measurement of residual value
guarantees provided by a lessee to a lessor. IFRS 16 requires that the Group recognises as part of its lease liability only the amount expected to be
payable under a residual value guarantee, rather than the maximum amount guaranteed as required by IAS 17. This change will not have a material
effect on the Group’s Consolidated Financial Statements.

108 Bakkavor Group plc – 2018 Annual Report

108 | Bakkavor Group plc

IMPACT ON THE FINANCIAL STATEMENTS
The estimated impact ranges on the Financial Statements in the year of transition is expected to be as follows:

£ million

Depreciation increase

Finance costs increase

Other administrative costs decrease

Profit after tax decrease

Basic and diluted earnings per share decrease (pence)

Total assets increase at transition date

Total liabilities increase at transition date

Range low to high

(11)

(2)

(1)

(0.2)

(75)

(13)

(3)

(0.3)

(83)

Previously reported equity will remain unchanged under the approach taken by the Group.

The expected impact of adoption as at 30 December 2018 may be subject to change until the Group presents its first Financial Statements under the
new standards.

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 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 2020.

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. In addition, the Directors have carried out a robust assessment
of the potential implications of Brexit. 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 2018 is quoted in these Financial Statements this relates to the 52-week period ended 29 December 2018. The fiscal year 2017
relates to the 52-week period ended 30 December 2017.

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.

www.bakkavor.com 109

109

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 remeasured to fair value at the
acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in the income statement.

GOODWILL
Goodwill is initially recognised and measured as set out above in the ‘Business combinations’ note.

Goodwill is 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.

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
• 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.

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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.

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.

OTHER ITEMS
Other items are those that, in management’s judgement, should be disclosed by virtue of their nature or amount and 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 Other 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.

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FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

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 the income statement 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 the income statement 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.

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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.

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
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.

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FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL ASSETS
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose
terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value,
plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets at ‘fair value through profit or loss’ (FVTPL), and ‘loans and
receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

FINANCIAL LIABILITIES
Financial liabilities held by the Group are classified as other financial liabilities at amortised cost and derivatives at FVTPL.

LOANS AND RECEIVABLES
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as
‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest
income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

OTHER FINANCIAL LIABILITIES
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

EFFECTIVE INTEREST METHOD
Finance costs are recognised on an effective interest basis for debt instruments other than those financial liabilities designated as at FVTPL. The
effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating finance costs over the relevant period.

The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the debt instrument, or,
where appropriate, a shorter period, to the net carrying amount on initial recognition.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FVTPL
Financial assets and financial liabilities are classified as at FVTPL when the financial asset/liability is either held for trading or 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.

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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.

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.

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FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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 workforce. Details of the principal actuarial assumptions used in calculating the recognised asset/liability for the
defined benefit plan, and the sensitivity of reported amounts to changes in those assumptions, are given in Note 36.

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 Note 13 for further details.

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 position,
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 in the US and China.

The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’ as defined in Note 40.

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.

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The following table provides an analysis of the Group’s segmental information for the period to 29 December 2018:

£ million

Revenue

Adjusted EBITDA

Depreciation

Amortisation

Other items (Note 7)

Share scheme charges

Loss on disposal of property, plant and equipment

Loss on disposal of subsidiary

Share of results of associates

Operating profit

Finance costs

Other gains

Profit before tax

Tax

Profit for the period

Other segment information:

Capital additions

Interests in associates

Total assets

Non-current assets

International

Un-allocated

1,653.6

147.7

(35.1)

–

(6.5)

(1.5)

(0.2)

(4.6)

–

99.8

66.3

–

1,098.9

931.3

201.6

5.8

(4.8)

(0.4)

(15.0)

–

(0.2)

–

0.4

(14.2)

52.8

12.5

218.9

181.0

–

14.5

0.2

All of the Group’s revenue is derived from the sale of goods in 2018. There were no inter-segment revenues. The un-allocated amount of
£0.2 million in non-current assets relates to derivative financial instruments.

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

Other items (Note 7)

Share scheme charges

Loss on disposal of property, plant and equipment

Share of results of associates

Operating profit

Finance costs

Other losses

Profit before tax

Tax

Profit for the period

Other segment information:

Capital additions

Interests in associates

Total assets

Non-current assets

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

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.

Total

1,855.2

153.5

(39.9)

(0.4)

(21.5)

(1.5)

(0.4)

(4.6)

0.4

85.6

(13.2)

5.5

77.9

(10.7)

67.2

119.1

12.5

1,332.3

1,112.5

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

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117

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

4. SEGMENTAL INFORMATION (CONTINUED)

MAJOR CUSTOMERS
In 2018, the Group’s four largest customers accounted for 76.2% (2017: 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:

Customer A

Customer B

Customer C

Customer D

5. REVENUE

£ million

Continuing operations

Sale of goods

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

Other items (Note 7)

Change in fair value of other payable (Note 10)

Loss on disposal of property, plant and equipment

Loss on disposal of subsidiary (Note 30)

Share scheme charges (Note 35)

Foreign exchange (gains)/losses (Note 10)

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

2018

30.2%

25.0%

11.5%

9.5%

2017

30.2%

25.9%

11.5%

9.9%

2018

2017

1,855.2

1,814.8

2018

2017

39.0

0.9

7.7

885.5

1.0

0.4

21.5

4.2

0.4

4.6

1.5

(0.2)

485.1

38.8

0.8

9.3

863.3

3.4

0.7

15.4

–

0.5

–

0.8

2.9

460.4

2018

2017

0.1

0.4

0.5

0.1

–

0.1

0.3

0.4

0.3

0.5

1.2

Tax services for 2018 relate to overseas employment tax work under the derogation provisions for non-audit services. Audit related assurance
services in 2017 represent the fee for the audit of the Consolidated Financial Statements for the 26-week period ended 1 July 2017 required for
the public listing. Other assurance services relate to assurance work carried out for the public listing. The £0.8 million for audit related assurance
services and other assurance services in 2017 were charged to share premium.

All non-audit services provided in the prior period were incurred prior to the public listing in November 2017.

118 Bakkavor Group plc – 2018 Annual Report

118 | Bakkavor Group plc

7. OTHER ITEMS

The Group’s financial performance is analysed in two ways; underlying performance (which does not include Other items) and Other items
that are not expected to reoccur. 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
ongoing trading activities.

OTHER ADMINISTRATIVE COSTS
Other administrative costs include items that, in management’s judgement, should be disclosed by virtue of their nature or amount and will typically
include major restructuring programmes, legal cases, corporate transaction costs and pre-commissioning and start-up costs for new
manufacturing facilities. The amounts are as follows:

£ million

Continuing operations

Public listing costs

Restructuring costs

Legal cases

New site costs

Disruption costs

Onerous lease provision

GMP equalisation

Impairment of property, plant and equipment

Gain on bargain purchase

2018

2017

–

12.4

2.6

1.7

2.6

3.5

(1.3)

21.5

10.4

3.1

0.6

1.3

–

15.4

2018
The Group has incurred £21.5 million of Other items costs in the period, of which £12.4 million related to the initial start-up costs for the opening
of new factories in the US and China, and £2.6 million for disruption costs as the existing factory in Carson in the US was expanded. In addition, an
onerous lease provision of £1.7 million was made in respect of the Group’s non-core UK fast casual restaurant business and there was a charge
of £2.6 million in respect of meeting the change in GMP for the defined benefit pension scheme which came into force from October 2018.

