EXCEPTIONAL PEOPLE
DRIVING OUR BUSINESS
BAKKAVOR GROUP PLC
ANNUAL REPORT & ACCOUNTS 2019
IT'S OUR EXCEPTIONAL
AND DEDICATED PEOPLE
WHO DELIVER OUR CORE
STRATEGY OF LONG-TERM
SUSTAINABLE GROWTH
Every day, our people play a crucial
role in driving quality and helping
to deliver great-tasting fresh
prepared food.
Our success is driven by the passion, dedication
and commitment of all our people. It’s their
determination and ideas that keep us agile
and fresh.
They live and breathe our values every day
and are our single most important asset.
We couldn’t do what we do without their
commitment to deliver better products.
We would like to recognise and thank our
colleagues for working so hard to make
this happen.
READ PAGES 16-18
To find out how our people help deliver
excellence throughout our business.
VIEW AND DOWNLOAD OUR ANNUAL REPORT AT
BAKKAVOR.COM
Bakkavor
@Bakkavor
Disclaimer — Forward-looking statements
This Annual Report, prepared by Bakkavor Group plc (“the Company”), may contain forward-looking
statements about Bakkavor Group plc and its subsidiaries (“the Group”). Forward-looking statements
involve uncertainties because they relate to events, and depend on circumstances, that will, or may,
occur in the future. If the assumptions on which the Group bases its forward-looking statements
change, actual results may differ from those expressed in such statements. Forward-looking
statements speak only as of the date they are made and the Company undertakes no obligation to
update these forward-looking statements. Nothing in this report should be construed as a profit
forecast. Some numbers and period-on-period percentages in this report have been rounded or
adjusted in order to ensure consistency with the financial information.
We are the leading provider of fresh prepared food (FPF)
in the UK, with a growing international presence in the US
and China. Our 20,000 employees operate from 45 locations,
including 39 factories, to develop and produce innovative
products for a wide variety of occasions and budgets.
2019 FINANCIAL HIGHLIGHTS
GROUP REVENUE
ADJUSTED EBITDA1
£1,885.9m
+1.5%
£153.5m
No change
OPERATING PROFIT
NET CASH FROM OPERATIONS
£69.4m
-19%
£114m
+15%
BASIC EPS
6.4p
-5.2p
01 STRATEGIC REPORT
About Bakkavor
At a Glance
Chairman’s Letter
Our Markets
Our Business Model
Our Strategy
Strategy in Action
Chief Executive's Review
Key Performance Indicators
Corporate Responsibility
Financial Review
Risk Management
Principal Risks and Uncertainties
02
04
06
08
10
14
16
19
26
30
50
54
58
66 GOVERNANCE
Chairman’s Letter on Corporate Governance 66
Corporate Governance Compliance
68
Statement
Group Board
Management Board
Corporate Governance Report
Report of the Nomination Committee
Report of the Audit and Risk Committee
Directors’ Remuneration Report
Directors’ Report
Statement of Directors’ Responsibilities
70
72
73
82
84
92
112
116
117 FINANCIAL STATEMENTS
117
124
125
Independent Auditors' 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
129
Statements
175
Company Statement of Financial Position
Company Statement of Changes in Equity
175
Notes to the Company Financial Statements 176
126
127
128
2019 OPERATIONAL HIGHLIGHTS
181 COMPANY INFORMATION
Clear leadership position in the UK with share gain in three core categories
Advisers and Registered Office
181
Completed investment at desserts site in Newark and integration
of Blueberry Foods on track
Benefitted from transfer of significant new meals business in the UK
following investment at four sites
Developing stronger US retail partnerships to build foundations
for future growth
Three new sites in China now fully operational, increasing capacity to
support growing demand
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 38 to the Consolidated Financial Statements.
01
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information ABOUT BAKKAVOR
OUR PEOPLE LIVING
OUR VALUES EVERY DAY
OUR PURPOSE
To provide the high-quality food that fast-paced,
modern living demands – allowing people
to focus on what really matters.
OUR MISSION
To develop and produce innovative, commercially
successful, great-tasting food that offers choice,
convenience and freshness to people around
the world.
02
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 RELATED PAGES
Chief Executive’s Review 19
Corporate Responsibility 30
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.
INNOVATION
We thrive on new
challenges, looking
for innovative ways
to grow and improve
our business further.
CAN-DO ATTITUDE
We encourage personal
initiative and empower
our people to make things
happen. Our motivation
comes from a determination
to succeed in all that we do.
TEAMWORK
We believe everyone
has a valuable part to
play in the success of
our business. We aim to
communicate effectively
and are committed to
the highest standards
of ethics and integrity.
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.
03
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information AT A GLANCE
WE ARE THE LEADING PROVIDER OF FRESH
PREPARED FOOD IN THE UK, WITH A GROWING
INTERNATIONAL PRESENCE IN THE US AND CHINA
UK
INTERNATIONAL
In the UK, we have 25 factories, four distribution
centres and a head office in London.
In the US, we have five factories, including a head
office in Charlotte, North Carolina, and in China, we
have nine factories plus our head office in Shanghai.
CORE PRODUCTS
MEALS
PIZZA & BREAD
DESSERTS
SALADS
AROUND
2,000
PRODUCTS IN OUR UK
PORTFOLIO
OVER
550
NEW PRODUCTS
CREATED IN THE UK
THIS YEAR
US
CORE PRODUCTS
MEALS
SOUPS & SAUCES
BREAD
DIPS
OVER
100
NEW PRODUCTS CREATED
IN THE US THIS YEAR
AROUND
500
PRODUCTS IN OUR
US PORTFOLIO
OVER
220
NEW PRODUCTS CREATED
IN CHINA THIS YEAR
OVER
500
PRODUCTS IN OUR
CHINA PORTFOLIO
CHINA
CORE PRODUCTS
FOOD-TO-GO
SALADS
FRESH CUT SALADS
SANDWICHES & WRAPS
BAKERY PRODUCTS
REVENUE
ADJUSTED EBITDA1
REVENUE
ADJUSTED EBITDA¹
£1,652.5m
£147.1m
£233.4m
£6.4m
88%
OF GROUP
REVENUE
96%
OF GROUP
ADJUSTED
EBITDA
12%
OF GROUP
REVENUE
4%
OF GROUP
ADJUSTED
EBITDA
CUSTOMERS
CUSTOMERS
DISCOVER MORE ON PAGE 21
DISCOVER MORE ON PAGE 24
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 38 to the Consolidated Financial Statements.
04
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 RELATED PAGES
Our Business Model 10
Our Strategy 14
OUR CORE PRODUCTS
CORPORATE RESPONSIBILITY
Our deep understanding of consumer food
choices enables us to create innovative products
that set us apart from our competitors.
We manufacture and market a wide variety of fresh
prepared food, covering a range of categories
including meals, desserts, pizza & bread and salads.
RESPONSIBLE SOURCING
IN OUR SUPPLY CHAIN
Responsible sourcing starts with transparency
and integrity in our supply chain.
SUSTAINABILITY AND INNOVATION
IN OUR OPERATIONS
We are tackling waste and reducing
the environmental footprint of our own
operations as well as of the food we produce.
ENGAGEMENT AND WELLBEING
IN OUR WORKPLACES AND COMMUNITIES
It is essential for us to provide a safe and inclusive
environment for our colleagues where everyone
can thrive and develop.
DISCOVER MORE ON PAGE 30
05
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CHAIRMAN’S LETTER
SIMON BURKE
CHAIRMAN
OUR 2019 RESULTS REFLECT
THE RESILIENCE OF THE GROUP
IN THE FACE OF TOUGH
MARKET CONDITIONS.
06
POST YEAR-END
While this Annual Report focuses on business activities for
2019, I want to start by paying tribute to my Bakkavor colleagues
everywhere for their extraordinary commitment during the
COVID-19 pandemic. They are working with imagination and
dedication to continue the essential supply of our food, whilst
we for our part are working to ensure their safety and wellbeing.
2019 OVERVIEW
More than anything, our 2019 results reflect the resilience of the
Group in the face of tough market conditions. We are pleased to
be reporting unchanged Adjusted EBITDA1 for a year in which
there were unhelpful consumer trends, continued inflationary
pressures and generally weak volumes in our UK markets.
These market conditions have persisted for some time, and
I am confident that our strategy of fostering strong, long-term
relationships with our main UK customers has been an important
factor in enabling Bakkavor to weather these challenges.
At the same time, we have been investing to build capacity in our
business, to take advantage of market opportunity, and to maintain
a leading manufacturing capability in our factories. The Board has
been keen to ensure that these investments deliver value and I am
pleased to report that results to date are very positive.
We have also invested significantly in our two international
markets. In the US, we are serving a relatively new and rapidly
developing part of the food market. However, we have added
capacity and capability across several product categories and
inevitably it is taking time for the returns to come through.
We are, however, greatly encouraged by the recent progress
we are seeing, and our confidence of success is high.
In China, our business continued its strong growth trajectory in
2019, again supported by a significant investment programme,
and the momentum continued into early 2020.
In every territory, our progress has of course now been interrupted
by COVID-19. I am very proud of the way our business has
responded to this, protecting our colleagues, whilst maintaining
very high fulfilment rates for our customers. Like everyone, we
hope that the outbreak will end soon, and we are ready to resume
full production when it does. The business resilience I mentioned
previously will stand us in good stead in this case too.
PEOPLE
Our Annual Report this year rightly focuses on our colleagues and
celebrates some of the great work they do. Without question, they
are the foundation of our success, and during the year we have
concentrated on keeping them with us. We were really pleased
with our recent employee survey, which showed high levels of
engagement and provided some great feedback that we are now
working to put into effect. We have continued to support colleagues
impacted by Brexit; in particular, providing help to those who need
to achieve settled status in the UK. We have also been bringing in
great talent, and I am delighted to see the Bakkavor apprentice
and graduate programmes go from strength to strength as we
continue to develop our Early Careers programme.
THE BOARD
The Board continued to develop during 2019, with all of our
Directors serving for the full year. I am delighted to have
welcomed Annabel Tagoe-Bannerman as Group General
Counsel & Company Secretary. In light of COVID-19, it is right
that members of the Board and Management Board have
recently agreed voluntary reductions in remuneration for
an initial period of three months.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 I'm delighted to see the Bakkavor
apprentice and graduate programmes
go from strength to strength as we
develop our Early Careers programme.
OUR WIDER RESPONSIBILITY
Bakkavor has always endeavoured to build its business
sustainably – for customers, investors, suppliers, and all
of those consumers who choose our food. We recognise that
businesses need to do more and that it is no longer sufficient
to merely ‘do enough’. The Board is delighted that we are
embarking on a new and enhanced Corporate Responsibility
strategy, with much more ambitious goals. Details can be found
on page 30. We will be monitoring this closely, and I look forward
to updating stakeholders on our progress in future reports.
DIVIDEND
The Group paid an interim dividend of 2 pence per Ordinary
share in October 2019. Due to the recent impact of COVID-19 on
the business, as part of the steps being taken to conserve cash
and plan for financial uncertainty, the Board has decided to
suspend the proposed final dividend as originally announced
with the Preliminary Results on 27 February 2020.
OUTLOOK FOLLOWING COVID-19 OUTBREAK
2020 started very well, but the landscape has changed
significantly since we released our results and COVID-19 has
now become a global health emergency. As I write this, we are
responding well to these challenges in the UK and working hard
to minimise disruption in the US. In China, signs of recovery in
demand are encouraging, but very gradual. Along with most other
businesses, we find it impossible to predict the eventual impact of
the virus. We are a well-capitalised and robust business and are
taking all the steps you would expect to protect our workforce,
our business, and our cash resources in the coming months.
Prior to the virus outbreak, we saw signs of improving volumes
in the UK and the US, and continuing strong sales in China.
Whilst we are monitoring other developments, such as post-
Brexit trade and immigration rules, we remain confident in
our medium-term prospects in all three markets.
GOVERNANCE IN ACTION
CASE STUDY:
PROGRESSING OUR APPROACH TO
CORPORATE RESPONSIBILITY THROUGH
A CLEARLY DEFINED FRAMEWORK
AND STRATEGY – 'TRUSTED PARTNER'
WHY?
Sustainability is an increasingly important
element of our longer-term risk management.
THE RISK
The strategy addresses a number of
sustainability risks including, among others:
the ability to continue to source ingredients,
mitigated by a structured programme of
responsible sourcing; a potential shortage of
labour in the future, mitigated by focusing on the
engagement, development and wellbeing of our
colleagues to maximise attraction and retention;
and over-consumption of resources, mitigated
by reducing levels of wastage and increasing
efficiency in production.
THE WORK OF OUR BOARD
AND INTERNAL COMMITTEES
The Group Board has approved a Corporate
Responsibility strategy, which we have called
‘Trusted Partner’, to guide our work in this area.
OUTCOMES
Detailed plans are being developed for our work
in 2020 and beyond under three focus areas:
Responsible Sourcing, Sustainability and
Innovation, and Engagement and Wellbeing.
SIMON BURKE
Chairman
5 May 2020
DISCOVER MORE ON PAGES 30 TO 49
07
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information OUR MARKETS
BAKKAVOR OPERATES ACROSS THREE DISTINCT
GEOGRAPHICAL MARKETS AND GATHERS GLOBAL
INSIGHTS TO HELP ENSURE OUR PRODUCTS REFLECT
CHANGING CONSUMER LIFESTYLES AND TRENDS.
ECONOMIC BACKDROP
GDP GROWTH RATES 2019 (IMF ESTIMATE):
UK 1.3%
US 2.3%
China 6.1%
In the UK, economic uncertainty together
with Brexit led to relatively weak consumer
confidence throughout 2019, which impacted
purchasing behaviours as shoppers looked
for ways to cut back. In addition, inflationary
pressures continued to influence the
promotional activity that helps drive interest
and spend across more discretionary
products in our ranges.
The US economy is projected to slow in 2020,
driven by subdued spending linked to political
uncertainties. However, unemployment remains
low at below 4% and we have seen a clear
increase in demand from US regional
retailers for pre-packaged FPF.
Despite slowing GDP growth in China and the
ongoing trade dispute with the US, Chinese
consumers continued to increase their spend
in FPF. The increasing number of urban,
middle-class consumers is the main driver,
with young, free-spending consumers in
lower-tier cities providing a ‘growth engine’
for the future. The COVID-19 outbreak in
China is expected to have significant short-
term impacts on the market, but no change
is anticipated in our long-term prospects.
GROWTH OPPORTUNITIES
• In the UK, our scale, expertise and ability
to respond quickly to changes in demand
enable us to tailor our products to specific
consumer preferences and price points for
each customer. This includes producing
items to a range of budgets as well as
looking at opportunities to create value
through our category breadth.
CONVENIENCE
The UK retail environment is
increasingly tough and competitive,
as shoppers now have access to
many more shopping channels and
store formats than in previous years.
FPF is perfectly aligned to meet the needs of
a wide variety of food shopping occasions and
missions, and with shoppers increasingly
eating meals outside the home, it is important
to tailor solutions to meet this demand.
In the US, there continues to be strong
interest for convenient FPF across the retail
sector, with limited suppliers possessing the
capability to deliver on retailers’ demands.
This, coupled with the increase in the number
of consumers purchasing prepared foods,
puts Bakkavor in a strong position to put
itself forward as a supplier of choice.
In China, growth opportunities continue with
our current customers.
GROWTH OPPORTUNITIES
• We continue to look for ways to make the
overall FPF shopping experience more
accessible and enjoyable, including exploring
store formats, product placements,
packaging innovations and promotional
activity to optimise the accessibility and
attractiveness of our products.
• Many of our FPF products give consumers
a convenient solution to reduce their time
preparing meals from scratch and gain
more time to do what they enjoy.
• The food-to-go category, which includes
wraps, salads and chilled snacks, is
likely to continue to benefit from shoppers
wanting solutions to meet their ‘on-the-go’
needs throughout the day.
• In China, we continue to extend our ‘food-
to-go' offer to some of the best-known
global food service-outlets and retail
brands and this now represents more
than half of our business in China.
• We continue to look at meal solutions that
reduce the financial burden on consumers
having to buy separate ingredients to
recreate a similar dish at a higher cost.
For example, our stir fry-packs and sauces
provide value and convenience.
• In the US and China, we are successfully
using our UK expertise to develop or
reconfigure products to meet local tastes.
Key fact: The Pizza Company offers the UK’s
biggest pizza deal – a £10 meal deal that
includes a pizza and range of complementary
sides and desserts all produced by Bakkavor.
• The size of the US can often mean
distribution of short shelf-life products is
challenging. Our model of either partnering
with regional retailers or working with those
that have well invested and effective supply
chains is proving successful in being able to
meet the growing consumer demand for FPF.
Key fact: In China, the popularity of food-to-go
is driving the growth of two of our best-selling
products – the Chicken Caesar Wrap and the
Chicken & Bacon Club Sandwich – with over
5.5 million products made by us in 2019.
08
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 RELATED PAGES
Our Business Model 10
Our Strategy 14
DEMOGRAPHICS
By 2022, the upper middle class in
China will account for 54% of urban
households and 56% of urban
private consumption1.
In the UK, the way households are structured is
changing and the FPF products we offer need
to consider and accommodate these trends.
For example, smaller households of one or two
people are growing in numbers at a faster rate
than households with three people or more.
In an ageing population, with the number of
people aged over 65 rising faster than the rest
of the population, it is important we respond to
their FPF needs. Similarly, we are seeing an
increased interest, particularly from under
25s, in meat alternatives and vegan meals,
as well as products packaged in a more
environmentally focused way.
Using food trends and inspiration from
abroad, we see further opportunity to
develop relevant and exciting recipe flavours
and ranges to meet the ever-changing tastes
of our consumer base and this insight and
expertise continues to differentiate us and
give us competitive advantage.
As US consumer habits evolve, primarily
including the pressures of leading a healthier
lifestyle, reducing food waste and reducing
animal protein levels in the diet, retailers are
looking to us to help them provide product
ranges that address these needs, while
helping them to deliver on their obligation
to clean label restrictions.
In China, the ongoing trend of urbanisation and
a growing demand for western food among its
rising middle class will continue to present
opportunities for Bakkavor to grow its basket
of products and consumer base. Out-of-home
consumption and pre-prepared convenience
products continue to grow in popularity
with young consumers, as supported by the
ongoing expansion of our customers' store
and restaurant portfolios in China.
GROWTH OPPORTUNITIES
• FPF already meets the needs of a broad
spectrum of shoppers and we must continue
to produce solutions that are commercially
relevant to a broad demographic: for example,
meals ranging from single household portions
to family portions, twin-pack desserts to
mini-selection desserts, and products that
meet specific nutritional or calorie targets.
Key fact: In the UK, according to Kantar
Worldpanel, households buy fresh prepared
food products on average 62.6 times a year
which is at least once a week.
HEALTHY AND ENVIRONMENTALLY CONSCIOUS LIFESTYLES
45% of UK shoppers agree that
they look out for new and different
healthy products to improve their
health – and this rises to 55% for
18-24-year olds2.
Consumers are increasingly looking for ways
to maintain a healthier lifestyle, whether that
is the trend towards plant and vegan-based
diets, controlling calories or subscribing to
a ‘flexitarian’ way of eating.
The rise of the ‘conscious consumer’
has led to an increased desire to consider
environmental factors, as consumers make
food purchase decisions to reflect more
sustainable and ethical lifestyle values.
Similarly, in the US consumer interest in plant-
based foods is a trend that is evident across
fast-food outlets as well as retail chains.
‘Light-eating’ foods are an emerging trend
in China, combining healthy and popular
western food choices with traditional
Chinese ingredients.
GROWTH OPPORTUNITIES
• We are actively working on developing
ranges that cover the full breadth of the
health spectrum. This includes calorie
controlled, nutritionally balanced, ‘free-
from’, vegan and plant-based products.
• Some of our products are viewed by
consumers as ‘inherently healthy’, for
example, salads, vegetables, soup and
hummus, and we continue to monitor trends
that we can adapt to these products. For
example, our hummus ranges have been
adapted to include ingredients such as
turmeric and beetroot.
Key fact: On average, we make over 90 vegan
and vegetarian products for UK consumers.
¹ mckinsey.com/industries/retail/our-insights/mapping-chinas-middle-class.
2 Institute of Grocery Distribution.
09
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information OUR BUSINESS MODEL
A PROVEN MODEL FOR
COMPETITIVE ADVANTAGE
WHAT DIFFERENTIATES US
HOW WE CREATE VALUE
R
E
I N G Q U A LITY, CREATING VALUE
E L I V
D
1 . I N S I G H T AND INNOVATION
O U R VALUES
G I T R I G H T,
G I T R I G H T
GETTI N
KEEPI N
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3 . P R
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 UK FPF
market and across four out of five*
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
Resilient financial profile and
sustainable track record for
organic growth
* Market leader in Meals, Pizza and Bread,
Salads and Desserts, with no presence in
the Sandwiches category.
10
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
RELATED PAGES
At a Glance 04
Our Strategy 14
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.
HOW WE CREATE VALUE
1. INSIGHT AND INNOVATION
4. COMPLEX MANUFACTURING
Our UK factories are operational 24/7,
364 days a year, providing approximately
2,000 different short shelf-life high-
quality 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 against
our own exacting service level standards.
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 to
our 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.
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 build 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.
3. PROCURING AND PLANNING
Our procurement teams work with
selected approved growers and
suppliers to source raw materials
that meet the quality standards required
to produce our products, in the right
quantities at the right competitive price.
They buy from more than 50 countries,
with no single supplier accounting for
more than 5% of total UK supplier spend.
Our planning experts ensure we can
produce, deliver and 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.
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
11
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information 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.
CUSTOMERS
SUPPLIERS
HOW WE ENGAGE
HOW WE ENGAGE
• Dedicated customer champions at senior
• Procurement Leadership Team with
business director level
• Supplier business reviews
• Insights team
• New Product Development team
• Technical team
• Customer site audits
ownership of specific product categories
• Dedicated Group buyers with category
& supplier expertise
• Regular supplier visits & audits – of both
technical & commercial nature
• New product development & innovation
• Cost/quality improvement initiatives
• Inbound logistics
• Industry conferences
WHAT WE DID IN 2019
WHAT WE DID IN 2019
We embedded our UK operational structure
to incorporate a more customer focused
leadership team.
We collaborated with suppliers and invested
significant time and effort in key areas such as
responsible sourcing and Brexit related planning.
We transferred a complex and significant
business win into our meals business for
our largest customer.
We strengthened our relationship with a
major customer in Texas, and developed new
customer relationships in our US business.
Alongside many of our customers, we continued
to support and collaborate on Environmental,
Social and Corporate Governance ("ESG")
related issues such as our carbon footprint
and responsible sourcing.
We supported our customers in industry
events such as Inclusion and Diversity in
Grocery in March 2019.
In the area of responsible sourcing, we worked
collaboratively with suppliers in areas such as
human rights, raw material integrity and the
environment and sustainability, all with the
aim of further improving security of supply
and resilience in our supply chain.
With regard to Brexit, extensive work was
carried out with EU suppliers, particularly
around stock management and inbound
supply chain planning as well as developing
new systems and processes, all with the aim
of de-risking our business to disruption in the
event of a no-deal Brexit.
NEW PRODUCTS DEVELOPED
SUPPLIER VISITS
870
200
12
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 LINK TO CORPORATE RESPONSIBILITY FRAMEWORK
RESPONSIBLE SOURCING
IN OUR SUPPLY CHAIN
SUSTAINABILITY AND INNOVATION
IN OUR OPERATIONS
ENGAGEMENT AND WELLBEING
IN OUR WORKPLACES AND COMMUNITIES
RELATED PAGES
Key Performance Indicators 26
Corporate Responsibility 30
Principal Risks and Uncertainties 58
INVESTORS
COLLEAGUES
COMMUNITIES
HOW WE ENGAGE
HOW WE ENGAGE
HOW WE ENGAGE
• 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
• Group Board awareness and support of our
workplace culture
• Employee forums
• Employee engagement survey
• Intranet
• Internal announcements and CEO messages
• School partnerships
• Charity fundraising
• Employee volunteering
• Local awards sponsorship
• Hosting community events
• Social media
to employees
• Group colleague magazine
• Colleague Awards
• Internal conferences
• Early Careers
• Brexit – supporting colleagues
WHAT WE DID IN 2019
WHAT WE DID IN 2019
WHAT WE DID IN 2019
We held three investor roadshow events across
London and Dublin and attended a number of
investor conferences throughout the year.
We hosted a number of analysts and investors
at our UK sites to support their understanding
of Bakkavor.
We held over 100 one-to-one investor meetings
and analyst calls.
We held an investor and analyst visit to showcase
the recent investment at our Newark desserts site.
Sue Clark, Non-executive Director, became
our Board Employee Representative. Employee
forums continue to be central to our engagement
strategy. Participation in our employee survey
rose to 87%. Our internal announcements
became more tailored, visual and engaging.
We enhanced our intranet experience and plan
to expand access. We extended our colleague
magazine and introduced a version in Mandarin.
We refreshed our Innovation Awards to reach
a broader Group audience and sites celebrated
local awards e.g. Long Service, Values. We
delivered a more targeted and interactive
experience for conference delegates. We
continued to support employees during Brexit.
We broadened our apprenticeship and graduate
schemes and applications increased, including
from international candidates.
In July, we hosted our annual ‘Fun Weekend’ in
Spalding, Lincolnshire, for employees and the
local community, raising over £25,000 for charity.
We also developed both of our three-year
charity partnerships – with FareShare and
Action Against Hunger – through targeted
campaigns including ‘Go Green Day’, ‘World
Food Day’ and a number of sports events
including Tough Mudder.
We also continued to support our local
communities via charities such as Mind in
Harrow and Centrepoint Homeless Charity
and we expanded our schools programme
‘IGD Feeding Britain’s Future’.
INVESTOR ENGAGEMENT MEETINGS
EMPLOYEE SURVEY ENGAGEMENT
CHARITY PARTNERS
100+
87%
RESPONSE RATE
13
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information OUR STRATEGY
WORKING TOGETHER TO DELIVER
LONG-TERM SUSTAINABLE GROWTH
RELATED PAGES
Our Business Model 10
Principal Risks and Uncertainties 58
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 discipline.
In 2020, the Group has been impacted by the COVID-19 outbreak.
Our current focus is safeguarding our people and minimising business
disruption. Further information can be found on page 58 of this report.
LINK TO CORPORATE RESPONSIBILITY FRAMEWORK
RESPONSIBLE SOURCING
IN OUR SUPPLY CHAIN
SUSTAINABILITY AND INNOVATION
IN OUR OPERATIONS
ENGAGEMENT AND WELLBEING
IN OUR WORKPLACES AND COMMUNITIES
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 partnerships 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.
WHAT WE HAVE ACHIEVED
FUTURE FOCUS AREAS
• We successfully leveraged our scale, expertise
and customer relationships to maintain our
number one position in the highly competitive UK
FPF market, against a backdrop of inflationary
pressure and continued weak consumer sentiment
• We will further strengthen our leadership
position by continuing to support our customers
with valuable consumer insight, best-in-class
product development capabilities and
technically superior and efficient operations
• We maintained industry leading standards for
service, innovation and technical delivery and
continued to invest in consumer insight to identify
emerging trends and shifts in consumption habits
to drive growth across our categories
• We are absolutely focused on delivering returns
from our recent investment in the desserts
category, by realising synergies from integrating
our acquired businesses and leveraging
capacity at our expanded Newark site
• We continue to explore organic and inorganic
growth opportunities across product categories
to ensure we remain on-trend amid changing
consumer habits and channel developments
• We continue to review the potential impact on
the business of Brexit, updating operational
plans accordingly to limit any impact. We will
work alongside our customers to navigate
through this ongoing uncertainty
• We strengthened our leadership in the desserts
category through the acquisition of Blueberry
Foods, the integration of Haydens Bakery and the
successful expansion of our Newark site, which is
now the largest chilled dessert manufacturing site
in Europe
• We strengthened our long-standing customer
relationships, most notably with a significant
business gain in meals with one of our strategic
customers
• We launched a new UK operating structure around
our four core categories and strategic customer
partnerships. This enables us to drive operational
focus across our production sites and align more
closely with our customers
KEY RESPONSIBILITY COMMITMENTS
• Ensure that discussions with our top five strategic
• Work towards our Champions 12.3 target of halving
food waste by 2030
suppliers include an understanding of their
environmental challenges and their plans to
mitigate the impacts associated with each material
or ingredient (2021)
14
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 2
ACCELERATING GROWTH
IN HIGH-POTENTIAL
INTERNATIONAL MARKETS
Bakkavor has developed a strong
and growing presence in the two
largest food markets in the world,
the US and China, where the
Group has operated for over 10
years. Our international strategy
will continue to 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
• Investing strategically in new
capacity and capability to support
growing demand
WHAT WE HAVE ACHIEVED
FUTURE FOCUS AREAS
We continued our programme of investments in both
markets to support our growth plans and remain ahead
of the competition. Operationally we continue to focus
on bringing in the relevant skilled resource through
international secondments and active recruitment.
In the US:
• We refocused our business and simplified our offer
by exiting certain low margin businesses, freeing
up resources and improving performance
• We undertook two major projects at our site in
Carson, California to repurpose the factory for
ready meals production, as well as a new process
for hummus production
We will continue to grow at pace in these
underserved markets by bringing new capacity
online and improving factory efficiency.
In the US:
• We continue to build our presence in ‘super’
categories, enhancing and building new
strategic partnerships with retailers committed
to fresh produce
• We remain focused on building production at our
new sites and optimising performance across
our footprint, by leveraging our UK operational
expertise, making targeted investments and
maintaining strict financial discipline
• Our new customer dedicated meals site in Texas is
in production and volumes are growing in line with
an agreed rollout plan, while production of
premium artisan bread has commenced at our
new site in Charlotte, North Carolina
In China:
• We will continue to grow our presence with
our existing customers through new product
development and expansion of our core offering
with new product categories
• We supported the launch of new fresh food offers
at two grocers and expanded our category offer
at a strategic customer
• We will continue to explore further growth
opportunities through our branded and own
label offer in the retail sector
In China:
• Our new state-of-the-art site in Shanghai has been
in operation since January and production at our
factories in Taicang and Chengdu has increased,
with volumes growing in line with our plan
• We continued to strengthen our relationship with
existing customers and delivered strong growth on
the back of the successful relaunch of our food-to-
go offer, as well as supplying innovative new
players with a growing product range
• We are starting to develop our retail offer through
both own label and branded products across
existing categories
KEY RESPONSIBILITY COMMITMENTS
• Increase the use of recycled and recyclable
materials in packaging for our US and Asia
businesses by sharing manufacturing expertise
and access to materials
• Work is underway at our new replacement
sites in Wuhan and Xi'an and we will constantly
review our capacity plans to ensure we meet
our customer demand.
• Expand our supplier management tools to our
US and Asia businesses to conduct a combined
environmental and social risk mapping by 2022
• Develop future leaders by expanding our
graduate programme in the UK and Asia to
the US, as well as doubling our apprenticeship
programme in 2020
3
IMPROVING
OPERATIONAL
EFFICIENCY
Bakkavor continues to invest in
operational efficiencies across
the Group to support its strategy
and to help offset margin
pressures across the business.
We do this by:
• Investing in automation and
continuous process improvement
• Sharing best practices across the
business led by our operational
finance team
WHAT WE HAVE ACHIEVED
FUTURE FOCUS AREAS
• In the UK, we completed the closure of our loss-
making meals site, Freshcook, in Holbeach,
Lincolnshire to protect profitability
• We delivered several efficiency improvements in
the year to help mitigate increasing cost pressures,
including investment in a number of small payback
projects to automate processes at our desserts
site in Newark and meals site in London
• We continued to drive improvement in our
factories through process controls, equipping
our people with the right skills and adapting our
ways of working
• We consolidated the recently acquired UK desserts
businesses which delivered synergy benefits
across procurement and overheads
• We will continue to actively seek opportunities
for further efficiency improvements across the
business, particularly focused on opportunities
to reduce our reliance on labour and improve
process standardisation across the Group
• Our operational finance team continues to build
an extensive pipeline of projects and capital
investment opportunities, including replacing
legacy refrigeration systems in our UK factories
• We will accelerate margin improvement at new
international sites by leveraging our UK expertise
through people transfers, training programmes
and formalising our knowledge sharing
KEY RESPONSIBILITY COMMITMENTS
• Reduce our relative carbon footprint and energy
intensity across operational manufacturing, year-
on-year and Group-wide, per tonne of product
• Demonstrate a continued commitment to H&S
measurement and performance improvement,
targeting zero serious accidents across the Group
15
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information STRATEGY IN ACTION
EXCEPTIONAL PEOPLE
I’ve been with Bakkavor
for 15 years and over this
time I’ve been promoted
four times, from being a
multi-skilled operative
to my current role as a
section manager. I love and
really value the fact that
everyone here has the
opportunity to progress
and, more importantly,
is encouraged to do so.
The manufacturing environment
is exciting and fast paced. We
operate a ‘just-in-time’ model, with
products made to order on short
production runs, often on the day
of delivery. It’s a complex process
that takes great planning and
scheduling. Having the expertise
and ability to meet our customers’
orders is key to our success and
continues to motivate me.
ANNA BIALAS
SECTION MANAGER, DESSERTS NEWARK
1
MANUFACTURING
AT SCALE
LEVERAGING NUMBER ONE
POSITION IN THE UK
UTILISING CAPACITY,
INCREASING CAPABILITY
One of our strategic objectives is to
leverage our number one position
in the UK. To do this we continually
review site capacity and capabilities
to improve efficiencies and increase
profitability across our site portfolio.
In desserts, we’ve continued to
invest in our Newark site and also
acquired Blueberry Foods in 2019.
This has strengthened our positions
and also enabled us to enter new
categories, such as single pot and
hot-eat desserts. We’ve also
become more efficient through
investing in automation and robotics.
>200
MILLION CHOUX
DESSERTS MADE A YEAR
1
DESSERTS ACQUISITION
16
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 EXCEPTIONAL PEOPLE
The culture of creativity and
culinary excellence within
our kitchens is at the heart
of our products. We don’t
just create and develop new
recipes; as a responsible
food producer we’re also
looking at how we can
reduce food waste, for
example by using different
edible parts of fruits and
vegetables which have in
the past been thrown away.
My role is exciting but also
incredibly rewarding at the
same time.
MATT BOIKE
DEVELOPMENT CHEF, BAKKAVOR USA
2
ACCELERATING GROWTH
IN HIGH-POTENTIAL
INTERNATIONAL MARKETS
THE INNOVATION TO DEVELOP
GREAT TASTING FOOD
LEVERAGING OUR UK EXPERTISE
TACKLING FOOD WASTE
A key part of our international strategy
involves leveraging our UK expertise
to support the development of our
businesses in the US and China.
We’re part of the industry movement
of Champions 12.3, supporting the
UN Sustainable Development Goals
target to halve food waste by 2030.
>220
DEVELOPMENT ROLES
ACROSS THE BUSINESS
In the US, we are using our
UK bakery experience to bring a
chilled rustic bread range to the
US – a first to market and exciting
opportunity for us in this category.
Offering UK colleagues with
specialist skills opportunities for
short-term secondments to the US
to support this new development
has been a great advantage.
We’ve made some progress in
2019 and are focused on doing
more in 2020.
In China and the US, we'll firstly be
working to understand our waste
footprint through measurement,
and then implementing targeted
interventions to reduce it by
recycling where possible.
17
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information STRATEGY IN ACTION
CONTINUED
EXCEPTIONAL PEOPLE
Within operational finance,
we look at ways to make
cost-savings across our
sites and support local
teams with tools and
techniques to achieve
efficiencies. One of our
big projects has been
looking at upgrading
our refrigeration.
The project will take time and is
a big investment by us, but it will
deliver such a positive environmental
impact. It’s great to be a part of such
a significant project and ahead of the
curve in driving such a step-change.
KULDIP BAINS
HEAD OF OPERATIONAL FINANCE, UK
INVESTING IN EFFICIENT
& SUSTAINABLE SOLUTIONS
£20m
INVESTMENT IN
ENERGY EFFICIENCY
DELIVERING COST SAVINGS
In addition, we are also investing
in technology to take the residual
heat from the new systems to
heat water for use in our factories.
The combination of these two
efficiency projects has the potential
to deliver significant savings on our
energy bills.
REDUCING OUR
ENVIRONMENTAL IMPACT
During 2019, we started a multi-
year programme to replace
legacy refrigeration systems
in our UK factories.
By the end of 2020, we expect to
have completed Phase 1 and will
have fully replaced the systems
in five UK factories at a cost of
almost £20 million.
This means we are replacing
Fluorinated Greenhouse Gases
(F-Gas) with sustainable solutions
that have a zero GWP (Global
Warming Potential), delivering
a significant reduction in our
environmental impact.
3
IMPROVING OPERATIONAL
EFFICIENCY
18
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 CHIEF EXECUTIVE’S REVIEW
AGUST GUDMUNDSSON
CHIEF EXECUTIVE OFFICER
OUR BUSINESS IS CENTRED
AROUND SCALE, INNOVATION,
EXPERTISE AND STRONG
CUSTOMER RELATIONSHIPS.
GROUP FINANCIAL HIGHLIGHTS
£ million
Revenue
Like-for-like revenue1
Adjusted EBITDA1
Adjusted EBITDA margin1
Operating profit
Operating profit margin
2019
20182
Change
1,885.9
1,857.2
1,787.2
1,757.9
153.5
8.1%
69.4
3.7%
153.5
8.3%
85.6
4.6%
1.5%
1.7%
–
(20bps)
(19.0%)
(90bps)
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 38 of the Notes to the Consolidated
Financial Statements.
2 Reported revenue for 2018 has been restated, the restatement is set out in Note 2
of the Notes to the Consolidated Financial Statements.
This is a robust and encouraging
result and I would like to thank
each of our 20,000 employees
for delivering this performance.
TO COLLEAGUES
Before turning to our 2019 performance, I would like to take this
opportunity to reiterate how proud I am of everyone at Bakkavor
and how they have reacted to the unprecedented nature of the
COVID-19 pandemic.
Our 20,000 colleagues across 45 locations in the UK, the US and
China are doing everything they can to ensure continued supply
of our products to the UK's leading grocery retailers and some
of the world's best-known brands. I recognise that these are
difficult times for everyone, and I would like to personally thank
each of my colleagues for their outstanding efforts. They are at
the heart of this business, and it is their health and safety which
remains our clear priority.
2019 PROGRESS IN CHALLENGING MARKET CONDITIONS
Bakkavor is a business centred around scale, innovation,
expertise and strong customer relationships. Our continued
investment in these key strengths has driven our progress over
the past year and will ultimately underpin our strategy of long-
term sustainable growth across the Group.
While economic and political conditions remained unhelpful
in 2019, the unique characteristics of the Group together with
our financial resilience continues to differentiate Bakkavor
from its competitors. This enables us to leverage our number
one position in the highly competitive UK fresh prepared food
industry, whilst accelerating our growth in international
markets and improving our operational efficiency.
Overall, Group revenue increased by 1.5% to £1,885.9 million,
with like-for-like revenue1 up 1.7% to £1,787.2 million. This
increase was primarily due to good growth in the Group’s
International segment together with a solid performance in
the UK despite relatively weak levels of consumer confidence.
As expected, Group Adjusted EBITDA1 was in line with the
prior year at £153.5 million, with operating profit down 19.0%
to £69.4 million as a result of initial start-up losses in our new
international sites and an increase in depreciation following a
period of heavy investment. In the UK, our financial discipline
19
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CHIEF EXECUTIVE’S REVIEW
CONTINUED
and clear focus on protecting profitability ensured that we
successfully held our Adjusted EBITDA1 margin. However, the
Group Adjusted EBITDA1 margin was slightly lower (-20bps) at
8.1% which reflects ongoing investment in our International
infrastructure to support volume growth and deliver the
efficiencies from scale.
We continue to generate strong free cash flow1 for the year at
£51.1 million (2018: £55.1 million), although debt levels were
higher during the period following further targeted investment,
including the acquisition of Blueberry Foods (now Bakkavor
Desserts Leicester) in the UK.
In challenging market conditions, this is a robust and encouraging
result and I would like to thank each of our 20,000 employees for
helping us to deliver this performance.
STRENGTHENING OUR FOUNDATIONS FOR THE FUTURE
While delivering our 2019 financial performance, we have
further strengthened our foundations to ensure the Group’s
long-term success.
In the UK, we continue to see considerable opportunity for
Bakkavor within the desserts category. Our upgraded Newark
site became fully operational in Q3, with new state-of-the-art
automation helping to increase our capacity and capabilities.
Elsewhere, we completed the integration of Haydens Bakery
and in June this was complemented by the acquisition of
Blueberry Foods, bringing additional capacity to our existing
product ranges, extending our capabilities into hot desserts
and building our market-leading position in this category.
In the US, our dedicated meals site in San Antonio is
steadily increasing volumes. Our relationship with the
customer is developing well and our oven ready products
for their own-label meals range have been well received by
consumers. Whilst this venture is still at a relatively early
stage, we are confident of its long-term success and continue
to discuss further opportunities to capitalise on this model.
Our new bakery in Charlotte is now operational, delivering
high-quality artisan bread for our customers.
In China, our recent investment in three factories, including
the completion of our new state-of-the-art facility in Shanghai,
leaves us ideally placed to capitalise on the growing trend for
fresh prepared food.
After experiencing strong momentum into January, our
China business has been impacted by the COVID-19 outbreak,
resulting in a sharp decline in demand, significantly reduced
production levels across all sites, and the temporary closure
of our sites at Wuhan and Taicang. We continue to prioritise
the wellbeing of our colleagues and their families, as well as
working closely with local authorities and our customers.
The ongoing uncertainty regarding the extent and duration of
the COVID-19 crisis will clearly have a material impact on the
Group’s International performance this year. However, we are
confident that the demand for our products in China remains
and we will restore production levels as soon as market
dynamics normalise. More recently, we are reviewing the
potential impact of the crisis on our UK and US operations
and ways in which we can safeguard our people and minimise
business disruption.
Further information on our response to the outbreak can be
found on page 58.
20
LEVERAGING OUR INNOVATION EXPERTISE
Innovation is the lifeblood of our business, and during the
period we continued to support our customers enabling them
to react quickly to changing consumer demands and shopping
behaviours. Our deep understanding of consumer tastes has
enabled us to work alongside our customers to create innovative
new products which appeal to the key market drivers of taste,
health and convenience, particularly in the growing vegan,
vegetarian and ‘free from’ categories.
We have helped our customers reconfigure the recipes and
designs of classic meal dishes and a number of these were
celebrated at our Annual Innovation Awards held in November.
For example, hummus production for our largest customer
advanced during the year and the full range now has a lower oil
content and is healthier for consumers. Similarly, we have also
seen innovation in packaging design, including a shift to using
more recyclable plastics, and whilst we have further work to do in
this area alongside our customers, we are making good progress.
In China, we have successfully used our UK expertise to
reconfigure some of our most popular dishes to meet local
tastes, with products such as Sichuan Style Mala Crayfish Salad
and our own-brand Fresh Kitchen Peppered Beef and Grain
Salad. We continue to extend our ‘food-to-go' offer to some of the
best-known global food service outlets and retail brands and this
now represents more than half of our business in China.
GROWING RESPONSIBLY AND SUSTAINABLY
As a Group, we have made meaningful progress this year in
developing our approach to corporate responsibility through a
formal Group-wide framework, based on the theme of ‘Trusted
Partner’. Working with colleagues, customers, partners and
suppliers, we are proud to have produced our new framework,
strategy and new commitments that reflect our ambitions and
will make us a more responsible business. The strategy covers
our supply chain, operations, workplaces and communities and
includes a focus on reducing food waste and minimising the
environmental impact of packaging.
We continue to support the United Nations Sustainable
Development Goal target 12.3 to halve food waste by 2030. We also
commit to achieving the goals of The UK Plastics Pact, including
eliminating problematic plastics and moving to 100% recyclable or
compostable plastic from 2025 and have already made significant
progress, including removing 50 million pieces of plastic in 2019.
We will use our expertise to evaluate and manage environmental
and social risks across our supply chain, understand our exposure
to climate risk and take action to mitigate the impact where
possible. The investment plan to upgrade our factory refrigeration
systems has already supported greater energy efficiency at site-
level and we will continue to focus on operational improvements
that reduce our carbon footprint. Our work in this area is fully
aligned with all our key stakeholders. Our CR framework sets
this out in more detail, see pages 30 to 49.
DEVELOPING OUR EXPERTISE
We continue to recruit talented individuals at all levels across
our organisation who bring the skills and experience to support
our exciting growth ambitions. At a senior level we were delighted
to welcome in the past year Justin Bushby as Group IT Director,
Annabel Tagoe-Bannerman as Group General Counsel & Company
Secretary and Sebastiano Macchi as Group Strategy Director.
In September, we carried out our latest Group-wide employee
engagement survey, achieving a high response rate of 87% from
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 OPERATIONAL REVIEW
UNITED KINGDOM
The UK is Bakkavor’s largest market, representing around 90%
of overall Group revenue. Our priority is producing innovative
food that offers quality, choice, convenience and freshness for
consumers, and this has been the foundation of our success and
continues to drive our performance in the UK.
We produce over 2,000 short shelf-life products, the majority of
which are manufactured and delivered to our customers every
day. These customers represent some of the largest and most
well-known UK retailers, including Tesco, M&S, Waitrose and
Sainsbury’s, which collectively make up around 87% of UK
revenue, and each has a long-term commitment to developing
their fresh prepared food offer to consumers.
In 2019, our strong customer focus and proven operating model
in dealing with complexity and scale continued to give us a
unique competitive advantage and enabled us to respond and
adapt quickly to deliver outstanding service levels, above the
industry average.
Whilst the UK economic and political landscape throughout
2019 continued to present us with many challenges, we
maintained our leading position across all four FPF categories
in the year and also gained overall market share.
STRATEGIC POSITIONING
• Operating in attractive markets
• Scale and market-leading position across all four product
categories
• Strong insight, innovation and new product development focus
• Long-standing partnerships with key strategic customers
UK FINANCIAL HIGHLIGHTS
£ million
Revenue
Like-for-like revenue1
Adjusted EBITDA1
Adjusted EBITDA margin1
Operating profit
Operating profit margin
2019
2018
Change
1,652.5
1,559.8
1,655.6
1,556.3
147.1
8.9%
89.6
5.4%
147.7
8.9%
99.8
6.0%
(0.2%)
0.2%
(0.4%)
–
(10.2%)
(60bps)
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 38 of the Notes to the Consolidated
Financial Statements.
our employees. The survey highlighted that our employees feel
more engaged and enabled to fulfil their potential. The feedback
is invaluable and allows us to make positive changes to working
practices as we continue to create an environment where our
people enjoy their jobs and feel valued, motivated and recognised.
We also launched an updated careers website to attract the
best talent into the business. Late in 2019, in response to the
engagement survey, we announced a commitment to relaunch
our overall talent strategy, outlining a new vision in early 2020,
including a set of principles and leadership framework that
defines, manages and rewards performance.
DIVIDEND
The Group paid an interim dividend of 2 pence per Ordinary
share on 11 October 2019.
Due to the impact of COVID-19 on the business as a post balance
sheet event and the pro-active steps currently being taken
around cash and investment, the Board has decided to suspend
the proposed final dividend as originally announced with the
Preliminary Results on 27 February 2020. Consequently, the
resolution in relation to the declaration of the final dividend
will not be put forward at the AGM to be held on 12 June 2020.
This will result in a total dividend for the financial year 2019 of
2 pence per Ordinary share, compared to 6 pence in the prior
year. The Board will review dividend policy in due course.
UPDATED OUTLOOK FOLLOWING COVID-19
Following an encouraging start to the new financial year,
the COVID-19 outbreak has created significant operational
challenges, initially in China and more recently in the UK
and US. The impact of this has led to increased volatility in
daily order levels, and some disruption to labour availability.
While our colleagues and infrastructure have responded
well in ensuring excellent service levels for customers, as
we reported in our trading update on 2 April 2020, trading
has been impacted and overall sales are below expectations.
Bakkavor is a resilient and cash generative business, which
has market leading positions in each of the categories it
operates and is responding to the impact of COVID-19 from
a position of strength. However, given that market conditions
are likely to remain highly uncertain for the foreseeable
future, we have withdrawn our guidance for 2020, issued on
27 February 2020, and committed to a number of important
actions to preserve liquidity. These include maintaining a tight
control on costs, placing all non-essential capital investment
and discretionary expenditure on hold and reviewing capacity
across our facilities to better match the current levels of
demand. Wherever possible, we have supported any impacted
colleagues by making use of the Job Retention Scheme
(Furlough) introduced by the Government in the UK.
In addition to these pro-active steps around cash and
investment, the Board decided to suspend the proposed final
dividend and we will review our dividend policy in due course.
Members of the Board and Management Board also agreed
voluntary reductions in remuneration for an initial period of
three months.
These are extraordinary and uncertain times, but Bakkavor
has an essential role to play and, looking further ahead, we
remain confident that the strength of our business and strategy
leaves us well positioned to achieve long-term sustainable
growth within the attractive FPF sector.
21
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CHIEF EXECUTIVE’S REVIEW
CONTINUED
PERFORMANCE OVERVIEW
Our UK business segment generated £1,652.5 million of
reported revenue in 2019, down 0.2% compared to the prior
year. Like-for-like revenue1, excluding closures, disposals and
acquisitions, was £1,559.8 million, 0.2% up on 2019. This was
due to volume increases of 0.5% being partly offset by price
decreases of 0.3% in response to an easing of raw material
inflation in the first half and raw material deflation in the
second half of 2019.
Underlying volume growth has been limited for the year as
a whole as consumer confidence remained weak. In addition,
retail price inflation affected consumer spending patterns,
with shoppers reducing their total spend by buying less
frequently and substituting products for less expensive ones.
This reduction in frequency, combined with tough comparatives
due to good weather the previous summer, meant that organic
volume growth in our business was challenging.
MARGIN PROTECTION AND OPERATIONAL EFFICIENCIES
Recognising the difficult market conditions, our clear focus
during the year was on protecting profitability and winning
further market share to ensure long-term success. As such,
we are pleased to report that, in a volatile environment, the
strength of our offer saw us achieve more business wins than
losses, underpinning our market share gains in three of our
four categories, especially in the final quarter of the year.
Our disciplined approach to profitable growth has been
particularly focused on winning additional business with our
four strategic customers, with whom we believe our commercial
relationships have never been stronger. There is a recognition
from them that by doing more together we can unlock value for
each of our respective businesses, as we leverage and benefit
from our combined expertise and scale. This partnership
approach, centred around shared values, helped drive our
business gains in the year, and all business losses were
due to an inability to agree commercial terms that met our
target returns.
Given our focus on maximising profitability, in April 2019 we
closed our Freshcook meals facility at Holbeach, Lincolnshire.
This dedicated customer site became loss-making in 2018 as
we were unable to recover sufficient raw material inflation
and we therefore regretfully took the decision that the site was
no longer commercially viable. We are pleased to say that the
majority of our Freshcook colleagues were offered alternative
roles, relocating to neighbouring Bakkavor sites. The site is
owned and will therefore provide future capacity to capitalise
on opportunities as the market continues to consolidate.
Whilst we saw commodity price inflation ease in the second half,
labour inflation remained, fuelled by further pressure on wage
rates due to increases in the National Living Wage, and the
ongoing impact of complying with auto enrolment pension
requirements. We continue to work tirelessly to deal with
this pressure. Internally, our focus is on lowering employee
turnover and driving efficiency, whilst externally we are working
with our customers to ensure that our overall pricing remains
sustainable. Increasingly our business relationships are
underpinned by cost models that link to our selling prices,
giving transparency and supporting commercial discussions.
UK segment decreased by £10.2 million in the year from
£99.8 million in 2018 to £89.6 million, mainly due to an increase
of £6.4 million in exceptional items following the closure of a
meals site and the non-core fast casual restaurant business.
Depreciation, excluding the IFRS 16 impact, has increased by
£4.0 million in 2019 compared to 2018.
DELIVERING CATEGORY EXCELLENCE
ACROSS OUR PORTFOLIO
As well as strengthening our strategic customer partnerships
we believe our continued focus on developing the depth and
breadth of our core categories of meals, pizza & bread, desserts
and salads remains key to our success. Our product portfolio
remains well balanced across all categories and price points
and is able to adapt to seasonal changes in consumer eating
patterns. In 2019, following increased investment, we delivered
a step change across our meals and desserts sites which was
instrumental in securing new business:
MEALS CATEGORY GROWTH
Across our meals business we invested in capability and
capacity at four of our meals sites to accommodate a significant
business gain. The new business is a natural fit with our existing
skill set and represents the largest single transfer of business
to the Group. All new business was successfully onboarded by
the beginning of September, with a dedicated project team that
executed this complex plan on time and on budget. This project
has ultimately redefined and strengthened our customer
relationship and enabled us to deliver a stronger joint model.
DESSERTS CATEGORY CONSOLIDATION
Current market conditions continued to provide us with
opportunities to consolidate and strengthen our market leading
position in our core categories, especially desserts. Alongside
commissioning the final phase of our Newark investment, in
June we also acquired Blueberry Foods, now Bakkavor
Desserts Leicester. The acquisition was fully aligned to our
customer strategy as this business was a key supplier to our
two largest customers. We acquired capability and capacity,
a well invested site with values aligned to our own, and a strong
track record of technical delivery. These investments, along
with our acquisition in 2018 of Haydens Bakery – now Bakkavor
Desserts Devizes – further strengthen our market-leading
position and leave us well placed to benefit from future growth
opportunities in this category.
