Bakkavor Group Annual Report 2022

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FY2022 Annual Report · Bakkavor Group

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Adapting
SUCCESSFULLY
TO CHANGE

Bakkavor Group plc
Annual Report
& Accounts 2022

CONTENTS

STRATEGIC REPORT

Our business at a glance

Key performance indicators

Chairman’s statement

A final message from Agust Gudmundsson

Chief Executive’s overview

How we create value

Our markets

Our strategy

Our people

Divisional review: UK, US, China

ESG: Trusted Partner

ESG: TCFD

Stakeholder engagement

Financial review

Risk management and risks

Viability statement

GOVERNANCE

Chairman’s governance overview

Corporate Governance Compliance statement

Group Board and Management Board

Corporate governance report

Nomination Committee report

ESG Committee report

Audit, risk and internal control

Audit and Risk Committee report

Directors’ remuneration report

Directors’ report

Statement of Directors’ responsibilities in respect
of the Financial Statements

FINANCIAL STATEMENTS

Independent Auditors’ report

Consolidated income statement

113

119

122

124

132

152

158

159

169

Consolidated statement of comprehensive income 170

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated statement of cash flows

Notes to the Consolidated Financial Statements

Company statement of financial position

Company statement of changes in equity

Notes to the Company Financial Statements

READ MORE on pg 67.

Greenhouse gas emissions, energy consumption and
energy efficiency action
READ MORE on the Task Force on Climate-related
Financial Disclosures on pg 56. All data shown is for the
calendar year 2022 and at a Group level, unless specified.

Charitable donations
Bakkavor believes in giving back to the communities
in which we operate. Our Charity and Political Donations
Policy sets out ways to channel charitable giving:
through monetary and product donations, supporting
our colleagues in their fundraising efforts and advocating
skills and volunteering events. 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. READ MORE on pg 55.

Political donations
Bakkavor does not give financial donations nor support
to political individuals, representatives, parties or causes
in any country in which we operate. No political donations
were made during the financial year.

Financial instruments
Please refer to Note 27 to the Group Financial Statements.

Financial risk management
Please refer to Note 27 to the Group Financial Statements.

156 | Bakkavor Group plc | Annual Report & Accounts 2022

Directors’ statement as to the disclosure of information
to the Auditors
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 Auditors in
connection with preparing its report, of which the Auditors
are 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 Auditors are 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 34 to the Group Financial Statements.

The Directors’ report was approved by the Group Board on
7 March 2023.

By order of the Group Board

Annabel Tagoe-Bannerman
Group General Counsel and
Company Secretary Bakkavor Group plc
7 March 2023

Going concern
The Directors have reviewed the historical trading
performance of the Group and the forecasts through
to March 2024.

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. The Directors
have carried out a robust assessment of the significant
risks currently facing the Group. This has included
scenario planning on the implications of further inflation
and the potential impact of lower sales volumes from
reduced consumer demand in response to increasing
retail prices.

Having taken these factors into account under the
scenario, which is considered to be severe but plausible,
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 in the future.

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.

READ MORE on principal risks and uncertainties on pg 76
and Note 2 of the Financial Statements.

Viability statement
In line with Provision 31 of the Code, the Group Board
has a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as
they fall due over the three-year period to the end of
2025. READ MORE on pg 87 and the subsequent events
mentioned below.

Bakkavor Group plc | Annual Report & Accounts 2022 | 157

GOVERNANCESTATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

Directors’ confirmations
The Directors consider that the Annual Report and
Accounts and the Financial Statements, taken as a whole,
are fair, balanced and understandable, and provide the
information necessary for shareholders to assess the
Group’s and Company’s position and performance,
business model and strategy.

Each of the Directors, whose names and functions are
listed in Annual Report and Accounts and the Financial
Statements, confirm that, to the best of their knowledge:

• The Group Financial Statements, which have been prepared
in accordance with UK-adopted International Accounting
Standards, give a true and fair view of the assets, liabilities,
financial position and profit of the Group;

• The Company Financial Statements, which have been

prepared in accordance with United Kingdom Accounting
Standards, comprising FRS 101, give a true and fair
view of the assets, liabilities and financial position of the
Company; and

• 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.

Approved on behalf of the Group Board by:

Mike Edwards
Chief Executive Officer
7 March 2023

Ben Waldron
Chief Financial Officer and
Asia Chief Executive Officer
7 March 2023

The Directors are responsible for preparing the Annual
Report and Accounts 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 UK-adopted International Accounting
Standards and the 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, 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
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 UK-adopted International Accounting

Standards 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; and

• 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 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 also responsible for keeping adequate
accounting records that are sufficient to show and explain
the Group’s and Company’s transactions and disclose with
reasonable accuracy at any time the financial position of
the Group and Company and enable them to ensure that
the Financial Statements and the Directors’ remuneration
report comply with the Companies Act 2006.

The Directors are 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.

158 | Bakkavor Group plc | Annual Report & Accounts 2022

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 31 December 2022 and of the
Group’s profit and the Group’s cash flows for the 53 week
period then ended;

• the Group Financial Statements have been properly

prepared in accordance with UK-adopted International
Accounting Standards as applied in accordance with
the provisions of the Companies Act 2006;

• the Company Financial Statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, including FRS 101 “Reduced Disclosure
Framework”, and applicable law); and

Our audit approach
Overview
Audit scope
• Full scope audit procedures performed over the complete
financial information of seven components and specified
procedures over a further four components

• Central audit procedures performed by the Group audit

team which included the audit of the recoverability of goodwill,
the audit of current and deferred income taxes, the audit of
share based payment schemes, the audit of the UK defined
benefit pension scheme and the audit of the consolidation

• Audit coverage from full scope procedures of 70%

of Group revenue

• Full scope audit procedures performed over the Company

financial information

Key audit matters
• Completeness and accuracy of customer deduction

• the Financial Statements have been prepared in accordance

accruals (Group)

with the requirements of the Companies Act 2006.

We have audited the Financial Statements, included within
the Annual Report & Accounts 2022 (the “Annual Report”),
which comprise: the consolidated statement of financial
position and the Company statement of financial position as
at 31 December 2022; the consolidated income statement
and the consolidated statement of comprehensive income,
the consolidated statement of cash flows, the consolidated
statement of changes in equity and the Company statement
of changes in equity for the 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.

Other than those disclosed in the Audit and Risk Committee
report, we have provided no non-audit services to the Company
or its controlled undertakings in the period under audit.

• Recoverability of goodwill in relation to the UK and US cash

generating units (Group)

• Presentation and disclosure of exceptional items (Group)

• Recoverability of shares in Group undertakings and loans

to Group undertakings (Company)

Materiality
• Overall Group materiality: £6.8m (2021: £4.0m) based

on 1% of total revenues capped at 10% of profit before tax
on underlying activities (2021: 5% of profit before tax on
underlying activities).

• Overall Company materiality: £4.0m (2021: £4.1m) based

on 1% of total assets.

• Performance materiality: £5.1m (2021: £3.0m) (Group) and

£3.0m (2021: £3.1m) (Company).

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.

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.

Bakkavor Group plc | Annual Report & Accounts 2022 | 159

FINANCIAL STATEMENTSRecoverability of goodwill has been updated to include the UK cash generating unit (Group) and the presentation and
disclosure of exceptional items (Group) is a new key audit matter this period. Otherwise, the key audit matters below are
consistent with last period.

Key audit matter

How our audit addressed the key audit matter

Completeness and accuracy of customer
deduction accruals (Group)

Refer to the accounting policies in Note 2 of the
Group Financial Statements.

At the planning stage of the audit, we assessed the design and implementation
of controls over the customer deduction process.

As described in Note 2 of the Group Financial
Statements, revenue from the sale of goods is
measured net of deductions relating to commercial
incentive arrangements in the form of volume-related
rebates, marketing and promotional funding,
discounts or lump sum incentives (“customer
deductions”), when it is highly probable that they will
not reverse. The complexity of customer deductions
depends on the specifics of each arrangement.
Some arrangements relating to specific products or
promotions are simple whereas other arrangements
may cover multiple manufacturing sites, multiple
products or span period ends. These are more
complex and can require estimation of the amount
of deductions ultimately claimed. Management
judgement is also required when assessing if
unclaimed historical deduction accruals are no
longer required.

We performed a detailed risk assessment on each
of our in-scope components to determine the inherent
risk level for the two key assertions of completeness
and accuracy and tailored the extent of our audit
procedures accordingly. We deemed two components
to contain a significant risk over the accuracy and
completeness of customer deduction accruals
because of the number and variety of contractual
arrangements and the inherent uncertainty in future
outcome. Testing to address these significant risk
assertions was performed to a high level of assurance.
Management estimates the level of claims from
customers based on historical experience and the
specific terms of individual agreements. Key inputs
into these estimates include forecast sales volumes
(where agreements are not coterminous), estimated
consumer uptake (in relation to promotional funding)
and ongoing negotiations with customers.

We understood and assessed the Group’s revenue recognition accounting
policies, including the recognition of customer deductions.

We performed risk assessment analytics by reviewing the customer deductions
as a percentage of revenue by customer. We also performed gross margin
analysis period-on-period to identify any unusual or unexpected trends.

We assessed the completeness and accuracy of amounts recognised in the
income statement and accrued at the period-end:

• We obtained management’s schedule of customer deduction accruals which
analyses the opening accrual to closing accrual with reference to amounts
claimed, amounts accrued in the period and amounts released. We verified
the mathematical accuracy of the schedule;

• We retrospectively reviewed management’s historical accuracy of accruals
recorded in the previous period by comparison to the amounts subsequently
settled during the current period and challenged management if any amounts
had not been adjusted;

• For a sample of customer deductions recorded in the period, we agreed to

third party support such as subsequent settlement amounts. Where unsettled,
inputs to the calculation have been agreed to underlying contracts and the
calculation reperformed. In addition, we have considered the historical accuracy
rate of accruals recorded. We recalculated the income statement and accrual
amounts to test mathematical accuracy;

• We selected a sample of prior period accruals settled in the period by agreeing

to debit notes or payments made to the customer;

• We performed a review of historical unclaimed deductions released in the period to
verify that they met the Group’s accounting policy regarding passage of time; and

• In order to test for completeness, we reviewed commercial agreements for

undisclosed volume rebates, promotional funding arrangements or marketing
support. We performed detailed testing to ensure that expected promotional
accruals had been recognised based on promotions seen in store or online.
We compared information obtained at site level with Group level discussions.
We performed substantive testing of post-period-end payments and credit notes
issued to ensure none related to unrecognised deduction accruals. We reviewed
local management’s debit note reconciliation to ensure all related deduction
accruals were correctly recognised.

Refer to the Audit and Risk Committee report for
discussion of this key audit matter.

We also assessed the adequacy of the disclosure provided in Note 2 of the
Group Financial Statements in relation to the relevant Accounting Standards.

We found no material differences as a result of the audit procedures performed.

160 | Bakkavor Group plc | Annual Report & Accounts 2022

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC CONTINUEDKey audit matter

How our audit addressed the key audit matter

Recoverability of goodwill in relation to the
UK and US cash generating units (Group)

Refer to the accounting policies in Note 2, the key
sources of estimation uncertainty in Note 3 and
Note 13 of the Group Financial Statements.

Goodwill must be tested for impairment on at least
an annual basis. The determination of recoverable
amount, being the higher of value-in-use (“VIU”) and
fair value less costs of disposal, requires estimations
on the part of management in both identifying and
then valuing the relevant Group’s cash-generating
units (“CGUs”).

On 31 December 2022, the Group held goodwill of
£51.3m (2021: £46.3m) and £603.8m (2021: £603.8m)
in relation to the US and UK CGUs respectively.

We focused on this area as management judgement
is required to establish the recoverable amount using
value in use models. This includes judgement in the
selection of assumptions used to estimate forecast
future cash flows such as earnings before interest,
tax, depreciation and amortisation (“EBITDA”) growth,
climate change impacts and capital expenditure
forecasts, and in the selection of appropriate discount
and long-term growth rates(“LTGRs”).

The key assumptions within the models are all
subjective and susceptible to management bias
and execution risk and could lead to an impairment
charge if incorrect.

Refer to the Audit and Risk Committee report for
discussion of this key audit matter.

At the planning stage of the audit, we assessed the design and implementation
of controls over the impairment review process.

As part of our audit of management’s impairment assessment and underlying
discounted cash flow model:

• We obtained the impairment models 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 and noted errors which were
subsequently updated;

• We reviewed the climate related assumptions within the models. Our procedures

included, but were not limited to:

– Assessing the competence of management experts, KPMG;

– Considering the decarbonisation scenario assumptions used by KPMG

to calculate decarbonisation costs for both CGUs; and

– Corroborating carbon pricing assumptions to an independent external source,

the International Energy Agency.

• We used internal valuation experts to determine whether management’s

discount rates were within an acceptable range and concluded that they were
appropriate.

• We used internal valuation experts to determine if LTGRs used in the impairment
models were consistent with external sources of evidence. We noted an error
in the data source used for the LTGRs and management updated for this in their
final models;

• We identified key cash flow forecast assumptions to which the US model was

sensitive and focused our efforts on these assumptions. We challenged the basis
of the short-term forecasts used in the model, focussing on revenue growth,
EBITDA margin assumptions and capital expenditure. This included, but was
not limited to:

Bakkavor Group plc | Annual Report & Accounts 2022 | 161

FINANCIAL STATEMENTSKey audit matter

How our audit addressed the key audit matter

– Agreeing forecasts to Board approved plans;

– Reviewing management’s historical accuracy of forecasting;

– Obtaining an EBITDA bridge from FY22 actuals through to FY24 forecasts,
and identifying key assumptions for margin growth including volume, price,
factory performance and cost inflation;

– Assessing the revenue growth rates in the US with reference to historical
growth, actual performance of the US CGU in FY22 and FY23 to date, and
versus key customer growth plans;

– Agreeing 2023 volumes to third party evidence;

– Performing detailed testing to substantiate the FY23 forecast price impact;

– Obtaining detailed factory performance plans, holding discussions with site

General Managers and reviewing Q4 FY22 run rate and FY23 actual
performance to date;

– Obtaining FY23 material purchase schedules and agreeing associated

inflationary assumptions to third party evidence;

– Assessing key assumptions for FY24 against historical performance such

as revenue growth rates and price recovery for inflation; and

– Reviewing capital expenditure forecasts to Board approved plans.

• We identified key cash flow forecast assumptions to which the UK model was

sensitive and focused our efforts on these assumptions. We challenged the basis
of the short-term forecasts used in the model, focussing on EBITDA margin
assumptions and capital expenditure. This included, but was not limited to:

– Agreeing forecasts to Board approved plans;

– Reviewing management’s historical accuracy of forecasting;

– Obtaining an EBITDA bridge from FY22 actuals through to FY23 forecast,

and identifying key assumptions for EBITDA margin including price recovery,
inflation, cost savings because of site closures and restructuring and factory
performance improvements;

– Obtaining FY23 material purchase schedules, labour inflation calculations and
utility cost forecasts and agreeing associated inflationary assumptions to third
party evidence;

– Obtaining a detailed schedule for FY23 price recovery, agreeing this to

supporting documentation such as annualisation calculations and customer
communications and also comparing to the FY22 historical recovery;

– Verifying forecast cost savings following site closures and central

restructuring to supporting documentation;

– Obtaining detailed factory performance plans, holding discussions with site

Financial Controllers and reviewing Q4 FY22 run rate and FY23 actual
performance to date; and

– Reviewing capital expenditure forecasts to Board approved plans.

We performed a cross check between the value-in-use calculation for the
full business to the market capitalisation of the Company. There has been a
differential between the two for several years. Management consider that this
is reflective of the control premium implied in the VIU models, and the ongoing
effects of the COVID-19 pandemic and inflationary pressures. We concur with
this assessment, and this does not change our conclusions.

We reperformed management’s sensitivity analysis by reducing cash flows
and separately sensitised the discount rate and long-term growth rates to
understand the impact that possible changes could have. We confirmed these
are mathematically accurate.

We performed independent sensitivities on both the UK and US CGUs in the
form of stress tests to assess the deviation from budget that each CGU could
withstand before an impairment would be necessary. These were focused
on adjusting those assumptions which involve greater estimation and also
compared to downsides in management’s going concern model for consistency.

We concluded that no impairment charge is required based on the testing
and reasonable downside scenarios modelled and concur with the enhanced
disclosures included in the Group Financial Statements.

162 | Bakkavor Group plc | Annual Report & Accounts 2022

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC CONTINUEDKey audit matter

How our audit addressed the key audit matter

Presentation and disclosure of exceptional
items (Group)

Refer to the accounting policies in Note 2, Note 3 and
Note 7 of the Group Financial Statements.

The Group has reported exceptional items totalling
£50.1m (2021: £nil) separately within the consolidated
income statement, which are excluded from
management’s reporting of the underlying results
of the Group.

We focused on this area because management’s
judgement is required in order to identify and
present items as exceptional. Our specific area
of focus was to assess the existence of the items
identified by management as exceptional and that
they are calculated accurately and in line with the
Group’s accounting policy (i.e., are material items
that are significant in nature or non-recurring
and are important to users in understanding the
business) and have been treated consistently.

Refer to the Audit and Risk Committee report for
discussion of this 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.

