Adapting
SUCCESSFULLY
TO CHANGE
Bakkavor Group plc
Annual Report
& Accounts 2022
Disclaimer – forward-looking statements
This report includes forward-looking statements. By their nature, forward-looking
statements involve risk, uncertainty and other factors, which may cause the actual
results and developments of the Group to differ materially from any results and
developments expressed or implied by such forward-looking statements. You should
not place undue reliance on any forward-looking statements. These forward-looking
statements are made as of the date of this Annual Report and Accounts. The Group
is under no obligation to publicly update or review these forward-looking statements
other than as required by law.
STRATEGIC REPORT
Our business at a glance
2
Key performance indicators
4
Chairman’s statement
6
A final message from Agust Gudmundsson
8
Chief Executive’s overview
10
How we create value
16
Our markets
18
Our strategy
22
Our people
32
Divisional review: UK, US, China
36
ESG: Trusted Partner
40
ESG: TCFD
56
Stakeholder engagement
66
Financial review
72
Risk management and risks
76
Viability statement
87
GOVERNANCE
Chairman’s governance overview
88
Corporate Governance Compliance statement
89
Group Board and Management Board
92
Corporate governance report
98
Nomination Committee report
113
ESG Committee report
119
Audit, risk and internal control
122
Audit and Risk Committee report
124
Directors’ remuneration report
132
Directors’ report
152
Statement of Directors’ responsibilities in respect
of the Financial Statements
158
FINANCIAL STATEMENTS
Independent Auditors’ report
159
Consolidated income statement
169
Consolidated statement of comprehensive income
170
Consolidated statement of financial position
171
Consolidated statement of changes in equity
172
Consolidated statement of cash flows
173
Notes to the Consolidated Financial Statements
174
Company statement of financial position
217
Company statement of changes in equity
217
Notes to the Company Financial Statements
218
COMPANY INFORMATION
Advisers and registered office
223
A refined focus to deliver returns
through a
clear strategy
Our strategy remains focused on driving
returns from our market-leading position
in the UK, accelerating profitable growth
internationally, driving operational
excellence and being a trusted partner
for all of our stakeholders.
pg 22
Robust financial performance
and in a position of
financial
strength
Group like-for-like revenue up 10.6% to
over £2bn and Group adjusted operating
profit in line with market expectations.
Maintenance of a strong balance sheet
and good cash generation mean we are
well-placed to support future growth.
pg 72
CONTENTS
A targeted approach under
Trusted Partner to ensure
sustainability progre
Delivered reduction in Group carbon
emissions and UK food waste, along
with enhancing our governance of ESG.
Updated assessment of our material
ESG issues has shaped our focus for
the future.
pg 40
Investment in our people and
embedding our
new values
A positive impact from our pay and
engagement activities, with new
values helping shape our culture
and behaviours, so we can all be
‘Proud to be Bakkavor’.
pg 32
New CEO appointed, Board
committee
responsibilities
rebalanced
Welcomed Mike Edwards as new CEO,
and rebalanced Board committee
responsibilities to best use the talent
and experience of our Directors, along
with a new ESG Committee.
pg 113
£2,139.2m
Group reported revenue
(2021: £1,871.6m)
£37.8m
Operating profit
(2021: £102.0m)
2.2p
Basic EPS
(2021: 9.8p)
£2,069.0m
Group like-for-like revenue
(2021: £1,871.6m)
£89.4m
Adjusted operating profit
(2021: £102.0m)
9.5p
Adjusted EPS
(2021: 10.4p)
Financial
highlights
Bakkavor Group plc | Annual Report & Accounts 2022 |
1
E
X
C
E
LL
E
N
C
E
T
R
U
S
T
UK
I
N
T
E
R
N
A
T
I
O
N
A
L
Our
vision
:
To lead the way in bringing great-
tasting, Fresh Prepared Food (“FPF”)
to people across our markets.
Our
purpose
:
To delight our customers and
consumers through the fresh,
convenient and innovative food that
we proudly create every day.
Leading
manufacturer
of Fresh
Prepared Food
Respect
and trust
each other
Keep the customer
at the heart of
what we do
Get it right,
keep it right
Be proud of
what we do
UK: Drive returns by leveraging our UK
number one market position
INTERNATIONAL: Accelerate profitable
growth in the US and China
EXCELLENCE: Deliver superior performance
through operational excellence
TRUST: Be a trusted partner for our people,
customers, suppliers and communities
Our
culture
:
To empower and support all our stakeholders by living our values.
OUR BUSINESS AT A GLANCE
Our
strategy
:
To deliver profitable and sustainable growth.
2
| Bakkavor Group plc | Annual Report & Accounts 2022
Our
UK division:
Leading supplier to
grocery retailers with
category breadth and
unrivalled scale.
Our
US
division:
National provider of
fresh meals to grocery
retailers and direct-to-
consumer customers.
Our
China division:
Supplies foodservice
and retail customers
nationally with value-
added fresh products.
Our
busine overview
:
Our deep understanding of consumers’ changing needs enables us to create
innovative products for our customers around the world.
c.1,500
products across meals,
pizza and bread, salads
and desserts
28
sites: 22 factories, 1 head office,
4 distribution centres, 1 growing unit
£1,783.1m
reported revenue
83%
of Group reported revenue
£92.7m
adjusted operating profit
£54.6m
1
operating profit
c.110
products across fresh meals,
dips, artisan bread, soups,
sauces and burritos
6
sites: 5 factories,
1 head office
£255.3m
reported revenue
12%
of Group reported revenue
£3.3m
adjusted operating profit
£(0.5)m
1
operating loss
c.1,300
products across fresh cut salads,
food to go salads and sandwiches,
bakery, meals, soups and sauces
11
sites: 9 factories,
1 head office, 1 farm
£100.8m
reported revenue
5%
of Group reported revenue
£(6.6)m
adjusted operating loss
£(16.3)m
1
operating loss
READ MORE
on pg 36.
READ MORE
on pg 38.
45
total sites
>1,300
total suppliers
£2,139.2m
Group reported revenue
c.2,900
total products
#1
Bakkavor position in UK FPF market
>18,500
total colleagues
READ MORE
on pg 39.
1
Operating profit is after exceptional and adjusting items. Group operating profit was £37.8m.
Bakkavor Group plc | Annual Report & Accounts 2022 |
3
STRATEGIC REPORT
2022
321
2021
334
2020
330
2022
28.1%
2021
27.8%
2020
17.9%
2022
110,106
2021
135,691
2020
141,538
2022
8.05%
2021
9.15%
2020
8.48%
Bakkavor
in
numbers
Non-financial performance
Link to our strategy
Link to our strategy
UK accidents resulting in lost time
>7 days (per 100k employees)
321
-3.9%
UK employee turnover
1
28.1%
+30bps
What are we measuring?
The number of accidents across our
sites that resulted in affected colleagues
taking more than seven days off work.
It is calculated based on 100k colleagues
to enable us to compare our performance
to the latest data from the UK Health and
Safety Executive (“HSE”).
Why is it important?
We have a duty of care to colleagues in
ensuring their health, safety and wellbeing.
Our health and safety culture is based on a
governance process driven by the Group
Board and we have Health and Safety
teams in place that define standards and
monitor compliance with systems.
What are we measuring?
This is calculated by dividing the number
of colleagues leaving the business
(excluding fixed-term contracts and
redundancies) against total headcount.
Why is it important?
Our colleagues are our priority and we
must remain focused on being the local
employer of choice for both existing and
new talent. We recognise the importance
of attracting and retaining a skilled
and diverse workforce. Driving an
improvement in employee turnover also
creates efficiency by decreasing resources
required for recruitment and onboarding.
Link to our strategy
Link to our strategy
Total Group net carbon emissions
(tCO
2
e)
110,106
-18.9%
UK food waste
8.05%
-110bps
What are we measuring?
Scope 1 and 2 net (market-based)
emissions across the Group.
Why is it important?
Climate change is the single biggest
sustainability challenge facing the world.
Bakkavor has a part to play in reversing
the climate emergency and supporting
the shift towards a low-carbon economy.
This is why we have made the commitment
to reach Net Zero emissions across our
Group operations by 2040.
What are we measuring?
Food waste as per the Food Loss and
Waste Accounting and Reporting
Standard (“FLW Standard”). Percentage
food waste calculated as ‘tonnes food
waste divided by tonnes (food product
produced or sold as intended plus food
waste plus food sent to other destinations)’.
Why is it important?
Estimated to contribute 8–10% of total
man-made greenhouse gas (GHG)
emissions
3
, addressing food waste is one
of our sector’s biggest responsibilities.
KEY PERFORMANCE INDICATORS
1
The Group’s bonus scheme and long-term incentive awards are based
on performance across a selection of three KPIs. See pg 138–139 in
the Directors’ remuneration report.
2
Alternative Performance Measures (“APMs”), including ‘like-for-like’,
‘adjusted’ and ‘underlying’, are applied consistently throughout the
2022 Annual Report and Accounts. The APMs are defined in full and
reconciled to the reported statutory numbers in Note 36 of the Notes
to the Consolidated Financial Statements.
3
IPCC, 2019: Climate Change and Land: an IPCC special report on
climate change, desertification, land degradation, sustainable land
management, food security, and greenhouse gas fluxes in terrestrial
ecosystems (P.R. Shukla, J. Skea, E. Calvo Buendia, V. Masson-
Delmotte, H.-O. Pörtner, D. C. Roberts, P. Zhai, R. Slade, S. Connors,
R. van Diemen, M. Ferrat, E. Haughey, S. Luz, S. Neogi, M. Pathak,
J. Petzold, J. Portugal Pereira, P. Vyas, E. Huntley, K. Kissick,
M. Belkacemi, J. Malley, (eds.)). In press.
UK: Drive returns by leveraging our UK
number one market position
INTERNATIONAL: Accelerate profitable
growth in the US and China
EXCELLENCE: Deliver superior performance
through operational excellence
TRUST: Be a trusted partner for our people,
customers, suppliers and communities
Link to our strategy
Performance year-on-year
Improved
Worsened
READ MORE:
Financial review pg 72 for detail of the
year-on-year financial performance.
Risk management pg 76 for detail of the
principal risks and developments in 2022.
Remuneration report pg 132 for detail of the
Group’s bonus scheme and long-term incentives.
Trusted Partner pg 40 for detail of the
year-on-year non-financial KPI performance.
Non-financial and sustainability information
statement pg 52.
The Group’s financial reporting period is typically 52 weeks, however,
every six years an additional week is included to ensure that its year-end
date remains near the end of December. The Group’s FY22 results
are based on a 53 week period, compared to a 52 week period in FY21.
Throughout the Annual Report & Accounts 2022, reported revenue
is for the 53 weeks ended 31 December 2022. Like-for-like revenue
excludes the 53rd week.
Maintained
4
| Bakkavor Group plc | Annual Report & Accounts 2022
2022
£2,069.0m
2021
£1,871.6m
2020
£1,764.4m
2022
£89.4m
2021
£102.0m
2020
£83.6m
2022
£66.8m
2021
£91.2m
2020
£40.1m
2022
9.5p
2021
10.4p
2020
8.7p
2022
1.9x
2021
1.9x
2020
2.3x
2022
7.1%
2021
7.2%
2020
6.6%
Financial performance
Link to our strategy
Link to our strategy
Like-for-like revenue
2
(£m)
£2,069.0m
+10.6%
Adjusted operating profit
1,2
(£m)
£89.4m
-12.4%
What are we measuring?
Revenue growth at a constant currency
excluding acquisitions and closed and
sold businesses. In 2022 this also
excludes the 53rd week of trading.
Why is it important?
The Group uses like-for-like revenue
because it allows for a more meaningful
comparison of revenue trends from
period to period.
What are we measuring?
Adjusted operating profit measures the
underlying profitability of the business,
excluding restructuring costs, asset
impairments and those additional
charges or credits that are considered
significant or one-off in nature.
Why is it important?
The Group manages the performance
of its businesses through the use of
adjusted operating profit as this measure
excludes the impact of items that hinder
comparison of profitability year-on-year.
Link to our strategy
Free cash flow
2
(£m)
£66.8m
-£24.4m
What are we measuring?
Free cash flow is the cash generated
by the Group after meeting all of its
obligations for interest, tax and pensions
and after purchases of property, plant
and equipment, but before payments of
refinancing fees and other exceptional
or significant non-recurring cash flows.
Why is it important?
The Group views free cash flow as
a key liquidity measure as it indicates
the underlying cash available to pay
dividends, repay debt or make further
investments in the Group.
Link to our strategy
Adjusted earnings per share
1,2
(pence)
9.5p
-0.9p
What are we measuring?
Adjusted earnings per share measures
the profit per share of the Group. It is
calculated by dividing adjusted earnings
by the weighted average number of
Ordinary shares in issue during the year.
adjusted earnings is calculated as profit
attributable to equity holders of the
Company excluding exceptional items
and the change in fair value of derivative
financial instruments.
Why is it important?
It tracks the underlying profitability
of the Group and enables the
comparison of performance with
the Group’s peer companies.
Link to our strategy
Return on invested capital
(“ROIC”)
2
7.1%
-10bps
What are we measuring?
This is calculated as adjusted operating
profit after tax divided by the average
invested capital to determine how
effective the business is in generating
returns from its asset base.
Why is it important?
It is a useful indicator of the amount
returned as a percentage of shareholders’
invested capital, and is used by investors
and other stakeholders to evaluate the
Group’s profitability and the efficiency
with which its invested capital is employed.
Link to our strategy
Leverage ratio (net debt/adjusted
EBITDA pre IFRS 16)
2
(times)
1.9x
0.0x
What are we measuring?
Leverage ratio indicates the level of debt held
by the Group. This is calculated by dividing
operational net debt by adjusted EBITDA pre
IFRS 16. Operational net debt excludes the
impact of non-cash items and those liabilities
recognised under IFRS 16 in the Group’s
statutory net debt, and is comparable with
the Group’s free cash flow measure.
Why is it important?
The leverage ratio must be below the
maximum defined in the Group’s bank debt
facilities to ensure the facilities remain
available. It also determines the interest
margin payable on debt drawn.
Bakkavor Group plc | Annual Report & Accounts 2022 |
5
STRATEGIC REPORT
Bakkavor has a well-established
and experienced management team,
a commercial philosophy and dynamic
ways of working that equip us well for
really challenging conditions like these.
– Simon Burke, Chairman
CHAIRMAN’S STATEMENT
6
| Bakkavor Group plc | Annual Report & Accounts 2022
Proud of our coeagues
across the business
Last year, I said we would have to go on
battling unfavourable trading conditions
in 2022, and I’m afraid that has proved to
be all too true. If anything, our markets
became still more challenging, especially
in respect of inflation.
I believe that our teams once again responded really well
to managing the various impacts of this, but we were not
able to insulate our financial performance entirely from its
effects. As a consequence, whilst our like-for-like revenue
rose by 10.6% to £2,069.0m, adjusted operating profit fell
by 12.4% to £89.4m, in line with market expectations.
In 2022, we had to absorb c.£230m of cost inflation, mainly in
the prices of the raw materials we use to make our products,
but also affecting wages and other key costs, which we had
to recover through our contracts with customers. I am very
pleased to report that this was managed without damaging
these key relationships; the sense of it being a shared
problem predominated, and I want to acknowledge the
professionalism and mutual understanding with which
these very difficult discussions were conducted.
Alongside this, we acted to tightly manage our cost base,
but even with all the actions taken, the inflation dynamic
reduced our operating margins, and this was at the heart
of the fall in profitability. The restructure, announced in
November 2022, will help us to stabilise the position and
emerge from this difficult period as a leaner and fitter
business. We all regret very much that it was necessary
for jobs to be lost in achieving this.
Our ability to ‘hold the line’ in a very turbulent market and
continue to serve our customers reliably has led to market
share gain in the UK, and we are well-placed to take
advantage of further opportunities here should they arise.