SEASONAL CHANGES AND VOLATILITY
The complexity of our business model allows us to react and
respond quickly to changes in customer eating habits. However,
in recent years the salads category has become increasingly
unpredictable, exacerbated by concerns over quality and
availability of produce. In the summer months of 2019, we
had significantly fewer ‘sun hours’ than the prior year, and
consequently we saw a decline in performance in this category.
In response, we continue to review our operational strategy in
this category to improve efficiencies and protect our margins.
However, this year’s relative underperformance in the salads
category was partially offset by strong trading across our pizza
& bread category, in part due to increased promotional activity
and a large number of new product launches. Once again this
emphasises the benefit of having a balanced business in the UK.
The actions taken during the year ensured that whilst our UK
Adjusted EBITDA1 dropped slightly to £147.1 million, we held our
Adjusted EBITDA margin1 at 8.9%. The operating profit for the
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 38 of the Notes to the Consolidated
Financial Statements.
22
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 CATEGORY INNOVATION
Our track record of innovation and operational delivery
underpins everything we do across our business. We are
focused on ensuring our products are best in class and tailored
to the specific consumer preferences and price points for each
retailer, whether that be a core Indian meal or a top tier lasagne.
Alongside this, we use our category breadth to deliver new meal
occasions. For example, together with our largest customer we
created The Pizza Company, a unique pizza meal deal concept
which includes a range of complementary sides and desserts
produced across our business. This has been highly successful
and driven incremental sales. Christmas is a great time for us to
showcase our innovation, particularly in the desserts category
where we worked closely with our customers to create
statement desserts for the festive season. These fun and
memorable desserts included a sticky toffee family trifle and a
‘smash nose reindeer’ cheesecake which were both particularly
popular with consumers!
CAPITAL INVESTMENT
In addition to completing the major expansion of our desserts site
at Newark in August we have also made significant investments
in four of our meals sites in preparation for the new business that
we took on during the autumn. This investment helped ensure
that we were able to deliver a smooth transfer of this complex
project on time.
During 2019, we also started a multi-year programme to
replace legacy refrigeration systems in our UK factories,
targeting the oldest systems in our portfolio. By the end of
2020, we expect to have completed Phase 1 and will have fully
replaced the systems in five UK factories at a cost of almost
£20 million, replacing Fluorinated Greenhouse Gases (F-Gas)
with sustainable solutions that have a zero GWP (Global
Warming Potential), delivering a significant reduction in our
environmental impact. In addition, we are also investing in
technology to take the residual heat from the new systems to
heat water for use in our factories. These two efficiency projects
are expected to deliver significant savings on our energy bills as
well as reduce our carbon footprint.
In addition to the regular maintenance spend required across
our UK sites to keep them to the very high standards we expect,
we have continued to target productivity improvements that help
offset ongoing increases in labour inflation. Going forward, we
will be strengthening our Operational Finance Team, who are
charged with identifying opportunities and delivering efficiency
improvement projects. These can range from small low risk
investments such as low-level depositing solutions to more
complex step change investments like upgrading our Factory
Management Reporting and Control System.
BREXIT PLANNING
Throughout 2019, the political and economic uncertainty linked
to Brexit continued to impact our business, creating uncertainty
for our employees and potential disruption across our supply
base. The availability of raw materials remained our biggest
focus and our central procurement team undertook a detailed
risk analysis to evaluate the origins of all our ingredients and
raw materials, putting in place plans to increase stock holdings
of key ingredients where possible and if necessary. In addition,
we continued to work closely with our customers to review
various scenarios, including reduced stock availability, possible
SKU reductions, product reformulations and review of
promotional strategies.
Around 50% of our UK employees are EU citizens and whilst
we have seen little change in our overall employee turnover
rates, we continue to support those potentially impacted by
the implications of the UK’s exit from the EU. We have an active
engagement and support programme across all sites, including
facilitating workshops on the practicalities of the settlement
scheme application process.
23
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information 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 FPF proposition in the US, and in supplying foodservice
chains in China with high standards of food safety and quality.
INTERNATIONAL FINANCIAL HIGHLIGHTS
£ million
Revenue
Like-for-like revenue1
Adjusted EBITDA1
Adjusted EBITDA margin1
Operating loss
Operating loss margin
2019
233.4
227.4
6.4
2.7%
(20.2)
(8.7%)
2018
201.6
201.6
5.8
2.9%
(14.2)
Change
15.8%
12.8%
10.3%
(20bps)
(42.3%)
(7.0%)
(170bps)
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 38 of the Notes to the Consolidated
Financial Statements.
DELIVERING GOOD UNDERLYING VOLUME GROWTH
Our International segment now represents around 12% of
Group revenue. Both businesses in the US and China continue
to operate in highly attractive markets and delivered good
underlying volume growth in the year, as we start to benefit
from recent capacity investments.
Like-for-like revenue1, which is at constant currency, increased
by 12.8%, from £201.6 million in 2018 to £227.4 million in 2019.
On a reported basis the increase was £31.8 million or 15.8%
(including a £6.0 million benefit from the weakening of Sterling),
to £233.4 million in 2019.
Whilst we have continued to invest in operations and
infrastructure in both regions, it has also been a year of
consolidation for our US business, and this has had an impact
on overall profitability. Adjusted EBITDA1 for our International
segment was £6.4 million for the year, compared with £5.8 million
in 2018. At an operating level the loss for this segment increased
by £6.0 million to a loss of £20.2 million. Both businesses have
been particularly impacted by rising labour costs and further
investment in our technical infrastructure to support the pace
of growth. In addition, start-up losses in certain of our sites
increased by £3.1 million, and depreciation increased by
£3.5 million following recent heavy investments.
CHIEF EXECUTIVE’S REVIEW
CONTINUED
PEOPLE
At the start of the year we introduced a simplified organisational
structure in the UK. This has now been embedded across the
business, including the reorganisation of our commercial and
development teams to better align our day-to-day engagement
with customers. These changes are already bringing benefits
and have undoubtedly strengthened our customer partnerships.
In an environment of rising labour costs and high employment,
our focus on attracting and retaining a skilled workforce is
essential. In April, we rolled out the first phase of a two-year
plan to introduce an HR shared service centre which
streamlines talent acquisition and all HR administration,
improving efficiency and our end-to-end HR process.
In addition, in response to our recent employee engagement
survey, we have launched a talent initiative which prioritises
‘early careers’, performance management and learning as
key areas that are important to our employees.
More information about our people and talent agenda can be
found on page 44 of our Corporate Responsibility section.
CORPORATE RESPONSIBILITY
During the period, we continued to actively support our
customers’ sustainability programmes and targets through
our technical, commercial and category teams. This included
a focus on environmental targets around waste, packaging and
plastics. In the UK, we are part of an industry commitment to
The UK Plastics Pact and we are well on our way to the 2025
goal of eliminating problematic plastics, using only materials
that are recyclable or biodegradable.
We are also committed to ensuring that our responsible
sourcing and supply chain practices remain best-in-class and
address social issues. For example, we collaborated with a
strategic customer to assess specific human rights risks in
the Thai poultry sector and established effective mechanisms
for grievance remedy and worker voice.
24
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 UNITED STATES
Our business continues to benefit from the growing demand
for fresh prepared meals as US retailers are looking for
experienced manufacturing partners to develop or expand
their chilled proposition. However, the size of the US can often
mean distribution of short shelf-life products is challenging. To
address this, we have focused on either partnering with regional
retailers or working with those that have well invested and
effective supply chains.
Our new state-of-the-art meals facility in Texas is an example
of partnering with a retailer that is committed to the fresh
meals proposition. The site has been fully operational
throughout the year and sales growth has been strong,
reaching 30% of capacity by December. This pace of growth
has presented operational challenges for the business
particularly with a shortage of local experience in chilled food
manufacturing and its related supply chain. However, we have
been able to leverage our expertise across the Group to train
and develop our local management team and embed a strong
foundation to support future growth.
In July, we launched our first ready meals range available
nationally with a retailer that has established one of the most
effective supply chains in the US. We are currently supplying
meals out of our facilities on both the East and West Coast. Whilst
currently at a relatively small scale, this is an exciting opportunity
for the business and has provided good start-up volumes for our
new ready meals facility in our existing Carson site.
Our dips category, particularly hummus, continues to remain an
important part of our business and we are investing to improve
quality and to reinforce leading technical standards. We are
trialling new and exciting technologies to differentiate ourselves
in the hummus market and expect this project to continue
through this year.
In July, we launched our new range of artisan breads that can
be distributed nationally across the US. Initial sales have been
encouraging and we will look to expand the range in 2020 to
capitalise on growth within the market. Our new bakery has
room to expand as sales increase with the next phase of
investment expected to start in 2021.
Despite the short-term profit challenges, the prospects for
our US business remain positive and strategic relationships
with our retailers have strengthened. Operational expertise
will determine our speed to deliver growth and we are
investing heavily to build talent across the business and
leverage experience from the UK.
CHINA
China remains a highly attractive growth market, and we
continue to position ourselves as the partner of choice for
western foodservice providers seeking to expand in the region.
Our key food service customers continued to build their store
and restaurant portfolios rapidly and Bakkavor has been the
first choice supplier for a number of high profile new entrants
into the market.
Our state-of-the-art, multi-product facility near Shanghai
was fully operational throughout the year with all production
transferred from the existing smaller site during the first
quarter. Since then we have seen a step up in operational
performance and an improvement in year on year results.
This new facility also enabled us to launch ready meals into the
market, complementing our meal salads and other ‘food to go’
ranges. This exciting development is expected to become a key
category for our business in the coming years, and we expect it
to drive further growth for us in the region.
The investments made in our greenhouses, incorporating the
latest hydroponic technology, have now been completed, with
encouraging performance seen during the year. In particular,
we have seen an improvement in raw material quality, local
growing seasons extended and the opportunity to develop new
varieties of leaf supply. These projects have earned praise and
recognition from both customers and government agencies.
In close partnership with our existing customers we opened a
new facility last year in Chengdu which extends our reach into
another fast growing region of China. Sales are continuing to
build as we expand our offering of ‘food to go’, meals and salads.
We have also started work on a new facility in Wuhan and later
this year construction is planned to start in Xi'an. These
replacement sites will deliver significant improvements in
capacity, operational efficiency and production capability. They
will also allow for our continued growth in the Central China
region as we maintain our market leading position and broaden
our supply capabilities.
Despite the short-term impact this year from the recent
outbreak of COVID-19, market fundamentals remain strong
and we remain excited about our prospects in China.
AGUST GUDMUNDSSON
Chief Executive Officer
5 May 2020
25
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information 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 measures form the
basis of our employee incentive plans.
FINANCIAL KPIS
GROUP REVENUE2
LIKE-FOR-LIKE REVENUE1
ADJUSTED EBITDA1,2
+1.5%
2019
2018
+1.7%
No change
£1,885.9M
2019
£1,787.2M
2019
£1,857.2M
2018
£1,757.9M
2018
£153.5M
£153.5M
1
2
3
1
2
3
1
2
WHAT ARE WE MEASURING?
Group revenue is the total amount of
consideration the Group has received
in exchange for the delivery of goods to
our customers.
WHY IS IT IMPORTANT?
Monitoring of revenue provides a measure
of total business growth.
PERFORMANCE
This increase was primarily due to
good growth in the Group’s International
segment, where sales volumes increased
across all key customers as the Group
started to benefit from recent investments
to increase capacity in the US and China.
KEY ASSOCIATED RISKS
Reliance on a small number of key customers,
Brexit disruption, consumer behaviour and
demand, disruption to Group operations and
competitors are all listed as principal risks
on pages 58 to 65, where further details can
be found regarding mitigating controls, the
risk profile and our risk appetite. All of these
risks could impact the Group’s ability to
achieve further business growth.
WHAT ARE WE MEASURING?
Revenue growth at a constant currency excluding
acquisitions, closed and sold businesses.
WHY IS IT IMPORTANT?
The Group uses LFL revenue as it allows
for a more meaningful comparison of
revenue trends from period to period.
PERFORMANCE
This increase was primarily due to good growth
in the Group’s International segment together
with a solid performance in the UK despite
relatively weak levels of consumer confidence.
KEY ASSOCIATED RISKS
Reliance on a small number of key customers,
Brexit disruption, consumer behaviour and
demand, disruption to Group operations and
competitors are all listed as principal risks on
pages 58 to 65, where further details can be
found regarding mitigating controls, the risk
profile and our risk appetite. All of these risks
could impact the Group’s ability to achieve
further business growth.
WHAT ARE WE MEASURING?
The profit performance of the business
based on EBITDA which is generally defined as
operating profit/(loss) before depreciation and
amortisation. In calculating Adjusted EBITDA
the Group further excludes share of results of
associates after tax, restructuring costs, asset
impairments, share scheme charges (non-cash)
and those additional charges or credits that are
considered significant or one-off in nature.
WHY IS IT IMPORTANT?
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.
PERFORMANCE
Group Adjusted EBITDA was in line with the
prior year. Overall trading in 2019 reflects
volume and efficiency benefits which more
than offset labour inflation in the year.
KEY ASSOCIATED RISKS
Raw material and input cost inflation,
labour availability and cost, Brexit disruption,
disruption to Group operations, consumer
behaviour and demand and competitors are
all listed as principal risks on pages 58 to 65,
where further details can be found regarding
mitigating controls, the risk profile and our risk
appetite. All of these risks could impact the
Group’s ability to achieve further profit growth.
26
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 FINANCIAL KPIS
LINK TO OUR STRATEGIC PRIORITIES
1
2
3
LEVERAGING NUMBER ONE
POSITION IN THE UK
ACCELERATING GROWTH IN HIGH-POTENTIAL
INTERNATIONAL MARKETS
IMPROVING OPERATIONAL
EFFICIENCY
RELATED PAGES
Risk Management 54
Directors’ Remuneration Report 92
FREE CASH FLOW2
ADJUSTED EARNINGS PER SHARE1,2
LEVERAGE RATIO
(NET DEBT / ADJUSTED EBITDA1)
-£4m
2019
2018
-1.8p
+0.3x
£51.1M
2019
12.7P
2019
2.3X
£55.1M
2018
14.5P
2018
2.0X
1
2
3
1
2
1
2
3
WHAT ARE WE MEASURING?
The cash generation of the business using the
free cash flow metric which is defined 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), lease liability capital payments
under IFRS 16, but before payments of
refinancing fees and other exceptional or
significant non-recurring cash flows.
WHAT ARE WE MEASURING?
The Group’s underlying earnings calculated
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
exceptional items, start-up losses for new
sites, the impact of the introduction of IFRS 16
and the change in fair value of derivative
financial instruments.
WHY IS IT IMPORTANT?
The Group views free cash flow as a key
liquidity measure as it indicates the underlying
cash available to pay dividends, repay debt or
make further investments in the Group.
PERFORMANCE
This was lower in 2019 principally due
to expenditure on core capital (excluding
development projects) being £20.8 million
higher than 2018 as the Group continues with
its capital investment plan but still remains
above £50 million.
KEY ASSOCIATED RISKS
Raw material and input cost inflation,
labour availability and cost, Brexit disruption,
disruption to Group operations, consumer
behaviour and demand and competitors are
all listed as principal risks on pages 58 to 65,
where further details can be found regarding
mitigating controls, the risk profile and our risk
appetite. All of these risks could impact the
Group’s ability to generate further cash flows.
WHY IS IT IMPORTANT?
The Group uses this measure as it tracks the
underlying profitability of the Group and enables
comparison with the Group’s peer companies.
PERFORMANCE
This decrease reflects an increase in
depreciation as assets come into use following
recent investment, a higher effective tax rate, and
an increase in borrowing costs as average debt
levels have increased. Basic earnings per share
has decreased from 11.6p for 2018 to 6.4p in 2019,
as this also reflects the start-up losses for new
sites, mark-to-market losses on derivatives and
the impact of the introduction of IFRS 16.
KEY ASSOCIATED RISKS
Raw material and input cost inflation, labour
availability and cost, Brexit disruption, disruption
to Group operations, consumer behaviour and
demand and competitors are all listed as
principal risks on pages 58 to 65, where further
details can be found regarding mitigating
controls, the risk profile and our risk appetite.
All of these risks could impact the Group’s ability
to achieve further earnings growth.
WHAT ARE WE MEASURING?
The level of debt held by the Group which is
calculated by dividing operational net debt by
Adjusted EBITDA. Operational net debt excludes
the impact of non-cash items and those
liabilities recognised under IFRS 16 on the
Group’s statutory net debt and is comparable
with the Group’s free cash flow measure.
WHY IS IT IMPORTANT?
The leverage ratio must be below the
maximum defined in the Group’s bank
debt facilities to ensure the facilities remain
available as needed and also determines the
interest margin payable on debt drawn.
PERFORMANCE
The leverage ratio has increased largely
due to the expenditure on the development
projects and acquisition payments.
KEY ASSOCIATED RISKS
Treasury and pensions are listed as principal
risks on page 64, where further details can
be found regarding mitigating controls, the
risk profile and our risk appetite. These risks
could impact the Group’s ability to provide
finance to achieve further business growth
if the Group does not comply with the terms
of its financing arrangements.
27
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information KEY PERFORMANCE INDICATORS
CONTINUED
MEASURING
OUR PROGRESS
NON-FINANCIAL KPIS
UK ACCIDENTS RESULTING IN LOST TIME
> 7 DAYS (PER 100K UK EMPLOYEES)
UK EMPLOYEE TURNOVER2
-5.4%
TOTAL GROUP GROSS CARBON
EMISSIONS (tCO2E)
+5.9%
-37%
2019
2018
1
3
254
2019
20.9%
2019
400
2018
22.1%
2018
1
2
3
1
2
161,954
152,895
WHAT ARE WE MEASURING?
The number of accidents that took place
across our UK sites that resulted in affected
employees taking greater than seven days
off work. It is calculated based on 100,000
employees to enable us to compare our
performance to the Health and Safety
Executive (HSE 821/BV254) food industry
average, which we outperform by 69%. Further
information can be found in the Corporate
Responsibility section on pages 41-43.
WHY IS IT IMPORTANT?
We have a duty of care to employees in
ensuring their health, safety and wellbeing.
Our health and safety culture is based on a
governance process driven by the Group
Board and we have health and safety teams
in place that define standards and monitor
compliance with systems.
PERFORMANCE
There was a decrease of 37% in accidents
resulting in lost time of greater than seven
days. The Group continues to focus on a
number of initiatives to further improve on
this result. In addition, the Group collects
accident data for its China and US
businesses and from 2020 will report
comparable Group-wide accident data.
KEY ASSOCIATED RISKS
Health and safety is listed as a principal risk
and uncertainty on page 63, where further
details can be found regarding mitigating
controls, the risk profile and our risk
appetite. As part of our drive towards an
accident prevention culture we continue to
focus on minimising risk associated with
workplace transport, machinery safety and
work at height and electrical safety.
WHAT ARE WE MEASURING?
The percentage of employees leaving the
business (excluding fixed-term contracts
and redundancies) against total headcount.
WHY IS IT IMPORTANT?
Bakkavor recognises the importance of
attracting and retaining a skilled workforce.
People are at the heart of our business and
we must remain focused on being the local
employer of choice for both existing and new
talent. Improving our employee turnover also
creates efficiency by decreasing the amount of
recruitment and induction activities required.
PERFORMANCE
During 2019, we have been reviewing our
approach to attraction, recruitment, selection
and induction to help retain talent. We have
also worked with our EU colleagues to ensure
they are abreast with the latest information
about Brexit, as we recognise this could be
a factor in employees deciding to leave. In
addition, in 2019 we ran our employee
engagement survey which has given us
data to action plan against both locally and
at Group level. Finally, for the second year
running there was an employee turnover
element to our annual bonus scheme in the
UK which meant additional focus to retention
levels with our management population.
KEY ASSOCIATED RISKS
Recruitment and retention of key employees
is one of Bakkavor’s principal risks (page 63).
Being able to retain skilled and committed
colleagues is critical to being able to deliver
our strategic growth objectives. In 2019 we
undertook a number of initiatives to increase
employee engagement as well as learning and
development opportunities. More can be read
in the Corporate Responsibility section 44.
WHAT ARE WE MEASURING?
Scope 1 and 2 emissions across Bakkavor
Group. This figure is on a like-for-like basis
and does not include Bakkavor Desserts
Leicester – a business acquired in 2019.
WHY IS IT IMPORTANT?
Bakkavor recognises that its operations
have potential direct and indirect impacts on
climate change, and we have a responsibility
to mitigate this. As a Group we are focused on
lowering our carbon footprint infrastructure
to drive energy efficiency.
PERFORMANCE
The majority of our GHG emissions arise from
our factory sites' heating and cooling systems.
Emissions in the Group increased by 5.9% in
2019 due to expansions in our International
operations. For example, the full year emissions
from two US sites that opened late 2018 were
included for the first time. Despite this, the
Group’s Intensity Ratio (gross emissions in tCO2e
per £m turnover) decreased by 0.3 to 112.6.
In the UK, total gross emissions were 110,600
tCO2e, an improvement of 5.6% in the year.
Further information can be found in the Corporate
Responsibility section on pages 37-38.
KEY ASSOCIATED RISKS
Sustainability is listed as a principal risk and
uncertainty on page 65, where further details
can be found regarding mitigating controls,
the risk profile and our risk appetite.
We’ve committed to reduce our relative
carbon footprint and energy intensity across
operational manufacturing Group-wide per
tonne of product, year-on-year.
28
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 LINK TO OUR STRATEGIC PRIORITIES
1
2
3
LEVERAGING NUMBER ONE
POSITION IN THE UK
ACCELERATING GROWTH IN HIGH-POTENTIAL
INTERNATIONAL MARKETS
IMPROVING OPERATIONAL
EFFICIENCY
RELATED PAGES
Risk Management 54
Directors’ Remuneration Report 92
NON-FINANCIAL KPIS
UK FOOD WASTE (TONNES)
-0.2%
2019
2018
1
2
3
8.9%
9.1%
WHAT ARE WE MEASURING?
Food waste as per the Food Loss and Waste
Accounting and Reporting Standard (FLW
Standard). Percentage food waste calculated
as ‘tonnes food waste ÷ tonnes (food product
produced or sold as intended + food waste +
food sent to other destinations)’.
WHY IS IT IMPORTANT?
Approximately one third of all food produced
is wasted or lost across the value chain3.
As global food systems are responsible
for approximately 30% of greenhouse gas
emissions4 tackling food waste is one of our
sector’s biggest responsibilities and a major
opportunity to tackle resource constraints.
PERFORMANCE
A key part of our food waste strategy is to make
the best possible use of any surplus food and
food waste, whether it be through redistribution
of surplus food and ingredients or for use in
animal feed. A number of sites made strong
food waste reductions, which were slightly
offset by higher waste figures recorded in our
newly acquired business and as a result of
increased product trials required. Further
information can be found in the Corporate
Responsibility section on page 36.
KEY ASSOCIATED RISKS
Sustainability is listed as a principal risk and
uncertainty on page 65, where further details
can be found regarding mitigating controls,
the risk profile and our risk appetite. One of
our Trusted Partner commitments for the UK
is to support the industry initiative Champions
12.3 in halving food waste by 2030.
Notes:
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
38 of the Notes to the Consolidated Financial Statements. The adjusted earnings used for the
adjusted earnings per share calculation in 2018 has been restated to exclude the post tax impact
of the change in the fair value of derivative financial instruments.
2 The Group’s bonus scheme and long-term incentive awards are based on performance across
a selection of four KPIs. See pages 98 to 99 in the Remuneration Report.
3 FAO (2014) Food waste footprint. Full cost accounting (available at www.fao.org/3/a-i3991e.pdf).
4 Vermeulen, S. J., Campbell B.M., Ingram, J.S.I. (2012) Climate Change and Food Systems. Annual
Review of Environment and Resources, 37, 195-222.
29
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CORPORATE RESPONSIBILITY
WE TAKE OUR RESPONSIBILITY TO
BUILD A SUSTAINABLE BUSINESS
SERIOUSLY – FOR OUR CUSTOMERS,
INVESTORS, SUPPLIERS, OUR
PEOPLE AND ALL THE CONSUMERS
WHO CHOOSE OUR FOOD.
We work collaboratively on the issues
that matter most across our supply
chain, across our own operations and
in our workplaces and communities.
This enables us to be a Trusted
Partner in tackling the most
important challenges facing
our world.
30
BAKKAVOR GROUP PLC
ANNUAL REPORT & ACCOUNTS 2019
OUR STRATEGY FOR 2020: TRUSTED PARTNER
In 2019, we developed a new strategy
for Corporate Responsibility (CR) across
Bakkavor Group. Finalised in November
and being rolled out in 2020, the strategy
builds on our existing work and
programmes and focuses our efforts on
a set of forward-looking commitments.
These commitments emphasise our
role in food manufacturing as a trusted
supplier, customer and employer in
a way that reflects our responsibilities
and ambition as a leader in our
core categories.
The strategy – which we have named
Trusted Partner – is built around three
focus areas that represent the value
chain of our business.
DEVELOPING THE STRATEGY
AND MATERIALITY
At the end of 2018, we undertook a light materiality
assessment to determine Bakkavor’s most
important CR issues. The process helped us to
contextualise internal priorities against external
stakeholder needs and societal trends, such as the
UN Sustainable Development Goals, and ensure
that our approach would be based on addressing
critical sustainability issues, as well as supporting
our business to create long-term value.
In 2019, we further developed Bakkavor’s approach
to these issues in a process of internal engagement,
that resulted in the Trusted Partner framework
and commitments. Bakkavor’s material issues
are reflected in the priority issues mapped in the
framework, as well as some that comprise many
of our principal business risks (see pages 58 to 65).
The strategy was reviewed and signed off at Group
Board level in November 2019.
REPORTING ON CORPORATE
RESPONSIBILITY
This report summarises our progress on Corporate
Responsibility topics in 2019. It is structured around
the three focus areas of our Trusted Partner strategy.
The strategy itself is being rolled out through 2020,
so in subsequent reports we will document progress
against its ambitions and commitments. Data shown
is for the calendar year 2019 and at Group level
unless specified.
Corporate Responsibility contact:
corporate.responsibility@bakkavor.com
MANAGING CR ACROSS THE GROUP
Day-to-day management of the CR strategy at
Group level sits within the Corporate Affairs
function, which reports on progress to the
Management Board and the Group Board,
where ultimate responsibility for the CR
agenda lies. Peter Gates, CFO, acts as
Executive Sponsor for CR at Board level.
In rolling out the new CR strategy, we are
formalising new governance structures that
reflect existing day-to-day management of CR
topics. Functions such as HR, Technical and
Supply Chain Operations cascade the strategy
within existing UK structures. Customer and
Business Directors support roll-outs within
customer and category teams.
Responsibility for data collection sits with regional
and Group Finance, with the Group General Counsel
& Company Secretary incorporating CR within the
governance remit.
Dedicated CR representatives from our Asia
and US businesses act as champions for CR within
our International teams. Finally, key individuals
support and lead on specific commitment areas.
BAKKAVOR GROUP PLC
ANNUAL REPORT & ACCOUNTS 2019
31
Strategic reportGovernanceFinancial statementsCompany information CORPORATE RESPONSIBILITY
CONTINUED
NON-FINANCIAL
INFORMATION STATEMENT
The following detail sets out where stakeholders can find
further non-financial information on each of the key areas
of disclosure as required under the UK’s Non-Financial
Reporting Directive.
REPORTING
REQUIREMENT
Environmental matters
RELEVANT
POLICIES
LOCATION OF FURTHER
INFORMATION IN THIS REPORT
PAGE
Sustainability and Innovation
Environmentally Sustainable Sourcing
36-40
35
Employees
Human rights
Social matters
Code of Conduct*
Inclusion and Diversity Policy **
Engagement and Wellbeing
Responsible Operations Policy*
Group Ethical Trading and Human Rights Policy*
Responsible recruitment
Supply chain human rights
41
43
33
Code of Conduct*
Modern Slavery Statement**
Engagement and Wellbeing
41-47
Anti-bribery and corruption
Anti-bribery and Business Ethics Policy*
Anti-bribery and Business Ethics Statement**
Whistleblowing Policy*
Charity and Political Donations Policy**
Anti-bribery and Business Ethics Policy
Whistleblowing Policy
Charity and Political Donations Policy
Business model
Non-financial KPIs
Our Business Model
Non-financial KPIs
32
32
32
10
28-29
INCLUSION AND DIVERSITY POLICY
We are committed to building an inclusive culture and diverse
workforce. We believe that a culture of inclusion is paramount to
creating an environment where all our people can be at their best.
Our Inclusion and Diversity Policy was developed in 2019 and
launched to all employees in early 2020. Its three objectives are:
• Living the Bakkavor values
• Building an inclusive and diverse workforce across all levels
of the organisation
• Providing opportunity for employees to succeed
HUMAN RIGHTS, ETHICAL TRADING AND RESPONSIBLE
OPERATIONS POLICIES
Bakkavor is committed to doing business in a fair and ethical
way. It actively works at meeting its moral, legal, ethical and
humanitarian responsibilities. Our Ethical Trading and Human
Rights and Responsible Operations Policies provide the principles
and framework that Bakkavor has adopted to manage this
commitment both within its own operations and down its supply
chain. The Policies apply to all Bakkavor’s own operations and the
permanent, temporary and agency employees who are employed
within them.
MODERN SLAVERY STATEMENT
ANTI-BRIBERY AND BUSINESS ETHICS POLICY
Bakkavor published its most recent Modern Slavery statement in
June 2019 and seeks to retain the highest standards of employee
welfare, safety and human rights within both its own business and
across its supply chain. It continues to be an integral part of our
commitment to human rights, to work with our business, partners
and associated supply chain to ensure adherence to the highest
standards of behaviour and care and to identify and tackle all forms
of slavery and human trafficking.
WHISTLEBLOWING POLICY
This Whistleblowing Policy applies to the whole Bakkavor Group and
provides a mechanism through which individuals can raise concerns
on illegal, unsafe or inappropriate activities in the workplace.
This Policy represents Bakkavor’s internal procedure and use of this
enables Bakkavor to effectively address any wrongdoing within the
business. Whistleblowing is regularly monitored by the Board.
CHARITY AND POLITICAL DONATIONS POLICY
Bakkavor believes in giving back to those communities in which we
operate. Our Charity and Political Donations Policy sets out the ways
charitable giving may be channelled: through monetary and product
donations, supporting our colleagues in their fundraising efforts
and advocating skills and volunteering events, where appropriate.
We never use charitable donations as a means to gain improper
influence and all monies given to charity in Bakkavor’s name are
subject to due process. Bakkavor does not give financial donations
or support to political individuals, representatives, parties or causes
in any country in which we operate.
This policy, which also includes a Gifts and Hospitality policy
embedded within it, sets out the highest standards of business and
ethical conduct expected by those who work for and on behalf of
Bakkavor in all its business dealings whether with customers,
suppliers, competitors or other business partners in all the countries
in which Bakkavor does business. Bakkavor takes a zero-tolerance
approach to bribery and corruption and is committed to acting
professionally, fairly and with integrity in all its business dealings and
relationships wherever Bakkavor operates and implementing and
enforcing effective systems to counter bribery and corruption.
Bakkavor requires all employees and third parties to be familiar with
the basic principles of anti-bribery law in order to avoid any actions
or omissions which might infringe those laws. In support of this, an
e-learning version of the anti-bribery and corruption training was
implemented in the UK in 2019 for our employees and, with respect to
our suppliers, due diligence is undertaken by our Procurement team.
The outcome of the implementation of these policies, supported by the
e-learning platform, has been recognition of the need to be vigilant in
identifying any bribery and corruption issues within the business and
across the supply chain, together with greater awareness of reporting
procedures. As part of its remit, the Audit and Risk Committee this
year considered the adequacy of these arrangements and concluded
that the Policy was adequate. See page 89.
BUSINESS MODEL AND KPIS
Details of our business model and Key Performance
Indicators are given on pages 10 and 26-29.
* Available to all employees through the Bakkavor intranet. Not published externally.
** Available on www.bakkavor.com and to all employees through the Bakkavor intranet
32
BAKKAVOR GROUP PLC
ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SOURCING
IN OUR SUPPLY CHAIN
As a Trusted Partner, responsible
sourcing starts with transparency
and integrity in our supply chain.
We work with growers and partners throughout our
supply chain and use our influence to promote a shared
understanding of the importance of respecting human
rights, environmental risks and ingredient integrity.
Our supply chain experts use a number of tools to assess
specific risks and take targeted action to prevent, address
and respond promptly to issues alongside our supply
chain partners.
SUPPLY CHAIN HUMAN RIGHTS
Respect for human rights is at the heart of our business.
Ensuring the welfare of our colleagues, and those in our wider
supply chain, is a top priority and central to our approach to
responsible sourcing. We are clear with our suppliers that we
do not tolerate any form of modern slavery, and will work with
our supply base to ensure they are able to meet the standards
required, and that our expectations are understood and upheld.
Our Group Ethical Trading and Human Rights Policy sets out the
principles and framework that Bakkavor has adopted to manage
our commitment to conducting business in a fair and ethical way,
both within our own operations and throughout our supply chain.
For more details about our practices in our own operations, see
the Responsible Recruitment and Employment section on page 43.
The food supply chain is immensely complex and a risk-based
approach to identifying human rights issues is essential. We
assess risks in our own operations and in our supply chain and
use this information to address any issues in conjunction with
our customers and suppliers.
Bakkavor is a founding member of Food Network for Ethical
Trade (FNET), a collaboration between suppliers and retailers
whose mission is ‘to improve human rights in global food supply
chains through a common approach to managing ethical trade’.
We use FNET’s risk assessment tool to profile all ingredients
and sourcing countries.
As well as evaluating human rights risks at ingredient and
country level, we support tools that build supplier capacity to
reduce risk. For example, as an active Buyer/Supplier (AB)
member of the responsible supply chain platform Sedex, we
support the work of the Sedex Stakeholder Forum to develop
best practice guidance for members and auditors.
OVERVIEW OF BAKKAVOR'S HUMAN RIGHTS AND ETHICAL TRADE PROGRAMME
1
COMMIT
Board commitment
Responsible Sourcing
strategy
Ethical expert resource
& HR Forum
Group policies
6
COMMUNICATE
Annual modern slavery
statement
HR hub
Group-wide communication
on progress
External engagement
2
ASSESS
Third-party ethical audits
3
ACT
Training
Modern slavery risk assessment
Internal processes
Stronger Together
checklists and toolkits
5
MONITOR
Modern slavery risk
assessment
Stronger Together
assessment annual review
Group Annual Modern
Slavery Action Plan
Collaboration
Worker voice
Labour provider selection
Responsible recruitment
4
REMEDY
Confidential hotline
Stronger Together
posters
GLAA
Local victim support
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BAKKAVOR GROUP PLC
ANNUAL REPORT & ACCOUNTS 2019
33
CORPORATE RESPONSIBILITY
CONTINUED
In 2019, we undertook a leading role in a major review of Sedex's
Self-Assessment Questionnaire (SAQ) as part of a working
group of suppliers and retailers. This will ensure that Sedex
adds value in enabling suppliers to understand good labour
practices and drive change within their own businesses and
down their supply chains.
Following an external audit, we updated our Group Human Rights
and Ethical Programme to include our support for the ‘Employer
Pays’ principle – i.e. that no worker should pay for a job – and the
costs of recruitment should be borne not by the worker but by
the employer – and also expanded on our commitment to ensure
appropriate remedy for any victims of modern slavery through
agreed response and remediation plans.
In addition, in 2019 we continued a number of specific projects in
areas identified as high-risk within our supply chain, including poultry
suppliers in Thailand and a key fresh produce supplier in Italy.
POULTRY FROM THAILAND
The poultry sector in Thailand has been identified as high-risk
for labour abuses and exploitation of migrant workers from
Myanmar, Laos, Vietnam and Cambodia. Alongside a key
customer and several other suppliers, we worked with a
specialist consultancy to map the specific risks and locations,
focusing on access to worker voice and grievance reporting
mechanisms. We are now working to ensure that workers are
suitably empowered and can effectively voice their concerns to
seek appropriate remedy. We continue to collaborate with our
peers, suppliers and key NGOs in monitoring this.
OUR TRUSTED PARTNER COMMITMENTS
FOR SUPPLY CHAIN HUMAN RIGHTS
SUPPLY CHAIN ASSESSMENT – HUMAN RIGHTS
Use our supplier management tools to identify suppliers
deemed ‘high risk’ on our combined risk approach for our
UK business (2020).
Expand supplier management tools to our US and Asia
businesses to expand our human rights risk mapping (2022).
CODE OF CONDUCT
Communicate our Code of Conduct with all our tier 1 suppliers
to formalise a shared understanding of our responsible
business requirements (UK: 2020, Asia and US: 2022).
CORRECTIVE ACTION AND REMEDY
Work collaboratively with our suppliers on any breaches of
our Code of Conduct to develop and implement a clear and
appropriate corrective action plan (2021 and ongoing).
WORKER VOICE
Empower worker voice and collaborative dialogue within our
direct supply chain by promoting independent whistleblowing
channels and effective grievance reporting mechanisms (UK:
2022, Asia and US: 2024).
INDUSTRY ACTION
Actively participate in industry action alongside our
customers on areas of strategic importance to the Bakkavor
supply chain (ongoing).
34
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 ENVIRONMENTALLY SUSTAINABLE SOURCING
We recognise our responsibility to procure ingredients and
materials in a way that is as environmentally sound as possible.
Environmental sustainability is one of the core pillars of our
Responsible Sourcing strategy to ensure the long-term
sustainability and resilience of our supply chain.
We source ingredients and materials from more than 50 countries,
and the environmental impacts of their production can be very
different. By working openly and closely with our suppliers we can
better understand the environmental impacts of certain materials
and ingredients and determine the appropriate sourcing approach.
As well as having our own approach, we also support our
customers' commitments, which can include sourcing through
commodity-specific sustainability standards, such as the
Roundtable on Sustainable Palm Oil (RSPO), Rainforest Alliance
or the Marine Stewardship Council (MSC) as some examples.
Our dedicated sourcing teams in Asia and Spain work
closely with our producers, ensuring we are aware of
ongoing developments, opportunities and challenges.
Global deforestation is a significant sustainability issue for
the global food industry. Particularly, how demand for food is
driving forest loss through unsustainable practices in beef,
palm oil and soy production.
Bakkavor is not a significant buyer of beef and our food integrity
practices ensure that we source to the exacting standards of our
customers and that none of our beef originates from higher risk
areas such as Brazil. All palm oil that we source is purchased to the
standards set by the Roundtable on Sustainable Palm Oil (RSPO).
Three-quarters of soy produced globally is used for animal feed1
and in 2019 we supported a project to map the use of ‘embedded’
soy in UK livestock products. We were one of 219 companies that
contributed data to the Retail Soy Initiative study in both 2018 and
2019. As a result, from 2020, Bakkavor UK will source all soy with
credits purchased from the Round Table on Responsible Soy
(RTRS) and encourage our suppliers to do the same.
OUR TRUSTED PARTNER COMMITMENTS FOR
ENVIRONMENTALLY SUSTAINABLE SOURCING
SUPPLY CHAIN ASSESSMENT – ENVIRONMENT
Use our supplier management tools to identify the hotspots
of highest environmental risk in our UK business's supply
chain (2020).
Expand these tools to our US and Asia businesses to
replicate our environmental risk mapping (2022).
ENVIRONMENTALLY SUSTAINABLE SUPPLY CHAIN
Ensure that discussions with our top five strategic suppliers
include an understanding of their environmental challenges
and their plans to mitigate the impacts associated with each
material or ingredient (2021).
ENVIRONMENTALLY SUSTAINABLE SOURCING
Identify the 20 strategic raw materials for our UK business
with the highest levels of environmental risk and develop
action plans or sourcing policies for each (2021 onwards).
PLASTICS IN THE SUPPLY CHAIN
Engage with key suppliers to ensure shared understanding
of the responsible use of plastics (2022).
1 2019, 3Keel. ‘Moving to deforestation free animal feed: 2018 Retail Soy Initiative’
INGREDIENT TRACEABILITY AND INTEGRITY
Trust and traceability are fundamental principles in how we
procure our ingredients to ensure that our end products can
be consumed with confidence.
All our ingredients can be traced back to our direct suppliers,
and many of them can be traced back to the field or farm.
Regular audits and routine trace exercises help us to ensure
the integrity of our ingredients. Where we find issues or
inconsistencies, we work with the supplier to take rapid action
and implement a solution, with regular follow ups. We also use
the learning to monitor similar supply chains. In addition, we
work with our peers and partner with industry bodies to
identify risks of adulteration or substitution.
In 2019, we continued our active membership of the Food
Industry Intelligence Network (FIIN). This collaborative project
supports information sharing and horizon scanning around
food traceability, identifies risks and promotes best practice.
In 2019, with a focus on our highest risk materials, we worked
with our suppliers to better understand the current mitigating
controls that they have in place to reduce the risks of fraud
and adulteration.
Through 2020 we will work together with those suppliers to
share best practice and improve the risk management controls
in the supply chain.
OUR TRUSTED PARTNER COMMITMENT FOR
INGREDIENT TRACEABILITY AND INTEGRITY
Build transparency and traceability into our Supplier Code
of Conduct and communicate to Tier 1 suppliers (2020).
35
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CORPORATE RESPONSIBILITY
CONTINUED
SUSTAINABILITY AND INNOVATION
IN OUR OPERATIONS
As a Trusted Partner, we’re tackling
waste and reducing the environmental
footprint of our operations and the
food we produce.
It is our responsibility as a food manufacturer, with 25
factories in the UK, five in the US and nine in China, to
ensure operational excellence. This means adhering
to the highest standards in food safety and constantly
looking for ways we can reduce our environmental impact.
FOOD AND OTHER WASTE
Food waste is one of the biggest issues facing our sector
and an issue that we take to heart. We’re committed to the UN
Sustainable Development Goal (SDG) target 12.3 – to halve food
waste at retail and consumer level and reduce food loss along
production and supply chains by 2030.
To achieve this, we use the Food Loss and Waste Accounting and
Reporting Standard, and address our UK business’s food waste
by adopting the principles and template of ‘Target, Measure, Act’
– a toolkit set by the non-profit organisation WRAP and the IGD.
We report on our progress using this template and we are now
applying the principles across our international sites.
Our priority for action is to prevent waste from occurring in the
first place, so each of our UK sites has targets to work towards.
Where we have surplus production, we prioritise redistribution to
our employees through our staff shops and to local communities
via networks such as Company Shop and FareShare.
In the UK, we also send suitable food waste to be used for
animal feed, with the remainder primarily being recycled for
anaerobic digestion – a way of producing fertilisers and biogas.
A very small proportion of food waste goes to composting
(aerobic digestion). Our UK sites do not send any food waste
to incineration or landfill.
In the US and China, the infrastructure for food waste recycling is
less developed, although a significant proportion of suitable food
waste in China is used for animal feed. Through 2020, we will be
working to understand our waste footprint in these countries.
Bakkavor is committed to the Champions 12.3 initiative to scale
action around the UN SDG target 12.3 of halving food waste. We
have been measuring this in our UK operations since 2017, and
2019 was our third year of using the WRAP and IGD Food Waste
Standard to calculate our food waste data. Our overall food
waste in 2019 was 43,913 tonnes, representing 8.90% of total
food produced. This is a small improvement compared to 2018,
in both percentage reduction (9.1% in 2018) and absolute volume.
to the need to both conduct a larger number of new product
tests, and align to broader Bakkavor production systems.
The figures also include those of the Freshcook site, which
was closed in April 2019.
A number of UK sites made strong food waste reductions,
and we are sharing the learnings of their successes across our
other sites. Nevertheless, we have more work to do in order to
achieve our target. In 2020, we will launch a number of initiatives
to accelerate our efforts in reducing food waste, and continue
to report through Champions 12.3.
In 2019, we attended ‘Step Up to the Plate’ – a major event
hosted by Ben Elliot, the UK Government’s Food Surplus and
Waste Champion, convening actors from across government,
civil society and industry to take action on reducing UK food
waste. We signed the ‘Step Up to the Plate’ pledge, mirroring
our Champions 12.3 target.
MAKING BEST POSSIBLE USE OF UK SURPLUS FOOD AND INGREDIENTS
• 1,771,800 meal equivalents1 distributed to employees at
discounted rates via our UK network of staff shops, up by
a third (33%) on 2018. This popular initiative also supports
local communities as the funds raised through staff shops
are allocated to local causes
• 165,550 meal equivalents were donated to FareShare and
local charities – an increase of 92% on 2018
• 989,190 meal equivalents distributed to Company Shop1
representing a 27% decrease on 2018, as our overall
secondary market for food products shifted towards
our staff shop initiatives and charity donations
• 27,520 tonnes sent to animal feed, a decrease of 10%
reflecting changes in suitable product mix, i.e. bread
and pastry doughs, vegetable and fruit trimmings
OUR TRUSTED PARTNER COMMITMENTS FOR FOOD
AND OTHER WASTE
HALVING FOOD WASTE
Work towards our Champions 12.3 target of reducing food
loss by preventing it at each of our sites, whilst measuring
and reporting our progress annually (2030).
FOOD REDISTRIBUTION
Actively engage each of our UK and US sites to maximise the
suitable surplus food available for redistribution (2022).
FOOD WASTE RECYCLING
Follow the Food Loss and Waste hierarchy for all unavoidable
waste, prioritising recycling for animal feed, then anaerobic
digestion (AD) and monitor performance against site-specific
targets (ongoing).
This data includes the full-year results of Bakkavor Desserts
Devizes, a desserts business that Bakkavor acquired in 2018.
The site reported a higher than average level of food waste, due
ZERO WASTE TO LANDFILL
Maintain zero waste to landfill status in the UK (ongoing) and
look to progress across our US and Asia sites (2025).
1 Meal equivalent based on 420g
36
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 BAKKAVOR AND CHAMPIONS 12.3
Bakkavor is committed to the
Champions 12.3 initiative to scale
action around the UN target 12.3 of
halving food waste. We have been
measuring this in our UK operations
since 2017, and 2019 was our third
year of using the Food Loss and Waste
Accounting and Reporting Standard
and reporting our food waste data
against the WRAP and IGD template.
Our overall food waste in 2019 was
43,913 tonnes, representing 8.9% of
total food produced. This is a small
improvement compared to 2018, in
both % reduction (9.1% in 2018) and
absolute volume.
RESOURCE EFFICIENCY AND EMISSIONS
Energy and water are critical resources necessary for food
manufacturing, particularly impacting refrigeration and hygiene
operations which are critical in ensuring quality and safety.
Using them in the most efficient way, without compromising
on safety, product quality or the environment in which our
colleagues work, matters not only for environmental
sustainability but also makes business sense. Increasing our
efficient use of these resources is a priority for all our sites.
Our biggest direct contributor to carbon emissions comes from
the heating and cooling systems at our factory sites. We are
committed to reducing our carbon emissions and our impact
on climate change year on year.
Our priority focus is on minimising our direct consumption,
so we will continue to identify the most impactful areas to make
reductions. We will set targets and work towards them through
effective monitoring of consumption patterns, smart infrastructure,
effective environmental management systems as well as specific
investments and process improvements at site-level.
In China, we grow our own lettuce leaf varieties in hydroponic
facilities that use rainwater collected in our protected, on-site
reservoir.
In 2019, we made significant progress in our investment plan to
upgrade our refrigeration systems away from using fluorinated
F gases (F gas), which have a high global warming potential. Our
upgrades include natural gas (ammonia) and/or CO2 systems that
are significantly more energy efficient. For the second year, 100%
of our UK electricity supply was sourced through a renewable
supply contract, representing 89% of our UK Scope 2 emissions.
As a result of these measures, Scope 1 and 2 net emissions
in the UK decreased by 5.6% in 2019. However, as a Group our
overall carbon footprint (net emissions) increased by 5.9% due
to expansions in our International operations. 2019 data for the
US includes the full year emissions for two sites that opened in
late 2018. In China, the emissions increase comes as a result
of major site expansions and technical requirements such as
refrigerant gas replacements,
Group Scope 2 emissions have decreased by 5.1%, driven
by a 14.5% decrease in our UK figures. This is due to a
reduction in energy consumption at site level as well as
wider grid decarbonisation.
The Group’s Intensity Ratio decreased slightly (0.4), to
112.7 tCO2e per £m turnover. More detail on our carbon footprint
calculations can be found in the GHG emissions statement.
Bakkavor Inbound Logistics (BIL), the team responsible for
managing all inbound fresh produce supply and transporting it
to UK sites, undertook a project to calculate the carbon footprint
of raw material transport in a dynamic way. Using an Enterprise
Resource Planning (ERP) system and tools to visualise the data,
the information shows the carbon footprint data of transporting
different produce to different sites. Trialled in 2019, the software
will allow our Procurement team to review carbon impact in
decision making going forward.
We reported our carbon footprint information to CDP (formerly,
the Carbon Disclosure Project) for the second time in 2019,
receiving a D score for Climate Change disclosure. The score
reflects our journey in starting to implement more robust
energy and emissions data management as well as climate
change impact practices and we have ambitions to rapidly
improve this score.
Our sites are incentivised to find process and manufacturing
innovations that save water and energy. Our annual Group
Innovation Awards celebrate these activities, share best
practice and seed the legacy of innovation.
In 2019, a number of award entries showcased resource
efficiency benefits, whether through ways of working,
processes, products or sourcing. We also include a dedicated
Sustainability Award which this year was awarded to the
Bakkavor Meals’ Boston team for their ‘Wise with Water’
project. This innovation is a simple update to a pasta cooking
machine that reused chilled water in a secondary process
reducing water consumption by half, saving approximately
2 million litres of water each year.
37
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CORPORATE RESPONSIBILITY
CONTINUED
GREENHOUSE GAS EMISSION STATEMENT
This is the second year Bakkavor is reporting carbon emissions
for the Group, including our UK, US and China businesses.
Greenhouse gas (“GHG”) emissions for the year to December 2019
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). In addition, 2018 figures have been revised to correct an
overstatement of emissions in 2018*. This became apparent
following improvements to our international data capture process
and also to reflect UK supplier bill recalculations.
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, with the
exception of Bakkavor Desserts Leicester, which was acquired
in 2019 and will be included in full in 2020. 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. The Group’s environmental
management system is based on ISO 14001.
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
(2019) and the International Energy Agency (IEA) Emissions
Factors Database (2019) to calculate the GHG emissions where
they are not separately provided by a supplier.
Scope 1 emissions are those that directly release GHGs and
include fuel consumed by our manufacturing facilities, offices,
warehouses, 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).
EMISSIONS FROM COMBUSTION OF FUEL AND OPERATION OF FACILITIES
EMISSIONS FROM PURCHASED ELECTRICITY AND COOLING
3
2
1. UK
2. US
3. China
104,242
9,226
14,217
1. UK
2. US
3. China
56,842
8,345
19,566
3
2
1
1
GROUP 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)
UK GREENHOUSE GAS EMISSIONS
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)
Emissions (tCO2e)
Change since
2018
2018 restated
-3.1%
-14.5%
-7.4%
-5.6%
-7.8%
107,526
66,484
174,010
56,900
117,110
105.2
2019
104,242
56,842
161,084
50,484
110,600
97.50
* 2018 emissions figures that have been re-stated were previously reported in our 2018 Annual Report as follows:
UK: Scope 1 – 110,241; Scope 2 – 66,492; Total gross emissions – 176,733; Total net emissions – 119,833; Intensity Ratio – 106.9
China: Scope 2 – 36,031
Bakkavor Group: Total Scope 1 – 123,215; Total Scope 2 – 109,573; Total gross emissions – 232,788; Total net emissions – 175,888; Intensity Ratio – 125.5
38
+6%
120,500
Emissions (tCO2e)
Change since
2018
2019
104,242
9,226
14,217
127,685
56,842
8,345
19,566
84,753
212,438
50,484
161,954
112.7
-3.1%
+54.9%
+102.6%
-14.5%
+18.4%
+24.1%
-5.1%
+1.3%
-11.3%
+5.9%
-0.4
2018
107,526
5,957
7,017
66,484
7,050
15,761
89,295
209,795
56,900
152,895
113.1
2017
112,392
80,606
192,998
22,747
170,251
117.9
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 OUR TRUSTED PARTNER COMMITMENTS FOR
RESOURCE EFFICIENCY AND EMISSIONS
ALIGNED ENVIRONMENTAL MANAGEMENT
Roll out consistent environmental management and reporting
systems at each of our sites, tracking monthly performance
metrics for energy, carbon, water and food waste (2021).
ENERGY & CARBON
Reduce our relative carbon footprint and energy intensity
across operational manufacturing Group-wide per tonne
of product, year on year whilst continuing to monitor best
practice, including feasibility of potential innovations in
decarbonisation.
WATER INTENSITY
Work towards optimising operational water intensity per
tonne of product, whilst maintaining product quality and
integrity, reporting internally on a monthly basis through
the environmental tracker (year on year).
CLIMATE RISK AND MITIGATION
Understand our business’s exposure to climate risks and
take action to mitigate our impacts whilst building greater
resilience in our sector (2022).
IMPACT OF PACKAGING
In selecting the right packaging for our products, we and our
customers, under whose brands the vast majority of our products
are sold, must consider a number of factors. In particular, we
must prioritise food safety, quality and waste but balance this with
the environmental impact of the packaging across its lifecycle.