We assessed the control procedures that relate to the preparation,
review and approval of the amounts included in exceptionals.

We have examined the items classified as exceptional to understand
management’s rationale for their separate presentation and assessed the
appropriateness of their presentation by reference to the Group’s accounting
policies and the FRC guidance in this area. Audit procedures performed
included, but were not limited to;

• For a sample of assets impaired as a result of site closures, verifying that the

equipment had been scrapped, or where this had not yet occurred corroborating
that the asset had no alternative use within the UK business, nor were there any
plans to sell the assets;

• For a sample of redundancy costs agreeing amounts recorded to underlying
calculations and verifying key inputs to supporting documentation such as
redundancy letters, salary information and, where relevant, settlement
agreements;

• Agreeing a sample of non-people related closure costs to supporting

documentation; and

• For the asset impairment in respect of the associate, La Rose Noire, obtaining
management’s impairment paper and VIU model and agreeing future dividend
forecasts to supporting documentation. This included:

– Ensuring that the assumptions for future dividend payments were consistent

with the associate’s full forecasts and challenging the forecast key
assumptions such as timing of EBITDA by store, and verifying to market
data where possible;

– Obtaining corroboration of the changes to the business from the associate’s

board member;

– Validating that the discount rate and growth rates were not material to the

model; and

– Ensuring that the impairment recognised was not more than the Group’s

share of net assets on a return of capital.

We challenged the disclosures for items classified as exceptional with a focus
on ensuring there was a clear narrative setting out why they are excluded from
underlying performance.

We concluded that the treatment of exceptional items was consistent with the
policy set out in Note 2 which has been applied consistently between periods.

As part of our review of the Annual Report, we also considered the disclosures
in respect of exceptional items and reconciliation of adjusted profit measures to
the equivalent statutory measures and concluded that these were appropriate.

Bakkavor Group plc | Annual Report & Accounts 2022 | 163

FINANCIAL STATEMENTSKey audit matter

How our audit addressed the key audit matter

Recoverability of shares in Group
undertakings and loans to Group
undertakings (Company)

Refer to the accounting policies in Note 2, Note 4 and
Note 8 of the Company Financial Statements.

Bakkavor Group plc holds a direct investment of
£309.5m (2021: £309.5m) in Bakkavor Holdings Limited,
and through this entity an indirect investment in the
Group. The valuation of the shares in Group
undertakings is significant to the Company-only
balance sheet. The Company also holds a loan to
Group undertakings of £95.6m (2021: £97.2m). Given
the magnitude of both the shares in Group undertakings
and the loans to Group undertakings we have
considered the risk of impairment of these assets.

At the planning stage of the audit, we assessed the design and implementation
of controls over the impairment review process for both shares in Group
undertakings and loans to Group undertakings.

To address the risk identified;

• We obtained a schedule of shares in Group undertakings and ensured this

reconciled to Financial Statements;

• We challenged management’s assertion that no impairment triggers were
identified that would necessitate a full impairment review to be performed.
We performed a review of net assets of the subsidiary entity against the carrying
value, considered the external market and economic factors and also our review
of the discounted cash flow models prepared for the purpose of testing goodwill
for impairment. (Please see our key audit matter in respect of the recoverability
of goodwill in relation to the US and UK cash generating units). Based on these
procedures we concluded that there were no triggers that would indicate the
directors were required to perform a full impairment test of the shares in Group
undertakings carrying value;

• We have performed a reconciliation of the loans to Group undertakings amount

and ensured this agrees with the counterparty;

• We reviewed the application of management’s impairment methodology in

assessing the recoverability of intercompany receivables and the level of related
expected credit loss provisions. The outstanding balances are considered to
have a low credit risk and therefore the associated loss allowance is limited
to 12 months’ expected losses. We have reviewed the terms for the loans to
Group undertakings and assessed the nature of the counterparty’s liquid assets
and have concluded that there is no indication of material impairment to the
receivable balances.

We also assessed the adequacy of the disclosure provided in Note 2, Note 4
and Note 8 of the Company Financial Statements in relation to the relevant
Accounting Standards.

We found no exceptions as a result of our testing and consider the
recoverability of shares in Group undertakings and loans to Group
undertakings to be appropriate.

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 separate
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 component. Two reporting components were
determined to be financially significant due to their relative
contribution to revenue or absolute profit before tax on
underlying activities. Full scope audit procedures were
performed over these components. No reporting
components were determined to be significant based
on their risk profile.

We identified a further four UK components and the US
component 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

164 | Bakkavor Group plc | Annual Report & Accounts 2022

certain large or material balances in other components where
specified procedures were performed. These included cash
balances within the Chinese sub-consolidation, inventory
within the Inbound Logistics component, provisions within one
property component and external borrowings and related
interest expenses within the finance component to which
specific audit procedures were performed to ensure that we
had sufficient audit coverage over the relevant Financial
Statement line items.

The consolidation, Financial Statement disclosures and a
number of centralised areas were audited by the Group
audit team at the head office. These included the audit of the
recoverability of goodwill, investments, the audit of current
and deferred income taxes, the audit of share-based payment
schemes and the audit of the defined benefit pension scheme.

We also performed analytical procedures on all of the
remaining out of scope components to identify whether
any further audit evidence was needed. This resulted
in no additional substantive testing.

This audit work resulted in coverage of 70% of Group revenues.

The Company was also subject to a full scope audit
by the Group audit team.

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC CONTINUEDThe impact of climate risk on our audit
As part of our audit we made enquiries of management
to understand the process management adopted to assess
the extent of the potential impact of climate risk on the
Group Financial Statements and support the disclosures
made within the Strategic Report. In addition to enquiries
of management we also read reporting provided by
management experts on climate risks and opportunities
and the pathway to Net Zero.

We challenged the completeness of management’s climate
risk assessment by: reading external reporting made by
management to the Carbon Disclosure Project; reviewing
internal climate plans and board minutes; and reading the
Company’s website for details of climate related
commitments and impacts.

Management have made a commitment to reach Net Zero
emissions across Group operations by 2040. Management
are in the process of developing a detailed pathway to
deliver this commitment and have modelled their current
best view of the impact. This will be refined in subsequent
periods as the pathway becomes more defined.

The key area of the Group Financial Statements where
management evaluated that climate risk has a potentially
significant impact is in determining the value in use of its
CGU’s for the assessment of the recoverability of goodwill
in relation to the UK and US, where decarbonisation costs
are a key assumption. Our audit response is included in
the key audit matter above.

We also considered the consistency of the disclosures
in relation to climate change (including the disclosures in
the Task Force on Climate-Related Financial Disclosures
(“TCFD”) section) within the Annual Report with the Financial
Statements and our knowledge obtained from our audit.
This included obtaining the expert reporting used in the
TCFD scenario analysis and considering if the assumptions
are consistent with those used in the goodwill recoverability
assessment and challenging the completeness of the
disclosures given in the narrative reporting. We have no
matters to report as a result of these procedures.

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.

Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:

Financial statements – Group

Financial statements – Company

Overall materiality

£6.8m (2021: £4.0m).

How we determined it

1% of total revenues capped at 10% of profit before tax on underlying
activities (2021: 5% of profit before tax on underlying activities).

Rationale for
benchmark applied

Based on the benchmarks used in the Annual Report, several KPIs used
by management to inform its key stakeholders as well as the targets
used for Executive remuneration. Taking these into account we have
considered both revenue and profit before tax on underlying activities
when determining materiality this period. The key factor for the change
is to ensure the materiality appropriately reflects the scale of the
business and allows the audit to focus on the key areas as a result.

£4.0m (2021: £4.1m).

1% of total assets.

We believe that total assets
are an appropriate benchmark
for a holding Company.

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 £1.4m and £6.1m.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining
the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and
disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall
materiality, amounting to £5.1m (2021: £3.0m) for the Group Financial Statements and £3.0m (2021: £3.1m) for the
Company Financial Statements.

In determining the performance materiality, we considered a number of factors – the history of misstatements,
risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount in the middle
of our normal range was appropriate.

We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit
above £0.34m (Group audit) (2021: £0.2m) and £0.2m (Company audit) (2021: £0.2m) as well as misstatements below those
amounts that, in our view, warranted reporting for qualitative reasons.

Bakkavor Group plc | Annual Report & Accounts 2022 | 165

FINANCIAL STATEMENTSConclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s
and the Company’s ability to continue to adopt the going
concern basis of accounting included:

• Obtaining management’s paper that supports the Board’s

assessment and conclusions with respect to the
disclosures provided around going concern and viability;

• Discussing with management the assumptions 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 verified
key assumptions to supporting documentation;

• Reviewing monthly trading results to January 2023,

and weekly trading results thereafter and comparing
to management’s original budget and revised forecasts,
and considering the impact of these actual results on the
future forecast period; and

• Reviewing management’s severe but plausible downside
sensitivity scenarios. We assessed the availability of liquid
resources under the base case and downside scenarios
modelled by management, and the associated covenant
tests applied. We reviewed management’s identified
mitigating actions to confirm they are within management’s
control, albeit we note that no significant mitigations,
bar reductions in capital expenditure, are required.

Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast
significant doubt on the Group’s and the Company’s ability
to continue as a going concern for a period of at least
twelve months from when the Financial Statements are
authorised for issue.

In auditing the Financial Statements, we have concluded that
the directors’ use of the going concern basis of accounting in
the preparation of the Financial Statements is appropriate.

However, because not all future events or conditions can be
predicted, this conclusion is not a guarantee as to the Group’s
and the Company’s ability to continue as a going concern.

In relation to the directors’ reporting on how they have
applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to
the directors’ statement in the Financial Statements about
whether the directors considered it appropriate to adopt
the going concern basis of accounting.

Our responsibilities and the responsibilities of the
directors with respect to going concern are described
in the relevant sections of this 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.

166 | Bakkavor Group plc | Annual Report & Accounts 2022

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 our work undertaken in the course of the audit,
the Companies Act 2006 requires us also to report certain
opinions and matters as described below.

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 31 December 2022
is consistent with the Financial Statements and has been
prepared in accordance with applicable legal requirements.

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.

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.

Corporate governance statement
The Listing Rules require us to review the directors’
statements in relation to going concern, longer-term
viability and that part of the corporate governance
statement relating to the Company’s compliance with
the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities
with respect to the corporate governance statement
as other information are described in the Reporting
on other information section of this report.

Based on the work undertaken as part of our audit,
we have concluded that each of the following elements
of the corporate governance statement, included within
the Governance section is materially consistent with the
Financial Statements and our knowledge obtained during
the audit, and we have nothing material to add or draw
attention to in relation to:

• The directors’ confirmation that they have carried out a
robust assessment of the emerging and principal risks;

• The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are being
managed or mitigated;

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC CONTINUED• The directors’ statement in the Financial Statements about
whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their
identification of any material uncertainties to the Group’s
and Company’s ability to continue to do so over a period
of at least twelve months from the date of approval of the
Financial Statements;

• The directors’ explanation as to their assessment of the

Group’s and Company’s prospects, the period this
assessment covers and why the period is appropriate; and

• The directors’ statement as to whether they have a

reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall
due over the period of its assessment, including any related
disclosures drawing attention to any necessary
qualifications or assumptions.

Our review of the directors’ statement regarding the longer-
term viability of the Group and Company was substantially
less in scope than an audit and only consisted of making
inquiries and considering the directors’ process supporting
their statement; checking that the statement is in alignment
with the relevant provisions of the UK Corporate Governance
Code; and considering whether the statement is consistent
with the Financial Statements and our knowledge and
understanding of the Group and Company and their
environment obtained in the course of the audit.

In addition, based on the work undertaken as part
of our audit, we have concluded that each of the following
elements of the corporate governance statement is
materially consistent with the Financial Statements and
our knowledge obtained during the audit:

• The directors’ statement that they consider the Annual

Report, taken as a whole, is fair, balanced and
understandable, and provides the information necessary
for the members to assess the Group’s and Company’s
position, performance, business model and strategy;

• The section of the Annual Report that describes the review
of effectiveness of risk management and internal control
systems; and

• The section of the Annual Report describing the work of the

Audit and Risk Committee.

We have nothing to report in respect of our responsibility
to report when 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.

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 in respect of the Financial Statements,
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.

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
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.

Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect
of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities,
including fraud, is detailed below.

Based on our understanding of the Group and industry,
we identified that the principal risks of non-compliance
with laws and regulations related to pensions legislation,
employment regulation, health and safety legislation and
other legislation specific to the industry in which the
Group operates (including food safety legislation), and we
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 Financial Statements such as the Listing
Rules, tax legislation and 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. Audit procedures performed
by the engagement team 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;

• Review of minutes of meetings of those charged with

governance;

• Review of internal audit reports;

• Review of key correspondence with regulatory authorities;

Bakkavor Group plc | Annual Report & Accounts 2022 | 167

FINANCIAL STATEMENTS• Challenging assumptions and judgements made by

management in their significant accounting estimates,
in particular in relation to calculation of customer deduction
accruals, the presentation and disclosure of exceptional
items and the recoverability assessment for goodwill (see
related key audit matters); and

• Identifying and testing journal entries, in particular any

journal entries posted with unusual account combinations
which impact revenue or EBITDA, which could manipulate
the financial performance of the business.

There are inherent limitations in the audit procedures
described above. We are less likely to become aware of
instances of non-compliance with laws and regulations that
are not closely related to events and transactions reflected
in the Financial Statements. 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.

Our audit testing might include testing complete
populations of certain transactions and balances, possibly
using data auditing techniques. However, it typically
involves selecting a limited number of items for testing,
rather than testing complete populations. We will often
seek to target particular items for testing based on their
size or risk characteristics. In other cases, we will use
audit sampling to enable us to draw a conclusion about
the population from which the sample is selected.

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 obtained 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 period ended 28 December 2019 and subsequent
financial periods. The period of total uninterrupted
engagement is four periods, covering the periods
ended 28 December 2019 to 31 December 2022.

Other matter
As required by the Financial Conduct Authority
Disclosure Guidance and Transparency Rule 4.1.14R,
these Financial Statements form part of the ESEF-
prepared annual financial report filed on the National
Storage Mechanism of the Financial Conduct
Authority in accordance with the ESEF Regulatory
Technical Standard (“ESEF RTS”). This auditors’
report provides no assurance over whether the annual
financial report has been prepared using the single
electronic format specified in the ESEF RTS.

Sandeep Dhillon (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 March 2023

168 | Bakkavor Group plc | Annual Report & Accounts 2022

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC CONTINUEDCONSOLIDATED INCOME STATEMENT
53 WEEKS ENDED 31 DECEMBER 2022

£m

Continuing operations

Revenue

Cost of sales

Gross profit

Distribution costs

Other administrative costs (net)

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

Earnings per share

Basic

Diluted

53 weeks ended 31 December 2022

52 weeks ended 25 December 2021

Note(s)

Underlying
activities

Exceptional
items1

Total

Underlying
activities

Exceptional
items1

Total

2,139.2

1,871.6

(1,576.5)

(1,330.9)

4,5

2,139.2

(1,576.5)

562.7

(89.4)

(385.6)

0.2

87.9

(20.8)

1.1

68.2

(14.7)

53.5

–

562.7

(89.4)

(50.1)

(435.7)

–

(50.1)

–

(50.1)

9.1

(41.0)

0.2

37.8

(20.8)

1.1

18.1

(5.6)

12.5

2.2p

2.1p

540.7

(75.1)

(363.9)

0.3

102.0

(17.1)

(3.5)

81.4

(24.6)

56.8

–

1,871.6

(1,330.9)

540.7

(75.1)

(363.9)

0.3

102.0

(17.1)

(3.5)

81.4

(24.6)

56.8

9.8p

9.6p

The Group presents its income statement with three columns. The Directors consider that the underlying activities are more representative of 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 and impairment of assets. In addition, the Group uses further Alternative Performance Measures which can be found
in Note 36.

The Notes to the Consolidated Financial Statements form an integral part of the Consolidated Financial Statements.

Bakkavor Group plc | Annual Report & Accounts 2022 | 169

FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
53 WEEKS ENDED 31 DECEMBER 2022

£m

Profit for the period

Other comprehensive (expense)/income

Items that will not be reclassified subsequently to profit or loss:

Actuarial (loss)/gain on defined benefit pension schemes

Tax relating to components of other comprehensive (expense)/income

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translation of foreign operations

Gain on cash flow hedges

Hedging (gains)/losses reclassified to profit or loss

Tax relating to components of other comprehensive income/(expense)

Total other comprehensive income

Total comprehensive income

53 weeks ended
31 December
2022

52 weeks ended
25 December
2021

Note

12.5

56.8

(26.3)

6.6

(19.7)

17.3

13.3

(1.4)

(3.1)

26.1

6.4

18.9

24.5

(6.6)

17.9

2.6

2.0

0.4

(0.2)

4.8

22.7

79.5

The Notes to the Consolidated Financial Statements form an integral part of the Consolidated Financial Statements.