During the period, the Group has made an impairment charge of £3.5 million in the UK segment (2017: £nil) of property, plant and equipment, as the
relevant assets no longer have any future value for the Group. See Note 15 for further information on the impairment charge.

The Group’s acquisition of Haydens Bakery Limited (see Note 31) resulted in a gain on bargain purchase of £1.3 million, which is required to be
released to income.

2017
In 2017, the Group incurred Other items costs of £15.4 million, of which £10.4 million related to costs incurred for the public listing in that year and
£3.1 million related to the cost of closing a site in the UK and moving related operations to other sites. The remaining costs related to the Group’s
International segment, of which £1.3 million were in respect of initial start-up costs for the opening of a new site in the US and £0.6 million were
due to ongoing employment litigation in the US.

Further information on Other items not included in administrative costs for the loss on disposal of subsidiaries in the period can be found in Note 30,
and for the fair value gain in the period can be found in Note 10. Further information on the refinancing expenses included within Other items in the
prior period can be found in Notes 9 and 10.

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119

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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 36)

Details of the emoluments paid to Directors are included on page 84 of the Directors’ remuneration report.

9. 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 27)

Total interest expense

Less: amounts included in the cost of qualifying assets

2018
Number

2017
Number

16,706

2,183

953

19,842

16,653

1,992

948

19,593

2018

2017

426.3

47.3

11.5

485.1

409.3

44.0

7.1

460.4

2018

2017

12.7

0.2

1.4

–

0.4

14.7

(1.5)

13.2

19.9

0.2

4.9

9.9

0.3

35.2

(0.2)

35.0

In 2017, the call premium of £9.9 million and the £3.3 million of accelerated amortisation of refinancing fees (included in the £4.9 million) relating to
the redemption of the 2018 and 2020 Senior Secured Notes were 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% (2017: 2.8%) to expenditure on such assets.

10. OTHER GAINS AND (LOSSES)

£ million

Continuing operations

Foreign exchange gains/(losses)

Change in the fair value of derivative financial instruments

Change in fair value of call option

Release of other payable

2018

2017

0.2

1.1

–

4.2

5.5

(2.9)

(2.1)

(17.2)

–

(22.2)

Other gains and (losses) for 2018 includes a gain of £4.2 million on the release of an amount in other payables that was held at fair value in respect
of a potential liability for a disputed historical claim which has not materialised and is now time-barred. This has been classified as Other items in
the consolidated income statement.

Other gains and (losses) for 2017 includes a loss of £17.2 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. The loss in 2017 has been classified as
Other items in the consolidated income statement due to the fact that this related to the previous financing structure.

120 Bakkavor Group plc – 2018 Annual Report

120 | Bakkavor Group plc

11. 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

Benefit arising from previously unrecognised temporary differences of a prior period

Unrecognised tax loss originating in the current period

Total deferred tax credit (Note 24)

Tax charge for the period

2018

2017

16.8

1.5

18.3

(3.0)

(0.2)

–

(4.6)

0.2

(7.6)

10.7

12.2

(0.4)

11.8

(3.0)

(0.3)

0.7

(1.6)

0.4

(3.8)

8.0

UK corporation tax is calculated at 19% (2017: 19.25%) of the estimated assessable profit for the period. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.

The Group tax charge for the period was £10.7 million (2017: £8.0 million). The £10.7 million charge represents an effective tax rate of 13.7%
(2017: 20.5%) on Profit Before Tax of £77.9 million (2017: £39.0 million). Most of the Group’s profits were earned in the UK, where the statutory
tax rate was 19% for 2018 (2017: 19.25%). This slightly lower rate reduced the tax charge by £0.2 million in 2018 (2017: £0.5 million).

The main reason for the lower effective rate was because of the increased recognition of deferred tax assets in respect of losses in overseas
subsidiaries. These are only recognised to the extent that the losses are expected to be used against future profits. Excluding Other items, the
effective tax rate was 14.9%. It is expected that the rate will be between 15% and 16% in 2019. Other reconciling items are shown in the table below.

Overseas tax rates that 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%.

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% (2017: 19.25%)

(Non-taxable income)/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

2018
£ million

77.9

14.8

(0.5)

–

1.5

0.2

(4.6)

(0.5)

(0.2)

10.7

2018
%

100.0

19.0

(0.6)

–

1.9

0.3

(5.9)

(0.7)

(0.3)

13.7

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

In 2018, the tax risk provision was £nil (2017: £nil) 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 the Group operates.

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 Organisation for Economic Co-operation and Development (“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 15 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 15 BEPS actions is expected to have any material effect on the Group.

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121

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

11. TAX (CONTINUED)

Similar to the BEPS initiative, the European Union has also introduced measures to prevent international tax avoidance. This applies to all
countries within the European Union. Subject to this, the member states are largely free to determine their own corporation tax system and tax
rates. For this reason it is expected that Brexit, in whatever form it may take, will not materially affect the corporation tax position of the Group.

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. 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 £1.0 million credit (2017: £2.1 million charge) relating to tax on the
defined benefit pension scheme actuarial surplus has been recognised directly in other comprehensive income. Also, a deferred tax charge of
£0.2 million (2017: £0.2 million credit) 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.

12. 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

NUMBER OF SHARES
‘000

Weighted average number of Ordinary shares

Effect of potentially dilutive Ordinary shares

Weighted average number of Ordinary shares including dilution

2018

67.2

2017

31.0

2018

2017

579,426

2,993

582,419

530,738

857

531,595

The weighted average number of shares in the prior period has been adjusted to account for the 5 for 1 share split that occurred in November 2017.

Basic earnings per share

Diluted earnings per share

2018

11.6p

11.5p

2017

5.8p

The Group calculates Adjusted basic earnings per Ordinary share and details of this can be found in Note 40, Alternative performance measures.

122 Bakkavor Group plc – 2018 Annual Report

122 | Bakkavor Group plc

13. GOODWILL

£ million

Cost

At 31 December 2016

Exchange differences

At 30 December 2017

Exchange differences

At 29 December 2018

Accumulated impairment losses

At 31 December 2016

Exchange differences

At 30 December 2017

Exchange differences

At 29 December 2018

Carrying amount

At 29 December 2018

At 30 December 2017

704.5

(4.8)

699.7

3.2

702.9

(53.0)

0.5

(52.5)

(0.2)

(52.7)

650.2

647.2

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

International

29 December
2018

30 December
2017

601.5

48.7

650.2

601.5

45.7

647.2

The International CGU grouping 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 (2017: £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 of 8.3% (2017: 8.3%) for the UK and 9.2% (2017: 9.7%)
for the International CGU grouping.

• 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% (2017: 1.7%).