Global use of plastic is contributing to a critical pollution
problem, yet as a material for food packaging it has many
advantages. It is lightweight, efficient to produce, affordable and
often the most effective material in extending product shelf life.
Nevertheless, we recognise our responsibility to minimise use
of unnecessary plastics, maximise recyclability of all materials
and move towards more sustainable alternatives.
We have signed up to the goals of The UK Plastics Pact for our
UK business and will apply our knowledge in procuring and
developing more sustainable packaging solutions across our
business by sharing and promoting the same manufacturing
techniques and materials in our Asia and US divisions.
In 2019, we continued to work closely with our customers to
explore ways to redesign and redevelop product packaging to
improve the overall environmental impact while still maintaining
shelf life, and as such review the sustainability impact over the
whole product lifecycle.
We assessed our entire primary consumer packaging portfolio
in the UK and evaluated the impact of alternatives. This identified
around 50 million pieces of plastic that we were able to remove
in 2019, such as replacing all non-recyclable (polystyrene) discs
from pizza products for example. We also identified a further
250 million pieces that can be removed over the next 24 months.
This will help us make good progress towards the goals of The
UK Plastics Pact of eliminating problematic or unnecessary
plastic packaging, moving to 100% recyclable packaging where
possible, and using plastics with at least 30% recycled content.
50m
PIECES OF PLASTIC
REMOVED IN 2019
250m
PIECES OF PLASTIC THAT
CAN BE REMOVED OVER
THE NEXT 24 MONTHS
OUR TRUSTED PARTNER COMMITMENTS FOR
IMPACT OF PACKAGING
THE UK PLASTICS PACT
Commit to achieving The UK Plastics Pact’s shared industry
goals for 2025:
• Eliminate problematic or unnecessary5 single-use plastic
packaging
• 100% reusable, recyclable or compostable plastic packaging
• 30% average recycled content in plastic packaging
CARDBOARD
Use only cardboard from PEFC- or FSC-certified forests (2021).
US AND ASIA PACKAGING
Increase the use of recycled and recyclable materials in
packaging for our US and Asia businesses where possible,
by sharing manufacturing expertise and access to materials.
5 ‘ problematic or unnecessary’ defined as ‘avoidable, unable to recycle/
compost, not reusable, high levels of leakage into environment’
39
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CORPORATE RESPONSIBILITY
CONTINUED
DELIVERING HEALTHIER
CHOICES FOR CONSUMERS
Our annual Innovation Awards
celebrate some of many achievements
our sites make to deliver great value,
improve processes and demonstrate
our values.
One of the stand-out nominees in 2019
highlighted a project to reduce the fat
levels in an entire range of hummus
for one of our UK customers.
The traditional recipes contain
high levels of fat from olive oil and
chickpeas but the customer innovation
team were able to modify the full
range, without compromising on taste
or quality.
After investigation, the team were
successfully able to reduce fat levels
to meet the amber Guideline Daily
Amounts (GDA) traffic light system.
In blind taste tests, 9/10 testers were
unable to taste the difference.
PRODUCT INNOVATION
As a leading fresh prepared food producer, we enable balanced
and plant-rich diets through our product offering and it is our
business to stay on top of food and consumer trends. This means
working with our customers to create great tasting products that
are nutritious, exciting and support healthy lifestyles.
We are adapting recipes with our customers to support
targets around salt, sugar and saturated fat and increasing
our ranges of healthy food options. Additionally, as consumers
are increasingly prioritising environmental and ethical
considerations, our product innovation has helped to support
more sustainable lifestyles through our popular plant-based
ranges. For example, Bakkavor is one of two suppliers
producing Tesco’s highly successful Wicked Kitchen range
which expanded from 32 to 80 lines in its second year. We also
support Tesco’s competitively-priced plant-based range of
family favourites – Plant Chef – which was introduced in
September with the view to support ‘flexitarians’ looking to
make everyday swaps. We have also helped M&S grow its
Plant Kitchen range.
In 2019, our teams continued to work closely with our customers
to reformulate our products with improved nutritional profiles.
OUR TRUSTED PARTNER COMMITMENTS FOR
PRODUCT INNOVATION
SUSTAINABLE PRODUCT INNOVATION
Promote sustainability considerations in new product
development through regular training and information sharing.
PRODUCT REFORMULATION
Work with customers to meet their nutrition targets on salt,
sugar, saturated fat and overall calories through reformulation.
NUTRITIONAL IMPACT
Support healthier lifestyles through our product ranges by
using our expertise to develop great-tasting products that
support customers’ targets on healthy ranges.
PRODUCTS FOR SUSTAINABLE DIETS
Enable sustainable diets through our product portfolio by
continuing to lead and drive plant-based fresh-prepared
product ranges.
40
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 ENGAGEMENT AND WELLBEING
IN OUR WORKPLACES AND COMMUNITIES
As a Trusted Partner, it is essential
for us to provide a safe and inclusive
environment in which our colleagues
can thrive and develop.
Turnover includes voluntary and involuntary leavers and
excludes employees on fixed term contracts and those
affected by redundancy. In 2019, the average length of service
of employees in production was 6.82 years, while that of
employees in management and administration was 8.58 years,
both of which are in line with 2018’s figures.
Additionally, we pursue continuous improvements
in safety, as well as enabling worker voice.
BY GENDER
We are committed to leading our sector in responsible
recruitment and employment in the UK, through risk
assessment, training and risk reduction. We will take
our experience from the UK to apply across our
Group practices.
Female
Male
Total number
of employees
UK
International
2019
2018
2017
2019
2018
2017
7,011
7,055
7,116 1,853
1,643
1,273
9,931
9,949 10,232
1,310
1,195
972
16,942 17,004 17,348
3,163
2,838
2,245
EMPLOYEE DATA
The Group employed 20,105 employees in total. Approximately
98.4% of employees are considered permanent.
BY LOCATION
United Kingdom
US
China
Continental Europe (Spain, Italy)
2019
2018
2017
16,942
17,004
17,348
874
2,266
23
635
2,181
22
595
1,628
22
Total number of employees
20,105
19,842
19,593
BY FUNCTION
Production
Management and administration
Sales and distribution
2019
2018
2017
16,759
16,706
16,653
2,424
922
2,183
953
1,992
948
Total number of employees
20,105
19,842
19,593
In 2019, the Group reported employee turnover in the
UK of 20.9%, compared to 22.1% in 2018, representing
a 1.2 percentage point improvement.
SENIOR MANAGEMENT BY GENDER
Board and Management Board
2019
2018
2017
Female
Male
Total
3
10
13
3
10
13
2
10
12
See Board gender and diversity page 78
COLLEAGUE WELLBEING, HEALTH AND SAFETY
We promote a pro-active safety awareness and accident
prevention culture by empowering employees to raise risk
awareness and actively support solutions to improve the
Group’s performance. We consistently outperform industry
figures on workplace safety and will always target zero
serious accidents.
Each of our regional divisions has a strong health and safety
(H&S) culture based on best-practice governance processes and
reporting driven by the Group Board. Dedicated health and safety
teams are in place to define standards and monitor compliance
with risk-based workplace health and safety systems.
We have processes in place for capturing and sharing learnings
to ensure best practice learnings from high potential incidents
are shared across the Group. We undertake comprehensive
audits and unannounced ‘safe site’ inspections are carried out
by qualified experts. Bakkavor celebrates positive practices
through two H&S award categories – H&S Culture and H&S
Innovation – at our annual Group Employee Forum (GEF)
Awards. The Awards also recognise health and safety ‘Bright
Stars’ – individuals that demonstrate passion and leadership
in the task of continuous improvements in health and safety.
To foster and embed a positive approach to workplace health and
safety, we run a UK-wide H&S Action Team and our central H&S
team provide regular updates and guidance. The team attends our
Engineering discussion group and our Hygiene and Manufacturing
Forums. The team also communicates key risks and shares best
practice initiatives at the Group’s annual GEF Conference.
41
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information
CORPORATE RESPONSIBILITY
CONTINUED
GROUP RESPONSIBILITY
AWARDS
Every year we recognise the good
work our businesses have done at
our Annual Responsibility Awards.
This includes rewarding sites and
individuals for going ‘above and
beyond’ in Health & Safety through
three dedicated awards: H&S
Innovation, H&S Culture and
H&S Stars.
Their award-winning ideas and
initiatives are then shared across
the business so that other sites can
benefit and make their sites healthier
and safer. Pictured here is the 2019
Safety Star Award winner.
HIREN BAKHAI,
PRODUCTION MANAGER BAKKAVOR MEALS
LONDON (ABBEYDALE)
Winner of: Safety Star Award
At the annual Group Responsibility Awards in 2019, the Health and
Safety Culture Award was presented to Bakkavor Meals London
(Abbeydale) for their range of initiatives to improve the safety
culture at the site. The Health and Safety Innovation Award was
presented to Bakkavor Pizza Harrow, for their project to address
levels of flour dust by implementing technical innovations, as well
as occupational health awareness activities and engagement days.
TOP FOUR H&S IMPROVEMENTS 2019
• Introduced 'risk-focused' audits enabling increased central
support, to ensure we are making improvement around our
key risks
• Included High Potential Incidents into our existing shared
learning process
• Set up a Sustainability, Health and Environment (SHE) steering
team and held a SHE conference
• Supported sites with significant change projects to ensure
improvement continues
TOP THREE H&S INITIATIVES FOR 2020
• Improving awareness around machinery and workplace
transport risks
• Reinvigorating our policies using user-friendly terminology
to clarify our standards
• Investigating new technology on our vehicles to reduce the
risk of pedestrian impact and /or injury
Our sites also pursue a variety of activities designed to
improve overall wellbeing. For example, in September,
Bakkavor Pizza Holbeach held a ‘Wellbeing fortnight’ which
included NHS consultation and testing services, a relaxing
wellbeing zone, information about our Employee Assistance
Programme, smoothie-making and bike riding competitions.
Across the fortnight, over 200 employees at the site received
health consultations.
In 2019, our Health and Safety accident performance improved
across all measures:
• Major accidents reduced by 56%, currently outperforming
the HSE Food Industry average by 80%
• +7 day accidents reduced by 37%, therefore outperforming
the current HSE Food Industry average by 69%
• Total accidents reduced by 24% (2019: 1,309 v 2018: 1,712)
42
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 UK WORKPLACE ACCIDENTS
Major6 accidents per 100k
employees
>7 days lost-time accidents per
100k employees
Total accidents per 100k employees
2019
2018
2017
41
94
40
254
7,726
400
380
10,068
10,745
6 Number of ‘major’ accidents/specified injuries as defined by the Health
and Safety Executive
OUR TRUSTED PARTNER COMMITMENTS FOR
COLLEAGUE WELLBEING, HEALTH AND SAFETY
HEALTH AND SAFETY – SERIOUS ACCIDENTS
Demonstrate a continued commitment to H&S measurement
and performance improvement, aiming for zero serious accidents
by reducing significant risks across the Group (ongoing).
HEALTH AND SAFETY – LOST TIME ACCIDENTS (UK)
Continue to maintain UK performance by out-performing
industry average on numbers of major accidents and +7 days
lost time accidents (ongoing).
COLLEAGUE WELLBEING
Be recognised by our colleagues as supporting them to
achieve positive wellbeing (ongoing).
RESPONSIBLE RECRUITMENT AND EMPLOYMENT
Bakkavor directly employs around 20,000 colleagues, including
almost 17,000 in the UK. We aim to fill vacancies through direct
recruitment, but we also use agency labour providers when we
require staff at short notice to fill seasonal or promotional peaks.
Subcontracting provides invaluable flexibility to our manpower
planning, but it also increases our exposure to risks of modern
slavery, which is an issue we take extremely seriously.
Our values as a business will never be compatible with any
form of modern slavery, and we address this issue through our
Group Human Rights and Ethical Programme, overseen by our
Management Board. We will continue to take an active role in
driving best practice in this area by, for example, contributing
to leading industry platforms including the responsible supply
chain platform Sedex.
We want to build capacity across our business and raise worker
voices by embedding an understanding and awareness of the
issue of modern slavery in order that our people understand the
risks, can spot the signs and feel confident in reporting them.
RESPONSIBLE RECRUITMENT
Through 2019, we have led the major review of the Sedex SAQ
(Self-Assessment Questionnaire) alongside a working group of
suppliers and retailers. The new SAQ will be an added value tool
to help suppliers understand good labour practices and drive
change in their own operations and supply chains in order to
reduce issues of modern slavery, but without it becoming an
overly burdensome activity.
Bakkavor also remains an active partner of Stronger Together,
the multi-stakeholder initiative that aims to tackle modern
slavery through training and information sharing.
We conducted our modern slavery risk assessment using
these tools and identified the impact of Brexit and inclusion
as particular risk areas on which to focus.
Bakkavor’s input into the Progress
Monitoring Tool, as well as the training
workshops we deliver, has been very
helpful in ensuring that the content
reflects current and emerging modern
slavery risks, business and supply
chain realities, and provides credible
and actionable outcomes for users.
It’s collaborative working like this
that supports business to impact real
change in addressing major human
rights abuses.
DAVID CAMP
FOUNDER, STRONGER TOGE THER
We identified that limited English-language skills for a large
proportion of the workforce was a strategic issue in our UK
desserts business. This was impacting the performance of
the factory and our ability to grow the business. As a result, an
external provider carried out a workforce language assessment,
reviewing job specifications to understand the level of English
required and developed a risk map of our operations. This
enabled us to build an action plan to upskill our workforce with
English skills appropriate to the actual job requirements.
This case study contributed to the development of a toolkit
led by two of our customers that offers practical support to
addressing the challenges associated with multi-language
and multicultural workforces.
In 2019, we moved to a centralised recruitment system to streamline
how we recruit across the business. We trained over 80 managers in
the new process and emphasised the accountability of managers in
responsible recruitment, including how to avoid unconscious bias.
We continued to hold training workshops with Bakkavor HR
Business Partners on responsible recruitment. This year the
training was updated to include how we, as a business, can go
'beyond compliance'.
More information can be found in our modern slavery statements.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CORPORATE RESPONSIBILITY
CONTINUED
ACCESS TO EMPLOYMENT
We aim to create employment opportunities for those that
might otherwise struggle to access job and skills development.
In 2019, our Holbeach site continued a partnership with local
charity Centre Point and supported a project to empower
homeless and vulnerable people around Boston, Lincolnshire
to improve their circumstances and reach their full potential
through employment. The partnerships established the 'Second
Chance Back to Work' programme which gives those helped by
the charity the opportunity to enter full-time employment at
Bakkavor Pizza Holbeach. A pilot project provided bursaries to
support candidates to ensure they were given fair opportunities
during the standard assessment process. As a result, five
permanent employment opportunities were made, and a
further five candidates were referred to a partner agency
with guaranteed hours.
OUR TRUSTED PARTNER COMMITMENTS FOR
RESPONSIBLE RECRUITMENT AND EMPLOYMENT
MODERN SLAVERY AWARENESS
Drive awareness and action on the issue of modern slavery,
rolling out campaigns and training so that our colleagues
know the indicators and how to report them (ongoing).
ACCESS TO EMPLOYMENT
Facilitate access to employment for hard-to-reach
individuals by supporting and encouraging our sites to
undertake dedicated recruitment programmes with local
communities and NGO partnerships (UK and US, 2022).
LABOUR RISKS ASSESSMENT
Lead our industry on rolling out completion of the new
Sedex SAQ and new risk assessment (UK sites by 2020,
and Group-wide by 2021).
LABOUR PROVIDER STANDARDS
Work only with UK Labour Providers that are GLAA
registered, commit to the Responsible Recruitment Toolkit
and work towards the standards (from 2020).
ENGAGEMENT, DEVELOPMENT AND RETENTION
We are committed to providing a workplace environment where
people are engaged, motivated and feel empowered to speak up.
We are working to foster greater inclusion for our current and
future colleagues and to maintain open and two-way
communication channels.
We want to be an attractive employer in our communities, as
this will support the talent pipeline within our business and
contribute to local economic development. As such, we are
looking at ways of making working for Bakkavor appealing
for a diverse range of individuals.
Open and constructive communication is vital to how we run
our business. We are committed to conducting a regular People
Survey to monitor our performance on all aspects of employee
engagement, as well as promoting our Site Employee Forums
(SEFs) as an open channel between employees and
management.
Our Inclusion and Diversity policy was developed in 2019 and
launched to all employees in early 2020.
44
Our apprenticeships are a fantastic
opportunity for people to gain real
world experience and responsibility
within a range of functions, whilst
achieving an accredited qualification.
We are committed to playing an active
role in nurturing talent in the food
industry and our apprenticeships are
just one of the great ways we do this.
DONNA-MARIA LEE
GROUP HR DIRECTOR
We launched a new SEF representative training programme
that delivers workshops and activities to build confidence and
better equip SEFs in taking on their role, as both a site
representative and a community link.
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 as well as plan and record training for factory site-
based colleagues. As we have a highly-diverse workforce, at
some of our sites we offer free, 13-week English lessons to
support colleagues where English is not a first language and
drive inclusion in the workplace. Colleagues are invited to attend
during their working shift for a 90-minute lesson each week.
In addition, we continue to offer tailored training plans for
our colleagues, including for example, Managing for Results,
Diversity at Work, Financial Awareness and Root Cause Analysis
training. Our graduate and apprenticeship schemes continued to
expand in 2019. In the autumn, we welcomed 20 new graduates
and 19 new apprentices to our UK business, and nine to our
International China Graduate programme.
In the UK, the graduates are based across several sites in
specialist roles including Commercial, Development, Finance,
HR, Manufacturing and Technical functions. Each graduate
completes a placement in a number of different business units,
whilst being guided through a tailored leadership training
programme.
Apprentices undertook higher or advanced apprenticeships in
specialisms such as Bakery, Cyber Security, Engineering, HR,
IT, Manufacturing and Technical at sites across the UK.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 GROUP EMPLOYEE FORUM
In 2019, we held our annual Group
Employee Forum (GEF), bringing
together the local SEFs from across
the business to share site news and
hear about business developments
they can then share with their site
colleagues. Our designated Board
Employees' Representative, Non-
executive Director, Sue Clark, was in
attendance. Sue has a dedicated
email channel for all employees who
wish to contact her with their
feedback and views.
UK GENDER PAY REPORT SUMMARY
Bakkavor is committed to advancing and raising the profile
of gender equality across the Group. The Bakkavor UK
Gender Pay Report 2019 is available on the Group website
in accordance with our legal requirement as a company
with more than 250 employees.
A summary is shown below.
Our overall mean gender pay gap for 2019 is 10.7%, which
is an increase of 0.8% on 2018. As is common with most
businesses with a gender pay gap, ours is largely due to the
underrepresentation of women at senior levels. In addition, in
the last year we have experienced an overall reduction in the
number of women across the Group in comparison to men.
In 2019, we undertook a number of initiatives intended
to address the pay gap from different sides:
• Flexible working pilots across some of our sites
• Maintained female manager mentorship programme
to prepare them for more senior roles
Whilst our mean gender pay gap is still well below the UK
national average of 17.1% (ONS, Oct’ 2018), we know we need
to do more to help reduce the gap and to ensure we are at
the forefront of positive change.
Our focus in 2020 and future years will be on the following measures:
• Continuing to monitor and review our diversity metrics and use
data to ensure equity in our reward arrangements at all levels,
starting with a review of our pay structure
• Launching a new approach to talent, potential and
performance management which will help remove any
barriers to career progression
• Launching our first ‘diversity in grocery’ initiative aimed at
under-represented groups
• Continuing to drive our inclusion training programme at site
level which focuses on unconscious bias and subjectivity
• Reviewing our flexible working pilot to support and promote
female retention and career progression
• Inclusion and diversity planning projects across the business
• Succession planning and a review of our internal talent pipeline
• Continuing to focus on gender diversity in our entry level
programmes, particularly amongst our graduates and
apprentices
• Implemented an enhanced maternity pay policy
45
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CORPORATE RESPONSIBILITY
CONTINUED
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.
Median pay gap
Mean pay gap
2019
7.3%
10.7%
2018
8.4%
9.9%
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
3rd quartile
4th quartile (highest paid)
GENDER BONUS DATA
Median pay gap
Mean pay gap
Women
50.5%
40.7%
37.5%
32.5%
2019
14.9%
13.6%
Men
49.5%
59.3%
62.5%
67.5%
2018
11.6%
60.7%
The underlying gender bonus gap reflects a higher proportion of
men in senior roles. In 2018, the gender bonus gap reflected the
payment of accrued LTIP bonuses.
Proportion of men receiving a bonus
Proportion of women receiving a bonus
2019
2.4%
2.0%
2018
9.0%
8.0%
For the full Gender Pay Gap report, please visit www.bakkavor.com
46
OUR TRUSTED PARTNER COMMITMENTS FOR
ENGAGEMENT, DEVELOPMENT AND RETENTION
ATTRACTIVE AND INCLUSIVE EMPLOYER
Implement a range of workplace opportunities designed
to increase the attractiveness, accessibility and inclusivity
of employment at Bakkavor (ongoing).
INCLUSIVE WORKING ENVIRONMENT
Promote an inclusive working environment, where
differences are valued, and individuals feel they can
be themselves, without judgement (ongoing).
EMPLOYEE ENGAGEMENT
Conduct a regular Group-wide employee engagement
survey, aiming for an overall employee engagement score
above industry average (ongoing).
EMPLOYEE VOICE
Continue to empower our employees to speak up on
issues important to them by promoting open channels of
communication through our Site Employee Forums (SEFs)
and the annual Group Employee Forum (ongoing).
TALENT DEVELOPMENT AND RETENTION
Implement an integrated talent management and
development programme to provide our employees
with continuous learning opportunities (2021).
FUTURE LEADERS
Develop future leaders by expanding our graduate
programme and aligning our UK/Asia scheme with our
US programme, as well as doubling the apprenticeship
programmes in 2020.
EMPLOYEE TURNOVER
Reduce our employee turnover and maintain below
industry average (ongoing).
LOCAL CAUSES AND COMMUNITY ENGAGEMENT
We pride ourselves on our strong ties with the communities in
which we work, supporting causes and projects important to them
and our people. Rallying our colleagues and communities around
causes engages all of us to make a difference, as well as producing
a positive impact for the charitable organisations involved.
We have group corporate partnerships with Action Against
Hunger, a charity working to lead the global fight against hunger
and malnutrition, and FareShare, a charity that saves good food
destined for waste and sends it to charities and community
groups for vulnerable people.
We also encourage our sites to support local charities which
make a real difference within their communities. Site Employee
Forum (SEF) representatives are heavily involved in organising
activities to fundraise or volunteer with community projects.
On World Food Day on 16 October, we supported Action Against
Hunger in their campaign to tackle child malnutrition. Each of
our sites held fundraising efforts such as bake sales, raffles and
bucket collections. Over £2,500 was raised for Plumpy’Nut – a
therapeutic food for children suffering from malnutrition around
the world. We also held other fundraising events during the year,
including Bakkavor Fun Weekend and ‘Party in the Park’ in
Spalding, Lincolnshire.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 OUR TRUSTED PARTNER COMMITMENTS FOR
LOCAL CAUSES AND COMMUNITY ENGAGEMENT
GROUP PARTNERSHIPS
Fundraise and support our key Group charities through
Group donations and employee engagement fundraising
activities (ongoing).
EMPLOYEE FUNDRAISING
Support and encourage our colleagues to fundraise for
causes important to them through our Matched Giving
Scheme launched in 2020.
In the UK, FareShare is a core partner for our surplus food
distribution which supports nearly 11,000 charities making
more than 46 million meals a year. We also support them through
fundraising activities and campaigns, raising nearly £24,000 in 2019.
As well as our two corporate charity partnerships, we encourage
and enable our colleagues to support local charities and causes
important to them. Our SEFs are critical to building community
connections, raising awareness, and building site engagement.
For example, Bakkavor Salads Bourne raised over £4,000 to
support a local school for pupils with learning needs through
a series of activities including car washes, cake sales and craft
sales. The money will go towards the school football team,
playground and a new minibus.
Other site fundraising activities included: SEF Breakfast
Sandwiches by Bakkavor Salads Tilmanstone raising £470 for
Children in Need and a bake sale at Bakkavor Meals London
Abbeydale raising £650 for local food bank charity, Sufra.
By investing in the local community, we show colleagues that
we care about their wellbeing both outside and inside work.
Our Charity and Political Donations policy sets out the appropriate
channels for philanthropic fundraising and has been published to
employees on our intranet 'MyBakkavor'. We do not give financial
donations or other support to political individuals, representatives,
parties or causes in any country where we operate.
COMMUNITY
January 2019 marked the start of
two new Group charity partnerships
with Action Against Hunger and
FareShare. As a responsible food
manufacturer, the impact of hunger
on communities, both in the UK and
globally, is a major concern and we
believe we can play an important part
in making a positive difference. In
2019, we gave over £45,000 to these
charities through corporate donations
and employee engagement.
47
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information CORPORATE RESPONSIBILITY
CONTINUED
BAKKAVOR AND THE SUSTAINABLE DEVELOPMENT
GOALS (SDGs)
The long-term success of our Group depends on responding
to the needs of all our stakeholders and the world around us.
We developed Trusted Partner – our Corporate Responsibility
strategy (page 31) – in 2019, to address the critical social and
environmental issues for our business.
The UN Sustainable Development Goals (SDGs) supported
this process by providing a blueprint for how the industry,
government and civil society can make progress towards
a mutually sustainable future.
We see the Goals as a valuable framework to translate our strategy
to broader sustainable development, provide measurement and
indicators of progress as well as opportunities to engage and unify
around common themes. For example, we are part of the industry
movement taking up the target 12.3 within Sustainable Consumption
and Production. By signing up to Champions 12.3 we have committed
to halving our food waste in the UK by 2030 and measuring and
reporting progress along the way.
At Bakkavor, we have a significant contribution towards some specific
SDGs, but all of them are relevant to some degree. The below outlines
how we see our contribution and how each Goal relates to our Trusted
Partner strategy. More can be read about our approach to each
topic, action and commitments on the relevant pages.
UN SDGs WHERE BAKKAVOR HAS A HIGH CONTRIBUTION
SDG
Our contribution
Goal 2: Zero Hunger
Goal 3: Good Health
& Well-Being
Through our responsible sourcing strategy, we have a role to support
sustainable agricultural practices to make them more productive and
resilient while minimising potential harmful impacts.
We also directly contribute through our two corporate charity
partners – Action Against Hunger and FareShare – who directly
tackle this topic.
We can contribute to healthier lives by adapting recipes to support
our customers’ nutrition targets and by offering a wide range of
options, including plant-based products.
With our own colleagues we strive for the highest standards of workplace
health and safety, and support healthier lifestyles and wellbeing through
a range of local engagement activities and campaigns.
Related topics in our Trusted Partner strategy
• Environmentally sustainable sourcing (read
more, page 35)
• Supply chain human rights (page 33)
• Food waste (page 36)
• Product innovation (page 40)
• Local causes / community engagement (page 46)
• Product innovation (page 40)
• Colleague wellbeing, health and safety (page 41)
Goal 6: Clean Water
and Sanitation
Water is an important resource in both food production and
manufacturing. We are working to understand impacts in our supply
chain and how we can use it as efficiently as possible in our own
operations, without compromising on safety, product quality or the
environment in which our colleagues work.
• Environmentally sustainable sourcing (page 35)
• Resource efficiency and emissions (page 37)
Goal 8: Decent Work
and Economic Growth
Goal 12: Responsible
Consumption and
Production
Goal 13: Climate Action
We can directly support the rights of workers in our own operations
as well as indirectly in our supply chain through our sourcing
approach and responsible recruitment and employment practices.
As top priorities, our Group Human Rights and Ethical Programme
details how our approach applies both to our own operations and
our supply chain.
• Supply chain human rights (page 33)
• Colleague wellbeing, health and safety (page 41)
• Responsible recruitment and employment (page 43)
• Engagement, development and retention (page 44)
Businesses have a vital role in promoting sustainable consumption
and production. In 2018, Bakkavor signed up to the Champions 12.3
initiative to halve food waste by 2030. We are undertaking a number
of measures to support this goal; more can be read on page 36.
We contribute to other targets in SDG 12 through continually
embedding sustainable practices and improving our
sustainability disclosures.
• Food and other waste (page 36)
• Resource efficiency and emissions (page 37)
• Environmentally sustainable sourcing (page 35)
• Impact of packaging (page 39)
• Product innovation (page 40)
The heating and cooling systems used by our factories are our
biggest source of carbon emissions. As a result, this is where
we focus our energy efficiency efforts.
We have committed to reduce our footprint year on year and are
also working to set concrete medium to long-term reduction targets
to work towards.
• Resource efficiency and emissions (page 37)
• Environmentally sustainable sourcing (page 35)
UN SDGs WHERE BAKKAVOR HAS A MODERATE CONTRIBUTION
SDG
Our contribution
Goal 15: Life on Land
48
Whilst we are not significant purchasers of beef, soy or palm oil – the
ingredients that are major causes of global deforestation – in a global or
national context, we have sourcing specifications for these ingredients:
All palm oil that we source is purchased to the standards of the
Roundtable on Sustainable Palm Oil (RSPO).
We map our soy usage and from 2020 will source all soy through Round
Table Responsible Soy (RTRS) credits.
None of our beef originates from deforestation risk areas.
Related topics in our Trusted Partner strategy
• Environmentally sustainable sourcing (page 35)
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 SDG
Our contribution
Goal 1: No Poverty
Goal 4: Quality Education
Goal 5: Gender Equality
Globally, we provide jobs meeting all local national minimum wage
laws and offer a range of training opportunities to help our employees
go further in their careers as well as a range of personal benefits.
We support job creation in the food supply chain and our responsible
sourcing strategy promotes ethical employment standards for workers.
The training and development of our colleagues enables them to
progress in their career. We offer tailored training plans and in-house
e-learning across the Group.
In addition, our growing graduate and apprenticeship schemes enable
young people to gain real-world experience through a structured
placement scheme and build qualifications.
We are committed to increasing the inclusiveness of working at
Bakkavor and promoting gender equality at every level.
We monitor our diversity metrics and are finding ways to remove barriers to
career progression, which have traditionally affected women more than men.
Bakkavor has a gender pay gap of 7.3%, which has narrowed in the last
year. More information is in our Gender Pay statement (page 45)
Related topics in our Trusted Partner strategy
• Supply chain human rights (page 33)
• Engagement, development and retention
(page 44)
• Engagement, development and retention
(page 44)
• Engagement, development and retention
(page 44)
Goal 7: Affordable
and Clean Energy
We switched our UK electricity supply to a renewable supply contract
and are looking for similar opportunities in our US and Asia businesses.
• Resource efficiency and emissions (page 37)
Goal 9: Industry, Innovation
and Infrastructure
We promote more sustainable manufacturing through our efforts to
decrease our operational environmental improvement. We also support
innovation in manufacturing and technology through our annual Group
Innovation Awards. These awards celebrate improvements in
technologies and processes, many of which have direct sustainability
benefits, and help to scale and stimulate best practices.
• Resource efficiency and emissions (page 37)
• Impact of packaging (page 39)
OTHER UN SDGs WHERE BAKKAVOR HAS SOME CONTRIBUTION
SDG
Goal 10: Reduced
Inequalities
Goal 11: Sustainable Cities
and Communities
Our contribution
We can reduce economic inequality through our responsible
recruitment practices and by ensuring compliance with our ethical
standards also through our supply chain (see more: Supply chain
human rights (page 33) and Responsible recruitment and employment
(page 43).
We are an Equal Opportunity Employer and drive inclusion through
workplace training on unconscious bias and subjectivity.
We are committed to advancing gender equality in the business.
For more details, see the Gender Pay statement (page 45).
Many of our sites are located in smaller towns and regions. This means
that Bakkavor can have a relatively larger impact on the local community.
We encourage and enable our sites to support local charities which make
a real difference within their communities. Our Site Employee Forum
(SEF) representatives are critical to building community connections,
raising awareness, and increasing local employee engagement.
Related topics in our Trusted Partner strategy
• Supply chain human rights (page 33)
• Engagement, development and retention
(page 44)
• Responsible recruitment and employment
(page 43)
• Local causes/community engagement
(page 46)
Goal 14: Life Under Water
We source seafood according to the sustainability standards required
by our customers, which can include, for example, Marine Stewardship
Council (MSC) certification.
• Environmentally sustainable sourcing
(page 35)
Goal 16: Peace and Strong
Institutions
Goal 17: Partnerships
for the Goals
Good governance practices are core to how we conduct business at
Bakkavor and the Bakkavor Code of Conduct is in place to support this.
Reflecting our values, it defines 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. For more information see our Governance section (page 66).
Multi-stakeholder partnerships are critical to addressing many of the
shared and systemic sustainability challenges faced by business and
society. We actively engage with a number of industry platforms, from
the Food Network for Ethical Trade (FNET), Champions 12.3, to WRAP,
the Food Industry Intelligence Network (FIIN), IGD, Stronger Together
and Sedex that tackle issues from food waste, to resource efficiency,
ingredient integrity as well as human rights.
• Corporate Governance Compliance Statement
(page 68)
• We work in partnership across all of our
Corporate Responsibility focus areas
49
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information FINANCIAL REVIEW
PETER GATES
CHIEF FINANCIAL OFFICER
THOUGH IT WAS
CHALLENGING, THIS YEAR,
WE DELIVERED REVENUE
GROWTH IN LINE WITH
OUR EXPECTATIONS.
REVENUE
Reported revenue increased by £28.7 million, or 1.5%, from
£1,857.2 million in 2018 to £1,885.9 million in 2019.
Like-for-like revenue1 was up 1.7%, from £1,757.9 million in 2018
to £1,787.2 million in 2019. This increase was primarily due to
good growth in the Group’s International operating segment.
SEGMENTAL BREAKDOWN
UK
In the UK segment, reported revenue decreased slightly by 0.2%, or
£3.1 million, from £1,655.6 million in 2018 to £1,652.5 million in 2019.
Like-for-like revenue1, which excludes Freshcook and Anglia
Crown that were closed and sold in April 2019 and July 2018
respectively and Blueberry Foods and Haydens Bakery which were
acquired in June 2019 and September 2018 respectively, increased
marginally by 0.2%, from £1,556.3 million in 2018 to £1,559.8 million
in 2019. Freshcook contributed revenues of £21.4 million in 2019 for
the period up to its closure. Blueberry Foods contributed £31.0
million to reported revenue in the six-month period following its
acquisition and Haydens Bakery contributed £40.2 million in 2019.
This like-for-like revenue1 growth for the year was due to volume
increases of 0.5% being partly offset by price decreases of 0.3%
as we saw raw material deflation in the second half of 2019.
Underlying volume growth has been limited for the year as a
whole as consumer confidence remained weak in the current
economic environment. The growth that has been seen was
largely due to business wins in our meals category.
INTERNATIONAL
In the International segment, reported revenue increased by
£31.8 million, or 15.8%, to £233.4 million in 2019 from £201.6 million
in the prior year. The weakening of Sterling in the year helped to
increase reported revenue in 2019 by £6.0 million.
Like-for-like revenue1, which is at constant currency, increased
by 12.8%, from £201.6 million in 2018 to £227.4 million in 2019. The
increase was primarily due to strong growth in both our International
markets, where sales volumes increased across all key customers
as we started to benefit from recent investments to increase our
capacity in the US and China.
COST OF SALES
Cost of sales increased by £6.0 million, or 0.4%, from £1,370.6 million
in 2018 to £1,376.6 million in 2019.
Overall costs increased due to increased volumes in the year.
Labour costs in particular were higher following further increases
in the National Living Wage and pension auto-enrolment costs in
the UK, but this was partly offset by further efficiency benefits. In
addition raw material inflation eased as we went through the year
and was broadly neutral for the year as a whole.
50
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 2019
The Group incurred £20.3 million of net costs presented as
exceptional items in 2019 of which £6.6 million related to disruption
costs; £2.8 million as our factory in California was repurposed for
ready meal manufacturing and changes made to the hummus
production process, and £3.8 million in the UK as the business
prepared for the launch of significant new products in Q3 2019.
In addition, the Group incurred £13.7 million of restructuring
and impairment costs in the UK. Of this, £7.7 million related to
the closure of a meals business in Lincolnshire, comprising
cash closure costs of £4.2 million and plant and equipment
asset impairments of £3.5 million. A further charge of £4.3 million
has been recognised for the closure of the Group’s non-core
UK fast casual restaurant business. The remaining £1.7 million
is primarily for redundancy costs following changes to our
commercial and marketing structure.
2018
The Group incurred £26.1 million of exceptional costs 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 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 Bakery in September 2018
and a loss on disposal of Anglia Crown in July 2018 of £4.6 million.
SHARE OF RESULTS OF ASSOCIATES AFTER TAX
Share of results of associates after tax increased by £0.1 million
from £0.4 million in 2018 to £0.5 million in 2019. This increase
was due to further profit improvement in the Group’s associate
La Rose Noire Limited as it continues to expand its operations
in Hong Kong.
OPERATING PROFIT
Operating profit decreased by £16.2 million, or 19.0%, from
£85.6 million in 2018 to £69.4 million in 2019 with margins
decreasing by 90 basis points to 3.7%, primarily due to an
increase in the depreciation charge following recent capital
investments, a number of exceptional items as explained
above and ongoing start-up losses for new sites. In addition,
operating profit includes a year on year net credit of £4.9 million
(2018: £3.1 million) arising from the reassessment of the need for
certain commercial accruals and the requirement for provisions
under the Group’s short-term bonus scheme.
Before exceptional items and start-up losses for new sites
and the loss on disposal of a subsidiary in 2018, which are
not expected to reoccur, the operating margins for 2019
were 40 basis points lower than 2018 at 5.6%.
The Group delivered a robust
performance in 2019 given the
continued challenging market
conditions in the UK, with a
combination of high levels of inflation
and weak consumer confidence.
GROSS PROFIT
Gross profit increased by £22.7 million, or 4.7%, from
£486.6 million in 2018 to £509.3 million in 2019.
The increase for the year was due to the benefits from higher
volumes more than offsetting the increase in direct labour costs.
DISTRIBUTION COSTS
Distribution costs for the year remained in line with 2018 at
£77.1 million (2018: £77.2 million).
OTHER ADMINISTRATIVE COSTS
Administrative costs increased by £43.7 million, or 13.7%,
from £319.6 million in 2018 to £363.3 million in 2019.
Administrative costs for underlying activities excluding
exceptional items increased by £46.5 million, or 15.6%,
from £298.1 million in 2018 to £344.6 million in 2019. This was
primarily due to an increase of £15.4 million in overheads for
new sites in the US and China that were operational throughout
the year and an increase in depreciation of £7.5 million following
recent capital investments. The UK business continued to
maintain a tight control over costs at the existing sites.
EXCEPTIONAL ITEMS
Included within other administrative costs and cost of sales
are exceptional items which are adjusted for when 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. Exceptional items
comprise the following:
£ million
New sites
Disruption
GMP equalisation
Restructuring, impairment and
onerous lease provision
Gain on bargain purchase
Loss on disposal of subsidiary
2019
–
6.6
–
13.7
–
–
20.3
2018
12.4
2.6
2.6
5.2
(1.3)
4.6
26.1
1 Alternative performance measures are referred to as ‘like-for-like’, ‘adjusted’, ‘underlying’ and are applied consistently throughout this document.
These are defined in full and reconciled to the reported statutory measures in Note 38.
51
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information
FINANCIAL REVIEW
CONTINUED
ADJUSTED EBITDA1
Adjusted EBITDA1 for the year was £153.5 million, in line with
2018. Overall trading in 2019 reflects volume and efficiency
benefits which more than offset labour inflation in the year and
higher losses of £1.4 million at one of our meals' businesses
in Lincolnshire prior to its closure in April 2019.
EARNINGS PER SHARE
Basic earnings per share has decreased from 11.6 pence for
2018 to 6.4 pence in 2019, reflecting the start-up losses for new
sites, an increase in depreciation following recent investments,
mark-to-market losses on derivatives and the impact of the
introduction of IFRS 16.
FINANCE COSTS
Finance costs increased by £5.5 million, or 41.7%, from
£13.2 million in 2018 to £18.7 million in 2019. The increase is
partly due to the recognition of £2.8 million of lease liability
costs following the transition to IFRS 16 from the start of the
2019. The balance of the increase is due to an increase in
borrowing costs from higher average debt levels in the period
following further capital investment. The Group’s cost of debt
remains at circa 3.5% per annum.
OTHER GAINS AND LOSSES
Other gains and losses moved by £12.4 million, from a gain of
£5.5 million in 2018, to a loss of £6.9 million in 2019. This is due
to the Group recording mark-to-market losses of £7.3 million
on its financial derivatives in 2019, compared to a gain of
£1.1 million for 2018, following the relative strengthening of
Sterling against the Euro in recent months. In addition, in 2018
our results benefitted from a £4.2 million exceptional 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.
TAX
The Group tax charge for the year was £6.9 million, which was a
decrease of £3.8 million over last year. The £6.9 million charge
represents an effective tax rate of 15.8% on profit before tax of
£43.8 million. Most of the Group’s profits were earned in the UK,
where the statutory tax rate was 19% for 2019. The main reason
for the lower effective rate is that the US tax rate is higher than the
UK and therefore this increases the value of the deferred tax asset
on US losses expected to be used against future profits. Excluding
exceptional items and other adjusting items, the effective tax rate1
was 17.5% and it is expected that the effective tax rate will rise to
between 18% and 19% in 2020 as the UK statutory tax rate is now
expected to remain at 19% from April 2020.
PROFIT FOR THE PERIOD
As a result of the above, profit for the period decreased
by £30.3 million, or 45.1%, from £67.2 million in 2018 to
£36.9 million in 2019. Excluding the impact of exceptional
items and other adjusting items, the profit for the year1
has decreased by £10.5 million to £73.5 million.
Adjusted earnings per share1, which is calculated before exceptional
items, start-up losses for new sites, the impact of the introduction
of IFRS 16 and the change in fair value of derivative financial
instruments, has decreased from 14.5 pence for 2018 to 12.7 pence
in 2019, reflecting an increase in depreciation as assets come into
use following recent investment, a higher effective tax rate1, and an
increase in borrowing costs as average debt levels have increased.
The weighted average number of shares in issue during both 2018
and 2019 was 579,425,585.
CASH FLOW
Net cash from operating activities, which is calculated before
capital expenditure but after payments for exceptional items,
increased by £14.9 million from £99.1 million in 2018 to
£114.0 million. This was largely due to the benefit from a year on
year working capital decrease of £15.8 million more than offsetting
an increase in interest paid of £5.0 million, of which £2.8 million
is due to the transition to IFRS 16 from the start of 2019.
Net cash used in investing activities decreased by £9.3 million
in the year from £123.7 million in 2018 to £114.4 million in 2019.
This was primarily due to a £13.8 million decrease in capital
expenditure as the Group’s key development projects in Shanghai
and Newark were completed during 2019. This decrease in capital
expenditure was partly offset by a £5.1 million year on year
increase in payments for acquisitions and disposals of businesses.
Free cash flow1 for the year, which is the key measure the Directors
use to manage cash flow in the business, was £4.0 million lower
than the previous year at £51.1 million. This was principally due to
expenditure on core capital (excluding development projects) being
£20.8 million higher than 2018 as the Group continues with its
capital investment plan. Working capital remains tightly managed
and delivered a year on year improvement of £16.7 million largely
due to increases in supplier payment terms and due to new sites
being in operation for a full financial year. Interest payments were
£2.2 million higher as average debt levels increased across the
year following further investment.
52
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 CAPITAL, DEBT AND LEVERAGE
At 28 December 2019 the Group had committed debt
facilities of £517.5 million including 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. Of the remaining debt
facilities of £70 million, £20 million matures in November 2020,
£25 million in August 2020 and £25 million in September 2026.
On 18 March 2020 the Group completed a refinancing of its
core debt facilities amounting to £410 million through a new
term loan and revolving credit facility totalling £455 million.
The new facilities are due to mature in March 2024, with an
option to extend the tenure by a further two years subject to
lender approval. Following the refinancing the Group has
£562.5 million of debt facilities available.
Whilst the Group has continued to generate good free cash
flow in 2019, payments of £17.5 million have been made in
the year in respect of the completion of the final two key
development projects in Shanghai and Newark that were identified
at the time of the public listing, finance for which was raised from
the proceeds of the primary offering in November 2017. In addition,
the Group has funded the acquisition of Blueberry Foods in the
year at a cost of £16.8 million. These payments, combined with
the dividend of £34.8 million and payments for exceptional items
and start-up losses for new sites of £28.5 million, have resulted
in an increase of £45.5 million in operational net debt to
£354.8 million. Leverage (the ratio of operational net debt to
adjusted EBITDA) was 2.3 times at December 2019 and, as
expected, is an increase from the 2.0 times at the end of 2018,
largely due to the expenditure on the development projects and
acquisition payments.
The Group continues to target a medium-term range of 1.5 – 2.0
times. The Group’s liquidity position remains strong with good
headroom against all financial covenants.
IFRS 16 IMPACT
The Group transitioned to IFRS 16 Leases with effect from the
30 December 2018 by using the modified retrospective, asset
equals liability approach with no restatement of the comparative
information. The impact of the change in accounting treatment on
the consolidated income statement for 2019 has been to increase
operating profit by £0.6 million and to reduce earnings by £1.9 million.
In terms of borrowings, the Group recognised £78.8 million of lease
liabilities at 28 December 2019 which resulted in statutory net debt
of £432.4 million at the end of the period.
RETURN ON INVESTED CAPITAL1
The increase in invested capital in 2019 has resulted in a
decrease in the Group’s Return on Invested Capital1 (“ROIC”)
from 11.6% in 2018 to 9.6% in 2019. Excluding expenditure on
the Group’s Development Projects, ROIC was 11.0% in 2019
(2018: 12.6%). Over the medium term, the Group plans to
continue to spend circa 4% per annum of revenues on capital
investment. The Group would also expect the key development
projects which have required substantial capital expenditure
over the past two years to deliver improvements in returns
through the latter part of 2020 and into 2021.
PENSIONS
Under the IAS 19 valuation principles that are required to
be used for accounting purposes, the Group recognised a
surplus of £9.7 million for the UK defined benefit scheme as at
28 December 2019 (2018: deficit of £0.5 million). The movement
from a small deficit in the prior year to a surplus is due to an
increase in the value of assets combined with the benefits
from liability hedging.
The Group and the Trustee agreed in April 2017 the triennial
valuation of the UK defined benefit pension scheme as at
31 March 2016. This resulted in a funding shortfall which
continues to be paid over an agreed eight-year recovery period
ending on 31 March 2024. The recovery contributions over that
period amount to £22.5 million, with £2.5 million payable for the
year ending 31 March 2020. The next triennial valuation as
at 31 March 2019 is ongoing.
DIVIDEND
The Group paid an interim dividend of 2 pence per Ordinary
share on 11 October 2019. The Board has decided to suspend
the proposed final dividend as originally announced with the
Preliminary Results on 27 February 2020. Consequently, the
resolution in relation to the declaration of the final dividend will
not be put forward at the Company's AGM to be held on 12 June
2020. This will result in a total dividend for financial year 2019 of
2 pence per Ordinary share, compared to 6 pence in the prior year.
PETER GATES
Chief Financial Officer
5 May 2020
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 38 of the Notes to the Consolidated Financial Statements.
53
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information 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 that outline
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
both 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 an update on the implementation of any
corrective actions that are considered necessary.
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.
54
GOVERNANCE IN ACTION
CASE STUDY: BREXIT
WHY?
The impact of Brexit continues to be an area of focus given
the relative scale of our UK business to the Group.
THE RISK
Whilst the short term risk has lessened, there remains a risk
that at the end of the transition period EU import tariffs may be
introduced, causing food inflation and disruption could occur
at the ports of entry. Recently proposed immigration controls
could also affect labour availability.
THE WORK OF OUR BOARD AND INTERNAL COMMITTEES
The Brexit Working Group, on behalf of the Board, have kept
Brexit mitigations under review during the year including
systems development, customer plans, stock levels and
staff retention.
OUTCOMES
Following the recognition of Authorised Economic Operator
(AEO) status in 2018, the Group has put in place system links
with UK and Spanish Customs Authorities and developed a
direct portal in our IS system for our EU suppliers to use
post Brexit. It recruited and trained staff to take customs
clearance ‘in house’ and since the end of 2019 all imports into
the UK from outside the EU have been customs-cleared by
our own staff. With this experience the Group is now in a
stronger position to take on clearing imports from the EU as
well, if necessary, in the future. Bakkavor Iberica in Southern
Spain, which sources many of our EU-based raw material
imports, has established a secure distribution centre which
is now approved by the Spanish authorities to be used for
exporting post Brexit.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 OUR RISK MANAGEMENT FRAMEWORK
Bakkavor Group’s policy is to identify, assess and respond appropriately to all risks. The risk mitigations chosen will be subject to
the appetite and tolerance for each risk as determined by the Management Board and approved by the Group Board.
The effectiveness of risk management and the resultant controls are reported quarterly to the Management Board and the Audit
and Risk Committee through both the Group Risk Committee and three Regional Risk Committees for appropriate review and
challenge. Twice a year the Risk Reports are reviewed by the Group Board.
Management teams escalate new or changing risks to their respective Risk Committees for review.
The Internal Audit team carry out risk-based audits to provide assurance direct to the Audit and Risk Committee of the Group Board.
TOP-DOWN
Oversight and overall responsibility from the Board at a Group level
BAKKAVOR STRATEGY
The process begins with
the evaluation of the most
significant strategic risks
for Bakkavor.
RISK ASSESSMENT
Senior Management
regularly assess risks
for potential impact.
RISK MITIGATION
Action plans for
mitigating significant
risks are developed
and implemented.
RISK REVIEW PROCESS
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.
RISK ASSESSMENT MAP
)
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t
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g
i
t
i
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e
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o
o
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k
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L
4
8
7
12
11
2
5
13
3
6
14
1
9
15
10
Principal risks
Risk trend 2019
1. Food safety and integrity
2. Raw material and input cost inflation
3. Reliance on a small number of key customers
4. Labour availability and costs
5. IT systems and cyber risk
6. Health and safety
7. Recruitment and retention of key employees
8. Strategic growth and change programmes
9. Treasury and pensions
10. Brexit disruption
11. Disruption to Group operations
12. Sustainability
13. Consumer behaviour and demand
14. Competitors
15. Legal and regulatory
Business impact (after mitigation)
READ MORE ABOUT OUR PRINCIPAL RISKS
AND UNCERTAINTIES ON PAGES 58–65
55
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information
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 pro-active 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 an ongoing IT Risk and Security Programme.
Treasury – The Group has a Treasury Policy in place, the main
objectives of which are to ensure that appropriate capital resources
are available for the maintenance and development of the Group’s
businesses, and 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 are of paramount importance
and all practical efforts are made to mitigate risk in this area. In
addition, as a large employer, looking after the health and safety
of our colleagues is key, and we take all practical precautions to
protect people during the time they are on our sites.
The business takes a measured approach to investment to
minimise risk exposure. Whilst more recently significant capital
expenditure has been invested in the US and China, these are
markets within which Bakkavor has operated for many years
and we believe represent exciting opportunities for future growth.
Therefore, whilst there is an element of risk in all investments,
we believe the Company is well placed to minimise exposure.
56
GOVERNANCE IN ACTION
CASE STUDY: CYBER SECURITY
WHY?
An increasing frequency of cyber-attacks on corporate
networks worldwide is well documented.
THE RISK
Our operations could be disrupted, or individuals could gain
unauthorised access to sensitive information.
THE WORK OF OUR BOARD AND INTERNAL COMMITTEES
The Audit and Risk Committee has reviewed our approach
to cyber security using external specialists.
OUTCOMES
Whilst noting that generally the Group has good controls over
attacks to our main network, the risks in this area continue to
grow and develop and therefore our preventative measures
must in turn remain under constant review. We have recently
retained the services of a leading cyber security firm to work
with us on further developing our existing cyber security
controls. We have also taken out specific insurance cover
against cyber attacks for the first time.
OTHER DEVELOPMENTS IN 2019
A Group Risk Committee and three Regional Risk Committees
have been established in the UK, China and the US. All meet
on a quarterly basis and report to the Management Board and
Audit and Risk Committee.
The Group’s approach to Risk Appetite has been debated and
the Group Board has agreed an appropriate Risk Appetite level
for each principal risk.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 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 2022.
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 at the end
of the Transition Period following the UK’s recent departure
from the EU. In addition, as set out on pages 58 to 61 and
notwithstanding the high degree of uncertainty involved, the
Directors have carried out an assessment of the reasonable
but potential impact of the COVID-19 outbreak on the Group’s
operations. 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 the COVID-19 outbreak, 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 a scarcity
of labour.
As part of our 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 the COVID-19
outbreak and the terms of the UK’s exit from the European
Union. These terms are expected to apply from the end of
December 2020.
The majority of the Group’s debt facilities in place at the end
of 2019 amounting to £410 million were due to mature in June
2021. On 18 March 2020 the Group refinanced these facilities
with £455 million of debt facilities that mature in March 2024
on similar terms to those in place at the end of 2019. Under
the terms of the facilities agreement the Group has the option
to request an extension for the maturity of these facilities
through until March 2026 with the request subject to lender
approval. In addition, at the end of 2019 the Group had
£70 million of other debt facilities, with £25 million maturing
in August 2020, £20 million in November 2020 and £25 million
in September 2026.
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 2022.