Although our US business has continued to achieve strong
sales growth, margins were impacted by high input cost
inflation and by the effects of the very rapid volume increases
seen at some sites over the past 18 months. To address
this, we are implementing a plan to restore operational
performance and associated margins. Underlying market
characteristics remain very positive and we continue to
see great potential in our US business.
Covid was a dominant factor in China all year and rolling
lockdowns impaired our market’s ability to recover.
Although the recent change in Covid policy in China is
creating further difficulties in the short term, it offers
the prospect of a return to normality in the medium-term.
Cash management has been a priority for us throughout the
year and we are pleased to have year-end leverage within our
target range at 1.9 times. We will continue to manage cash
resources tightly into 2023. Because of our good balance
sheet position, and our confidence that more favourable
market conditions will return, we are proposing a final
dividend of 4.16 pence per share, giving a total dividend
for the year of 6.93 pence, an increase of 5% on last year.
Away from trading and financial matters, we have progressed
well with key elements of our ESG strategy, Trusted Partner.
We achieved a significant reduction in carbon emissions and
food waste, and we improved employee engagement in what
was a difficult year for the labour market. In light of the
growing importance of these matters, the Board has formed
an ESG Committee to bring additional focus and leadership
whilst ensuring that they are also developed compatibly with
our commercial objectives.
This was one of a number of Board responsibility changes
announced during the year, which were designed to achieve
a better balance of committee responsibility amongst
Directors, and make the best use of the considerable talent
and experience of our Non-executive Directors.
However, the biggest change was the appointment
of Mike Edwards as our Chief Executive Officer from
1 November 2022. During our search process we met some
very impressive candidates, and it was particularly pleasing
that notwithstanding this, we all felt that Mike was the right
choice to lead Bakkavor in the next stage of its development.
Mike took over from Agust Gudmundsson, one of the
founders of Bakkavor, who has been a giant figure in the
successful history of the business. I expressed the Board’s
admiration and thanks for what he has done when I
announced Mike’s appointment, and we are delighted
that he is staying with us as a Non-executive Director,
and remains a significant shareholder in Bakkavor.
In terms of prospects for 2023, unfortunately the
unfavourable trading conditions will continue in our
sector for some time, though we hope they might ease as
the year progresses. However, from what I have said above,
and what you will read elsewhere in this report, I hope you
will agree that this difficult period has made Bakkavor
leaner, tougher and more agile, and thus well positioned
to capitalise on opportunities as the market returns.
The efforts of colleagues here in the UK and overseas
have never faltered despite the many issues they have
faced, and so once again I want to recognise and thank
them for the truly professional job they have done.
Simon Burke
Chairman
7 March 2023
Bakkavor Group plc | Annual Report & Accounts 2022 |
7
STRATEGIC REPORT
Proud of
our history,
with a strong
platform for
the future
On 31 October 2022, 36 years on from
founding Bakkavor with my brother,
I retired as CEO. I will, however, continue
to play an active role in the business,
retaining my seat on the Group Board
as a Non-executive Director, and will
remain a significant shareholder.
It was not an easy decision to step down as CEO.
Experiencing the atmosphere in our factories, the way
our operations flow, the pace at which we work, and seeing
our food on the production line and in customer stores,
has always given me so much enjoyment. And, of course,
working with the teams who do such incredible work
across the business.
I am particularly pleased that Mike Edwards will be
spearheading the Group’s future direction as CEO. Mike has
provided trusted counsel to me for over 15 years, and his
insight and commercial experience have made an invaluable
contribution to the Group Board, which he joined in 2020.
Proud of the company we have built
From its humble start as an Icelandic seafood business in
1986, I am extremely proud of what Bakkavor has become,
and to have had the pleasure of working with so many
talented and committed people.
Over the years, the business and our teams have shown
great resilience in the face of challenges, and we have taken
well-calculated risks, made the most of opportunities and
lived our values. To reflect on a few of the highlights:
•
Shifting our focus to the Fresh Prepared Food market when
we saw the scope for success through our transformational
acquisition of Geest in 2005. Subsequently, we built our
scale and capability through further UK acquisitions to
become the market leader.
•
Providing opportunities for people to work in a fast-paced
and rewarding environment, with a ten-fold increase
in our workforce over the last 20 years to over 18,500
colleagues today.
•
Seizing the opportunity for significant growth by entering
the two largest food markets in the world, the US and
China, and leveraging our UK expertise to bring fresh
prepared food to consumers in these markets.
•
Weathering the financial headwinds and operational
challenges presented by the pandemic; evolving our health
and safety standards at pace to keep our people safe; and
continuing to deliver for our customers every day, to further
strengthen those relationships.
•
Launching our Trusted Partner ESG strategy and setting out
our 2040 Net Zero commitment, recognising Bakkavor has
an important role to play in the face of the climate crisis.
•
Launching our new company values in early 2022 to further
recognise the importance of creating an inclusive workplace
that we are all proud to be a part of.
Building on our success together
Bakkavor’s legacy of successful growth and expansion
is a testament to what we have built together, underpinned
by the strong partnerships that we have made with our
customers, suppliers and other stakeholders:
•
A clear strategy and values which keep the customer at the
heart of everything we do.
•
A business on the pulse of market changes and consumers’
shifting needs, working in partnership with our customers
to develop exciting and high-quality products.
•
A respectful, supportive culture that celebrates, rewards
and enables our colleagues to deliver incredible work and
drive us to succeed.
A FINAL MESSAGE FROM AGUST GUDMUNDSSON
8
| Bakkavor Group plc | Annual Report & Accounts 2022
A lot has changed since
my brother and I founded
Bakkavor, but the relentless
hard work and dedication of
all of our people remains.
– Agust Gudmundsson, Non-executive
Director; former Chief Executive Officer
•
A continuing drive to nurture our talent and build the
strength and quality of our leaders, with internal
candidates appointed to our most senior posts:
Ben Waldron to CFO and Mike Edwards as CEO,
along with Shona Taylor, Managing Director – Bakery,
and Dave Selleck, Managing Director – Meals, to the
Management Board.
Confident in the Group’s future success
A lot has changed since my brother and I founded
Bakkavor, but the relentless hard work and dedication
of all of our people remains. Thank you for your ongoing
commitment and making our business what it is today
so that we can all be ‘Proud to be Bakkavor’.
As a Non-executive Director, my priority remains firmly
on making Bakkavor an even stronger business and
delivering value for all our employees, customers,
investors and other key stakeholders.
Whilst the year ahead will remain tough as macro-
headwinds persist, the business has strong foundations.
I am confident in Mike’s leadership and fully support
the action taken to protect the business in 2023 and
beyond, and I wish him all the very best success in his
new role.
Agust Gudmundsson
Non-executive Director;
former Chief Executive Officer
7 March 2023
STRATEGIC REPORT
Bakkavor Group plc | Annual Report & Accounts 2022 |
9
Bakkavor is a resilient business,
with great people and an inner
strength and resolve to deal with
tough challenges. I have no
doubt we will come through this
difficult period even stronger on
the other side.
– Mike Edwards, Chief Executive Officer
CHIEF EXECUTIVE’S OVERVIEW
10
| Bakkavor Group plc | Annual Report & Accounts 2022
Q&A with CEO,
Mike Edwards
Q
How long have you been with Bakkavor?
A
I joined the business in 2001 as a Manufacturing
Manager at our Bakkavor Pizza Harrow factory,
and since then, I have had several leadership roles across
our sectors. Before becoming CEO, I was Chief Operating
Officer of our UK business (“COO, UK”), a role I have
held since 2014, and was appointed to the Group Board
in December 2020.
Q
What did your most recent role involve?
A
Our UK business is really well-established, and
is all about making sure we deliver day in, day out
for our customers, providing them with the high-quality,
fresh products that consumers love. As COO, UK, I worked
closely with my UK leadership team to further strengthen
our customer relationships and bring focus to our
operations and drive efficiency. I also sought to better
leverage our scale and breadth to grow our share and
cement our leadership position in the Fresh Prepared
Food (“FPF”) market.
I’m really proud of the strong customer relationships
the team has built and the resilience the UK business has
shown during my time in this role. This was particularly
demonstrated through the challenging pressures of Brexit
and the pandemic, when we continued to maintain high
service levels, technical standards and worked really
collaboratively with our customers.
Through all of this, the strength of our people underpins
the resilience of our business. I am grateful for their ongoing
commitment and drive that have been instrumental to
our success.
Q
What did you do before Bakkavor?
A
I started my career in the food industry as a
graduate trainee, initially in HR, but quickly moved
into operations, and had a number of factory and General
Manager roles with Heinz and United Biscuits.
Q
What do you think is important for successful
leadership and what makes working in FPF
different?
A
A good leader is able to set direction, deliver
against the strategy, and make a difference when
the going gets tough, whilst delivering for all stakeholders
of the business. We have recently established a clear and
simple leadership framework at Bakkavor which I think
brings to life what we want to see in our leaders. We talk
about ‘thinking big, taking people with us and getting the
job done’. Of course, the last point here has to be done
in the right way, with our values front and centre of how
we behave.
Operating in the FPF market is very challenging given
we are largely making every product every day. We have
to commit to materials and labour before we have an
order, often have to deal with volatility in orders due to
environmental factors such as the weather, and ensure
we deliver the high-quality products and service levels
our customers expect. In this tough environment, we need
our leaders to be able to think clearly, remain calm and act
decisively, and importantly not to pass the pressure down
to their teams and the wider organisation. For me, dealing
with this would be a great example of a leader making that
difference when the going gets tough.
To continue making Bakkavor a thriving business and
a great place to work, it’s essential that we use these
principles to embrace the new challenges and
opportunities ahead, whilst being clear on the priorities
underpinning our strategy, and keeping our values at the
heart of everything we do.
Q
Tell us about a cause that is close to your heart?
A
I’ve always been impressed by the work of
GroceryAid. It has been supporting people across
our industry practically, emotionally and financially for
over 150 years. I’m pleased that it’s one of our two Group
charity partners, alongside the Natasha Allergy Research
Foundation (“NARF”). NARF is another extremely important
charity, with a focus on medical research, law and policies to
educate and drive change around allergy awareness. We’re
proud to be helping their mission to make allergy history.
Q
What’s first on the ‘to-do list’ as Bakkavor’s CEO?
A
The environment we’re operating in remains really
tough: inflation continues at a pace, energy costs
are escalating and consumers are tightening their belts
and buying less due to the cost-of-living crisis. Given these
challenges, I had to begin my time as CEO by taking swift
and decisive action to protect our business. My clear
three-part plan involves us creating a leaner senior
organisational structure, establishing clear and focused
regional priorities and looking at ways to manage our cash.
Whilst this isn’t how I’d hoped to begin my role, I absolutely
believe challenges create opportunities, and that we are
well-placed to move forward positively and purposefully,
delivering for colleagues, customers and shareholders.
Q
Do you feel positive about the future of Bakkavor?
A
Yes, I do. Despite this tough climate, Bakkavor is a
resilient business, with great people and an inner
strength and resolve to deal with tough challenges. I have
no doubt we will come through this difficult period even
stronger on the other side.
Bakkavor Group plc | Annual Report & Accounts 2022 |
11
STRATEGIC REPORT
Moving forward
with purpose
It is an honour to have taken on the role of
CEO, and I would like to thank Agust for his
outstanding leadership of Bakkavor over
the last 36 years and his support during my
time in the Group. I joined the business in
2001 and am proud to have played a part
in the evolution of the Bakkavor business
over the last 20 years or so.
The current environment is incredibly
challenging, but I strongly believe
that challenges create opportunities.
Bakkavor is a resilient business with strong
foundations – we have a fantastic team,
a broad range of quality products, strong
customer relationships, scale and flexibility
across our operations, and significant
growth opportunities internationally.
Clear strategy in place, with refined focus to
deliver returns
The strategy of the Group remains clear and unchanged.
We are focused on driving returns from our market-leading
position in the UK, whilst also accelerating profitable
growth internationally. These priorities are underpinned
by our relentless focus on operational excellence, and on
being a trusted partner for all of our stakeholders.
Our strategy remains even more relevant today against a
challenging backdrop, but we need to employ different tactics
to underpin its delivery. We have already taken decisive
action to protect profits, under three focus areas:
1
Leaner organisational structure
2
Clear and focused regional priorities
3
Enhanced focus on managing cash
These initiatives will deliver savings of £15m in FY23
and £25m on an annualised basis, and provide us with a
stronger platform from which to move forward positively
and with purpose as we face what will be another difficult
year. The cash costs of £17.1m to implement the plan,
together with £19.5m of non-cash impairment charges,
are recognised as exceptional items in FY22. Supported
by our robust financial position, these actions will ensure
that we continue to deliver for colleagues, customers and
shareholders. As we go through this transition, we will
continue to protect the Group’s fundamentals around
safety, quality and service, with an absolute focus on
delivering for our customers.
CHIEF EXECUTIVE’S OVERVIEW
CONTINUED
12
| Bakkavor Group plc | Annual Report & Accounts 2022
Our strategy remains relevant,
but we need to employ different
tactics to underpin its delivery.
We have taken decisive action
to protect profits under three
focus areas.
– Mike Edwards, Chief Executive Officer
1
Leaner organisational structure
We have put in place a new leadership structure which will
create renewed energy, focus and purpose. Operationally,
we have aligned our UK business around two sectors,
Meals and Bakery, which will deliver synergies. Meals
combines our existing Meals and Salads businesses, given
the dynamic movement of volume that has become the
norm between sites, and Bakery combines our Pizza,
Bread and Desserts businesses to exploit their process
similarities. To create better alignment across our
business, we have streamlined our UK structure by moving
to functional reporting for our HR and Finance teams,
and plans are underway to implement this in the US too.
Together, this has necessarily resulted in a number of
people leaving our business and we continue to support
our colleagues through this transition.
2
Clear and focused regional priorities
UK:
We will drive an aggressive plan to mitigate the
impact of ongoing inflation and volume pressures by
leveraging our scale and strength, working collaboratively
with our customers to recover inflation, and implementing
specific cost and efficiency plans. The investment we have
made to enhance capacity across our sites, combined
with our experience of dynamically transferring volume
between sites, means we are well-placed to consolidate
volume and better leverage our cost base. Following a
detailed review of our footprint, we are closing two UK
sites (Bakkavor Desserts Leicester and Bakkavor Salads
Sutton Bridge) where volumes can be absorbed across
our other sites. We continue to work with affected
colleagues to secure alternative roles.
US:
The growth opportunity remains attractive as the
Fresh Prepared Food market is still in its infancy. To date,
the pace of growth in our US business has put pressure
on operational performance and impacted margin
conversion. We are therefore shifting our focus from
growth to profit to drive margin improvement. We have
a renewed focus on operational execution and efficiency,
and cost reduction plans, as well as further leveraging
our UK talent pool to provide support and expertise.
China:
Severe Covid-related restrictions have created
disruption for our factories and demand, particularly
given our customers are largely quick-service
restaurants and coffee shops, impacted by lockdowns
and high case numbers. Now that restrictions have lifted,
the priority for our China team is on rebuilding volume
to leverage our well-invested factory footprint, with a
particular emphasis on diversifying our business by
growing our presence in the grocery retail channel.
Decisive action to protect profits under
three focus areas:
3
Enhanced focus on managing cash
We have reviewed capital plans to reduce our overall
spend whilst protecting our strategic investments at our
bread site in Crewe, UK and, once profitability improves,
our ready meals site in Charlotte, US.
We will continue to ensure spend is allocated to critical
compliance and maintenance programmes, along with
targeting efficiency improvements. We are also seeking
to create benefit from improving working capital, with a
particular focus on stock reduction.
Bakkavor Group plc | Annual Report & Accounts 2022 |
13
STRATEGIC REPORT
Robust performance in a tough trading
environment
2022 has been a year of challenge and disruption. We have
seen significant inflationary pressures across our cost
base and on household budgets, which in turn have driven
changes in consumer behaviour. We have also had to contend
with supply chain disruption as global events continue to
cause instability which, combined with a tight labour market,
has created a difficult trading environment.