The headroom for each CGU based on the impairment review is as follows:

£ million

Headroom of impairment test based on management assumptions

International

616.1

15.6

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 for the International CGU which has lower levels of headroom, are shown below:

• The pre-tax discount rate for the International CGU grouping is 9.2%. If the pre-tax discount rate for the International CGU were to be increased
by 0.5% from 9.2% to 9.7% then there would be no impairment charge. An increase to the pre-tax discount rate from 9.2% to 10.1% 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 0.7% would result in no headroom.
• If profitability over the five-year forecast period were to be reduced by 7.4% in the International CGU this would result in no headroom.

www.bakkavor.com 123

123

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

14. OTHER INTANGIBLE ASSETS

£ million

Cost

At 31 December 2016

Exchange differences

At 30 December 2017

Acquired on acquisition of subsidiary

Disposals

Exchange differences

At 29 December 2018

Accumulated amortisation and impairment

At 31 December 2016

Charge for the period

Exchange differences

At 30 December 2017

Charge for the period

Disposals

Exchange differences

At 29 December 2018

Carrying amount

At 29 December 2018

At 30 December 2017

Customer
relationships

Customer
contracts

88.7

(0.6)

88.1

0.7

(0.2)

0.4

89.0

(85.1)

(0.7)

0.3

(85.5)

(0.4)

0.2

(0.3)

(86.0)

3.0

2.6

1.6

–

1.6

–

(1.6)

–

(1.6)

–

(1.6)

–

1.6

–

Total

90.3

(0.6)

89.7

0.7

(1.8)

0.4

89.0

(86.7)

(0.7)

0.3

(87.1)

(0.4)

1.8

(0.3)

(86.0)

3.0

2.6

124 Bakkavor Group plc – 2018 Annual Report

124 | Bakkavor Group plc

15. PROPERTY, PLANT AND EQUIPMENT

£ million

Cost

At 31 December 2016

Additions

Disposals

Reclassifications

Exchange differences

At 30 December 2017

Additions

Acquisition of subsidiary

Disposals

Disposal of subsidiary

Reclassifications

Exchange differences

At 29 December 2018

Accumulated depreciation and impairment

At 31 December 2016

Charge for the period

Disposals

Reclassifications

Exchange differences

At 30 December 2017

Charge for the period

Impairment

Disposals

Disposal of subsidiary

Reclassifications

Exchange differences

At 29 December 2018

Carrying amount

At 29 December 2018

At 30 December 2017

Land and
buildings

Plant and
machinery

Fixtures and
equipment

194.7

9.4

(6.2)

3.9

(1.6)

200.2

41.8

8.1

(0.3)

(3.8)

–

2.5

409.0

58.5

(20.5)

(7.5)

(2.4)

437.1

63.3

0.7

(7.1)

(2.7)

(6.9)

2.2

248.5

486.6

(104.6)

(213.7)

(7.5)

4.5

(0.1)

0.7

(107.0)

(5.9)

–

0.3

3.6

–

(0.5)

(109.5)

139.0

93.2

(25.9)

19.4

(0.2)

1.3

(219.1)

(27.9)

(2.1)

6.5

2.7

6.9

(0.9)

(233.9)

252.7

218.0

65.8

9.8

(3.8)

3.6

(0.4)

75.0

14.0

2.3

(1.5)

(0.4)

–

0.3

89.7

(46.7)

(6.2)

3.7

0.3

0.2

(48.7)

(6.1)

(1.4)

1.5

0.4

–

(0.2)

(54.5)

35.2

26.3

Total

669.5

77.7

(30.5)

–

(4.4)

712.3

119.1

11.1

(8.9)

(6.9)

5.0

824.8

(365.0)

(39.6)

27.6

–

2.2

(374.8)

(39.9)

(3.5)

8.3

6.7

6.9

(1.6)

(397.9)

426.9

337.5

The carrying value of the Group’s plant and machinery includes an amount of £4.5 million (2017: £3.7 million) in respect of assets held under
finance leases.

At 29 December 2018, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting to
£13.2 million (2017: £7.6 million).

The carrying value of the Group’s property, plant and equipment includes an amount of £75.2 million (2017: £23.1 million) in respect of assets under
the course of construction for the Group Board’s development projects. In addition, there is a total of £8.3 million (2017: £nil) of other assets that are
under the course of construction.

During 2018, the Group has impaired £2.1 million (2017: £nil) of plant and machinery and £1.4 million (2017: £nil) of fixtures and equipment. These
impairments are included within ‘Other administrative costs’ as ‘Other items’ (Note 7). The impairments were all in the UK sector. The £2.1 million
(2017: £nil) impairment of plant and machinery arose from site restructurings which resulted in redundant, non-moveable, specialist assets which
have been assessed as having £nil value in use and are not saleable due to their specialist nature. The £1.4m (2017: £nil) impairment of fixtures
and equipment arose from fully impairing the assets of a subsidiary which is expected to generate operating losses for the foreseeable future.
The impairments were determined by comparing the carrying values of the assets with their recoverable amount being the higher of the asset’s
fair value less costs of disposal and its value in use.

During 2018 and 2017, reclassifications have been made to align assets to their correct classifications.

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125

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

16. 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.

Haydens Bakery Limited, a subsidiary which was acquired during the period (Note 31), has a different accounting reference date to the Group, being
31 March. Included in these Consolidated Financial Statements are the results for 6 September 2018 to 29 December 2018 and these results will be
included in Haydens Bakery Limited’s Financial Statements to 31 March 2019.

This subsidiary has a different accounting date to the Group due to the acquisition being completed relatively close to the Group’s period end.

17. INTERESTS IN ASSOCIATES

Details of the associated undertakings of the Group at 29 December 2018 were as follows:

Place of registration
and operation

Principal activity

Proportion of Ordinary shares

2018

2017

Method of
accounting

Name of associate

La Rose Noire Limited

Hong Kong

Producer of bakery and pastry products

45%

Equity

La Rose Noire
Limited

13.3

0.6

(1.2)

(0.7)

12.0

0.4

0.8

(0.7)

12.5

Non-listed
investments held
at cost

0.1

29 December
2018

30 December
2017

54.6

1.8

6.4

62.8

47.4

1.7

5.7

54.8

£ million

Associates that are not individually material

At 31 December 2016

Share of profit after tax

Exchange differences

Dividend payment

At 30 December 2017

Share of profit after tax

Exchange differences

Dividend payment

At 29 December 2018

18. OTHER INVESTMENTS

£ million

At 29 December 2018

At 30 December 2017

19. INVENTORIES

£ million

Raw materials and packaging

Work-in-progress

Finished goods

126 Bakkavor Group plc – 2018 Annual Report

126 | Bakkavor Group plc

20. TRADE AND OTHER RECEIVABLES

£ million

Amounts receivable from trade customers

Allowance for doubtful debts

Net amounts receivable from trade customers

Other receivables

Prepayments

29 December
2018

30 December
2017

115.3

(2.0)

113.3

18.8

10.6

142.7

120.8

(1.5)

119.3

19.1

9.5

147.9

The average credit period taken on sales of goods is 21 days (2017: 23 days). An allowance has been made for estimated irrecoverable amounts
from the sale of goods of £2.0 million (2017: £1.5 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

29 December
2018

30 December
2017

99.7

11.3

2.0

0.3

–

102.5

14.2

1.3

0.6

0.7

113.3

119.3

There was no impact from trade receivables renegotiated in 2018 that would otherwise have been past due or impaired (2017: no impact).