170 | Bakkavor Group plc | Annual Report & Accounts 2022

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022

£m

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

Borrowings

Lease liabilities

Provisions

Derivative financial instruments

Deferred tax liabilities

Total liabilities

Net assets

Equity

Called up share capital

Own shares held

Merger reserve

Hedging reserve

Translation reserve

Retained earnings

Total equity

Note

31 December
2022

25 December
2021

655.1

8.8

548.1

3.7

12.9

12.8

9.9

650.1

1.7

545.2

11.8

9.9

37.2

2.6

1,251.3

1,258.5

86.2

161.0

40.2

2.7

290.1

1,541.4

70.8

142.8

31.1

0.3

245.0

1,503.5

(430.0)

(390.8)

(1.1)

(13.1)

(11.3)

(22.0)

(0.3)

(1.3)

(3.0)

(10.8)

(8.5)

(1.7)

(477.8)

(416.1)

(309.2)

(85.9)

(15.0)

–

(35.7)

(445.8)

(923.6)

617.8

11.6

(3.1)

(317.6)

(73.8)

(14.3)

(0.4)

(40.6)

(446.7)

(862.8)

640.7

11.6

–

(130.9)

9.5

44.5

686.2

617.8

1.7

27.2

731.1

640.7

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 7 March 2023. They were signed on behalf
of the Board of Directors by:

Mike Edwards
Chief Executive Officer

Ben Waldron
Chief Financial Officer and Asia Chief Executive Officer

Bakkavor Group plc | Annual Report & Accounts 2022 | 171

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
53 WEEKS ENDED 31 DECEMBER 2022

£m

Balance at 27 December 2020

Profit for the period

Other comprehensive income for the period

Total comprehensive income for the period

Reclassification

Dividends

Credit for share-based payments

Cash-settlement of share based payments

Deferred tax

Balance at 25 December 2021

Profit for the period

Other comprehensive income/(expense) for the period

Total comprehensive income/(expense) for the period

Reclassification to inventory

Purchase of own shares

Dividends

Credit for share-based payments

Cash-settlement of share based payments

Deferred tax

Called up
share capital

Own shares
held

Note

11.6

–

11.6

–

(3.1)

–

Merger
reserve

(130.9)

Hedging
reserve

Translation
reserve

Retained
earnings

(0.7)

24.8

693.3

–

(130.9)

–

2.2

0.2

–

1.7

–

8.8

(1.0)

–

2.6

(0.2)

–

27.2

–

17.3

–

Total
equity

598.1

56.8

22.7

79.5

–

56.8

17.9

74.7

–

(38.5)

2.3

(0.6)

(0.1)

2.3

(0.6)

(0.1)

731.1

640.7

12.5

(19.7)

(7.2)

–

12.5

6.4

18.9

(1.0)

(3.1)

(38.8)

1.9

(0.6)

(0.2)

1.9

(0.6)

(0.2)

Balance at 31 December 2022

11.6

(3.1)

(130.9)

9.5

44.5

686.2

617.8

The Notes to the Consolidated Financial Statements form an integral part of the Consolidated Financial Statements.

172 | Bakkavor Group plc | Annual Report & Accounts 2022

CONSOLIDATED STATEMENT OF CASH FLOWS
53 WEEKS ENDED 31 DECEMBER 2022

£m

Net cash generated from operating activities

Investing activities:

Interest received

Dividends received from associates

Purchases of property, plant and equipment

Proceeds on disposal of property, plant and equipment

Purchase of intangibles

Net cash used in investing activities

Financing activities:

Dividends paid

Own shares purchased

Increase in borrowings

Repayment of borrowings

Principal elements of lease payments

Net cash used in financing activities

Net increase 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

Note

53 weeks ended
31 December
2022

52 weeks ended
25 December
2021

127.1

144.0

0.2

–

(61.1)

0.1

(2.9)

(63.7)

(38.8)

(3.1)

9.7

(9.2)

(14.0)

(55.4)

8.0

31.1

1.1

40.2

–

0.7

(59.8)

4.2

–

(54.9)

(38.5)

–

28.1

(60.9)

(11.7)

(83.0)

6.1

24.8

0.2

31.1

The Notes to the Consolidated Financial Statements form an integral part of the Consolidated Financial Statements.

Bakkavor Group plc | Annual Report & Accounts 2022 | 173

FINANCIAL STATEMENTSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
53 WEEKS ENDED 31 DECEMBER 2022

1. General information
Bakkavor Group plc is a public company, limited by shares, incorporated and domiciled in England, United Kingdom
(Company number: 10986940, registered office: Fitzroy Place, 5th Floor, 8 Mortimer Street, London, England, 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 manufacture of fresh prepared
food and fresh produce. These activities are undertaken in the UK and US where products are primarily sold through
high-street supermarkets and China where products are primarily sold through foodservice operators.

At the date of authorisation of these Financial Statements, the following Standards and Interpretations relevant to the
Group have not been applied in these Financial Statements as they were in issue but not yet effective:

IFRS 17 Insurance Contracts

Annual Improvements to IFRS Standards 2018-2020 Cycle

Narrow scope amendments to IFRS 3, IAS 16 and IAS 37

Narrow scope amendments to IAS 1, IAS 8 and IFRS Practice statement 2

Amendments to IAS 12, ‘Taxation’, relating to Deferred tax related to assets and liabilities arising from a single transaction

Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates

Amendments to IAS 1, Presentation of financial statements’ on classification of liabilities

Amendments to IAS 1, Presentation of financial statements’ on non-current liabilities with covenants

Amendments to IFRS 16, ‘Leases’ Lease Liability in a Sale and Leaseback

The Directors anticipate that the adoption of these Standards and Interpretations will have no material impact on the
Financial Statements of the Group.

2. Significant accounting policies
Basis of accounting
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-
adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement
Board. Bakkavor Group plc transitioned to UK-adopted International Accounting Standards in its consolidated financial
statements on 26 December 2021. This change constitutes a change in accounting framework. However, there is no
impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The
consolidated financial statements of the Bakkavor Group plc group have been prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.

The Consolidated Financial Statements comprise the Financial Statements of the parent undertaking and its subsidiary
undertakings (the “Group”), together with the Group’s share of the results of associated undertakings comprising a 52 or
53-week period ending on the Saturday of or immediately before 31 December. Where the fiscal year 2022 is quoted in these
Financial Statements this relates to the 53-week period ended 31 December 2022. The fiscal year 2021 relates to the
52-week period ended 25 December 2021.

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 Group considers the impact of climate-related factors in the preparation of the Financial Statements and discloses
any material impact in the relevant Notes.

The Financial Statements have been prepared on the historical cost basis, except for the revaluation of financial
instruments and retirement benefit plan assets (which are stated at fair value).

The Group made a change to its accounting policy in relation to upfront configuration and customisation costs incurred in
implementing Software-as-a-Service (“SaaS”) arrangements; this is described within the Other intangible assets
accounting policy. All other principal accounting policies adopted have been applied consistently and are set out below.

Restatement
During the year the Group identified that its Property, plant and equipment cost and accumulated depreciation were both
understated by £25.2m, with no impact to the net book value. This mainly related to cost and accumulated depreciation
values of assets disposed of in prior years for businesses which had been historically acquired. In addition some assets had
historically been incorrectly categorised as Plant and machinery instead of Land and buildings due to complexity of projects.
There is no impact to profit, basic or diluted earnings per share, cashflows or the statement of financial position as a result
of these restatements. The impact of the restatements impact to Property, plant and equipment can be seen in Note 15.

174 | Bakkavor Group plc | Annual Report & Accounts 2022

Going concern
The Directors have reviewed the historical trading performance of the Group and the forecasts through to March 2024.

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. The Directors have
carried out a robust assessment of the significant risks currently facing the Group. This has included scenario planning on
the implications of further inflation and the potential impact of lower sales volumes from reduced consumer demand in
response to increasing retail prices.

Having taken these factors into account under the scenario, which is considered to be severe but plausible, 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 in the future.

Consequently, the Directors consider that the Group has adequate resources to meet its liabilities as they fall due for the
foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.

Subsidiaries
Subsidiary undertakings are included in the Consolidated 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.

Bakkavor Group plc | Annual Report & Accounts 2022 | 175

FINANCIAL STATEMENTS2. Significant accounting policies continued
Goodwill
Goodwill is initially recognised and measured as set out above in ‘Business combinations’.

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 ‘Investments in associates’ 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.

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 and less any dividends or distributions received from the associate.

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. 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 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. Volume-based rebates, which are calculated on the Group’s
estimate of rebates, are 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. 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.

176 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDLeases
From the start of 2019 the Group adopted IFRS 16 Leases and transitioned to this standard by applying the modified
retrospective asset equals liability approach for lease commitments in place at that time.

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.

Under IFRS 16, all leases (except as noted below), are accounted for as follows:

• Recognise the 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; and

• Recognise depreciation of right-of-use assets and interest on lease liabilities in the consolidated income statement.

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.

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.

Bakkavor Group plc | Annual Report & Accounts 2022 | 177

FINANCIAL STATEMENTS2. Significant accounting policies continued
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 include material items that are non-recurring, significant in nature and are important to users in
understanding the business, including restructuring costs and impairment of assets.

Operating profit
Operating profit is stated after charging exceptional items, impairment of assets, profit/loss on the disposal of subsidiaries
and associates and share of results of associates, but before investment revenue, finance costs and other gains and losses.

Retirement benefit obligations
Defined contribution pension plans
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity, which
then invests the contributions to buy annuities for the pension liabilities as they become due based on the value of the fund,
and hence the Group has no legal or constructive obligations to pay further contributions. Obligations for contributions to defined
contribution pension plans are recognised as an expense in the income statement as employee service is received. Prepaid
contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. Payments
made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the
Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

Defined benefit pension plans
A defined benefit plan is a pension plan that defines the amount of pension benefit that an employee will receive on
retirement, usually dependent on factors such as age, years of service and compensation.

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 recognised for goods or services acquired in a share-based transaction when the goods are obtained or the
service received. The credit is booked as either a liability or in 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.

During 2022, the Company began purchasing its own Ordinary shares from the market through an Employee Benefit Trust
called the Bakkavor Group plc Employee Benefit Trust. These shares are held to satisfy share awards under the Group’s
share scheme plans. Own shares are recorded at cost and are deducted from equity.

178 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDTaxation
The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the
income statement because it excludes items of income or expense that are taxable or deductible in other periods, and it
further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax
rates that have been enacted or substantively enacted by the statement of financial position date.

Tax returns are prepared to adhere to tax rules and regulations and with all transactions being fully disclosed to the tax
authorities. However, the complex nature of tax sometimes means that the legislation is open to interpretation. In such
cases, judgement is required to quantify the tax liability to be reflected in the Financial Statements. If there is a reasonable
possibility that tax authorities may take a different view from the position taken in the filed returns then this will be
reflected in the Financial Statements in the form of a tax provision. In such cases, this provision will represent the full
amount of any potential liability until the matter is agreed with the tax authorities.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the Financial Statements and the corresponding tax bases used in the computation of taxable profit, and is
accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary
differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from the initial recognition of goodwill, or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and
associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at
each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited
directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

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.

The useful economic lives 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.

Depreciation is charged so as to write off the cost or valuation of assets, other than land or assets 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.

Some fixtures and equipment, that comprise improvements or additions to an existing building, may be depreciated over
the same period as the related building, which could be longer than five years.

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.

Bakkavor Group plc | Annual Report & Accounts 2022 | 179

FINANCIAL STATEMENTS2. Significant accounting policies continued
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 have finite useful lives which 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. The assets are amortised on a straight-line basis
over their determined useful life.

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.

During the year, the Group revised its accounting policy in relation to upfront configuration and customisation costs
incurred in implementing Software-as-a-Service (“SaaS”) arrangements in response to the IFRIC agenda decision
clarifying its interpretation of how current accounting standards apply to these types of arrangements. The impact of this
revision was not material.

SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application
software over the contract period.

Costs incurred to configure or customise, and the ongoing fees to obtain access to the cloud provider’s application software,
are recognised as operating expenses when the services are received, unless the configuration and customisation activities
significantly modify or customise the cloud software, in which case the costs are expensed over the SaaS contract term.

When they meet the definition of and recognition criteria for an intangible asset, cost incurred relating to the development
of software code that enhance or modify existing on-premise systems are recognised as intangible assets.

The amortisation charge for software, source code, licences and development is recognised as an expense over the term
of the software contract up to a maximum of ten years, and is charged to Other administrative costs in the consolidated
income statement.

Impairment
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’.

Please refer to Note 13 for details of the goodwill impairment assessment.

Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable,
direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and
condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price
less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

Financial assets
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.

180 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED• 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).

Other receivables that have fixed or determinable payments that are not quoted in an active market are classified as
financial assets and 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.

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 31 December 2022 or 25 December 2021 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.

Financial liabilities
Financial liabilities held by the Group are classified as other financial liabilities at amortised cost and derivatives at FVPL.

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).

Bakkavor Group plc | Annual Report & Accounts 2022 | 181

FINANCIAL STATEMENTS2. Significant accounting policies continued
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 enters into a variety of derivative financial instruments to manage its exposure to interest rate and
foreign exchange rate risks, including foreign exchange forward contracts and interest rate swaps. Further details of
derivative financial instruments are disclosed in Notes 22 and 27. 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.

Derivatives are recognised initially at fair value at the date a derivative contract is entered into and are subsequently
remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately
unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in
profit or loss depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is
recognised as a financial liability. Derivatives are not offset in the financial statements unless the Group has both a legally
enforceable right and intention to offset. A derivative is presented as a non-current asset or a non-current liability if the
remaining maturity of the instrument is more than 12 months and it is not due to be realised or settled within 12 months.
Other derivatives are presented as current assets or current liabilities.

The Group designates interest rate swap derivatives as hedging instruments in respect of interest rate risk in cash flow
hedges. From 27 December 2020, the Group has designated all new forward foreign exchange contracts as cash flow
hedges and hedge accounting is applied to these instruments.

The hedging relationship is documented at inception. This documentation identifies the hedging instrument, the hedged
item or transaction, the nature of the risk being hedged and how hedge effectiveness will be measured throughout their
duration. These hedges have been designated as cash flow hedges and are expected, at inception and on an ongoing basis,
to be highly effective in offsetting changes in the cash flows of hedged items.

The effective portion of changes in the fair value of derivatives and other qualifying hedging instruments that are designated and
qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of ‘hedging
reserve’, limited to the cumulative change in fair value of the hedged item from inception of the hedge. The gain or loss relating
to the ineffective portion is recognised immediately in profit or loss, and is included in the ‘other gains and losses’ line item.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or
loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item.

The Group discontinues hedge accounting only when the hedging relationship (or a part thereof) ceases to meet the
qualifying criteria. This includes instances when the hedging instrument expires or is sold, terminated or exercised. The
discontinuation is accounted for prospectively. Any gain or loss recognised in other comprehensive income and
accumulated in the hedging reserve at that time remains in equity and is reclassified to profit or loss when the forecast
transaction occurs. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in the cash
flow hedge reserve is reclassified immediately to profit or loss.

Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will
be received and the Group will comply with all attached conditions.

Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at
the statement of financial position date, taking into account the risks and uncertainties surrounding the obligation. Where
a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present
value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be
recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be
received and the amount of the receivable can be measured reliably.

A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and
has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or
announcing its main features to those affected by it. The measurement of a restructuring provision includes only the
direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the
restructuring and not associated with the ongoing activities of the entity.

182 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDPresent obligations arising from onerous contracts 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
Presentation of 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. Judgement is required as to whether items
should be presented as exceptional or underlying. Exceptional items include material items that are significant in nature
or non-recurring and are important to users in understanding the business. Where disclosed, items have been considered
by management to meet this definition. For further details please see Note 7.

Key sources of estimation uncertainty
Pension obligations
The Group maintains a defined benefit pension plan for which it has recorded a pension asset. The obligations included
within the overall pension asset are based on an actuarial valuation that requires a number of assumptions including
discount rate, inflation 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 32.

Impairment of goodwill
The recoverable amount of CGUs or groups of CGUs are determined based on the higher of fair value less costs to sell and
value-in-use calculations. The carrying amount of the UK CGU is £603.8m (2021: £603.8m) and the US CGU is £51.3m (2021:
£46.3m), the assumptions used to calculate their recoverable amounts are considered to be key sources of estimation
uncertainty. The key assumptions that can impact the value-in-use calculations are changes to the growth rates applied to
derive a three-year forecast, or a movement in the long-term growth rates and discount rates applied to the future cash
flows. The Group has considered the impact of the assumptions used in both the UK and US CGU calculations and has
conducted sensitivity analyses on the impairment tests of these CGUs carrying values. See Note 13 for further details.

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 into three regions, the UK, US and China, and
manufactures fresh prepared foods and produce in each region.

The Group manages the performance of its businesses through the use of ‘adjusted operating profit’, as defined in Note 36.

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.