It is in times like these that partnerships and collaboration
come to the fore. I would like to thank our colleagues
for their ongoing hard work and commitment during this
challenging period, and our customers and suppliers for
their continued support and for working alongside us to
navigate these headwinds.
We have delivered a robust performance against this
challenging backdrop. Like-for-like revenue grew by
10.6%, to exceed £2bn. This largely reflects the impact
of price, up 9.2%, and in the UK, while volume was broadly
flat, we gained market share offsetting soft underlying
demand. Strong volume momentum continued in the US,
with price increases coming through in the second half,
whilst in China Covid restrictions continued to adversely
impact volumes.
The UK business has proved resilient against a challenging
backdrop, leveraging its scale and flexibility to deliver for
customers, whilst using innovation and insights to adapt
to changing consumer behaviours and strengthen our
market-leading position.
The US delivered good growth, and the future opportunity
of the underdeveloped market is significant. Profits, however,
came under pressure due to operational disruption from
onboarding volume growth, a lag in inflation recovery and
the volume impact in Q4 2022 from a contractual dispute
with a customer. A renewed focus on driving operational
improvement, along with cost reduction plans, should
provide a stronger base on which to deliver margin
improvement going forward.
Whilst our China business has continued to be impacted
by ongoing severe Covid-related restrictions, volumes
have shown a steady recovery as mobility restrictions
have eased, and we continue to believe in the medium-
to long-term prospects for this region, where we now
have a well-invested factory footprint.
During my 20-year-long career at Bakkavor I have never
experienced such high levels of inflation, equating to
c.£230m of cost headwinds in 2022, equivalent to a
14% increase in costs year-on-year. Our multi-faceted
approach, across pricing, value optimisation, operational
efficiency improvements, leveraging our scale and tight
cost control, has enabled us to largely mitigate the impact.
The Group’s underlying performance for the year was
in line with market expectations, with adjusted operating
profit of £89.4m (FY21 £102.0m).
Group highlights
Like-for-like revenue
£2,069.0m
+10.6%
2021: £1,871.6m
Adjusted operating profit
£89.4m
-12.4%
2021: £102.0m
Leverage ratio (net debt/
adjusted EBITDA pre IFRS 16)
1.9x
0.0
2021: 1.9x
UK employee turnover
28.1%
+30bps
2021: 27.8%
UK food waste
8.05%
-110bps
2021: 9.15%
Group net carbon emissions
110,106
-18.9%
2021: 135,691
Performance year-on-year
Improved
Worsened
Maintained
CHIEF EXECUTIVE’S OVERVIEW
CONTINUED
14
| Bakkavor Group plc | Annual Report & Accounts 2022
We have refined our approach under our Trusted Partner
ESG strategy to be more targeted. Going forward, our
efforts will be centred on three priority issues: food waste,
climate and Net Zero, and environmentally sustainable
sourcing. As well as having a positive impact from an
environmental and social perspective, we also recognise
that there are financial benefits to making progress in
these key areas. As such, we are focused on improving our
non-financial data and processes, and on developing our
capital and operational plans.
In 2022 we enhanced our operational understanding and
focus on food waste and the benefit of this has already begun
to materialise, with food waste reduced by 110 basis points
to 8.05% on last year. We have also continued to develop
our plans to reach Net Zero by 2040. In 2022, our Group net
carbon emissions reduced significantly, by 18.9% year-on-
year, which was supported by our investment in refrigeration
upgrades and energy initiatives. We also remain committed
to delivering on our commitments across the other areas
under our Trusted Partner strategy, which are well-
embedded into our day-to-day operations.
Confident of emerging stronger
from current conditions
We expect the challenging trading environment in 2022 to
continue into the coming year, as consumers are impacted
by the cost-of-living crisis. Inflation across the cost base is
also expected to persist, particularly in energy and labour,
and we expect an increase in costs of c.6% to 8% in 2023.
Trading in early 2023 has been encouraging, despite fresh
produce availability challenges which are expected to
continue until April. Our UK business has continued to gain
market share and plans to help drive margin improvement
and reduce costs in the US are being embedded, with
a new leadership structure in place from April 2023.
Our President of Bakkavor USA, Pete Laport, is leaving
in mid-March and we thank him for his contribution and
commitment during his time with the US business. In China,
as the region is emerging from Covid we have seen a gradual
recovery in volumes and, whilst we anticipate some ongoing
disruption in the coming months, the outlook for the region
is more positive.
Progress under our action plan is on track to deliver the
expected savings, with the two UK sites due to close by
the end of Q1 2023. This decisive action to reduce costs
and protect our business, combined with our clear strategy,
focused regional priorities, targeted investment, unique
scale and breadth and balance sheet strength, provides us
with an even stronger platform from which to move forward
positively. We are confident in our ability to deliver 2023
in line with market expectations and are well-placed to
capitalise on the medium- to long-term opportunity.
Mike Edwards
Chief Executive Officer
7 March 2023
The Group’s balance sheet remains in a strong position,
with leverage within our target range at 1.9 times and
significant liquidity headroom of over £200m against our
debt facilities. We have been disciplined in our approach
to capital allocation, but continue to have well-invested
factories. Our spend in the year has concentrated on
expanding capacity of two of our US sites, to underpin the
strategic growth opportunity in meals, and on efficiency
improvements in the UK to drive operational excellence.
Continued progress in supporting our people
and sustainability
I am proud of all we are doing for our teams and
communities through our Trusted Partner ESG strategy
and broader people agenda. In 2022, 86% of our colleagues
participated in our engagement survey, and the feedback
provides us with opportunities to make Bakkavor an even
better place to work. In particular, we recognise the
demands of working in the fast-paced environment that
Fresh Prepared Food manufacturing requires, and we also
understand that there is more that we can do to support
our people.
Whilst the broader labour market remains tight, through
the year we have seen the pressures gradually easing.
This is particularly evident in the availability of people,
with a reduced level of absences in our own workforce and
agencies. Furthermore, whilst staff turnover marginally
increased on last year, levels have tracked down in H2
2022, albeit remaining higher than ideal.
It is pleasing to see the investment we have made in our
people has had a positive impact, with a c.10% investment
in factory pay rates, upweighted engagement activities and
the launch of our new values. The majority of our factory
colleagues benefitted from an out-of-cycle pay award and
an annual pay increase. Our new values, launched in early
2022, have been positively received, and we are continuing
to embed them into our culture and ways of working.
It is in times like these that
partnerships and collaboration
come to the fore, and I would
like to thank our colleagues for
their ongoing hard work and
commitment during this
challenging period.
– Mike Edwards, Chief Executive Officer
Bakkavor Group plc | Annual Report & Accounts 2022 |
15
STRATEGIC REPORT
Our
key resources
>1,300
suppliers we
source from
>18,500
colleagues
45
sites across UK, US and China
>200
development chefs
c.250
health and safety and
food safety colleagues
£64.0m
capital invested
in 2022
Our
busine model
Leverage our
market-leading insight,
innovation and expertise
to develop products that
consumers desire.
Responsibly source
high-quality raw materials
utilising our agile
and well-established
supply chain.
Manufacture Fresh
Prepared Food (“FPF”)
to the highest standards
and at scale for our
customers every day.
Creating value
for all our
stakeholders
Our
values
HOW WE CREATE VALUE
Respect
and trust
each other
Keep the customer
at the heart of
what we do
Get it right,
keep it right
Be proud of
what we do
16
| Bakkavor Group plc | Annual Report & Accounts 2022
Our
value creation
Our
key stakeholders
Skilled, engaged and
progressive talent
pool, embedding
our values
86%
response rate to
engagement survey,
up 3% on 2021
£36.1m
capital investment
in productivity and
strategic projects
in 2022
£66.8m
Group free cash flow,
allocated primarily
to reduce debt and
pay the dividend
18.9%
reduction in Group
net carbon emissions
in 2022
1,500
new or refreshed
products in 2022
>740
colleagues completed
leadership training
programmes
1
centralised sourcing
platform in Spain
5.0%
dividend growth
77
new Wellbeing
Champions
32%
growth in US fresh
meals revenue
280
apprentices, up
from 200 in 2021
UK
consolidated footprint
to leverage cost base
and deliver savings
1.9x
leverage within
target range,
in line with 2021
110bps
reduction in food
waste to 8.05%
in 2022
increased share
in UK FPF market
High-quality and
great-tasting Fresh
Prepared Food that
meets consumers’
changing needs
Disciplined capital
allocation, with robust
cash flow generation
and balance sheet
strength, provides
strong foundations
Well-invested,
strategically located
footprint to capitalise
on future growth
Clear commitments
and delivering
progress under
ESG focus areas
Colleagues
Customers
Suppliers
Investors
Communities
READ MORE
on pg 66.
Bakkavor Group plc | Annual Report & Accounts 2022 |
17
STRATEGIC REPORT
Our
markets
What’s happening:
•
Shoppers are cutting back and hunting for
cheaper products. They are seeking out
discounted lines, price-matched products
and value tier ranges.
•
Shoppers are also switching where they
shop, down-trading from premium retailers
and high street eateries, looking for more
affordable items to help mitigate inflationary
costs. As a result, retailers are driving loyalty
initiatives to target the savvy shopper.
•
Discretionary purchases have reduced.
However, shoppers continue to pay a
premium for quality, trusted brands, more
adventurous flavours and recipes – features
they feel add genuine value and cannot
easily be replaced. Manufacturers, retailers
and brands are working hard to ensure their
products offer added value which is worth
paying for.
How we are responding:
We have worked with our retail customers
to adapt our products to enhance our value
proposition for our consumers, whilst ensuring
we maintain product quality and integrity:
•
Undertook extensive market research in
early 2022 to identify which product elements
added value to consumers. This helped to
focus our product development and category
plans to meet new demands.
•
Adjusted recipes and product weights to align
with the market across a range of ready meals.
•
Supported promotional plans with our
customers to offer price reductions, multibuy
offers, and meal deal discounts across pizza,
desserts, dips, soup and ready meals.
•
Increased our value tier offering in dips with
a strategic customer and rebalanced ranges
across several categories.
•
Restructured our ‘The Pizza Company’ meal
deal to maintain appeal at a lower price point.
UK
market summary
62%
are buying
cheaper products
1
>70%
say increased
living costs are
their biggest
concern
1
The UK market is going through a challenging period as
cost-of-living pressures increase due to macro-economic
uncertainty and significant price inflation. Nationally,
40% of people say their financial position is getting worse
1
,
and average household grocery spend has risen by
over £600 in 2022
2
. As a result, consumers are adopting
money-saving strategies across how they live, shop and eat.
Despite their money-saving behaviours, UK consumers
continue to show a desire to create moments of enjoyment,
ensure long-term personal wellbeing and support a more
sustainable future.
SEEKING VALUE – “I want to spend better”
This is demonstrated through shoppers seeking products
and brands that listen, understand and respond to their
core needs and values.
We distilled these behavioural dynamics and market
performance into three key trends: seeking value, desiring
at-home experiences and acting responsibly. Our goal at
Bakkavor is to leverage our insight and expertise across
our Fresh Prepared Food (“FPF”) products to ensure each
one aligns to these trends and has a clear objective.
Consumers are focused on value in
the near-term, but continue to desire
moments of enjoyment, and seek to
support their personal wellbeing and
a more sustainable future.
1
Bakkavor State of the Nation Report September 2022, One Pulse – 500 respondents.
2
Kantar UK grocery price inflation 11 October 2022.
3
Kantar WPO 12 weeks to October 2022 versus 12 weeks to October 2021.
4
ShopperVista research. 2,011 British shoppers. 13–15 May 2022.
5
Kantar WPO 12 weeks to October 22 versus 12 weeks to October 2018.
6
Bakkavor Market Matrix, summer 2022.
7
IGD ShopperVista research, 3,707 British shoppers, November 2022.
OUR MARKETS
18
| Bakkavor Group plc | Annual Report & Accounts 2022
What’s happening:
•
Consumers are cutting back on eating out
of home to save money, despite mobility
returning to pre-pandemic levels. This
means affordable weekend treats are being
sought to eat at home.
•
Supermarkets are benefitting from this
shift. Dine-in meal deals have become
increasingly popular, with promotions up
over 8% on 2021
3
.
•
40% of people say they will do less socially
than before the pandemic but that when they
do it will be more special
4
, favouring smaller
social gatherings at home. Many are turning
to FPF for an easy, affordable solution.
•
For everyday occasions, consumers
are seeking affordable, convenient and
time-saving options that provide a filling
meal solution.
•
Younger consumers are increasingly
attracted to FPF products, particularly
evident in ready meals, pizza and vegetable
accompaniments. 11.7% of FPF shoppers
are pre-family, up 3% on 2018
5
.
How we are responding:
With a varied portfolio of affordable and
convenient products for in-home occasions,
we have benefitted from shoppers seeking
these options:
•
Uplifted sales in our Italian ready meal
and chilled bread ranges, seen as filling,
convenient and cost-effective.
•
Combined ready meals, pizzas, desserts and
sides in meal deal offers, including dine-at-home
brands such as The Pizza Company, Heat &
Enjoy and Pizza Express. Also supported dine-in
propositions across premium and core tiers
and a diverse range of cuisines and segments.
•
Summer sales grew 7.8% across salads and
2.5% in dips, as a warm summer and desire
for convenience bolstered sales
6
.
•
Continued to elevate eating experiences across
our categories; addition of the Siciliana range
to Pizza Express and a programme of special
guest flavours to The Pizza Company range.
•
Maintained focus on social, seasonal and key
events, such as The Delicious Dessert Company
special cream cakes to celebrate Halloween and
commemorate the late Queen’s Platinum Jubilee.
55%
are cutting back
on eating out
of home
1
47%
are cutting back
on takeaways
1
DESIRING AT-HOME EXPERIENCES – “I want mealtimes to be special”
What’s happening:
•
Whilst pressures on household budgets
have put cost front of mind in the near-term,
68% of UK consumers agree that the food
and drink industry has a responsibility to
limit its climate impact
7
. We strive to look
after the health of our nation and planet
by evolving our offering to achieve our
sustainability goals.
•
Fresh, healthy alternative and plant-based
products remain an important factor for
31% of FPF consumers
1
.
•
Reducing waste has become more
important to consumers, driven by financial
benefits and sustainability goals. Social
responsibility and supporting others’
wellbeing has also been elevated as people
seek to help communities during the
cost-of-living crisis.
•
High Fat Salt Sugar (“HFSS”) health
measures: whilst legislative implementation
was deferred by the government, retailers
started to implement planned changes from
October 2022, with changes in where and
how non-compliant products can be sold,
which particularly impacted dessert and
pizza product ranges.
How we are responding:
We continue to evolve our product offering and
operations towards a more sustainable future:
•
Encouraged healthy eating by developing
processes around HFSS legislation; 83% of
our products are compliant with the Food
Standard Agency’s salt reduction targets for
2024 and 62% defined as ‘healthier options’
by the Department of Health’s UK Nutrient
Profiling Model.
•
Launched multiple propositions that provide
more fresh and natural options:
–
52% of our total UK products are vegetarian
(2021: 50%), of which 19% are vegan;
–
New partnership with a leading vegetarian
brand to relaunch a range of ready meals,
improving freshness and quality; and
–
New plant-based meal deals to support
more dietary requirements and lifestyle
choices in-store.
•
In collaboration with our UK customers,
eliminated 2,429 tonnes of plastic across our
product ranges – a 12% reduction in a year.
•
631 tonnes of food sent to redistributors and
local charities.
47%
are seeking
more fruit and
vegetables in
their diet
1
39%
are buying more
products with
sustainable
packaging
1
ACTING RESPONSIBLY – “I want to eat and live better”
Bakkavor Group plc | Annual Report & Accounts 2022 |
19
STRATEGIC REPORT
What’s happening:
Consumer spending in the US continues to
be robust despite inflationary pressure, with
unemployment remaining at record lows and
high job vacancy rates
1
. However, consumer
sentiment deteriorated markedly in 2022;
the Michigan Consumer Sentiment Index
(“MCSI”) dropped to 59 in 2022, the lowest
yearly score since its inception in 1961
2
.