The major customers of the Group, representing 76.2% (2017: 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

Recognised from acquisition of subsidiary

Balance at end of the period

29 December
2018

30 December
2017

(1.5)

(0.7)

–

0.2

0.1

(0.1)

(2.0)

(1.1)

(1.3)

0.4

0.3

0.2

–

(1.5)

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127

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

21. CASH AND CASH EQUIVALENTS

£ million

Cash and cash equivalents

29 December
2018

30 December
2017

12.4

20.9

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.

22. BORROWINGS

The interest rates and currency profile of the Group’s borrowings at 29 December 2018 were as follows:

Facility

Term Loan A

Term Loan B

Revolving Credit Facility (RCF)

Currency

GBP

Facility
amount
£ million

210.0

37.5

200.0

Amount drawn
down at year end

£ million

Interest rate

210.0

Libor plus a margin of 2.10%

Libor plus a margin of 3.85%

Non-utilisation

fee Maturity date

N/A June 2021

N/A June 2024

Libor plus a margin of 2.10%

0.74% June 2021

37.5
68.71

1 A further £5.8 million has been drawn down in RCF ancillary facilities at the year end.

GROUP BANK FACILITIES
The Group’s total banking facilities amount to £447.5 million (2017: £447.5 million) comprising (i) a £247.5 million term loan (2017: £247.5 million
term loan), split £210.0 million and £37.5 million maturing in June 2021 and June 2024 respectively and (ii) £200.0 million Revolving Credit Facilities
(‘RCF’) (2017: £200.0 million RCF), which includes an overdraft and money market facility of £16.5 million (2017: £16.5 million) and further ancillary
facilities of £8.7 million (2017: £8.7 million). In addition to this, the Group put in place an uncommitted multi-currency money market loan facility
amounting to €35.0 million in 2018. No amount was drawn under this uncommitted facility at the period end.

The bank facilities are unsecured.

RECEIVABLES SECURITISATION FACILITY
The Group had a £50.0 million receivables securitisation facility in place until February 2018 when it matured and the facility was not renewed.

128 Bakkavor Group plc – 2018 Annual Report

128 | Bakkavor Group plc

£ million

Bank overdrafts

Bank loans

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 29 December 2018 and 30 December 2017, all of the Group’s borrowings were denominated in Sterling.

The weighted average interest rates paid were as follows:

Senior Secured Notes, bank loans and overdrafts

29 December
2018

30 December
2017

3.7

309.8

313.5

5.0

–

271.9

36.6

313.5

5.0

308.5

313.5

–

283.6

1.5

–

245.6

36.5

283.6

1.5

282.1

283.6

29 December
2018
%

30 December
2017
%

3.20

2.94

The Group has a £75.0 million notional principal interest rate cap that matures in October 2019. Interest on the Group’s term loan 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

29 December
2018

30 December
2017

316.2

287.5

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 and finance lease liabilities, and is as follows:

£ million

Analysis of net debt

Cash and cash equivalents

Borrowings

Interest accrual

Finance leases

Debt due within one year

Borrowings

Unamortised fees

Finance leases

Debt due after one year

Group statutory net debt

29 December
2018

30 December
2017

12.4

(3.7)

(1.3)

(1.6)

(6.6)

20.9

–

(1.5)

(0.8)

(2.3)

(312.5)

(287.5)

4.0

(3.9)

(312.4)

(306.6)

5.4

(3.1)

(285.2)

(266.6)

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129

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

23. DERIVATIVE FINANCIAL INSTRUMENTS

Held-for-trading derivatives that are not designated in hedge accounting relationships:

£ million

Interest rate contracts

Foreign currency contracts

Included in non-current assets

Interest rate contracts

Foreign currency contracts

Included in current assets

Foreign currency contracts

Included in current liabilities

Foreign currency contracts

Included in non-current liabilities

Total

29 December
2018

30 December
2017

–

0.2

0.1

1.8

1.9

–

2.1

0.1

–

0.1

–

1.6

(0.6)

(0.2)

0.9

Total

(15.0)

3.8

(0.3)

(1.9)

(13.4)

7.6

(0.1)

0.4

0.8

(4.7)

Further details of derivative financial instruments are provided in Note 28.

24. 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.

Accelerated
tax
depreciation

IAS23
capitalised
interest

Fair value
gains

Intangibles

Provisions

Impairment
losses

Retirement
benefit
obligations

Overseas tax
losses and
accrued
interest

Share
scheme

£ million

At 31 December 2016

(Charge)/credit to income –
continuing operations

Exchange differences

(Charge)/credit to equity

At 30 December 2017

(Charge)/credit to income –
continuing operations

Arising on acquisition

Exchange differences

Credit/(charge) to equity

(15.7)

(0.8)

–

(16.5)

(6.6)

–

(0.4)

–

(3.7)

3.5

–

(0.2)

(0.3)

(0.2)

–

(0.1)

1.0

0.2

0.1

(0.3)

(0.2)

–

(0.1)

–

0.7

0.3

–

1.7

(0.5)

–

(2.1)

(0.9)

–

1.0

0.1

–

0.1

–

0.2

0.3

–

(0.2)

0.4

1.6

1.9

(0.3)

–

3.2

14.1

–

0.8

–

18.1

–

At 29 December 2018

(23.5)

(0.3)

(0.4)

(0.1)

1.0

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

29 December
2018

30 December
2017

19.6

(24.3)

(4.7)

3.2

(16.6)

(13.4)

At the statement of financial position date, the Group had unused tax losses of £29.5 million (2017: £45.1 million) available for offset against future
taxable profits. Of these losses, £8.1 million will expire after five years if unused, the balance can be carried forward without time limit. 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.

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25. 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

29 December
2018

30 December
2017

29 December
2018

30 December
2017

1.7

3.7

0.4

5.8

(0.3)

5.5

0.9

2.5

0.9

4.3

(0.4)

3.9

1.6

3.5

0.4

5.5

1.6

3.9

5.5

0.8

2.3

0.8

3.9

0.8

3.1

3.9

The weighted average lease term outstanding is 4.3 years (2017: 5.6 years). For 2018, the weighted average effective borrowing rate was 3.80%
(2017: 4.45%). 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.

26. 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

29 December
2018

30 December
2017

232.6

2.0

23.5

133.6

391.7

(0.4)

391.3

209.0

2.2

29.2

153.4

393.8

(0.4)

393.4

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for
trade purchases is 55 days (2017: 57 days). No interest is incurred against trade payables.

The Directors consider that the carrying amount of trade payables approximates to their fair value.