Bakkavor Group plc | Annual Report & Accounts 2022 | 183

FINANCIAL STATEMENTS4. Segmental information continued
The following table provides an analysis of the Group’s segmental information for the period to 31 December 2022:

£m

Revenue

Adjusted EBITDA

Depreciation

Amortisation

Share scheme charges

Profit on disposal of property, plant and equipment

Share of results of associates

Adjusted operating profit/(loss)

Exceptional items

Configuration and customisation costs for SaaS projects

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

Note

1,783.1

147.7

(52.8)

(0.3)

(1.9)

–

92.7

(36.6)

(1.5)

54.6

255.3

12.4

(8.7)

(0.4)

–

3.3

(3.8)

–

(0.5)

China

Un-allocated

Total

100.8

(0.1)

(6.8)

–

0.1

0.2

(6.6)

(9.7)

–

(16.3)

–

2,139.2

160.0

(68.3)

(0.7)

(1.9)

0.1

0.2

89.4

(50.1)

(1.5)

37.8

(20.8)

1.1

18.1

(5.6)

12.5

46.0

–

1,215.1

1,018.1

39.0

–

200.2

167.8

1.9

3.6

73.3

55.5

–

52.8

9.9

86.9

3.6

1,541.4

1,251.3

The following table provides an analysis of the Group’s segmental information for the period to 25 December 2021:

£m

Revenue

Adjusted EBITDA

Depreciation

Amortisation

Share scheme charges

Profit on disposal of property, plant and equipment

Share of results of associates

Adjusted operating profit/(loss)

Exceptional items

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

Note

1,592.4

149.3

(52.0)

(0.1)

(2.3)

2.9

–

97.8

–

97.8

180.1

15.7

(6.4)

(0.4)

–

8.9

–

8.9

China

Un-allocated

99.1

1.8

(6.8)

–

0.3

(4.7)

–

(4.7)

–

Total

1,871.6

166.8

(65.2)

(0.5)

(2.3)

2.9

0.3

102.0

–

102.0

(17.1)

(3.5)

81.4

(24.6)

56.8

59.6

–

1,238.7

1,068.9

9.0

–

144.1

120.2

6.8

11.7

86.7

66.8

–

34.0

2.6

75.4

11.7

1,503.5

1,258.5

All of the Group’s revenue is derived from the sale of goods in 2021 and 2022. There were no inter-segment revenues.
The un-allocated assets of £52.8m (2021: £34.0m) relate to cash and cash equivalents and derivative financial instruments
which cannot be readily allocated because of the Group cash-pooling arrangements that are in place to provide funds to
businesses across the Group.

Major customers
In 2022, the Group’s four largest customers accounted for 73.2% (2021: 74.0%) of the Group’s total revenue from
continuing operations. These customers accounted for 87.9% (2021: 87.0%) of total UK revenue from continuing
operations. The Group does not enter into long-term contracts with its retail customers.

184 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDEach 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
The Group derives all revenue from the sale of goods in the following geographic locations:

£m

Continuing operations

China

2022

32.6%

20.5%

12.2%

7.9%

2021

33.4%

20.3%

11.5%

8.8%

2022

2021

1,783.1

1,592.4

255.3

100.8

180.1

99.1

2,139.2

1,871.6

Upon completion of delivery (the performance obligation), the terms of the order allow 30 to 75 days (2021: 30 to 75 days)
for payment, dependent on the relevant customers’ payment terms. The Group has in place trade receivable factoring
arrangements. These are non-recourse arrangements which were applicable to 67.4% (2021: 67.5%) of the Group’s total
sales. These arrangements allow the Group to choose to factor the receivable for approved invoices and receive payment
ahead of the agreed terms on a non-recourse basis.

6. Profit before tax
Profit before tax for the period has been arrived at after charging/(crediting):

£m

Depreciation of property, plant and equipment:

– Owned

– Leased

Research and development costs

Cost of inventory recognised as an expense

Net movement of inventory provision recognised as expense/(gain)

Amortisation of intangible assets

Exceptional items

Profit on disposal of property, plant and equipment

Share scheme charges

Foreign exchange gains

Staff costs

Other administrative costs (net) before exceptionals are comprised of:

£m

Other administrative costs

Other operating charges

Total operating costs

Other operating income

Other administrative costs (net) before exceptionals

Note

2022

2021

55.7

12.6

9.0

53.2

12.0

8.6

1,022.3

836.0

0.1

0.7

50.1

(0.1)

1.9

(1.2)

(0.2)

0.5

–

(2.9)

2.3

(0.5)

594.7

539.2

2022

(385.6)

–

(385.6)

–

2021

(371.1)

(0.3)

(371.4)

7.5

(385.6)

(363.9)

Other operating charges and income relate to an insurance claim which resulted in a net profit of £nil (2021: £7.2m). This
included proceeds that were used to replace damaged assets which resulted in a gain on disposal of fixed assets of £nil
(2021: gain of £1.6m).

The analysis of the Auditors’ remuneration is as follows:

£m

The audit of the Company’s Consolidated Financial Statements

The audit of the Company’s subsidiaries pursuant to legislation

Total audit fees

2022

0.4

0.7

1.1

2021

0.3

0.7

1.0

Non-audit fees of £41,000 (2021: £40,000) were paid to the Group’s Auditors for permitted audit-related assurance and
other services.

Bakkavor Group plc | Annual Report & Accounts 2022 | 185

FINANCIAL STATEMENTS7. Exceptional items
The Group’s financial performance is analysed in two ways: review of underlying performance (which does not include
exceptional items) and separate review of exceptional items that are material and not expected to reoccur. The Directors
consider that the underlying performance is more representative of the ongoing operations and key metrics of the Group.

Exceptional items are those that, in management’s judgement, should be disclosed by virtue of their nature or amount.
Exceptional items include material items that are non-recurring, significant in nature and are important to users in
understanding the business, including restructuring costs and impairment of assets:

£m

Corporate restructuring costs

UK site closures:

– Closure costs

– Impairment charge

Investment in associate impairment

US customer contractual dispute impairment

Total exceptional items

Tax on exceptional items

Total exceptional items after tax

2022

(5.3)

(11.8)

(19.5)

(9.7)

(3.8)

(50.1)

9.1

(41.0)

2021

–

2022
In 2022, the Group incurred an exceptional charge of £50.1m. Of this, £17.1m relates to restructuring costs for the closure
of two of our UK sites by the end of Q1 2023, and the costs of a corporate restructuring, which includes redundancy payments,
onerous and other closure costs. The majority of the cash impact will be recognised in 2023. There is also an impairment
charge of £19.3m in respect of the relevant fixed assets at the two sites due to close and £0.2m for the impairment of
intangible assets for one of the businesses and these charges have no cash impact. The value of the Group’s investment
in associated undertakings based in Hong Kong has been written down in the period by £9.7m due to the ongoing impact
of Covid on the trading performance of that business. An ongoing contractual dispute with a US customer has resulted
in a £3.8m impairment of inventory and receivables related to this customer. However, we continue to pursue the recovery
of these assets as we seek to reach resolution on this matter.

2021
No exceptional costs have been incurred by the Group.

8. Staff costs
The average monthly number of employees (including Executive Directors) during the period was:

Production

Management and administration

Sales and distribution

Their aggregate remuneration comprised:

£m

Wages and salaries

Social security and other costs

Other pension costs

2022
Number

15,283

2,378

919

18,580

2022

518.0

63.5

13.2

594.7

2021
Number

15,578

2,521

873

18,972

2021

471.1

55.9

12.2

539.2

Note

Details of the emoluments paid to Directors are included from pg 132–151 in the Directors’ remuneration report and in
Note 33.

9. Finance costs
£m

Interest on borrowings

Interest on lease liabilities

Unwinding of discount on provisions

Total

186 | Bakkavor Group plc | Annual Report & Accounts 2022

Note

2022

16.9

3.1

0.8

20.8

2021

14.2

2.7

0.2

17.1

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDThere were no borrowing costs included in the cost of qualifying assets during 2021 or 2022. Borrowing costs included
in the cost of qualifying assets during prior years arose within the general borrowing pool and were calculated by applying
a capitalisation rate of 3.0% to expenditure on such assets.

Amounts included in the cost of qualifying assets have been capitalised under IAS 23 and are therefore subject to deferred
tax. The deferred tax credit to income was £nil (2021: £nil).

10. Other gains and (losses)
£m

Foreign exchange gains

Change in the fair value of derivative financial instruments

11. Tax
£m

Current tax:
Current period

Prior period adjustment

Total current tax charge (pre-exceptional items)

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

Total deferred tax charge (pre-exceptional items)

Tax on exceptional items:
Current tax

Deferred tax

Total tax credit on exceptional items

Total tax charge for the period

2022

1.2

(0.1)

1.1

2021

0.5

(4.0)

(3.5)

Note

2022

2021

9.7

1.7

11.4

3.7

1.6

(2.0)

3.3

(3.4)

(5.7)

(9.1)

5.6

7.6

0.2

7.8

7.6

7.9
1.3

16.8

–

24.6

The Group tax charge for the period was £5.6m (2021: £24.6m) which represents an effective tax rate of 30.9% (2021: 30.2%)
on profit before tax of £18.1m (2021: £81.4m). Tax is calculated using prevailing statutory rates in the territories in which
we operate however most of the Group’s profits are earned in the UK where the statutory tax rate was 19% for 2022
(2021: 19%). The effective tax rate is 11.9% higher (2021: 11.2%) than the UK statutory tax rate of 19% (2021: 19%).

The main item which, increases the effective rate by 10.2% is the tax effect of an exceptional charge relating to impairment
of investments (see Note 7). As in the prior year the effective rate is also increased by 2.6% in relation to a deferred tax
charge arising in connection with the rate at which we provide for deferred tax assets and liabilities. This is following the
Government announcement on 3 March 2021 and the substantive enactment of this measure on 24 May 2021, that the UK
corporation tax rate will increase to 25% effective from 1 April 2023. We have therefore valued deferred tax assets and
liabilities at 25% at the balance sheet date.

Excluding exceptional items and other Adjusting items the effective tax rate on underlying activities was 21.5% (2021: 29.7%)
(see Note 36).

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% (2021: 19%)

Net non-deductible expenses/(non-taxable income)

Non-deductible impairment of investment

Prior period adjustment

Tax effect of losses carried forward not recognised

Unprovided deferred tax assets now recognised

Overseas taxes at different rates

Deferred tax rate differential

Tax charge and effective tax rate for the period

2022
£m

18.1

3.4

(1.2)

1.8

(0.3)

1.0

–

0.4

0.5

5.6

2022
%

100.0

19.0

(6.9)

10.2

(1.7)

5.5

–

2.2

2.6

30.9

2021
£m

81.4

15.5

(1.8)

–

1.5

0.7

(0.1)

0.9

7.9

24.6

2021
%

100.0

19.0

(2.0)

–

1.7

0.9

(0.2)

1.1

9.7

30.2

Bakkavor Group plc | Annual Report & Accounts 2022 | 187

FINANCIAL STATEMENTS11. Tax continued
In addition to amounts charged to the consolidated income statement, the following amounts in respect of tax were
charged/(credited) to the consolidated statement of comprehensive income and equity:

Tax relating to components of other comprehensive income/(expense):

Deferred tax:

Remeasurements on defined benefit pension scheme actuarial (loss)/gain

Deferred tax rate change on defined benefit pension scheme actuarial (loss)/gain

Cash flow hedges and cost of hedging

Deferred tax on share schemes

Tax relating to components of other comprehensive income/(expense):

Tax relating to share-based payments recognised directly in equity:

2022
£m

2021
£m

(5.0)

(1.6)

3.1

0.2

(3.3)

(3.5)

0.2

(3.3)

4.6

2.0

0.2

0.1

6.9

6.8

0.1

6.9

HMRC had previously raised an enquiry into the structure used to fund our overseas investment in the US business.
Although a number of earlier years were agreed, for the years ended 2019 onwards and including the current period ended
31 December 2022, there is uncertainty in connection with the applicability of the UK tax rules to the structure which could
lead to additional UK tax payable. This is a complex area with a range of possible outcomes and judgement has been used in
calculating the provision. For these reasons it cannot be known with certainty whether additional amounts of UK tax will be
due, however, we consider it is unlikely that there will be material amounts due over and above the provisions currently held.

In 2022 the tax risk provision was £1.0m (2021: £1.0m) because it is considered likely that additional liabilities will become
due to the tax authorities.

Other factors affecting future tax charges
The Organisation for Economic Cooperation & Development (“OECD”) has published proposals for a global corporate
minimum tax rate of 15%. The UK implementation of these rules (“Pillar Two”) will be effective for accounting periods
commencing on or after 31 December 2023 and will therefore impact the Group in the accounting period ending December
2024. Given the rates at which the Group pays corporation tax in the territories in which it operates, it is unlikely that the
implementation of the Pillar Two rules will impact the Group’s tax charge in future periods. The rules are complex and the
Group will continue to evaluate the impact of Pillar Two on the group tax charge as the implementation date approaches.

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, excluding own shares held.

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
£m

Profit for the period

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

2022

12.5

2021

56.8

2022

2021

577,576

579,426

9,767

9,775

587,343

589,201

2022

2.2p

2.1p

2021

9.8p

9.6p

The Group calculates adjusted basic earnings per Ordinary share and details of this can be found in Note 36, Alternative
performance measures.

188 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED13. Goodwill
£m

Cost

At 27 December 2020

Exchange differences

At 25 December 2021

Exchange differences

At 31 December 2022

Accumulated impairment losses

At 27 December 2020

Exchange differences

At 25 December 2021

Exchange differences

At 31 December 2022

Carrying amount

At 31 December 2022

At 25 December 2021

702.1

1.0

703.1

5.5

708.6

(52.5)

(0.5)

(53.0)

(0.5)

(53.5)

655.1

650.1

Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs or group of CGUs that are expected to
benefit from that business combination. The carrying value of goodwill has been allocated to CGU groupings as follows:

£m

China

31 December
2022

25 December
2021

603.8

51.3

–

655.1

603.8

46.3

–

650.1

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 (2021: £nil).

The Group is committed to achieving Net Zero carbon emissions across our Group operations by 2040. For the current
year impairment review, management have also included an estimate of the future costs and capital expenditure required
to meet this commitment in its value-in-use calculations and sensitivity analyses.

The key assumptions used in the impairment reviews for the CGUs that held goodwill at 31 December 2022 and 25
December 2021 were as follows:

• Budget growth rates: The revenue growth rates are based on management growth forecasts based on industry experience.
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 (2021: four years), as determined by the business units which take account of the current risks faced by the
business including cost inflation and associated price recovery leading to a potential impact on consumer demand. EBITDA
margin increases are a key assumption for the US CGU and assume a return to FY21 margin levels within the three year
forecast period. The budgeted cash flows include an assumption on the maintenance capital expenditure required by the
business over the forecast period.

• Long-term growth rates: For periods beyond the three year budget, the cash flows are then extrapolated using a perpetuity

growth rate of 2.0% (2021: 2.0%) for the UK and 2.0% for the US (2021: 2.3%). The terminal value includes an estimate of carbon
costs from 2030.

• 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 9.3% (2021:
8.4%) for the UK and 9.8% for the US (2021: 8.9%).

The headroom for each CGU based on the impairment review as at 31 December 2022 is as follows:

£m

Headroom of impairment test based on management assumptions

110.8

136.8

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 each CGU is set out below, none of which indicate an
impairment is likely:

Bakkavor Group plc | Annual Report & Accounts 2022 | 189

FINANCIAL STATEMENTS13. Goodwill continued
UK
• The UK operating cash flows are primarily driven by adjusted EBITDA. This could be negatively impacted by loss of revenue or
from lower operating margins. If operating cash flows were 6.5% lower and no mitigating actions were taken, this would result
in no headroom.

• The perpetuity growth rate included in the UK CGU future cash flows is 2.0%. If the perpetuity growth rate was to decrease by

0.7% to 1.3% this would result in no headroom.

• The pre-tax discount rate for the UK CGU is 9.3%, an increase to the pre-tax discount rate by 1.0% to 10.3% would result in no

headroom.

US
• The US operating cash flows are primarily driven by adjusted EBITDA. This could be negatively impacted by loss of revenue or
from lower operating margins. If operating cash flows were 34.0% lower and no mitigating actions were taken, this would
result in no headroom.

• The perpetuity growth rate included in the US CGU future cash flows is 2.0%. If the perpetuity growth rate was to decrease by

2% to nil, this would not result headroom becoming nil.

• The pre-tax discount rate for the US CGU is 9.8%, an increase to the pre-tax discount rate by 6.7% to 16.5% would result in no

Customer
relationships

Software

Total

88.9

–

88.9

–

0.7

89.6

(86.7)

(0.5)

–

(87.2)

–

(0.6)

(0.2)

(0.4)

–

13.5

2.9

–

16.4

–

(8.7)

(0.1)

–

88.9

–

88.9

13.5

2.9

0.7

106.0

(86.7)

(0.5)

–

(87.2)

(8.7)

(0.7)

(0.2)

(0.4)

(88.4)

(8.8)

(97.2)

1.2

1.7

7.6

–

8.8

1.7

headroom.