Food prices increased by 10.4% year-on-
year in 2022
2
, but our focus categories have
seen limited change in consumer behaviour.
That said, the refrigerated grab-and-go
meals category continues to grow strongly
off the back of unabated consumer demand.
Our consumer research in 2022 showed
that: 95% of consumers that tried fresh
meals in the previous six months would
purchase the same or more in the next
three years; and at least 50% of non-buying
consumers were “somewhat likely”
to purchase in the future.
Additionally, the possibility of a recession
has benefitted private label/retailer brands,
providing a further tailwind for our business
– with retailer brand sales up 10.2% in the
nine months to September, compared to
5.6% for national brands
3
.
In response, retailers are strengthening
their private label offer and dedicating more
space to the category – 82%
4
are actively
looking to expand space for FPF, particularly
grab-and-go products.
Retailers see private label products as a USP
versus their competitors, with 70% deeming
such investment a success
5
. The category
also provides retailers with a hedge against
labour challenges, as shelf-ready fresh meals
do not require in-store kitchen operations
and individuals to manage the deli counters.
Still, the US retail offer remains vastly
underdeveloped compared to the UK and
we expect the market to continue growing
at double-digit rates in the medium-term.
How we are responding:
We recorded another year of strong volume
growth in the US:
•
Delivered 32% growth in fresh meals,
supplying six customers nationally.
•
Rolled out our fresh meals to more stores
for our existing customers.
•
Launched a new supply partnership with a
large regional retailer, with a strong pipeline
of new products to further expand the range
in 2023.
•
Developed and launched 114 new products
across our categories, equivalent to over 30%
of our 2021 range.
•
Introduced product tiering across price
points for the first time within our range of
meals for one of our strategic customers,
thus broadening the category price spectrum
and consumer appeal.
70%
of retailers deem
investment in
fresh prepared
meals a success
5
82%
of food retailers
are actively
looking to expand
space for Fresh
Prepared Food
6
1
US Bureau of Labor Statistics.
2
University of Michigan for consumer sentiment MCSI.
3
LEK Retail Private Label Feeds a Hunger for Growth.
4
Food Industry Association.
5
FMI State of Fresh Food 2022.
6
Food Industry Association.
US
market summary
In this under-developed market,
retailers are investing in their Fresh
Prepared Food (“FPF”) offer to meet
strong consumer demand for fresh,
convenient products.
OUR MARKETS
CONTINUED
20
| Bakkavor Group plc | Annual Report & Accounts 2022
What’s happening:
China’s zero tolerance Covid policy impacted
consumer behaviour in 2022, with local
and regional lockdowns resulting in slower
growth and more considered purchasing.
The foodservice channel was heavily
affected, with industry revenues declining
by 5.4% on 2021. China has not faced the
same inflationary pressures as the UK and
US (consumer prices were up by only 1.8%
year-on-year in December 2022). However,
food prices recorded steeper inflation,
reaching 8.8% year-on-year growth in
September before gradually decelerating
1
.
Coupled with the weaker economic outlook,
retailers saw strong growth in own label
products and Chinese local brands, with 77%
of consumers choosing domestic brands
because of “value for money”
3
. Food and
grocery purchases benefitted over
discretionary items – 44% of Chinese
consumers expected to spend more on
groceries in the second half of 2022
3
. The
pandemic also accelerated online penetration
– 58% of consumers increased their shopping
online since before the pandemic
4
– and a
desire for healthier products. 47% of Chinese
consumers (versus 37% globally) say they
intend to spend more on health and wellness
products and services in the future, with 46%
actively looking for healthy ingredients in food
and beverages
4
.
Following the lifting of Covid restrictions
in December 2022, the expectation is for
a material, if bumpy, recovery in 2023, with
the foodservice industry back to a pre-Covid
growth rate of 7–10% per annum
5
. Over
the longer term, China continues to offer
significant opportunities with the world’s
largest middle-income population of
c.400 million, expected to double in the next
15 years
2
. Additionally, sales of fresh prepared
meals across ready-to-eat, ready-to-heat
and ready-to-cook are expected to continue
growing ahead of the market.
How we are responding:
•
Delivered over 50% growth in sales to retail
customers through product range expansion
into existing and new categories, and secured
new customer partnerships.
•
Expanded our range of products to include
ready-to-eat and ready-to-cook meals, leafy
salads, sandwiches, soups and sushi for
retail customers.
•
Introduced a grab-and-go breakfast range
at a major coffee chain, as well as healthy
choices and online ordering at our Fresh
Kitchen counters in Hong Kong.
•
Broadened our frozen food offer to widen
our geographical reach and support our
customers in managing their inventory levels
and store processes more effectively.
•
Launched a new Fresh Kitchen online frozen
range in partnership with a leading meat-
alternative brand, combining healthy eating
trends with the increase of online food sales.
1
China National Bureau of Statistics.
2
Accenture, 2022 – Chinese Consumer Insights 2022.
3
PwC, June 2022 – Global Consumer Survey China Report.
4
Euromonitor, 2022 – Megatrends in China 2025.
5
Great Wall Security.
China
market summary
China continues to offer significant
opportunity with the world’s largest
middle-income population of 400
million, which is expected to double
in the next 15 years.
77%
of consumers
choosing domestic
brands because of
“value for money”
3
7–10%
CAGR for China
foodservice
industry
1
Bakkavor Group plc | Annual Report & Accounts 2022 |
21
STRATEGIC REPORT
Our
culture
:
To empower and support all our stakeholders by living our values.
A clear strategy
for realising
our vision
Our
vision
:
To lead the way in bringing
innovative, great-tasting, freshly
prepared food to people across
our markets.
Our
purpose
:
To delight our customers and
consumers through the fresh,
convenient and great-tasting food
that we proudly create every day.
OUR STRATEGY
The strategy of the Group remains clear:
to deliver profitable and
sustainable growth
. We are focused on
driving returns from our
market-leading position in the UK
, whilst also
accelerating
profitable growth
in the US and China. These priorities are
underpinned by our relentless focus on
operational excellence
and by being a
trusted partner for all of our stakeholders
.
Respect
and trust
each other
Keep the customer
at the heart of
what we do
Get it right,
keep it right
Be proud of
what we do
22
| Bakkavor Group plc | Annual Report & Accounts 2022
T
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U
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Our strategy remains even
more relevant today against this
challenging backdrop, but we
need to employ different tactics
to underpin its delivery, and we
have taken decisive action to
protect profits.
– Mike Edwards, Chief Executive Officer
U
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Bakkavor Group plc | Annual Report & Accounts 2022 |
23
STRATEGIC REPORT
Our key drivers
•
Leverage our leading market insights, product development
expertise and breadth of food production capabilities to
develop products and propositions that delight our customers
and consumers.
•
Utilise our scale to develop, prepare and distribute
our products with a more efficient and sustainable
use of resources.
•
Leverage our customer relationships and market
leadership to pursue profitable growth opportunities
that allow us to create value for our shareholders.
•
Invest in attracting and developing talented individuals
to retain our leading position into the future.
What we have achieved
•
Outperformed the FPF market and increased our market
share, in a period when consumer demand has been
under pressure, through strong underlying performance
and business wins across multiple customers in meals,
salads and desserts.
•
Grew The Delicious Dessert Company brand through
increased distribution and new product launches to become
the fifth largest desserts brand in the UK FPF market.
•
Leveraged our breadth of capability to support a strategic
customer in stretching one of its brands into new categories.
Delivered a 60% year-on-year increase in our sales under
this brand from market share gains, launching new products
across stir-fry, dressed salads and food-to-go, combined
with post-Covid recovery in volumes.
•
Responded to changing consumer behaviour and
inflationary pressures on our cost base by adapting our
ranges to deliver great value products, whilst maintaining
quality. For example, we removed 127 tonnes of packaging
across the annual supply of a range of ready meals, which
helped reduce cost and plastic content.
•
Collaborated with our customers to successfully recover
the majority of inflation across our cost base. Used a
combination of pass-through mechanisms, traditional
pricing discussions and self-help measures across
performance improvement, value optimisation and tight
cost control.
Our focus for 2023 and beyond
Under the Group’s plan to protect profits, in the UK we are
focused on driving returns:
•
Drive an aggressive plan to mitigate the impact of ongoing
inflation and volume pressures by leveraging our scale
and strength, working collaboratively with our customers
to recover inflation, maximise value optimisation
opportunities across ranges, and implement specific cost
and efficiency plans.
•
Consolidate our UK footprint with the closure of two sites in Q1
2023 to reduce our cost base. Volume to transfer to existing
sites where we have invested in capacity and capability.
•
Embed our new leadership structure and deliver synergies
from aligning our UK business around two sectors: Meals
and Bakery.
•
Streamline our UK structure by moving to functional reporting
of our HR and Finance teams.
In addition, we will continue to:
•
Complete strategic capital investment to increase capacity
and enhance productivity at our Bakkavor Bread Crewe site,
on track to commission in H2 2023;
•
Leverage our competitive offer and operational delivery
to win new business from an increasingly challenged and
fragile supply base;
•
Further build our branded offer in the FPF market through
our own brand, The Delicious Dessert Company, and in
partnership with external brands, such as Pizza Express
and Quorn; and
•
Explore inorganic growth opportunities to broaden our
capabilities and bolster our proposition to customers.
Bakkavor gained market share
in value and volume in 2022
Our strategy in the UK is to drive financial returns in the Fresh Prepared Food
(“FPF”) market and strengthen our business for the benefit of all stakeholders.
UK
Drive returns
by leveraging our UK number one
market position
OUR STRATEGY
CONTINUED
24
| Bakkavor Group plc | Annual Report & Accounts 2022
Sales up 370%
on last year, now
5
th
largest FPF
desserts brand.
STRATEGY IN ACTION:
Building our new brand,
The Delicious Dessert Company
• We identified a gap in the cream cakes
branded offering and an opportunity to attract
new, younger consumers to this category.
• Drawing on our market-leading capabilities
and insight, we created our own brand,
The Delicious Dessert Company.
• In 2021, we launched a range of éclairs into
two of our strategic retailers. Less than 18
months later, our expanded range of éclairs
and loaded doughnuts is available in over 1,100
stores across three grocery retailers, making
it the fifth largest and fastest-growing chilled
desserts brand in the UK.
• We have sold our products at festivals and
events across the UK, and also featured on
the BBC, with an exclusive celebration éclair
for the late Queen’s Platinum Jubilee.
• We are excited about the pipeline of
opportunities ahead. We plan to add further
retailer listings, broaden the product range,
and introduce first-to-market innovation
across the chilled desserts category.
Bakkavor Group plc | Annual Report & Accounts 2022 |
25
STRATEGIC REPORT
Our key drivers
•
Invest in new capacity to respond to growing customer
demand, and expand our offering to cater for evolving needs
of the end consumers.
•
Broaden and strengthen existing customer partnerships,
whilst building a pipeline of new customers who are
committed to expanding their fresh food offer.
•
Combine deep local knowledge with Group expertise to
develop innovative products that are tailored to local tastes
and meet the highest safety standards.
•
Leverage Group experience to generate sustainable
profitability improvements, by training local talent and
embedding best-in-class manufacturing practices and
technical standards.
What we have achieved
US
•
Delivered 32% year-on-year growth in fresh meals;
completed the national roll-out of fresh meals with a
strategic customer, launched our meals offer with a new
regional grocer and delivered over 85 new products with
existing customers.
•
Undertook strategic investment to increase our fresh meals
capacity and enhance productivity in our East and West Coast
sites; work in Carson completed in the summer of 2022.
•
Started to implement productivity and service improvement
actions across our sites, as profits have come under
pressure due to operational disruption from onboarding
significant volume growth.
CHINA
•
Effectively managed regional lockdowns that severely
impacted our volumes by adapting our ways of working,
shifting production across sites, and working in collaboration
with our customers to help mitigate the impact, albeit profits
were impacted.
•
Utilised geographic coverage and expertise to deliver over
60% growth in retail revenue from existing customers and
a new large international grocer.
•
Built a replacement site in Xi’an to increase capacity,
broaden capabilities and ensure best-in-class technical
standards. This now completes our strategic investment
in the region with a well-invested platform for growth.
•
Increased capacity in our Bakery and Hong Kong
businesses through small, targeted investments to
accommodate business wins and organic growth.
Our focus for 2023 and beyond
US
•
Our immediate focus has shifted from growth to profit;
driving operational performance and reviewing our cost
base to improve margin in a sustainable way.
•
Continue to seek to reach resolution on the ongoing
contractual dispute with a single customer at one site.
•
Once profit momentum in the US business returns,
recommence our strategic investment in Charlotte to
increase our total US site capacity and underpin future growth.
•
In the medium-term, search for a new production facility
in the Midwest to provide further capacity for growth and
enable us to better serve local customers.
•
Secure future growth by developing new partnerships
through our offer of market-leading fresh meals.
•
Provide ongoing support from our UK business to support
delivery of our US strategy.
CHINA
•
Seek to restore higher growth and profitability,
reinvigorating sales with our foodservice customers,
with the easing of restrictions providing a more positive
outlook for the region.
•
Drive further growth in retail channels to further rebalance
our sales mix, under the leadership of our newly appointed
Commercial Director.
•
Drive margin improvement through operating leverage,
category-mix optimisation and operational excellence.
We have a strong and growing presence in the two largest food markets in the world,
the US and China, where the Group has operated for over ten years. We use our Group
expertise to support our local teams and deliver profitable growth.
International
Accelerate profitable growth
in the US and China
OUR STRATEGY
CONTINUED
32%
growth in US fresh meals revenue
in 2022
26
| Bakkavor Group plc | Annual Report & Accounts 2022
STRATEGY IN ACTION:
US – Launching our market-leading fresh
meals offer for a new customer
In early 2022, we started discussions with a large
Midwest grocer to bolster their deli-counter offer
with fresh, grab-and-go prepared meals. Within
a few months, we had developed a range of six
great-tasting single-serve meals. By October,
the range had increased to ten products, available
across the full estate of over 250 stores. Work is
underway to further expand the range, in fresh
meals and into other categories.
China – Launching a new product category
in grocery retail
Working in partnership with a strategic retail
customer, we identified an opportunity to launch
a food-to-go fresh sushi offer. The category
was new to Bakkavor, but following extensive
product and process development in late 2021
we launched our first product. This was an
immediate success and we now have a range of
three top sellers listed throughout the customer’s
store estate. This has invigorated our customer
relationship and broadened our capabilities,
providing a solid platform for future growth.
Developed new customer
partnerships in the US and
China to successfully launch
product ranges as we
continue to deliver growth.
Bakkavor Group plc | Annual Report & Accounts 2022 |
27
STRATEGIC REPORT
Our key drivers
•
Identify opportunities to improve efficiency through our
centralised, highly-skilled Operational Excellence team.
•
Enhance productivity through automation investments
and colleague training, with a focus on engineering skills.
•
Uphold the highest technical standards of food safety
and health and safety, for the benefit of our colleagues,
customers and consumers.
•
Establish a resilient and efficient global sourcing
platform, supported by our dedicated teams in the UK,
Spain and China.
•
Maintain our market-leading service levels through
agile manufacturing and embedded resource within
the supply chain.
What we have achieved
•
Taken decisive action to protect profits against persisting
inflation and supply chain disruption, with annualised
savings of £25m (£15m in FY23). Includes proposed closure
of two UK sites, creation of a leaner organisational structure
and an enhanced focus on managing cash.
•
Continued roll-out of our new smart manufacturing system;
installed in all but one of our UK factories, with targeted
direct labour savings of up to 1% of revenue, equivalent to
c.5% reduction in UK direct labour costs.
•
Invested in new equipment and capabilities to accommodate
business wins, increase automation and reduce waste and
energy consumption. This included upgrading of LED lighting
across 20 UK sites to underpin annual energy savings of
8.8 GWh and 1,886 tCO
2
e to support our ESG agenda.