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131

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

27. PROVISIONS

£ million

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

At 30 December 2017

Utilisation of provision

Additional provision in the year

On acquisition of subsidiary

On disposal of subsidiary

Unwinding of discount

At 29 December 2018

Included in current liabilities

Included in non-current liabilities

Onerous leases

Dilapidation
provisions

1.6

(0.5)

0.4

(0.3)

–

1.2

0.8

0.4

1.2

(1.0)

2.2

–

2.4

0.4

2.0

13.0

–

4.3

(1.1)

0.3

16.5

2.3

14.2

16.5

(0.8)

0.2

0.6

(1.0)

0.4

15.9

2.9

13.0

Total

14.6

(0.5)

4.7

(1.4)

0.3

17.7

3.1

14.6

17.7

(1.8)

2.4

0.6

(1.0)

0.4

18.3

3.3

15.0

Onerous lease provisions brought forward relate to two vacant properties where leases end in 2019 and 2020. A further provision has also been
made in the period for a site closed in a previous financial period, this site is expected to be sublet by the end of 2019. In addition, an onerous lease
provision of £1.7 million was made in the period in respect of the Group’s non-core UK fast casual restaurant business which has three property
leases, one of which expires in 2030 with the others expiring in 2031. As this business has been loss-making since incorporation, and this is expected
to continue for the foreseeable future, the leases are considered to be onerous. The provision has been calculated as the discounted total expected
costs for occupying the property (including rent, rates and service charges) through to December 2021 on the basis that this business will not be
loss-making by that time. 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, which ranges
from two to 32 years.

28. 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 22, 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.

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

29 December
2018

30 December
2017

319.0

(12.4)

306.6

569.4

287.5

(20.9)

266.6

510.1

35.0%

34.3%

Debt is defined as long and short-term borrowings, as disclosed in Note 22 and finance leases payable in Note 25.

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132 | Bakkavor Group plc

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

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

29 December
2018

30 December
2017

2.1

1.7

113.3

18.8

12.4

146.6

119.3

19.1

20.9

161.0

29 December
2018

30 December
2017

–

232.6

23.5

133.6

313.5

5.5

708.7

0.8

4.2

209.0

25.0

153.4

283.6

3.9

679.9

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 and other payables 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 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.

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133

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

28. 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; and
• Forward foreign exchange contracts to hedge the exchange rate risk arising on 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 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 29 December 2018, the Euro strengthened against Sterling by 1.4%, with the closing rate at €1.1093 compared with
€1.1249 at the prior period end. The average rate for the 52-week period to 29 December 2018 was €1.1303, a 0.9% strengthening of the Euro
versus the prior period.

In the same period, the US dollar strengthened against Sterling by 6.1%, with the closing rate at $1.2696 compared with $1.3522 at the prior period
end. The average rate for the 52-week period to 29 December 2018 was $1.3343, a 3.5% weakening of the US dollar versus the prior period.

The net foreign exchange impact on profit from transactions is a gain of £0.2 million (2017: loss of £2.9 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 in currency

Profit or (loss)
10% weakening in currency

29 December
2018

30 December
2017

29 December
2018

30 December
2017

(7.5)

(1.3)

(0.1)

(0.6)

(7.9)

(2.4)

(0.1)

(0.4)

9.2

1.6

0.2

0.7

9.7

2.9

0.2

0.5

134 Bakkavor Group plc – 2018 Annual Report

134 | Bakkavor Group plc

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 purchase transactions and minimise the exposure generated.

The following table details Sterling foreign currency contracts outstanding as at 29 December 2018:

Outstanding contracts

2018

2017

2018

2017

2018

2017

2018

2017

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

30.0

39.6

39.1

12.2

6.0

7.2

10.0

0.6

33.2

32.9

38.4

20.9

23.3

9.4

3.6

0.4

1.11

1.10

1.11

1.33

1.31

1.32

1.30

1.14

1.10

1.32

1.34

1.36

27.0

35.4

35.1

10.9

4.5

5.5

7.6

0.4

126.4

29.0

28.8

33.6

19.0

17.5

7.1

2.7

0.3

138.0

0.2

0.6

0.5

0.2

0.1

0.2

–

2.0

0.4

0.5

0.7

(0.2)

(0.3)

(0.2)

(0.1)

–

0.8

The following table details the US dollar foreign currency contracts outstanding as at 29 December 2018:

Outstanding contracts

Net Canadian dollars:

Less than 3 months
Net Euros:

Less than 3 months

Foreign currency
(million)

Average
exchange rate

Contract value
(US$ million)

Fair value
(US$ million)

Fair value
(£ million)

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

–

1.4

–

1.29

–

1.22

–

1.1

–

1.1

–

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, 24.0% (2017: 26.1%) of the Group’s borrowings were covered by an interest rate cap. 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.

(Loss)/profit
29 December
2018

(Loss)/profit
30 December
2017

(2.4)

3.0

(2.3)

2.9

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135

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

28. 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 contracts outstanding as at
29 December 2018:

Interest rate caps

6 to 12 months

Over 12 months

Average contract fixed
interest rate

Notional
principal amount

Fair value

2018
%

0.75

–

2017
%

–

0.75

2018
£ million

2017
£ million

2018
£ million

2017
£ million

75.0

–

75.0

–

75.0

0.1

–

0.1

–

0.1

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 76% (2017: 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.

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.

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 committed bank facilities. The Group’s current bank facilities comprise
a £247.5 million term loan (2017: £247.5 million) and a £200.0 million RCF facility (2017: £200.0 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. In addition to these
committed facilities, the Group has access to an uncommitted multi-currency money market line facility amounting to £31.6 million (€35 million)
(2017: £nil).

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 12 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 funding is available for the Group’s day-to-day needs. The Group maintains reasonable headroom of unused committed bank
facilities in a range of maturities at least 12 months beyond the period end.

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136 | Bakkavor Group plc

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

29 December
2018

30 December
2017

232.6

23.1

133.6

–

3.7

1.6

11.2

405.8

0.4

–

275.0

3.5

19.3

298.2

37.5

0.4

0.9

38.8

209.0

28.8

153.4

0.6

–

0.8

10.0

402.6

0.4

0.2

250.0

2.3

23.8

276.7

37.5

0.8

2.7

41.0

The weighted average interest rates for the Group’s borrowings are found in Note 22 and in Note 25 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

Finance costs

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

2018

2017

(13.2)

(35.0)

5.3

(19.3)

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137

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

29. SHARE CAPITAL AND RESERVES

SHARE CAPITAL

£ million

Issued and fully paid:

29 December
2018

30 December
2017

579,425,585 (2017: 579,425,585) Ordinary shares of £0.02 each

11.6

All Ordinary shares 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.

On 6 September 2018, the Company declared an interim dividend for the period ended 29 December 2018 of 2 pence per share to each of the Ordinary
shareholders totalling £11,588,512 which was paid on 5 October 2018. A final dividend of 4 pence per share has been proposed for approval at the
Annual General Meeting on 23 May 2019 and will be payable on 29 May 2019 to Ordinary shareholders on the register at 3 May 2019.

No dividends were declared for the period ended 30 December 2017.

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

Balance at 30 December 2017

Cancellation of share premium account

Balance at 29 December 2018

98.9

275.2

(8.0)

366.1

(366.1)

–

On 27 March 2018, the Company cancelled its share premium account of £366.1 million, resulting in a corresponding increase in retained earnings.

MERGER RESERVE
In 2017, the merger reserve was debited by £185.8 million as a result of the acquisition of Bakkavor Holdings Limited and the elimination of the
historical capital reserve which related to the previous group structure.

In 2007, a corporate reorganisation was completed to establish Bakkavor Holdings 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.