14. Other intangible assets

£m

Cost

At 27 December 2020

Exchange differences

At 25 December 2021

Reclassified from Property, Plant and Equipment (Note 15)

Additions

Exchange differences

At 31 December 2022

Accumulated amortisation and impairment

At 27 December 2020

Charge for the period

Exchange differences

At 25 December 2021

Reclassified from Property, Plant and Equipment (Note 15)

Charge for the period

Impairment charge (Note 7)

Exchange differences

At 31 December 2022

Carrying amount

At 31 December 2022

At 25 December 2021

190 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED15. Property, plant and equipment

£m

Cost

At 27 December 2020 as previously reported

Restatement1

At 25 December 2020 restated1

Reclassification

Additions

Disposals

Exchange differences

At 25 December 2021 restated1

Additions

Disposals

Reclassified to Intangible Assets (Note 14)

Exchange differences

At 31 December 2022

Accumulated depreciation and impairment

At 27 December 2020 as previously reported

Restatement1

At 25 December 2020 restated1

Reclassification

Charge for the period

Impairment

Disposals

Exchange differences

At 25 December 2021 restated1

Charge for the period

Impairment

Disposals

Reclassified to Intangible Assets (Note 14)

Exchange differences

At 31 December 2022

Carrying amount

At 31 December 2022

At 25 December 2021 Restated1

Please refer to Note 2 for details of the restatement.

Land and
buildings

Plant and
machinery

Fixtures and
equipment

389.1

(49.9)

339.2

(0.3)

18.6

(2.8)

1.9

356.6

30.8

(3.2)

–

6.6

559.8

69.9

629.7

(2.4)

39.4

(5.5)

1.8

663.0

37.8

(3.3)

(0.8)

6.5

Total

1,049.1

25.2

1074.3

(1.0)

75.4

(9.8)

4.0

100.2

5.2

105.4

1.7

17.4

(1.5)

0.3

123.3

1,142.9

18.3

(16.1)

(12.7)

0.9

86.9

(22.6)

(13.5)

14.0

390.8

703.2

113.7

1,207.7

(154.3)

43.9

(110.4)

0.1

(20.0)

(1.3)

1.8

(0.6)

(293.3)

(72.5)

(365.8)

0.6

(33.0)

–

5.4

(0.9)

(130.4)

(393.7)

(21.0)

(4.6)

3.2

–

(2.6)

(34.6)

(11.6)

3.3

0.4

(2.4)

(66.2)

3.4

(66.2)

0.3

(12.2)

–

1.3

(0.2)

(73.6)

(12.7)

(3.1)

16.1

8.3

(0.6)

(513.8)

(25.2)

(539.0)

1.0

(65.2)

(1.3)

8.5

(1.7)

(597.7)

(68.3)

(19.3)

22.6

8.7

(5.6)

(155.4)

(438.6)

(65.6)

(659.6)

235.4

226.2

264.6

269.3

48.1

49.7

548.1

545.2

Included within land and buildings is freehold land held at historic cost of £11.5m (2021: £11.5m). Freehold land is not
depreciated.

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 36, Alternative performance measures.

The carrying value of the Group’s plant and machinery includes an amount of £0.5m (2021: £2.8m) in respect of assets
held under leases previously recognised as finance leases before the introduction of IFRS 16.

The carrying value of the Group’s land and buildings and plant and machinery includes an amount of £86.7m (2021:
£73.2m) 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 £28.1m (2021: £30.9m) in respect of assets
held as security under Asset Finance Facilities. Further details of these facilities are disclosed in Note 21.

At 31 December 2022, the Group had entered into contractual commitments for the acquisition of property, plant and
equipment amounting to £8.6m (2021: £5.2m).

Assets are not depreciated until they are brought into use. At 31 December 2022 a total of £41.8m (2021: £44.6m) of other
assets were in progress and had not been brought into use.

Bakkavor Group plc | Annual Report & Accounts 2022 | 191

FINANCIAL STATEMENTS15. Property, plant and equipment continued
During the year, the Group completed a review of software assets included within Property, plant and equipment and
determined that assets with a net book value of £4.8m should be reclassified to Other intangible assets.

During 2022, an impairment to land and buildings of £nil (2021: £1.3m) arose from fully writing down the right-of-use
assets held by a Group business which has ceased trading.

During 2022, the Group impaired £4.6m of land and buildings including right-of-use assets of £0.3m, £11.6m of plant and
machinery including right-of-use assets of £0.3m and £3.1m of fixtures and equipment. These impairment charges arose
from sites that are expected to close by the end of March 2023. This resulted in redundant, non-moveable, specialist
assets which were assessed as having £nil value in use and are not saleable due to their specialist nature. 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. The impairments charged in the year of £19.3m
wholly related to the UK sector and were included within Other administrative costs as exceptional items (Note 7).

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.

17. Interests in associates and other investments

£m

Name of associate

La Rose Noire Limited

Patisserie et Chocolat Limited

Total associates

Other investments

Total associates and other investments

31 December
2022

25 December
2021

2.8

0.8

3.6

0.1

3.7

11.2

0.5

11.7

0.1

11.8

Details of the associated undertakings of the Group at 31 December 2022 and 25 December 2021 were as follows:

Place of registration
and operation

Principal activity

Proportion of Ordinary shares

31 December
2022

25 December
2021

Method of
accounting

Name of associate

La Rose Noire Limited

Patisserie et Chocolat Limited

Hong Kong

Producer of bakery and pastry products

45%

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

£m

Revenue

(Loss)/profit before taxation

Taxation

(Loss)/profit after taxation

Group’s share of (loss)/profit after taxation (45%)

Associate’s statement of financial position

£m

Non-current assets

Current assets

Current liabilities

Net assets

Group’s share of net assets (45%)

Goodwill on acquisition

Impairment recognised

Carrying amount of associate at end of period

192 | Bakkavor Group plc | Annual Report & Accounts 2022

31 December
2022

25 December
2021

10.7

(0.1)

–

(0.1)

9.4

0.5

(0.1)

0.4

0.2

31 December
2022

25 December
2021

1.0

6.4

(1.3)

6.1

2.8

9.7

(9.7)

2.8

0.9

5.5

(1.2)

5.2

2.3

8.9

–

11.2

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDCarrying amount of associate

£m

At beginning of period

Share of (loss)/profit after taxation of associate

Impairment recognised (Note 7)

Exchange differences

Dividends received

At end of period

31 December
2022

25 December
2021

11.2

(0.1)

(9.7)

1.4

–

2.8

11.7

0.2

–

(0.7)

11.2

The following table summarises the carrying amount of the Group’s immaterial associate, Patisserie et Chocolat Limited:

£m

Associates that are not individually material

At beginning of period

Share of profit after tax

At end of period

18. Inventories

£m

Raw materials and packaging

Work-in-progress

Finished goods

There is no material difference between the book value and replacement cost of inventories.

19. Trade and other receivables

£m

Amounts receivable from trade customers

Expected credit loss

Net amounts receivable from trade customers

Other receivables

Prepayments

31 December
2022

25 December
2021

0.5

0.3

0.8

0.4

0.1

0.5

31 December
2022

25 December
2021

73.0

3.0

10.2

86.2

60.7

2.0

8.1

70.8

31 December
2022

25 December
2021

130.4

(3.6)

126.8

23.2

11.0

161.0

118.2

(2.8)

115.4

17.2

10.2

142.8

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 31 December 2022 £138m was drawn
under factoring facilities (2021: £118m) representing cash collected before it was contractually due from the customer.

As at 31 December 2022, the Group’s Amounts receivable from trade customers includes £62.0m (2021: £53.8m), which
could be factored under the non-recourse trade receivable factoring arrangement.

The average credit period taken on sales of goods is 22 days (2021: 21 days). An expected credit loss allowance has been
made for estimated irrecoverable amounts from the sale of goods of £3.6m (2021: £2.8m). 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.

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.

Bakkavor Group plc | Annual Report & Accounts 2022 | 193

FINANCIAL STATEMENTS
19. Trade and other receivables continued
The following table is an ageing analysis of net trade receivables from customers:

£m

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

31 December
2022

25 December
2021

120.4

106.8

5.2

0.9

0.3

–

7.0

0.8

0.4

126.8

115.4

There was no impact from trade receivables renegotiated in 2022 that would have otherwise been past due or impaired
(2021: no impact).

The four major customers of the Group, representing 73.2% (2021: 74.0%) 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, or 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 other than that provided against 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:

£m

Balance at beginning of the period

Allowances recognised against receivables

Amounts written off as uncollectible during the period

Amounts recovered during the period

Allowance reversed

Balance at end of the period

20. Cash and cash equivalents

£m

Cash and cash equivalents

31 December
2022

25 December
2021

(2.8)

(2.1)

0.2

0.6

0.5

(3.6)

(1.6)

(2.5)

0.6

0.1

(2.8)

31 December
2022

25 December
2021

40.2

31.1

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 31 December 2022 were as follows:

Facility amount
£m

Amount drawn
down at year
end £m

Interest rate

Non-utilisation
fee

Maturity
date

225.0

SONIA2 plus a margin of 2.1%

N/A Mar 20261

SONIA2 plus a margin of 2.1%

0.735% Mar 20261

Term Loan

Revolving Credit Facility (“RCF”)

Asset Finance Facility

Total

Currency

GBP

USD

225.0

230.0

19.2

10.4

1.7

60.0

19.2

10.4

Fixed interest rate

1.7

SOFR3 plus 2.12%

486.3

316.34

N/A

Aug 2027

Jun 2028

Feb 2023

1 £12.4m of the term loan and £12.6m of the RCF mature in March 2024.

2 The interest rate for these facilities includes a Credit Spread Adjustment following the transition from LIBOR to SONIA in September 2021.

3 SOFR stands for Secured Overnight Financing Rate.

£316.3m represents the committed facilities of the Group, the Group’s Consolidated Statement of Financial Position discloses £322.3m which includes local overdraft facilities,
unamortised fees and interest accrued.

On 18 March 2020, the Group completed a refinancing of its core debt facilities through a new term loan and Revolving
Credit Facility totalling £455m. The refinancing resulted in the addition of new lenders to the Group. The new facilities
were due to mature in March 2024, with an option to extend the tenure by a further two years subject to lender approval.
£430m of these facilities were extended in March 2021 and further extended in March 2022 to mature in March 2026.

194 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDThe Group’s total banking facilities amount to £455.0m (2021: £455.0m) comprising:

1. £225.0m in term loans (2021: £225.0m term loan), with £12.4m maturing in March 2024 and £212.6m in March 2026; and

2. £230.0m Revolving Credit Facilities (“RCF”) (2021: £230.0m RCF), which includes an overdraft and money market facility of
£20.0m (2021: £20.0m) and further ancillary facilities of £13.3m (2021: £13.3m). For the RCF, £12.6m matures in March 2024
and £217.4m in March 2026. The bank facilities are unsecured and are subject to covenant agreements including the Group
maintaining a minimum interest cover of 4.0x and not exceeding an adjusted leverage of 3.0x.

The Asset Finance Facility is made up of three separate facilities which are secured against specific items of plant and
machinery as follows:

a. £25.0m facility, which could be drawn against up to August 2020, of which the Group initially drew down £24.9m with
£19.2m outstanding at the end of 2022. No further draw down can be made against this facility. The facility has been
drawn in tranches, with each tranche being repaid on a quarterly basis over a period of seven years, and the weighted
average interest rate for the facility at 31 December 2022 was 2.41% (2021: 2.41%). The interest rate is fixed at the
prevailing rate on commencement of the loan tranche.

b. £13.1m drawn down during 2021 under a separate asset financing facility with £10.4m outstanding at the end of 2022. No

further draw down can be made against this facility. The facility has been drawn in tranches, with each tranche being repaid
on a monthly basis over a period of seven years, and the weighted average interest rate for the facility at 31 December 2022
is 3.20% (2021: 3.20%). The interest rate is fixed at the prevailing rate on commencement of the loan tranche.

c. Bakkavor Foods USA Inc has entered into an asset financing facility of up to $5.0m (£4.1m) of funding, based on

approved funding requests. As at 31 December 2022 £1.7m funding had been approved and drawn and the interest rate
for this was a variable rate of SOFR plus 2.12%.

In September 2021 the Group transitioned from LIBOR to SONIA which impacted £455.0m of the total debt facilities.

In addition, the Group has access to £8.9m (2021: £8.4m) of local overdraft facilities in the US and China which are
uncommitted and unsecured. One of the Group’s UK subsidiary companies, Bakkavor Finance (2) Limited, has provided
Corporate Guarantees totalling $5m for the US local overdraft facility and RMB 40m for the China local overdraft facility.

During the previous financial period, the Group repaid two term loans with total capital repayments being £57.5m.

£m

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

The weighted average interest rates paid were as follows:

Bank loans and overdrafts

31 December
2022

25 December
2021

8.2

314.1

322.3

13.1

16.1

292.4

0.7

322.3

13.1

309.2

322.3

–

320.6

3.0

2.9

303.1

11.6

320.6

3.0

317.6

320.6

2022
%

2021
%

3.50

2.54

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. This risk is mitigated using interest rate swaps as set out in Note 27.

The fair value of the Group’s borrowings is as follows:

£m

Fair value of the Group’s borrowings

31 December
2022

25 December
2021

324.5

323.8

Bakkavor Group plc | Annual Report & Accounts 2022 | 195

FINANCIAL STATEMENTS
21. Borrowings continued
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:

£m

Analysis of net debt

Cash and cash equivalents

Borrowings

Interest accrual

Unamortised fees

Lease liabilities

Debt due within one year

Borrowings

Unamortised fees

Lease liabilities

Debt due after one year

Group net debt

22. Derivative financial instruments

£m

Foreign currency contracts – designated in a hedging relationship

Interest rate contracts – designated in a hedging relationship

Included in non-current assets

Foreign currency contracts – designated in a hedging relationship

Interest rate contracts – designated in a hedging relationship

Included in current assets

Foreign currency contracts – held at fair value through profit and loss

Foreign currency contracts – designated in a hedging relationship

Interest rate contracts – designated in a hedging relationship

Included in current liabilities

Foreign currency contracts – designated in a hedging relationship

Included in non-current liabilities

Total

31 December
2022

25 December
2021

40.2

(14.1)

(0.4)

1.4

(11.3)

(24.4)

(310.4)

1.2

(85.9)

(395.1)

(379.3)

31.1

(4.1)

(0.2)

1.3

(10.8)

(13.8)

(319.7)

2.1

(73.8)

(391.4)

(374.1)

31 December
2022

25 December
2021

1.5

8.4

9.9

2.6

0.1

2.7

–

(0.2)

(0.1)

(0.3)

–

12.3

0.1

2.5

2.6

0.3

–

0.3

(0.9)

(0.8)

–

(1.7)

(0.4)

0.8

Derivative financial instruments are subject to enforceable master netting agreements. However, they are not set off on
the balance sheet. Under the terms of these arrangements, only where certain credit events occur (such as default), will
the net position owing/receivable to a single counterparty in the same currency be taken as owing and all the relevant
arrangements terminated.

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.

£m

At 27 December 2020

(Charge)/credit to income

Exchange differences

Charge to equity and other comprehensive income

At 25 December 2021

(Charge)/credit to income

Credit to income on exceptional items

Exchange differences

(Charge)/credit to equity and other comprehensive income

At 31 December 2022

Accelerated tax
depreciation1

Fair value

gains Provisions

Retirement
benefit
obligations and
share schemes

Overseas tax
losses and
accrued
interest

US
goodwill

(25.9)

(13.8)

(0.1)

–

(39.8)

(6.3)

4.7

(0.9)

–

(42.3)

0.2

–

(0.2)

0.2

(0.2)

–

(3.1)

0.5

0.2

–

0.7

0.2

–

0.9

(1.9)

–

(6.7)

(8.6)

0.5

–

6.4

(1.7)

28.9

(2.6)

(0.2)

–

26.1

3.4

1.0

3.1

–

(8.5)

(0.8)

–

(9.3)

(0.9)

–

Total

(6.7)

(16.8)

(0.3)

(6.9)

(30.7)

(3.3)

5.7

2.2

3.3

33.6

(10.2)

(22.8)

IAS23 Capitalised interest and Intangibles deferred tax balances are shown within the Accelerated tax depreciation values above.

196 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDCertain 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:

£m

Deferred tax asset

Deferred tax liabilities

31 December
2022

25 December
2021

12.9

(35.7)

(22.8)

9.9

(40.6)

(30.7)

Included in the above are deferred tax assets of £33.6m (2021: £26.1) in connection with US tax losses and accrued interest
amounts which will be deductible in future accounting periods. These deferred tax assets are offset by liabilities for which
there is a legally enforceable right to do so. The US tax losses and accrued interest amounts can be carried forward
indefinitely and used against future US taxable profits.

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.

In evaluating whether it is probable that sufficient taxable profits will be earned in future accounting periods, all available
evidence has been considered by management including forecasts and business plans. These forecasts are consistent
with those prepared and used internally for business planning and impairment testing purposes. Following this
evaluation, management determined there would be sufficient taxable profits generated to continue to recognise these
deferred tax assets in full.

Deferred tax assets in respect of some capital losses as well as trading loses have not been recognised as their future
recovery is uncertain or not currently anticipated. The total gross deferred tax assets not recognised are as follows:

£m

Capital losses

Trading losses

31 December
2022

25 December
2021

5.0

21.2

26.2

3.4

14.6

18.0

The capital losses arose in the UK and are available to carry forward indefinitely but can only be offset against future
capital gains. The trading losses are non-UK losses and are available to offset against future taxable profits. These losses
are timebound and £20.3m (2020: £13.5m) will expire after five years if unused.

There are no deferred tax liabilities associated with undistributed earnings of subsidiaries due to the availability of tax
credits against such liabilities or the exemption from UK tax on such dividends.

Temporary differences arising in connection with interests in associates are insignificant.