57
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information PRINCIPAL RISKS AND UNCERTAINTIES
COVID-19 – RISK SUMMARY
COVID-19 emerged as a major risk to companies in
China in January and since then has spread to impact
companies all around the world. Each day the situation
changes and the Group has put in place a number of
actions to mitigate the potential impacts to the business
in the three regions in which it operates and across its
supply chain. Details of these mitigating actions are
explained later in this section.
Unlike many other industries which have been severely
impacted recently, such as travel and hospitality, the food
manufacturing industry and provision of food remains
fundamental to consumers. Fresh food and the convenience
of FPF supports the health and wellbeing of consumers and
maintaining the continuity and availability of our products is
a key priority for both our industry and government. For this
reason, our Group has in recent weeks been defined as
providing a ‘key’ or ‘essential’ service and received protection
and in some cases exemption from many of the restrictions
placed on individuals and companies in these difficult times.
Given that we manufacture and distribute most of our products
every day, the Group is used to accommodating volatile and
sometimes unpredictable ordering patterns. With a short
shelf-life on most of our raw materials and finished goods,
we can only hold limited stocks at any time. We therefore
have sophisticated supply chains, with robust planning and
scheduling procedures and a range of contingency plans are
in place in line with our normal operating plans. This gives
us a relatively high degree of flexibility and agility in our
operations and has served us well in adapting to the current
unprecedented situation.
This section addresses the key risks to each of the Group’s
three markets: the UK, US and China. We have assessed these
risks under three general headings: People management,
Supply chain and logistics and Consumer demand. We also
list the specific mitigating actions available and consider the
potential impact of the COVID-19 crisis on both our financial
performance and the Group’s liquidity position and our ability
to meet our financial obligations as they fall due.
Our scenario planning, as set out below, is based on an
assessment of a reasonable downside scenario but, given the
scale and fast moving nature of the pandemic it is inevitable
that there will remain a high level of uncertainty on the overall
impact to the business.
UNITED KINGDOM
In the UK, we have a mature business employing over
17,000 people across 25 sites, providing short shelf-life
chilled convenience products to a range of major
supermarket retailers. The business operates in four key
categories: meals, salads, desserts and pizza & bread.
1. PEOPLE MANAGEMENT
The first risk to our business could be the impact of a shortage
of core staff and / or management. Our business is a mix of
both highly automated and labour-intensive production, and
58
most sites operate 24/7 and 364 days a year. Should a large
number of employees be off work, it is possible we might have
to reduce our output to match labour availability. Similarly,
if we were to lose a number of key management personnel
for a period then it could put additional pressure on our ability
to operate efficiently.
Mitigating action
As a business, we are fully committed to ensuring we safeguard
the health, safety and wellbeing of all our colleagues in carrying
out their work. As a large FPF manufacturer, our established
controls for managing both people and food safety within our
operations are industry-leading. While our regular handwashing
procedures and high levels of good manufacturing practice
(GMP) and hygiene ensure a safe working environment, we have
also implemented a number of additional controls and enhanced
safety measures following the virus outbreak. This has included
restricted visitor access, suspending all travel unless deemed
business critical, a more rigorous return to work procedure,
more frequent cleaning regimes at touchpoints, additional
handwashing protocols, adhering to PHE guidelines for social
distancing in our offices, rest, changing and ancillary areas, as
well as following specific PHE guidance for distancing in food
manufacturing businesses. We are taking measures to ensure
that these operating procedures are fully understood and are
rigorously complied with so that we maintain the highest
standards. We continue to audit ourselves against both our
standard controls and our enhanced COVID-19 protocols on
both an announced and unannounced basis.
We have also actioned and continue to take advice from many
sources, including HM Government, Public Health England and
the NHS. We are also reviewing information from the Chilled
Food Associated (CFA) and The Institute of Grocery Distribution
(IGD). In addition to this, we maintain regular dialogue with all
employees. We therefore believe that the current practices and
the additional new measures recently introduced should lower
the risk of a large-scale transfer of the virus between our staff
on our premises.
Within our factories we operate a series of shift patterns.
This flexible working pattern allows us to move our core
staff – those that are well-trained and experienced –
between shifts and production areas, as well as between
sites. We also operate with a level of agency staff who we can
flex up or down depending on our requirements. In the event
that the virus does result in a large number of our core staff
being temporarily absent for reasons of illness or support for
affected relatives, we believe that we would be able to use our
remaining employees and agency staff to continue production.
In the unlikely event that the shortage became acute, we
would concentrate those remaining staff into production of a
reduced range of selected products and/or less labour-intensive
products. We could also transfer staff between factories where
we have several sites within a short distance of each other, for
example in Lincolnshire and North London.
In the current situation, which has resulted in a large range
of businesses unfortunately having to close, the available
pool of agency labour has grown as individuals look for
alternative employment.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 COVID-19 – RISK SUMMARY
Where disruption has occurred historically, potentially causing
transport delays and additional costs, our commercial teams
have worked with our customers to create a practical solution,
changing the specification of products if necessary. Our broad
range of product offerings also means that we can quickly and
easily provide alternative products to our customers.
Following the virus outbreak, we have taken a number of
mitigating actions. This has included increasing stock holding
across the supply chain, review of alternative and additional
suppliers for critical raw materials, implementation of alternative
supply options and daily Procurement Leadership Team reviews.
We have also maintained very close day-to-day contact with our
suppliers and been able to respond with appropriate support for
those under particular financial pressures.
3. CONSUMER DEMAND
Finally, since our fresh prepared foods are distributed through
retail stores and the retailers’ own home-delivery networks,
there is a risk that demand for our products could fall if
consumers changed their buying preferences and / or our
customers decided to limit or change the range of products
that they offered in store. This could be as a result of retailers
streamlining their operations including supply chain, labour
allocation and store processes as well as store closure due to
lack of available staff.
Mitigating action
As a large food manufacturing business, we adjust volumes to
match demand daily. Whilst each of our 25 sites is dedicated to
a particular key food category (meals, salads, pizza & bread or
desserts), all are multi-product, most are multi-customer and
all are geared to production of the full range of their products
every day. This means the sites are operationally flexible and
used to accommodating changing priorities. We are also used
to supplying the same product at two different sites should it
become necessary, because of particularly high short-term
promotional volumes for example.
Should demand for particular products fall, then our breadth
and range would allow us to provide alternative products to
our customers. In the event that volumes were to fall suddenly
in a particular category, which impacted a site more broadly,
there are a number of mitigating actions that could be taken
including use of the Government’s Job Retention Scheme to
‘Furlough’ workers, cutting costs through a reduction of
agency staff, changes to shift patterns, delay new product
launches, slow or stop the supply of raw materials and review
overhead cost saving opportunities. If these reduced volumes
held in place over the longer term and indicated a fundamental
shift in consumer buying patterns, then it could become
necessary to reassess the viability of an individual site.
In the event that we have a number of key managers unavailable,
then we will reallocate our managers between multiple sites to
cover shortages. If this were for a short period of time, we
consider the depth of our Senior Management to be sufficient
to continue production across our multiple sites.
We have also received confirmation that our business is classified
as critical to the COVID-19 response. This means that all Bakkavor
employees are classified as key workers and are therefore
entitled to support with childcare and continued education.
Taken together, these factors mean we consider that our
employee attendance will continue at an appropriate level
such that we can maintain production.
2. SUPPLY CHAIN AND LOGISTICS
A second risk to our business could be an interruption to
our raw material supply chain. Due to the short shelf-life of
a number of raw materials that we hold in stock, we are used
to operating a sophisticated supply chain that ensures we can
procure, manufacture and distribute product every day.
Our raw materials are sourced from across the world, with
approximately 40% from the EU and 15% from other parts of the
world. With low stocks held at site, any disruption in the supply
of our raw materials could mean we are unable to meet orders
for particular products. Furthermore, in the event of broader
economic stress in the regions in which our suppliers operate,
we could find availability and cost of our key raw materials
under pressure.
Mitigating action
As a business, we are highly experienced in problem-solving
issues regarding supply chain and logistics. Our procurement
function is largely centralised at our Head Office in Spalding,
Lincolnshire, with commodity focused specialists. This expertise
gives us a deep knowledge of the supply chain, including well-
established relationships with individual farmers, growers and
suppliers. In addition, we have ‘on the ground’ presence with
colleagues based in China, Spain, Italy and South America, which
is a key strength in understanding what is happening within the
supply base and within the local area. This includes a dedicated
team based in Spain who coordinate the buying of fresh produce
globally and the transportation of raw materials from southern
Europe to the UK, and a team in China who coordinate the
purchase and shipping of raw materials from Chinese suppliers
back to the UK. We make limited use of forwarding agents,
preferring to rely on our own professionals to ensure the smooth
running of what is in effect a just-in-time operating model. This
ensures that in the case of difficulties with product availability or
transport we are best placed to seek alternative sources or routes.
We also make full use of UK raw materials wherever possible,
with approximately 45% of raw materials purchased from
the UK, and have a flexible model which allows us to switch
suppliers to match seasonal availability, particularly in the spring
and summer when UK crops are more readily available. Robust
dual-sourcing procedures ensure that we are never completely
reliant on one particular supplier and potentially left with no
alternatives. With the changing product requirements of our
customers, we already have a robust and well established
process in place to approve new raw materials and suppliers, and
should we need to accelerate this we can work effectively with our
customers to ensure the appropriate approvals are obtained.
59
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
COVID-19 – RISK SUMMARY
US
In the US, our business employs over 850 people and operates
from five sites, producing chilled convenience food for
US grocery retailers.
1. PEOPLE MANAGEMENT
The risks to our US business of the impact of a shortage of
core staff and / or management are the same as the UK
business, and described above.
Mitigating action
The mitigating actions outlined for the UK business can equally
apply to the US, with the following additional points of note.
We have also actioned and continue to take advice from many
sources including state, federal and county bodies, the US
Food and Drug Administration, the US Department of
Agriculture and public health organisations.
The food manufacturing sector is classified as a critical
infrastructure industry, which means our business is required to
continue to operate as usual and our staff are exempt from the
‘Stay at Home’ orders in place in the states that we operate in.
In the event of an acute shortage of labour, our ability to transfer
employees between sites is limited due to the geographical
spread of our sites and existing travel restrictions in place.
However, following the temporary closure of our Breadeli site,
we have moved colleagues over to our nearby meals production
facility in Charlotte, North Carolina. There are also actions we
could take to reduce the complexity in our product ranges,
thereby reducing the reliance on labour.
2. SUPPLY CHAIN AND LOGISTICS
A second risk to our business could be an interruption to our raw
material supply chain. Due to the short shelf-life of a number of
raw materials that we hold in stock, we are used to operating a
sophisticated supply chain that ensures we can manufacture and
distribute product every day. Our raw materials are primarily
sourced locally in the US, with a small number of products
sourced from other parts of the world including Mexico, Chile,
Argentina and China. With low stocks held at site, any disruption
in the supply of our raw materials could mean we were unable
to meet orders for particular products.
Mitigating action
The mitigating actions outlined for the UK business can equally
apply to the US, with the following additional points of note.
Our procurement function in the US primarily operates from
individual sites, although overall management rests centrally.
We source most of our raw materials locally, minimising the risk
of disruption through restrictions imposed as a consequence of
the outbreak, especially as the food manufacturing sector is
classified as a critical infrastructure industry and therefore
ensuring it is fully-operational is a key priority for authorities.
3. CONSUMER DEMAND
As outlined in the UK section, there is a risk that consumer
demand for our products could fall if consumers were to
change their buying preferences and / or our customers were
to limit or change the range of products that they offered.
60
Mitigating action
The mitigating actions outlined for our UK business apply to
the US, with the following additional points of note.
Consistent with our UK business, in the US we adjust volumes
to match demand on a daily basis. We operate from five sites in
the US and our products are supplied to both local and national
grocery retailers. While each site is generally dedicated to a
particular key food category, all are multi-product, most are
multi-customer and are geared to production of the full range
of their products every day. This means they are operationally
flexible and used to accommodating changing priorities.
In some instances, we can also supply the same product from
two different sites should it become necessary, because of
supplying both East and West Coast retail stores, as well as
particularly high short-term promotional volumes for example.
This applies to all key food categories, except for bread, which,
until its recent temporary closure, was only produced at our
Breadeli site in Charlotte, North Carolina. That site has now
been temporarily closed as we are able to draw from our frozen
stock which should be sufficient to supply for up to two months.
CHINA
In China, our business employs approximately 2,000 people
and operates from nine sites, including one in Hong Kong.
It supplies fresh prepared foods and vegetables, mainly to
western foodservice customers.
1. PEOPLE MANAGEMENT
The risks to our business in China of the impact of a shortage of
core staff and / or management are the same as the UK business.
Mitigating action
The mitigating actions outlined for the UK business apply to
China, with the following additional points of note.
We have also actioned and continue to take advice from all
relevant Chinese Government authorities, including the Food
Safety Administration, Department of Labour and the Tax
bureau. In addition to this, we maintain regular dialogue with all
employees, many of whom live on-site in company dormitories
making it easier for us to ensure that they are maintaining the
highest hygiene standards.
Due to our customer base, we are not considered ‘critical’ to the
COVID-19 response but are permitted to continue production.
2. SUPPLY CHAIN AND LOGISTICS
A second risk to our business could be an interruption to our
raw material supply chain. As we hold limited stocks of short
shelf-life products, we are used to operating a sophisticated
supply chain that ensures we can manufacture and distribute
product every day. Our raw materials are almost exclusively
sourced locally, with very little imported from outside China.
With low stocks held at site, any disruption in the supply of our
raw materials could mean we were unable to meet orders for
particular products.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 COVID-19 – RISK SUMMARY
Based on the above scenario Group EBITDA could be
£25 million lower than 2019. The cash impact of these lower
trading assumptions was also reflected through to working
capital, tax payments and net interest.
As part of its COVID-19 Trading Update on 2 April 2020,
the Group committed to a number of important actions to
preserve liquidity as set out below:
• A tight control on costs will be maintained, and all non-
essential capital investment and discretionary expenditure
has been placed on hold.
• We are reviewing capacity across our facilities to better
match the current levels of demand and, wherever possible,
we will be supporting any impacted colleagues by making
use of the Job Retention Scheme (Furlough) introduced by
the Government in the UK.
• In addition to the pro-active steps we are taking around
cash and investment, the Board has decided to suspend the
proposed final dividend. We will review our dividend policy
in due course.
• Members of the Board and Management Board have also
agreed voluntary reductions in remuneration for the coming
three months: the Chairman and Non-executive Directors'
have agreed to a 50% reduction in base salaries and fees,
while the Group's founders (CEO, Agust Gudmundsson and
Non-executive Director, Lydur Gudmundsson) have
volunteered not to take a salary in the period. The wider
Management Board have also agreed to a voluntary 20%
reduction in base salaries.
The Group has £562.5 million of debt facilities currently
available with £455 million maturing in March 2024,
£25 million in August 2020, £20 million in November 2021,
£37.5 million in June 2024, and £25 million in September 2026.
Having considered the potential impact on short-term
profitability and taking account of the mitigating actions
in respect of capital expenditure and dividends, the Board
expects that under the scenario assumptions set out above
all financial covenants would be met, including a leverage
ratio of c.2.7x at June 2020 and c.2.6x at December 2020 and
significant liquidity headroom will continue to be available.
Therefore the Board has concluded that the Group would
be able to absorb a significant downturn in trading as a
consequence of COVID-19 and could therefore continue
as a going concern in the period under review.
Mitigating action
The mitigating actions outlined for the UK business apply to
China, with the following additional points of note.
As a business, we are extremely experienced in problem-
solving issues regarding supply chain and logistics. Our
procurement function in China is largely operated out of
individual sites, although overall management rests centrally.
We source most of our products locally, minimising the risk of
disruption through restrictions imposed as a consequence of
the outbreak, especially since maintaining a fully operational
food industry is a key priority for authorities.
3. CONSUMER DEMAND
As outlined in the UK section, there is a risk that demand for our
products could fall if consumers were to change their buying
preferences or our customers were to limit or change the range
of products that they offered. Our customer base in China is
primarily with western foodservice players and therefore they
may be unable to keep stores open due to local and / or central
government restrictions put in place.
Mitigating action
As a large food manufacturing business, we adjust volumes to
match demand daily. We operate through nine sites in China and
across a number of categories. All our sites are multi-product,
multi-customer and are geared to production of the full range
of their products every day. This means they are all extremely
flexible and used to changing priorities.
We are also used to supplying the same product at two different
sites should it become necessary. An example of this is our
existing requirement to supply a consistent product range in a
number of regions for existing national customers. In some
instances however this might be challenging due to the distances
between sites and the short life of our products. If this was the
case, we have alternative suppliers that could be used and would
work with our customers to obtain the required approvals so we
can maintain supply.
SCENARIO PLANNING
Due to the unprecedented nature of the COVID-19 outbreak,
the Group has considered how the ongoing crisis could impact
on the financial results and overall liquidity position of the
business. We have also looked at a range of mitigating actions
that could be taken in the short term to protect profits and cash.
The scenario that was envisaged included the following assumptions:
• Sales volumes in the UK being down overall by 10% against
our initial expectations for the months of April through to July
2020. We modelled this in detail across the four key categories
although a volume reduction for each category has a broadly
similar impact on gross profit. Overheads were assumed to be
unchanged, but we acknowledge that a reduction in overheads
would be a key part of the mitigating actions described below.
• Sales volume and hence gross profit reducing by 33% in the
US through the months of April to July 2020.
• In China, a decrease in EBITDA of £9 million over the course
of the year.
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PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
In 2019, the Group extended its principal risks
and uncertainties to include legal and regulatory
risks to recognise the wider responsibilities
which come with our listed status.
FOOD SAFETY AND INTEGRITY
DESCRIPTION
Millions of people eat our products every day. We have a duty to
make food that is safe and that 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.
LINK TO STRATEGY
1
2
3
MITIGATING CONTROLS
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.
Supply chain food safety and integrity is understood
and managed through robust risk assessment and
management process.
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.
RISK TREND 2019
The level of risk has reduced
marginally reflecting
effective mitigation in this
area and our experience
over the last few years.
RAW MATERIAL AND INPUT COST INFLATION
DESCRIPTION
The Group’s cost base and margin are vulnerable to fluctuations
in the price and availability of raw materials, packaging materials
and freight.
MITIGATING CONTROLS
Central procurement team focused on achieving
a balance between price, quality, availability and
service levels.
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.
LINK TO STRATEGY
3
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.
RELIANCE ON A SMALL NUMBER OF KEY CUSTOMERS
DESCRIPTION
We work with four of the largest food retailers in the UK and a
significant proportion of our revenue is from these customers.
In the US we work with a small number of large retailers and
in China a small number of large food service customers.
Any major customer loss would have a significant negative
impact on our business.
LINK TO STRATEGY
1
3
MITIGATING CONTROLS
Close partnership model in place with customers.
In the UK, customer-specific champions and teams
manage strategic customer relationships.
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.
RISK TREND 2019
The risk has reduced
somewhat due to the recent
strengthening of Sterling.
RISK TREND 2019
Customer concentration
has remained unchanged.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
LINK TO OUR STRATEGIC PRIORITIES
1
2
3
LEVERAGING NUMBER ONE
POSITION IN THE UK
ACCELERATING GROWTH IN HIGH-POTENTIAL
INTERNATIONAL MARKETS
IMPROVING OPERATIONAL
EFFICIENCY
LABOUR AVAILABILITY AND COSTS
DESCRIPTION
Manpower scarcity and higher labour 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.
MITIGATING CONTROLS
Specific campaigns and focus groups 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.
RISK TREND 2019
The potential medium-term
impact from reduced
immigration and the
retention of existing EU
colleagues following Brexit
has increased the risk of
labour availability in the UK.
Additionally, in the UK, Brexit presents a risk as historically the
Group has employed a material number of people who are citizens
of EU countries.
LINK TO STRATEGY
1
2
3
IT SYSTEMS AND CYBER RISK
DESCRIPTION
Unauthorised access of the Company’s Information Technology
(“IT”) systems could lead to breaches of data protection and release
of market sensitive information.
Any breakdown or failure in the Group’s IT infrastructure or the
Group’s communication networks, including malicious cyber-
attacks by third parties, could delay or otherwise impact the
Group’s day-to-day business.
LINK TO STRATEGY
1
2
HEALTH AND SAFETY
MITIGATING CONTROLS
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.
The Group IS department has delivered Disaster Recovery
(“DR”) processes for all critical systems in the UK.
Group IS has strict policies and actively ensures that the
IS infrastructure and equipment in the UK in particular
are sufficiently protected against malicious cyber-attacks.
Local teams in the US and China are developing our IS
infrastructure capabilities.
RISK TREND 2019
Cyber threats have become
more common in the wider
economy. The Group has
increased investment in this
area and transferred some
of the risk to insurers so that,
overall, the risk has remained
the same.
DESCRIPTION
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.
LINK TO STRATEGY
1
2
MITIGATING CONTROLS
H&S and environmental impacts are managed locally
by our teams and by the Group’s in-house experts who
embed and monitor practices.
Stringent processes are implemented for identifying
and managing H&S and environmental risks.
Regular reporting of H&S Key Performance Indicators
to the Group Board and immediate reporting of
significant issues.
An established culture of employee engagement around
accident prevention across the Group.
RECRUITMENT AND RETENTION OF KEY EMPLOYEES
DESCRIPTION
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.
MITIGATING CONTROLS
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.
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.
LINK TO STRATEGY
1
2
3
Graduate recruitment and apprenticeship schemes
have been expanded.
Training and career development opportunities have
been enhanced.
RISK TREND 2019
The level of risk has remained
unchanged.
RISK TREND 2019
The risk is marginally
higher due to an increased
requirement for skilled labour
across our international
businesses.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information
PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
STRATEGIC GROWTH AND CHANGE PROGRAMMES
DESCRIPTION
Much of our future growth will be delivered from new factory
builds and acquisitions. This adds a level of execution risk to
continuing operations.
MITIGATING CONTROLS
Detailed planning and sharing of best practice within
the Group minimises risk.
LINK TO STRATEGY
1
2
3
TREASURY AND PENSIONS
DESCRIPTION
To achieve our growth objectives, we require a strong
financial platform.
MITIGATING CONTROLS
Financial results, projections and covenant
performance reviewed regularly.
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.
The Group has a closed defined benefit pension plan which
is exposed to interest and inflation rates, values of assets
and increased life expectancy.
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 policy of hedging known non-Sterling
denominated expenditure both for specific projects
and on a rolling basis for material purchases.
The pension scheme has hedges in place for a large
portion, but not all, of its risks.
LINK TO STRATEGY
3
BREXIT DISRUPTION
RISK TREND 2019
Increased investment in
development projects has
increased execution risk.
RISK TREND 2019
Debt ratios have worsened
somewhat, largely as a result
of our acquisition and
investment programme.
DESCRIPTION
It is possible that the way in which the UK leaves the European Union
at the end of 2020 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.
LINK TO STRATEGY
1
MITIGATING CONTROLS
We have recently obtained AEO status which should
help us streamline and simplify our import processes.
Customs clearance staff have been recruited and
trained to use new systems linked to the Customs
Authorities.
Longer-life packaging and raw material stocks will
be increased as necessary.
RISK TREND 2019
Recent developments have
lessened the probability of
disruption in 2020 but it
remains a threat after the
transition period.
DISRUPTION TO GROUP OPERATIONS
DESCRIPTION
Catastrophic damage to one of our factories by fire, flood or
mechanical breakdown as well as disruption due to information
systems failure or pandemics.
MITIGATING CONTROLS
Building and property management protocols
are employed and audited in conjunction with
our property insurers.
LINK TO STRATEGY
1
2
Business continuity plans are in place for each factory
site and for many products alternative Bakkavor
factories could supply in the event of a major issue.
RISK TREND 2019
COVID-19 has affected our
Chinese operations in early
2020 and will affect our
operations in the UK and US
as it continues to spread.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
LINK TO OUR STRATEGIC PRIORITIES
1
2
3
LEVERAGING NUMBER ONE
POSITION IN THE UK
ACCELERATING GROWTH IN HIGH-POTENTIAL
INTERNATIONAL MARKETS
IMPROVING OPERATIONAL
EFFICIENCY
SUSTAINABILITY
DESCRIPTION
To continue with our growth agenda we must ensure that the
business is developing in a sustainable way.
LINK TO STRATEGY
1
2
3
CONSUMER BEHAVIOUR AND DEMAND
MITIGATING CONTROLS
The Board has approved a new Corporate Responsibility
Strategy, ‘Trusted Partner’, and as part of this, we are
scaling up our focus and performance monitoring in
relation to a number of key areas including carbon,
waste, water packaging and responsible sourcing.
RISK TREND 2019
Increased pressure from
our customers and consumers
to demonstrate strong
sustainability performance
has increased the risk.
DESCRIPTION
Changes in consumer demand due to a serious change in the
economy or other consumption factors could impact our plans.
MITIGATING CONTROLS
We work closely with our customers to adapt to
changing consumer trends.
LINK TO STRATEGY
1
COMPETITORS
RISK TREND 2019
A generally soft market and
changing demand focus in
the UK has increased the
Group risk.
DESCRIPTION
The Group operates in a highly competitive market.
LINK TO STRATEGY
1
2
MITIGATING CONTROLS
Developing and maintaining strong working
relationships with our customers underpinned
by high service levels and constant product
development and innovation.
RISK TREND 2019
The level of risk has remained
unchanged.
LEGAL AND REGULATORY
DESCRIPTION
Bakkavor is subject to a wide range of legislation, regulations and
codes of practice covering many aspects of our business including
food safety, health & safety, data privacy, competition, ethical
business, tax and financial reporting. Failure to comply could
impact our reputation and lead to financial penalties.
LINK TO STRATEGY
1
2
MITIGATING CONTROLS
We have well developed food industry processes in
place to manage food safety and health & safety issues,
including internal and external audits.
Our legal, financial, tax, and environmental teams
monitor relevant laws and regulations to ensure
compliance.
Our outsourced internal audit team provides assurance
on key risks.
In 2020 we are introducing e-learning training for key
global policies.
RISK TREND 2019
The risk level remains the
same but the increasing focus
associated with compliance
due to our listed status
warrants its inclusion as a
principal risk.
Our 2019 Strategic Report, from the inside front cover to page 65, has been reviewed and approved by the Board.
AGUST GUDMUNDSSON
Chief Executive Officer
5 May 2020
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Strategic reportGovernanceFinancial statementsCompany information
CHAIRMAN’S LETTER ON CORPORATE GOVERNANCE
SIMON BURKE
CHAIRMAN
Promoting the long-term sustainable
success of the Company, generating
value for stakeholders and supporting
the Management Board in developing
the Company’s strategies has been, and
continues to be, the focus of the Board.
SIMON BURKE
CH A IRM A N
Dear fellow shareholders
I am pleased to present to you Bakkavor Group
Plc’s Corporate Governance Report for the year
ended 28 December 2019. This is our third
Annual Report and Accounts following our
Initial Public Offering in November 2017.
In my second Corporate Governance Report last year, I looked
ahead to further developing our governance processes as the
platform from which to manage the business. We have made
good progress (as highlighted below) and continue to consolidate
our corporate governance framework and align ourselves with
best practice.
BOARD COMPOSITION AND ACTIVITIES
In 2019, membership of the Board was unchanged, with Jane
Lodge and Patrick Cook each completing their first full year as
Non-executive Directors. We have built on the changes made
last year and report on that fully on pages 75 to 77. I am
delighted to have welcomed Annabel Tagoe-Bannerman
as Group General Counsel & Company Secretary. I believe that
this is a Board with the skill and experience required to ensure
the provision of an appropriate level of strategic support to, as
well as focused oversight and constructive challenge of, the
Management Board and senior executives.
COMPLIANCE WITH THE UK CORPORATE
GOVERNANCE CODE
The Board considers that the Company has, throughout the
year ended 28 December 2019, applied the principles and
complied in full with the provisions of the 2016 UK Corporate
Governance Code, which is the version of the Code that applies
for the year under review. The Company will report on its
compliance with the 2018 Code in the 2020 Annual Report and
Financial Statements. Set out below are examples of such early
compliance. Further, in order to maintain the highest standards
of corporate governance, the Board has received regular
updates on the revised UK Corporate Governance Code (the"2018
Code"), published by the Financial Reporting Council in July 2018,
and has already commenced a programme to implement it by
revising its processes and policies in anticipation.
ENGAGEMENT WITH THE WORKFORCE
I was delighted that during 2019 Sue Clark accepted a role as
Designated Non-executive Director for engagement with the
workforce. Sue met with the Site Employee Forums at the
Bakkavor Harrow site in July and the Bakkavor Desserts,
Newark site in October. Please see page 13 where we report
on how we have engaged with the workforce in 2019.
Sue also attended the Group Employee Forum conference in May
and held a Q&A session to introduce her new role to the workforce
and to give them the opportunity to share their thoughts.
66
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 INCLUSION AND DIVERSITY
The Board places emphasis on inclusion and diversity and
supports the Company in its commitment to workplace diversity
across all levels and its undertaking to cultivate and foster a
culture of inclusion and a feeling of belonging.
The Company recently introduced the Bakkavor Inclusion and
Diversity Policy, which has three main objectives: (i) living the
Bakkavor Values – Customer Care, Can-Do attitude, Teamwork,
Innovation and Getting it Right, Keeping it Right; (ii) building an
inclusive and diverse workforce across all levels through our
talent acquisition and retention programmes; and (iii) providing
opportunity for all to succeed.
In addition, the Board is committed to ensuring that its
own composition is diverse (in gender and cognitive terms)
and balanced.
LOOKING AHEAD
The governance priorities for 2020 include continued
stakeholder engagement, supporting inclusion and diversity
at all levels within the Company, monitoring the Company’s
culture and values and focusing on environmental, social
and governance issues. The Board will continue to exercise
oversight of the actions being taken by management to mitigate
the potential impact of COVID-19 to the business and across its
supply chain.
SIMON BURKE
Chairman
5 May 2020
NEW GOVERNANCE AND COMPLIANCE PLATFORM
In 2019 the Company launched a new governance and
compliance e-learning platform to help promote policies and
processes within the organisation enabling the Company to
function effectively and efficiently. The initial policy launched on
the training and knowledge platform was a revised Anti-Bribery
and Business Ethics Policy. This resource has been well received
by colleagues in the UK and will be adapted (as appropriate) and
promoted within the International businesses in 2020. A copy of
our Anti-Bribery and Business Ethics Policy is available to all our
employees through the Bakkavor intranet.
OPPORTUNITIES FOR THE WORKFORCE
TO RAISE CONCERNS
The Company has also refreshed its Whistleblowing Policy
in 2019 and has highlighted, through compliance training and
policy updates throughout the Group, the means by which the
workforce can raise concerns in confidence. The Board receives
an updated Whistleblowing report, which highlights any reports
made Group-wide and how these reports are followed up and
dealt with at each of its meetings. There is also escalation, if
necessary, to the Management Board or Board. I believe this
process is working well.
RISK
In the last year, the Board has assessed, on a quarterly basis, the
key and emerging risks of the Company. A full description of the
principal risks, our procedures for identifying risks and how such
risks are mitigated is set out on pages 58 to 65. We have also
developed a new risk appetite framework, which is reviewed by
the Board on an annual basis. Since the year-end, COVID-19 has
emerged as a major risk to companies all around the world. The
Group has put in place a number of actions to mitigate the potential
impacts to the business. These are explained on pages 58 to 61.
Further information on the Company’s approach to risk
management can be found on page 54 onwards.
BOARD EVALUATION
In the last quarter of 2019, we undertook an internal evaluation
of the Board and its Committees. The results concluded that
our Board and Board Committees are functioning appropriately.
I am satisfied that our governance structures remain effective
and support the business. As would be expected, there were
some constructive suggestions and these will be implemented
in 2020. Further information on the evaluation is provided on
page 79. An externally facilitated Board evaluation is planned
for 2020 in accordance with the 2018 Code.
SUCCESSION PLANNING
Over the last few months, the Nomination Committee has
reviewed the succession planning for the Non-executive
Directors and has recommended a succession plan which
has been adopted by the Board.
The Board has also discussed succession arrangements for its
executive members and key senior people in the business. In the
coming year, the Nomination Committee will focus on reviewing
the succession plan for the Management Board and other senior
executives of the Company. It will also take on greater oversight
of the development of a diverse pipeline for succession.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance CORPORATE GOVERNANCE COMPLIANCE STATEMENT
During 2019, we complied with all the provisions
of the UK Corporate Governance Code 2016
(“2016 Code”), which is the version of the Code
that applies for the period under review.
We also sought to implement some of the changes introduced
by the UK Corporate Governance Code 2018 (“2018 Code”).
The Board will continue to develop its governance and current
practices and will report on its compliance with the 2018 Code
in our next Annual Report.
Both the 2016 Code and 2018 Code are publicly available on the
website of the Financial Reporting Council at www.frc.org.uk.
Our compliance with key areas of the 2016 Code and early
adoption of aspects of the 2018 Code are summarised opposite.
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 on
pages 75 to 77, 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 2016 Code to articulate the
Board’s activities during the year:
BOARD LEADERSHIP
AND COMPANY PURPOSE
The Board rigorously challenges
strategy, performance,
responsibility and accountability
to ensure that every decision we
make is of the highest quality.
ACCOUNTABILITY
All Board decisions are
taken within the context of
the risks involved. Effective
risk management is central
to achieving our strategic
objectives.
The Board is satisfied that the
Company’s purpose, values,
strategy and culture are aligned
and promote the long-term
success of the Company,
generating value to shareholders
and other stakeholders.
READ PAGE 73
The Board ensures that there
is effective engagement with
its shareholders and other
stakeholders.
READ PAGE 80
EFFECTIVENESS
The Board continuously
evaluates the balance of skills,
experience, diversity,
knowledge and independence
among the Directors.
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.
READ PAGE 78
READ PAGE 92
68
GOVERNANCE SUMMARY
Independence, Accountability and Election: Over half of our Board is
comprised of Independent Non-executive Directors and the composition
of all Board Committees complies with the 2018 Code. There is clear
separation of duties between the Chairman and Chief Executive Officer
roles. All the Directors stand for annual re-election by shareholders.
Senior Independent Director: Our Senior Independent Director is
Denis Hennequin, who serves as a sounding board for the Chairman
and an intermediary for the other Directors and shareholders.
Division of Responsibilities: The Chairman, Simon Burke, leads
the Board and is responsible for its overall effectiveness in directing
the Company. The results of an internally facilitated Board and
Committees’ evaluation in 2019 confirm that the Chair facilitates
constructive Board relations, there is effective contribution from
all the Directors on the Board and the Board receives accurate,
timely and clear information.
Skills and Experience: The Board and its Committees are considered
to have an appropriate combination of skills, experience and
knowledge to direct the Company.
Auditor: Following a competitive audit tender process,
PricewaterhouseCoopers LLP (“PwC”) was appointed as External
Auditor in 2019.
Non-Audit Services Policy: Details on the Non-Audit Services Policy
are provided within this report. See page 86.
Internal Audit: Details of the Internal Audit function, as undertaken
by KPMG LLP, are provided within this report.
Performance-related Pay: Our reward framework is simple,
transparent and designed to support and drive our business strategy.
See pages 92 to 111 of the Remuneration Report.
Workforce Engagement: Sue Clark, an Independent Non-executive
Director on the Board, was appointed as the Board Employee
Representative in the UK during the year to ensure that the ‘employee
voice’ is represented in the boardroom. She communicates with
employees in a number of different ways, namely, the employee
engagement survey, our annual Management Conference and the
Group Employee Forum (“GEF”) and Site Employee Forums (“SEFs”).
Sue attended the Group Employee Forum conference in May and held a
Q&A session to introduce her new role to the workforce and to give them
the opportunity to share their thoughts.
Overseas employees in China and the US also have GEF and SEFs,
which provide feedback to our HR representative.
Stakeholder Engagement: The Board engages with a wide range
of stakeholders and considers the views of, and its effect on, the
Company’s key stakeholders in Board discussions and decision-making.
Diversity: The Board recognises and places emphasis on the principle of
diversity in its widest sense, including gender diversity. For information
about the diversity of the Board, please see the chart on page 71 and
for the development of Senior Management please see page 44 of the
Strategic Report. A new Inclusion and Diversity Policy was developed
in 2019 and launched in early 2020. Its three objectives are:
• Living the Bakkavor values
• Building an inclusive and diverse work force across all levels
of the organisation
• Providing opportunity for employees to succeed.
See page 41 for a breakdown of the Company’s employee data.
Bakkavor also has associated policies such as its Equal Opportunities
Policy, Flexible Working Policy and Disciplinary and Grievance Policy.
The Inclusion and Diversity Policy and the Company’s action in
support of it will be regularly reviewed by the Board and the
Management Board.
Review of Policies: In line with the Schedule of Matters Reserved for
the Board, the Board also reviewed and approved several policies
which have been updated to align with the 2018 Code, including the
Anti-Bribery and Business Ethics Policy and the Whistleblowing Policy.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
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 each Committee's 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 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 Nomination Committee
reviews the structure, size
and composition of the Board,
ensuring that there is a
healthy balance of skills,
knowledge, experience and
diversity. It is also responsible
for reviewing succession
plans for the Directors,
including the Chairman and
Chief Executive Officer, and
other Senior Management.
The Nomination Committee
will normally meet not less
than three 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 to
ensure that these are in line
with the long-term interests of
the Group, and prepares an
annual remuneration report for
approval by the shareholders at
the Annual General Meeting.
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
Group 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.
READ PAGE 84
READ PAGE 82
READ PAGE 92
READ PAGE 73
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.
GROUP GENERAL COUNSEL & COMPANY SECRETARY
ANNABEL TAGOE-BANNERMAN
The Company Secretary supports both the Board and Management Board, ensuring good information flows and
advising on all corporate governance matters.
69
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance GROUP BOARD
AGUST GUDMUNDSSON
Chief Executive Officer
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.
PETER GATES
Chief Financial Officer
Appointment: Peter joined
Bakkavor in 2010 as Chief Financial
Officer and was appointed to the
Board in 2017.
JANE LODGE
AC
Independent
Non-executive Director
Appointment: Jane has served
as a Non-executive Director of
Bakkavor since April 2018 and
is the Chairman of the Audit and
Risk Committee.
Skills and experience: Jane spent
25 years at Deloitte & Touche LLP,
the audit, tax, consulting,
70
Skills and experience:
Agust received his education
from the College of Ármúli in
Reykjavik, Iceland.
External appointments:
Agust currently has no external
appointments.
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 degree
from Southampton University.
External appointments:
Peter currently has no external
appointments.
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 of Costain plc
and DCC Plc.
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 a Non-executive Director of
the Co-operative Group Limited
and also Chairman of The Light
Cinemas (Holdings) Limited and
Blue Diamond Limited.
He is the Chairman of the
Nomination Committee.
Skills and experience: Todd holds
a Bachelor’s degree from Cornell
University and an MBA from Harvard
Business School and was previously
a senior executive at a multinational
corporation, and a senior executive
in several other corporations, with
extensive experience in the retail
and consumer services sectors.
External appointments: Todd
currently serves on the boards
of C&S Wholesale Grocers and
Ecentria, Inc. He has also served
on the boards of a number of
companies in the past, including
Tileshop, On Force, Inc., Piedmont
Limited and Carbonite.
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,
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. He is
also a Non-executive Director of
Pret A Manger and Kellydeli and
is the Chairman of PICARD
Company Limited.
SIMON BURKE
Independent
Non-executive Chairman
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
TODD KRASNOW
NC RC
Independent
Non-executive Director
Appointment: Todd has served
as a Non-executive Director of
Bakkavor since January 2016.
DENIS HENNEQUIN
AC NC RC
Independent
Non-executive Director
Appointment: Denis has served
as a Non-executive Director of
Bakkavor since February 2017
and is the Chairman of the
Remuneration Committee.
Skills and experience: Denis has
extensive leadership experience
within the retail sector, spending the
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 BOARD COMMITTEES
AC AUDIT AND RISK COMMITTEE
READ PAGE 84
NC NOMINATION COMMITTEE
READ PAGE 82
RC REMUNERATION COMMITTEE
READ PAGE 92
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 the Senior Independent
Director at Imperial Brands plc,
and a Non-executive Director
on the boards of AkzoNobel,
Tulchan Communications LLP
and Britvic plc. Sue also chairs the
Remuneration Committees of both
Imperial Brands and Britvic plc.
Board Employee Representative:
Sue Clark was appointed as
Bakkavor Board Employee
Representative for engagement
with the workforce.
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 Managing
Director at the Baupost Group. He
is also a member of the Boards of
DRS Acquisition LLC and Surfaces
Southeast Holdco, LLC.
SUE CLARK
AC NC RC
Independent
Non-executive Director
Appointment: Sue has served
as a Non-executive Director of
Bakkavor since October 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
PATRICK L. COOK
Non-independent
Non-executive Director
Appointment: Patrick Cook
has served as a Non-executive
Director of the Bakkavor Group
since July 2018.
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.
LYDUR GUDMUNDSSON
NC
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: Annabel
has held senior legal positions in
a number of companies including
Britvic plc and Ladbrokes plc. She
was the Group General Counsel
and an Executive Committee
member at Ladbrokes plc. She
trained and began her career in
private practice in the City of
London at the multinational law
firm SJ Berwin LLP. Annabel
obtained her post-graduate law
degree at The University of Law,
UK and qualified as a solicitor
(England and Wales) in March
2005. She is also a Chartered
Company Secretary (ACIS).
Annabel is an alumna of London
Business School.
ANNABEL
TAGOE-BANNERMAN
Group General Counsel &
Company Secretary
Appointment: Annabel joined
Bakkavor as Group General
Counsel & Company Secretary
in June 2019.
GENDER DIVERSITY
Number of Directors
LENGTH OF TENURE
Number of Directors1
7
MALE
2
FEMALE
9
<3 YEARS
0
7 – 10 YEARS
0
>10 YEARS
1 Since the Company's listing on the London Stock Exchange in October 2017.
71
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance
MANAGEMENT BOARD
The Management Board implements the strategic objectives
set by the Board and delegates the detailed planning and
implementation of those objectives and policies to management,
in accordance with appropriate risk parameters.
AGUST GUDMUNDSSON
Chief Executive Officer
See Board profile
on page 70
PETER GATES
Chief Financial Officer
See Board profile
on page 70
MIKE EDWARDS
Chief Operating Officer, UK
Mike joined Bakkavor in 2001
from Heinz. During his career
at Bakkavor he has held a
number of senior roles and was
appointed UK Chief Operating
Officer in 2014. Mike has overall
responsibility for the UK
operations.
EINAR GUSTAFSSON
Managing Director,
Bakkavor China
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.
72
BEN WALDRON
President, Bakkavor US
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. Ben
has overall responsibility for
the US operations.
DONNA-MARIA LEE
Group Human Resources
Director
Donna-Maria Lee joined Bakkavor
Group plc in September 2018.
Donna-Maria has worked within
manufacturing, consumer and
corporate functions for over 25
years. Prior to joining Bakkavor,
she was Senior Vice President,
Global HR, Burberry plc. In this
role Donna-Maria was accountable
for the overall HR strategy,
people and change agenda.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 CORPORATE GOVERNANCE REPORT
BOARD LEADERSHIP AND COMPANY PURPOSE
THE ROLE AND RESPONSIBILITIES OF THE BOARD
THE MANAGEMENT BOARD
The Board is supported by the Management
Board, which implements the purpose, values
and strategic objectives set by the Board. It
determines investment policies and delegates
the detailed planning and implementation
of those objectives and policies to Senior
Management (being the senior executives
within the tier below the Management Board) 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
• Establishing a system of internal control
and risk management
• Monitoring performance and evaluation
of health and safety
• Engagement with stakeholders, including
workforce engagement
• Review and approval of revised policies prior
to approval by the Board, such as the Anti-
Bribery and Business Ethics Policy, Inclusion
and Diversity Policy, Whistleblowing Policy
and the Charity and Political Donations Policy.
THE ROLE AND RESPONSIBILITIES
OF THE BOARD
The Board provides effective and
entrepreneurial leadership of Bakkavor by
setting the purpose and strategic direction
of the Group and overseeing management’s
implementation of the strategy.
It is collectively responsible for promoting
the long-term success of the Group through
the creation and delivery of sustainable
stakeholder value. In exercising this
responsibility, the Board takes into account
the needs of all relevant stakeholders and
its contribution to wider society.
The Board sets the Company’s purpose,
values and strategy and is also responsible
for assessing, monitoring and promoting
the Company’s culture and ensuring that
this is closely aligned with its strategy. All
Directors act with integrity and lead by
example to promote the desired culture.
Moreover, the Board endeavours to ensure
that workforce policies and practices are in
line with the Company’s values and support
its long-term sustainable success.
It is accountable for ensuring that, as a
collective body, it has the appropriate skills,
knowledge, experience and resources in place
to meet its objectives and 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 and
updates from the Chair of each Committee.
Subject to company law and the Articles of
Association, the Directors may exercise all
of the powers of the Company and delegate
their power and discretion to Committees.
Decisions reserved for the Board include
approval of strategic plans and annual
budgets, acquisitions, audited accounts,
appointment of additional Directors. Its
work also includes engagement with
shareholders and stakeholders.
The powers of the Directors are set out in
the Schedule of Matters Reserved for the
Board. This is available for review on the
Bakkavor website at www.bakkavor.com/
investors/governance.
COMMITTEES
The Board has established three Board
Committees: the Audit and Risk Committee,
the Nomination Committee and the
Remuneration Committee. All three
Committees comprise only Non-executive
Directors and each Committee has agreed
Terms of Reference which are available
on our website at www.bakkavor.com/
investors/governance.
These Committees assist with the detailed
oversight of Bakkavor’s financial reporting,
risk management and internal and external
audit work, establishing the Remuneration
Policy and overseeing its implementation,
and building appropriate succession and
contingency plans for the Directors and
Senior Management, including overseeing
workforce engagement, and establishing a
diverse pipeline of talent for both the Board
and Senior Management positions.
The Board has also established a Disclosure
Committee which comprises the Chairman,
Chief Executive Officer, Chief Financial
Officer and Group General Counsel &
Company Secretary. The Disclosure
Committee oversees the Company’s
compliance with its disclosure obligations
under the Market Abuse Regulation.
The Board and its Committees renewed their
Terms of Reference and Matters Reserved
for the Board in 2019.
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.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance CORPORATE GOVERNANCE REPORT
CONTINUED
KEY ROLES AND RESPONSIBILITIES
Chairman
Chief Executive Officer
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 Group 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 Group 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 performance of Executive Directors, the Board as a whole, the
Committees and the interaction between the Executive and Non-executive Directors.
The Chief Executive Officer ("CEO"), 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 CEO 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 CEO is
also responsible for the recruitment and development of the Group’s Senior Management team below
Board level.
Chief Financial Officer
The Chief Financial Officer ("CFO"), Peter Gates, is responsible for the financial reporting of the Group,
monitoring the Group’s operating and financial results and management of the Group’s internal financial
risk management and financial control systems. He supports the CEO 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, Risk, and Information systems.
Non-executive Directors
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.
Senior Independent
Director
Denis Hennequin is the Senior Independent Non-executive Director and in this capacity he acts as a
sounding board for the Chairman. He serves as a trusted intermediary for the other Directors when
necessary. He is also available to shareholders if they are unable to resolve any concerns through
communication with the Chairman, CEO 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.
Group General Counsel &
Company Secretary
The Group General Counsel & Company Secretary, Annabel Tagoe-Bannerman, supports and works
closely with the Chairman, the CEO and the Board Committee Chairs in setting agendas for meetings
of the Board and its Committees. She supports the accurate, timely and clear flow of information to and
from the Board and its Committees, and between Directors and Senior Management. The Group General
Counsel & Company Secretary advises the Board on corporate governance issues, and is responsible for
administering Bakkavor’s Share Dealing Code and organising the AGM.
74
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 KEY BOARD ACTIVITIES IN 2019
The next few pages describe the Board's activities
during the year under review. Whilst not being
an exhaustive list, it provides an indication of the
factors affecting our stakeholders which are
considered as part of those discussions.
STRATEGY AND COMPANY PERFORMANCE
For each Board and Committee meeting, a tailored agenda is
agreed beforehand by the Chairman, Committee Chair, CFO (as
appropriate) and Group General Counsel & Company Secretary.
A typical meeting will comprise reports from the CEO and the
CFO and, on invitation, the Chief Operating Officer, UK ("COO"),
on current trading and financial performance. Further, there will
be two or three deep-dives into areas of strategic importance.
UK
• Discussed and agreed the forward-looking strategic
priorities for the UK, including new business opportunities
and key investment projects
• Remained focused on ramping up production at our new
sites and optimising performance across our footprint, by
leveraging our UK operational expertise, making targeted
investments and maintaining strict financial discipline
• Completed the acquisition of Blueberry Foods (now
• Commenced production of premium artisan bread at our
Bakkavor Desserts Leicester); the integration of Blueberry
Foods was commenced and is on track
new site in Charlotte, North Carolina
• Supported the launch of new fresh food offers at two grocers
• Evolved the UK operational structure to incorporate a more
and expanded our category offer for a strategic customer
customer-focused leadership team
• Undertook an extensive supplier business review with one
of our major customers to secure further business
INTERNATIONAL – US
• Discussed and agreed the forward-looking strategic
priorities in the US including new business opportunities
and important expansion projects
• Refocused our business and simplified our offer by exiting
certain low-margin businesses, freeing up resources and
improving performance
• Undertook two major projects at our site in Carson,
California to repurpose the factory for ready meal
production, as well as introducing a new process for
hummus production
FINANCIAL UPDATES
INTERNATIONAL – CHINA
• Discussed and agreed the forward-looking strategic
priorities in China including new business opportunities and
important expansion projects
• Opened our new state-of-the-art site in Shanghai in January 2019
• Supported the ramping-up of production at our factories in
Taicang and Chengdu, with volumes growing in line with our plan
• Continued to grow and strengthen our relationship with our
existing customers through new product development and
expansion of our core offering with new product categories
• Oversaw the development of our retail offer through both
own label and branded products across existing categories
• Reviewed financial Key Performance Indicators (“KPIs”)
• Reviewed financial performance in the UK and international
and introduced further non-financial KPIs
markets
• Oversaw the agreement of certain debt facilities in addition
• Received updates on performance against the prior year and
to the Group's main banking facilities
against the budget
• 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 balance sheet strategy, capital efficiency and
leverage position of the Group
• Approved the 2020 budget
• Carried out a comprehensive review of the fresh prepared
food (“FPF”) market, environment and impact on consumers
and customers
• Reviewed Group Treasury management
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance CORPORATE GOVERNANCE REPORT
CONTINUED
GOVERNANCE AND LEGAL
RISK
GOVERNANCE
• Considered the implications of the UK 2018 Governance
Code ("2018 Code") to ensure good governance, adopted
certain aspects of the 2018 Code early and resolved to
implement the 2018 Code for the 2020 financial year
• Reviewed the Board and Management Board composition,
diversity and succession plans
• Discussed and approved the Non-executive Directors'
succession plan
• Launched new e-learning governance and compliance platform
• Approved and implemented new Board policies, including
Anti-Bribery and Business Ethics, Whistleblowing, Inclusion
and Diversity and the Charity and Political Donations Policies
• Undertook an internal evaluation of the Board’s and
individual Directors' effectiveness and considered the
output and recommendations from the Board’s
effectiveness evaluation as described on page 79
• Reviewed the principal key risks to the Group and agreed
the Group risk appetite for each of the principal risks
• Reviewed the potential impact of Brexit on the business
• Received monthly technical updates from the UK, US
and China concerning health and safety, food safety and
whistleblowing
• Introduced a wider, risk-based, internal audit scope,
providing assurance on management controls in addition
to the existing financial controls audits. The internal audit
programme is managed by KPMG LLP
• Considered risk appetite in connection with major capital
proposals and transformation projects. Proposals are
supported by detailed analysis to ensure the risks
associated with each project are fully understood
• Discussed the impact of cyber risk and approved
insurance cover
• Further developed the ‘bottom up’ aspects of the Group
• Led by the Senior Independent Director, undertook an
risk assessment process
• Encouraged additional mitigation of the risk involved with
rising labour costs and increasing concerns about availability
of lower skilled labour
• Continued Brexit planning as the EU negotiations progressed
WORKFORCE / COLLEAGUE ENGAGEMENT
• With regard to engagement with our employees and
recognising the employee voice, considered feedback from
our employee engagement survey and actions undertaken
to recruit and develop talent within the business. See pages
43 to 46 of the Strategic Report
REMUNERATION
• Determined remuneration arrangements for the Chairman,
Executive Directors and Senior Management
• Reviewed workforce remuneration and related policies,
taking into account the alignment of incentives and rewards
with culture, when setting the policy for Executive Director
remuneration
evaluation of the performance of the Chairman
• Approved the Annual Report and Accounts and the half-year
results, going concern and longer-term Viability Statement,
Notice of AGM and the Modern Slavery Statement
• Reviewed the roles of the Board Committees in light of the
changes proposed by the 2018 Code and approved Terms
of Reference for each of the Committees together with the
Schedule of Matters Reserved for the Board. These can be
reviewed on the Bakkavor website at www.bakkavor.com/
investors/governance
• Received governance updates and ongoing training on
relevant matters throughout the year in light of the changes
of the 2018 Code and updates on Directors' duties under the
Companies Act 2006
• Visits undertaken to our Harrow and Newark sites, enabling
Directors to gain in-depth knowledge about the opportunities
and challenges for the Group’s operations
SHAREHOLDER AND INVESTOR ENGAGEMENT
• Held discussions with Investor Relations, including the
receipt of feedback following investor roadshows and
presentations/ updates from the Company’s brokers
• Encouraged engagement with investors and other
stakeholders
• Held three investor roadshow events across London and
Dublin and attended a number of investor conferences
throughout the year
• Hosted two investor site visits and one analyst event at UK sites
• Held over 100 one-to-one investor meetings and analyst calls
• Engaged with individual shareholders at the AGM
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 CORPORATE RESPONSIBILITY AND SUSTAINABILITY
• Reviewed and approved a Corporate Responsibility Strategy,
which is built around three focus areas that represent the
business’s value chain: (i) responsible sourcing in the supply
chain, (ii) sustainability and innovation in the Company’s
operations; and (iii) engagement and wellbeing in our
workplaces and communities. The CSR strategy was developed
and approved in November 2019 and launched in January 2020
• Approved CSR governance and management, which will be
covered by three broad workstreams: (i) governance, data
analysis and reporting, data collection and reporting up to
Board level; (ii) strategy emanating from customer and
business context right up to Management Board and then
to Board; and (iii) strategy implementation
• Hosted our annual ‘Fun Weekend’ in Spalding, Lincolnshire,
in July for employees and the local community, which
raised over £25,000 for charity
• Announced two new three-year charity partnerships, with
FareShare and Action Against Hunger
• Further details of our Corporate Responsibility Framework,
and our Corporate Responsibility Strategy for 2020 and the
reporting responsibilities are set out in pages 31 to 49 of the
Strategic Report
CUSTOMERS & SUPPLIERS
• Evolved our UK operational structure to incorporate a more
customer focused leadership team
• Undertook an extensive supplier business review with one
of our major customers to secure further business
• 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 2030”
• Collaborated with suppliers and invested significant
time and effort in key areas such as Responsible Sourcing
and Brexit-related planning. In the area of Responsible
Sourcing, we worked collaboratively with suppliers in
areas such as human rights, raw material integrity and the
environment and sustainability, all with the aim of further
improving security of supply and resilience in our supply
chain. With regard to Brexit, extensive work was carried out
with EU suppliers, particularly around stock management
and inbound supply chain planning. We also developed new
systems and processes, all with the aim of de-risking our
business to disruption in the event of a “no deal” Brexit
KEY PRIORITIES FOR THE BOARD IN 2020
• Continuing to foster relationships and engaging with stakeholders,
including employees, suppliers, customers and the community
• Aligning culture and values with Company strategy
• Aligning employee engagement and talent pipeline development
• Succession planning for Senior Management
• Focusing on the Corporate Social Responsibility Framework
and its implementation
• Tracking returns on investments and spend on capital
• Oversight of actions being taken by management to mitigate
the potential impact of COVID-19 to the business and across
its supply chain
BOARD AND COMMITTEE MEETING ATTENDANCE
In 2019, the Board held eight scheduled meetings.