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138 | Bakkavor Group plc

30. DISPOSALS

2018
DISPOSAL OF SUBSIDIARY
On 2 July 2018, the Group disposed of its interest in Anglia Crown Limited. The net assets of Anglia Crown Limited at the date of disposal were
as follows:

£ million

Property, plant and equipment

Deferred tax asset

Inventories

Trade receivables

Other debtors

Prepayments

Trade payables

Accruals

Provisions

Net assets

Disposal costs

Loss on disposal

Total consideration

Satisfied by:

Cash and cash equivalents

Deferred consideration

Net cash outflow arising on disposal:

Consideration received in cash and cash equivalents

Less: cash and cash equivalent disposed of

2 July 2018

0.2

0.1

0.9

1.9

0.1

0.6

(2.0)

(0.3)

(1.0)

0.5

0.2

(4.6)

(3.9)

0.7

(3.2)

–

(3.2)

The transaction has resulted in a loss on disposal of £4.6 million being recorded in the consolidated income statement as an Other item.

The deferred consideration will be settled in cash by the Group on 2 July 2020.

2017
There were no disposals in the period.

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139

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

31. ACQUISITIONS

2018
On 6 September 2018, the Group completed the acquisition of 100% of the issued share capital of Haydens Bakery Limited from Real Good Food plc
for a total consideration of £11.4 million. The consideration comprised £0.5 million in cash and assumed borrowings of £8.5 million that were repaid
immediately, and £2.4 million of existing finance leases.

The primary reason for the acquisition was to increase the breadth and depth of the Group’s desserts range, extending the offering in in-store bakery.

The amounts recognised in respect of the fair value of the identifiable assets and liabilities assumed are as set out in the table below:

£ million

Other intangible assets

Property, plant and equipment

Inventories

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Obligations under finance leases

Provisions

Deferred tax liabilities

Net identifiable assets acquired

Gain on bargain purchase

Total cash consideration for share capital and assumed borrowings repaid

Net cash outflow arising on acquisition was:

£ million

Cash consideration for share capital

Immediate repayment of borrowings

Cash and cash equivalents acquired on acquisition

Cash outflow on acquisition of business

6 September
2018

0.7

11.1

1.5

4.0

0.5

(4.4)

(2.4)

(0.6)

(0.1)

10.3

((
(1.3)

9.0

6 September
2018

0.5

8.5

9.0

(0.5)

8.5

The Group was able to negotiate a purchase price within the seller’s required range, which led to a gain on bargain purchase of £1.3 million.

Acquisition-related costs (included in Other administrative expenses) amount to £0.3 million.

The results of Haydens Bakery Limited have been consolidated in the Group’s consolidated income statement from 6 September 2018 and
contributed £12.4 million of revenue and a loss of £0.2 million to the Group’s profit for the period.

If the acquisition of Haydens Bakery Limited had been completed on the first day of the financial period, Group revenues for the period would have
been £1,877.1 million and Group profit would have been £65.0 million.

2017
There were no acquisitions in the period.

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140 | Bakkavor Group plc

32. NOTES TO THE STATEMENT OF CASH FLOWS

£ million

Operating profit

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

Loss on disposal of subsidiaries (Note 30)

Gain on bargain purchase (Note 31)

Impairment of assets

Share scheme charges

Net retirement benefits charge less contributions

Operating cash flows before movements in working capital

(Increase)/decrease in inventories

Decrease in receivables

Decrease in payables

Increase in provisions

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*

2018

85.6

(0.4)

39.9

0.4

4.6

(1.3)

3.5

1.5

(2.9)

131.3

(7.4)

5.8

(3.3)

0.5

126.9

(14.7)

(13.1)

99.1

2017

96.2

(0.6)

39.6

0.7

0.5

–

0.8

(2.9)

134.3

4.4

41.7

(39.2)

2.9

144.1

(11.9)

(38.8)

93.4

31 December
2017

Cash flow

Exchange
movements

Other non-cash
movements

29 December
2018

(283.6)

(3.9)

(287.5)

20.9

(266.6)

(28.7)

1.1

(27.6)

(8.6)

(36.2)

–

0.1

(1.2)

(2.7)

(3.9)

–

(3.9)

(313.5)

(5.5)

(319.0)

12.4

(306.6)

* Includes accrued interest at 29 December 2018 of £1.3 million (2017: £1.5 million) and prepaid bank fees of £4.0 million (2017: £5.4 million).

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141

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

33. 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 Group is currently subject to a
National Living Wage enquiry, which has been ongoing since July 2017. Whilst the Directors consider that there is a possible financial impact from
this enquiry, given the stage of the enquiry it is not possible to quantify the potential financial impact and the outcome 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

29 December
2018

30 December
2017

2.9

2.5

As at 29 December 2018, the Group had purchase commitments for the next 12 months to guarantee supply and price of raw materials of
£129.3 million (2017: £96.5 million).

34. OPERATING LEASE ARRANGEMENTS

THE GROUP AS LESSEE
£ million

Continuing operations

2018

2017

Minimum lease payments under operating leases recognised as an expense in the period

12.0

12.2

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

29 December
2018

30 December
2017

29 December
2018

30 December
2017

6.6

36.2

48.0

90.8

5.4

38.7

47.3

91.4

2.7

2.9

0.1

5.7

2.8

4.6

0.1

7.5

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.

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35. 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 10 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 were as follows:

£ million

Outstanding at the beginning of the period

Granted during the period

Forfeited 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

29 December
2018

30 December
2017

29 December
2018

30 December
2017

9,178,785

2,842,686

(297,374)

–

9,178,785

–

11,724,097

9,178,785

–

£0.68

–

£0.47

£0.52

–

£0.68

–

£0.68

–

The options outstanding at 29 December 2018 had a weighted average exercise price of £0.52 (2017: £0.68), and a weighted average remaining
contractual life of 8.7 years (2017: 9.4 years).

In 2018, 2,842,686 options were granted on 9 April 2018. The options had the following performance conditions for vesting:

1. 216,976 vest provided that the individual is an employee in April 2021.

2. Provided that the first condition is met, 12.5% of the remaining options vest provided the Group’s TSR national rank versus a bespoke
peer group of 34 companies at 26 December 2020 is at the median level, this increases up to 50% of the remaining options based on a
sliding scale if the Group’s TSR rank at 26 December 2020 is at the upper quartile level.

3. Provided that the first condition is met, 12.5% of the remaining options vest provided the Group’s Adjusted EPS for the 2020 financial
year is 16.5 pence with up to a further 50% of the remaining options vesting on a sliding scale if the Group’s Adjusted EPS is between
16.5 pence and 18.6 pence for that year.

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 £175.0 million with up

to a further 25% vesting on a sliding scale if Group Adjusted EBITDA is between £175.0 million and £190.0 million for that year.

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 2018 is £16.7 million (2017: £6.6 million).