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.

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 36, Alternative performance measures.

£m

Net book value of leased property, plant and equipment excluding right-of-use assets

Net book value of right-of-use assets

31 December
2022

25 December
2021

0.5

86.7

87.2

2.8

73.2

76.0

Bakkavor Group plc | Annual Report & Accounts 2022 | 197

FINANCIAL STATEMENTS24. Leases continued
Net book value of right-of-use assets

£m

Balance at 27 December 2020

Additions

Depreciation charge

Impairment for the period

At 25 December 2021

Additions

Depreciation charge

Impairment for the period

Exchange differences

At 31 December 2022

Lease liabilities

£m

Amounts payable under leases:

Within one year

In the second to fifth years inclusive

Over five years

Present value of lease obligations

Analysed as:

Amount due for settlement within 12 months

Amount due for settlement after 12 months

Land and
buildings

Plant and
machinery

68.6

12.8

(9.8)

(1.3)

70.3

25.2

(10.9)

(0.3)

0.7

85.0

3.1

1.4

(1.6)

–

2.9

0.3

(1.2)

(0.3)

–

1.7

Total

71.7

14.2

(11.4)

(1.3)

73.2

25.5

(12.1)

(0.6)

0.7

86.7

Present value of
minimum lease payments

31 December
2022

25 December
2021

11.3

36.6

49.3

97.2

11.3

85.9

97.2

10.8

29.3

44.5

84.6

10.8

73.8

84.6

The Group has split the lease liabilities between liabilities previously recognised as finance leases under IAS 17 and
liabilities recognised under IFRS 16. This allows management to review both the Group net debt, as set out in Note 21,
Borrowings, and the Group operational net debt as set out in Note 36, Alternative performance measures.

£m

Lease liabilities relating to leases previously recognised under IAS 17

Lease liabilities relating to leases recognised under IFRS 16

31 December
2022

25 December
2021

0.6

96.6

97.2

1.0

83.6

84.6

The weighted average lease term outstanding is 14.5 years (2021: 14.8 years). For 2022, the weighted average incremental
borrowing rate was 3.2% (2021: 3.3%). 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.

The Group utilises the exemption from capitalising short-term and low-value leases where the relevant criteria are met.
The expenses relating to these lease types are disclosed below.

Amounts recognised in the consolidated income statement

£m

Interest on lease liabilities

Expenses relating to low-value leases

Expenses relating to short-term leases

Amounts recognised in the statement of cash flows

£m

Cash outflow for lease principal payments

Cash outflow for lease interest payments

Total cash outflow for leases

198 | Bakkavor Group plc | Annual Report & Accounts 2022

2022

3.1

3.3

1.4

7.8

2022

14.0

3.1

17.1

2021

2.7

2.2

0.9

5.8

2021

11.7

2.7

14.4

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED25. Trade and other payables

£m

Trade payables

Other taxation

Other payables

Accruals and deferred income

Trade and other payables due within one year

31 December
2022

25 December
2021

287.5

2.1

26.8

113.6

430.0

237.6

2.1

21.5

129.6

390.8

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 63 days (2021: 62 days). No interest is incurred against trade payables.

The Directors consider that the carrying amount of trade payables approximates to their fair value.

During 2019, 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 31 December 2022, trade payables amounting to £45.1m (2021:
£31.6m) 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

£m

At 27 December 2020

Utilisation of provision

Additional provision in the year

Release of provision

Unwinding of discount

At 25 December 2021

Included in current liabilities

Included in non-current liabilities

At 26 December 2021

Transferred between classifications

Utilisation of provision

Additional provision in the year

Release of provision

Unwinding of discount

Exchange differences

At 31 December 2022

Included in current liabilities

Included in non-current liabilities

Onerous
contracts

Dilapidation
provisions

Legal and other
provisions

Restructuring
provisions

1.2

(0.4)

1.1

(0.1)

–

1.8

0.2

1.6

1.8

0.5

(0.3)

–

(0.5)

0.2

–

1.7

0.4

1.3

16.6

(0.2)

–

0.2

16.6

4.3

12.3

16.6

–

2.1

(0.1)

0.6

0.1

19.3

5.6

13.7

6.4

(0.9)

0.5

(2.1)

–

3.9

–

3.9

–

(0.1)

–

(2.6)

–

1.2

–

1.2

(0.5)

–

(0.2)

–

0.5

0.1

0.4

0.5

(0.5)

(1.8)

16.6

–

14.8

–

Total

25.4

(2.0)

1.6

(2.4)

0.2

22.8

8.5

14.3

22.8

–

(2.2)

18.7

(3.2)

0.8

0.1

37.0

22.0

15.0

Onerous contracts provisions brought forward from the end of 2021 relate to the Group’s leased vacant properties. During
the prior year an additional £1.1m onerous contract provisions was made in respect of one of the Group’s vacant
properties. The onerous contract has been calculated as the discounted total expected costs for occupying the property
(including service charges but excluding lease rentals and rates) through to the break clause. The provisions will be
utilised over the term of the individual leases to which they relate. These leases expire within 17 years. During the year,
two of the Group’s leased properties relating to the previously closed non-core UK fast-casual restaurant business were
fully surrendered, and therefore no liability remains for these leases.

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 1 to 28 years.

The legal and other provisions, which are expected to be settled within 12 months and have decreased by £2.7m in the year
(2021: decreased by £2.5m in the year), are assessed by utilising Group experience, legal and professional 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. The Group is also subject to a National Living Wage
enquiry, which has been ongoing since July 2017. The Directors have assessed and provided for the potential liability that
may arise from the enquiry and this is included in legal and other provisions above.

Bakkavor Group plc | Annual Report & Accounts 2022 | 199

FINANCIAL STATEMENTS26. Provisions continued
Restructuring provisions brought forward from 2021 related to the closure costs in respect of the Group’s non-core UK
fast-casual restaurant business and site closures during 2020. This balance has been reclassified into onerous contracts
to recognise the fact the restructure relating to these businesses has been completed, however the Group remains
responsible for one of the restaurant locations.

During the year, a restructuring provision has been recognised for the closure of two of our UK sites and the costs of a corporate
restructuring. Further details of the exceptional charges incurred during the year for this restructure can be found in Note 7.

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:

£m

Debt (excluding IFRS 16 lease liabilities)

Cash and cash equivalents

Net debt

Equity

Net debt to net debt plus equity

31 December
2022

25 December
2021

322.9

(40.2)

282.7

617.8

31.4%

321.6

(31.1)

290.5

640.7

31.2%

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 £96.6m at 31 December 2022 (£83.6m at 25 December 2021)).

Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset,
financial liability and equity instrument are disclosed in Note 2.

Categories of financial instruments

£m

Financial assets

Fair value through profit and loss:

Trade receivables

Derivative financial instruments

Measured at amortised cost:

Trade receivables

Other receivables

Cash and cash equivalents

£m

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

200 | Bakkavor Group plc | Annual Report & Accounts 2022

31 December
2022

25 December
2021

62.0

12.6

64.8

23.2

40.2

53.8

2.9

61.6

17.2

31.1

202.8

166.6

31 December
2022

25 December
2021

0.3

2.1

287.5

26.8

112.3

322.3

97.2

846.4

237.6

21.5

128.4

320.6

84.6

794.8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDThe fair value of financial assets 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 swaps to mitigate the risk of rising interest rates; and

• Forward foreign exchange contracts to hedge the exchange rate risk arising on purchases in foreign currencies.

Market risk exposures are supplemented by sensitivity analysis. There has been no change in the Group’s exposure to
market risks or the manner in which it manages and measures the risk.

Foreign currency risk management
Foreign currency risk management occurs at a transactional level on purchases in foreign currencies and at a
translational level in relation to the translation of overseas operations. All transactional risks, cash flow forecasts and
related hedges are reviewed by the Group Hedging Committee and Group Treasury, at least quarterly, to monitor foreign
exchange rates and confirm the appropriateness of the Group’s hedged cover.

The Group’s main foreign exchange risk is to the Euro and US dollar.

During the 53-week period to 31 December 2022, the Euro strengthened against Sterling by 4.7% (2021: weakened by 6.6%),
with the closing rate at €1.1293 compared with €1.1850 at the prior period end. The average rate for the 53-week period to
31 December 2022 was €1.1727 (2021: €1.1623), a 0.9% weakening (2021: 3.3% weakening) of the Euro versus the prior period.

In the same period, the US dollar strengthened against Sterling by 9.9% (2021: strengthened by 1.0%), with the closing rate
at $1.2077 compared with $1.3404 at the prior period end. The average rate for the 53-week period to 31 December 2022
was $1.2375 (2021: $1.3753), a 10.0% strengthening (2021: 7.2% weakening) of the US dollar versus the prior period.

The net foreign exchange impact on profit from transactions is a gain of £1.2m (2021: gain of £0.5m).

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.

£m

Euro

USD

HKD

RMB

Profit or (loss)
10% strengthening in currency

Profit or (loss)
10% weakening in currency

31 December
2022

25 December
2021

31 December
2022

25 December
2021

3.1

3.9

(0.3)

(0.5)

1.9

0.3

(0.2)

(0.7)

(3.8)

(4.8)

0.4

0.7

(2.3)

(0.4)

0.3

0.8

Bakkavor Group plc | Annual Report & Accounts 2022 | 201

FINANCIAL STATEMENTS27. Financial instruments continued
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 and cash flow exposures associated
with anticipated purchase transactions.

The Group has applied hedge accounting to its forward contracts that were put in place on or after 27 December 2020. The
transactions and forward contracts are designated with a hedge ratio of 1:1. The fair value of forward contracts at the
reporting date is determined by the difference between foreign currency spot rate and strike rate of the contract,
discounted to present value. Sources of hedge ineffectiveness are a reduction or modification in the hedged item or a
material change in the credit risk of contract counterparties.

The following table details Sterling foreign currency contracts outstanding as at 31 December 2022, which were entered
into on or before 26 December 2020, for which hedge accounting is not applied:

Outstanding contracts

Net Euros:

3 months or less

3 to 6 months

Net US dollars:

3 months or less

Foreign currency (m)

Average exchange rate

Contract value (£m)

Fair value movement (£m)

2022

2021

2022

2021

2022

2021

2022

2021

–

8.0

6.0

1.5

–

1.10

1.11

1.33

–

7.2

5.4

1.2

13.8

–

(0.5)

(0.3)

–

(0.8)

The following table details Sterling foreign currency contracts outstanding as at 31 December 2022, which were entered
into on or after 27 December 2020, for which hedge accounting is applied:

Foreign currency (m)

Average exchange rate

Contract value (£m)

Fair value movement (£m)

2022

2021

2022

2021

2022

2021

2022

2021

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

37.5

38.5

37.8

19.8

4.4

3.3

6.0

0.8

20.8

22.2

31.4

12.0

4.8

4.7

9.4

1.7

1.08

1.06

1.05

1.14

1.23

1.21

1.22

1.16

1.35

1.36

32.0

33.2

32.8

17.3

3.5

2.8

5.0

0.7

18.0

19.1

27.2

10.3

3.6

3.5

7.0

1.3

127.3

90.0

1.3

1.1

0.5

0.1

–

(0.1)

–

4.0

The following tables detail various information regarding forward contracts, for which hedge accounting is applied,
outstanding at the end of the reporting period and their related hedged items.

Average contracted
exchange rate

Contract value

Carrying amount of the hedging
instrument assets/(liabilities)

Change in fair value
used for calculating
hedge ineffectiveness

Hedging instruments

Forward contracts – EURO

Forward contracts – USD

2022

1.08

1.21

2021

1.16

1.35

2022
£m

115.3

12.0

2021
£m

74.6

15.4

2022
£m

4.0

–

2021
£m

(1.1)

0.1

2022
£m

5.1

(0.1)

Hedging items

Nominal amount of the hedge
item (liabilities)

2022 Foreign
currency
m

2021 Foreign
currency
m

Foreign currency purchases – EURO

Foreign currency purchases – USD

133.6

14.5

86.4

20.6

Change in value used for
calculating hedge
ineffectiveness

Balance in cash flow hedge
reserve for continuing hedges

Balance in cash flow hedge
reserve arising from hedging
relationships for which hedge
accounting is no longer applied

2022
£m

(4.0)

–

2021
£m

1.1

(0.1)

2022
£m

4.0

–

2021
£m

(1.1)

0.1

2022
£m

–

2021
£m

–

202 | Bakkavor Group plc | Annual Report & Accounts 2022

(0.4)

(0.3)

(0.4)

0.0

0.1

0.0

(1.0)

2021
£m

(1.1)

0.1

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDThe following table details the effectiveness of the hedging relationship and the amounts reclassified from hedging reserve:

Current period hedging losses
recognised in OCI

Amount of hedge
ineffectiveness recognised in
profit or loss

Line item in
the income
statement in
which hedge
ineffectiveness
is included

Due to hedged future cash
flows being no longer expected
to occur

Line item
in which
reclassification
adjustment
is included

Hedged items

Foreign currency purchases

2022
£m

5.0

2021
£m

(1.0)

2022
£m

–

2021
£m

Other gains
and losses

–

2022
£m

–

2021
£m

–

Inventory

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. Hedging activities are evaluated regularly to align with
interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied. 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 borrowings as set out in Note 21, net of existing interest rate
swaps, 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 this is management’s assessment of reasonably possible changes in interest rates.

£m

Effects of 100 basis points increase in interest rate

Effects of 100 basis points decrease in interest rate

(Loss)/profit
31 December 2022

(Loss)/profit
25 December 2021

(1.4)

1.4

(1.8)

0.1

It is assumed that all other variables remain the same when preparing the interest rate sensitivity analysis.

In addition, interest rate sensitivity analysis has been performed on amounts owed under the Group’s trade receivables
factoring arrangement. A 100 basis points increase or decrease has been used as this is management’s assessment of
reasonably possible changes in interest rates.

£m

Effects of 100 basis points increase in interest rate

Effects of 100 basis points decrease in interest rate

(Loss)/profit
31 December 2022

(Loss)/profit
25 December 2021

(1.4)

1.4

(1.2)

0.1

Interest rate swap contracts
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed- and floating-rate interest
amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the cash flow
exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined
by discounting the future cash flows using the curves at the reporting date and the credit risk inherent in the contract is
disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year. The
£150m of the floating debt is designated with quarterly interest payment dates and is offset by an interest rate swap with
the same critical terms, with a designated hedge ratio of 1:1. Sources of hedge ineffectiveness are a reduction or
modification in the hedged item or a material change in the credit risk of swap counterparties.

As the critical terms of the interest rate swap contracts and their corresponding hedged items are the same, the Group
performs a qualitative assessment of effectiveness and it is expected that the value of the interest rate swap contracts
and the value of the corresponding hedged items will systematically change in the opposite direction in response to
movements in the underlying interest rates.

During the prior year the Group transitioned from LIBOR to SONIA. All of the interest rate swaps amounting to £150.0m
were subject to this transition.

The following tables detail various information regarding interest rate swap contracts outstanding at the end of the
reporting period and their related hedged items.

Hedging instruments

Interest rate swaps maturing 13 March 2024

Interest rate swaps commencing 13 March 2024

Average contracted fixed
interest rate

Notional principal value

Carrying amount of the
hedging instrument
assets/(liabilities)

Change in fair value used
for calculating hedge
ineffectiveness

2022
%

0.4

2.3

2021
%

0.4

N/A

2022
£m

150.0

30.0

2021
£m

150.0

N/A

2022
£m

7.4

1.0

2021
£m

2.5

N/A

2022
£m

4.9

1.0

2021
£m

3.4

N/A

Bakkavor Group plc | Annual Report & Accounts 2022 | 203

FINANCIAL STATEMENTS27. Financial instruments continued

Hedged items

Variable rate borrowings

Nominal amount of the
hedged item (liabilities)

2022
£m

2021
£m

(180.0)

(150.0)

Change in value used
for calculating hedge
ineffectiveness

Balance in cash flow hedge
reserve for continuing hedges

Balance in cash flow hedge
reserve arising from hedging
relationships for which hedge
accounting is no longer applied

2022
£m

(5.9)

2021
£m

(3.4)

2022
£m

8.4

2021
£m

2.5

2022
£m

–

2021
£m

–

The following table details the effectiveness of the hedging relationship and the amounts reclassified from hedging
reserve to income statement:

Current period hedging gains/
(losses) recognised in OCI

Amount of hedge
ineffectiveness recognised
in profit or loss

Line item in
the income
statement in
which hedge
ineffectiveness
is included

Amount reclassified to income
statement due to hedged future
cash flows being no longer
expected to occur

Line item
in income
statement
in which
reclassification
adjustment
is included

Hedged items

Variable Rate borrowings

2022
£m

5.9

2021
£m

3.4

2022
£m

–

2021
£m

Other gains
and losses

–

2022
£m

–

2021
£m

–

Finance
costs

When interest amounts are paid or received on its interest rate swap contracts, the Group recognises the expenses or
income in the income statement. During 2022 the net amount received and recognised against expenses in finance costs
was £1.4m (2021: £0.4m). After payment or receipt the hedge is revalued and movements are recognised as a movement
in the hedging reserve.

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
financial assets measured 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, represent more than 73% (2021: 74%) 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 £225.0m term loan (2021: £225.0m) and
a £230.0m RCF facility (2021 £230.0m), 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.