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 2019
Board
8
Annual General
Meeting
1
Scheduled
meetings eligible
to attend
Scheduled
meetings
attended
Annual General
Meeting
Executive Directors
Agust Gudmundsson
Peter Gates
Non-executive Directors
Simon Burke
Sue Clark
Patrick Cook
Lydur Gudmundsson
Denis Hennequin
Todd Krasnow
8
8
8
8
8
8
8
8
71
8
8
8
8
62
8
73
Jane Lodge
1 Agust Gudmundsson did not attend the Board meeting on 23 January 2019
due to his needing to travel to the US business. Agust received the meeting
materials electronically.
8
8
1
1
1
1
1
0
1
1
1
2 Lydur Gudmundsson did not attend the Board meetings on 4 April and 23 May
and AGM 2019. Lydur received the meeting materials electronically.
3 Todd Krasnow did not attend the Board meeting on 16 October 2019.
Todd received the meeting materials electronically.
DIVISION OF RESPONSIBILITIES
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 Group General
Counsel & Company Secretary. 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.
The Board operates a clear division of responsibilities between
the Chairman and the Chief Executive Officer. Bakkavor is
considered to be compliant with the 2018 Code in this respect,
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 annual 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. The Board
considers that all of the Independent Non-executive Directors
remained independent in character and judgement and there
are no relationships that might prejudice this independence.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance CORPORATE GOVERNANCE REPORT
CONTINUED
EFFECTIVENESS
COMPOSITION, SUCCESSION AND EVALUATION
COMPOSITION
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.
In light of the current and future needs of the Board, part of
the role of the Chairman and the Nomination Committee is
to maintain a balance of skills and expertise on the Board
and to make recommendations to the Board where changes
are required to maintain that balance. The Board considers
that the skills, experience and backgrounds of the Directors
are sufficiently relevant and complementary to allow 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 70 to 71.
It is Bakkavor’s policy, in line with the UK Corporate 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.
Gender
Male
Male
Female
Male
Male
Male
Male
Female
Male
Gender
Male
Male
Female
Male
Male
Male
Surname
Job title
Gudmundsson CEO
Hennequin
Lodge
NED
NED
Gudmundsson NED
Cook
Gates
Burke
Clark
Krasnow
NED
CFO
Chairman
NED
NED
Job title
MANAGEMENT BOARD
First name
Surname
Agust
Ben
Gudmundsson CEO
Waldron
Donna-Maria
Lee
President,
Bakkavor USA
Group Human
Resources Director
Managing Director,
Bakkavor China
Gustafsson
Gates
Edwards
CFO
COO, UK
BOARD
First name
Agust
Denis
Jane
Lydur
Patrick
Peter
Simon
Sue
Todd
Einar
Peter
Mike
78
GROUP AND MANAGEMENT BOARD BY GENDER
Female
Male
2019
Management Board
1
5
2019
Board
2
7
MANAGEMENT BOARD BY GENDER
BOARD BY GENDER
5
MALE
1
FEMALE
7
MALE
2
FEMALE
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 these employees are mentored. The
Board regularly reviews its own composition and conducts an
annual evaluation of the Board and its Committees.
INDUCTIONS
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 Group General Counsel & Company
Secretary, includes briefings on industry and regulatory matters
relating to Bakkavor, site visits, and face-to-face meetings with
Senior Management and different teams within the business.
ONGOING PROFESSIONAL DEVELOPMENT
In order to facilitate greater awareness and understanding of
Bakkavor’s business and the environment in which it operates, all
Directors are given regular updates on changes and developments
in the business. Over the course of the year, Directors will
continually update and refresh their skills and knowledge,
and seek independent professional advice when required.
The Board received presentations throughout the year from
various departments within the business on key topics including
human resources, legal, audit, risk and compliance, food safety,
health and safety, sustainability, corporate governance and
corporate finance.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
• 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
BOARD EVALUATION
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.
The Board, under the guidance of the Chairman and Company
Secretary, undertook a formal and rigorous annual evaluation
of its performance, and that of its Committees and individual
Directors during the year, by means of an online questionnaire.
The evaluation considered a range of factors including Board
composition, the balance of skills and experience of Board
members, independence of the Board, Board diversity, the
Board agenda and relations between the Executive and Non-
executive Directors.
The Chairman met with the other Non-executive Directors
without the Executive Directors present twice in 2019. The
Executive Directors’ performance is reviewed by the
Remuneration Committee in conjunction with the Chief
Executive Officer, except in the case of his own performance
review. The Committees of the Board followed a similar
process in assessing their effectiveness during the year.
The results of the review were considered by the Company
Secretary and the Chairman and presented to the Board.
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 operating well in terms of effectiveness and decision-making.
The Chairman is highly regarded and considered to exhibit a
leadership style which promotes effective decision-making and
constructive debate and ensures the Board works as a team.
Having considered the findings of the review, the Board has agreed
an action plan for the year ahead so as to be compliant with the
2018 Code by the end of 2020. It was satisfied that the Board
operated effectively in 2019 and there were no areas of concern.
ANNUAL RE-ELECTION OF THE BOARD
The rules governing the appointment and replacement of
Directors can be found in the Articles of Association, the Code, the
Companies Act 2006 and related legislation. Under the terms of the
Nomination Committee, any appointment must be recommended
by the Nomination Committee for approval by the Board.
All Directors are subject to annual re-election. The Board
should set out in the papers accompanying the resolutions to
elect each Director the specific reasons why their contribution
is, and continues to be, important to the Company’s long-term
sustainable success.
In compliance with the 2018 Code, all Directors will retire
and offer themselves for re-election on an annual basis. At our
second AGM, held on 23 May 2019, each Director offered himself
or herself for election or re-election as a Director. All Directors
will retire at the 2020 AGM and offer themselves for re-election.
SHAREHOLDER AND STAKEHOLDER ENGAGEMENT
It is the role of the Board to promote the long-term sustainable
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 communication with stakeholders
and shareholders and has a comprehensive programme in place
to facilitate this each year. Further information is available on
pages 12 to 13.
SHAREHOLDERS
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 and
there are presentations by Senior Management, with investor
roadshows being held 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 with Bakkavor’s largest institutional
shareholders and market analysts to discuss governance
developments (including the Remuneration Policy), business
strategy and financial performance.
OTHER STAKEHOLDERS
Consumers are at the heart of what we do: our deep understanding
of the food choices they make enables us to create innovative
products for our customers that set us apart from our competitors.
Focus on our customer service and continuously creating food
that is both commercially successful and meets consumer
demand drives our business and generates value for our
stakeholders.
We engage with our stakeholders through:
• Partnering with our customers to develop a diverse, innovative
and on-trend product range that drives consumer demand
• Collaborating with our suppliers to promote customer service
and food safety excellence, so that we all benefit from growth
and innovation
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance CORPORATE GOVERNANCE REPORT
CONTINUED
Recommendations arising from the 2019 review
Agreed actions for 2020
Review the annual Board and Committee meetings calendar.
The meetings calendar to be adjusted to have fewer meetings of
longer duration, to allow for pertinent matters to be considered
in greater depth. This would be reviewed annually in line with the
business and regulatory demands.
The Nomination Committee meetings will be increased to three per
annum to note the additional responsibilities under the 2018 Code.
Improve Non-executive Directors’ visibility around the business
and carry out site visits through the course of the year.
Site visits for Non-executive Directors to overseas factories to be
scheduled during the year. Site visits to UK factories would continue.
Review the Board papers to ensure greater consistency and
ensure Board members have sufficient time to review the papers
in advance of meetings.
The Group 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.
Review of the Board agenda.
Increase focus on Board and Senior Management succession
planning and talent development.
There are several standard Board agenda items for every meeting,
but these are revised (where necessary) to ensure sufficient time
for presentations from the business and management.
The Board will continue to include an in-depth discussion on succession
planning for the Management Board and Senior Management on the
Board agenda during the year.
GOVERNANCE OBJECTIVES
Following the recommendations arising from the 2018 review, all the objectives for 2019 were satisfied except for a Board overseas
site visit. This is being considered for later this year.
Site visits by the Board were made to the Harrow Pizza factory in June 2019 and Bakkavor’s Desserts factory in Newark in October
2019. These visits provided an opportunity to interact with local management and gain an in-depth knowledge of the Group’s
operations. In addition, succession planning for Non-executive Directors was put in place. Further, the Nomination Committee will,
this year, focus on reviewing the succession plan for the Management Board and other senior executives of the Company.
ACCOUNTABILITY
AUDIT, RISK AND INTERNAL CONTROL
INTERNAL AND EXTERNAL AUDIT
The Strategic Report from page 10 describes the business
model and strategy and how Bakkavor generates and preserves
value over the long term and delivers its strategic objectives.
The Audit and Risk Committee comprising three Independent
Non-executive Directors, chaired by Jane Lodge, met four times
in 2019. PwC was appointed as the External Auditor with effect
from the beginning of the 2019 financial year and KPMG was
appointed as the Internal Auditor with effect from the beginning
of the 2019 financial year. The Audit and Risk Committee report
is set out in pages 84 to 91.
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 and emerging 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 investigated, and its system of internal control,
is outlined in the Risk Management section on pages 54 to 56
and in the Viability Statement on page 57.
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.
RISK MANAGEMENT AND INTERNAL CONTROL
The Board has established procedures:
• To manage risk, oversee the internal control framework and
determine the nature and extent of the principal risks the
Company is willing to take in order to achieve its long-term
strategic objectives
• 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.
80
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 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 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
AGM
Bakkavor’s AGM provides the Board with the opportunity to
communicate with private and institutional investors, with time
being set aside 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 2019 AGM were passed. As recommended by the UK
Corporate 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.
Name
Carrion Enterprises Limited
(corporate holding structure of Agust Gudmundsson)
Umbriel Venture Limited
(corporate holding structure of Lydur Gudmundsson)
BP-PE5 L.L.C.
(corporate holding structure of the Baupost Group)
Our next AGM will be held on 12 June 2020. Full details are
contained in the Notice of Meeting available on our website and,
where applicable, posted with this Annual Report.
POWERS FOR THE COMPANY ISSUING OR BUYING BACK SHARES
Under the 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 Act.
The Company was given authority at the 2019 AGM to make
market purchases of up to 10% of its issued share capital as
permitted under the Articles. The Company made no purchases
of its own Ordinary shares during the year ended 28 December
2019 and up to the date of this report.
This standard authority is renewable annually; the Directors
will seek to renew this authority at the 2020 AGM.
A special resolution will be proposed to renew the Directors'
authority to repurchase the Company's shares within certain
limits and as permitted by the Articles at 2020 AGM.
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. There were no
other interests in shares notified between 28 December 2019
and 5 May 2020, being the last practicable date.
28 December 2019
Date of publication of Annual Report
Number of
Number of
Ordinary shares % of voting rights
Ordinary shares % of voting rights
142,103,505
24.52
142,103,505
24.52
142,103,505
24.52
142,103,505
24.52
143,832,928
24.8
143,832,928
24.8
ARTICLES OF ASSOCIATION
The Articles of Association (“Articles”) specify the internal
regulation of the Company and lay down and define the
responsibilities of the Directors, the kind of business to be
undertaken and the rights of shareholders. Copies are available
from the Company’s website at www.bakkavor.com.
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 92 to 111.
The Articles may only be amended by special resolution of
the shareholders.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance REPORT OF THE NOMINATION COMMITTEE
CHAIRMAN’S OVERVIEW
TODD KRASNOW
CHAIR, NOMINATION
COMMITTEE
The Nomination Committee has the
key role of leading the process for
appointments, ensuring plans are
in place for orderly succession and
overseeing the development of a
diverse pipeline for succession.
COMMITTEE MEMBERSHIP
The Committee comprises three 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 to discharge
the Committee’s duties effectively. The skills and experience of
the Committee members are set out on pages 70 to 71.
MEETINGS DURING THE YEAR
The Committee held two meetings during the year, and details
of individual attendance at the meetings are set out below.
COMMITTEE MEETINGS AND MEMBERSHIP
Member
Member since
Todd Krasnow (Chair)
20 October 2017
Sue Clark
20 October 2017
Lydur Gudmundsson1
20 October 2017
Denis Hennequin
20 October 2017
Scheduled
meetings
eligible to
attend
Scheduled
meetings
attended
2
2
2
2
2
2
11
2
As Chairman of the Nomination Committee (the “Committee”),
I am pleased to outline below the responsibilities of the Committee
and how the Committee has carried these out during 2019.
ROLE OF THE NOMINATION COMMITTEE
The principal roles and responsibilities of the Committee include:
• Reviewing the composition, structure and size of the Board
and Board Committees to ensure that they are appropriately
balanced in terms of skills, knowledge, diversity and experience
• Leading the process for appointments and ensuring that
there is a formal, rigorous and transparent procedure for
the appointment of new Directors and Senior Management
• 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
1 Lydur Gudmundsson did not attend the Nomination Committee meeting on
20 February 2019.
The Committee considers that the membership of the
Committee is well balanced in terms of skills, knowledge,
effectiveness, experience and independence.
• Reviewing Directors’ potential conflicts of interest and
independence
• Overseeing succession planning at Board and Senior
Management level
MAIN ACTIVITIES DURING THE YEAR
APPOINTMENT OF GROUP GENERAL COUNSEL
& COMPANY SECRETARY
During the year, Annabel Tagoe-Bannerman took over from
Simon Witham on 21 June 2019 as Group General Counsel
& Company Secretary.
• Conducting an annual evaluation of the Board to consider its
composition and diversity, and how effectively members are
working together to achieve strategic objectives
• Overseeing the development of a policy on Inclusion and
Diversity, its objectives and linkage to the Company strategy,
and monitoring its implementation
• Overseeing the development of a diverse pipeline for
succession, taking into account the skills and expertise
required by the Company
• Monitoring the gender balance of staff in senior management
positions and their direct reports
• Monitoring governance developments which will affect the
Group, so as to be in line with best practice
Further details of responsibilities are set out in the Committee’s
Terms of Reference on the Company’s website at
www.bakkavor.com/investors/governance.
82
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 INCLUSION AND DIVERSITY
The Committee is committed to succession planning for the
Board and Senior Management to ensure the right mix of
skills and experience is retained. There have been progressive
discussions about talent management, succession planning
and diversity of the Board during the year.
The Inclusion and Diversity Policy was developed in 2019 and
launched to all employees in early 2020. Its three objectives are:
• Living the Bakkavor values
• Building an inclusive and diverse workforce across all levels
of the organisation
• Providing opportunity for employees to succeed
Further work has been undertaken during the year by the
Committee, specifically around contingency and succession
planning for Non-executive Directors and Senior Management.
The number of meetings scheduled for 2020 onwards has
been increased from two to a minimum of three per year. This
is to ensure there is sufficient time to properly carry out the
additional duties of the Committee under the 2018 Code.
TODD KRASNOW
Chair, Nomination Committee
5 May 2020
BOARD DIVERSITY
As a business, we are committed to maintaining a diverse and
inclusive workforce at all levels across the Company. The way
in which we do this is set out in our Equal Opportunities Policy,
our Code of Conduct and our new Inclusion and Diversity Policy.
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 race and gender, and includes variations in experience,
skills, personal attributes and background. We refer you to our
second gender pay report, which identifies the areas on which
we focus. Further details can be found on page 45.
The Committee 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 considering
gender and other forms of diversity when reviewing the Board’s
composition.
ADVISERS
During the year, whilst no new Director appointments were
made, Annabel Tagoe-Bannerman was appointed Group
General Counsel & Company Secretary from 21 June 2019.
Korn Ferry was engaged to conduct the search process.
For appointments to the Board, the Committee 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.
BOARD EVALUATION
The Committee regards the annual Board evaluation process
as an important means of reviewing the composition, skills,
effectiveness and structure of the Board. Full details of the
Board evaluation process and the resulting action plan are
set out on page 79.
The Committee is satisfied that the Board operated effectively in
2019 and noted that there were no areas of concern. There were
a few areas requiring more attention which the Board will be
focusing on in 2020. These include Inclusion and Diversity and
the continued development of the talent pipeline.
The Company will arrange for an external facilitator to evaluate
the Board in 2020, in line with the requirements of the 2018 Code.
NOMINATION COMMITTEE EVALUATION
The Committee carried out an internally facilitated review of its
performance as part of the overall Board evaluation in 2019 and
its outcomes were discussed by the Committee. It concluded
that the Committee continued to fulfil its duties effectively.
During the year, the Committee undertook an annual review of
its Terms of Reference and the updates required to align with
the 2018 Code. The revised Terms of Reference can be found on
the Bakkavor website at www.bakkavor.com/investors.
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CHAIRMAN’S OVERVIEW
JANE LODGE
CHAIR, AUDIT AND RISK
COMMITTEE
COMMITTEE MEMBERSHIP
The Committee comprises three Independent Non-executive
Directors, namely Denis Hennequin, Sue Clark and myself
as Chair. Together we provide the range of financial and
commercial expertise necessary for the Committee to meet its
responsibilities in a robust and independent manner. Detailed
information on the experience, skills and qualifications of all
the Committee members can be found on pages 70 to 71. The
Board is satisfied that, with my 25 years at Deloitte LLP, I have
significant financial experience in the UK listed environment,
and the necessary qualifications, skills and experience to fulfil
my role as Audit and Risk Committee Chair.
MEETINGS DURING THE YEAR
COMMITTEE MEETINGS AND MEMBERSHIP
Member
Jane Lodge (Chair)
Member since
3 April 2018
Denis Hennequin
20 October 2017
Sue Clark
20 October 2017
Scheduled
meetings
eligible to
attend
Scheduled
meetings
attended
4
4
4
4
4
4
Only Committee members have the right to attend meetings,
but the Chief Financial Officer, the Group Financial Controller,
the Head of Risk, the Internal Auditor (KPMG) and the
External Auditor (PwC) are invited to attend meetings
of the Committee as the Committee feels appropriate.
The Committee also meets privately, without management
present, and receives regular updates from other business
areas at several of its meetings. It reviews other additional
matters when considered necessary.
The Committee has four scheduled meetings a year and
will also meet ad hoc when required.
84
The Audit and Risk Committee’s
remit covers accounting and financial
reporting, internal controls, reviewing
the performance of internal audits,
overseeing the relationship with the
External Auditor and reviewing the
performance of its activities. During
the year, the Committee oversaw
the transition from Deloitte LLP to
PricewaterhouseCoopers LLP (“PwC”)
as the Company’s External Auditor.
I am pleased to present the report of the Audit and Risk Committee
(the “Committee”) for the period ended 28 December 2019.
This report describes the Committee’s responsibilities and
key activities over the year.
ROLE OF THE COMMITTEE
The 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 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, and
ensuring an understanding of the risk appetite of the Company
• Reviewing in detail the identified risks, 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 Accounts
and advising the Board whether it is fair, balanced and
understandable, and whether it provides the information
necessary for shareholders to assess the Company’s
performance, business model and strategy
• 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
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 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
In June 2019, PwC provided the Committee with its plan for the
review of the Company’s interim Financial Statements for the six
months ended 29 June 2019. The plan set out PwC's view of the
key risk areas and its review process. The Committee reviewed,
and where appropriate, challenged the basis of the review plan
before agreeing the proposed approach and scope of the review.
At the Committee’s November 2019 meeting, PwC prepared and
presented its audit plan for the year ending 28 December 2019.
The audit plan summarised PwC’s audit approach, including
materiality and an assessment of the significant and elevated risks
relevant to the audit, an update on developments in corporate
reporting which are relevant to the Company, confirmation of its
independence, and responsibilities in relation to fraud. PwC’s
primary responsibility is to form an independent audit opinion on
the Financial Statements of Bakkavor Group plc. Furthermore, it
has the fundamental objective of providing robust assurance on
financial reporting for shareholders, the Board and management.
• Reviewing the effectiveness and objectivity of the External
Audit and the External Auditors' 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
Policy and the anti-bribery and business ethics procedures
• Advising the Board on the assessment of the viability of the
Company
The Committee’s Terms of Reference are available on the
Bakkavor website at www.bakkavor.com/investor/governance.
HOW THE COMMITTEE OPERATES
To ensure the Committee discharges its responsibilities
appropriately, an annual 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, I report to the Board on the
activities of the Committee 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 assessment and 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 and
the programme of External Audit work.
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, as described on page 79. The findings
concluded that the Committee has a good understanding of the
business model and the risks of the Company and was fulfilling
its duties effectively.
ACTIVITIES DURING THE YEAR
EXTERNAL AUDIT
The Committee has primary responsibility for overseeing the
relationship with, and the 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.
Following a full audit tender process carried out during 2018,
Deloitte LLP (“Deloitte”) was replaced by PwC as the External
Auditor of Bakkavor for the statutory audit of the Company for
the financial year ended 28 December 2019 and subsequent
years. To ensure a smooth transition PwC observed Deloitte
on the audit of the Company for the period ended 29 December
2018 and has taken responsibility for the audit with effect from
the beginning of the 2019 financial year, including the review of
the Company’s interim Financial Statements for the six months
ended 29 June 2019.
The current External Audit partner is Arif Ahmad who has held
this role since the beginning of 2019.
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REPORT OF THE AUDIT AND RISK COMMITTEE
CONTINUED
FINANCIAL REPORTING COUNCIL
On 8 October 2019, the Financial Reporting Council (“FRC”)
wrote to the Company requesting further information on how
the Company had satisfied certain reporting requirements in
respect of the Company’s Annual Report and Accounts for the
period ended 29 December 2018. Such a review is normal
practice as the FRC reviews a number of annual reports during
the reporting season. The Company responded to the FRC with
the required clarifications and took the opportunity to review the
process for ensuring completeness of disclosure, especially in
relation to items which are not material but would be of benefit
to users of the Annual Report.
On 5 December 2019, the FRC confirmed to the Company that
the matter was closed. The Company committed to enhance
disclosures in certain areas of the Annual Report in response
to the FRC but noted that this did not result in any change to
reported profit or net assets.
The Company recognises that the FRC's review is based on the
2018 Annual Report and Accounts and that the FRC does not
benefit from detailed knowledge of the Company’s business or
an understanding of the underlying transactions which have
been executed.
FRC AUDIT QUALITY REVIEW
The FRC is the UK’s independent regulator responsible for
promoting transparency and integrity in business, and its
responsibilities include the monitoring of audits of public
interest entities, and certain other entities, performed by
firms registered to conduct statutory audits in the UK.
This monitoring is performed by the FRC’s Audit Quality Review
("AQR") team, which periodically undertakes thematic
inspections that focus on particular aspects of audit across a
sample of audits and firms. The AQR team will select individual
audits to inspect and take account of a number of factors,
including the assessed risk in relation to the entity and
particular sectors that they may wish to focus on.
On 31 January 2020, the AQR team communicated to the Company
that the work within the scope of their review was assessed as
requiring limited improvements. The AQR identified issues relating
to aspects of audit work over revenue and impairment of goodwill
and other assets in the International cash generating unit ("CGU").
However, the AQR had no issues to report in relation to the other
areas reviewed.
The FRC provides no assurance that the Annual Report and
Accounts are correct in all material respects; its role is not to
verify the information provided but to consider compliance with
reporting requirements.
As part of its review, the Committee considered the findings of the
review undertaken by the FRC's AQR team of Deloitte’s audit of the
Group Financial Statements for the year ended 29 December 2018,
which the AQR had selected as part of their 2019/20 annual
inspection of audit firms. The focus of the review was to identify
areas where improvements were required rather than highlighting
areas where work was performed at or above the expected level.
The Committee received a copy of the findings and discussed
these with Deloitte. The Committee confirmed that no significant
areas for improvement were identified within the report and that
there was nothing within the report which might have a bearing
on the External Auditors' appointment.
A full copy of the review was discussed with the External Auditor
at a pre-Audit and Risk Committee meeting, before discussion
with the wider Committee.
The FRC's review was on the basis that the FRC (which includes
the FRC's officers, employees and agents) accepts no liability
for reliance on them by the Company or any third party,
including but not limited to investors and shareholders.
NON-AUDIT FEES
Non-audit services are provided in accordance with the Group’s
policy and in light of the External Auditors' detailed understanding
of the Group and expertise in relevant areas. Non-audit services
provided in 2019 mainly comprised transaction due diligence
services in relation to the Company’s acquisition of Blueberry
Foods in June 2019, further details of which can be found in Note
30 to the Consolidated Financial Statements.
Going forward and in light of new regulations, the Company will
not ask the External Auditor to provide any non-audit services,
other than access to PwC’s online technical portal.
86
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 Information security (“IS”) risks have been a key area of focus
for the Committee during the year. Considerable time has also
been spent discussing cyber security risks, with a growing focus
on the handling of the personal data we hold on our customers
and colleagues, which the Committee recognises is an evolving
and complex risk area for many businesses.
INTERNAL AUDIT
Internal Audit services have been outsourced to KPMG LLP
(“KPMG”) but with overall responsibility and direction for the
Group’s Internal Audit activity being retained by the Head of
Risk, who reports to the Audit and Risk Committee. The Internal
Audit activity provides assurance over the effectiveness of key
internal controls, as identified as part of the risk assessment
process. The activity reports to the Head of Risk throughout the
year, to the Committee at least four times a year, and to the
Board at least twice a year.
KPMG was appointed as the Internal Auditor to support the
Company with effect from the beginning of the 2019 financial year.
At the Committee’s November meeting, KPMG prepared and
presented the draft of the Internal Audit Plan for 2020 (“IA Plan”).
The proposed plan represents the second year of the three-year
assurance plan that KPMG put in place on its appointment as the
Company’s Internal Auditor. The plan places greater emphasis on
audits against principal risks, taking into account the process and
governance arrangements which exist across the Bakkavor
Group (in the UK, US and China), whilst incorporating data-
enabled analytics in the approach. The IA Plan will be a mixture of
full systems audits, in-flight reviews and high-level limited-scope
reviews, as agreed with the Committee.
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 risks, the Committee reviewed the Group Risk Register
to identify 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 the controls in place and it is satisfied that measures are
being taken to minimise the Group’s vulnerability to these risks.
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CONTINUED
The following table sets out the reporting issues the Committee considered during the year, and how the Committee discharged
its responsibilities:
Reporting issue
Role of the Committee
Conclusion/action taken
Principal risks and viability
The Directors are required to make a
statement in the Annual Report as to the
longer-term viability of the Group.
The Committee evaluated a report from
management that set out the view of the
Group’s longer-term viability.
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.
Whistleblowing
The Committee considered 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.
At the request of the Board, the Committee
assessed, through discussion with, and the
challenge of, Senior Management, whether
disclosures in the Group’s published
Financial Statements were fair, balanced and
understandable. It received papers on key
judgement areas that set 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. It then
discussed this evaluation with the External
Auditor, which 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 or liquidity. It considered
and challenged management on the overall
effectiveness of the risk management
process and internal control systems. The
Committee reviewed the relevant disclosures
within the Accountability section of the
Corporate Governance Report which can
be found on page 80 of the Annual Report.
The Committee reviewed revisions to the
Group’s Whistleblowing Policy.
Taking the management assessment
into account, the Committee agreed to
recommend the Viability Statement to the
Board for approval. For further information
on the Viability Statement see page 57.
Having assessed 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.
As stated in the Annual Report, the
Committee agreed to recommend to
the Board statements relating to the
effectiveness of the risk management
process and internal control systems.
There are several confidential modes for
employees and third parties to communicate
any improprieties in matters of financial
reporting or other areas.
Moreover, whistleblowing is monitored
by the Board at each Board meeting. The
Whistleblowing Policy is reviewed annually,
and a refreshed policy was rolled out in
December 2019.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 Reporting issue
Role of the Committee
Conclusion/action taken
Anti-Bribery and Business Ethics Policy
The Committee considered the adequacy of
the Group’s arrangements with regard to its
anti-bribery and corruption and business
ethics processes.
The Committee reviewed the revisions to
the Anti-Bribery and Business Ethics Policy
which applies across the Group.
The revised Anti-Bribery and Business Ethics
policy includes an Entertainment Policy.
The Committee concluded that the revised
Anti-Bribery and Business Ethics Policy was
considered to be adequate.
A new governance and compliance e-learning
platform was launched in 2019 in the UK for
staff. The training will be undertaken annually.
Internal Audit
The Committee is required to oversee the
performance, resourcing and effectiveness of
the Internal Audit activity.
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, however overall responsibility and
direction is retained by the Head of Risk. The
Committee reviewed the effectiveness of the
Group’s Internal Audit activity in the overall
context of the Group’s internal controls and
risk management systems.
The Committee reviewed the effectiveness
of the Internal Audit activity and approved
the risk-based Internal Audit plan.
The Committee is actively engaged in
strengthening the Internal Audit activity
and extending its scope during 2020.
KPMG was appointed to provide Internal
Audit services effective from January 2019
onwards, but the overall responsibility
remains with the Head of Risk.
Oversight of External Auditor
The Committee is required to oversee the
work and performance of PwC as the
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 activity.
The Committee received all Internal Audit
reports and, in addition, receives summary
reports on the results of the work of the
Internal Audit activity on a periodic basis.
The Committee met with the key members of
the PwC audit team to discuss the 2019 audit
plan and agree areas of focus.
It assessed regular reports from PwC on the
progress of the 2019 audit and any material
issues identified, including management
override of controls, fraud in revenue recognition
and the ongoing national minimum wage inquiry.
It reviewed and debated the draft audit opinion
for the 2019 year-end. The Committee was also
briefed by PwC on critical accounting estimates,
where significant judgement is needed.
The Committee undertook a thorough
assessment of the quality and effectiveness
of PwC as External Auditor and, following this
review, the Committee was satisfied that the
External Audit had provided appropriate focus
on those areas identified by the Committee as
key risk areas to be considered.
The Committee approved the audit plan and
the main areas of focus, including valuation
of customer deduction accruals, impairment
reviews for goodwill and intangible assets,
the recoverability of US deferred tax assets
and presentation of exceptional items in the
Group’s Consolidated Income Statement.
The Committee reviewed and discussed
with PwC its Audit and Risk Committee report
on the 2019 Financial Statements which
highlighted any matters arising from the audit
work undertaken by the External Auditor.
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CONTINUED
Reporting issue
Cyber security risks
To assess the risk to the Group of unauthorised
access to the Company's IT systems.
Role of the Committee
Conclusion/action taken
The Committee reviewed the cyber security
threats to the business and the processes
in place to deal with any internal security
breaches. A cyber security update was
provided to the Committee by the new
Group Information Systems Director.
A leading advisory firm was appointed to
provide a situation assessment of the cyber
security position and the level of risk based
on the Bakkavor environment.
A new National Institute of Standards and
Technology Standard Framework has been
put in place to ensure that the Company is in
a position to identify, protect against, detect,
respond to and recover from any cyber risks.
A new Group Information Systems Director
was appointed in 2019 and will be providing
regular updates to the Committee and the
Board on cyber security.
The Company has also obtained cyber
security insurance with effect from the
beginning of 2020.
The Committee considers the 2019 audit fees
to be in line with those expected for a listed
company of this type given the complexities
of the business, the external reporting
requirements and recent regulatory
developments that require external auditors
to exercise greater independence and rigour
in the provision of their services and in the
setting of their fees.
Audit and audit-related fees
To approve audit and audit-related fees,
which include those for the statutory audit of
the Group and its subsidiaries.
During the year, the Committee reviewed
and approved a recommendation from
management on the Company’s audit and
audit-related fees payable to the Company’s
new External Auditor, PwC.
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 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 that the approval process operated in
accordance with the policy during the year.
During the year, non-audit fees of £181,000
were paid to PwC, as disclosed in Note 6 to the
Consolidated Financial Statements. £180,000
was for transaction services provided in
relation to the Group’s acquisition of Blueberry
Foods. This work was carried out by a
specialist team not linked to the audit team.
In addition, £1,000 was paid for access to
PwC’s online technical portal.
The Group has reviewed its internal process
on the engagement of auditors and review of
non-audit services to ensure that its policy
remains in line with new regulation.
Going forward and in light of new regulations,
the Committee will not ask the External
Auditor to provide any non-audit services other
than access to PwC’s online technical portal.
Issues that were considered most significant in preparing the Annual Report and Financial Statements:
• Impairment of goodwill and intangible assets
As at 28 December 2019, the Group
had significant amounts of goodwill and
intangible assets that are subject to an
annual impairment review under IFRS.
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 impairment review indicated that no
impairment provisions were required for the
year ended 28 December 2019. The Committee
reviewed and approved the associated
disclosure in the Financial Statements.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 Reporting issue
Role of the Committee
Conclusion/action taken
• Customer deduction accruals
The Group has arrangements in place with
its customers to provide volume-related
rebates, and is required to make estimates
in determining the value and timing of
accruals for these customer deductions
due in respect of sales.
The Committee reviewed a paper prepared by
management that set out the rationale for the
calculation and timing of the accruals held
under these arrangements at 28 December
2019. The paper included a summary of the
key agreements in place and the level of
accruals held across the business.
• Recoverability of US deferred tax assets
The Group has recognised a significant
deferred tax asset of £15.9 million in respect
of US tax losses that are expected to be
utilised in future financial years when the
US business generates taxable profits. The
recoverability of these assets is based on the
future profitability of the US business and this
is considered to be subjective.
The Committee reviewed a paper prepared by
the Group Tax Director, which set out the key
assumptions as to why the deferred tax asset is
considered recoverable and over what period.
The Committee challenged management on
the logic that had been applied to determine the
level of accruals held under these arrangements
at 28 December 2019. 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.
The Committee challenged management
on the period over which US tax losses are
expected to be utilised. This is a subjective
area, however the Committee concurred with
management's view that the US business is
expected to be profitable and will utilise the
tax losses available.
• Presentation of exceptional items in the Consolidated Income Statement
The Group recognises a significant amount of
exceptional items in its Consolidated Income
Statement. The recognition of these items as
exceptional is considered to be subjective.
The Committee reviewed the schedule of
exceptional items and the rationale for why
the relevant items were considered to be
exceptional.
The Committee reviewed the disclosure of
exceptional items in the Consolidated Income
Statement and concurred with management's
presentation of those items.
• National Minimum Wage
The Group has had a National Living Wage
inquiry ongoing since July 2017, and this has
been disclosed as a contingent liability since
a liability is considered possible at this stage.
Management has appointed an independent
expert adviser to deal with the ongoing
inquiry. The Committee reviewed a paper
prepared by the independent expert that
sets out the current status of the inquiry.
• COVID-19 impact
The COVID-19 outbreak early in 2020 has
the potential to impact the Group’s operations
in the UK, US and China in terms of people,
supply chain and logistics and consumer
demand. The impacts could potentially effect
the Group’s ability to continue as a going
concern unless the appropriate mitigating
actions are taken on a timely basis.
Management has assessed the potential
financial impact of COVID-19 on the
operations in each region of the business.
Management has put operational plans in
place including mitigating actions across the
business to manage through this difficult
period and ensure the safety of its people
whilst continuing to maintain production.
Updated forecasts have been prepared across
the Group which reflects management’s
latest views of the expected impact together
with the benefits from actions taken to
preserve cash through this period with the
appropriate sensitivity analysis being carried
out on these forecasts. Management has
prepared a paper that conclude that the
forecasts indicate that the Group is expected
to continue to comply with the financial
covenants in its financing agreement and
maintain significant liquidity headroom for the
foreseeable future and that therefore, in their
view, COVID-19 does not impact the Group’s
ability to continue as a going concern.
The Committee challenged management on
the view that the liability is only possible at
this stage. Having assessed the range of
potential outcomes the Committee concurred
with management's view that any possible
amounts payable are unlikely to be material
and agreed with the disclosures made.
The Committee reviewed the paper prepared
by management which include updated
forecasts, and in particular the liquidity
headroom available and the headroom on
financial covenants. The Committee reviewed
both the actions taken to date by management
and those available should trading later in
2020 be below the latest forecasts prepared
by management. Having carried out their
review the Committee concurred with
managements view that whilst there is still
a level of uncertainty about the impact of
COVID-19 they do not consider this effects the
Group’s ability to continue as a going concern.
JANE LODGE
Chair, Audit and Risk Committee
5 May 2020
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance DIRECTORS’ REMUNERATION REPORT
CHAIRMAN’S OVERVIEW
DENIS HENNEQUIN
CHAIR, REMUNERATION
COMMITTEE
THE COMMITTEE
The Committee is chaired by Denis Hennequin and its other
members are Sue Clark and Todd Krasnow. It met four times
during 2019.
The Committee considered the following items during the
period:
• Agreeing Executive Director base salary levels, effective
from 1 January 2019
• Reviewing performance against the 2018 annual bonus
targets and determining the payout
• Determining the measures and setting performance
targets for the 2019 annual bonus
• Agreeing the award levels, measures and performance
targets for the 2019 LTIP awards
• Consideration of developments in market trends, good
practice, the updated investor and proxy agency guidance
and the impact of the UK Corporate Governance Code on
remuneration
• An update from Sue Clark, Bakkavor’s Non-executive
Director tasked with bringing employee views to the Board,
on remuneration matters raised
MEETINGS ATTENDED
Member
Member since
Scheduled
meetings
eligible to
attend
Scheduled
meetings
attended
Denis Hennequin
(Committee Chair)
Sue Clark
Todd Krasnow
20 October 2017
20 October 2017
20 October 2017
4
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As Chair of the Remuneration
Committee, I am pleased to present,
on behalf of the Board, the Directors’
Remuneration Report for the year
ended 28 December 2019.
THIS REPORT IS SPLIT INTO THREE SECTIONS:
• This Annual Statement summarising the work of the
Committee during the year 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 both the
remuneration arrangements and incentive outcomes for the
year under review and how the Committee intends to
implement the Remuneration Policy in 2020.
As this is the final year of the 2018 Remuneration Policy there
will only be one remuneration-related vote at the 2020 AGM,
being the advisory vote on the Directors’ Remuneration Report
excluding the Policy (i.e. the Annual Statement and Annual
Report on Remuneration).
REMUNERATION IN 2019
By way of context, this was another solid year for Bakkavor in
which we delivered further growth, increased market share, and
strengthened our operations both in the UK and internationally,
whilst reporting performance in line with expectations.
In respect of remuneration paid for 2019:
• As disclosed in last year’s report, base salaries were increased
by 2.5% in line with the general workforce, and increased from
1 January 2019 (Agust Gudmundsson’s salary was increased to
£768,750 while Peter Gates’ salary was increased to £478,675)
• The annual bonus was based 40% on Adjusted EBITDA targets,
20% on revenue, 20% on free cash flow and 20% on employee
engagement measured through staff turnover. Performance
during the year resulted in bonus becoming payable under
each measure. However, the Adjusted EBITDA of £153.5 million
delivered in 2019 was no higher than that of last year
(£153.5 million) and in light of this it was determined that
no bonus would become payable in respect of the financial
elements (Adjusted EBITDA, revenue and free cash flow).
The non-financial element of employee turnover was met in
part, achieving 15.5% of the maximum 20% for this element.
Therefore, bonuses of 12.4% and 19.4% of salary became
payable to the CEO and CFO. One-third of the bonus will be
deferred under the terms of the Remuneration Policy. In
response to recent market developments as a result of the
COVID-19 pandemic, the grant of the deferred bonus award
has been delayed until later in the year. The Committee
considers the annual bonus outcomes were reflective of
performance during the year.
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 AT A GLANCE SUMMARY
WHAT OUR EXECUTIVE DIRECTORS EARNED DURING 2019
The following table provides a summary of total remuneration for 2019 and the prior year.
Further details are set out in the Annual Report on Remuneration on page 101.
AGUST
GUDMUNDSSON
769
TOTAL
REMUNERATION
987
PETER GATES
479
12
93
96
TOTAL
REMUNERATION
680
95
8
95
115
£000
Base salary
Benefits
Bonus
LTIP
Pension entitlements
Other
TOTAL
£000
Base salary
Benefits
Bonus
LTIP
Pension entitlements
Other
TOTAL
2019
769
8
95
–
115
–
987
2019
479
12
93
–
96
–
680
2018
750
1
–
–
113
–
864
2018
467
12
–
–
93
–
572
LTIP AWARDS VESTING
Peter Gates received long-term incentive awards in the form of share options when Bakkavor was in private ownership, prior
to the listing of the Company in November 2017, and half of these awards will vest in April 2020.
2019 ANNUAL BONUS
Metrics
Group Adjusted EBITDA (post bonus provision)
Revenue
Free cash flow
Employee turnover
Total (% of max)
Weighting % outcome
40%
20%
20%
0%
0%
0%
20%
15.5%
100%
15.5%
15.5%
Outcome 2019
Despite the Adjusted EBITDA, revenue and free cash flow
measures meeting the threshold, as Adjusted EBITDA in 2019 was
no higher than last year’s (£153.5 million), no bonus was payable
for performance against the three financial elements.
The employee turnover element was above threshold but below
the maximum target, resulting in a payment of 15.5% out of a
maximum of 20% for this element. Overall therefore, Executive
Directors earned bonuses of 15.5% of their maximum entitlement.
One-third of this will be deferred under the terms of our
Remuneration Policy.
HOW OUR EXECUTIVE DIRECTORS WILL BE PAID IN 2020
A summary of how the Committee intends to operate the Remuneration Policy for 2020 is as follows:
Component
Agust Gudmundsson
Peter Gates
Base salary (2.5% increase from 1 January 2020)
Pension (% of salary)
Annual bonus maximum (% of salary)
LTIP award (% of salary)
Shareholding guidelines (% of salary)
1 The CEO does not participate in the LTIP.
788
15%
80%
n/a1
200%
491
20%
125%
150%
200%
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance • It was expected that LTIP awards will be granted in 2020
at 150% of salary for the Chief Financial Officer (the Chief
Executive Officer does not participate in the LTIP). Given
the market volatility caused by COVID-19, the Remuneration
Committee has decided to delay the award until later in
the year and will consider the award level and performance
measures at the time of grant. Full details will be set out in
the RNS statement relating to the grant. To the extent that
awards vest, a two-year post-vesting holding period will apply
to awards granted to Executive Directors. The UK Corporate
Governance Code asks for the Remuneration Committee to
have a formal policy for post-employment shareholding
requirements encompassing both vested and unvested share
awards. It is our policy that, for good leavers, LTIP awards
will vest on their normal date, be tested for performance and
be pro-rated. Such vested awards would normally be subject
to a two-year holding period
The Remuneration Committee regularly receives updates on
developments in good practice and will consider what changes
may be required as part of a review of Directors’ remuneration
in 2020, for formal approval by shareholders in 2021.
SHAREHOLDER FEEDBACK
The Committee was pleased to note the very high levels
of shareholder support for the 2019 advisory vote on our
Remuneration Report and the binding vote on the Remuneration
Policy, which was approved a year earlier in 2018. With our
three-year Policy expiring in 2021, the Committee intends to
carry out a review of Directors’ remuneration and will consult
with shareholders to ensure their views are taken into account.
If you have any comments or feedback on this report or our
policy more generally, then please let me know through the
Group General Counsel & Company Secretary.
I look forward to receiving your support at the 2020 AGM.
DENIS HENNEQUIN
Chair, Remuneration Committee
5 May 2020
DIRECTORS’ REMUNERATION REPORT
CONTINUED
• Prior to the Company’s listing, the CFO received pre-IPO
LTIP awards in July 2017 structured as share options with an
exercise price of 76.4 pence. Half of these awards, which were
based on an EBITDA measure, have lapsed. The remainder,
which were conditional on a successful IPO, are due to vest
in April 2020.
In line with the new reporting regulations, we set out our
CEO pay ratio calculations on pages 109-110.
APPLICATION OF REMUNERATION POLICY FOR 2020
The Remuneration Committee intends to operate the
Remuneration Policy for Executive Directors for 2020
on a similar basis to 2019. This is as follows:
• Executive Directors’ basic salaries were increased from
1 January 2020 by 2.5%, in line with the budgeted general
salaried workforce increase. In response to the impact of
COVID-19, members of the Board and Management Board
have since agreed voluntary reductions to their salaries
and fees. The Group's founders (CEO, Agust Gudmundsson
and Non-executive Director, Lydur Gudmundsson) have
volunteered not to take a salary or fee during the three month
period starting 1 April 2020. The CFO and wider Management
Board have agreed a 20% salary reduction and the Chairman
and other Non-executive Directors have agreed to a 50%
reduction in fees over the period.
• No changes were made in respect of current Executive
Director pension contributions. However, the Remuneration
Committee is aware of the current investor sentiment on
pensions and, ahead of our 2021 Policy, has decided that any
new Executive Directors appointed to the Board will have a
contribution in line with the workforce level of 3% of salary.
We will consider our policy on existing executive pensions
ahead of the binding Remuneration Policy vote in 2021
• Annual bonus provision will remain at 80% of salary for
the Chief Executive Officer and 125% of salary for the Chief
Financial Officer. The Committee reviewed the annual bonus
measures and has decided to simplify the scheme by using
one financial measure (Adjusted EBIT) instead of the three
used in 2019 – Adjusted EBITDA, free cash flow and revenue.
The Committee felt Adjusted EBIT was a better measure than
Adjusted EBITDA, given the high level of capital expenditure
and the need to take into account the cost of this spend, and
the fact that Adjusted EBIT will be a KPI in 2020. Therefore,
75% will be based on Adjusted EBIT for the Group and 25%
will continue to be based on employee engagement measured
through employee turnover. The same bonus criteria cascade
down to the broader workforce and may be based on Group
and/or regional performance. As per the current Policy one-
third of any bonus earned by Executive Directors will be
deferred for three years with vesting conditional upon
continued employment. Any deferral for the Chief Executive
Officer will continue to be in the form of a cash-based award
(given his significant shareholding), whereas any deferral
for the Chief Financial Officer will be in shares
94
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 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.
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 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.
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 Schedule 8:
The Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2008
and the UK Listing Authority’s Listing Rules. The Policy
was developed taking into account the principles of the
2018 UK Corporate Governance Code and the voting
guidelines of major UK institutional investor bodies.
The Policy was approved by shareholders in a binding vote at
the 2018 AGM on 23 May 2018 and operates for three years from
the date of approval. The Policy that was approved, with minor
updates where appropriate (e.g. remuneration scenario charts)
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 the appropriate consistency of the approach across
the Senior Management population
• 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.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance DIRECTORS’ REMUNERATION REPORT
CONTINUED
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.
EXECUTIVE DIRECTORS
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Executive Directors’ performance
is a factor considered when
determining salaries.
No recovery or withholding
provisions apply.
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 range of factors into
consideration, including:
• Business performance
• Salary increases awarded to the
overall employee population
• Skills and experience of the
individual over time
• Scope of the individual’s
responsibilities
• Changes in the size and
complexity of the Group
• Market competitiveness
assessed by periodic
benchmarking
• The underlying rate of inflation
Whilst there is no prescribed
formulaic maximum, any
increases will take into account
prevailing market and economic
conditions and the approach to
employee pay throughout the
organisation.
Base salary increases are
awarded at the discretion of the
Committee; however, salary
increases will normally be no
greater than the general increase
awarded to the wider workforce,
in percentage of salary terms.
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.
96
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
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.
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.
Not performance-related.
No recovery or withholding
provisions apply.
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.
The 2018 Remuneration Policy
has been updated to reflect good
practice. From 2020, a maximum
3% of salary contribution applies
to new Directors, including
internal appointments.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Short-Term Incentive Plan “STIP” or annual bonus
The annual bonus scheme
rewards the achievement of
stretching objectives that support
the Group’s corporate goals and
delivery of the business strategy.
Delivery of a proportion in
deferred bonus shares provides a
retention element and alignment
with shareholders.
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.
Bonuses are determined based
on measures and targets that are
agreed by the Committee at the
start of each financial year.
Two-thirds of the annual bonus
will be payable in cash, typically
in March following the end of the
financial year.
Up to one-third of the bonus is
compulsorily deferred in shares
(or cash in the case of the current
Chief Executive Officer) for three
years under the Deferred Annual
Bonus Plan.
At the discretion of the Committee,
participants may also be entitled
to receive the value of dividends
paid between grant and vesting on
vested shares. The payment may
be in cash or shares and may
assume dividend reinvestment.
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 payout is inconsistent with the
Company’s overall performance,
taking account of any factors it
considers relevant. This will help
to ensure that the payout 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 101 for further detail).
98
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
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.
It facilitates share ownership to
provide further alignment with
shareholders.
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.
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.
The individual plan limit is 200%
of base salary in any financial
year.
Performance is normally
measured over no less than
three financial years.
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.
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 to 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
101 for further detail).
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.
The schemes are subject to
the limits set by HMRC from
time to time.
Not performance-related.
No recovery or withholding
provisions apply.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance DIRECTORS’ REMUNERATION REPORT
CONTINUED
Purpose and link to strategy
Operation
Maximum opportunity
Performance metrics
Executive Directors are required
to build and retain a shareholding
in Bakkavor equivalent to at least
200% of their base salary.
Not performance-related.
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.
To provide the Group with access
to independent judgement on
issues of strategy, performance,
resources and standards of
conduct.
Non-executive Directors may
receive fees paid monthly in cash,
which consist of an annual basic
fee. They may also receive
additional fees for additional
responsibilities.
When reviewing fee levels,
account is taken of market
movements in the fees of
Non-executive Directors, Board
Committee responsibilities and
ongoing time commitments.
Not performance-related.
No recovery or withholding
provisions apply.
Actual fee levels are disclosed
in the Annual Report on
Remuneration for the relevant
financial year.
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.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
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, at 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 regard
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 the Company’s
strategic objectives and the interests of shareholders into
account.
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 circumstances such as a change of
control or reconstruction
• Whether malus and clawback shall be applied to any award
in the relevant circumstances and, if so, the extent to which
it shall be applied
• Making appropriate adjustments as required in certain
circumstances, for instance changes in capital structure
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance DIRECTORS’ REMUNERATION REPORT
CONTINUED
• Determining ‘good leaver’ status for incentive plan purposes
and applying the appropriate treatment
• Undertaking the annual review of weighting of performance
measures and setting targets for the annual bonus plan and
other incentive schemes, where applicable, from year to year
If an event occurs which results in the Annual Bonus Plan or
LTIP performance conditions and / or targets being deemed
no longer appropriate (e.g. material acquisition or divestment),
the Committee will have the ability to adjust appropriately the
measures and/or targets and alter weightings, provided that
the revised conditions are not materially less challenging
than the original conditions. Any use of the above discretion
would, where relevant, be explained in the Annual Report on
Remuneration and may, as appropriate, be the subject of
consultation with the Company’s major shareholders.
LEGACY ARRANGEMENTS
For the avoidance of doubt, the Committee may approve
payments to satisfy commitments agreed prior to the listing of
the Company in November 2017 that have either been disclosed
to shareholders in the prospectus or formed part of the pre-IPO
Remuneration Policy. The Committee may also approve
payments outside this Remuneration Policy in order to satisfy
legacy arrangements made to an employee prior to (and not in
contemplation of) promotion to the 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 2020 remuneration package for each Executive Director under three assumed
performance scenarios. These scenarios are based upon the Remuneration Policy set out above.