•
Provided best-in-class service levels to our UK customers,
including a well-executed Christmas period, maintaining
our strong service with deliveries on time and in full, despite
persistent global supply chain challenges.
•
Generated efficiencies in our logistic operations through
network redesign, significant investment in distribution
centres, and an upgrade of our largest distribution centre.
•
Maintained industry-leading technical standards across
the Group.
•
Upgraded our engineering apprenticeship scheme,
with a step up in targeted skills and enrolment (30 new
apprentices in 2022). Also launched new partnerships,
including one with the University of Birmingham.
Our focus for 2023 and beyond
•
Deliver on our plan to close two UK sites, ensuring a
smooth transfer of volume to our other sites and secure
targeted savings.
•
Embed our new UK sector structures, consolidated from
four to two sectors; Meals and Bakery.
•
Drive manufacturing efficiencies through automation,
data-driven control of materials and labour, improved
training programmes and targeted external support.
•
Renew focus in the US on driving operational performance
to support sustainable margin improvement. Robust
operational plans are being embedded and are expected
to start to drive some margin improvement through FY23.
•
Maintain our industry-leading technical standards through
colleague training, targeted site investments and sharing
of best practices.
•
Invest in people development and upskilling to build
capabilities and improve retention, including through
our award-winning apprenticeship programme.
READ MORE
on pg 32.
OUR STRATEGY
CONTINUED
We invest in our colleagues and assets to generate operational efficiencies and maintain
the highest technical standards and service levels across our footprint.
Excellence
Deliver superior performance
through operational excellence
c.1%
of revenue is the targeted saving
in direct labour costs following
the roll-out of our new smart
manufacturing system
28
| Bakkavor Group plc | Annual Report & Accounts 2022
In 2023, we will invest in
people development and
upskilling to drive performance
and improve retention, including
through our award-winning
apprenticeship programme.
STRATEGY IN ACTION:
Targeted investments and footprint
rationalisation to create a stronger
UK Salads sector
Last year saw targeted investments in our
UK salads sites, specifically:
• In Tilmanstone, Kent, we upgraded one
production line to allow full segregation
of allergens, and automated another line
to improve accuracy, increase speed and
efficiencies, and also reduce our on-site labour
requirements, given ongoing market pressures.
• In Bourne, Lincolnshire, we increased capacity
following a business win and replaced packaging
equipment to reduce plastic usage, leading
to material savings (465 tonnes of plastic
annualised) and lower environmental impact.
• To take advantage of the seasonal peak in
salads and corresponding dip in meals, at our
Boston site we proactively re-purposed meals
production capacity to salads. As a result, we
were able to effectively deliver on the salads
summer peak in volumes.
• We are taking action to protect profitability by
closing one of our production sites in Sutton
Bridge and rebalancing volumes across the
remaining sites.
Bakkavor Group plc | Annual Report & Accounts 2022 |
29
STRATEGIC REPORT
Our key drivers
•
Live our values by striving to do the right thing for our
colleagues, customers, suppliers and communities:
READ MORE
on our values on pg 32.
•
Provide our people with a great place to work where they
feel valued, included and inspired to perform at their best.
•
Be a responsible global business by reducing our
environmental footprint and maintaining high ethical
standards across our supply chain, in collaboration
with our customers and suppliers.
•
Support our immediate communities through charity
partnerships and local grassroots initiatives.
What we have achieved
•
Lowered Group net carbon emissions by 18.9% in 2022
through measures across all regions that reduced
electricity and gas consumption, and minimised emissions
from refrigerant gases to the lowest level since Group-wide
measurement began in 2017. Emissions reduced significantly
across UK, US and China, by 15.3%, 18.7% and 25.5%
respectively in 2022.
•
Reduced food waste through improvements in our production
processes and stepped up food redistribution efforts.
•
Maintained health and safety performance well above
industry averages; UK >7 day accident rate of 321 per 100k
employees (down 3.9% from 334 per 100k in 2021) and
outperformed the industry benchmark by 63%.
•
Collaborated with our UK customers to remove 2,429
tonnes of plastic packaging through product redesign and
increased recyclability – a 12% reduction achieved in a year.
•
Promoted inclusion and diversity and wellbeing across
our business through a Wellbeing Strategy and Toolkit,
female mentoring programmes, and inclusion campaigns
and activity.
•
Over 670 factory-based UK colleagues completed the Front-
line Leaders Programme, giving them the skills to reach
their potential and perform as leaders in our business.
Our focus for 2023 and beyond
•
Following the ESG materiality assessment update in 2022,
we have clarity on our three priority issues; Climate and
Net Zero, Food Waste, and Environmentally Sustainable
Sourcing.
READ MORE
on pg 40–41.
•
Continue to focus on collating accurate data and ensuring
our reporting processes are robust on our non-financial
KPIs.
READ MORE
on pg 4.
•
Working towards our 2040 Net Zero commitment by
conducting site engineering assessments alongside smart
energy monitoring and audits. This will deliver a detailed
picture of the decarbonisation challenge and opportunity
ahead, and the investment required.
•
Remain focused on offering fair pay and relevant benefits
for our colleagues, as well as developing action plans
to address colleague feedback from the 2022 EES.
•
Continue our commitment to respond to change
effectively with regards to our people, providing
progression opportunities, embedding our values
and providing relevant benefits.
•
With the tough operating environment expected to continue
through 2023, we will continue to work alongside our
customers and suppliers to support and be a trusted
partner to them.
•
READ MORE
on pg 32 for detail on our people, including:
how we are responding to the outcomes of our EES;
engaging, rewarding and supporting colleagues’ wellbeing;
putting our values at the heart of everything we do; and
developing our action planning to continue positive people
progress for 2023 and beyond.
OUR STRATEGY
CONTINUED
We strive to be a responsible, caring and trusted partner for all our stakeholders,
and a positive force in our interactions with the world around us.
Trust
Be a
trusted partner
for our people, customers, suppliers
and communities
18.9%
reduction in Group net
carbon emissions in 2022
30
| Bakkavor Group plc | Annual Report & Accounts 2022
STRATEGY IN ACTION:
Driving food waste reduction across
our UK business
•
Under our Trusted Partner ESG strategy, we are
committed to halving UK food waste by 2030
to support the Champions 12.3 initiative.
•
In 2021, our UK food waste increased as production
returned to pre-pandemic levels. Recognising the
need to act, we implemented a dedicated taskforce to
oversee governance procedures, regular reporting
and action planning.
•
Our immediate focus was to collate timely and
accurate data that could be analysed and reported
at operational and management levels.
•
A new standard operating procedure was rolled out
in Q2 2022, supported by roadshows to engage our
colleagues, as well as internal verification audits.
•
Sites prepared specific plans to deliver operational
efficiency through waste reduction, as well as
maximising the use of surplus food and focusing
on increasing redistribution.
•
Following this, a performance plan was established
which focused on increasing food waste recycling
through step-change opportunities at four high-
potential sites, and expanding the recycling pipeline
at three others.
•
The benefit of our actions is seen as UK food waste
improved by 110 basis points to 8.05% in 2022
(versus 9.15% in 2021).
•
Going forward, our focus on waste reduction
will centre on close evaluation of product design
specifications and the redesign of high-waste
production processes.
UK food waste
reduced by 110
basis points to
8.05%.
READ MORE
on pg 46.
Bakkavor Group plc | Annual Report & Accounts 2022 |
31
STRATEGIC REPORT
Our
culture
:
To empower and support all our stakeholders by living our values.
Our people,
values and
culture: Proud
to be Bakkavor
OUR PEOPLE
We continue to invest in our people through pay, benefits and
wider engagement activities. Here we highlight our progress
in 2022 under four areas of focus, along with our priorities
for 2023 and beyond.
Whilst the broader labour market remained tight, we have
seen reduced levels of absences across our workforce
and in agencies. Employee turnover has tracked down
and we met our short-term bonus target, though levels
remain elevated. We know there is more we can do to
make Bakkavor an even better place to work.
The feedback from our Employee Engagement Survey
(“EES”), with an 86% participation rate (up 3% on 2021),
has highlighted our strengths but, importantly, is also
helping to inform our priorities for 2023 and beyond.
As with other UK businesses, we are having to take decisive
action to adapt to the challenging macro-backdrop, expected
to persist into 2023. The difficult but necessary restructure of
our UK leadership team, alignment of our UK business to two
sectors, and planned closure of two UK sites has impacted
many colleagues. We have sought to support them through
this challenging time, offering comparable roles at different
Bakkavor sites and working on several local initiatives to
help secure alternative job opportunities.
Our people activities are integrated with the ‘Engagement
and Wellbeing’ pillar of our Trusted Partner ESG strategy.
READ MORE
on pg 48.
>18,500
colleagues
>90
nationalities
28.1%
employee turnover
86%
EES response rate
1
Our people progress in 2022
Last year we identified four areas of focus for 2022
and we have outlined our progress under each.
1
Developing our employer brand and
enhancing our colleague engagement.
2
Rewarding our people and supporting
their development.
3
Supporting wellbeing and making everyone
feel welcome.
4
Progressing our Group HR transformation.
READ MORE
on the Board’s oversight of
supporting our people progress on pg 102.
Respect
and trust
each other
Keep the customer
at the heart of
what we do
Get it right,
keep it right
Be proud of
what we do
1
Bakkavor Employee Engagement Survey, 2022.
32
| Bakkavor Group plc | Annual Report & Accounts 2022
Our diverse, talented and innovative people
are pivotal to our success. We strive to
provide them with a great place to work,
where they can feel fulfilled. Our values have
a sense of pride at their heart and are the
guiding principles that shape how we behave
so we can all be Proud to be Bakkavor and
deliver for our stakeholders.
– Donna-Maria Lee, Chief People Officer
•
Further developed the Group’s employer brand, with the
launch of our refreshed values in 2022, which highlight
how we can all be ‘Proud to be Bakkavor’
by living and
breathing our values.
•
Held a
Group-wide Values Celebration Week to bring
teams together to learn about our values.
The benefit
was evident in our EES results: 5.8% more colleagues are
‘Proud to work at Bakkavor’, and
7.3% more colleagues
‘would recommend Bakkavor as a good place to work’
1
.
•
Further recognised our colleagues, with
115 nominations
for our Proud to Be Awards,
which we broadened to be
more inclusive.
•
Group Employee Forum (“GEF”) and Site Employee
Forum (“SEF”) representatives continued to provide
valuable feedback and support
as we embed our values
across the business.
•
Hosted
two feedback sessions with the GEF on ensuring our
values underpin the Group’s culture and support our vision,
led by our workforce engagement Non-executive Director.
READ MORE
on pg 156.
Developing our employer brand and enhancing our colleague engagement
1
Our 2022 Employee Engagement Survey
This year saw a change in our EES provider, with the
survey design more tailored to our needs, including
a simpler platform for completing and interrogating
data, more opportunity to review analytics, and easy
access to action planning tools.
We were pleased with the increased response rate
of 86%, up 3% on 2021, and strengths shown across:
•
Direction and leadership at site level;
•
Customer at the heart of our business decisions; and
•
Employees feeling they have the training to do their
jobs well and safely.
It has also helped inform our focus for 2023:
•
Reassuring colleagues that we are taking decisive
action to protect our business;
•
Embedding our refreshed values;
•
Continuing to focus on pay and the benefits that matter
to our employees; and
•
Giving colleagues the opportunity to develop and grow
their careers.
1
Bakkavor Employee Engagement Survey, 2022.
•
Celebrated long-service colleagues through a
new
UK-wide Loyal Service Awards programme: 2,500
colleagues reached long-service milestones
spanning
28,000 years, including three colleagues with over 40 years.
•
Launched our Bakkavor Careers Website
(jobs.bakkavor.com), with career stories from colleagues
and a one-stop-shop for job opportunities, to help prospective
candidates understand our business.
Bakkavor Group plc | Annual Report & Accounts 2022 |
33
STRATEGIC REPORT
OUR PEOPLE
CONTINUED
•
More than 670 factory-based UK colleagues completed
our new Front-Line Leaders Programme,
supporting
them to reach their potential as leaders in our business.
We developed a
high-potential leadership development
programme in the US
to support our front-line managers’
coaching skills.
•
Launched an
online learning portal with over 100 courses
in 17 languages for self-directed learning, offering Group
Services colleagues more flexible ways of working.
•
Invested in training and development, resulting in a +5%
increase in colleagues saying ‘I receive regular and clear
feedback’ and
+7% increase in colleagues saying ‘I receive
the training I need to do my job well’
.
1
•
Enhanced our benefit offering
to factory-based colleagues
with important life assurance provision. Ran a series of
roadshows to raise awareness of the benefits available
and how to access them.
•
Implemented
out-of-cycle pay increases for most
factory-based colleagues
, continuing to pay above
the National Living Wage in the UK.
•
Continued to invest in our talent pipeline through our
apprenticeship programme.
Voted top FMCG company
for apprentices by TheJobCrowd for a third year
;
our graduate programme, which we also continue
to invest in, took second place.
•
Improved our onboarding experience
by developing a
standardised induction process across sites and supporting
workers to be factory-ready, as well as new joiner buddies.
Rewarding our people and
supporting their development
2
1
Bakkavor Employee Engagement Survey, 2022.
•
Participated in Grocery Aid Day
across all of our UK sites
using the opportunity to highlight the free wellbeing
resources and support available through our charity partner.
•
Progress on inclusion and diversity with
76% of colleagues
saying “I can be myself at work”
. This also supports
our values refresh, with a new value of trust and respect,
to help all colleagues uphold the behaviours we expect.
•
Our
Inclusion and Diversity Forum
led several initiatives
to support inclusive behaviours, diversity and allyship.
•
Hosted a Black History Month showcase
, sharing colleague
experiences, and highlighting resources available on our
online learning hub.
•
Launched our first 12-month Female Mentoring
Programme, with 22 mentees
, and celebrated International
Women’s Day as we seek to increase female representation
in manufacturing.
Supporting wellbeing and making
everyone feel welcome
3
In April 2022, due to rising Covid cases, all businesses
in the Shanghai region, except for supermarkets,
pharmacies and food delivery services, were closed.
Our Bakkavor Taicang Bakery site was among the
first sites to re-open in ‘closed-loop’ mode: a strict
form of production where employees work and live on
company premises. With customers needing products
and colleagues keen to resume production, our Bakery
“Looking back, it’s tough to believe what we all
went through. I can’t say I miss living in the office,
but I learned a lot from it. This was something none
of us expected to have to do, but we made the best of
it. My team’s efforts to keep the supply chain moving
were truly outstanding and I’m proud to be their
General Manager.”
– Till Kundt, Bakkavor China Bakery General Manager
A special award for our colleagues in China going above and beyond
team ordered tents, inflatable mattresses, sleeping
bags and catering to give everyone a private space
and meals.
The ensuing weeks featured daily tests, makeshift
bedrooms, temporary showers, communal washing
lines, badminton games, movie nights and more.
In recognition for their incredible resilience, we were
delighted to give this team a special award as part
of our Proud to be Bakkavor awards.
34
| Bakkavor Group plc | Annual Report & Accounts 2022
TRAINED 77
WELLBEING
CHAMPIONS
•
Continued to improve our HR processes across the Group
,
underpinned by a new HR system, SuccessFactors,
launched in February 2022.
•
SuccessFactors was launched to all 3,200+ of our salaried
colleagues
. It provides benefits such as an improved careers
site, end-to-end HR lifecycle process management, removal
of manual processes, enhanced analytics capabilities,
improved talent management capabilities, consistent digital
experience for employees and an opportunity to support
managers’ and HR teams’ productivity.
Progressing our Group
HR transformation
4
Our people priorities for 2023 and beyond
•
Build on our strengths and our colleagues’ pride
in the knowledge that they understand what we ask
of them.
•
Continue to look after our colleagues’ safety at work,
deliver the training they need to do their jobs well,
and put the customer at the heart of what we do.
•
Develop our action plans to address colleague
feedback using the 2022 EES focus areas.