Date of grant

3 July 2017

20 October 2017

9 April 2018

Number of
options originally
granted

8,178,785

600,000

400,000

1,312,855

216,976

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

8.5

8.8

9.3

£1.44

£1.78

38.2%

37.5%

37.7%

24.5%

23.5%

N/A

1.3

3.3

2.3

0.87%

0.47%

0.56%

0.91%

1.17%

N/A

2.75%

0.00%

£0.65

£1.34

£1.26

£0.94

£1.78

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. Bakkavor Group plc listed in November 2017 and as such this
information is not available. Instead, the expected volatility has been based on the average volatility of a peer group of companies, which are of
a similar size and operate in a similar market to Bakkavor Group plc.

The Group recognised total expenses of £1.5 million (2017: £0.8 million) related to equity-settled share-based payment transactions in the period.

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143

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

36. 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

2018

8.3

–
3.21

11.5

2017

6.1

–

1.0

7.1

1 This includes a charge of £2.6 million in respect of Guaranteed Minimum Pension (‘GMP’) equalisation and has been shown as an Other item within Other

administrative costs in the consolidated income statement.

DEFINED CONTRIBUTION SCHEMES
The total cost charged to income of £8.3 million (2017: £6.1 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 £1.6 million at the
period end for the defined contribution schemes gross contributions (2017: £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 29 December 2018 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)

29 December
2018

30 December
2017

3.10%

2.65%

2.25%

3.05%

2.40%

2.20%

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
2018

Males’ expected
future lifetime
2017

Females’
expected future
lifetime 2018

Females’
expected future
lifetime 2017

41.8

22.3

41.7

22.3

44.2

24.4

43.9

24.4

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 £45.1 million/increase £61.3 million

Increase £19.4 million/decrease £19.7 million

Members assumed to be one year younger than their actual age

Increase £9.2 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

GMP equalisation

Total charge

2018

(0.2)

0.8

2.6

3.2

2017

0.2

0.8

–

1.0

All of the charges for each period presented have been included in total administrative expenses. The actuarial loss of £6.3 million (2017:
£12.3 million gain) has been reported in other comprehensive income.

The actual return on Scheme assets was a decrease of £11.0 million (2017: £23.5 million increase).

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144 | Bakkavor Group plc

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 (deficit)/surplus

Related deferred taxation asset/(liability) (Note 24)

29 December
2018

30 December
2017

241.4

(241.9)

(0.5)

0.1

(0.4)

265.8

(260.6)

5.2

(0.9)

4.3

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 in 2017 was 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 – demographic assumptions

Actuarial gain/(loss) – financial assumptions

Past service cost – plan amendments

Closing balance

Movements in the fair value of scheme assets were as follows:

£ million

Opening balance

Interest income on scheme assets

Return on scheme assets (less)/greater than discount rate

Contributions from the sponsoring Companies

Benefits paid from scheme assets

Administrative costs paid

Closing balance

The analysis of the scheme assets at the statement of financial position date was as follows:

£ million

Structured UK equity

Overseas equity

High yield bonds

Corporate bonds

Index linked government bonds

Cash

Other

29 December
2018

30 December
2017

(260.6)

(262.6)

(6.0)

16.4

–

10.9

(2.6)

(6.5)

13.4

1.0

(5.9)

–

(241.9)

(260.6)

29 December
2018

30 December
2017

265.8

6.2

(17.2)

3.8

(16.4)

(0.8)

241.4

252.6

6.3

17.2

3.9

(13.4)

(0.8)

265.8

Fair value of assets

29 December
2018

30 December
2017

1.8

29.4

10.0

13.6

125.4

22.9

38.3

241.4

6.6

38.1

18.9

12.8

134.1

29.8

25.5

265.8

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.

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145

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

36. RETIREMENT BENEFIT SCHEMES (CONTINUED)

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 four 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, opportunistic allocation of assets and the
‘structured equity’ component of the strategy increases the notional allocation to return-seeking assets to 95%. 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 20 years.

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 2018, a small augmentation of c. £5,000 was made in respect of this benefit (2017: £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. £3.8 million was paid in the period to 29 December 2018 (2017: £3.9 million).

The actual amount of employer contributions expected to be paid to the Scheme during 2019 is £2.8 million.

37. 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

2018

4.5

0.1

0.9

5.5

2017

9.3

–

0.4

9.7

1 This 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 35.

38. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE

There have been no significant events after the statement of financial position date to report.

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146 | Bakkavor Group plc

39. CONTROLLING PARTY

These Financial Statements are the largest consolidated Group Financial Statements in which the Company has been included.

At 29 December 2018, 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.

40. 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 ongoing trading activities.

LIKE-FOR-LIKE (LFL) REVENUE
The Group defines LFL revenue as revenue from continuing operations adjusted for the revenue generated from businesses closed or sold in
the current and prior year, revenue generated from businesses acquired in the current period and the effect of foreign currency movements. The
Directors believe LFL revenue is a key metric of the Group’s revenue growth trend as it allows 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

Revenue from acquisitions

Revenue from closed and sold businesses

Effect of currency movements

Like-for-like revenue

The following table provides the information used to calculate LFL revenue for the UK segment.

£ million

Statutory revenue

Revenue from acquisitions

Revenue from closed and sold businesses

Like-for-like revenue

The following table provides the information used to calculate LFL revenue for the International segment.

£ million

Statutory revenue

Effect of currency movements

Like-for-like revenue

2018

2017

Change %

1,855.2

1,814.8

2.2%

(12.4)

(6.2)

5.4

–

(30.2)

–

1,842.0

1,784.6

3.2%

2018

2017

Change %

1,653.6

1,636.3

1.1%

(12.4)

(6.2)

–

(30.2)

1,635.0

1,606.1

1.8%

2018

201.6

5.4

207.0

2017

Change %

178.5

–

178.5

12.9%

16.0%

www.bakkavor.com 147

147

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

40. ALTERNATIVE PERFORMANCE MEASURES (CONTINUED)

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
(non-cash) and those additional charges or credits that are considered significant or one-off in nature.

The following table sets out a reconciliation from the Group’s Operating profit to Adjusted EBITDA.

£ million

Operating profit

Depreciation

Amortisation

EBITDA

Other items (Note 7)

Loss on disposal of property, plant and equipment

Share scheme charges

Loss on disposal of subsidiary (Note 30)

Share of results of associates after tax

Adjusted EBITDA

2018

85.6

39.9

0.4

125.9

21.5

0.4

1.5

4.6

(0.4)

153.5

2017

96.2

39.6

0.7

136.5

15.4

0.5

0.8

–

(0.6)

152.6

Adjusted EBITDA by segment is reconciled to operating profit in Note 4.

OPERATIONAL NET DEBT AND LEVERAGE
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

Group operational net debt

Adjusted EBITDA

Leverage (Operational net debt/Adjusted EBITDA)

29 December
2018

30 December
2017

(306.6)

(266.6)

(4.0)

1.3

(309.3)

153.5

2.0

(5.4)

1.5

(270.5)

152.6

1.8

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 of 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

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

Refinancing costs

2018

99.1

0.7

(112.7)

52.1

–

15.9

–

55.1

2017

93.4

0.7

(79.1)

23.1

2.5

14.2

16.3

71.1

148 Bakkavor Group plc – 2018 Annual Report

148 | Bakkavor Group plc

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

Other items (Note 7)

Loss on disposal of subsidiary (Note 30)

Finance costs (Note 9)

Release of other payable (Note 10)

Change in fair value of call option (Note 10)

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

Effective tax rate on underlying activities
(Tax on underlying activities/Adjusted profit before tax)

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 earnings per share

Adjusted diluted earnings per share

2018

67.2

21.5

4.6

–

(4.2)

–

(4.2)

84.9

14.9

99.8

2017

31.0

15.4

–

13.2

–

17.2

(6.3)

70.5

14.3

84.8

14.9%

16.9%

2018

2017

579,426

2,993

582,419

530,738

857

531,595

2018

2017

14.7p

14.6p

13.3p

www.bakkavor.com 149

149

FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

40. ALTERNATIVE PERFORMANCE MEASURES (CONTINUED)

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 Other 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 the simple average of invested capital at the beginning of the
period and the end of the period.