Fixed
Annual bonus
Long-term incentive
Share price growth
£1,545
£1,545
£1,229
26%
74%
41%
59%
41%
59%
£914
100%
£1,950
38%
31%
31%
£2,318
16%
32%
26%
26%
£1,091
17%
28%
55%
£601
100%
£2,500
£2,000
s
0
0
0
£
£1,500
£1,000
£500
£0
Minimum
On-target
Maximum
Max with growth
Minimum
On-target
Maximum
Max with growth
CEO
CFO
The scenarios used in the graphs above are defined as follows:
Base salary1
As at 1 January 2020
As at 1 January 2020
As at 1 January 2020
As at 1 January 2020
Below target
Target
Maximum
Maximum with share price growth
Estimated value for 2020
Estimated value for 2020
Estimated value for 2020
Estimated value for 2020
Benefits
Pension
Bonus
CEO: 15% of salary
CFO: 20% of salary
CEO: 15% of salary
CFO: 20% of salary
0% of maximum
50% of maximum
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
CEO: 15% of salary
CFO: 20% of salary
As per maximum
As per maximum but in
addition a 50% share price
increase over 3 years is
assumed
LTIP (CFO only)
0% of maximum
25% of maximum
1 No account has been taken of the impact of the voluntary reduction in base salaries as set out in the Annual Statement.
102
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 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
Benefits
The Committee will set a base salary appropriate to the calibre, experience and responsibilities of the new
appointee. In arriving at a salary, the Committee may take into account, amongst other things, the market
rate for the role and internal relativities.
The Committee has the flexibility to set the salary of a new Executive Director at a lower level initially, with
a series of planned increases implemented over the following few years to bring the salary to the desired
positioning, subject to individual performance.
In exceptional circumstances, the Committee has the ability to set the salary of a new Executive Director
at a rate higher than the market level to reflect the criticality of the role and the experience and performance
of the individual.
Benefits will be consistent with the principles of the Policy set out on page 95. The Company may award certain
additional benefits and other allowances including, but not limited to, those to assist with relocation support,
temporary living and transportation expenses, educational costs for children and tax equalisation to allow
flexibility in employing an overseas national.
Pension benefits
A maximum pension contribution of 3% of salary may be payable for external appointments.
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.
Annual bonus
The maximum bonus opportunity is 150% of base salary.
Long-Term Incentive Plan
The maximum opportunity is 200% of base salary. This may be used on recruitment and on an ongoing basis,
if appropriate.
Replacement awards
In addition to the above, the Committee may offer additional cash and/or share-based elements in order to
‘buy out’ remuneration relinquished on leaving a former employer.
In the event that such a buyout is necessary to secure the services of an Executive Director, 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.
Shareholders will be informed of any buyout arrangements at the time of the Executive Director’s appointment.
Notice periods
Notice periods shall be up to 12 months.
Depending on the timing and responsibilities of the appointment, it may be necessary to set different annual bonus / LTIP
performance measures and targets from those 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.
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CONTINUED
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 95. The Committee will exercise its discretion when determining amounts that should be paid to leavers, taking into
account the facts and circumstances of each case.
It is the Company’s policy that the period of notice for Executive Directors will not normally exceed 12 months and, accordingly, the
employment contracts of the Executive Directors are terminable on 12 months’ notice by either party. In the event of an Executive
Director’s departure, a payment in lieu of notice may be payable. The Company may pay the value of the Executive Director’s base
salary together with accrued holiday entitlement.
The Company is unequivocally against rewards for failure; the circumstances of any departure, including the individual’s
performance, would be taken into account in every case. Statutory redundancy payments may be made, as appropriate. Service
agreements may be terminated without notice and without payment in lieu of notice in certain circumstances, such as gross
misconduct. The Company may require the Executive Director to work during their notice period or may choose to place the
individual on garden leave; for example, to ensure the protection of the Company’s and shareholders’ interests where the
Executive Director has access to commercially sensitive information.
Except in the case of gross misconduct or resignation, the Company may at its absolute discretion reimburse for reasonable
professional fees relating to the termination of employment and, where an Executive Director has been required to relocate,
to pay reasonable repatriation costs, including possible tax exposure costs.
Ordinarily, Executive Directors have no entitlement to a bonus payment in the event 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.
104
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 EXECUTIVE DIRECTORS’ SERVICE CONTRACTS
In accordance with long-established policy, all Executive Directors have rolling service agreements which may be terminated
in accordance with the terms of these agreements. Directors’ service agreements are kept for inspection by shareholders at
the Company’s registered office.
Name
Date of joining Bakkavor
Date of service contract
Notice period
Agust Gudmundsson
1 August 1986 (founder)
18 December 2011, as amended by
a variation letter dated 2 October 2017
Peter Gates
9 November 2010
2 October 2017
12 months either party
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.
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) Regulations 2008 (as amended) 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 12 June 2020.
REPORT OF THE REMUNERATION COMMITTEE (“THE COMMITTEE”)
COMMITTEE MEMBERSHIP
Chair
Members
Denis Hennequin
Sue Clark, Todd Krasnow
The Committee is formally constituted and operates on written Terms of Reference which are available at www.bakkavor.com.
The biographies of the Committee members are set out on pages 70 to 71.
Members of management including the Chief Executive Officer, the Chief Financial Officer, the Group HR Director and the Head
of Reward and Engagement 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.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
MEETING ATTENDANCE FOR THE YEAR ENDED 28 DECEMBER 2019
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 Consultants
LLP (“FIT”) which acts as the Committee’s independent adviser. FIT was appointed during 2018 by the Remuneration Committee as
a result of a tender process and 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 £40,600 excluding VAT during 2019 relating to Remuneration Committee
advice. FIT billed on a time and materials basis and did not provide any other services to Bakkavor during 2019.
SINGLE TOTAL FIGURE OF DIRECTORS’ REMUNERATION – YEAR ENDED 28 DECEMBER 2019 (AUDITED)
The total remuneration of the individual Directors who served during the financial year is shown below.
Base salary
Benefits
Pension
Total fixed
remuneration
Bonus
Total variable
remuneration
Total
remuneration
LTIP
£000s
Executive Directors
Agust Gudmundsson 1
Peter Gates
Non-executive Directors
Simon Burke (Chairman)
Robert Berlin 2
Sue Clark
Patrick Cook 3
Lydur Gudmundsson 4
Denis Hennequin
Todd Krasnow 5
Jane Lodge 6
Total
Notes to the remuneration table:
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
769
750
479
467
200
200
n/a
–
70
70
0
0
265
274
70
70
100
100
70
52
8
1
12
12
–
–
n/a
–
–
–
–
–
4
1
–
–
8
–
–
–
115
113
96
93
–
–
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
892
864
587
572
200
200
n/a
–
70
70
–
–
269
275
70
70
108
100
70
52
95
–
93
–
–
–
–
–
–
–
–
–
95
–
93
–
–
–
n/a
n/a
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
987
864
680
572
200
200
n/a
–
70
70
0
0
269
275
70
70
108
100
70
52
2,023
1,983
32
14
211
206
2,266
2,203
188
–
188
–
2,454
2,203
1 For Executive Directors, taxable benefits comprise car allowance (CFO only) and private medical cover. Lydur Gudmundsson is also entitled to medical cover in the UK
for the benefit of his family. Agust Gudmundsson received additional benefits in the year to the value of £6,965.
2 Robert Berlin received no fee for his services and left his post on 11 July 2018.
3 Patrick Cook joined the Board on 12 July 2018, replacing Robert Berlin, and receives no fee for his services.
4 Lydur Gudmundsson’s Non-executive Director base fee is £70,000 p.a. 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.U., and a service agreement between Bakkavor Iberica S.L.U. 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:€1.18 (2018: £1:€1.13). Lydur Gudmundsson received additional benefits in the year to the value of £3,687.
5 Todd Krasnow’s taxable benefits include travel and accommodation-related expenses which have been grossed up for tax.
6 Jane Lodge joined the Board on 3 April 2018.
106
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 2019 ANNUAL BONUS (AUDITED)
In 2019, employees were eligible for an annual bonus, subject to meeting performance objectives established at the beginning of the
financial year by reference to suitably challenging corporate goals over the 12-month period. In 2019, the annual bonus targets and
performance-related outcomes were as follows:
Metrics
Weighting
Threshold (0%)
Target (50%)
Maximum (100%)
Actual
performance
% outcome
Group Adjusted EBITDA (post bonus provision)
Revenue
Free cash flow
Employee turnover*
Total (% of max)
40%
20%
20%
20%
£150m
£1,875m
£44m
n/a
n/a
n/a
n/a
22.1%
£160m
£1,992m
£54m
19.9%
£153.5m
£1,886m
£51.1m
20.9%
0%
0%
0%
15.5%
15.5%
* Employee turnover starts to earn at target performance, for which 50% of this element becomes payable. No bonus is capable of being earned below target performance.
For other elements, a threshold level applies.
While Company performance against all measures resulted in each of the metrics being partially met, no bonus was payable
against the three financial measures due to insufficient year-on-year progress in EBITDA. Therefore, bonus is only payable against
the employee turnover measure.
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%
15.5%
15.5%
12.4%
19.4%
£95k
£93k
£63k
£62k
£32k
£31k
Normal deferral
currency where
relevant
Cash
Shares
The Remuneration Committee believes that the bonus outcome is a fair reflection of performance during the year and therefore
has not applied any discretion when determining the outcome.
LONG-TERM INCENTIVE PLAN
AWARDS WITH PERFORMANCE PERIODS ENDING IN THE YEAR (AUDITED)
There were no LTIP awards granted after Bakkavor’s listing that were capable of vesting based on performance relating to the year
ending December 2019.
However, as disclosed in the Listing Prospectus, when Bakkavor was a private company, Peter Gates received 1,222,515 pre-IPO
LTIP awards in 2017 structured in the form of share options with a 76.4 pence per share exercise price that are capable of vesting
following the publication of the Company’s audited financial results for the 2019 financial year. These awards were subject to
continued service and the satisfaction of the two conditions 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
The first condition was achieved but the EBITDA targets were not met and therefore 50% of these awards will vest. Based on
the share price of £1.40 as at 28 December 2019, the gain on the 611,258 awards that will vest on 1 April 2020 is £388,760.
AWARDS GRANTED IN 2019 (AUDITED)
The following awards, structured as nil-cost options, were made under the LTIP in 2019 (the Chief Executive Officer does not
participate in the LTIP):
Peter Gates
1 Based on the five-day average share price of £1.2388 to 8 April 2019.
Date of grant
9 April 2019
Basis of award
(% of salary)
Face value of
awards at grant
Number of shares
under award
Date of vesting
150%
£718,0131
579,509
9 April 2022
These awards vest in 2022 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 2021 (50% of award)
Below 16.5 pence
16.5 pence
16.5 pence to 18.6 pence
18.6 pence
Portion of award vesting
0%
25%
Pro-rata on straight-line basis between 25% and 100%
100%
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Relative TSR1 from January 2019 to December 2021 (50% of award)
Below median
Median
Between median and upper quartile
Upper quartile
Portion of award vesting
0%
25%
Pro-rata on straight-line basis between 25% and 100%
100%
TSR is measured from January 2019 to December 2021 against the following companies: Associated British Foods, A.G Barr, Booker Group, Britvic, Coca-Cola HBC AG,
Compass Group, Cranswick, Dairy Crest Group, Devro, Diageo, Domino’s Pizza Group, DP Eurasia, EI Group1, Fuller, 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.
1 It should be noted that Stonegate is in the process of purchasing EI Group and is addressing concerns raised by the Competition and Markets Authority.
TOTAL SHAREHOLDER RETURN (“TSR”)
The chart below shows the Company’s TSR performance compared with that of the FTSE 250 Index (excluding investment trusts)
over the period from the date of the Company’s Admission to the London Stock Exchange to 28 December 2019. 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
100
80
)
d
e
s
a
b
e
r
(
)
£
(
e
u
l
a
V
60
15 Nov 2017
30 Dec 2017
29 Dec 2018
28 Dec 2019
FTSE 250 Ex Investment Trusts
Bakkavor Group
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:
Award type
Ex. price
Grant date
Interest at
December 2018
Awards
granted in year
Awards lapsed
in year
Awards vested
in year
Interest at
December 2019
Date of vesting /
exercise period
Peter Gates
Pre-IPO LTIP
£0.764
3 July 2017
1,222,515
LTIP
LTIP
£0
£0
9 April 2018
9 April 2019
399,372
–
579,509
–
–
–
–
–
–
–
–
1,222,515
See note 1
399,372
579,509
See note 2
1 As set out on page 93 611,258 of Peter Gates’ 1,222,515 awards will vest in April 2020.
2 See LTIPs granted in 2019 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
Neither of the Executive Directors currently hold non-executive directorships at any companies outside the Bakkavor Group.
STATEMENT OF DIRECTORS’ SHAREHOLDINGS AND SHARE INTERESTS (AUDITED)
The share interests of each Director as at 28 December 2019 (together with interests held by 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 year ended 28 December 2019 are set out as a percentage of salary or
fees in the table below. During the period from 28 December 2019 to the publication of this report, there have been no changes in
the Directors’ share interests, with the exception of Lydur Gudmundsson, as detailed in the footnote below, and none of the other
Directors hold any loans against their shares or otherwise use their shares as collateral.
108
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
28 December 2019
29 December 2018
Value of owned shares
as a % of salary
200% of salary shareholding
guideline met?
Unvested shares subject to
performance conditions
Beneficially owned shares
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
142,103,505
145,333,130
26,434%1
nil
nil
50,000
50,000
nil
nil
nil
nil
nil
nil
142,103,505 2
145,333,130
nil
nil
nil
nil
nil
nil
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Yes
No
-
–
–
–
–
–
–
–
–
2,201,396
-
–
–
–
–
–
–
–
1 Calculation based on share price of £1.43 as at 28 December 2019.
2 As notified to the market on 11 April 2019, Umbriel Ventures Limited, the corporate holding structure and Person Closely Associated with Lydur Gudmundsson, entered
into a Security Interest Agreement (the "Agreement") with HSBC Bank plc, Guernsey Branch (the "Bank") on 10 April 2019 granting a pledge in favour of the Bank over
130,000,000 Ordinary shares in the Company as security in connection with the Agreement. Lydur Gudmundsson remains the beneficial owner of the 130,000,000 shares
subject to the pledge and retains control of the voting rights attached to such shares. Therefore, Lydur's total interests in the voting rights of the Company are 142,103,505
Ordinary shares of 2 pence each.
ALIGNING PAY WITH PERFORMANCE
The total remuneration figures for the Chief Executive Officer in 2019 and 2018 are 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)
2019
£987
12.4%
n/a
2018
£864
0%
n/a
2017
£1,063
34%
n/a
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 29 December
2018 and the year ended 28 December 2019 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
2.5%
581%1
n/a
2.5%
n/a
n/a
Given the makeup of our c.20,000 workforce, the majority of UK employees do not participate in an annual bonus scheme or receive
benefits and therefore it is not possible to make any meaningful comparison on the percentage change in annual bonus or benefits.
1 The CEO received additional benefits in the year to the value of £6,965.
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
Dividends1
2018
£489.5m
£11.6m
2019
% increase
£522.0m
£34.8m
7.6%
200%
1 Final 2018 dividend of £23.2m paid on 29 May 2019 and interim dividend of £11.6m paid on 11 October 2019. The 2018 figure was for an interim dividend only.
CEO PAY RATIO
In line with the new reporting regulations, set out below is the ratio of Group CEO pay compared to the pay of UK full-time equivalent
employees for the financial year ended 28 December 2019. We expect the pay ratio to vary from year to year, driven largely by the
annual bonus outcome for the Group CEO, which will significantly outweigh any other changes in pay at Bakkavor. The pay ratios are
calculated using Option B for the CEO and UK employees. The CEO single total figure remuneration of £987k is given in the table above.
FY ended 28 December 2019
Method
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
Option B
56:1
39:1
36:1
109
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Bakkavor has calculated the pay ratio using Option B alongside its gender pay data, as it involved the simplest method of
calculation, given our large number of employees. Total remuneration for all UK full-time equivalent employees of the Company on
28 December 2019 has been calculated in accordance with the Option B methodology. Set out in the table below is the base salary
and total pay and benefits for each of the percentiles.
£
25th percentile
75th percentile
Median
Salary
Total pay and benefits
£17,217
£17,734
£22,347
£25,469
£25,452
£27,587
STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN 2019
ANNUAL BASE SALARY
Base salaries for the Executive Directors, effective 1 January 2020, are set out below:
Agust Gudmundsson
Peter Gates
Base salary 2019
Base salary 2020
% increase
£768,750
£478,675
£787,969
£490,642
2.5%
2.5%
Salary increases for the CEO and CFO are aligned to the budgeted salary increase for the salaried employees in 2020. Since the
changes to salaries were agreed, the company has been impacted by COVID-19. In light of this the CEO and CFO have agreed
voluntary reductions to their salaries. For the three-month period starting 1 April 2020, the CEO will not take a salary and the
CFO's will be reduced by 20%.
BENEFITS AND PENSION
No changes are proposed to the provision of pension and benefits for current Executive Directors in 2020. Executive Directors will
continue to receive benefits that include family private medical insurance, life assurance, income protection, health screening and
Company car/car allowances. In line with the Policy, 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.
Any new Executive Directors appointed to the Board would be in line with the general workforce contribution rate of 3% of salary.
BONUS
The 2020 annual bonus maximum, as a percentage of base salary, is as follows:
Agust Gudmundsson
Peter Gates
80% of salary
125% of salary
As mentioned in the Annual Statement, for 2020 the annual bonus for the Executive Directors has been simplified and will comprise
two measures, set out below, which are both Key Performance Indicators of the business.
• Adjusted EBIT for the Group (75%)
• Employee engagement measured through staff turnover (25%)
The Committee felt that Adjusted EBIT was a more appropriate profit measure than EBITDA, as it takes into account the cost
of the recent higher level of capital expenditure spend and will be a Group KPI for 2020.
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 had intended to grant awards of nil-cost options under the Long-Term Incentive Plan in April 2020 to the Chief
Financial Officer, in line with the Policy set out in this report. Given the sudden impact of COVID-19, the Remuneration Committee
decided to delay the grant of the award until later in the year. Full details of the grant including the measures and targets will be
set out in the RNS announcement at the time of making the award. Reflecting his founder status and his current shareholding,
the current Chief Executive Officer does not participate in the Long-Term Incentive Plan.
Awards will be 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.
110
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 NON-EXECUTIVE DIRECTORS’ FEES FOR 2020
Fees for the Non-executive Directors and Chairman have increased by 2.5% and are as follows:
Chairman
Base Non-executive Director fee
Notes:
Todd Krasnow’s annual fee is increased by 2.5% to £102,500 p.a.
Patrick Cook does not receive any fees for his role as Non-executive Director.
Fee
£205,000
£71,750
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.U., and a service agreement between Bakkavor Iberica S.L.U. 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.
Following the impact of COVID-19 on the business the Chairman and the Non-executive Directors have voluntarily agreed to a 50%
reduction to their fees for 3 months. During this time, Lydur Gudmundsson has agreed to waive his full fee.
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 2019
in respect of the Directors’ Remuneration Report for the year ended 29 December 2018:
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 May 2020
Remuneration Report
Total number
of votes
544,463,976
1,549,279
546,013,255
467
% of votes cast
99.72%
0.28%
100.0%
0.00%
546,013,722
100.00%
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance
DIRECTORS’ REPORT
The Directors present their report, together
with the Audited Group Financial Statements,
for the year ended 28 December 2019.
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:
Important events since the financial year end
Likely future developments in the business
Research and development
Use of financial instruments
Employee engagement
Greenhouse gas emissions
Risk management
Details of subsidiaries
Page
180
14
144
158
41
38
54
177
LISTING RULE 9.8.4R DISCLOSURES
In accordance with Listing Rule 9.8.4R of the UK Financial
Conduct Authority’s Listing Rules, the table below sets out
the location of the following sections/information within 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
Note 9 to the Financial
Statements
Publication of unaudited
financial information
Details of long-term
incentive schemes
Not applicable
Note 33 to the Financial
Statements and Directors’
Remuneration Report on
pages 92 to 111
Waiver of emoluments
by a Director
Directors’ Remuneration
Report on pages 92 to 111
Waiver of future emoluments
by a Director
Not applicable
Non pre-emptive issues of
equity for cash
Non pre-emptive issues of
equity for cash by major
subsidiary undertakings
Not applicable
Not applicable
Parent participation in a
placing by a listed subsidiary
Not applicable
Contracts of significance
involving a Director
Provision of services by a
controlling shareholder
Shareholder waivers of
dividends
Page 114 of Directors' Report
Page 114 of Directors' Report
Not applicable
Shareholder waivers of future
dividends
Not applicable
Agreements with controlling
shareholders
Page 114 of Directors’ Report
PRINCIPAL ACTIVITY AND BUSINESS REVIEW
The Company produces and markets fresh prepared food in the
United Kingdom, the United States of America and China. The
Company employs approximately 20,000 employees worldwide
and is headquartered in London, UK.
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 (“DTRs”) 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 68. A description of the composition and
operation of the Board and its Committees is set out on
pages 69 to 72.
The Group has complied throughout the accounting period with
the 2016 Code and adopts some key elements of the 2018 Code
published in 2018. The Group intends to comply with the 2018
Code in our next Annual Report.
STRATEGIC REPORT
Section 414A of the Companies Act 2006 (“the Act”) requires the
Directors to present a Strategic Report in the Annual Report and
Financial Statements. This information can be found on pages 2
to 65.
MANAGEMENT REPORT
For the purposes of DTR Rules 4.1.5R (2) and 4.1.8, the Directors’
Report and the Strategic Report on pages 2 to 65 comprise the
Management Report.
DISCLOSURES
This Directors’ Corporate Governance Report fulfils the
requirements of the Directors’ Report for the purposes of the
Act. The Strategic Report can be found on pages 2 to 65, 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 177 to 178 to
comply with section 409 of the Act.
112
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 RESULTS
The results for the year ended 28 December 2019 are set out
in the Financial Statements on page 125.
DIVIDEND
The Group’s profit for the financial year, after taxation, amounts
to £36.9 million (2018: £67.2 million). An interim dividend of
2 pence per Ordinary share was paid on 11 October 2019.
Due to the impact of COVID-19 on the business as a post balance
sheet event and the pro-active steps currently being taken
around cash and investment, the Board has decided to suspend
the proposed final dividend as originally announced with the
Preliminary Results on 27 February 2020. Consequently, the
resolution in relation to the declaration of the final dividend will
not be put forward at the AGM to be held on 12 June 2020. The
Board will review dividend policy in due course.
DIRECTORS’ INSURANCE AND INDEMNITIES
Bakkavor has made qualifying third-party provisions (as defined
in the Act) for the benefit of its Directors. These provisions were
in force throughout the year and remain 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 can be found in the Articles, the 2018 Code, the Act
and related legislation. Under the terms of reference of the
Nomination Committee, any appointment must be recommended
by the Nomination Committee for approval by the Board.
At the AGM, all Directors will offer themselves for re-election to
the Board. All Directors’ biographies are set out on pages 70 to 71.
SERVICE CONTRACTS
The Company’s policy regarding Directors’ service contracts
and appointment terms is to take account of market practice
and to ensure that notice periods are not excessive.
No Director has a service contract with a notice period in excess
of one year.
DIRECTORS’ SHARE INTERESTS
The share interests of the Directors at 28 December 2019 and
as at the date of the publication of this report are:
Name
Number
of shares
% of
voting rights
Number
of shares
% of
voting rights
Simon Burke
50,000
0.01%
50,000
0.01%
Agust
Gudmundsson 142,103,505
Lydur
Gudmundsson 142,103,505
24.52% 142,103,505
24.52%
24.52% 142,103,505
24.52%
During the period between 29 December 2018 and 28 December
2019, Carrion Enterprises Limited, a corporate holding structure
of Agust Gudmundsson, sold 3,229,625 shares. Umbriel
Ventures Limited, a corporate holding structure of Lydur
Gudmundsson, sold 3,229,625 shares. There were no further
changes in the year.
BOARD OF DIRECTORS
The Directors of the Company during the year are set out below
and Directors’ biographies are set out on pages 70 to 71 of this
report. Subject to company law and the Articles, the Directors
may exercise all of the powers of the Company and delegate
their power and discretion to committees.
The powers of the Directors are set out in the Schedule of
Matters Reserved to the Board, which is available on the
Bakkavor website at www.bakkavor.com/investors/governance.
CURRENT DIRECTORS EXCEPT AS NOTED
Name
Role
Appointed
Simon Burke
Chairman
Sue Clark
Patrick Cook
Independent
Non-executive Director
Non-independent
Non-executive Director
20 October 2017
20 October 2017
12 July 2018
Peter Gates
Chief Financial Officer
20 October 2017
Agust Gudmundsson Chief Executive Officer
28 September 2017
Lydur Gudmundsson Non-independent
20 October 2017
Denis Hennequin
Todd Krasnow
Jane Lodge
Non-executive Director
Independent
Non-executive Director
Independent
Non-executive Director
Independent
Non-executive Director
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 powers of the
Company.
SHARE CAPITAL AND CAPITAL STRUCTURE
The Company’s issued share capital as at 28 December 2019
comprised a single class of share divided into Ordinary shares
of 2 pence each. At the date of publication the Company’s issued
share capital comprised 579,425,585 Ordinary shares. Details of
the Company’s issued share capital are also shown in Note 28
to the Consolidated Financial Statements.
Details of employee share schemes are set out in Note 33 to
the Consolidated Financial Statements.
RESTRICTIONS ATTACHING TO SHARES
The Company has a single class of share which carries no
right to fixed income. Each share is non-redeemable, carries
equal voting rights and ranks equally for dividends and capital
distributions, whether on a winding up or otherwise.
There are no specific restrictions on the size of a holding nor
on the transfer of Ordinary shares, which are both governed by
the general provisions of the Articles and prevailing legislation.
The Company is not aware of any agreements between
shareholders that may restrict the transfer or exercise of
voting rights.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance DIRECTORS’ REPORT
CONTINUED
POWERS FOR THE COMPANY ISSUING
OR BUYING BACK SHARES
Under the 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 section 551 of the Act.
The Company was given authority at the 2019 AGM to make
market purchases of up to 10% of its issued share capital as
permitted under the Articles. The Company made no purchases
of its own Ordinary shares during the year ended 28 December
2019 and up to the date of this report.
This agreement regulates the relationship between the
Company and the controlling shareholders as required by the
Listing Rules, including Listing Rule 9.2.2AR(2)(a) and Listing
Rule 6.1.4DR. In accordance with the requirements of Listing
Rule 9.8.4R(14), the Board confirms that: (i) the Company has
complied with the independence provisions set out in the
relationship agreement during the period under review; and (ii)
so far as the Company is aware, the controlling shareholders
complied with the independence provisions set out in the
relationship agreement during the period under review.
See the table on page 81 for details of the major shareholders
in the Company.
This standard authority is renewable annually; the Directors
will seek to renew this authority at the AGM to be held on
12 June 2020.
A special resolution will be proposed to renew the Directors'
authority to repurchase the Company’s shares within certain
limits and as permitted by the Articles at the AGM to be held
on 12 June 2020.
SIGNIFICANT AGREEMENTS AND RELATIONSHIP
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
The aggregate shareholding in the Company of Carrion
Enterprises Limited (the corporate holding structure of
Agust Gudmundsson), Umbriel Ventures Limited (the corporate
structure of Lydur Gudmundsson) and their concert party group
(the “controlling shareholders”) is 50.15%. The Company is party
to a relationship agreement with Carrion Enterprises Limited,
Umbriel Ventures Limited, the trustee(s) of The A.G. Trust (which
owns 100% of Carrion Enterprises Limited) and the trustee(s) of
The L.G. Trust (which owns 100% of Umbriel Ventures Limited).
Lixaner Co Limited (an entity which is a concert party of Carrion
Enterprises Limited and Umbriel Ventures Limited following its
acquisition of Shares in the Company on 23 May 2019) executed
a Deed of Adherence to the relationship agreement on 15 April
2020 and is duly bound by its terms.
RELATIONS WITH SHAREHOLDERS
The Board supports the aims of the 2016 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 and also with 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 has been scheduled in 2020.
ANNUAL GENERAL MEETING
The AGM will be held on 12 June 2020 at Fitzroy Place, 5th Floor,
8 Mortimer Street, London, W1T 3JJ at 10.00am.
Full details of the resolutions to be proposed at the AGM as well
as shareholders’ rights with respect to attendance, participation
in the meeting and the process for submission of proxy votes in
advance of the meeting, are set out in the Notice of AGM.
Additional information for shareholders can be found on the
Bakkavor website at www.bakkavor.com.
EMPLOYEES WITH DISABILITIES
Applications for employment by prospective employees with
disabilities are given full and fair consideration having regard to
candidates' aptitudes and abilities. 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. Appropriate training is also 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 44.
EMPLOYEE ENGAGEMENT
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. To build on this further Sue Clark, an
Independent Non-executive Director on the Board, has taken
on a new role as our Designated Non-executive Director to
engage with employees.
114
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 Sue has a real passion for employee engagement and will
help to ensure that the ‘employee voice’ is represented in the
boardroom. In taking on this additional responsibility, and in
order to give Sue greater insight, she has been involved in the
review of our recent employee engagement survey in September
2019, as well as attending two meetings with the Group
Employee Forum and a Site Employee Forum.
Employee feedback is sought on a regular basis via the employee
engagement survey and this is used to develop site- specific
action plans. Briefing processes take place at each site and
are supported by the Company magazine, “Just Made”, which
includes highlights of the Group’s latest published financial
results. For further information, see page 13.
ENGAGEMENT WITH SUPPLIERS AND CUSTOMERS
For details on how we have engaged with suppliers and
customers, see page 12.
CHARITABLE DONATIONS
Bakkavor supports its chosen charities, Action Against Hunger
and FareShare. In addition, our employees raise money at each
factory site for local causes of their choice.
Bakkavor continues to promote economic and social wellbeing
in all of its locations. It 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 2 to 65. 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 140 to
145 and in Note 27. Financial risk management objectives and
exposures to credit risk and liquidity risk are described in Note
27. 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
Please see Principal Risks and Uncertainties on pages 58 to 65
and Note 2 of the Financial Statements for further detail
including the potential impact of COVID-19 on the business.
VIABILITY STATEMENT
In line with the 2016 Code, the Directors have carried out a
rigorous review of the prospects of the current business, and
its ability to meet its liabilities through to at least the end of
December 2022. For further information see page 57 and the
subsequent events mentioned below.
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 its 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 Act and should be
interpreted in accordance with and subject to these provisions.
SUBSEQUENT EVENTS
Please refer to Note 36 to the Group Financial Statements.
On 18 March 2020 the Group completed a refinancing of its core
debt facilities amounting to £410 million through a new term loan
and revolving credit facility totalling £455 million. The new
facilities are due to mature in March 2024, with an option to
extend the tenor by a further two years subject to lender approval.
The impact of COVID-19 on the business is a non-adjusting post
balance sheet event. Please see the risk section for an update
on the impact of COVID-19 on the business.
The Directors' Report was approved by the Board on
5 May 2020.
By order of the Board
ANNABEL TAGOE-BANNERMAN
Group General Counsel & Company Secretary
Bakkavor Group plc
Company no. 10986940
5 May 2020
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019Financial statementsCompany informationStrategic reportGovernance STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
DIRECTORS' CONFIRMATIONS
The Directors consider that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and
that it provides the information necessary for shareholders to
assess the Group and Company’s position and performance,
business model and strategy.
Each of the Directors, whose names and functions are listed
in the Governance – Board section, confirm that, to the best of
their knowledge:
• The Company Financial Statements, which have been prepared
in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 101 “Reduced Disclosure Framework”, and
applicable law), give a true and fair view of the assets, liabilities,
financial position and profit of the Company
• The Group Financial Statements, which have been prepared
in accordance with IFRSs, as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit of the Group
• The Strategic Report includes a fair review of the development
and performance of the business, and the position of the Group
and Company, together with a description of the principal risks
and uncertainties that it faces
AGUST GUDMUNDSSON
Chief Executive Officer
5 May 2020
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
have prepared the Group Financial Statements in accordance
with International Financial Reporting Standards (IFRSs), as
adopted by the European Union, and Company Financial
Statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). 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 Company and of the profit or loss
of the Group and Company for that period. In preparing the
Financial Statements, the Directors are required to:
• Select suitable accounting policies and then apply them
consistently
• State whether applicable IFRSs, as adopted by the
European Union, have been followed for the Group Financial
Statements and United Kingdom Accounting Standards,
comprising FRS 101, have been followed for the Company
Financial Statements, 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 the going concern basis,
unless it is inappropriate to presume that the Group and
Company will continue in business
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 keeping adequate accounting
records that are sufficient to show and explain the Group and
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Group and Company.
These records must also enable them to ensure that the
Financial Statements and the Directors’ Remuneration Report
comply with the Companies Act 2006 and, as regards the Group
Financial Statements, Article 4 of the IAS Regulation.
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OPINION
IN OUR OPINION:
• Bakkavor Group plc’s Group Financial Statements and Company
financial statements (the “Financial Statements”) give a true
and fair view of the state of the Group’s and of the Company’s
affairs as at 28 December 2019, and of the Group’s profit and
cash flows for the 52 week period (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 Company Financial Statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law); and
• The Financial Statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group Financial Statements, Article 4 of the IAS
Regulation.
We have audited the Financial Statements, included within
the Annual Report and Accounts (the “Annual Report”), which
comprise: the consolidated and Parent Company statements
of financial position as at 28 December 2019; the consolidated
income statement and consolidated statement of
comprehensive income and expense, the consolidated
statement of cash flows, and the consolidated and Parent
Company statements of changes in equity for the 52 week period
then ended; and the notes to the Financial Statements, which
include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit and
Risk Committee.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described
in the Auditors' responsibilities for the audit of the Financial
Statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
INDEPENDENCE
We remained independent of the Group in accordance with
the ethical requirements that are relevant to our audit of the
Financial Statements in the UK, which includes the FRC’s
Ethical Standard, as applicable to listed public interest entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that non-
audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group or the Company.
Other than those disclosed in Note 6 to the Financial
Statements, we have provided no non-audit services to the
Group or the Company in the period from 30 December 2018
to 28 December 2019.
OUR AUDIT APPROACH
CONTEXT
This is our first year as auditors of the Group.
OVERVIEW
MATERIALITY
AUDIT SCOPE
KEY AUDIT
MATTERS
• Overall Group materiality: £4.1 million, based on 5% of a three-year average of underlying profit before tax.
• Overall Company materiality: £3.6 million, based on 1% of net assets.
• Audit of the complete financial information of eight components, and specified procedures over a further
seven components.
• Audit coverage over 68% of Group revenue and 69% of underlying profit before tax.
• Group audit team visited all UK component sites and three sites in the US.
• Full scope audit of the Company.
• Completeness, accuracy and cut-off of customer deduction accruals.
• Risk of impairment of goodwill and intangible assets.
• Valuation of deferred tax assets relating to the US.
• Classification of exceptional items.
• Possible impact from national minimum wage enquiry.
• Going concern consideration relating to COVID-19.
THE SCOPE OF OUR AUDIT
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the Financial Statements.
CAPABILITY OF THE AUDIT IN DETECTING IRREGULARITIES, INCLUDING FRAUD
Based on our understanding of the Group/industry, we identified that the principal risks of non-compliance with laws and
regulations related to the Listing Rules, pensions legislation, UK tax legislation and breaches of health and safety including
food safety. We then considered the extent to which non-compliance might have a material effect on the Financial Statements.
We also considered those laws and regulations that have a direct impact on the preparation of the Financial Statements such
as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the Financial
Statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate
journal entries to increase revenue and management bias in accounting estimates.
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CONTINUED
The Group engagement team shared this risk assessment with
the component auditors, so that they could include appropriate
audit procedures in response to such risks in their work. Audit
procedures performed by the Group engagement team and/or
component auditors included:
• Discussions with management, internal audit and the Group’s
legal counsel, including consideration of known or suspected
instances of non-compliance with laws and regulation and fraud;
• Evaluation of management’s controls designed to prevent and
detect irregularities;
• Assessment of matters reported on the Group’s
whistleblowing helpline, and the results of management’s
investigation of such matters;
• Challenging assumptions and judgements made by
management in their significant accounting estimates, in
particular in relation to calculation of customer deduction
accruals and impairment of goodwill and intangible fixed
assets (see related key audit matters below);
• Identifying and testing journal entries, in particular any journal
entries posted with unusual account combinations.
There are inherent limitations in the audit procedures described
above, and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the
Financial Statements, the less likely we would become aware of it.
Also, the risk of not detecting a material misstatement due to fraud
is higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery
or intentional misrepresentations, or through collusion.
KEY AUDIT MATTERS
Key audit matters are those matters that, in the auditors'
professional judgement, were of most significance in the audit
of the Financial Statements of the current period and include
the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including
those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon,
were addressed in the context of our audit of the Financial
Statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Key audit matters relating to the Group
How our audit addressed the key audit matter
Completeness, accuracy and cut-off of customer deduction
accruals
At the planning stage of the audit, we assessed the design and
implementation of controls over the customer deduction process.
Refer to the Accounting policies in Note 2 of the Consolidated
Financial Statements.
The Group has commercial arrangements in place which provide
incentives to customers in the form of volume-related rebates,
marketing and promotional funding, discounts, lump sum incentives
or royalty payments (“customer deductions”).
As described in the accounting policies, these are treated as a
reduction in revenue. The complexity of customer deductions
depends on the specifics of each arrangement. Some arrangements
relating to specific products or promotions are simple and do not
involve judgement, whereas other arrangements may cover multiple
manufacturing sites, multiple products or span period ends and
these are more complex and sometimes require judgement in
estimation of the liability arising.
The complexity is based on how likely it is that the criteria set
out in the arrangement will be met. Often arrangements are not
co-terminus with the Group’s year end date.
We focused on this area because complexity gives rise to
management judgement and estimation in the accounting for these
accruals. Estimation is required in assessing the expected level of
rebates for the agreement period, which then drives the year end
accrual. Expected levels of rebates are driven by the forecast sales
volumes and ongoing negotiations with the Group’s customers.
Management judgement is required when assessing if unclaimed
historic accruals are no longer required.
We understood the accounting policies for treatment of customer
deduction accruals. Following our review and discussions with
management, revenue has been restated for the classification of
realisation of commercial contracts in the Income Statement, as
set out in Note 2.
We retrospectively reviewed management’s historical accuracy of
accruals recorded in the previous year by comparison to the amounts
subsequently settled during the current year.
We assessed the completeness, accuracy and cut-off of accruals
made in the period:
• We performed risk assessment analytics by reviewing the rebate
expense as a percentage of revenue by customer. We also performed
gross margin analysis year on year, which could be indicative of
inaccurate accruals.
• We obtained management’s schedule of customer deduction accruals
which analyses the opening accrual to closing accrual with reference
to amounts utilised, amounts accrued in the period and amounts
released. We verified the mathematical accuracy of the schedule.
• We selected a sample of new accruals recorded in the period and
agreed to contracts or correspondence with the customer to
determine if the accrual had been accurately calculated using the
terms and conditions of the relevant arrangement. We also verified
the sales value or volume to which the accrual related to test for
completeness and cut off and recomputed the accrual.
• We selected a sample of accruals utilised in the period by agreeing
to debit notes and payments/settlements made with the customer.
• We selected a sample of accruals released in the period to verify that
they met the Group’s accounting policy regarding passage of time.
• In order to test for completeness, we performed sample testing of
payments/settlements made or debit notes received for a period of
time subsequent to the year end date.
• We substantively tested cut-off of revenue transactions, which
underpin the values/volumes of sales for customer deduction
calculations.
We also assessed the disclosures of the arrangement in the financial
statements.
We found no exceptions as a result of our testing.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 Key audit matters relating to the Group
How our audit addressed the key audit matter
Risk of impairment of goodwill and intangible assets
Refer to the Accounting policies in Note 2; and Note 13 of the
Consolidated Financial Statements.
At the planning stage of the audit, we assessed the design and
implementation of controls over the impairment review process.
The Group has goodwill of £651.2m (2018: £650.2m), as set out in
Note 13 to the Financial Statements.
The cash-generating unit grouping (“CGU grouping”) with the lowest
level of headroom in the impairment test was International (US only).
At 28 December 2019 the Group recognised goodwill of £47.2 million
and other assets of £61.0 million in relation to this CGU grouping.
Further details are included in Note 13.
We focused on this area as management judgement is required to
establish the recoverable amount of the goodwill in the value in use
models. This includes judgement around the cash flow forecasts,
discount rate and long-term growth rate. These items are all
subjective and susceptible to management bias and execution risk
and could lead to an impairment charge if incorrect. The US CGU is
currently experiencing significant growth, which further increases
the level of judgement inherent in the forecasts which underpin the
impairment assessment.
Valuation of deferred tax assets relating to the US
Refer to the Accounting policies in Note 2 and Note 23 of the
Consolidated Financial Statements.
Deferred tax assets have been recognised, relating to losses arising
in the US business. The recoverability of losses is contingent upon
generation of taxable profits in the future against which the losses
will be utilised.
We focused on this area as management judgement is required
to establish if sufficient taxable profits are forecast to occur. The
forecasts are subjective and susceptible to management bias and
execution risk. The US CGU is currently experiencing significant
growth, which further increases the level of judgement inherent
in the forecasts.
• We obtained the impairment model prepared by management and
tested the technical and arithmetic accuracy to ensure that they had
been prepared in line with the guidance provided in IAS 36.
• We used internal valuation experts to determine whether
management’s discount rate was appropriate.
• We used internal valuation exerts to determine if long-term growth
rates used in the impairment model were consistent with external
sources of evidence.
• We assessed the short-term forecasts used in the model. This
included, but was not limited to: agreeing forecasts to Board approved
plans where available, assessing the revenue growth rates, assessing
margin assumptions and capex forecasts, reviewing management’s
historic accuracy of forecasting, and understanding customer growth
plans. The Group audit partner toured the facilities and met with plant
management to challenge the forecasts at the following locations:
– Carson, California;
– Charlotte, North Carolina; and
– San Antonio, Texas.
• We performed sensitivity analysis by reducing cash inflows and
increasing the discount rate to understand the impact that possible
changes could have.
We concluded that while no impairment charge is required, the US
CGU was sensitive to reasonably possible changes in assumption
and therefore we also assessed and concurred with the disclosures
relating to this in the Financial Statements.
At the planning stage of the audit, we assessed the design and
implementation of controls over the recognition and assessment
of recoverability of the deferred tax assets.
• We obtained the forecasts for the US business which underpin
management’s assessment of the recoverability of the deferred
tax assets.
• We assessed the short-term forecasts used in the model. Specifically,
we agreed forecasts to Board-approved plans where available,
assessed the revenue growth rates and margin assumptions with
reference to historic performance, management’s historic accuracy
of forecasts, detailed budgetary plans and customer growth plans.
The Group audit partner toured the facilities.
• We recomputed the forecast available taxable profits and compared
to the deferred tax assets recognised.
We concluded that the forecasts for the US business supported the
valuation of the deferred tax asset recognised.
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CONTINUED
Key audit matters relating to the Group
Classification of exceptional items
Refer to the Accounting policies in Note 2 and Note 7 of the
Consolidated Financial Statements.
The Financial Statements include a number of items that are
disclosed as exceptional in nature. These total £20.3 million
(2018: 21.9 million) before tax.
We focused on this area because the classification as
exceptional items requires judgement to identify such
items. Incorrect classification of these items could lead
to misinterpretation of the financial results.
Possible impact from National Minimum Wage enquiry
Refer to the Accounting policies in Note 2 and Note 32 of the
Consolidated Financial Statements.
The Group is currently subject to a National Minimum Wage enquiry
by HMRC. The Directors consider that there is a possible financial
impact from the enquiry, but given the stage of the enquiry and
associated uncertainty, have determined that they are not able to
reliably quantify the potential financial impact. As such, a contingent
liability note has been included in the financial statements but no
provision has been made.
How our audit addressed the key audit matter
We assessed the appropriateness of the Group’s accounting
policy and whether those items disclosed as exceptional are
consistent with the accounting policy and the approach taken
in previous accounting periods.
In relation to the exceptional items recorded in the year:
• For costs relating to US disruption, we toured the facilities affected
to verify explanations provided by management around re-purposing
manufacturing facilities.
• For costs relating to UK disruption, we reviewed the customer
contract to which the disruption related.
• We agreed a sample of costs incurred to supporting evidence to verify
the accuracy of the cost and its exceptional nature. Evidence included
third party invoices, redundancy payments, allocation of dedicated
internal staff time and analysis of operating inefficiencies.
• For asset impairments recorded, we verified the book values to
accounting records and confirmed that the related facilities had
been closed.
Following our review and discussion with management at the half
year, management changed its disclosure to only include those items
considered as exceptional in the consolidated income statement,
with a further adjusting Alternative Profit Measure being disclosed
in the notes to the Financial Statements to include other items not
considered to be exceptional, but which Management did not include
in its assessment of underlying profit.
We found the Group’s accounting policy to be appropriate and,
following the change noted above, the classification of items to
be consistent with the accounting policy.
We have reviewed correspondence between the Group and HMRC
regarding the enquiry.
We have reviewed correspondence with the Group’s external experts
to understand the possible range of outcomes including likely time
period under review, legal precedent, and the impact of financial
penalties.
Using our internal experts, we have assessed management’s
calculation of a range of possible outcomes including whether any
financial penalties may become due.
We have recomputed a probability based liability in order to assess
if this could be material and concluded that it was not.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 Key audit matters relating to the Group
How our audit addressed the key audit matter
Going concern consideration for COVID-19
Management and the Board have considered the potential impact of
the non-adjusting post balance sheet events that have been caused by
the global pandemic of COVID-19 on the current and future operations
of the business. In doing so, management has had particular focus on
the company’s ability to continue as a going concern.
As a result of the impact of COVID-19 on the freshly prepared
food sector, the wider economy and the company’s share price,
management, the Board, and the Audit and Risk Committee have
spent a large amount of time to fully consider the implications
for Bakkavor. As such, we have determined that management’s
consideration of the potential impact of COVID-19 on going
concern to be a key audit matter.
In assessing management’s consideration of the potential impact of
COVID-19, we have undertaken the following procedures:
• We obtained management’s paper that supports the Board’s
assessment and conclusions with respect to the disclosures provided
around going concern and viability;
• We discussed with management the impact assessments applied in
the going concern review so we could understand and challenge the
rationale for those assumptions, using our knowledge of the business,
the sector and wider commentary available from key customers;
• We reviewed monthly trading results to February 2020, and weekly
trading results thereafter for 2020 year to date, and compared to
management’s original budget and revised forecasts, and considered
the impact of these actual results on the future forecast period;
• We understood the mitigating actions taken by management, including
suspending the dividend payment and furlough of some employees;
• We reviewed management’s sensitivity scenario, which also includes
further potential mitigating actions available to confirm they are
within management’s control. We challenged management to run
further downside scenarios in order to assess the possible impact;
• We assessed the availability of liquid resources under different
scenarios modelled by management, and the associated covenant
tests applied;
• We have also assessed additional downside sensitivities and
considered the impact on covenants and liquidity headroom.
Based on the information available at the time of the directors’
approval of the financial statements, we consider the scenarios to
be reasonable and that preparation of the financial statements on
a going concern basis remains appropriate, whilst noting that the
impact of COVID-19 on future sales and other inputs is difficult to
quantify with certainty.
We determined that there were no key audit matters applicable
to the Company to communicate in our report.
HOW WE TAILORED THE AUDIT SCOPE
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the Financial
Statements as a whole, taking into account the structure of
the Group and the Company, the accounting processes and
controls, and the industry in which they operate.
The Group is structured according to manufacturing sites, each
of which is a component and which maintains certain accounting
records and controls. The Group Financial Statements are a
consolidation of reporting units, comprising the manufacturing
sites and centralised functions.
In establishing the overall approach to the Group audit, we
determined the type of work that needed to be performed at
each reporting component. No single reporting component was
determined to be significant due to its size or risk profile.
All audit work was performed by the Group audit team with the
exception of China. Under our instruction, we used our PwC
network firm in China to perform specified procedures over
Chinese components, as they are familiar with the local laws
and regulations in this territory. The Group audit team was in
contact, at each stage of the audit, with the component audit
team through regular written communication alongside detailed
instructions issued by the Group audit team.
Accordingly, we identified eight UK components which, in our
view, required a full audit of their complete financial information
in order to ensure that sufficient appropriate audit evidence was
obtained. We also identified a US component and five Chinese
components and the Inbound Logistics component to which
specific audit procedures were performed to ensure that we had
sufficient audit coverage over financial statement line items.
The Group consolidation, Financial Statement disclosures and a
number of centralised functions were audited by the Group audit
team at the head office. These included, but were not limited to,
central procedures over exceptional items, pensions, taxation,
fair value adjustments relating to acquisitions, and goodwill and
intangible asset impairment assessments.
We also performed Group level analytical procedures on all of
the remaining out of scope reporting units to identify whether any
further audit evidence was needed. This resulted in no extra testing.
This audit work resulted in coverage over 68% of Group
revenues and 69% of underlying profit before tax.
The Group audit team visited all in scope UK components. The
Group audit team, including the Group audit partner, visited
three US component sites.
The Company was also subject to a full scope audit by the Group
audit team.
MATERIALITY
The scope of our audit was influenced by our application
of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
Financial Statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate
on the Financial Statements as a whole.
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CONTINUED
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Group financial statements
Company financial statements
Overall materiality
How we determined it
Rationale for benchmark applied
£3.6 million.
1% of net assets.
We believe that net assets is an appropriate
benchmark for a non-trading holding company.
£4.1 million.
5% of a three-year average of underlying
profit before tax.
Based on the benchmarks used in the
Annual Report, underlying profit before tax
is a key measure used by the shareholders in
assessing the performance of the Group, and
is a generally accepted auditing benchmark.
A three-year average is used due to
fluctuations in underlying profit before
tax, which do not represent changes in
the overall size of the business.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The
range of materiality allocated across components was between £3.0 million and £0.5 million. Certain components were audited to
a local statutory audit materiality that was also less than our overall Group materiality.
We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above
£200,000 (Group audit) (2018: £240,000) and £180,000 (Company audit) (2018: £240,000) as well as misstatements below those
amounts that, in our view, warranted reporting for qualitative reasons.
GOING CONCERN
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw
attention to in respect of the Directors’ statement in the Financial
Statements about whether the Directors considered it appropriate
to adopt the going concern basis of accounting in preparing the
Financial Statements and the Directors’ identification of any material
uncertainties to the Group’s and the Company’s ability to continue as
a going concern over a period of at least 12 months from the date of
approval of the Financial Statements.
We are required to report if the Directors’ statement relating to
Going Concern in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit.
We have nothing material to add or to draw attention to.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Group’s
and Company’s ability to continue as a going concern.
We have nothing to report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the
Annual Report other than the Financial Statements and our
auditors' report thereon. The Directors are responsible for
the other information. Our opinion on the Financial Statements
does not cover the other information and, accordingly, we do
not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the Financial Statements,
our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the Financial Statements or our knowledge
obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or
material misstatement, we are required to perform procedures
to conclude whether there is a material misstatement of the
Financial Statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we
also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, the Companies Act 2006
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct
Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless
otherwise stated).
STRATEGIC REPORT AND DIRECTORS’ REPORT
In our opinion, based on the work undertaken in the course
of the audit, the information given in the Strategic Report and
Directors’ Report for the period ended 28 December 2019 is
consistent with the Financial Statements and has been prepared
in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and
Company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the
Strategic Report and Directors’ Report. (CA06)
THE DIRECTORS’ ASSESSMENT OF THE PROSPECTS
OF THE GROUP AND OF THE PRINCIPAL RISKS THAT WOULD
THREATEN THE SOLVENCY OR LIQUIDITY OF THE GROUP
We have nothing material to add or draw attention to regarding:
• The Directors’ confirmation on page 115 of the Annual Report
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.
• The disclosures in the Annual Report that describe those risks
and explain how they are being managed or mitigated.
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BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
• The Directors’ explanation on page 115 of the Annual Report
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 have nothing to report having performed a review of the
Directors’ statement that they have carried out a robust
assessment of the principal risks facing the Group and
statement in relation to the longer-term viability of the Group.
Our review was substantially less in scope than an audit and only
consisted of making inquiries and considering the Directors’
process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the
UK Corporate Governance Code (the “Code”); and considering
whether the statements are consistent with the knowledge and
understanding of the Group and Company and their environment
obtained in the course of the audit. (Listing Rules)
OTHER CODE PROVISIONS
We have nothing to report in respect of our responsibility to
report when:
• The statement given by the Directors, on page 116, that they
consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary
for the members to assess the Group’s and Company’s position
and performance, business model and strategy is materially
inconsistent with our knowledge of the Group and Company
obtained in the course of performing our audit.
• The section of the Annual Report on pages 88-91
describing the work of the Audit and Risk Committee
does not appropriately address matters communicated
by us to the Audit and Risk Committee.
• The Directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a
departure from a relevant provision of the Code specified,
under the Listing Rules, for review by the auditors.