•
Commit to:
–
Responding to change effectively and embracing
new ways of doing things;
–
Providing opportunities for personal growth
and development;
–
Embedding our values; and
–
Providing relevant colleague benefits.
•
Embed new Management Board and leadership
structures, and ensure our strategic vision is
communicated to colleagues effectively to support
alignment and improved ways of working.
•
Continue to see our values as an important enabler
for delivering our strategy and collaborating
effectively. This includes the launch of a UK-wide
values recognition programme, and new training
to support an increased focus on our ‘trust and
respect’ value.
•
Remain focused on offering fair pay and
relevant benefits for all, particularly for
factory-based colleagues.
Our 2022 wellbeing roadmap
New wellbeing
strategy
launched
Reviewed progress
with our
Wellbeing
Steering Committee
Online toolkit
of wellbeing resources
available.
69%
of colleagues say that
they know how to access support for
their health and wellbeing
1
Held a UK-wide
Wellbeing Week
Wellbeing Champions engaged to
support SEF activity
and Wellbeing
Steering Committee
Released resources to encourage
good practice
as standard
1
Bakkavor Employee Engagement Survey, 2022.
Future focus on Wellbeing Week, data
for insight, and international colleagues
Bakkavor Group plc | Annual Report & Accounts 2022 |
35
STRATEGIC REPORT
Key:
Head office
Factory,
Distribution centre
DIVISIONAL REVIEW: UK, US, CHINA
Overview:
United Kingdom
UK FINANCIAL HIGHLIGHTS
£m
2022
2021
Change
Reported revenue
1,783.1
1,592.4
12.0%
Like-for-like revenue
1,752.3
1,592.4
10.0%
Adjusted operating profit
92.7
97.8
(5.2%)
Adjusted operating
profit margin
5.2%
6.1%
(90bps)
Operating profit
54.6
97.8
(44.2%)
Operating profit margin
3.1%
6.1%
(300bps)
Trading performance
Like-for-like revenue increased 10.0% to £1,752.3m
(2021: £1,592.4m), and was up 12.0% on a reported basis,
which includes the impact of the 53rd week. The growth
was primarily driven by price and, while volumes were
broadly flat, we gained market share in a period when
consumer demand has been under pressure.
In the UK we faced c.£200m of cost inflation in 2022 –
the largest level of inflation the UK business has ever
experienced. Our teams’ commitment to mitigate the
impact, through pricing and internal levers across value
optimisation, operational efficiency, leveraging our scale
and tight cost control, meant adjusted operating profit was
only down 5.2% to £92.7m (2021: £97.8m). The dilutionary
impact of passing-through cost increases, combined
with an element of unrecovered inflation, meant adjusted
operating profit margin was down 90 basis points to 5.2%.
As the environment is expected to remain tough, we have
taken action to protect profits in 2023. This has resulted
in £36.6m of exceptional charges in 2022 related to the
corporate and UK operational restructure, and closure
of two UK sites (of which £17.1m cash and £19.5m non-cash
impairment charges). After these costs, operating profit was
£54.6m at an operating margin of 3.1% (2021: £97.8m, 6.1%).
Outperformed the market, underpinned
by strong service, breadth of product portfolio
and targeted innovation
At a market level, performance across the Fresh Prepared
Food (“FPF”) categories has been varied as consumers
have adapted their behaviours in response to cost-of-living
pressures. Consumers are choosing to eat out less and
are seeking more affordable weekend treats, benefitting
the top-tier meals and meal deal offers. Pizza and bread
have also held up well, with value ranges performing
strongly and the category benefitted from the FIFA World
Cup in Q4. Desserts volumes, however, were impacted
as consumers cut back their spend on more discretionary
items, and salads were impacted as consumers switched
from more basic products, such as bagged leaf, to cheaper
wholehead equivalents.
Against this backdrop, Bakkavor further strengthened its
number one position with market share gains. Consistent
high service levels, the breadth of our product range across
categories and price points, and targeted innovation set us
apart from our competitors. The year also ended strongly
with Christmas trading in line with our expectations.
From a market share perspective, Bakkavor outperformed
across meals, desserts and salads, whilst our pizza and
bread performance was marginally behind the market
due to our customer mix and reduced promotional activity.
Some of the highlights include a strong performance in
our premium and Italian meals ranges, and expanded
range and meal deal offer under the Pizza Express brand.
We have also seen new, younger consumers buy into our
categories with strong momentum in The Delicious Dessert
Company brand, which delivered 370% revenue growth
and products are now available in over 1,100 stores.
Resilient performance, with scale
and breadth leveraged to mitigate
the impact of macro-headwinds
and gain market share. Reshaped
operations further strengthen
strong foundations.
36
| Bakkavor Group plc | Annual Report & Accounts 2022
With our salads range focused on more ‘value-added’
products, and a good recovery in food-to-go salads and
wraps post-Covid, the impact of softer volumes seen across
the market in more basic salads products has, for our
business, been limited. The hot summer and continued
post-Covid recovery supported a good performance
for Bakkavor in salads. Servicing peak volumes in the
summer for our customers was underpinned by our
forward-planning on labour and targeted capacity and
efficiency investments.
Value-seeking behaviours by consumers, and our own
self-help efforts to mitigate inflationary pressures, have
meant that our product development activity in 2022 centred
on value optimisation. Of the 850 products we launched
in 2022, 60% related to the redevelopment of existing
products. Examples include recipe reformulation in pizza
to meet HFSS guidelines, packaging weight reduction on
a range of ready meals, and the removal of plastic lids from
a range of dressed salads to support our sustainability
agenda and reduce the use of plastic.
Reshaped operations to protect profits
The scale, agility and resilience of our operations have come
to the fore in a period where there has been ongoing and
significant supply chain disruption, and unprecedented
levels of inflation. Leveraging our well-established global
supply chain has been pivotal in helping mitigate the impact,
and we have benefitted from the added scale that our
customers provide by buying certain ingredients together.
We are also thankful for the support we have received
from our customers on price, through both pass-through
mechanisms and constructive discussions on costs that
sit outside these mechanisms. Operationally, we have
maintained our shape and delivered strong KPIs across
health and safety, food safety and customer service.
Whilst we maintained a tight control of costs through
2022, our Group plan to protect profits saw us take more
significant action in Q4. We have operationally consolidated
our UK business from four to two sectors, Meals and
Bakery, and moved our HR and Finance teams to functional
reporting. This has streamlined our structure, helped focus
our activity and created greater accountability across our
business. We also completed a review of our manufacturing
footprint, which resulted in the difficult but necessary
decision to close two sites: Bakkavor Desserts Leicester
and Bakkavor Salads Sutton Bridge. Both sites are on track
to close by the end of Q1 2023; Sutton Bridge closed at
the end of February and Leicester is due to close by the
end of March, with production transferring to other sites
where we have already invested in capacity and capability.
Whilst a challenging time for affected colleagues, we have
supported them by offering alternative roles at other sites,
as well as hosting job fairs and working with local employers.
Targeted investment to drive
operational excellence
The ‘Excellence’ pillar of our strategy is underpinned by our
relentless focus on efficiency. In 2022, our £43m of capital
investment has centred on operational improvement
projects, along with ongoing maintenance. Examples
include automated salad lines, and capacity increases and
packaging equipment replacement in stir-fry (
READ MORE
on pg 24 and 29). Our new manufacturing system is also
now in place at all but one of our UK factories, driving
our operational performance improvements. In addition,
the conversion to LED lighting and previous investment
in harnessing heat released from refrigeration systems
has helped reduce costs and supported progress on our
sustainability commitments.
With our Group-wide enhanced focus on cash, we will
continue to prioritise capital spend on productivity
initiatives. Our strategic investment in Bakkavor Bread
Crewe, to increase flatbread capacity and productivity,
is underway and on track to commission in H2 2023, and
we are investing to enhance our fresh-cut fruit capacity
and efficiency. The data-driven insight provided by our new
manufacturing system is also already helping build our
pipeline of future opportunities to drive further efficiency.
Confidence in continued market share gains,
with actions underway to further strengthen
resilient foundations
We have taken decisive action to protect profits as the
trading environment is anticipated to remain challenging
through 2023. Our plan in the UK is clear; we will drive
an aggressive plan to mitigate the impact of ongoing
inflation and volume pressures by leveraging our scale
and strength, working collaboratively with our customers
to recover inflation and embedding our cost saving and
efficiency plans. Whilst we cannot predict exactly how
consumer spending will evolve, we will continue to leverage
our insight, and adapt our ranges to ensure our products
deliver the value and quality that consumers desire.
Building on our outperformance in 2022, we are confident
we will continue to gain market share, with a strong pipeline
of opportunities and we are well-placed to benefit from an
increasingly unstable supply base. We are encouraged by
trading in early 2023, with volumes in line with expectations
despite fresh produce availability challenges, and continued
market share gains. Overall, our new re-energised leadership
team is well-placed to deliver on our plan, and this will
further strengthen the resilient foundations of our business.
Bakkavor Group plc | Annual Report & Accounts 2022 |
37
STRATEGIC REPORT
DIVISIONAL REVIEW: UK, US, CHINA
CONTINUED
Overview:
United States
Key:
Head office
Factory
US FINANCIAL HIGHLIGHTS
£m
2022
2021
Change
Reported revenue
255.3
180.1
41.8%
Like-for-like revenue
226.2
180.1
25.6%
Adjusted operating profit
3.3
8.9
(62.9%)
Adjusted operating
profit margin
1.3%
4.9%
(360bps)
Operating (loss)/profit
(0.5)
8.9
(105.6%)
Operating (loss)/profit
margin
(0.2%)
4.9%
(510bps)
Trading performance
Strong revenue momentum in the US has continued, with
like-for-like revenue up 25.6% to £226.2m. This reflects
strong volume growth and, in the second half of the year,
some impact of price. Including the impact of currency,
£25.5m, and the 53rd week, reported revenue was up 41.8%.
Operationally, onboarding this significant growth and
the withdrawal of volume by a single customer due to
a contractual dispute since November 2022, has created
disruption and put pressure on profits. This was
particularly apparent in our East and West Coast sites,
Charlotte and Carson, where we have seen the majority
of volume growth. Combined with the lag in recovering
inflation, this has meant adjusted operating profit was
down £5.6m to £3.3m at a margin of 1.3% (2021: 4.9%).
The operating loss of £0.5m includes £3.8m of exceptional
charges related to the impairment of inventory and trade
receivables with the above customer.
Strategic and operational progress
Demand for our fresh, high-quality products has remained
strong. Our customers continue to see our fresh meals
offering as a key differentiator versus their competitors and
to attract consumers into store. Fresh meals now comprise
over 50% of our US revenue, which is up over 30% year-on-
year, benefitting from the full-year effect of the national
meals programme win; this launched in the summer of 2021,
combined with range extensions and the introduction of over
45 new meals products in 2022. We also onboarded a new
customer in July 2022 for whom we are delivering a range of
ten fresh meals in over 250 stores across the Midwest region.
Inflation remained elevated through 2022, particularly in
poultry and distribution, and whilst there was a timing lag,
our customers have been supportive of the pricing action
we have taken. We also have several initiatives in place
to help mitigate the impact on both costs and our supply
chain, including the new sourcing of key commodities
to improve price, and reducing sourcing distance and
inventory requirements.
Labour availability remains a challenge across our industry.
We continue to be agile in our approach to recruitment in
order to keep up with the rapid pace of growth, and have
plans in place to streamline this process and improve
training for new colleagues. We also continue to leverage
the wealth of experience from our UK business; the recent
appointment of a new US Finance leader, who was previously
Financial Controller within our UK Pizza and Bread business,
is just one example of this.
Looking ahead, our near-term focus has shifted from
growth to profit: driving operational performance and
reviewing our cost base to improve margin in a sustainable
way. To support the delivery of this, our approach to growth
will be more measured and as we seek to minimise disruption,
our capacity investment in the region will only recommence
once profit momentum in the business has returned.
Robust operational and restructuring plans are now being
embedded, with a new leadership structure to be in place
from April 2023. Our President of Bakkavor USA, Pete
Laport, is leaving in mid-March and we thank him for his
contribution and commitment during his time with the US
business. Whilst the benefit of our plans will take time to
deliver, we expect to see some margin improvement through
2023. We are making progress to reach resolution on the
contractual dispute with a customer, which is expected to
reach closure by end of Q2 2023. The pipeline for growth in
this underdeveloped market, however, remains significant
and we remain excited about the medium-term opportunity
for our business and converting this growth at an attractive
and sustainable margin.
Delivered strong revenue growth,
and demand for fresh meals
remains unabated. Looking ahead,
we have a clear focus on operational
performance to deliver sustainable
improvement.
38
| Bakkavor Group plc | Annual Report & Accounts 2022
Overview:
China
Key:
Head office
Factory, Farm
CHINA FINANCIAL HIGHLIGHTS
£m
2022
2021
Change
Reported revenue
100.8
99.1
1.7%
Like-for-like revenue
90.5
99.1
(8.6%)
Adjusted operating loss
(6.6)
(4.7)
40.4%
Adjusted operating
loss margin
(6.5%)
(4.7%)
(180bps)
Operating loss
(16.3)
(4.7)
(246.8%)
Operating loss margin
(16.2%)
(4.7%)
(1,150bps)
Trading performance
Trading continued to be impacted by ongoing Covid-related
challenges, with like-for-like revenue of £90.5m down
8.6% compared to 2021. Reported revenue was up 1.7%,
however, including the impact of currency, £8.7m, and the
53rd week. Volumes in the second half began to recover,
following a period of severe regional lockdown restrictions
earlier in the year; but with rising case numbers in the
remaining weeks of the year, they have remained behind
pre-pandemic levels.
Underpinned by the teams’ resilience, we have sought
to protect our business and maintained a tight control
of overheads. However, against a backdrop of changes in
demand patterns in response to Covid, rising labour costs
and inflation, China reported an adjusted operating loss of
£6.6m for the year (2021: £4.7m). Included in the operating
loss of £16.3m is a £9.7m non-cash impairment of our
associate in Hong Kong due to the ongoing impact of Covid
on trading performance.
Strategic and operational progress
The trading environment in China remained volatile
during FY22 as the government continued to operate
a zero-tolerance Covid policy and implement strict
regional lockdowns for most of the year. Reduced mobility
and depressed consumer spending have had a pronounced
negative impact on demand from our customers. This
has been particularly evident for our strategic customers
operating quick-service restaurants and coffee chains.
New product development has been limited through
lockdown periods, however, it has quickly returned as
we looked to provide new and exciting products for our
customers as their stores re-opened. Our existing strategic
foodservice customers continue to have aggressive roll-out
plans and believe in the medium-term opportunity.
We have continued to make progress against our strategy
of diversifying our channels. Retail now comprises almost
20% of revenue and is up over 60% year-on-year. Retail
performance has been robust, and we have launched a
new range and expanded our store distribution with one of
our strategic grocery retail customers, and also expanded
our range and increased volumes with another retailer.
Whilst office catering was held back by increased working
from home, volumes have rebounded strongly as workers
returned to the office following relaxation in restrictions.
Operationally, we have had to manage through the
challenges resulting from tight labour availability,
supply chain disruption and fluctuations in demand.
The business and our people have demonstrated great
resilience in adapting to this tough environment.
Progress was also made to support our Group Net Zero
target with the installation of solar panels at our site in
Beijing, which provides c.15% of electricity for the site.
Our strategic investment in the region is now complete and
we continue to maintain a tight control of capital spend.
The last of our new sites, Xi’an, saw production transfer
from the old site in mid-November 2022.
Whilst the near-term outlook remains uncertain, it has been
positive to see the steady recovery in volumes through the
second half of the year as restrictions eased, which also led
to improvements in efficiency and margin. The relaxation
of quarantine rules in mid-December 2022 has, however,
led to a spike in cases which has resulted in further volatility
in order patterns and inefficiencies across our factories.
Positively, China is emerging from Covid, and whilst trading
at the start of 2023 has continued to experience some
disruption from the ongoing impact of Covid, the change
to China’s Covid policy is welcome, and we remain confident
in the long-term prospects for the market.