The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region of origin was:

£m

China

31 December
2022

25 December
2021

120.9

15.4

13.7

150.0

104.2

12.4

16.0

132.6

The expected credit losses on trade receivables are calculated locally by financial teams. These allowances are based on
assumptions about the risk of default (when it is reasonably probable that no future economic benefit will arise from the
financial asset) 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 31 December 2022 there were £nil (2021: £0.4m) of trade receivables past due by 91 days. This figure has been
included in the expected credit loss of £3.6m (2021: £2.8m). The Group will generally write-off any trade receivables
relating to customers that are in administration.

204 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDCommodity 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 31 December 2022, the Group had purchase commitments for the next 12 months to guarantee
supply and price of raw materials of £145.5 million (2021: £141.5m).

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 31 December 2022, the Group has undrawn borrowing facilities, including cash,
available totalling £201.4m (2021: £195.1m). Please see Note 21 for further information regarding the Group’s borrowings.
The Group also has access to a trade factoring arrangement which provides additional liquidity to the business.

Maturity profile of financial liabilities
The following table illustrates the Group’s undiscounted contractual maturity for its undiscounted financial liabilities when
they fall due.

£m

Non-derivatives due within one year:

Trade payables

Other payables

Accruals

Borrowings1

Lease liabilities

Total non-derivatives due within one year

Non-derivatives due in the second to fifth years inclusive:

Borrowings1

Lease liabilities

Total non-derivatives due in the second to fifth years

Non-derivatives due after five years:

Borrowings1

Lease liabilities

Total non-derivatives due after five years

31 December
2022

25 December
2021

287.5

26.8

112.3

23.2

14.2

464.0

349.4

44.6

394.0

0.7

63.2

63.9

237.6

21.5

128.4

11.2

13.3

412.0

324.9

36.5

361.4

11.8

58.2

70.0

1 Borrowings future interest costs have been calculated excluding any benefit from fixed rate interest rate swaps.

The weighted average interest rates for the Group’s borrowings are found in Note 21 and in Note 24 for lease liabilities.
The following table illustrates the Group’s contractual maturity for derivative financial instruments when they fall due.

£m

Derivative financial liabilities

Due within one year

Due in the second to fifth years inclusive

Total

31 December
2022

25 December
2021

0.3

–

0.3

1.7

0.4

2.1

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:

£m

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

2022

2021

(20.8)

(17.1)

(0.1)

(4.0)

Bakkavor Group plc | Annual Report & Accounts 2022 | 205

FINANCIAL STATEMENTS28. Called up share capital, dividends and reserves
Called up share capital

£m

Issued and fully paid:

579,425,585 (2021: 579,425,585) Ordinary shares of £0.02 each

31 December
2022

25 December
2021

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.

Own shares held
During the period, the Company began purchasing shares through an Employee Benefit Trust called the Bakkavor Group
plc Employee Benefit Trust (the “Trust”). Own shares purchased are recorded at cost and deducted from equity.

The number of Ordinary shares held by the Trust at 31 December 2022 was 2,940,514 (25 December 2021: nil). This represents
0.51% of total called up share capital at 31 December 2022 (25 December 2021: nil).

Total cash purchases made through the EBT during the year amounted to £3.1m (2021: £nil).

£m

Balance at 26 December 2021

Acquisition of shares by the Trust
Distribution of shares under share scheme plans

Balance at 31 December 2022

Number of
shares

–

2,994,036
(53,522)

2,940,514

£000

–

3,128
(54)

3,074

No own shares held of Bakkavor Group plc were cancelled during the periods presented.

Dividends
At the AGM on 20 May 2021, a deferred final dividend of 4 pence per Ordinary share for the financial year ended 28 December
2019 was reinstated and declared. The total amount of £23,177,023 was paid to Ordinary shareholders on 25 May 2021.

An interim dividend of 2.64 pence per Ordinary share was declared in September 2021. The total amount of £15,296,835
was paid to Ordinary shareholders on 15 October 2021.

At the AGM on 25 May 2022, a final dividend of 3.96 pence per Ordinary share for the financial year ended 25 December
2021 was declared. Following a waiver in relation to 2,439,135 Ordinary shares held in the Bakkavor Group plc Employee
Benefit Trust, £22,848,663 was paid to Ordinary shareholders on 30 May 2022.

An interim dividend of 2.77 pence per Ordinary share was declared in September 2022. Following a waiver in relation to
2,492,273 Ordinary shares held in the Bakkavor Group plc Employee Benefit Trust, £15,981,053 was paid to Ordinary
shareholders on 14 October 2022.

This has resulted in total dividend payments of £38,829,716 (2021: £38,473,858) during the year.

A final dividend of 4.16 pence per share has been proposed for approval at the Annual General Meeting on 31 May 2023 and
will be payable on 5 June 2023 to Ordinary shareholders on the register at 28 April 2023.

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.

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 £185.8m 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.

Hedging reserve
The hedging reserve represents the cumulative amount of gains and losses on hedging instruments deemed effective in
cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only
when the hedged transaction impacts the profit or loss, or is included directly in the initial cost or other carrying amount
of the hedged non-financial items (basis adjustment).

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.

206 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED29. Net cash generated from operating activities
£m

Operating profit

Adjustments for:

Share of results of associates after tax

Depreciation of property, plant and equipment

Amortisation of intangible assets

Profit on disposal of property, plant and equipment

Impairment of assets

Share scheme charges

Net retirement benefits charge less contributions

Operating cash flows before movements in operating assets and liabilities

(Increase) in inventories

(Increase) in receivables

Increase in payables
Increase/(decrease) in exceptional provisions1
(Decrease) in provisions

Cash generated by operations

Income taxes paid

Interest paid

Net cash generated from operating activities

2022

37.8

(0.2)

68.3

0.7

(0.1)

29.2

1.3

(2.2)

134.8

(15.8)

(17.3)

32.8
18.4

(1.4)

151.5

(5.1)

(19.3)

127.1

2021

102.0

(0.3)

65.2

0.5

(2.9)

1.3

1.7

(1.4)

166.1

(7.0)

(6.2)

18.9
(0.4)

(2.9)

168.5

(6.5)

(18.0)

144.0

Included within the increase in exceptional provisions are inventory and receivable provision movements of £3.3m (2021: £nil).

Analysis of changes in net debt

£m

Borrowings

Lease liabilities

Total liabilities from financing activities

Cash and cash equivalents

Net debt

£m

Borrowings

Lease liabilities

Total liabilities from financing activities

Cash and cash equivalents

Net debt

26 December
2021

(320.6)

(84.6)

(405.2)

31.1

(374.1)

27 December
2020

(354.6)

(82.0)

(436.6)

24.8

(411.8)

Cash
flow

(0.5)

14.0

13.5

8.0

21.5

Cash
flow

32.8

11.7

44.5

6.1

50.6

Lease
additions

Exchange
movements

Other non-cash
movements1

31 December
2022

–

(25.6)

–

(25.6)

(0.2)

(1.0)

(1.2)

1.1

(0.1)

(1.0)

–

(1.0)

–

(1.0)

(322.3)

(97.2)

(419.5)

40.2

(379.3)

Lease
additions

Exchange
movements

Other non-cash
movements1

25 December
2021

–

(14.2)

–

(14.2)

–

(0.1)

–

(0.1)

1.2

–

1.2

0.2

1.4

(320.6)

(84.6)

(405.2)

31.1

(374.1)

Includes accrued interest at 31 December 2022 of £0.4m (2021: £0.2m) and prepaid bank fees of £2.6m (2021: £3.4m). The net reduction in these balances in the period of £1.0m
(2021: net increase of £1.2m) is shown in the table above as ‘Other non-cash movements’ in Borrowings.

30. 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 has the following amounts of letters of credit issued:

£m

Letters of credit

31 December
2022

25 December
2021

4.4

1.0

As at 31 December 2022, the Group had purchase commitments for the next 12 months to guarantee supply and price of
raw materials of £145.5 million (2021: £141.5m).

31. 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 5 or 10 years from the date of grant dependent on the award year. Options may be forfeited if
the employee leaves the Group before the options vest.

Bakkavor Group plc | Annual Report & Accounts 2022 | 207

FINANCIAL STATEMENTS31. Share-based payments continued
Details of the share options outstanding during the year were as follows:

Outstanding at the beginning of the period

Granted during the period

Granted in lieu of dividends during the period

Exercised during the period

Forfeited during the period

Expired and lapsed 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

31 December
2022

25 December
2021

31 December
2022

25 December
2021

17,713,853

17,016,003

£0.12

£0.18

5,723,603

4,094,843

23,834

15,884

–

(1,628,144)

(1,204,191)

£0.74

£0.70

–

(98,773)

(3,071,943)

(2,109,913)

18,761,203

17,713,853

2,635,939

3,613,752

–

£0.05

£0.21

–

£0.12

£0.45

The average share price on the date options were exercised during the period was £1.12 (2021: £1.29).

The options outstanding at 31 December 2022 had a weighted average exercise price of £0.05 (2021: £0.12), and a weighted
average remaining contractual life of 5.1 years (2021: 7.9 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

31 December
2022

25 December
2021

31 December
2022

25 December
2021

16,461,600 13,839,628

2,299,603

3,874,225

18,761,203

17,713,853

2,635,939

3,613,752

–

£0.44

£0.05

£0.21

–

£0.57

£0.12

£0.45

In 2022, 4,884,708 options were granted on 13 April 2022 and 81,289 were granted on 13 October 2022. These options
granted had the following performance conditions for vesting:

• 128,036 vest provided the individual is an employee in April 2025.

• 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 27 companies three years after the date of grant 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 three years after the date of grant is at the upper quartile level.

• Provided that the first condition is met, 12.5% of the remaining options vest provided the Group’s adjusted EPS for the 2024

financial year is 12.0 pence, with up to a further 50% of the remaining options vesting on a sliding scale if the Group’s adjusted
EPS is between 12.0 pence and 13.8 pence for that year.

In 2022, 244,230 options were granted to Directors due to their Deferred Annual Bonus entitlement.

In 2022, 757,606 options were granted on 13 October 2022. These options granted had the following performance
conditions for vesting:

• 252,534 vest provided that the individual is an employee in October 2025.

• Provided that the first condition is met, 25% of the remaining options vest provided the Bakkavor US adjusted EBIT margin

percentage for the 2024 financial year is 6.0%, with up to a further 100% of the remaining options vesting on a sliding scale if
the Bakkavor US adjusted EBIT margin percentage is between 6.0% and 8.0% for that year.

In 2021, 157,594 options were granted on 27 January 2021 under the same terms as the options granted in October 2020. In
addition in 2021, 3,770,227 options were granted on 26 April 2021 and 4 May 2021, with a further 167,022 options granted on
14 September 2021. These options granted had the following performance conditions for vesting:

• 136,823 vest provided that the individual is an employee in May 2024.

• Provided that the first condition is met, 12.5% of the remaining options vest provided the Group’s TSR national rank versus a

• Provided that the first condition is met, 12.5% of the remaining options vest provided the Group’s adjusted EPS for the 2023

financial year is 12.7 pence, with up to a further 50% of the remaining options vesting on a sliding scale if the Group’s adjusted
EPS is between 12.7 pence and 14.7 pence for that year.

208 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDThe aggregate of the estimated fair values of the options granted as at 2022 is £18.3m (2021: £22.4m). The following table
summarises the options granted by the Company:

Date of grant

3 July 2017

20 October 2017

9 April 2018

9 April 2019

15 September 2020

14 October 2020

30 October 2020

27 January 2021

26 April 2021

14 September 2021

13 April 2022

13 October 2022

Number
of options
originally
granted

Contractual life
remaining
(years)

Share price at
date of grant

Expected
volatility

Expected life
remaining
(years)

Risk-free rate

Expected
dividend yield

Fair value
per option

8,178,785

600,000

400,000

1,312,855

1,839,345

314,156

1,118,051

5,497,110

451,069

354,823

177,411

157,594

1,333,857

482,845

136,823

83,511

1,758,278

620,059

128,036

40,645

40,644

505,072

252,534

4.5

4.8

5.3

6.3

2.7

2.8

3.1

3.3

3.7

9.3

9.8

£1.44

£1.78

£1.33

£0.68

£0.65

£0.59

£1.36

£1.29

£1.08

£0.91

38.2%

37.5%

37.7%

23.5%

31.0%

35.7%

41.5%

43.7%

41.5%

43.7%

42.0%

41.4%

41.2%

48.4%

46.8%

–

0.71

0.79

0.83

1.07

1.32

1.70

2.28

2.79

0.87%

0.47%

0.56%

1.17%

0.69%

(0.10%)

(0.09%)

(0.07%)

0.16%

0.33%

0.16%

0.33%

0.21%

1.61%

3.95%

2.75%

0.00%

£0.65

£1.34

£1.26

£1.78

£0.59

£1.33

£0.42

£0.40

£0.64

£0.34

£0.58

£0.34

£1.08

£1.30

£1.08

£1.30

£1.01

£1.24

£0.64

£1.08

£0.64

£1.08

£0.61

£0.91

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 2022 is £nil (2021: £nil). The fair value of awards, which have a TSR performance condition, takes
account of the likelihood of meeting these targets.

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.

The Group recognised total expenses of £1.9 million (2021: £2.3m) related to equity-settled share-based payment
transactions in the period. The Group held cash-settled share-based awards of £0.6m (2021: £0.6m) during the year.

32. 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.

UK pensions are regulated by the Pensions Regulator whose statutory objectives and regulatory powers are described on
its website www.thepensionsregulator.gov.uk. Although the Company bears the financial cost of the plan, the trustee
directors are responsible for the overall management and governance of the scheme, including compliance with all
applicable legislation and regulations. The trustee directors are required by law to act in the interests of all relevant
beneficiaries and to set certain policies; to manage the day-to-day administration of the benefits; and to set the plan’s
investment strategy following consultation with the Parent Company.

Bakkavor Group plc | Annual Report & Accounts 2022 | 209

FINANCIAL STATEMENTS32. Retirement benefit schemes continued
Pension costs charged in arriving at profit on ordinary activities before taxation were:

£m

UK defined contribution scheme net charge

UK defined benefit scheme net charge

Total charge

31 December
2022

25 December
2021

12.6

0.6

13.2

11.1

1.1

12.2

Defined contribution schemes
The total cost charged to income of £12.6m (2021: £11.1m) 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 £2.4m at the period end for the defined contribution schemes gross contributions (2021: £2.3m).

Defined benefit schemes
An actuarial valuation of Scheme assets and the present value of the defined benefit obligation for funding purposes was
carried out as at 31 March 2019. The results from this valuation were updated for IAS 19 Employee Benefits purposes to
31 December 2022 by a qualified independent actuary with Willis Towers Watson. The projected unit cost method was
used to value the liabilities.

The principal assumptions used in this IAS 19 valuation were:

Future pension increases for in-payment benefits (majority of liabilities)

Discount rate applied to Scheme liabilities

Inflation assumption (CPI)

31 December
2022

25 December
2021

3.10%

4.80%

2.80%

3.25%

1.80%

2.75%

The 2022 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
2022

Males’ expected
future lifetime
2021

Females’
expected future
lifetime
2022

Females’
expected future
lifetime
2021

41.4

21.8

41.3

21.8

43.9

23.9

43.8

23.8

The IAS 19 calculations, which are based on an approximate update of the results of the actuarial valuation of the Scheme
which was carried out as at 31 March 2019, are particularly sensitive to some assumptions: for example, the discount rate,
the level of assumed price inflation and the life expectancy assumption. As such, a broad indication of the sensitivity of the
liabilities to each assumption is shown. The sensitivities display ‘reasonably possible’ changes in actuarial assumptions.
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 £22.4m/increase £28.1m

Increase £8.7m/decrease £8.3m

Life expectancy

Members assumed to be one year younger than their actual age Increase £6.3m

Amounts recognised in income in respect of these defined benefit schemes are as follows:

£m

Past service cost

Net interest on net defined benefit asset/liability

Administration costs incurred during the period

Total charge

2022

–

(0.7)

1.3

0.6

2021

0.1

(0.2)

1.2

1.1

All of the charges for each period presented have been included in total administrative expenses. The actuarial loss of
£26.3m (2021: £24.5m gain) has been reported in other comprehensive income.

The actual return on Scheme assets was a decrease of £119.1m (2021: £25.6m increase).

210 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDThe 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:

£m

Fair value of Scheme assets

Present value of defined benefit obligations

Scheme surplus

Related deferred taxation liability (Note 23)

31 December
2022

25 December
2021

185.9

(173.1)

12.8

(3.2)

9.6

313.5

(276.3)

37.2

(9.3)

27.9

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 2022 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.