DIRECTORS’ REMUNERATION
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
AND THE AUDIT
RESPONSIBILITIES OF THE DIRECTORS
FOR THE FINANCIAL STATEMENTS
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the
preparation of the Financial Statements in accordance with the
applicable framework, and for being satisfied that they give a
true and fair view. The Directors are also responsible for such
internal control as they determine is necessary to enable the
preparation of Financial Statements that are free from material
misstatement, whether due to fraud or error.
liquidate the Group or the Company or to cease operations,
or have no realistic alternative but to do so.
AUDITORS' RESPONSIBILITIES FOR THE AUDIT
OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditors' report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditors' report.
USE OF THIS REPORT
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come,
save where expressly agreed by our prior consent in writing.
OTHER REQUIRED REPORTING
COMPANIES ACT 2006 EXCEPTION REPORTING
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
• We have not received all the information and explanations
we require for our audit; or
• Adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• Certain disclosures of Directors’ remuneration specified
by law are not made; or
• The Company Financial Statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
APPOINTMENT
Following the recommendation of the Audit and Risk
Committee, we were appointed by the members on
23 May 2019 to audit the Financial Statements for the year
ended 28 December 2019 and subsequent financial periods.
This is therefore our first year of uninterrupted engagement.
In preparing the Financial Statements, the Directors are
responsible for assessing the Group’s and the Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to
ARIF AHMAD (SENIOR STATUTORY AUDITOR)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Leeds
5 May 2020
123
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report CONSOLIDATED INCOME STATEMENT
52 WEEKS ENDED 28 DECEMBER 2019
£ 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 28 December 2019
Restated2
52 weeks ended 29 December 2018
Notes
Underlying
activities
Exceptional
items1
Total
Underlying
activities
Exceptional
items1
Total
4,5
1,885.9
–
1,885.9
1,857.2
(1,375.0)
510.9
(77.1)
(1.6)
(1.6)
–
(344.6)
(18.7)
–
0.5
89.7
(18.7)
(6.9)
64.1
(10.9)
–
–
(20.3)
–
–
(20.3)
4.0
(1,376.6)
(1,370.6)
509.3
(77.1)
(363.3)
–
0.5
69.4
(18.7)
(6.9)
43.8
(6.9)
486.6
(77.2)
(298.1)
–
0.4
111.7
(13.2)
1.3
99.8
(14.9)
–
–
–
–
(21.5)
(4.6)
–
(26.1)
–
4.2
(21.9)
4.2
1,857.2
(1,370.6)
486.6
(77.2)
(319.6)
(4.6)
0.4
85.6
(13.2)
5.5
77.9
(10.7)
53.2
(16.3)
36.9
84.9
(17.7)
67.2
6.4p
6.3p
11.6p
11.5p
29
17
9
10
11
6
12
12
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 of the Group. Details of exceptional items can be found in Note 7 and include material items that are non-recurring, significant in nature and are important to
users in understanding the business, including restructuring costs, disruption costs, pre-commissioning and start-up losses for new manufacturing facilities, impairment
of assets, disposals of subsidiaries and associates and fair value adjustments. In addition, the Group uses further alternative performance measures which can be found
in Note 38.
2 See Note 2 for details of the restatement.
The Notes to the accounts form an integral part of the Consolidated Financial Statements.
124
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
52 WEEKS ENDED 29 DECEMBER 2019
£ million
Profit for the period
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain/(loss) on defined benefit pension schemes
Tax relating to components of other comprehensive income/(expense)
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
28 December
2019
52 weeks ended
29 December
2018
Notes
36.9
67.2
34
11
8.3
(1.4)
6.9
(6.8)
(6.8)
0.1
37.0
(6.3)
1.0
(5.3)
7.7
7.7
2.4
69.6
125
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 28 DECEMBER 2019
£ million
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in associates and 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
Lease liabilities
Provisions
Derivative financial instruments
Non-current liabilities
Trade and other payables
Borrowings
Lease liabilities
Provisions
Derivative financial instruments
Deferred tax liabilities
Retirement benefit obligation
Total liabilities
Net assets
Equity
Share capital
Merger reserve
Translation reserve
Retained earnings
Total equity
Notes
28 December
2019
29 December
2018
13
14
15
17
23
34
22
18
19
20
22
25
21
24
26
22
25
21
24
26
22
23
34
28
28
28
651.2
2.7
553.7
12.6
27.2
9.7
–
650.2
3.0
426.9
12.6
19.6
–
0.2
1,257.1
1,112.5
64.4
131.7
25.9
–
222.0
1,479.1
62.8
142.7
12.4
1.9
219.8
1,332.3
(390.4)
(392.0)
(3.9)
(36.7)
(11.8)
(5.9)
(3.3)
(6.5)
(5.0)
(1.6)
(3.3)
–
(452.0)
(408.4)
(0.6)
(2.3)
(340.5)
(308.5)
(69.3)
(14.4)
(0.2)
(28.5)
–
(453.5)
(905.5)
573.6
11.6
(130.9)
27.0
665.9
573.6
(3.9)
(15.0)
–
(24.3)
(0.5)
(354.5)
(762.9)
569.4
11.6
(130.9)
33.8
654.9
569.4
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 May 2020. They were signed on
behalf of the Board of Directors by:
A GUDMUNDSSON
CHIEF EXECUTIVE OFFICER
P GATES
CHIEF FINANCIAL OFFICER
126
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
52 WEEKS ENDED 28 DECEMBER 2019
£ million
Balance at 31 December 2017
Profit for the period
Other comprehensive income/(expense) for the period
Total comprehensive income for the period
Cancellation of share premium account (Note 28)
Dividends paid (Note 28)
Credit for share-based payments (Note 33)
Deferred tax on share schemes
Balance at 29 December 2018
Profit for the period
Other comprehensive (expense)/income for the period
Total comprehensive (expense)/income for the period
Dividends paid (Note 28)
Credit for share-based payments (Note 33)
Deferred tax on share schemes
Balance at 28 December 2019
Equity attributable to owners of the parent
Share capital Share premium Merger reserve
Translation
reserve
11.6
366.1
(130.9)
26.1
Retained
earnings
237.2
Total equity
510.1
–
–
–
–
–
–
–
11.6
–
–
–
–
–
–
11.6
–
–
–
(366.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(130.9)
–
–
–
–
–
–
–
7.7
7.7
–
–
–
–
33.8
–
(6.8)
(6.8)
–
–
–
67.2
(5.3)
61.9
366.1
(11.6)
1.5
(0.2)
654.9
36.9
6.9
43.8
67.2
2.4
69.6
–
(11.6)
1.5
(0.2)
569.4
36.9
0.1
37.0
(34.8)
(34.8)
1.9
0.1
1.9
0.1
(130.9)
27.0
665.9
573.6
The Notes to the accounts form an integral part of the Consolidated Financial Statements.
127
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report CONSOLIDATED STATEMENT OF CASH FLOWS
52 WEEKS ENDED 28 DECEMBER 2019
£ 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
Increase in borrowings
Payment of lease liabilities (2018: Payment of finance lease liabilities)
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
The Notes to the accounts form an integral part of the Consolidated Financial Statements.
52 weeks ended
28 December
2019
52 weeks ended
29 December
2018
114.0
99.1
Notes
31
30
29
28
0.2
(98.9)
1.1
(16.8)
–
0.7
(112.7)
–
(8.5)
(3.2)
(114.4)
(123.7)
(34.8)
62.2
(12.9)
14.5
14.1
12.4
(0.6)
25.9
(11.6)
28.7
(1.1)
16.0
(8.6)
20.9
0.1
12.4
128
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
52 WEEKS ENDED 28 DECEMBER 2019
1. GENERAL INFORMATION
Bakkavor Group plc is a public limited company incorporated and domiciled in England, United Kingdom (Company number:
10986940, registered office: Fitzroy Place 5th Floor, 8 Mortimer Street, London, W1T 3JJ). The Company’s Ordinary shares are
traded on the London Stock Exchange.
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.
New or revised standards:
IFRS 9
IFRS 15
IFRS 16
Financial Instruments
Revenue from Contracts with Customers
Leases
Amendments:
IFRS 9
IFRS 15
Prepayment Features with Negative Compensation
Clarifications to IFRS 15 Revenue from Contracts with Customers
The impact of these Standards on the Financial Statements of the Group is discussed below.
At the date of authorisation of these Financial Statements, the following Standards and Interpretations relevant to the Group
which have not been applied in these Financial Statements were in issue but not yet effective (and in some cases have not yet
been adopted by the EU):
New or revised standards:
IFRS 17
Insurance Contracts
Definition of material
Definition of a business
Amendments:
IAS 1 and IAS 8
IFRS 3
IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its associate or joint venture
Framework
IFRIC 23
IAS 28
Various
Revised Conceptual Framework for Financial Reporting
Uncertainty over Income Tax Treatments
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 Costs
Plan Amendment, Curtailment or Settlement
IAS 19
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. A complete review and assessment of IFRS 9 has been conducted with the conclusion that there is
no material impact on net assets or retained earnings. On transition the Group has used the modified retrospective approach.
No significant judgements had to be made in applying this standard.
The new impairment model requires the recognition of impairment provisions based on expected credit losses rather than only
incurred credit losses. The standard provides a simplified approach as a practical expedient in assessing impairment of trade
receivables, which the Group has adopted on transition. The Group’s assessment was that no material adjustment was required
to its trade receivables impairment provision as at 29 December 2018.
The hedge accounting requirements under IFRS 9 are optional. The Group did not apply the hedge accounting rules of IAS 39 and
will also not apply those of IFRS 9. There is therefore no impact on the reported figures.
129
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report
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 recognises revenue, as well as
requiring such entities to provide users of financial statements with more informative, relevant disclosures. The application of this
standard resulted in a change to the Group policy with respect to variable consideration, which is now recognised only when it is
highly probable a significant reversal in the cumulative amount of revenue will not occur. On transition this was a full retrospective
application but no retrospective adjustments were required. No significant judgements had to be made in applying this standard.
Under IFRS 15, an entity recognises revenue when, or as, a performance obligation is satisfied i.e. when control of the goods
or services underlying the performance obligation is transferred to the customer. The introduction of IFRS 15 has not changed
when the Group recognises revenue from that when applying the previous standard IAS 18 Revenue. The Group’s revenue contracts
typically include one performance obligation (delivery of the goods) with the performance obligation satisfied at a point in time when
the control passes to the customer, which is deemed to be when the goods are received by the customer. The Group’s goods are
fresh prepared food and fresh produce. When the Group has satisfied its performance obligations, the customer will make payment
in line with agreed payment terms. The Group does not expect to have any contracts where the period between transfer of the
promised goods to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust
any of the transaction price for the time value of money.
Many of the Group’s revenue contracts include an element of variable consideration, such as customer deductions for rebate
arrangements or other incentives to customers. The arrangements can take the form of volume rebates, marketing fund
contributions or promotional fund contributions. The Group recognises revenue net of such customer deductions in the period in
which the arrangement applies only when it is highly probable a significant reversal in the cumulative amount of revenue will not
occur. Volume based rebates are calculated on the Group’s estimate of rebates expected to be paid to customers using the ‘most
likely amount’ in line with IFRS 15 requirements, whereas fixed rebates are accounted for as a reduction in revenue over the life of
the contract. For goods returned, the Group will recognise an obligation and reduce revenue accordingly at the time of notification.
IFRS 16 LEASES
IFRS 16 Leases introduces new or amended requirements with respect to lease accounting. IFRS 16 is effective for periods
beginning on or after 1 January 2019, but the Group has chosen to early adopt the standard. 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. On transition the Group has used the 'modified retrospective, asset equals liability' approach. IFRS 16 has
been applied by the Group from the start of the period by measuring the right-of-use asset at an amount equal to the lease
liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement
of financial position immediately before the date of initial application. The Group has not restated comparatives for the 52 weeks
ended 29 December 2018 as permitted under the specific transitional provisions in the standard.
The Group has made 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 into or modified before 30 December 2018. The Group has also used the practical expedient of applying a single discount
rate to a portfolio of similar leases (paragraph 10).
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 has applied 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.
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:
• 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. Future lease payments are discounted at the Group’s weighted average incremental
borrowing rate;
• Use the lease term specified in the contract. Where there are termination options in the contract it is assumed that these will
not be exercised, and when there are extension options the Group assumes that these will be exercised;
• Recognise depreciation of right-of-use assets and interest on lease liabilities in the consolidated income statement; and
• 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.
130
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED Lease incentives (e.g. rent-free 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 and any impairment
is provided for by writing down the asset value. This replaces the previous requirement to recognise a provision for onerous lease
contracts. In applying IFRS 16 for the first time, the Group used the practical expedient permitted by the standard to rely on previous
assessments on whether leases are onerous as an alternative to performing an impairment review. The onerous leases amounted
to £2.4 million at 30 December 2018.
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 over the lease term as permitted by IFRS 16
paragraph 6. This expense is presented within other expenses in the consolidated income statement.
In the statement of cash flows, the Group as a lessee will classify:
• Cash payments for the principal portion of the lease liability within financing activities;
• Cash payments for the interest portion of the lease liability, applying the requirements in IAS 7 Statement of Cash Flows for
interest paid; and
• Short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the
measurement of the lease liability within operating activities.
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 does not have a material effect on the Group’s Consolidated Financial Statements.
IMPACT ON THE FINANCIAL STATEMENTS
The following tables summarise the impact of adopting IFRS 16 on the consolidated income statement for the 52 weeks ended
28 December 2019, the consolidated statement of financial position as at 28 December 2019 and the consolidated statement of
cash flows for the 52 weeks ended 28 December 2019.
CONSOLIDATED INCOME STATEMENT
£ million
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution costs
Other administrative costs
Share of results of associates after tax
Operating profit
Finance costs
Other gains and (losses)
Profit/(loss) before tax
Tax
Profit/(loss) for the period attributable to equity holders of the Parent Company
Earnings per share – basic
Earnings per share – diluted
Excluding IFRS
16 adjustments
IFRS 16
adjustments
As reported
1,885.9
(1,376.6)
509.3
(77.1)
(363.9)
0.5
68.8
(15.9)
(6.9)
46.0
(7.2)
38.8
6.7p
6.7p
–
–
–
–
0.6
–
0.6
(2.8)
–
(2.2)
0.3
(1.9)
(0.3p)
(0.4p)
1,885.9
(1,376.6)
509.3
(77.1)
(363.3)
0.5
69.4
(18.7)
(6.9)
43.8
(6.9)
36.9
6.4p
6.3p
In addition, there is a £2.4 million post-tax exceptional charge relating to the impairment of the right-of-use asset recognised in the
now closed UK restaurant business.
131
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report
1. GENERAL INFORMATION (CONTINUED)
IFRS 16 LEASES (CONTINUED)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
£ million
Non-current assets
Property, plant and equipment
All other non-current assets
Current assets
Trade and other receivables
All other current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings including lease liabilities
Provisions
Derivative financial instruments
Non-current liabilities
Trade and other payables
Borrowings including lease liabilities
Provisions
Derivative financial instruments
Deferred tax liabilities
Total liabilities
Net assets
CONSOLIDATED STATEMENT OF CASH FLOWS
£ million
Operating profit
Depreciation of property, plant and equipment
Net impact of all other operating cash flows before movements in working capital
Operating cash flows before movements in working capital
Movements in working capital
Cash generated by operations
Income taxes paid
Interest paid
Net cash generated from operating activities
Investing activities
Net cash used in investing activities
Financing activities
Payment of lease liabilities
Net impact of all other financing activities
Net cash generated from financing activities
Net increase in cash
132
Excluding IFRS
16 adjustments
IFRS 16
adjustments
As reported
480.3
703.4
1,183.7
132.4
90.3
222.7
1,406.4
(391.2)
(4.8)
(38.1)
(6.0)
(3.3)
73.4
–
73.4
(0.7)
–
(0.7)
72.7
0.8
0.9
(10.4)
0.1
–
553.7
703.4
1,257.1
131.7
90.3
222.0
1,479.1
(390.4)
(3.9)
(48.5)
(5.9)
(3.3)
(443.4)
(8.6)
(452.0)
(0.6)
(341.4)
(14.4)
(0.2)
(28.5)
(385.1)
(828.5)
577.9
–
(68.4)
–
–
–
(68.4)
(77.0)
(4.3)
(0.6)
(409.8)
(14.4)
(0.2)
(28.5)
(453.5)
(905.5)
573.6
Excluding IFRS
16 adjustments
IFRS 16
adjustments
As reported
68.8
47.4
5.6
121.8
10.2
132.0
(14.0)
(15.3)
102.7
0.6
12.3
–
12.9
1.2
14.1
–
(2.8)
11.3
69.4
59.7
5.6
134.7
11.4
146.1
(14.0)
(18.1)
114.0
(114.4)
–
(114.4)
(1.6)
27.4
25.8
14.1
(11.3)
–
(11.3)
(12.9)
27.4
14.5
–
14.1
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED At the transition date of 30 December 2018, the impact of IFRS 16 was:
£ million
Total assets increase at transition date
Total liabilities increase at transition date
IFRS 16
adjustments
80.2
(80.2)
The following table reconciles the operating lease commitments as at 29 December 2018 as shown in Note 34 of the Group’s 2018
Annual Report to the lease liability at the transition date:
£ million
Operating lease commitments disclosed at 29 December 2018
Discounted using the incremental borrowing rate at 30 December 2018
Add: finance lease liabilities recognised at 29 December 2018
Less: low-value and short-term leases not recognised as a liability
Lease liability recognised as at 30 December 2018
Of which are:
Current lease liabilities
Non-current lease liabilities
IFRS 16
adjustments
96.5
85.6
5.5
(2.9)
88.2
12.5
75.7
88.2
The weighted average incremental borrowing rate applied to the lease liabilities at transition was 3.5%.
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), and interpretations issued by the IFRS Interpretations Committee and with
the Companies Act 2006, as applicable to companies reporting under IFRS. 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.
Certain costs for the procurement business have been reclassified to correctly present them as an offset against revenue for the
52 weeks ended 29 December 2018 to conform with the current year presentation. This has the impact of reducing revenue and cost
of sales by £3.6 million for the 52 weeks ended 29 December 2018. In addition, revenue has been restated to correctly present the
impact of the finalisation of certain commercial arrangements. This resulted in a restatement to increase revenue and cost of sales
by £5.6 million in the 52 weeks ended 29 December 2018. There is no impact to profit, basic or diluted earnings per share, cash
flows or the statement of financial position as a result of these restatements.
The principal accounting policies adopted are set out below and have been applied consistently other than those described in Note 1.
GOING CONCERN
The Directors have reviewed the historical trading performance of the Group and the forecasts through to April 2021.
The Directors, in their detailed consideration of going concern, have reviewed the Group’s future revenue projections and cash
requirements, which they believe are based on prudent interpretations of market data and past experience. The Directors have also
considered the Group's level of available liquidity under its financing facilities which were renewed on 18 March 2020 for a four-year
period. The Directors have carried out a robust assessment of the potential implications from both the current COVID-19 outbreak
and the terms of the UK's exit from the European Union at the end of 2020. Having taken these factors into account the Directors
consider that adequate headroom is available based on the forecasted cash requirements of the business. At the date of this report,
the Group has complied in all respects with the terms of its borrowing agreements, including its financial covenants, and forecasts
to continue to do so.
Consequently, the Directors consider that the Company and the Group have adequate resources to meet their liabilities as they fall
due for 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 2019 is quoted in these Financial Statements this relates to the 52-week
period ended 28 December 2019. The fiscal year 2018 relates to the 52-week period ended 29 December 2018.
133
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUBSIDIARIES
Subsidiary undertakings are included in the Group Financial Statements from the date on which control is achieved and cease to be
consolidated from the date on which control is transferred out of the Group. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over
the investee. The Group reassesses whether or not it controls an investee when facts and circumstances indicate that there are
changes to one or more of the elements of control.
When the Group has less than a majority of the voting rights of an investee, it considers all relevant facts and circumstances in
assessing whether or not it has power over the investee to direct the relevant activities of the investee unilaterally.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. The interests of non-controlling
shareholders are measured at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net
assets. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial
recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed
to non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions.
The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative
interests in the subsidiaries.
Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid
or received is recognised directly in equity and attributed to the owners of the Group.
BUSINESS COMBINATIONS
Business acquisitions from third parties are accounted for using the acquisition method. The cost of the acquisition is measured
at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments
issued by the Group in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date.
Goodwill arising on business combinations is recognised as an asset and initially measured at cost, being the excess of the cost of
the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities
recognised. If, after the reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and
contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement.
When the consideration in a business combination includes an asset or liability resulting from a contingent consideration
arrangement, the contingent consideration is measured at its acquisition date fair value and included as part of the consideration
transferred. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill. The subsequent accounting for changes in fair value of the
contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration
is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates. Contingent
consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39
or IAS 37, as appropriate.
Where a business combination is achieved in stages, the Group’s previously-held interests in the acquired entity are 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 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.
134
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 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.
REVENUE RECOGNITION
The Group sells fresh prepared foods and fresh produce, and revenue is recognised as the performance obligation to deliver
goods to customers is satisfied and is recorded based on the amount of consideration expected to be received in exchange for
satisfying the performance obligation. Revenue on the sale of goods is recognised when control of the goods has passed to the
buyer upon delivery to the customer and represents the value of sales to customers net of customer deductions and discounts, VAT
and other sales-related taxes. The Group recognises revenue net of customer deductions and discounts in the period in which the
arrangement applies only when it is highly probable a significant reversal in the cumulative amount of revenue will not occur. When
the Group has satisfied its performance obligations, the customer will make payment in line with agreed payment terms. The Group
does not expect to have any contracts where the period between transfer of the promised goods to the customer and payment by
the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction price for the time value of
money. For goods returned, the Group will recognise an obligation and reduce revenue accordingly at the time of notification.
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
From the start of this period, the Group has adopted IFRS 16 Leases and the impact of this new standard, and the transition policy
the Group has adopted, is explained in Note 1.
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 has applied 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.
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:
• 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. Future lease payments are discounted at the Group’s weighted average incremental
borrowing rate;
• Use the lease term specified in the contract. Where there are termination options in the contract it is assumed that these will
not be exercised and when there are extension options the Group assumes that these will be exercised;
• Recognise depreciation of right-of-use assets and interest on lease liabilities in the consolidated income statement; and
• 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. rent-free 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 and any impairment
is provided for by writing down the asset value.
135
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASES (CONTINUED)
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 over the lease term as permitted by IFRS 16
paragraph 6. This expense is presented within other expenses in the consolidated income statement.
In the statement of cash flows, the Group as a lessee will classify:
• Cash payments for the principal portion of the lease liability within financing activities;
• Cash payments for the interest portion of the lease liability, applying the requirements in IAS 7 Statement of Cash Flows for
interest paid; and
• Short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the
measurement of the lease liability within operating activities.
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 on the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the
income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are
included in the income statement for the period.
For the purpose of presenting Consolidated Financial Statements, the assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the statement of financial position date. Income and expense items are translated at the
annual average rate, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates
of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in
the Group’s translation reserve.
On the disposal of a foreign operation, all of the accumulated exchange differences in respect of that operation attributable to the
Group are reclassified to the income statement. However, a partial disposal of a foreign operation where the Group does not lose
control results in the proportionate share of accumulated exchange differences being re-attributed to non-controlling interests and
is not recognised in the income statement.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
RESEARCH AND DEVELOPMENT
Research and development costs comprise all directly attributable costs necessary to create and produce new and updated
products. Expenditure on research and development, where development costs do not meet the recognition criteria of IAS 38,
is recognised as an expense in the period in which it is incurred.
EXCEPTIONAL ITEMS
Exceptional items are those that, in management’s judgement, should be disclosed by virtue of their nature or amount. Exceptional
items will typically include material items that are significant in nature, non-recurring and are important to users in understanding
the business, including restructuring costs, disruption costs, pre-commissioning and start-up losses for new manufacturing
facilities, impairment of assets, disposals of subsidiaries and associates, one-off finance costs relating to redemptions and other
refinancing activities and fair value adjustments.
OPERATING PROFIT
Operating profit is stated after charging exceptional items, impairment of assets, profit/loss on the disposal of subsidiaries and
associates and share of results of associates, but before investment revenue, finance costs and other gains and losses.
RETIREMENT BENEFIT OBLIGATIONS
DEFINED CONTRIBUTION PENSION PLANS
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity, which then
invests the contributions to buy annuities for the pension liabilities as they become due based on the value of the fund, and hence
the Group has no legal or constructive obligations to pay further contributions. Obligations for contributions to defined contribution
pension plans are recognised as an expense in the income statement as employee service is received. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Payments made to state-
managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations
under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.
136
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 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 costs 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.
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.
137
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TAXATION (CONTINUED)
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
Depreciation is charged to Other administrative costs in the income statement.
Assets purchased through a lease agreement are depreciated over their expected useful lives on the same basis as owned assets
or, where shorter, over the term of the relevant lease.
Right-of-use assets are depreciated 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.
138
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED FINANCIAL ASSETS
CLASSIFICATION
From 30 December 2018, the Group classifies its financial assets in the following measurement categories:
• Those to be measured subsequently at fair value (either through other comprehensive income (OCI) or through profit or loss); and
• Those to be measured at amortised cost.
For assets measured at fair value, gains and losses are recorded either in profit or loss or in OCI.
MEASUREMENT
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value
through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at FVPL are expensed in profit or loss.
Subsequent measurement depends on the cash flow characteristics of the asset. There are three measurement categories into
which the Group classifies its debt instruments:
• Amortised cost: Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments
of principal and interest, are measured at amortised cost. Impairment losses are presented as a separate line item in the income
statement.
• FVOCI: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash
flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or losses, interest income and foreign exchange gains and losses,
which are recognised in the income statement.
• FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. Any fair value movement is
recognised in the income statement and presented net within other gains and (losses) in the period in which it arises.
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. The
Group classifies its trade receivable balances dependent on its objectives with respect to the collection of contractual cash flows.
The Group operates non-recourse debtor factoring arrangements with four of its significant customers. Receivables generated
from goods sold to these customers are subsequently measured at fair value through the income statement, as the objective of
management is to sell the receivables (Held to sell business model). All other trade receivables are held with the objective of
collecting the contractual cash flows, and so these are measured subsequently at amortised cost using the effective interest
method (Held to collect business model).
Derivatives are initially recognised at fair value on the date that a derivative contract is entered into, and they are subsequently
remeasured to their fair value at the end of each reporting period. The Group does not apply hedge accounting, and therefore
changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately
in the income statement and included in other gains and (losses).
IMPAIRMENT
The Group assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised
cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to
be recognised from initial recognition of the receivables. The expected loss rates are based on the payment profiles of sales before
28 December 2019 or 29 December 2018 respectively and the corresponding historical credit losses experienced within this period.
The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the
ability of the customers to settle the receivables.
Trade receivables and contract assets are written off where there is no reasonable expectation of recovery. Indicators that there
is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the
Group, and a failure to make contractual payments for a period of greater than 90 days past due.
Impairment losses on trade receivables and contract assets are presented in other administrative costs within operating profit.
Subsequent recoveries of amounts previously written off are credited against the same line item.
The Group’s previous accounting policy for impairment of financial assets is set out below:
Financial assets, other than those at FVPL, 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.
139
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL ASSETS (CONTINUED)
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, and 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.
FINANCIAL LIABILITIES
Financial liabilities held by the Group are classified as other financial liabilities at amortised cost and derivatives at FVPL.
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 FVPL. The effective interest method is a method of both calculating the amortised cost of a debt instrument and 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.
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).
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.
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.
140
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 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. Where a lease contract is onerous, the onerous provision is calculated as the
costs of meeting the obligations under the contract excluding lease rentals that are included as part of the lease liability.
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 possibility of an outflow is more than remote. When an outflow becomes probable, it is recognised as a provision.
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
The following are areas of particular significance to the Group’s Financial Statements and include the application of judgement,
which is fundamental to the compilation of a set of Financial Statements:
CRITICAL JUDGEMENTS IN APPLYING THE GROUP’S ACCOUNTING POLICIES
There are no critical judgements to be disclosed.
KEY SOURCES OF ESTIMATION UNCERTAINTY
PENSIONS
The Group maintains a defined benefit pension plan for which it has recorded a pension asset/liability. The pension asset/liability is
based on an actuarial valuation that requires a number of assumptions including discount rate, mortality rates and actual return on
plan assets that may necessitate material adjustments to this asset/liability in the future. The assumptions used by the Group are
the best estimates based on historical trends and the composition of the 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 34.
IMPAIRMENT OF GOODWILL
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, significant assumptions are required and any changes to assumptions may lead to
impairment charges being recognised. This critical judgement only applies to the International CGU. 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.
RECOGNITION OF DEFERRED TAX ASSET
Deferred tax assets have been recognised in respect of tax losses. Such assets depend on the extent to which tax losses are
expected to be used against taxable profits in future periods. Management are therefore required to make forecasts of profits and
to calculate if and when existing tax losses could be used. These forecasts take account of many factors including tax legislation
and whether past losses are likely to recur. The Group performed its assessment of the use of the tax losses at 28 December 2019
and, based on expected profits and the fact that tax losses can be carried forward without time limit, concluded that the losses
could be recognised in full as deferred tax assets. More details are in Note 11.
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. As there is some judgement involved in the estimation of accruals, the Group has conducted a sensitivity
analysis and a movement equivalent to 0.5% of revenue would result in a credit or debit to the Consolidated income Statement of
£9.4 million (2018: £9.3 million).
141
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 4. SEGMENTAL INFORMATION
The chief operating decision-maker ("CODM") 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 38.
Measures of total assets are provided to the Management Board; however, cash and cash equivalents, short-term deposits and
some other central assets are not allocated to individual segments. Measures of segment liabilities are not provided to the
Management Board.
The Group considers that the US and China businesses are one single operating segment and not two separate ones, as they meet
the criteria as set out in IFRS 8 paragraph 5. In particular, the Group’s management accounts show the information on which the
CODM bases strategic decisions, with the majority of the key information split between the UK and International segments. In
addition, key decisions on allocating resources, such as capital expenditure, are made on a UK/International basis.
The following table provides an analysis of the Group’s segmental information for the period to 28 December 2019:
£ million
Revenue
Adjusted EBITDA pre IFRS 16 (Note 38)
IFRS 16 impact
Adjusted EBITDA post IFRS 16 (Note 38)
Depreciation pre IFRS 16
Depreciation – IFRS 16 impact
Amortisation
Exceptional items (Note 7)
Start-up losses for new sites
Share scheme charges
Profit/(loss) on disposal of property, plant and equipment
Share of results of associates
Operating profit/(loss)
Finance costs
Other gains and (losses)
Profit before tax
Tax
Profit for the period
Other segment information:
Capital additions
Interests in associates
Total assets
Non-current assets
UK
International
Un-allocated
Total
1,652.5
233.4
147.1
10.2
157.3
(39.1)
(9.7)
(0.1)
(17.5)
–
(1.9)
0.6
–
89.6
6.4
2.7
9.1
(8.3)
(2.6)
(0.4)
(2.8)
(15.5)
–
(0.2)
0.5
(20.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
1,885.9
153.5
12.9
166.4
(47.4)
(12.3)
(0.5)
(20.3)
(15.5)
(1.9)
0.4
0.5
69.4
(18.7)
(6.9)
43.8
(6.9)
36.9
77.2
–
1,213.2
1,038.2
22.5
12.5
240.0
182.0
–
–
25.9
–
99.7
12.5
1,479.1
1,220.2
All of the Group’s revenue is derived from the sale of goods in 2019. There were no inter-segment revenues. The un-allocated
assets of £25.9 million relate to cash and cash equivalents which cannot be readily allocated because of the Group cash-pooling
arrangements that are in place to provide funds to businesses across the Group. Non-current assets exclude the deferred tax asset
and the retirement benefit asset.
142
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED The following table provides an analysis of the Group’s segmental information for the period to 29 December 2018:
£ million
Revenue as previously reported
Restatement (Note 2)
Revenue restated
Adjusted EBITDA (Note 38)
Depreciation
Amortisation
Exceptional items (Note 7)
Share scheme charges
Loss on disposal of property, plant and equipment
Share of results of associates
Operating profit/(loss)
Finance costs
Other gains and (losses)
Profit before tax
Tax
Profit for the period
Other segment information:
Capital additions
Interests in associates
Total assets
Non-current assets (excluding deferred tax)
UK
International
Un-allocated
1,653.6
2.0
1,655.6
147.7
(35.1)
–
(11.1)
(1.5)
(0.2)
–
99.8
201.6
–
201.6
5.8
(4.8)
(0.4)
(15.0)
–
(0.2)
0.4
(14.2)
–
–
–
–
–
–
–
–
–
–
–
Total
1,855.2
2.0
1,857.2
153.5
(39.9)
(0.4)
(26.1)
(1.5)
(0.4)
0.4
85.6
(13.2)
5.5
77.9
(10.7)
67.2
66.3
–
1,098.9
929.8
52.8
12.5
218.9
162.9
–
–
14.5
0.2
119.1
12.5
1,332.3
1,092.9
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 £14.5 million in total assets relates to cash and cash equivalents of £12.4 million which cannot be readily allocated
because of the Group cash-pooling arrangements that are in place to provide funds to businesses across the Group, and
£2.1 million that relates to derivative financial instruments. The un-allocated amount of £0.2 million in non-current assets
relates to derivative financial instruments.
MAJOR CUSTOMERS
In 2019, the Group’s four largest customers accounted for 76.0% (2018: 76.2%) 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 FROM CONTRACTS WITH CUSTOMERS
The Group derives all revenue from the sale of goods in the following geographic locations:
£ million
Continuing operations
UK
US
China
2019
32.3%
22.7%
10.9%
10.1%
2018
30.2%
25.0%
11.5%
9.5%
2019
Restated
2018
1,652.5
1,655.6
130.6
102.8
112.9
88.7
1,885.9
1,857.2
The International segment is formed by the US and China operations.
Upon completion of a customer order, the terms of the order allow 30 to 75 days for payment, dependent on the customer contract.
The Group has in place trade receivable factoring arrangements. These are non-recourse arrangements which were applicable to
68.4% (2018: 69.2%) of the Group’s total sales. These arrangements allow the Group to choose to factor the receivable from day 5 of
the completion of the contract.
143
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 6. OPERATING PROFIT FOR THE PERIOD
Operating 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 a (credit)/expense
Amortisation of intangible assets
Exceptional items (Note 7)
(Profit)/loss on disposal of property, plant and equipment
Share scheme charges (Note 33)
Foreign exchange gains (Note 10)
Staff costs (Note 8)
1 Staff costs have been restated for 2018. See Note 8 for details of the restatement.
The analysis of the Auditors' 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
Taxation compliance services
Other transaction services
Total non-audit fees
2019
Restated¹
2018
46.4
13.3
7.3
39.0
0.9
7.7
877.3
885.5
(0.4)
0.5
20.3
(0.4)
1.9
(0.4)
522.0
2019
0.1
0.5
0.6
–
0.2
0.2
1.0
0.4
26.1
0.4
1.5
(0.2)
489.5
2018
0.1
0.4
0.5
0.1
–
0.1
Tax services for 2018 relate to overseas employment tax work under the derogation provisions for non-audit services.
All Auditors' remuneration in 2019 relates to work performed by PricewaterhouseCoopers LLP (2018: Deloitte LLP).
7. EXCEPTIONAL ITEMS
The Group’s financial performance is analysed in two ways; underlying performance (which does not include exceptional items) and
exceptional items that are material and not expected to reoccur. The Directors consider that the underlying activities results better
represent the ongoing operations and key metrics of the Group.
Exceptional items includes material items that are non-recurring, significant in nature and are important to users in understanding
the business, including restructuring costs, disruption costs, pre-commissioning and start-up losses for new manufacturing
facilities, impairment of assets, disposals of subsidiaries and associates and fair value adjustments:
£ million
Continuing operations
New site costs
Disruption costs
GMP equalisation
Restructuring costs, impairment and onerous lease provision
Gain on bargain purchase
Loss on disposal of subsidiary (Note 29)
Operating profit
Release of other payable (Note 10)
Profit before tax
Tax on exceptional items
Profit after tax
144
2019
2018
–
6.6
–
13.7
–
–
20.3
–
20.3
(4.0)
16.3
12.4
2.6
2.6
5.2
(1.3)
4.6
26.1
(4.2)
21.9
(4.2)
17.7
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 2019
The Group incurred £20.3 million of net costs presented as exceptional items in 2019 of which £6.6 million related to disruption costs;
£2.8 million as our factory in California was repurposed for ready meal manufacturing and changes to the hummus production
process; and £3.8 million in the UK, as the business prepared for the launch of significant new products later in Q3 2019. In addition,
the Group incurred £13.7 million of restructuring and impairment costs in the UK. Of this, £7.7 million related to the closure of a meals
business in Lincolnshire, comprising cash closure costs of £4.2 million and plant and equipment asset impairments of £3.5 million.
A further charge of £4.3 million has been recognised for the closure of the Group’s non-core UK fast casual restaurant business.
The remaining £1.7 million is primarily for redundancy costs following changes to our commercial and marketing structure.
2018
The Group incurred £21.9 million of exceptional costs in 2018 of which £12.4 million related to the initial start-up and pre-
commissioning 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
also incurred an impairment charge of £3.5 million in the year in respect of tangible fixed assets, as the relevant assets no longer
had any future value to the Group, recorded a gain of £1.3 million on the acquisition of Haydens Bakery in September 2018 and a
loss of £4.6 million on the disposal of Anglia Crown in July 2018. In addition, 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 was time-barred.
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 34)
2019
Number
2018
Number
16,759
2,424
922
16,706
2,183
953
20,105
19,842
2019
Restated¹
2018
456.9
53.1
12.0
522.0
429.1
48.9
11.5
489.5
1 Wages and salaries have been restated for 2018 to include £2.8 million of employee costs that had been previously classified as overheads within distribution costs.
In addition, social security and other costs for 2018 have been restated to include £1.6 million of staff benefits that were previously excluded from staff costs.
Details of the emoluments paid to Directors are included on page 106 of the Directors’ Remuneration Report and in Note 35.
9. FINANCE COSTS
£ million
Continuing operations
Interest on borrowings
Interest on lease liabilities (2018: Interest on finance leases)
Unwinding of discount on provisions (Note 26)
Total interest expense
Less: amounts included in the cost of qualifying assets
2019
2018
16.6
3.0
0.2
19.8
(1.1)
18.7
14.1
0.2
0.4
14.7
(1.5)
13.2
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 3.0% (2018: 2.8%) to expenditure on such assets. Interest on lease liabilities for the 52 weeks ended
28 December 2019 includes a £2.8 million charge following the application of IFRS 16.
Amounts included in the cost of qualifying assets have been capitalised under IAS 23 and are therefore subject to deferred tax; the
deferred tax charge to income was £0.1 million (2018: £0.3 million).
145
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 10. OTHER GAINS AND (LOSSES)
£ million
Continuing operations
Foreign exchange gains
Change in the fair value of derivative financial instruments
Release of other payable
2019
2018
0.4
(7.3)
–
(6.9)
0.2
1.1
4.2
5.5
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 an exceptional item in the consolidated income statement.
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
Prior period adjustment
Benefit arising from previously unrecognised temporary differences of a prior period
Unrecognised tax loss originating in the current period
Total deferred tax credit (Note 23)
2019
2018
12.5
(0.2)
12.3
(5.5)
(0.3)
0.7
(0.8)
0.5
(5.4)
16.8
1.5
18.3
(3.0)
(0.2)
–
(4.6)
0.2
(7.6)
Tax charge for the period
6.9
10.7
UK corporation tax is calculated at 19% (2018: 19%) 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 £6.9 million (2018: £10.7 million). The £6.9 million charge represents an effective tax rate
of 15.8% (2018: 13.7%) on profit before tax of £43.8 million (2018: £77.9 million). Most of the Group’s profits were earned in the UK,
where the statutory tax rate was 19% for 2019 (2018: 19%).
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.
A deferred tax asset has been recognised in respect of tax losses in the US. This asset amounts to £15.9 million (2018: £9.1 million).
Such tax losses are an asset because they can be used to offset future taxable profits and thereby reduce future tax payments.
The tax losses arise mainly because of high levels of capital expenditure incurred in recent years. This relates to the construction of
new and upgraded production facilities in the US, the costs of which are largely tax deductible in the year in which they are incurred.
It is expected that such levels of expenditure will not recur in future and forecasts indicate that there will be sufficient taxable
profits in the US to utilise all the losses within the next nine years.
Tax losses in the US can be carried forward without time limit. This means that if the actual profits turn out to be less than predicted
then the losses could still be used but over a period longer than nine years. For example, if actual profits are 10% less than forecast
then the losses would be used over 10 years. A reduction of 50% would mean the losses being used over 15 years. The use of the
tax losses in the US against future US profits has been identified by the Group as a key source of estimation uncertainty. This is
discussed further in Note 3.
Overseas tax rates which are different from the UK rate do not have a material impact on the tax charge and it is expected that this
will continue to be the case in future. This is particularly so now that the US federal rate is 21%, which is close to the UK statutory
rate of 19%.
Excluding exceptional items and other adjusting items the effective tax rate was 17.5% (see Note 38).
146
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 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% (2018: 19%)
Non-taxable income
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
2019
£ million
43.8
8.3
(0.5)
0.5
0.5
(0.8)
(0.8)
(0.3)
6.9
2019
%
100.0
19.0
(1.1)
1.1
1.1
(1.8)
(1.8)
(0.7)
15.8
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
In 2019, the tax risk provision was £nil (2018: £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 we operate.
It is anticipated that the effective tax rate in the medium term will be slightly lower than the UK corporation tax rate of 19% because
overseas tax losses are being recognised at a rate higher than 19%. The rate for 2020 is expected to be between 18% and 19%.
We continue to believe that Bakkavor will be unaffected by tax legislation aimed at combatting international tax avoidance. Such
legislation has arisen as a result of measures introduced by the OECD known as the “BEPS” project (Base Erosion / Profit Shifting).
Although Bakkavor is a multinational company, it does not engage in any of the activities targeted by that legislation.
In addition to the amount charged to the consolidated income statement, a £1.4 million charge (2018: £1.0 million credit) relating to
tax on the defined benefit pension scheme actuarial surplus has been recognised directly in other comprehensive income. Also, a
deferred tax credit of £0.1 million (2018: £0.2 million charge) has been recognised in equity in relation to share schemes under IFRS 2.
Deferred tax has been calculated at the tax rate applicable for the period in which the temporary differences are expected to
reverse. The Finance Act 2016 provided for the UK corporation tax to be reduced from 19% to 17% with effect from April 2020.
The Financial Statements have therefore been prepared on the basis that UK temporary differences will reverse at 17%. However,
it is expected that this change may now not occur, and legislation may be introduced to maintain the rate at 19%. If this happens
then the tax charge for 2019 and deferred tax liability at 28 December 2019 would be £2.2 million higher.
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
Basic earnings per share
Diluted earnings per share
2019
36.9
2018
67.2
2019
2018
579,426
579,426
3,922
2,993
583,348
582,419
2019
6.4p
6.3p
2018
11.6p
11.5p
The Group calculates Adjusted basic earnings per Ordinary share and details of this can be found in Note 38, Alternative
performance measures.
147
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 13. GOODWILL
£ million
Cost
At 31 December 2017
Exchange differences
At 29 December 2018
Acquired on acquisition of subsidiary (Note 30)
Exchange differences
At 28 December 2019
Accumulated impairment losses
At 31 December 2017
Exchange differences
At 29 December 2018
Exchange differences
At 28 December 2019
Carrying amount
At 28 December 2019
At 29 December 2018
699.7
3.2
702.9
2.5
(2.2)
703.2
(52.5)
(0.2)
(52.7)
0.7
(52.0)
651.2
650.2
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
UK
International
28 December
2019
29 December
2018
604.0
47.2
651.2
601.5
48.7
650.2
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 (2018: £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 8.0% (2018: 8.3%) for
the UK and 8.1% (2018: 9.2%) 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 the next three years, as determined by the business units, and
extrapolated cash flows for the following two years based on an estimated revenue growth rate ranging from 3% to 10% whilst
maintaining margins at the 2022 budget levels, to provide a five-year forecast. Cash flows are then extrapolated using a perpetuity
growth rate of 1.5% (2018: 1.7%) for the UK and 1.6% (2018: 1.7%) for the International CGU grouping.
The headroom for each CGU based on the impairment review is as follows:
£ million
Headroom of impairment test based on management assumptions
UK
International
465.8
73.6
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 8.1%. If the pre-tax discount rate for the International CGU were to
be increased by 0.5% from 8.1% to 8.6% then the headroom would be reduced to £58.0 million. An increase to the pre-tax discount
rate from 8.1% to 11.3% would result in no headroom.
• The perpetuity growth rate included in the International CGU future cash flows is 1.6%. If the perpetuity growth rate was to
decrease to 0.6% it would still leave headroom of £46.0 million.
• A key sensitivity for the Group is Adjusted EBITDA, whether through the loss of revenue or from lower gross margins. If Adjusted
EBITDA over the five-year forecast period were to be reduced by 10.0% in the International CGU then this would result in the
headroom being reduced to £45.9 million.
148
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 14. OTHER INTANGIBLE ASSETS
£ million
Cost
At 31 December 2017
Acquired on acquisition of subsidiary
Disposals
Exchange differences
At 29 December 2018
Acquired on acquisition of subsidiary (Note 30)
Exchange differences
At 28 December 2019
Accumulated amortisation and impairment
At 31 December 2017
Charge for the period
Disposals
Exchange differences
At 29 December 2018
Charge for the period
Exchange differences
At 28 December 2019
Carrying amount
At 28 December 2019
At 29 December 2018
Customer
relationships
Customer
contracts
88.1
0.7
(0.2)
0.4
89.0
0.2
(0.1)
89.1
(85.5)
(0.4)
0.2
(0.3)
(86.0)
(0.5)
0.1
(86.4)
2.7
3.0
1.6
–
(1.6)
–
–
–
–
–
(1.6)
–
1.6
–
–
–
–
–
–
–
Total
89.7
0.7
(1.8)
0.4
89.0
0.2
(0.1)
89.1
(87.1)
(0.4)
1.8
(0.3)
(86.0)
(0.5)
0.1
(86.4)
2.7
3.0
149
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 15. PROPERTY, PLANT AND EQUIPMENT
£ million
Cost
At 31 December 2017
Additions
Acquisition of subsidiary
Disposals
Disposal of subsidiary
Exchange differences
At 29 December 2018
Recognised on application of IFRS 16
Additions
Acquisition of subsidiary (Note 30)
Disposals
Exchange differences
At 28 December 2019
Accumulated depreciation and impairment
At 31 December 2017
Charge for the period
Impairment
Disposals
Disposal of subsidiary
Exchange differences
At 29 December 2018
Charge for the period
Impairment
Disposals
Exchange differences
At 28 December 2019
Carrying amount
At 28 December 2019
At 29 December 2018
Restated1
Land and
buildings
Plant and
machinery
Fixtures and
equipment
227.0
41.8
8.1
(0.3)
(3.8)
2.5
409.0
63.3
0.7
(7.1)
(2.7)
2.2
275.3
465.4
76.0
23.6
10.3
(2.8)
(2.7)
4.2
62.0
7.3
(7.3)
(2.8)
379.7
528.8
69.0
14.0
2.3
(1.5)
(0.4)
0.3
83.7
–
14.1
–
(5.5)
(0.5)
91.8
Total
705.0
119.1
11.1
(8.9)
(6.9)
5.0
824.4
80.2
99.7
17.6
(15.6)
(6.0)
1,000.3
(114.9)
(5.9)
–
0.3
3.6
(0.5)
(117.4)
(17.2)
(2.4)
2.4
0.5
(204.3)
(48.3)
(367.5)
(27.9)
(2.1)
6.5
2.7
(0.9)
(226.0)
(33.4)
(3.2)
7.1
0.8
(6.1)
(1.4)
1.5
0.4
(0.2)
(54.1)
(9.1)
(0.4)
5.5
0.3
(39.9)
(3.5)
8.3
6.7
(1.6)
(397.5)
(59.7)
(6.0)
15.0
1.6
(134.1)
(254.7)
(57.8)
(446.6)
245.6
157.9
274.1
239.4
34.0
29.6
553.7
426.9
1 The cost and accumulated depreciation and impairment at 30 December 2017 has been restated to align assets to their correct classifications.
Cost restatement:
• As at 30 December 2017, land and buildings cost has increased by £26.8 million, plant and machinery cost has reduced by
£28.1 million and fixtures and equipment cost has reduced by £6.0 million.
• The plant and machinery 2018 cost reclassification of £6.9 million has been included in the balance as at 30 December 2017.
• The cost as at 29 December 2018 has therefore been restated as follows: land and buildings cost has increased by £26.8 million,
plant and machinery has reduced by £21.2 million and fixtures and equipment has reduced by £6.0 million.
Accumulated depreciation and impairment restatements:
• As at 30 December 2017, land and buildings accumulated depreciation has increased by £7.9 million, plant and machinery
accumulated depreciation has reduced by £14.8 million and fixtures and equipment accumulated depreciation has reduced
by £0.4 million.
• The plant and machinery 2018 depreciation reclassification of £6.9 million has been included in the balance as at 30 December 2017.
• The accumulated depreciation and impairment as at 29 December 2018 has therefore been restated as follows: land and
buildings has increased by £7.9 million, plant and machinery has reduced by £7.9 million and fixtures and equipment has
reduced by £0.4 million.
The Group has split the net book value of property, plant and equipment relating to leases between amounts previously recognised
as finance leases under IAS 17 and amounts recognised as right-of-use assets under IFRS 16. This allows management to review
performance excluding IFRS 16, as set out in Note 38, Alternative Performance Measures.
150
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED The carrying value of the Group’s plant and machinery includes an amount of £4.0 million (2018: £4.5 million) in respect of assets
held under leases previously recognised as finance leases.
The carrying value of the Group’s land and buildings and plant and machinery includes an amount of £73.4 million (2018: nil) in
respect of assets held under IFRS 16 Leases. Further details of these leases are disclosed in Note 24.
The carrying value of the Group’s plant and machinery includes an amount of £0.8 million (2018: £nil) in respect of assets held
as security under the Asset Finance Facility. Further details of this facility are disclosed in Note 21.
At 28 December 2019, the Group had entered into contractual commitments for the acquisition of property, plant and equipment
amounting to £8.8 million (2018: £13.2 million).
The carrying value of the Group’s property, plant and equipment includes an amount of £9.6 million (2018: £75.2 million) in
respect of assets under the course of construction for the Group’s development projects. In addition, there is a total of £4.9 million
(2018: £8.3 million) of other assets that are under the course of construction. Assets under the course of construction are not
depreciated until they are brought into use.
During 2019, the Group has impaired £2.4 million (2018: £nil) of land and buildings, £3.2 million (2018: £2.1 million) of plant
and machinery and £0.4 million (2018: £1.4 million) of fixtures and equipment. These impairments are included within Other
administrative costs as exceptional items (Note 7). The impairments were all in the UK sector.
The £2.4 million (2018: £nil) impairment of land and buildings arose from fully writing down the right-of-use assets held by
a Group business which has ceased trading.
The £3.2 million (2018: £2.1 million) impairment of plant and machinery and £0.4 million (2018: £nil) impairment of fixtures and fittings
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. In 2018 there was a £1.4 million impairment of fixtures and equipment
that 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.
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 2018 (Note 30), has a different accounting reference date to the
Group, being 30 June. Included in these Consolidated Financial Statements are the results for 30 December 2018 to 29 June 2019
(2018: 6 September 2018 to 29 December 2018) and these results will be included in Haydens Bakery Limited’s Financial Statements
to 30 June 2019. The trade and assets of Haydens Bakery Limited were hived across to Bakkavor Foods Limited on 29 June 2019 and
are now included in that Company’s financial statements.
This subsidiary has a different accounting date to the Group due to the 2018 acquisition being completed relatively close to the
Group’s period end. The subsidiary’s accounting reference date was extended to 30 June 2019 to capture all trade prior to the hive
across and will be shortened to 31 December to align with the Group in due course.
17. INTERESTS IN ASSOCIATES AND OTHER INVESTMENTS
Details of the associated undertakings of the Group at 28 December 2019 were as follows:
Place of registration
and operation
Principal activity
Proportion of Ordinary shares
2019
2018
Method of
accounting
Name of associate
La Rose Noire Limited
Hong Kong
Producer of bakery and pastry products
Patisserie et Chocolat Limited
Hong Kong
Producer of bakery and pastry products
45%
45%
45%
–
Equity
Equity
The following tables summarise the financial information of the Group’s material associate, La Rose Noire Limited, as included in
its own financial statements:
ASSOCIATE’S INCOME STATEMENT
£ million
Revenue
Profit before taxation
Taxation
Profit after taxation
Group’s share of profit after taxation (45%)
2019
17.6
0.8
(0.1)
0.7
0.3
2018
16.4
1.1
(0.2)
0.9
0.4
151
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 17. INTERESTS IN ASSOCIATES AND OTHER INVESTMENTS (CONTINUED)
ASSOCIATE’S STATEMENT OF FINANCIAL POSITION
£ million
Non-current assets
Current assets
Current liabilities
Net assets
Group’s share of net assets (45%)
Goodwill on acquisition
Carrying amount of associate at end of period
CARRYING AMOUNT OF ASSOCIATE
£ million
At beginning of period
Share of profit after taxation of associate
Exchange differences
Dividends received
At end of period
28 December
2019
29 December
2018
1.7
5.5
(1.4)
5.8
2.6
9.7
12.3
2.1
5.2
(1.5)
5.8
2.6
9.9
12.5
28 December
2019
29 December
2018
12.5
0.3
(0.3)
(0.2)
12.3
12.0
0.4
0.8
(0.7)
12.5
The following table summarises the carrying amount of the Group’s immaterial associate, Patisserie et Chocolat Limited:
£ million
Associates that are not individually material
At beginning of period
Share of profit after tax
Exchange differences
Dividend payment
At end of period
Other investments amount to £0.1 million at 28 December 2019 (29 December 2018: £0.1 million).