Trading impacted by Covid-related
disruption, but teams’ resilience
minimised financial impact and
good progress made in diversifying
our channels. Confident that long-
term prospects remain attractive.
Bakkavor Group plc | Annual Report & Accounts 2022 |
39
STRATEGIC REPORT
Executive summary
ESG issues are broad and far-reaching, and we need to
ensure our business can respond in a dynamic way to shifting
global challenges, making Bakkavor both more responsible
and more resilient. Our approach for defining action and
delivering progress across the issues that matter most to our
stakeholders is encompassed in our well-established Trusted
Partner ESG strategy, and this also supports the delivery
of the ‘Trust’ pillar of our Group strategy. Trusted Partner
is focused on three areas: Responsible Sourcing in our
Supply Chain; Sustainability and Innovation in our Operations;
and Engagement and Wellbeing in our Workplaces and
Communities. We have a clear governance framework
in place to drive and oversee our progress.
This year we have implemented several measures to refine
our focus and reflect the increasing importance of ESG
at all levels of our business. We have continued to make
progress in establishing ESG at the heart of Bakkavor,
whilst at the same time performing resiliently as a
business despite the challenging external environment.
We were pleased to see an improvement in three out of four
of our non-financial KPIs.
From a governance perspective, after expanding the remit
of the Nomination Committee to include ESG in January
2022, in June we established a dedicated ESG Board
Committee to oversee our agenda and hold us accountable.
We also updated our assessment of our most material
ESG issues, of which we have 12, and the business is
prioritising its focus on three of these, as shown below.
READ MORE:
Climate and Net Zero pg 45.
Food Waste pg 46.
Environmentally Sustainable Sourcing pg 42.
We have reported against the recommendations
of the Task Force on Climate-related Financial
Disclosures (“TCFD”),
READ MORE
on pg 56.
Our ESG report will be released on our website in
April at www.bakkavor.com/esg. This will provide
a more detailed update on Trusted Partner and
additional ESG performance data.
For ESG and sustainability enquiries contact:
ESG@bakkavor.com
An overview of our ESG reporting
This section summarises our Trusted Partner ESG strategy and progress in 2022, as well our priorities
for 2023 and beyond. All data shown is for the calendar year 2022 and at a Group level, unless specified.
•
Executive summary
40
•
ESG governance
41
•
ESG materiality
41
•
Trusted Partner ESG strategy:
–
Responsible Sourcing in our Supply Chain
42
–
Sustainability and Innovation in our
Operations
44
–
Engagement and Wellbeing in our
Workplaces and Communities
48
•
Related policies and documents
51
•
Non-financial and sustainability
information statement
52
ESG: TRUSTED PARTNER
Trusted Partner,
our ESG strategy
We have a clear plan to continue to
deliver progress across responsible
sourcing, sustainability in our operations,
and the wellbeing of our communities.
40
| Bakkavor Group plc | Annual Report & Accounts 2022
ESG
materiality
To ensure our Trusted Partner focus areas
remain relevant and address the topics that
are most important to our business, our
stakeholders and the external environment,
in 2022 Bakkavor updated its materiality
assessment. This was first conducted in 2019.
The process began with an updated horizon
scan to review the priority issues that
influence sustainable development, which was
guided by frameworks and input from external
sources and stakeholders, including:
• The UN Sustainable Development Goals
(“SDGs”);
• The UN Guiding Principles on Business
and Human Rights;
• Industry organisations such as the Institute
of Grocery Distribution (“IGD”); and
• NGOs and specialists including organisations
such as WWF and WRAP.
This list of issues was reduced to a shortlist
through internal consultation, and the priority
of each issue was then determined through
an internal survey to rank its capacity for
growing our business in a sustainable way.
The issues were also assessed in relation
to their importance for external stakeholders
and their contribution to sustainable
development. Decisions were informed by
conversations and engagement with external
partners, including customers, suppliers,
investors and subject-matter specialists.
The materiality assessment confirmed 12
material issues which are addressed under
each of Trusted Partner’s three focus areas:
Responsible Sourcing in our Supply Chain,
Sustainability and Innovation in our Operations,
and Engagement and Wellbeing in our
Workplaces and Communities.
Of the material issues, three were identified
as highest priority: Climate and Net Zero,
Food Waste, and Environmentally Sustainable
Sourcing. These three issues will be of
increased strategic priority going forward.
In addition, a number of other commitments
were updated as a result.
ESG governance
The governance and accountability of our Trusted Partner
ESG strategy is summarised below.
READ MORE
on
governance in relation to climate-related issues in the
TCFD section on pg 56, and the Group’s overall governance
framework in our Corporate Governance Compliance
Statement on pg 89.
ESG Sponsor:
Ben Waldron, CFO and Asia CEO
(Until November 2022: Agust Gudmundsson, CEO)
GROUP BOARD
Chair:
Umran Beba, Independent
Non-executive Director
ESG COMMITTEE
ESG Sponsor:
Ben Waldron, CFO and Asia CEO
(Until November 2022: Agust Gudmundsson, CEO)
MANAGEMENT BOARD
Chair:
UK Finance Director
(Until November 2022: Head of Corporate Affairs)
ESG EXECUTIVE COMMITTEE
We recognise that to deliver progress in these focus areas
we need accurate data and robust reporting processes to
monitor our performance, as well as financial investment
and an assessment of returns. In 2022, we established
a monthly reporting process of our non-financial KPIs
(
READ MORE
on pg 4). This report is shared with senior
leaders monthly to drive action and support a quicker
response to issues.
As ever, collaboration and teamwork are vital to our
approach. In 2022, we engaged closely with all our
stakeholders in what is an ongoing and two-way process.
This includes: updating our customers and colleagues
through our monthly Trusted Partner newsletter and internal
events; interacting with suppliers through forums, one-to-
one conversations and assessments; and communicating
to investors through our financial results calendar.
READ MORE
on stakeholder engagement on pg 66.
Looking forward, the operating environment will remain
tough, however, our refined focus means we remain confident
that our ESG agenda strengthens and complements our
Group strategy, and helps us to fulfil our purpose and grow
in a positive and sustainable way.
Bakkavor Group plc | Annual Report & Accounts 2022 |
41
STRATEGIC REPORT
ESG: TRUSTED PARTNER
CONTINUED
Responsible Sourcing
in our Supply Chain
Responsible Sourcing in our Supply Chain
encompasses two distinct but connected
material issues: Supply Chain Human
Rights and Environmentally Sustainable
Sourcing, with the latter being one of our
three priority issues.
For our business, a resilient supply chain is critical, as is
the future sustainability of our food systems. Therefore, we
work with growers and partners to minimise environmental
impacts, including deforestation and climate change,
whilst supporting the rights and livelihoods of the millions
employed in food production worldwide.
How we manage Responsible Sourcing in our
Supply Chain
Our Responsible Sourcing strategy is overseen by a
Steering Committee chaired by our UK Procurement
Director. It reports to our ESG Executive Committee,
tracking progress against our commitments and
wider supplier engagement programme. It comprises
representatives across Procurement, Technical and
other specialist external support. The Steering Committee
uses a bespoke supplier risk management system based
on supplier data and global intelligence sources.
We also monitor compliance against our Supplier Code of
Conduct, which can be found at bakkavor.com/en/esg/
policies-and-documents – a requirement for all Bakkavor
UK suppliers. This code outlines the standards that we
expect our suppliers to meet and forms part of our supplier
selection process. Key areas include human rights,
ingredient integrity and environmental sustainability.
The Steering Committee also addresses the issue of
ingredient integrity, using intelligence gathering, audits
and traceability checks to ensure the highest standards
of food integrity and traceability.
READ MORE
on food safety on pg 81 and on our
website (bakkavor.com/en/about-us/at-a-glance/
ensuring-safety-and-quality).
Progress against our 2022 targets and commitments, and our commitments going forward
Key
ENVIRONMENTALLY SUSTAINABLE SOURCING
Work towards zero net deforestation for our forest risk raw materials (palm oil, soy, wood-pulp based
packaging and beef).
2022:
Further developed zero-deforestation roadmap
and strengthened commitments.
Responded to the Carbon Disclosure Project (“CDP”)’s
Forests questionnaire for the second time. Scored Cs
for cattle, palm oil and timber, and B- for soy, in line with
the prior year results.
Joined the UK Soy Manifesto, a collective industry
commitment to ensure all physical shipments of soy to
the UK are deforestation- and conversion-free by 2025.
2023 and beyond:
100% deforestation- and conversion-
free sourcing of palm oil, soy, beef and wood pulp by
2025 (UK, 2020 cut-off date). This will include sourcing
palm oil from 100% segregated certified sources.
2022 status
Priority issue
Achieved
On track
Not achieved
42
| Bakkavor Group plc | Annual Report & Accounts 2022
Expand supplier management to our US and China businesses to replicate our environmental risk mapping (2022).
2022:
Formalised a new Group Supplier Conduct Policy,
which adapts the Supplier Code of Conduct for our UK
business, to our China and US operations.
2023 and beyond:
New commitment:
Further roll-out of our Group
Supplier Conduct Policy, supporting supply chain
engagement on social issues within US and China
(2023 and ongoing).
Engage with key suppliers to share understanding of responsible plastic use (2022).
2022:
Continued to engage with suppliers on
environmental aspects through the Supplier Code of
Conduct and direct channels. However, macro-headwinds
meant ongoing supply chain disruption and priorities were
re-evaluated to focus on specific sourcing challenges.
2023 and beyond:
We will re-evaluate whether to revisit
this during 2023.
100% eggs from cage-free sources by 2025 (UK).
2022:
UK: 77% (in line with 2021).
This was a new commitment for China and the US in 2022.
2023 and beyond:
Updated commitment: 100% eggs
from cage-free sources by 2025 in the UK, and Group-
wide by 2027.
New commitment:
Formalise a policy on our supplier
expectations on animal welfare (2023).
SUPPLY CHAIN HUMAN RIGHTS
Work collaboratively with suppliers on any breaches of our Code of Conduct to develop and implement
a clear and appropriate corrective action plan (UK, ongoing).
2022:
Following supplier compliance assessment
against our 2021 Code of Conduct and programme
of corrective action plans, we closed out all remaining
non-conformances. This included de-listing a small
number of non-responsive suppliers.
Due to ongoing disruption to global supply chains,
we made the decision not to re-issue the compliance
questionnaires in 2022. For suppliers onboarded
in 2022, the assessment programme will be re-run
in H1 2023 to ensure full, ongoing compliance.
2023 and beyond:
Work collaboratively with our
suppliers on any breaches of our Code of Conduct
to develop and implement a clear and appropriate
corrective action plan (ongoing).
Empower worker voice and dialogue within our direct supply chain by promoting independent
whistleblowing channels and effective grievance reporting mechanisms (UK: 2022, China and US: 2024).
2022:
Engaged directly on whistleblowing with suppliers
to the UK business via webinars, targeting those assessed
who do not have effective mechanisms in place.
Formalised Group Supplier Conduct Policy, which
includes expectations on support for independent
whistleblowing channels and grievance mechanisms
for our China and US businesses.
2023 and beyond:
Through the roll-out of our Group
Supplier Conduct Policy in China and the US, we will
start to determine priority gaps for targeted action.
New commitment:
Support supply chain engagement
within our US and China businesses through our Group
Supplier Conduct Policy (2023 and ongoing).
Bakkavor Group plc | Annual Report & Accounts 2022 |
43
STRATEGIC REPORT
ESG: TRUSTED PARTNER
CONTINUED
Sustainability and Innovation
in our Operations
This focus area encompasses our
approach to minimising the environmental
impacts of our direct operations and
increasing the sustainability of the food we
manufacture. It comprises five material
ESG issues, the first two of which are
priority issues: Climate and Net Zero;
Food Waste; Impact of Packaging;
Sustainable and Healthier Products;
and Water Use and Management.
How we manage Sustainability and Innovation
in our Operations
Under the ‘Excellence’ pillar of our Group strategy, driving
operational efficiency is a key focus. We therefore recognise
the importance of integrating our ESG initiatives into the
way we work and the investment decisions we make
across our sites.
Group net carbon emissions and UK food waste are two
of our non-financial KPIs; they are reported (quarterly and
monthly, respectively) to the ESG Executive Committee
and Management Board, and on a quarterly basis to the
Board-level ESG Committee. Water Use and Management
was added in 2022 following the refresh of our Trusted
Partner ESG strategy and materiality assessment.
Energy performance of sites is closely monitored, with all
eligible UK manufacturing sites operating under Climate
Change Agreements. Also in the UK, we employ an
Environmental Management System, based around ISO
14001, which includes risk management standards,
guidance and tools. This system, combined with increased
environmental training rolled out in 2022, has contributed
to improved environmental audit scores through 2021 and
2022. We also updated our Environment Policy, which can
be found at bakkavor.com/en/esg/policies-and-documents.
We continue to capitalise on our deep market insights,
product development expertise, and breadth of food
production capabilities to develop products and
propositions that delight our customers and consumers.
This includes a strong sentiment that the food and drink
industry has a responsibility to limit its climate impact.
We therefore recognise our responsibility to look after
the long-term health of people and the planet through
our product offering.
READ MORE
on the latest market trends on pg 18.
44
| Bakkavor Group plc | Annual Report & Accounts 2022
Progress against our 2022 targets and commitments, and our commitments going forward
CLIMATE AND NET ZERO
Achieve Net Zero carbon emissions in our Group operations by 2040.
2022:
Since March 2022, Group and regional-level
emissions data has been captured and reported
to the ESG Executive Committee and Management
Board quarterly, and to the ESG Board Committee
on a quarterly basis.
We have taken a significant first step in developing
our Net Zero transition plan to operationalise our
commitment within the business to set our roadmap
for the years to come, and our existing utility efficiency
programme is already helping reduce emissions.
READ MORE
on pg 58.
Non-financial KPI:
Group net carbon emissions
decreased by 18.9% in 2022 to 110,106tCO
2
e (2021:
135,691tCO
2
e). Regionally, net emissions decreased
15.3% in the UK, 18.7% in the US and 25.5% in China.
Full carbon emissions data is on pg 64.
Energy Efficiency Statement
: The year-on-year
improvement is driven by a combination of increased
energy efficiency measures such as refrigeration
upgrades, completion of LED lighting roll-out,
insulation, avoiding compressed air leaks, and a focus
on reducing emissions from refrigeration (“F”) gases,
including replacing with lower global warming
potential alternatives, where possible.
In China (7.2% of group energy demand), we began
the installation of solar panels at our site in Beijing,
and in the US (8.9% of group energy consumption),
focused on energy efficiency through site audits as
well as opportunities to reduce refrigeration demand.
2023 and beyond:
Further development of our Net Zero
transition plan – to stress test the targets and work
through operational plans to identify and plan key
initiatives across our business.
Increase energy developed from renewable sources,
through the initiation of a ten-year Power Purchase
Agreement (“PPA”) in the UK, as well as the finalisation of
the solar installation at our Beijing site in January 2023.
READ MORE
on our future Net Zero plans on pg 63.
Work towards optimising operational water intensity, whilst maintaining product quality and integrity,
reporting internally on a monthly basis through the environmental tracker (UK, year-on-year).
2022:
We updated our Environment Policy, which
specifies our approach and management system
for environmental controls, including water.
During the year a new water specialist was onboarded
in our engineering function to improve discharge
quality and efficiency.
We completed our second CDP Water Security
questionnaire, scoring a C, in line with 2021.
2023 and beyond:
We will continue with this target,
looking to further incorporate activity into monitoring
processes around utility efficiency.
Key
2022 status
Priority issue
Achieved
On track
Not achieved
Bakkavor Group plc | Annual Report & Accounts 2022 |
45
STRATEGIC REPORT
ESG: TRUSTED PARTNER
CONTINUED
FOOD WASTE
Continue working towards our Champions 12.3 target of reducing food loss by preventing it at each of our sites,
whilst measuring and reporting our progress annually (2030, UK).