The amounts recognised in the balance sheet and the movements in the net defined benefit obligation (“DBO”) over the
year are as follows:

£m

At 27 December 2020

Past service cost – plan amendments

Interest (expense cost on the DBO)/income on Scheme assets

Administrative costs paid

Total amount recognised in the consolidated income statement

Return on Scheme assets greater/(less) than discount rate

Actuarial loss – financial assumptions

Total amount recognised in other comprehensive income

Contributions from the sponsoring companies

Benefits paid from Scheme assets

At 25 December 2021

Past service cost – plan amendments

Interest (expense cost on the DBO)/income on Scheme assets

Administrative costs paid

Total amount recognised in the consolidated income statement

Return on Scheme assets greater/(less) than discount rate

Actuarial loss – experience

Actuarial gain – financial assumptions

Total amount recognised in other comprehensive income

Contributions from the sponsoring companies

Benefits paid from Scheme assets

At 31 December 2022

Present value
of DBO

Fair value of
Scheme assets

Net amount

(283.5)

294.7

(0.1)

(3.9)

–

(4.0)

–

3.0

–

8.2

–

4.1

(1.2)

2.9

21.5

–

21.5

2.6

(8.2)

(276.3)

313.5

–

(4.9)

–

(4.9)

–

(13.6)

112.0

98.4

–

9.7

–

5.6

(1.3)

4.3

–

(124.7)

2.5

(9.7)

(173.1)

185.9

11.2

(0.1)

0.2

(1.2)

(1.1)

21.5

3.0

24.5

2.6

–

37.2

–

0.7

(1.3)

(0.6)

(13.6)

112.0

(26.3)

2.5

–

12.8

(124.7)

The analysis of the Scheme assets at the statement of financial position date was as follows:

£m

Structured UK equity

Overseas equity

High yield bonds

Corporate bonds

Government bonds

Cash

Other

Fair value of assets

31 December
2022

25 December
2021

2.3

9.9

8.5

50.5

81.3

9.6

23.8

185.9

13.0

30.7

7.5

74.4

141.7

11.3

34.9

313.5

The fair values of the equity and bonds have been determined as level 2 instruments under IFRS 7 Financial Instruments.
Index-linked government bonds, which have quoted prices in active markets, are classed as level 1.

Bakkavor Group plc | Annual Report & Accounts 2022 | 211

FINANCIAL STATEMENTS32. Retirement benefit schemes continued
Structured UK equity provides exposure to UK equities, but is a derivative-based solution and not a direct investment in
equities. A proportion of the index-linked government bonds are held as collateral against the structured UK equity product.

The Scheme assets also include swaps to hedge liability inflation and interest rate risks. The swap value has been
included in the value of the gilt securities used as collateral for the swaps. Corporate bonds and cash are also used as
collateral for the swaps in place.

The Scheme invests in four multi-asset funds, which invest in a wide range of assets including alternative asset classes.
In the summary above, the multi-asset funds have been split into the relevant constituent asset classes.

The Bakkavor Pension Scheme operates under trust law and is managed and administered by the Trustees 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
was as at 31 March 2019.

The Group and the Trustees 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 liability-matching assets, 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. This 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 15 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 2022, no augmentation was made in respect of this benefit (2021: £89,000).

The current deficit reduction contributions were agreed between the Group and the Trustee as part of the 2019 triennial
valuation. The deficit contributions will be paid over a recovery period ending on 31 March 2024. The recovery contributions
are paid monthly and the agreed rates are £2.5m per annum. £2.5m was paid in the period to 31 December 2022 (2021:
£2.5m).

The actual amount of employer contributions expected to be paid to the Scheme during 2023 is £2.5m.

33. 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.

Transactions with the Bakkavor Defined Benefit Pension Scheme (“the Scheme”)
As a result of the volatility in the gilt markets, the Scheme was required to provide further collateral for its liability
hedging of interest and inflation rate movements. The Group agreed to provide a £15m short-term line of credit to the
Scheme in October 2022 to meet this collateral requirement. The line of credit attracted interest at a rate of 2.1% plus
SONIA and was fully repaid by 23 December 2022.

Share transactions
See Note 35 for details of share transactions by two of the Company’s Directors, Agust Gudmundsson and Lydur Gudmundsson.

212 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDRemuneration 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.

£m

Short-term employee benefits

Post-employment benefits1

Share-based payments2

2022

Senior
Management

Directors

3.1

–

0.4

3.5

1.1

–

0.3

1.4

2021

Senior
Management

Directors

3.8

–

0.5

4.3

1.1

–

0.3

1.4

Total

4.2

–

0.7

4.9

Total

4.9

–

0.8

5.7

The Directors’ post-employment benefits show contributions made to pension schemes. The pension entitlements disclosed in the Directors’ remuneration report on pg 135
included cash contributions paid in lieu of pension contributions.

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 31.

The highest paid Director received aggregate remuneration (including pension entitlements) of £1.1m (2021: £1.3m).

For the period ended 31 December 2022, two Directors (2021: two Directors) received contributions to their pension
schemes from the Group.

For the period ended 31 December 2022, two Directors (2021: two Directors) received share options. One Director
(2021: no Directors) exercised share options during the period resulting in a gain of £59,000.

34. Events after the statement of financial position date
There are no events after the statement of financial position date that need to be disclosed.

35. Controlling party
These Financial Statements are the largest consolidated 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 (the corporate holding structure of Agust Gudmundsson) and Umbriel
Ventures Limited (the corporate holding structure of Lydur Gudmundsson). On 20 May 2022, Lydur Gudmundsson purchased
200,000 ordinary shares in the Company. Following the transaction, Umbriel Ventures Limited holds 142,303,505 ordinary
shares (representing 24.56% of the issued share capital of the Company) and Carrion Enterprises Limited holds 142,103,505
ordinary shares (representing 24.52% of the issued share capital of the Company).

Lixaner Co Limited, a company owned and controlled by Sigurdur Valtysson, who runs the family office for Agust and
Lydur Gudmundsson, holds 6,457,750 ordinary shares (representing 1.11% 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 (Lixaner Co Limited) is 290,864,760 ordinary shares (representing 50.20% of the issued
share capital of the Company).

36. Alternative performance measures
The Group uses various non-IFRS financial measures to 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 revenue
The Group defines like-for-like 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 and
prior period, the effect of foreign currency movements and revenues. In addition revenues for week 53 are taken out in the
relevant financial years to ensure that like-for-like revenue is shown on a 52 week basis each year.

The following table provides the information used to calculate like-for-like revenue for the Group.

£m

Statutory revenue

Effect of currency movements

Week 53 revenue

Like-for-like revenue

2022

2021

Change %

2,139.2

1,871.6

14.3%

(34.2)

(36.0)

–

2,069.0

1,871.6

10.6%

Bakkavor Group plc | Annual Report & Accounts 2022 | 213

FINANCIAL STATEMENTS36. Alternative performance measures continued
The following tables provide the information used to calculate like-for-like revenue for each segment.

£m

Statutory revenue

Week 53 revenue

Like-for-like revenue

£m

Statutory revenue

Effect of currency movements

Week 53 revenue

Like-for-like revenue

China

£m

Statutory revenue

Effect of currency movements

Week 53 revenue

Like-for-like revenue

2022

2021

Change %

1,783.1

1,592.4

12.0%

(30.8)

–

1,752.3

1,592.4

10.0%

2022

255.3

(25.5)

(3.6)

226.2

2022

100.8

(8.7)

(1.6)

90.5

2021

Change %

180.1

41.8%

–

180.1

25.6%

Change %

1.7%

2021

99.1

–

99.1

(8.6)%

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. In calculating
adjusted operating profit, we exclude restructuring costs, asset impairments, costs incurred to configure or customise
‘software as a service’ (“SaaS”) arrangements, and those additional charges or credits that are considered significant or
one-off in nature. In addition, for adjusted EBITDA we exclude depreciation, amortisation, the share of results of
associates after tax and share scheme charges, as these are non-cash amounts. Adjusted operating profit margin is used
as an additional profit measure that assesses profitability relative to the revenues generated by the relevant segment; it is
calculated by dividing the adjusted operating profit by the statutory revenue for the relevant segment.

SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application
software over the contract period. Costs incurred to configure or customise, and the ongoing fees to obtain access to the
cloud provider’s application software, are recognised as operating expenses when the services are received, unless the
configuration and customisation activities significantly modify or customise the cloud software, in which case the costs
are expensed over the SaaS contract term. The Group adjusts for the cost of these projects as they are infrequent in
nature and relate to significant systems changes within the business.

The Group calculates adjusted EBITDA on a pre-IFRS 16 basis for the purposes of determining covenants under its
financing agreements.

The following table provides a reconciliation from the Group’s operating profit to adjusted operating profit and adjusted EBITDA.

Note

£m

Operating profit

Exceptional items

Configuration and customisation costs for SaaS projects

Adjusted operating profit

Depreciation

Amortisation

Share scheme charges

Profit 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 161

Covenant adjustments

Adjusted EBITDA (pre IFRS 16 and including covenant adjustments)

1 Excludes the impact of IFRS 16 as the Group’s bank facility agreement definition of adjusted EBITDA excludes the impact of this standard.

Adjusted EBITDA and Adjusting operating profit by segment is reconciled to operating profit in Note 4.

214 | Bakkavor Group plc | Annual Report & Accounts 2022

2022

37.8

50.1

1.5

89.4

68.3

0.7

1.9

(0.1)

(0.2)

160.0

(13.8)

146.2

0.6

146.8

2021

102.0

–

102.0

65.2

0.5

2.3

(2.9)

(0.3)

166.8

(12.6)

154.2

1.4

155.6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDOperational 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 and
aligns with the definition of net debt in the Group’s bank facility agreements which exclude the impact of IFRS 16. The
following table sets out the reconciliation from the Group’s net debt to the Group’s operational net debt.

£m

Group net debt

Unamortised fees

Interest accrual

Lease liabilities recognised under IFRS 16

Group operational net debt

Adjusted EBITDA (pre IFRS 16 and including covenant adjustments)

Leverage (Operational net debt/adjusted EBITDA pre IFRS 16 and including covenant adjustments)

31 December
2022

25 December
2021

(379.3)

(374.1)

Note

(2.6)

0.4

96.6

(284.9)

146.8

1.9

(3.4)

0.2

83.6

(293.7)

155.6

1.9

Free cash flow
The Group defines free cash flow as the amount of cash generated by the Group after meeting all of its obligations for
interest, tax and pensions, and after purchases of property, plant and equipment (excluding development projects), but
before payments of refinancing fees 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.

£m

Net cash generated from operating activities

Interest received

Dividends received from associates

Purchases of property, plant and equipment

Proceeds on disposal of property, plant and equipment

Purchase of intangibles

Cash impact of exceptional items

Refinancing fees

Free cash flow

2022

127.1

0.2

–

(61.1)

0.1

(2.9)

2.5

0.9

66.8

2021

144.0

–

0.7

(59.8)

4.2

–

1.2

0.9

91.2

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 for the period adjusted to
exclude exceptional items, configuration and customisation costs for SaaS projects and the change in value of derivative
financial instruments. The following table reconciles profit for the period to adjusted earnings.

For adjusted diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume
conversion of all potentially dilutive Ordinary shares.

£m

Profit for the period

Exceptional items (Note 7)

Configuration and customisation costs for SaaS projects

Change in fair value of derivative financial instruments

Tax on the above items

Adjusted earnings

Add back: Tax on adjusted profit before tax

Adjusted profit before tax

Effective tax rate on underlying activities

2022

12.5

50.1

1.5

0.1

(9.4)

54.8

15.0

69.8

2021

56.8

–

4.0

(0.8)

60.0

25.4

85.4

(Tax on adjusted profit before tax/adjusted profit before tax)

21.5%

29.7%

Bakkavor Group plc | Annual Report & Accounts 2022 | 215

FINANCIAL STATEMENTS36. Alternative performance measures continued
Number of shares
‘000

Weighted average number of Ordinary shares

Effect of dilutive Ordinary shares

Weighted average number of diluted Ordinary shares

Adjusted basic earnings per share

Adjusted diluted earnings per share

2022

2021

577,576

579,426

9,767

9,775

587,343

589,201

2022

9.5p

9.3p

2021

10.4p

10.2p

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 excluding the impact of exceptional items and configuration and
customisation costs for SaaS projects 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 and end of the period.

The Directors believe that ROIC is a useful indicator of the amount returned as a percentage of shareholders’ invested
capital and 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.

£m

Operating profit

Exceptional items

Configuration and customisation costs for SaaS projects

Adjusted operating profit

Taxation at the underlying effective rate

Adjusted operating profit after tax

Invested capital

Total assets

Total liabilities

Net debt at period end

Derivatives not designated as hedges

Retirement benefit scheme surplus

Deferred tax liability on retirement benefit scheme

Invested capital

Average invested capital for ROIC calculation

ROIC (%)

Note

2022

37.8

50.1

1.5

89.4

(19.2)

70.2

1,541.4

(923.6)

379.3

–

(12.8)

3.2

987.5

987.7

7.1%

2021

102.0

–

102.0

(30.3)

71.7

1,503.5

(862.8)

374.1

0.9

(37.2)

9.3

987.8

994.4

7.2%

216 | Bakkavor Group plc | Annual Report & Accounts 2022

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUEDCOMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022

£m

Non-current assets

Shares in Group undertakings

Current assets

Loans to Group undertakings

Deferred tax assets

Total assets

Current liabilities

Loans from Group undertakings

Total liabilities

Net assets

Equity

Called up share capital

Own shares held

Merger reserve

Retained earnings

Total equity

Notes

31 December
2022

25 December
2021

309.5

95.6

0.9

96.5

97.2

0.2

97.4

406.0

406.9

(1.6)

(0.2)

404.4

406.7

11.6

(3.1)

23.8

372.1

404.4

11.6

–

23.8

371.3

406.7

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 £38.5m (2021: £85.0m).

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 7 March 2023. They were
signed on behalf of the Board of Directors by:

Mike Edwards
Chief Executive Officer

Ben Waldron
Chief Financial Officer and Asia Chief Executive Officer

COMPANY STATEMENT OF CHANGES IN EQUITY
53 WEEKS ENDED 31 DECEMBER 2022

£m

Balance at 27 December 2020

Profit for the period

Dividends

Credit for share-based payments

Cash-settlement of share-based awards

Deferred tax

At 25 December 2021

Profit for the period

Purchase of own shares

Dividends

Credit for share-based payments

Cash-settlement of share-based awards

Deferred tax

At 31 December 2022

Note

Called up
share capital

Own
shares held

11.6

–

11.6

–

(3.1)

–

Merger
reserve

23.8

–

23.8

–

Retained
earnings

323.2

85.0

(38.5)

2.3

(0.6)

(0.1)

371.3

38.5

–

(38.8)

1.9

(0.6)

(0.2)

Total
equity

358.6

85.0

(38.5)

2.3

(0.6)

(0.1)

406.7

38.5

(3.1)

(38.8)

1.9

(0.6)

(0.2)

11.6

(3.1)

23.8

372.1

404.4

Bakkavor Group plc | Annual Report & Accounts 2022 | 217

FINANCIAL STATEMENTS

NOTES TO THE COMPANY FINANCIAL STATEMENTS
53 WEEKS ENDED 31 DECEMBER 2022

The principal activities of the Company and its subsidiaries are described within Note 1 of the Consolidated Financial
Statements.

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 as applicable to companies using FRS 101 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 13 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 Presentation of Financial Statements; and Paragraph 73(e) of IAS 16 Property, Plant and
Equipment; and Paragraph 118(e) of IAS 38 Intangible Assets;

• The requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A-D, 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 paragraphs 17 and 18A 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;

• The requirements of paragraphs 130(f)(ii), 130(f)(iii), 134(d)-134(f) and 135(c)-135(e) of IAS 36 Impairment of Assets; and

• The requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based Payment.

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 have been applied consistently and 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 31 December 2022 amounted to £95.6m (2021: £97.2m).

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 of £0.1m (2021: £0.1m) to the Company’s Auditors in respect of the audit of the Company’s Financial
Statements for the periods ended 31 December 2022 and 25 December 2021 have been borne by fellow Group company
Bakkavor Foods Limited.

The Company has 11 Directors and no further employees. Payments to the Directors for the periods ended 31 December
2022 and 25 December 2021 have been borne by fellow Group company Bakkavor Foods Limited. Details of Directors’
remuneration is disclosed within Note 33 of the Consolidated Financial Statements.

4. Shares in Group undertakings

£m

Balance at 25 December 2021 and 31 December 2022

Investment in
Group companies

309.5

218 | Bakkavor Group plc | Annual Report & Accounts 2022

5. Subsidiaries
As at 31 December 2022, Bakkavor Group plc held investments in the share capital of the following companies:

Place of
registration and

operation Principal activity

% of voting
shares as at
31 December
2022

% of voting
shares as at
25 December
2021

UK Holding company

100%

Name

Directly held investments:

Bakkavor Holdings Limited1

Indirectly held investments:

Bakkavor Finance (2) Limited1

Bakkavor (London) Limited1

Bakkavor Finance Limited2

Bakkavor Limited1

Bakkavor USA Inc4

Bakkavor USA Limited1

Bakkavor Foods USA Inc4

Bakkavor China Limited1

UK Holding company

UK Customer invoicing and financing of receivables

UK Holding company

USA Holding company

UK Holding company

USA Manufacture of fresh prepared meals and bakery

products

UK Holding company

Bakkavor Bakery Holdings Limited5

Hong Kong Holding company

Bakkavor Hong Kong Limited5

Hong Kong Preparation and marketing of fresh prepared foods

Bakkavor China Holdings Limited5

Hong Kong Holding company

Wuhan Bakkavor Food Company Limited6