18. INVENTORIES
£ million
Raw materials and packaging
Work-in-progress
Finished goods
19. TRADE AND OTHER RECEIVABLES
£ million
Amounts receivable from trade customers
Expected credit loss
Net amounts receivable from trade customers
Other receivables
Prepayments
28 December
2019
29 December
2018
–
0.2
–
–
0.2
–
–
–
–
–
28 December
2019
29 December
2018
55.5
2.2
6.7
64.4
54.6
1.8
6.4
62.8
28 December
2019
29 December
2018
107.3
(1.6)
105.7
15.4
10.6
131.7
115.3
(2.0)
113.3
18.8
10.6
142.7
During the period, the Group has continued to operate trade receivable factoring arrangements. These are non-recourse
arrangements and therefore amounts are de-recognised from trade receivables. At 28 December 2019 £134 million was drawn
under factoring facilities, an increase of £8 million compared to 29 December 2018 representing cash collected before it was
contractually due from the customer. As at 28 December 2019, the Group’s amounts receivable from trade customers includes
£49.4 million (2018: £50.2 million), which could be factored under the non-recourse trade receivable factoring arrangement.
The average credit period taken on sales of goods is 19 days (2018: 21 days). An expected credit loss allowance has been made for
estimated irrecoverable amounts from the sale of goods of £1.6 million (2018: £2.0 million). Expected credit loss allowances against
receivables are made on a specific basis based on objective evidence and previous default experience as well as with reference to
assumptions about the risk of default and expected future loss rates. 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, while assumptions about the risk of default remain unchanged.
152
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 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
28 December
2019
29 December
2018
93.6
10.3
1.2
0.6
–
99.7
11.3
2.0
0.3
–
105.7
113.3
There was no impact from trade receivables renegotiated in 2019 that would have otherwise been past due or impaired (2018: no impact).
The four major customers of the Group, representing 76.0% (2018: 76.2%) 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 expected credit loss for the Group’s trade receivables:
£ 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
20. CASH AND CASH EQUIVALENTS
£ million
Cash and cash equivalents
28 December
2019
29 December
2018
(2.0)
(0.8)
0.8
0.4
–
–
(1.6)
(1.5)
(0.7)
–
0.2
0.1
(0.1)
(2.0)
28 December
2019
29 December
2018
25.9
12.4
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.
21. BORROWINGS
The interest rates and currency profile of the Group’s borrowings at 28 December 2019 were as follows:
£ million
Term Loan A
Term Loan B
Term Loan
Revolving Credit Facility (RCF)
Revolving Credit Facility (RCF)
Asset Finance Facility
Total
Currency
GBP
GBP
GBP
GBP
GBP
GBP
Facility
amount
£ million
Amount drawn
down at year end
£ million
Interest rate
210.0
37.5
20.0
200.0
25.0
25.0
517.5
210.0
Libor plus a margin of 2.25%
37.5
20.0
95.01
15.01
Libor plus a margin of 4.00%
Libor plus a margin of 1.90%
Libor plus a margin of 2.25%
Libor plus a margin of 2.25%
0.9
Fixed interest rate of 2.74%
Non-utilisation
fee Maturity date
N/A June 2021
N/A June 2024
N/A
Nov 2020
0.74% June 2021
0.74% Aug 2020
N/A
Aug 2026
1 A further £3.6 million has been drawn down in RCF ancillary facilities at the year end.
The Group’s total banking facilities amount to £492.5 million (2018: £447.5 million) comprising (i) a £267.5 million term loan
(2018: £247.5 million term loan), split £210.0 million and £37.5 million maturing in June 2021 and June 2024 respectively with a new
facility of £20 million added in the period which matures in November 2020 and (ii) £225.0 million Revolving Credit Facilities ("RCF")
(2018: £200.0 million RCF), which includes an overdraft and money market facility of £16.5 million (2018: £16.5 million) and further
ancillary facilities of £6.3 million (2018: £8.7 million). In 2018, in addition to these committed facilities, the Group had access to an
uncommitted multi-currency money market loan facility amounting to €35.0 million. The bank facilities are unsecured.
153
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 21. BORROWINGS (CONTINUED)
The Asset Finance Facility is a £25.0 million facility which can be drawn against up to August 2020. At 28 December 2019
£0.9 million has been drawn and is being repaid on a monthly basis over a period of seven years with an interest rate of 2.74%.
The interest rate is fixed for the period of the loan at the prevailing rate on commencement of the loan.
£ 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 28 December 2019 and 29 December 2018, all of the Group’s borrowings were denominated in Sterling.
The weighted average interest rates paid were as follows:
Bank loans and overdrafts
28 December
2019
29 December
2018
–
377.2
377.2
36.7
303.1
37.0
0.4
377.2
36.7
340.5
377.2
3.7
309.8
313.5
5.0
–
271.9
36.6
313.5
5.0
308.5
313.5
28 December
2019
%
29 December
2018
%
3.16
3.20
The Group had a £75.0 million notional principal interest rate cap that matured in October 2019. Apart from the Asset Finance
Facility, 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
28 December
2019
29 December
2018
378.4
316.2
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 lease liabilities and is as follows:
28 December
2019
29 December
2018
25.9
(35.1)
(1.6)
(11.8)
(48.5)
12.4
(3.7)
(1.3)
(1.6)
(6.6)
(343.3)
(312.5)
2.8
(69.3)
(409.8)
(432.4)
4.0
(3.9)
(312.4)
(306.6)
£ million
Analysis of net debt
Cash and cash equivalents
Borrowings
Interest accrual
Lease liabilities
Debt due within one year
Borrowings
Unamortised fees
Lease liabilities
Debt due after one year
Group net debt
154
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 22. DERIVATIVE FINANCIAL INSTRUMENTS
Held-for-trading derivatives that are not designated in hedge accounting relationships:
£ million
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
28 December
2019
29 December
2018
–
–
–
–
–
(3.3)
(3.3)
(0.2)
(0.2)
(3.5)
0.2
0.2
0.1
1.8
1.9
–
–
–
–
2.1
Further details of derivative financial instruments are provided in Note 27.
23. 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
IAS 23
capitalised
interest
Fair
value gains
Intangibles
Provisions
obligations Share scheme
Retirement
benefit
Overseas tax
losses and
accrued
interest
£ million
At 31 December 2017
(Charge)/credit to income
– continuing operations
Arising on acquisition
Exchange differences
Credit/(charge) to equity
At 29 December 2018
(Charge)/credit to income
– continuing operations
Exchange differences
(Charge)/credit to equity
(16.5)
(6.6)
–
(0.4)
–
(23.5)
(3.1)
0.2
–
–
(0.3)
–
–
–
(0.3)
(0.1)
–
–
At 28 December 2019
(26.4)
(0.4)
(0.2)
(0.2)
–
–
–
–
–
(0.1)
–
–
(0.4)
(0.1)
1.1
–
–
0.7
–
–
–
(0.1)
0.7
0.3
–
–
–
1.0
(0.6)
–
–
0.4
(0.9)
–
–
–
1.0
0.1
(0.3)
–
(1.4)
(1.6)
0.3
0.3
–
–
(0.2)
0.4
0.3
–
0.1
0.8
3.2
14.1
–
0.8
–
18.1
8.1
(0.9)
–
25.3
Total
(13.4)
7.6
(0.1)
0.4
0.8
(4.7)
5.4
(0.7)
(1.3)
(1.3)
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
28 December
2019
29 December
2018
27.2
(28.5)
(1.3)
19.6
(24.3)
(4.7)
At the statement of financial position date, the Group had unrecognised tax losses of £8.5 million (2018: £29.5 million) available for
offset against future taxable profits. All £8.5 million will expire after five years if unused. Deferred tax assets are only recognised
on the losses carried forward to the extent that it is 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.
155
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 24. LEASES
The Group leases assets including land and buildings and plant and machinery that are held within property, plant and equipment.
Information about leases for which the Group is a lessee is presented below.
Comparative amounts for 2018 represent amounts recognised under IAS 17.
ANALYSIS OF PROPERTY, PLANT AND EQUIPMENT RELATING TO LEASES
The Group has split the net book value of property, plant and equipment relating to leases between amounts previously recognised
as finance leases under IAS 17 and amounts recognised as right-of-use assets under IFRS 16. This allows management to review
performance excluding IFRS 16, as set out in Note 38, Alternative Performance Measures.
£ million
Net book value of leased property, plant and equipment excluding right-of-use assets
Net book value of right-of-use assets
NET BOOK VALUE OF RIGHT-OF-USE ASSETS
£ million
Balance at 30 December 2018
Additions
Acquisition of subsidiary
Depreciation charge
Impairment for the period
Exchange differences
At 28 December 2019
LEASE LIABILITIES
£ million
Amounts payable under 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
28 December
2019
4.0
73.4
77.4
Total
80.2
1.9
6.3
(12.3)
(2.4)
(0.3)
73.4
Land and
buildings
Plant and
machinery
76.0
1.0
6.0
(9.7)
(2.4)
(0.3)
70.6
4.2
0.9
0.3
(2.6)
–
–
2.8
Minimum lease payments
Present value of minimum
lease payments
28 December
2019
29 December
2018
28 December
2019
29 December
2018
14.2
34.1
57.0
105.3
(24.2)
81.1
1.7
3.7
0.4
5.8
(0.3)
5.5
11.8
27.6
41.7
81.1
81.1
11.8
69.3
81.1
1.6
3.5
0.4
5.5
5.5
1.6
3.9
5.5
The 2018 figures are the amounts recognised under IAS 17 and the increase in the amounts in 2019 is due to the adoption of IFRS 16.
The weighted average lease term outstanding is 15.5 years (2018: 4.3 years). For 2019, the weighted average incremental borrowing rate
was 3.47% (2018: 3.80%). 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 Group’s lease obligations are secured by the lessors’ rights over the leased assets.
AMOUNTS RECOGNISED IN THE CONSOLIDATED INCOME STATEMENT
£ million
Interest on lease liabilities
Expenses relating to low-value leases
Expenses relating to short-term leases
IAS 17 operating lease charge
AMOUNTS RECOGNISED IN THE STATEMENT OF CASH FLOWS
£ million
Total cash outflow for leases
2019
3.0
1.2
0.6
–
4.8
2019
12.9
2018
0.2
–
–
12.0
12.2
2018
1.1
156
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 25. TRADE AND OTHER PAYABLES
£ million
Trade payables
Other taxation
Other payables
Accruals and deferred income
Less: amounts due after one year
Other payables
Accruals and deferred income
28 December
2019
Restated1
29 December
2018
244.4
2.4
23.9
120.3
391.0
–
(0.6)
(0.6)
232.6
2.0
23.5
136.2
394.3
(0.4)
(1.9)
(2.3)
Trade and other payables due within one year
390.4
392.0
1 Deferred income has been reclassified from a line item on the consolidated statement of financial position to be included with trade and other payables.
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 58 days (2018: 55 days). No interest is incurred against trade payables.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
During the period, the Group set up an arrangement to provide financing for the Group’s suppliers. This is a voluntary programme
that potentially gives suppliers earlier access to cash. At 28 December 2019, trade payables amounting to £18.7 million (2018: £nil)
were subject to these arrangements. These balances are classified as trade payables, and the related payments as cash flows from
operating activities, since the original obligation to the supplier remains and has not been replaced with a new obligation to the bank.
Other payables include the Group’s liabilities in respect of payroll taxes.
26. PROVISIONS
£ million
At 31 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
At 29 December 2018
Reversed by IFRS 16
Reclassified from accruals
Utilisation of provision
Additional provision in the year
Release of provision
Unwinding of discount
At 28 December 2019
Included in current liabilities
Included in non-current liabilities
Onerous leases
Dilapidation
provisions
Legal
provisions
Restructuring
provisions
1.2
(1.0)
2.2
–
–
–
2.4
0.4
2.0
2.4
(1.3)
–
(0.9)
1.7
–
–
1.9
0.6
1.3
16.5
(0.8)
0.2
0.6
(1.0)
0.4
15.9
2.9
13.0
15.9
–
–
(0.1)
–
(0.1)
0.2
15.9
3.2
12.7
–
–
–
–
–
–
–
–
–
–
–
1.8
(0.2)
1.1
(1.0)
–
1.7
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.8
–
–
0.8
0.4
0.4
Total
17.7
(1.8)
2.4
0.6
(1.0)
0.4
18.3
3.3
15.0
18.3
(1.3)
1.8
(1.2)
3.6
(1.1)
0.2
20.3
5.9
14.4
157
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 26. PROVISIONS (CONTINUED)
Onerous lease provisions brought forward relate to the Group’s vacant properties. The element of the provision which relates
to lease rentals has now been recognised as an IFRS 16 right-of-use asset. This related to £1.3 million of the brought forward
provision, with the remaining brought forward provision being for non-rental property costs. During the year an onerous lease
provision of £1.7 million was made in respect of the Group’s non-core UK fast casual restaurant business, which has three property
leases. This business ceased trading in January 2020; the onerous provision has been calculated as the discounted total expected
costs for occupying the property (including rates and service charges, but excluding lease rentals) through to the break clause for
each of the three properties. 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 range from 2 to 32 years.
The legal provision is assessed by utilising Group experience, legal advice and other commercial factors to reasonably estimate
present obligations across the Group. These obligations are varied and depend on future events which are by their nature uncertain.
The Group has taken this uncertainty into account and considers the provision to be reasonable in the circumstances.
Restructuring provisions relate to the closure costs in respect of the Group’s non-core UK fast casual restaurant business.
A provision of £0.8 million has been recognised and represents the total expected costs for the closure of the business.
27. 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 21, 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 of less than 50%. This 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 (excluding IFRS 16 lease liabilities)
Cash and cash equivalents
Net debt
Equity
Net debt to net debt plus equity
28 December
2019
29 December
2018
379.5
(25.9)
353.6
573.6
38.1%
319.0
(12.4)
306.6
569.4
35.0%
Debt is defined as long and short-term borrowings, as disclosed in Note 21 and lease liabilities payable in Note 24 (excluding
IFRS 16 lease liabilities of £78.8 million at 28 December 2019).
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.
158
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED CATEGORIES OF FINANCIAL INSTRUMENTS
£ million
Financial assets
Fair value through profit and loss:
Trade receivables
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 financial liabilities at amortised cost:
Trade payables
Other payables
Accruals
Borrowings
Lease liabilities
28 December
2019
29 December
2018
49.4
–
56.3
15.4
25.9
147.0
50.2
2.1
63.1
18.8
12.4
146.6
28 December
2019
29 December
2018
3.5
–
244.4
23.9
118.9
377.2
81.1
849.0
232.6
23.5
133.6
313.5
5.5
708.7
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 lease liabilities 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.
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.
159
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 27. FINANCIAL INSTRUMENTS (CONTINUED)
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 28 December 2019, the Euro weakened against Sterling by 5.6%, with the closing rate at €1.1714
compared with €1.1093 at the prior period end. The average rate for the 52-week period to 28 December 2019 was €1.1414, a 1.0%
weakening of the Euro versus the prior period.
In the same period, the US dollar weakened against Sterling by 3.1%, with the closing rate at $1.3090 compared with $1.2696 at the
prior period end. The average rate for the 52-week period to 28 December 2019 was $1.2776, a 4.2% strengthening of the US dollar
versus the prior period.
The net foreign exchange impact on profit from transactions is a gain of £0.4 million (2018: gain of £0.2 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
28 December
2019
29 December
2018
28 December
2019
29 December
2018
(5.2)
(1.2)
(0.2)
(0.7)
(7.5)
(1.3)
(0.1)
(0.6)
6.4
1.5
0.2
0.9
9.2
1.6
0.2
0.7
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 28 December 2019:
Foreign currency
(million)
Average
exchange rate
Contract value
(£ million)
Fair value
(£ million)
2019
2018
2019
2018
2019
2018
2019
2018
30.5
27.7
27.7
9.3
5.1
6.6
9.2
2.0
3.0
–
–
–
30.0
39.6
39.1
12.2
6.0
7.2
10.0
0.6
–
–
–
–
1.11
1.11
1.12
1.12
1.26
1.27
1.27
1.30
9.14
–
–
–
1.11
1.10
1.11
1.11
1.33
1.31
1.32
1.30
–
–
–
–
27.3
24.5
24.6
8.2
4.0
5.1
7.2
1.5
0.3
–
–
–
27.0
35.4
35.1
10.9
4.5
5.5
7.6
0.4
–
–
–
–
(1.3)
(0.8)
(0.8)
(0.2)
(0.1)
(0.1)
(0.2)
–
–
–
–
–
0.2
0.6
0.5
0.2
0.2
0.1
0.2
–
–
–
–
–
102.7
126.4
(3.5)
2.0
Outstanding contracts
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
Net Chinese Renminbi:
3 months or less
3 to 6 months
6 to 12 months
Over 12 months
160
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 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, none (2018: 24.0%) 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
(Loss)/profit
28 December
2019
(Loss)/profit
29 December
2018
(3.8)
3.8
(2.4)
3.0
It is assumed that all other variables remain the same when preparing the interest rate sensitivity analysis.
INTEREST RATE CAP
The Group previously entered into an interest rate cap agreement. This was 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
28 December 2019:
Interest rate caps
6 to 12 months
Average contract fixed
interest rate
Notional principal amount
Fair value
2019
%
2018
%
2019
£ million
2018
£ million
2019
£ million
2018
£ million
–
0.75
–
75.0
–
0.1
The interest rate cap settled on a quarterly basis. The Group received payment if the three-month Libor rate exceeded 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% (2018: 76.2%) 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 (2018: £247.5 million) and a £200.0 million RCF
facility (2018: £200.0 million), through a bank syndicate. Coöperatieve Rabobank U.A. is the syndicate agent of this facility and it
manages the syndicate and participation with other counterparties. In addition, the Group had an additional term loan of £20 million
(2018: £nil) and an RCF of £25 million (2018: £nil) in place at 28 December 2019.
In 2018, in addition to the committed facilities, the Group had access to an uncommitted multi-currency money market line facility
amounting to £31.6 million (€35 million).
161
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 27. FINANCIAL INSTRUMENTS (CONTINUED)
CREDIT RISK MANAGEMENT (CONTINUED)
The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region of origin was:
£ million
UK
US
China
28 December
2019
29 December
2018
99.4
7.8
13.9
121.1
107.5
9.0
15.6
132.1
The expected credit losses on trade receivables are calculated locally by financial teams. These allowances are based on
assumptions about the risk of default and expected loss rates. The Group uses judgement in making these assumptions with
regards to customer credit ratings, credit risk characteristics and the days past due based on the Group’s history and existing
market conditions. Generally, the expected credit loss becomes 100% of the trade receivable once it is past due by 91 days;
as at 28 December 2019 there were £1.4 million (2018: £1.7 million) of trade receivables past due by 91 days. This figure has been
included in the expected credit loss of £1.6 million (2018: £2.0 million).
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. It also frequently tenders to
benchmark market prices. In general, requirements are managed using contracts for periods of between three to twelve months
forward. The Group also manages any local currency exposure in line with agreed contracts. As at 28 December 2019, the Group had
purchase commitments for the next 12 months to guarantee supply and price of raw materials of £126.6 million (2018: £129.3 million).
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. As at 28 December 2019, the Group has undrawn borrowing facilities available totalling £132.8 million (2018: £122.6 million).
Please see Note 21 for further information regarding the Group’s borrowings.
MATURITY PROFILE OF FINANCIAL LIABILITIES
The following table illustrates the Group’s undiscounted contractual maturity for its undiscounted financial liabilities when they fall due.
28 December
2019
29 December
2018
244.4
23.9
118.9
49.6
14.2
451.0
–
354.3
34.1
388.4
0.4
57.0
57.4
232.6
23.1
133.6
14.9
1.6
405.8
0.4
294.3
3.5
298.2
38.4
0.4
38.8
£ million
Non-derivatives due within one year:
Trade payables
Other payables
Accruals
Borrowings
Lease liabilities
Total non-derivatives due within one year
Non-derivatives due in the second to fifth years inclusive:
Other payables
Borrowings
Lease liabilities
Total non-derivatives due in the second to fifth years
Non-derivatives due after five years:
Borrowings
Lease liabilities
Total non-derivatives due after five years
162
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED The weighted average interest rates for the Group’s borrowings are found in Note 21 and in Note 24 for lease liabilities.
£ million
Derivatives due within one year:
Derivative financial instruments due within one year
Derivatives due in the second to fifth years inclusive:
Derivative financial instruments due in the second to fifth years
28 December
2019
29 December
2018
3.3
0.2
–
–
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
28. SHARE CAPITAL AND RESERVES
SHARE CAPITAL
£ million
Issued and fully paid:
579,425,585 (2018: 579,425,585) Ordinary shares of £0.02 each
2019
2018
(18.7)
(13.2)
(7.3)
5.3
28 December
2019
29 December
2018
11.6
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 5 October 2018, the Company paid 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. A final dividend of 4 pence per share was approved for the period ended
29 December 2018 totalling £23,177,023. This final dividend was paid to Ordinary shareholders on 29 May 2019.
On 10 September 2019, the Company declared an interim dividend for the period ended 28 December 2019 of 2 pence per share to
each of the Ordinary shareholders totalling £11,588,512. This interim dividend was paid to Ordinary shareholders on 11 October 2019.
The Board has decided that no resolution relating to the declaration of a final dividend for the period ended 28 December 2019 will
be proposed to shareholders at the Annual General Meeting to be held on 12 June 2020.
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
Balance at 31 December 2017
Cancellation of share premium account
Balance at 29 December 2018 and 28 December 2019
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 2007, a corporate reorganisation was completed to establish Bakkavor Holdings Limited as an intermediate holding company
of the Group. This was accounted for using the principles of merger accounting.
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.
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.
163
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 29. DISPOSALS
2019
There were no disposals in the period.
2018
DISPOSAL OF SUBSIDIARY
On 2 July 2018, the Group disposed of its interest in Anglia Crown Limited. The transaction resulted in a loss on disposal of
£4.6 million being recorded in the consolidated income statement as an exceptional item. Deferred consideration of £0.7 million
will be settled in cash by the Group on 2 July 2020.
30. ACQUISITIONS
2019
On 12 June 2019, the Group completed the acquisition of 100% of the issued share capital of Blueberry Foods from Samworth
Brothers Limited for a total consideration of £16.8 million. The consideration comprised £3.0 million in cash and assumed
borrowings of £13.8 million that were repaid immediately.
Blueberry Foods is a desserts business that operates from a custom-built facility in Leicestershire. The primary reason for the
acquisition was to increase the breadth and depth of the Group’s desserts range.
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
Trade and other payables
Lease liabilities
Net identifiable assets acquired
Goodwill
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 amounts owed to previous owner
Cash outflow on acquisition of business
12 June 2019
0.2
17.6
1.0
6.5
(4.7)
(6.3)
14.3
2.5
16.8
12 June 2019
3.0
13.8
16.8
Acquisition-related costs of £0.7 million were incurred and are included in Other administrative costs in the consolidated income
statement.
The results of Blueberry Foods have been consolidated in the Group’s consolidated income statement from 12 June 2019 and
contributed £31.0 million of revenue and a loss of £0.5 million to the Group’s profit for the period.
If the acquisition of Blueberry Foods had been completed on the first day of the financial year, Group revenues for the period would
have been £1,908.7 million and Group profit would have been £36.8 million.
The Trade and other receivables amount is net of £0.1 million of expected credit losses.
The principal factors contributing to the recognition of goodwill on the acquisition of Blueberry Foods is the expected realisation of
future growth potential with new and existing customers, the synergies that can be achieved with the existing Bakkavor Desserts
business and the skilled workforce that is being acquired. The goodwill is not deductible for tax purposes. The Other intangible
assets of £0.2 million are in respect of customer relationships with two key customers.
There are no contingent liabilities to be disclosed.
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 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) amounted to £0.3 million.
164
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 2019
69.4
(0.5)
59.7
0.5
(0.4)
–
–
6.0
1.9
(1.9)
2018
85.6
(0.4)
39.9
0.4
0.4
4.6
(1.3)
3.5
1.5
(2.9)
134.7
131.3
(0.6)
15.5
(6.9)
3.4
146.1
(14.0)
(18.1)
114.0
(7.4)
5.8
(3.3)
0.5
126.9
(14.7)
(13.1)
99.1
31. 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
(Profit)/loss on disposal of property, plant and equipment
Loss on disposal of subsidiary (Note 29)
Gain on bargain purchase (Note 30)
Impairment of assets
Share scheme charges
Net retirement benefits charge less contributions
Operating cash flows before movements in working capital
Increase in inventories
Decrease in receivables
Decrease in payables
Increase in provisions
Cash generated by operations
Income taxes paid
Interest paid
Net cash generated from operating activities
ANALYSIS OF CHANGES IN NET DEBT
£ million
Borrowings
Lease liabilities
Total liabilities from financing activities
Cash and cash equivalents
Net debt*
30 December
2018
Recognised on
adoption of
IFRS 16
Cash flow
Lease
additions
Exchange
movements
Other
non-cash
movements
28 December
2019
(313.5)
(5.5)
(319.0)
12.4
(306.6)
–
(82.7)
(82.7)
–
(82.7)
(62.2)
12.9
(49.3)
14.1
(35.2)
–
(8.5)
(8.5)
–
(8.5)
–
0.4
0.4
(0.6)
(0.2)
(1.5)
2.3
0.8
–
0.8
(377.2)
(81.1)
(458.3)
25.9
(432.4)
* Includes accrued interest at 28 December 2019 of £1.6 million (2018: £1.3 million) and prepaid bank fees of £2.8 million (2018: £4.0 million). The movement in these
balances in the period of £1.5 million is shown in the table above as ‘Other non-cash movements’ in Borrowings. The £2.3 million other non-cash movement relating
to lease liabilities is mainly due to the early termination of a lease.
32. 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, please see Note 26 for further details about legal provisions. 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 obligation that is not
considered remote, the Group anticipates any potential financial impact to be immaterial.
The Group has the following amounts of letters of credit issued:
£ million
Letters of credit
28 December
2019
29 December
2018
2.5
2.9
As at 28 December 2019, the Group had purchase commitments for the next 12 months to guarantee supply and price of raw
materials of £126.6 million (2018: £129.3 million).
165
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 33. 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. Options expire if they remain unexercised after
a period of 10 years from the date of grant. 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:
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
28 December
2019
29 December
2018
28 December
2019
29 December
2018
11,724,097
9,178,785
£0.52
3,992,846
2,842,686
(480,355)
(297,374)
15,236,588 11,724,097
–
–
–
£0.07
£0.40
–
£0.68
–
£0.47
£0.52
–
The options outstanding at 28 December 2019 had a weighted average exercise price of £0.40 (2018: £0.52), and a weighted average
remaining contractual life of 8.1 years (2018: 8.7 years).
Range of exercise prices for the share options:
£nil
£0.01 – £1.00
Outstanding at the end of the period
Exercisable at the end of the period
Number of
share options
Weighted average
exercise price
28 December
2019
29 December
2018
28 December
2019
29 December
2018
6,284,361
2,727,237
8,952,227
8,996,860
15,236,588 11,724,097
–
–
–
£0.68
£0.40
–
–
£0.68
£0.52
–
In 2019, 3,992,846 options were granted on 9 April 2019. The options had the following performance conditions for vesting:
1.
314,156 vest provided that the individual is an employee in April 2022.
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 25 December 2021 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 25 December 2021 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 2021
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 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 2019 is £21.3 million (2018: £16.7 million).
166
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED Date of grant
3 July 2017
20 October 2017
20 October 2017
9 April 2018
9 April 2018
9 April 2018
9 April 2019
9 April 2019
9 April 2019
Number
of options
originally
granted
8,178,785
600,000
400,000
1,312,855
1,312,855
216,976
1,839,345
1,839,345
314,156
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
7.5
7.8
7.8
8.3
8.3
8.3
9.3
9.3
9.3
£1.44
£1.44
£1.44
£1.78
£1.78
£1.78
£1.33
£1.33
£1.33
38.2%
37.5%
37.7%
24.5%
23.5%
N/A
31.0%
31.0%
31.0%
0.3
0.3
2.3
1.3
1.3
1.3
2.3
2.3
2.3
0.87%
0.47%
0.56%
0.91%
1.17%
N/A
0.69%
0.69%
0.69%
2.75%
2.75%
2.75%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
£0.65
£1.34
£1.26
£0.94
£1.78
£1.78
£0.59
£1.33
£1.33
The Group has used the Monte Carlo model to value its share awards. The exercise price used in the model for share options
granted in 2019 is £nil (2018: £nil).
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 £1.9 million (2018: £1.5 million) related to equity-settled share-based payment transactions
in the period.
34. 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 Bakkavor Pension Scheme, which is a funded defined benefit scheme that 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
UK defined benefit scheme net charge
Total charge
2019
11.1
0.9
12.0
2018
8.3
3.21
11.5
1 This includes a charge of £2.6 million in respect of Guaranteed Minimum Pension ("GMP") equalisation and has been shown as an exceptional item within Other
administrative costs in the consolidated income statement.
DEFINED CONTRIBUTION SCHEMES
The total cost charged to income of £11.1 million (2018: £8.3 million) represents contributions payable to these schemes by the
Group at rates advised by the Group to all employees, subject to the minimum requirements set out in legislation. Included in
accruals was £2.3 million at the period end for the defined contribution schemes gross contributions (2018: £1.6 million).
DEFINED BENEFIT SCHEMES
An actuarial valuation of Scheme assets and the present value of the defined benefit obligation for funding purposes is being carried
out as at 31 March 2019. Initial results from this valuation were updated for IAS 19 Employee Benefits purposes to 28 December 2019
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)
28 December
2019
29 December
2018
2.85%
1.80%
2.10%
3.10%
2.65%
2.25%
167
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 34. RETIREMENT BENEFIT SCHEMES (CONTINUED)
The 2019 mortality table is based on scheme-specific postcode-fitted SAPS 3 tables with a 107% multiplier for male members and
a 110% multiplier for female members. Future improvements are in line with the CMI core 2018 improvements model with an initial
addition to improvements of 0.5% p.a. and a 1.25% p.a. long-term trend from 2013 onwards, giving life expectancies as follows:
Member aged 45
Member aged 65
Males’
expected
future lifetime
2019
Males’
expected
future lifetime
2018
Females’
expected
future lifetime
2019
Females’
expected
future lifetime
2018
41.0
21.6
41.8
22.3
43.6
23.7
44.2
24.4
The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Assumption
Change in assumption
Discount rate
Increase/decrease by 1.0%
Rate of inflation
Increase/decrease by 0.5%
Approximate impact on scheme liabilities
Decrease £46.9 million/increase £62.4 million
Increase £17.9 million/decrease £19.4 million
Life expectancy
Members assumed to be one year younger than their actual age
Increase £10.6 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
2019
–
0.9
–
0.9
2018
(0.2)
0.8
2.6
3.2
All of the charges for each period presented have been included in total administrative expenses. The actuarial gain of £8.3 million
(2018: £6.3 million loss) has been reported in other comprehensive income.
The actual return on Scheme assets was an increase of £40.6 million (2018: £11.0 million decrease).
The amount included in the statement of financial position arising from the Group’s obligations in respect of its defined benefit
retirement benefit schemes is as follows:
£ million
Fair value of Scheme assets
Present value of defined benefit obligations
Scheme surplus/(deficit)
Related deferred taxation (liability)/asset (Note 23)
28 December
2019
29 December
2018
274.1
(264.4)
9.7
(1.6)
8.1
241.4
(241.9)
(0.5)
0.1
(0.4)
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 2019 is 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 loss – experience
Actuarial gain – demographic assumptions
Actuarial (loss)/gain – financial assumptions
Past service cost – plan amendments
Closing balance
168
28 December
2019
29 December
2018
(241.9)
(260.6)
(6.3)
9.8
(1.5)
8.0
(32.5)
–
(6.0)
16.4
–
–
10.9
(2.6)
(264.4)
(241.9)
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED Movements in the fair value of Scheme assets were as follows:
£ million
Opening balance
Interest income on Scheme assets
Return on Scheme assets greater/(less) 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
Government bonds
Cash
Other
28 December
2019
29 December
2018
241.4
6.3
34.3
2.8
(9.8)
(0.9)
274.1
265.8
6.2
(17.2)
3.8
(16.4)
(0.8)
241.4
Fair value of assets
28 December
2019
29 December
2018
4.9
50.4
17.7
5.2
150.4
15.1
30.4
274.1
1.8
29.4
10.0
13.6
125.4
22.9
38.3
241.4
The fair values of the majority of the equity and bonds have been determined as level 2 instruments under IFRS 7 Financial
Instruments: Disclosures, except for most of the Index-linked government bonds, which have quoted prices in active markets and
are classed as level 1.
Structured UK equity provides exposure to UK equities, but is a derivative based solution and not a direct investment in equities.
A proportion of the Index-linked government bonds are held as collateral against the Structured UK equity product.
The Scheme assets also include swaps to hedge liability inflation and interest rate risks. The swap value has been included in the value
of the gilt securities used as collateral for the swaps. Corporate bonds and cash are also used as collateral for the swaps in place.
The Scheme invests in 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 2019
is currently in progress.
The Group and the Trustee work closely 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 19 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 2019,
a small augmentation of c. £12,000 was made in respect of this benefit (2018: £5,000).
169
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 34. RETIREMENT BENEFIT SCHEMES (CONTINUED)
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 ended 31 March 2019 and £2.5 million per annum in subsequent years until 31 March 2024. £2.8 million was
paid in the period to 28 December 2019 (2018: £3.8 million).
The actual amount of employer contributions expected to be paid to the Scheme during 2020 is £2.5 million.
35. 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.
SHARE TRANSACTIONS
See Note 37 for details of share transactions by two of the Company's Directors, Agust Gudmundsson and Lydur Gudmundsson.
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 for each of the categories specified in IAS 24 Related Party Disclosures.
£ million
Short-term employee benefits
Post-employment benefits1
Share-based payments2
2019
Senior
management
Directors
2.4
–
0.2
2.6
2.4
–
1.0
3.4
2018
Senior
Management
Directors
2.2
–
0.2
2.4
2.3
0.1
0.7
3.1
Total
4.8
–
1.2
6.0
Total
4.5
0.1
0.9
5.5
1 The Directors’ post-employment benefits show contributions made to pension schemes, the pension entitlements disclosed in the Directors’ Remuneration Report on page
106 included cash contributions paid in lieu of pension contributions.
2 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 33.
The highest paid Director received aggregate remuneration (including pension entitlements) of £1.0 million (2018: £0.9 million).
For the period ended 28 December 2019, one Director (2018: one Director) received share options. No Directors (2018: no Directors)
exercised share options during the period.
36. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE
On 18 March 2020 the Group completed a refinancing of its core debt facilities amounting to £410 million through a new term loan
and Revolving Credit Facility totalling £455 million. The new facilities are due to mature in March 2024, with an option to extend the
tenure by a further two years subject to lender approval.
The impact of the COVID-19 outbreak for the business is considered to be a non-adjusting post balance sheet event. For the
potential impact on the business of COVID-19 please see Principal Risks and Uncertainties on page 58.
37. CONTROLLING PARTY
These Financial Statements are the largest consolidated Group Financial Statements in which the Company has been included.
Two of the Company’s Directors, Agust Gudmundsson and Lydur Gudmundsson, hold shares in the Company through their beneficial
ownership of Carrion Enterprises Limited and Umbriel Ventures Limited. On 23 May 2019, Carrion Enterprises Limited and Umbriel
Ventures Limited each sold 3,229,625 Ordinary shares to Lixaner Co Limited, a company owned and controlled by Sigurdur Valtysson,
who runs the family office for Agust and Lydur Gudmundsson. Following the transaction, Lixaner Co Limited holds 6,459,250
Ordinary shares (representing 1.11% of the issued share capital of the Company), and Carrion Enterprises Limited and Umbriel
Ventures Limited each hold 142,103,505 Ordinary shares (representing 24.52% of the issued share capital of the Company).
Given the close relationship between the parties, Sigurdur Valtysson is to be considered as acting in concert with Agust and Lydur
Gudmundsson for the purposes of the definition in the Takeover Code, and the parties are controlling shareholders of the Company.
The aggregate shareholding in the Company of Carrion Enterprises Limited and Umbriel Ventures Limited and their concert party
group following the sale of shares to Lixaner Co Limited remained unchanged at 290,666,260 Ordinary shares (representing 50.16%
of the issued share capital of the Company).
170
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 38. 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. They 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.
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 as reported
Restatement (Note 2)
Statutory revenue restated
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
Restatement (Note 2)
Statutory revenue restated
Revenue from acquisitions
Revenue from closed and sold businesses
Like-for-like revenue
2019
2018
Change %
1,885.9
1,855.2
–
2.0
1,885.9
1,857.2
1.5%
(71.3)
(21.4)
(6.0)
(12.4)
(86.9)
–
1,787.2
1,757.9
1.7%
2019
2018
Change %
1,652.5
1,653.6
–
2.0
1,652.5
1,655.6
(0.2%)
(71.3)
(21.4)
(12.4)
(86.9)
1,559.8
1,556.3
0.2%
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
2019
233.4
(6.0)
227.4
2018
Change %
201.6
15.8%
–
201.6
12.8%
ADJUSTED EBITDA AND ADJUSTED OPERATING PROFIT
The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’ and ‘Adjusted Operating Profit’, as
these measures exclude 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 and Adjusted Operating Profit, we
exclude restructuring costs, asset impairments, and those additional charges or credits that are considered significant or one-off
in nature. In addition, for Adjusted EBITDA we exclude the share of results of associates after tax and share scheme charges, as
this is a non-cash amount.
171
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 38. ALTERNATIVE PERFORMANCE MEASURES (CONTINUED)
ADJUSTED EBITDA AND ADJUSTED OPERATING PROFIT (CONTINUED)
The following table sets out a reconciliation from the Group’s Operating profit to Adjusted EBITDA.
£ million
Operating profit
Depreciation
Amortisation
EBITDA
Exceptional items (Note 7)
Start-up losses for new sites
Share scheme charges
(Profit)/loss on disposal of property, plant and equipment
Share of results of associates after tax
Adjusted EBITDA post IFRS 16
Less IFRS 16 impact
Adjusted EBITDA pre IFRS 16
Adjusted EBITDA by segment is reconciled to operating profit in Note 4.
The following table provides a reconciliation from Operating profit to Adjusted Operating profit.
£ million
Operating profit
Exceptional items (Note 7)
Start-up losses for new sites
Adjusted Operating profit
2019
69.4
59.7
0.5
129.6
20.3
15.5
1.9
(0.4)
(0.5)
166.4
(12.9)
153.5
2019
69.4
20.3
15.5
105.2
2018
85.6
39.9
0.4
125.9
26.1
–
1.5
0.4
(0.4)
153.5
–
153.5
2018
85.6
26.1
–
111.7
OPERATIONAL NET DEBT AND LEVERAGE
Operational net debt excludes the impact of non-cash items on the Group’s net debt. 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 net debt to the Group’s operational net debt.
£ million
Group net debt
Unamortised fees
Interest accrual
Lease liabilities recognised under IFRS 16
Group operational net debt
Adjusted EBITDA
Leverage (Operational net debt/Adjusted EBITDA)
28 December
2019
29 December
2018
(432.4)
(306.6)
(2.8)
1.6
78.8
(354.8)
153.5
2.3
(4.0)
1.3
–
(309.3)
153.5
2.0
172
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED 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), lease liability capital
payments under IFRS 16, but before payments of refinancing fees and other exceptional or significant non-recurring cash flows.
Free cash flow has benefitted from non-recourse factoring of receivables as set out in Note 19 and the extension of payment terms
for certain suppliers as described in Note 25. The Directors view free cash flow as a key liquidity measure, and the purpose of
presenting free cash flow is to indicate the underlying 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
Cash impact of start-up losses for new sites
IFRS 16 capital element of lease liability payments
Free cash flow
2019
114.0
0.2
(98.9)
17.5
1.1
13.0
15.5
(11.3)
51.1
2018
99.1
0.7
(112.7)
52.1
–
15.9
–
–
55.1
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 exceptional items as presented in the consolidated income statement, start-up losses for new sites, the impact
of the introduction of IFRS 16 and the change in value of derivative financial instruments. 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
Exceptional items (Note 7)
Start-up losses for new sites
Impact of IFRS 16
Change in fair value of derivative financial instruments
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
2019
36.9
20.3
15.5
2.2
7.3
(8.7)
73.5
15.6
89.1
Restated1
2018
67.2
21.9
–
–
(1.1)
(4.0)
84.0
14.7
98.7
(Tax on underlying activities/Adjusted profit before tax)
17.5%
14.9%
1 The adjusted earnings used for the adjusted earnings per share calculation in 2018 has been restated to exclude the post tax impact of the change in the fair value of
derivative financial instruments.
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
2019
2018
579,426
579,426
3,922
2,993
583,348
582,419
2019
2018
12.7p
12.6p
14.5p
14.4p
173
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 38. 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 exceptional items, impairment of
assets and profit on disposal of subsidiaries less tax at the Group’s effective tax rate. Invested capital is defined as total assets less
total liabilities excluding net debt at the period end, pension assets and liabilities (net of deferred tax) and fair values for derivatives
not designated in a hedging relationship. The Group utilises ROIC to measure how effectively it uses invested capital. Average
invested capital is 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 help 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.
2019
69.4
20.3
15.5
105.2
(18.4)
86.8
1,479.1
(905.5)
(73.4)
432.4
3.5
(9.7)
1.6
928.0
901.1
9.6%
2019
105.2
4.2
109.4
(19.1)
90.3
928.0
(92.7)
835.3
817.2
11.0%
2018
85.6
26.1
–
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%
2018
111.7
2.5
114.2
(17.0)
97.2
874.3
(75.2)
799.1
773.8
12.6%
£ million
Operating profit
Exceptional items (Note 7)
Start-up losses for new sites
Adjusted operating profit
Taxation at the underlying effective rate
Adjusted operating profit after tax
Invested capital
Total assets
Total liabilities
Less property, plant and equipment recognised under IFRS 16
Net debt at period end
Derivatives not designated as hedges
Retirement benefit scheme (surplus)/deficit
Deferred tax liability/(asset) on retirement benefit scheme
Invested capital
Average invested capital for ROIC calculation
ROIC (%)
ROIC EXCLUDING DEVELOPMENT PROJECTS
£ million
Adjusted operating profit
Depreciation on development projects
Adjusted operating profit excluding development projects
Taxation at the underlying effective rate
Adjusted operating profit after tax excluding development projects
Invested capital
Development projects
Invested capital excluding development projects
Average invested capital excluding development projects
ROIC excluding development projects (%)
174
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSCONTINUED COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 28 DECEMBER 2019
£ million
Non-current assets
Investment in subsidiaries
Current assets
Amounts due from other Group companies
Deferred tax assets
Net assets
Equity
Share capital
Merger reserve
Retained earnings
Total equity
Notes
28 December
2019
29 December
2018
4
6
7
7
309.5
309.5
47.2
0.8
48.0
357.5
11.6
23.8
322.1
357.5
79.1
0.4
79.5
389.0
11.6
23.8
353.6
389.0
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 £1.3 million (2018: £2.3 million profit).
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 May 2020. They were signed on behalf of
the Board of Directors by:
A GUDMUNDSSON
CHIEF EXECUTIVE OFFICER
P GATES
CHIEF FINANCIAL OFFICER
COMPANY STATEMENT OF CHANGES IN EQUITY
52 WEEKS ENDED 28 DECEMBER 2019
£ million
Balance at 31 December 2017
Cancellation of share premium account (Note 7)
Dividends paid (Note 7)
Credit for share-based payments
Deferred tax on share schemes
Profit for the period
At 29 December 2018
Dividends paid (Note 7)
Credit for share-based payments
Deferred tax on share schemes
Profit for the period
At 28 December 2019
Share
capital
11.6
–
–
–
–
–
11.6
–
–
–
–
11.6
Share
premium
366.1
(366.1)
–
–
–
–
–
–
–
–
–
–
Merger
reserve
23.8
–
–
–
–
–
23.8
–
–
–
–
Retained
earnings
(4.5)
366.1
(11.6)
1.5
(0.2)
2.3
353.6
(34.8)
1.9
0.1
1.3
Total
equity
397.0
–
(11.6)
1.5
(0.2)
2.3
389.0
(34.8)
1.9
0.1
1.3
23.8
322.1
357.5
175
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report
NOTES TO THE COMPANY FINANCIAL STATEMENTS
52 WEEKS ENDED 28 DECEMBER 2019
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 FRS 101:
• 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.
Amounts due from other Group companies are initially recognised at fair value and subsequently carried at amortised cost net of
allowance for expected credit losses. An allowance is made when there is objective evidence that the Company will be unable to
recover balances in full. Balances are written off when the probability of recovery is assessed as being remote. The Company’s
amounts due from other Group companies at 28 December 2019 amounted to £47.2 million (2018: £79.1 million). None of these
balances include an allowance for expected credit losses and all amounts are expected to be recoverable in full.
3. EMPLOYEES’, DIRECTORS’ AND AUDITORS' REMUNERATION
Fees payable to the Company’s Auditor in respect of the audit of the Company’s Financial Statements for the periods ended
28 December 2019 and 29 December 2018 have been borne by fellow Group company Bakkavor Foods Limited. The Company
has no employees and payments to Directors for the periods ended 28 December 2019 and 29 December 2018 have been borne
by fellow Group company Bakkavor Foods Limited.
4. INVESTMENTS IN SUBSIDIARIES
£ million
Balance at 29 December 2018 and 28 December 2019
Investment
in Group
companies
309.5
176
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 5. SUBSIDIARIES
As at 28 December 2019, Bakkavor Group plc held investments in the share capital of the following companies:
Place of registration
and operation
Principal activity
% of voting shares
Name
Directly held investments:
Bakkavor Holdings Limited1
Indirectly held investments:
Bakkavor Finance (2) Limited1
Bakkavor (London) Limited1
Bakkavor Finance Limited2
Bakkavor Finance ehf3
Bakkavor Limited1
Bakkavor USA Inc4
Bakkavor USA Limited1
Bakkavor Foods USA Inc4
Bakkavor Foods Holdings LLC4
Bakkavor China Limited1
Creative Food Group Limited5
Bakkavor Hong Kong Limited5
UK Holding company
UK Holding company
UK Holding company
UK
Customer invoicing and financing of receivables
Iceland Holding company
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
Hong Kong
Production and manufacture of salad products
Hong Kong
Preparation and marketing of fresh prepared foods
Bakkavor China Holdings Limited5
Hong Kong Holding company
Wuhan Bakkavor Food Company Limited6
China
Production and manufacture of salad products
Wuhan Bakkavor Agricultural Product
Processing Company Limited23
Jiangsu Creative Agriculture Produce
Development Company Limited7
China
Production and manufacture of salad products
China
Production and manufacture of salad products
Shaanxi Bakkavor Food Company Limited8
China
Production and manufacture of salad products
Shanghai Creative Food Company Limited9
China
Production and manufacture of salad products
Beijing Bakkavor Food Company Limited10
China
Production and manufacture of salad products
Guangzhou Bakkavor Food Company Limited11
China
Production and manufacture of salad products
Bakkavor (Shanghai) Management
Company Limited12
Shaanxi Bakkavor Agriculture Processing
Company Limited13
China Holding company
China
Production and manufacture of salad products
Fujian Bakkavor Food Company Limited14
China
Production and manufacture of salad products
Bakkavor (Taicang) Baking Company Limited15
China
Production and manufacture of bakery products
Chengdu Bakkavor Foods Company Limited16
China
Production and manufacture of salad products
Geest Corporation Inc17
Bakkavor Foods Limited1
Bakkavor Desserts Leicester Limited1
Bakkavor Estates Limited2
USA Dormant holding company
UK
UK
UK
Preparation and marketing of fresh prepared foods
Production and manufacture of dessert products
Property management
Bakkavor Pension Trustees Limited1 *
UK Pension trustee holding company
Bakkavor European Marketing BV18
Netherlands Holding company
NV Bakkavor Belgium BV19
Bakkavor Australia Pty Limited20
BV Restaurant Group Limited1
Bakkavor Iberica S.L.U.21
Bakkavor Central Finance Limited2
Bakkavor Dormant Holdings Limited1
Dormant companies
Bakkavor Finance (1) Limited1
Bakkavor Finance (3) Limited1
Bakkavor Acquisitions (2008) Limited1
Bakkavor Invest Limited1
Bakkavor (Acquisitions) Limited1
Bakkavor Asia Limited1
Bakkavor Overseas Holdings Limited1 *
Belgium Non-trading
Australia Holding company
UK
Production and distribution of fresh prepared foods
Spain Distribution
UK
Customer invoicing and financing of receivables
UK Holding company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
177
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
Name
BV Foodservice Limited1
Haydens Bakery Limited1
Bakkavor Fresh Cook Limited1
English Village Salads Limited1
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 *
Associate companies
La Rose Noire Limited22
Place of registration
and operation
Principal activity
% of voting shares
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
UK Dormant non-trading company
Hong Kong
Operation of bakery and food and beverage outlets
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
45%
45%
Patisserie et Chocolat Limited22
Hong Kong
Operation of bakery and food and beverage outlets
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.424, Building 4, Chongwen tower scenic area (phase I), Jinghe new town, Xixian new district, Shaanxi province
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 Taicang 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. This company has been dissolved after the statement of financial
position date.
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 these companies is 2/F Corporation Square 8 Lam Lok Street, Kowloon Bay, Kowloon, Hong Kong. La Rose Noire and Patisserie et Chocolat
Limited are associate companies of the Bakkavor Group.
23 The registered address of this company is Room 706, 7th floor, No. 1 Entrepreneurship service center, Hanshi No. 1 road, Honggang village, Wuhan yangluo economic
development zone
* These companies are UK dormant companies who file dormant accounts which are exempt from audit by virtue of s479A of Companies Act 2006
178
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 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
7. SHARE CAPITAL AND RESERVES
SHARE CAPITAL
£ million
Issued and fully paid:
579,425,585 (2018: 579,425,585) Ordinary shares of £0.02 each
28 December
2019
29 December
2018
47.2
79.1
28 December
2019
29 December
2018
11.6
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 5 October 2018, the Company paid 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. A final dividend of 4 pence per share was approved for the period ended 29 December
2018 totalling £23,177,023. This final dividend was paid to Ordinary shareholders on 29 May 2019.
On 10 September 2019, the Company declared an interim dividend for the period ended 28 December 2019 of 2 pence per share to
each of the Ordinary shareholders totalling £11,588,512. This interim dividend was paid to Ordinary shareholders on 11 October 2019.
The Board has decided that no resolution relating to the declaration of a final dividend for the period ended 28 December 2019 will
be proposed to shareholders at the Annual General Meeting to be held on 12 June 2020.
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
Balance at 31 December 2017
Cancellation of share premium account
Balance at 29 December 2018 and 28 December 2019
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.
179
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report 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
28 December
2019
29 December
2018
47.2
79.1
Amounts due from other Group companies relate to corporate loans of £47.2 million (2018: £79.1 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 expected credit losses 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% (2018: 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
Two of the Company’s Directors, Agust Gudmundsson and Lydur Gudmundsson, hold shares in the Company through their beneficial
ownership of Carrion Enterprises Limited and Umbriel Ventures Limited. On 23 May 2019, Carrion Enterprises Limited and Umbriel
Ventures Limited each sold 3,229,625 Ordinary shares to Lixaner Co Limited, a company owned and controlled by Sigurdur Valtysson,
who runs the family office for Agust and Lydur Gudmundsson. Following the transaction, Lixaner Co Limited holds 6,459,250
Ordinary shares (representing 1.11% of the issued share capital of the Company), and Carrion Enterprises Limited and Umbriel
Ventures Limited each hold 142,103,505 Ordinary shares (representing 24.52% of the issued share capital of the Company).
Given the close relationship between the parties, Sigurdur Valtysson is to be considered as acting in concert with Agust and Lydur
Gudmundsson for the purposes of the definition in the Takeover Code, and the parties are controlling shareholders of the Company.
The aggregate shareholding in the company of Carrion Enterprises Limited and Umbriel Ventures Limited and their concert party
group following the sale of shares to Lixaner Co Limited remained unchanged at 290,666,260 Ordinary shares (representing 50.16%
of the issued share capital of the Company). These Financial Statements are the largest consolidated Group Financial Statements
in which the Company has been included.
180
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019 ADVISERS AND REGISTERED OFFICE
GENERAL COUNSEL & COMPANY SECRETARY
Annabel Tagoe-Bannerman (appointed 21 June 2019)
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
PricewaterhouseCoopers LLP
1 Embankment Place
London
WC2N 6RH
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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181
BAKKAVOR GROUP PLCANNUAL REPORT & ACCOUNTS 2019GovernanceCompany informationFinancial statementsStrategic report VIEW AND DOWNLOAD OUR ANNUAL REPORT AT
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Bakkavor
@Bakkavor
BAKKAVOR GROUP
Fitzroy Place 5th Floor, 8 Mortimer Street, London, W1T 3JJ
Bakkavor Group plc. Company No: 10986940