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 out the calculations of adjusted operating profit after tax and invested capital used in the calculation of ROIC.

£ million

Operating profit

Other items (Note 7)

Loss on disposal of subsidiary (Note 30)

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 deficit/(surplus)

Deferred tax (asset)/liability on retirement benefit scheme

Invested capital

Average invested capital for ROIC calculation

ROIC (%)

2018

85.6

21.5

4.6

111.7

(16.6)

95.1

1,332.3

(762.9)

306.6

(2.1)

0.5

(0.1)

874.3

822.9

11.6%

2017

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%

150 Bakkavor Group plc – 2018 Annual Report

150 | Bakkavor Group plc

COMPANY STATEMENT OF FINANCIAL POSITION

29 DECEMBER 2018

£ 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

29 December
2018

30 December
2017

309.5

–

79.1

0.4

79.5

–

2.2

85.4

0.3

87.9

(0.4)

389.0

397.0

11.6

–

23.8

353.6

389.0

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 profit for the period was £2.3 million (loss for the three-month period ended 30 December 2017
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 5 April 2019. 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 30 DECEMBER 2017 TO 30 DECEMBER 2018

£ million

Balance at 28 September 2017

Issue of share capital

Share issue costs (Note 7)

Recognition of a merger reserve

Credit for share-based payments

Deferred tax on share schemes

Loss for the period

At 30 December 2017

Dividends paid (Note 7)

Cancellation of share premium account (Note 7)

Credit for share-based payments

Deferred tax on share schemes

Profit for the period

At 29 December 2018

Share
capital

–

11.6

–

11.6

–

11.6

Share
premium

Merger
reserve

Retained
earnings

–

374.1

(8.0)

–

366.1

–

(366.1)

–

23.8

–

23.8

–

4.6

–

0.8

0.2

(10.1)

(4.5)

(11.6)

366.1

1.5

(0.2)

2.3

Total
equity

–

385.7

(3.4)

23.8

0.8

0.2

(10.1)

397.0

(11.6)

–

1.5

(0.2)

2.3

23.8

353.6

389.0

www.bakkavor.com 151

151

NOTES TO THE COMPANY FINANCIAL STATEMENTS

PERIOD FROM 30 DECEMBER 2017 TO 29 DECEMBER 2018

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 periods ended 29 December 2018 and
30 December 2017 have been borne by fellow Group company Bakkavor Foods Limited. The Company has no employees and payments to Directors
for the periods ended 29 December 2018 and 30 December 2017 have been borne by fellow Group company Bakkavor Foods Limited.

4. INVESTMENTS IN SUBSIDIARIES

£ million

Balance at 30 December 2017 and 29 December 2018

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.

152 Bakkavor Group plc – 2018 Annual Report

152 | Bakkavor Group plc

5. SUBSIDIARIES

As at 29 December 2018, 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) Limited1
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 Dormant Holdings Limited1
Geest Corporation Inc17
Bakkavor Overseas Holdings Limited1
BV Foodservice Limited1
Bakkavor Foods Limited1
Haydens Bakery Limited1

Place of registration and

operation Principal activity

UK Holding company

Iceland Dormant 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 Customer invoicing and financing of receivables

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 Holding company

China Production and manufacture of salad products

China Production and manufacture of bakery products

China Production and manufacture of salad products

UK Holding company

UK Non-trading

USA Dormant holding company

UK Non-trading

UK Preparation and marketing of fresh prepared foods

Production and manufacture of dessert products

% of
voting
shares

100%

www.bakkavor.com 153

153

FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

5. SUBSIDIARIES (CONTINUED)

Name

Bakkavor Pension Trustees Limited1
Bakkavor European Marketing BV18
NV Bakkavor Belgium BV19
Bakkavor Fresh Cook Limited1
English Village Salads Limited1
Bakkavor Australia Pty Limited20
BV Restaurant Group Limited1
Bakkavor Iberica S.L.U.21
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 Limited22

Place of registration and

operation Principal activity

UK Pension trustee holding company

Netherlands Holding company

Belgium Non-trading

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

Hong Kong Operation of bakery and food and beverage outlets

% of
voting
shares

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, USA.

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 this company is Rong Tai Road, Cross-Striats Science & Technology Industry Development Park, Wenjiang District, Chengdu, China.

17 The registered address of this company is 251 Little Falls Drive, Wilmington, Delware, 19808, USA.

18 The registered address of this company is Prins Bernhardplein 200, 1097 JB Amsterdam, The Netherlands.

19 The registered address of this company is Lammerdries-Zuid 16F, 2250 Olen, Belgium.

20 The registered address of this company is Henry Davis York, 44 Martin Place, Sydney, NSW 2000, Australia.

21 The registered address of this company is Calle Cartagena 57, 1º D Torre Pacheco, Murcia CP 30700, Spain.

22 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.

154 Bakkavor Group plc – 2018 Annual Report

154 | Bakkavor Group plc

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.

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

£ million

Issued and fully paid:

29 December
2018

30 December
2017

79.1

85.4

29 December
2018

30 December
2017

–

0.4

29 December
2018

30 December
2017

579,425,585 (2017: 579,425,585) Ordinary shares of £0.02 each

11.6

All Ordinary shares 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.

No dividends were declared for the period ended 30 December 2017.

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

Balance at 30 December 2017

Cancellation of share premium account

Balance at 29 December 2018

98.9

275.2

(8.0)

366.1

(366.1)

–

On 27 March 2018, the Company cancelled its share premium account of £366.1 million, resulting in a corresponding increase in retained earnings.

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.

www.bakkavor.com 155

155

FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

8. RELATED PARTY TRANSACTIONS

During the period, the Company entered into the following transactions with related parties:

£ million

Amounts due from other Group companies

29 December
2018

30 December
2017

79.1

85.4

Amounts due from other Group companies relate to corporate loans of £79.1 million (2017: £85.4 million) due from Bakkavor Finance (2) Limited.

These amounts are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful
debts in respect of the amounts owed by related parties.

Amounts are denominated in Sterling. All related party receivables are held at amortised cost.

Amounts due from Bakkavor Finance (2) Limited carry interest of 3.4% (2017: 3.4%) per annum charged on the outstanding corporate loan balances.

9. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE

There have been no significant events after the statement of financial position date to report.

10. CONTROLLING PARTY

156 Bakkavor Group plc – 2018 Annual Report

156 | Bakkavor Group plc

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

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