2022:
Implemented a dedicated food waste taskforce
in January, driven by the ESG Executive Committee.
Enhanced our focus and operationalised action in this
area, including root cause analysis of where waste was
occurring and focus on redistribution to people through
partner redistributors. In addition, implemented
interventions to redirect waste from anaerobic digestion
to animal feed. Reinforced through site-level roadshows
and progress updates at internal seminars. Combined,
this has delivered an improvement in UK net food waste.
Prioritised consistent, accurate and timely reporting.
Implemented monthly tracking of UK food waste to
the ESG Executive Committee and Management Board,
and reported to the Board-level ESG Committee on a
quarterly basis.
Non-financial KPI:
UK net food waste for 2022 was 8.05%,
an improvement of 110 basis points from 9.15% in 2021.
UK food waste reduced by 6,018 tonnes, equivalent to a
13.6% reduction year-on-year.
READ MORE
on pg 4 and 31.
2023 and beyond:
We will continue with our Champions
12.3 target, looking to make further progress towards the
goal of halving our food waste by 2030 (2017 baseline).
Actively engage each of our UK and US sites to maximise surplus food available for redistribution (ongoing).
2022:
Surplus redistributed to people (through charities,
redistribution networks and staff shops) increased 16.4%
compared to 2021.
631 tonnes, up 10% on 2021, redistributed to people
through charities and partners.
770 tonnes (29% increase on 2021) redistributed
to Bakkavor colleagues through our staff shops.
2023 and beyond:
Commitment maintained.
Our US business donated over 460 cases of products to
local food banks and supported in food drives, but we were
unable to establish strategic relationships with local food
banks as intended.
2023 and beyond:
We will revisit our US food
bank partnerships and/or establish alternative
partnerships in 2023.
46
| Bakkavor Group plc | Annual Report & Accounts 2022
IMPACT OF PACKAGING
Support progress towards achieving The UK Plastics Pact’s 2025 industry goals:
•
Eliminating unnecessary plastic packaging;
•
100% reusable or recyclable plastic packaging; and
•
At least 30% average recycled content in plastic packaging.
2022:
Eliminated 2,429 tonnes of plastic – a 12%
reduction – across our product ranges in the UK through
removal and light-weighting projects.
No items on the UK Plastics Pact’s 2022 ‘Problem list’
for elimination are used in our products.
2023 and beyond:
Maintain existing commitment to
support The UK Plastics Pact’s 2025 industry goals.
New commitments:
Additionally, by the end of 2024
we will:
•
Reduce our total use of plastic packaging by 5%,
equivalent to around 1,000 tonnes;
•
Remove 125 million pieces of plastic from our packaging
formats; and
•
Achieve 100% sustainably certified paper and card
(FSC/PEFC) for both primary and secondary packaging
by 2025.
As flexible plastic films are now widely collected for
recycling at large supermarkets, almost 100% of our UK
product packaging is now recyclable.
In 2022 the average recycled content of our plastic
packaging was 52.9%, up from 45.6% in 2021 and well
above the UK Plastics Pact’s goal of 30%, which we first
achieved in 2019.
SUSTAINABLE PRODUCT DEVELOPMENT
Work with customers to meet their nutrition targets on salt, sugar, saturated fat and overall calories through
reformulation (ongoing).
2022:
62% (2021: 62%) of our products are healthier
options as defined by the UK Department of Health’s
Nutrient Profiling Model.
83% (2021: 83%) of our products are already compliant with
the Food Standard Agency’s salt reduction targets for 2024
and we continue to explore reformulation for the remainder.
2023 and beyond:
Commitment maintained.
Enable sustainable diets through our product portfolio by continuing to drive plant-based freshly prepared
product ranges (ongoing).
2022:
52% (2021: 50%) of our products are vegetarian.
19% (2021: 19%) of our products are vegan.
>390 (2021: >400) of our products contain at least one
of the recommended five portions of vegetables.
2023 and beyond:
Commitment maintained.
Bakkavor Group plc | Annual Report & Accounts 2022 |
47
STRATEGIC REPORT
ESG: TRUSTED PARTNER
CONTINUED
Engagement and Webeing
in our
Workplaces and Communities
Our people are our greatest asset, and
their commitment to delivering great-
tasting, quality food whilst living our values
is central to our success. To be a trusted
partner, we support our workplaces and
communities through our approach to our
ESG material issues: Colleague Wellbeing;
Health and Safety; Engagement,
Development and Retention; Responsible
Recruitment and Employment; Local
Causes and Community Engagement;
and Inclusive and Diverse Workplaces.
How we manage Engagement and Wellbeing
in our Workplaces and Communities
UK accidents and employee turnover are two of our
Group non-financial KPIs. These are reported on a monthly
basis and at senior forums including the ESG Executive
Committee and Management Board, and on a quarterly
basis at Group Board.
Health and safety data, including near-miss and accident
learnings, is shared across all sites using a newly introduced
online system, which reflects the focus on sharing health
and safety best practice across the business.
In 2022, as part of an objective to drive a step-change
reduction in workplace safety risks by standardising best
practice and sharing information, we launched a set of
global health and safety management principles that set
consistent recommendations across all of our sites.
A number of cross-functional workstreams support our
activity in this focus area:
•
Wellbeing Committee – chaired by our CPO.
•
Inclusion and Diversity Forum – chaired by our Company
Secretary and General Counsel. Steers our strategic direction
on becoming a more inclusive and diverse business.
•
READ MORE
about our work to support colleagues’ wellbeing
and make everyone feel welcome at Bakkavor on pg 34.
•
Human Rights and Ethical Programme – driven by an
ethical trade team and overseen by the Management Board.
The Local Causes and Community Engagement
workstream coordinates our three-year corporate charity
programme with partners GroceryAid and the Natasha
Allergy Research Foundation.
48
| Bakkavor Group plc | Annual Report & Accounts 2022
Progress against our 2022 targets and commitments, and our commitments going forward
COLLEAGUE WELLBEING, HEALTH AND SAFETY
Continue our commitment to health and safety, targeting zero serious accidents across the Group.
2022:
Whilst in most manufacturing environments accidents
will occur, we will always aim for zero serious
1
accidents and
minimal harm to our colleagues.
Major accidents in the UK decreased by 31.6% from a rate
of 57 per 100k employees to 39. There were no equivalent
Major accidents in the USA or China.
There were no fatalities in 2022 across the Group.
UK: See progress against separate commitment below.
China: >7 day lost-time accidents fell by 38% (448 per 100k
employees versus 726 in 2021).
US: Recordable incidents
2
reduced by 12% to 3,539 per 100k
employees (2021: 4,034) due to a focus on instilling a culture
of constant root cause analysis and urgency around accidents
and near misses. The 2021 number has been restated due to
an underestimation of agency labour.
2023 and beyond:
Commitment maintained.
Continue to maintain UK performance by out-performing industry average on numbers of major accidents
and >7 days lost-time accidents.
2022:
UK major accidents decreased by 31.6% to 39 per 100k
employees
3
(2021: 57).
Non-financial KPI:
UK >7 day lost-time accidents reduced by 3.9%
to 321 per 100k employees (2021: 334).
READ MORE
on pg 4.
This means we continue to outperform the HSE food industry
benchmark
4
, by increased margins of 63% for >7 day accidents
(benchmark: 861) and by 83% for majors (benchmark: 228).
2023 and beyond:
Commitment maintained.
Be recognised by our colleagues as supporting them to achieve positive wellbeing.
2022:
The Wellbeing Committee launched Bakkavor’s
Wellbeing Strategy, which outlines our goals and objectives
in this area. This includes offering regular wellbeing events
and campaigns, and embedding wellbeing into leadership
training at every level.
77 Wellbeing Champions were recruited and trained across
the UK business to support, embed and roll out the strategy
at a local level.
READ MORE
on our wellbeing journey on pg 35.
In our 2022 Employee Engagement Survey (“EES”), 67% of
colleagues agreed that Bakkavor cares about their health and
wellbeing. This indicates we can do more to reach colleagues
on wellbeing issues and highlight the resources available.
2023 and beyond
–
New commitments:
Continue to implement our Wellbeing Strategy
and pledges across sites.
Train Wellbeing Champions for local, on-the-
ground support.
Make regular updates to our Wellbeing Toolkit
and campaigns.
Commit to listen and ensure our actions are
making a difference.
1
Major accident as per the UK HSE definition, or equivalent.
2
According to definition of the US Occupational Safety and Health Administration (“OSHA”). Employee numbers include agency labour.
3
Number of ‘major’ accidents and specified injuries as defined by the UK Health and Safety Executive.
4
UK HSE industry averages: http://www.hse.gov.uk/statistics/tables/index.htm#riddor.
Key
2022 status
Priority issue
Achieved
On track
Not achieved
Bakkavor Group plc | Annual Report & Accounts 2022 |
49
STRATEGIC REPORT
ESG: TRUSTED PARTNER
CONTINUED
RESPONSIBLE RECRUITMENT AND EMPLOYMENT
Drive awareness and action on the issue of modern slavery, rolling out campaigns and training so that our
colleagues know the indicators and how to report them (ongoing).
2022:
Rolled out training on modern slavery for the Procurement,
Purchasing and HR functions, Operations Managers and for
Site Employee Forum (“SEF”) and trade union representatives.
The Group Board approved the Modern Slavery Statement in
June 2022.
Supported development of ‘Stronger Together’ training
workshops, guidance and toolkits. Stronger Together is a
multi-stakeholder initiative working to tackle modern slavery.
2023 and beyond:
Commitment maintained.
New commitment:
Work with industry partners
to share best knowledge and collaborate on
responsible recruitment and employment practices.
ENGAGEMENT, DEVELOPMENT AND RETENTION
Promote an inclusive working environment, where differences are valued, and individuals feel they can be
themselves, without judgement.
2022:
The Inclusion and Diversity Forum supported a
programme of events through 2022 to promote inclusive
behaviours. This included communicating the theme and
value of allyship through Pride month. We also celebrated
Black History Month by highlighting the contributions
of Black culture and raising awareness around issues
including microaggressions and unconscious biases.
READ MORE
on pg 34.
2023 and beyond:
Commitment maintained.
Reduce our UK employee turnover and maintain below industry average.
Non-financial KPI:
UK employee turnover was up 30 basis
points to 28.1% (2021: 27.8%), driven by continuing instability
in the UK food and drink manufacturing labour market.
Comparable industry average data is not widely available,
however anecdotally we believe our turnover rates are
in line with or slightly above peers.
READ MORE
on pg 4.
2023 and beyond:
Commitment maintained.
Implement an integrated talent management and development programme to provide our colleagues with
continuous learning opportunities.
2022:
Enhanced our continuous learning and talent
development strategy, with the launch of several programmes.
This included a Female Mentoring Programme, and a
streamlined central hub for optional learning in a wide range
of topics; for example, digital skills, inclusion and diversity,
communication and teamwork skills.
We also introduced a bespoke training course for Front-line
Leaders on how to be better managers, and expanded our Early
Careers programme, bringing in 68 more graduates and
apprentices to build our potential leadership pipeline of tomorrow.
Bakkavor was named the TheJobCrowd Top Company for
Apprentices in Consumer Goods & FMCG for the third year
running.
READ MORE
on pg 34.
2023 and beyond:
Commitment retired.
50
| Bakkavor Group plc | Annual Report & Accounts 2022
Related policies and documents
http://www.bakkavor.com/en/esg/policies-and-documents
Responsible Sourcing:
•
Supplier Code of Conduct (UK).
•
Modern Slavery Statement.
•
Deforestation Statement.
•
Group Ethical Trading and Human Rights Policy.
•
Freedom of Association Policy.
•
CDP Forests questionnaire.
Sustainability and Innovation:
•
Environment Policy.
•
CDP Climate and Water questionnaires.
•
TCFD section – pg 56.
Engagement and Wellbeing:
•
Group Ethical Trading and Human Rights Policy.
•
Whistleblowing Policy.
•
Modern Slavery Statement.
•
Inclusion and Diversity Policy.
•
Freedom of Association Policy.
•
Charity and Political Donations Policy – pg 55.
•
Our people section – pg 32.
Conduct a regular Group-wide employee engagement survey, aiming for an overall employee
engagement score above industry average.
2022:
Conducted an Employee Engagement Survey,
with a Group-wide response rate of 86%, up 3% on 2021.
The results of the survey were cascaded across the business
for functions and teams to analyse and incorporate into
action plans.
To continue to prioritise colleague engagement, we have
committed to conducting this survey on an annual basis
going forward.
2023 and beyond:
Commitment updated: Conduct
an annual Group-wide employee engagement
survey, aiming for an overall employee engagement
score above industry average.
New commitment:
Continue to embed our values
as the foundation of our culture, striving to create
a great place to work.
LOCAL CAUSES AND COMMUNITY ENGAGEMENT
Fundraise and support our key Group charities through Group donations and colleague engagement
fundraising activities (ongoing).
2022:
In 2022, Bakkavor Group plc charity donations totalled
£125,880. This included more than £73,000 to GroceryAid
and over £25,000 to the Natasha Allergy Research Foundation
– our two Group corporate charity partners.
An additional donation of over £27,000 (including matching
employee donations) was also made to the Red Cross Disaster
Emergency Committee’s Ukraine Appeal.
In the US we donated over 460 cases of products to local food
banks and supported in food drives. Our site in Charlotte also
supported a soccer fundraiser for The Hispanic League which
strives to improve community inclusion, education and health
for the Hispanic/Latino community.
In China, we donated almost 1,200kg of food to local front-line
medical staff to thank them for their efforts in the fight against
Covid and redistributed over 300kg of surplus products to two
local charities in Hong Kong who deliver food to the homeless
and those in need.
2023 and beyond:
Commitment maintained.
Bakkavor Group plc | Annual Report & Accounts 2022 |
51
STRATEGIC REPORT
ESG: TRUSTED PARTNER
CONTINUED
Our non-financial and sustainability
information statement
The following detail sets out where stakeholders can find further non-financial
information on each of the key areas of disclosure as required under the UK Companies
Act 2006 sections 414CA and 414CB.
Reporting
requirement
Relevant policies
Location of further information
in this report
Page
reference
Environmental
matters
Deforestation Statement
1
Supplier Code of Conduct
1
Environment Policy
1
Group Supplier Conduct Policy
2
Sustainability and Innovation
Environmentally
Sustainable Sourcing
44–47
42–43
Employees
Code of Conduct
2
Inclusion and Diversity Policy
1
Group Supplier Conduct Policy
2
Engagement and Wellbeing
48–51
Human rights
Modern Slavery Statement
1
Freedom of Association Policy
1
Responsible Operations Policy
2
Group Ethical Trading and Human Rights Policy
2
Group Supplier Conduct Policy
2
Responsible Recruitment
and Employment
Supply Chain Human Rights
50
43
Social matters
Code of Conduct
2
Modern Slavery Statement
1
Supplier Code of Conduct
1
Group Supplier Conduct Policy
2
Freedom of Association Policy
1
Engagement and Wellbeing
48–51
Anti-bribery
and corruption
Anti-Bribery and Business Ethics Policy
2
Anti-Bribery and Business Ethics Statement
1
Whistleblowing Policy
2
Charity and Political Donations Policy
2
Supplier Code of Conduct
1
Group Supplier Conduct Policy
2
Anti-Bribery and Business
Ethics Policy
Whistleblowing Policy
Charity and Political
Donations Policy
55
55
55
Data protection
Data Protection Policy
2
Data Retention Policy
2
Privacy Notice
2
Cookie Policy
1
Data Protection Policy
55
Business model
How we create value
16
Non-financial KPIs
Key performance indicators
4
1
Available on www.bakkavor.com and to all colleagues through the Bakkavor intranet.
2
Available to all colleagues through the Bakkavor intranet. Not published externally.
52
| Bakkavor Group plc | Annual Report & Accounts 2022
Employee data
The Group employed 18,580 employees in total. Almost all employees (>99%) are considered permanent. Employee
numbers in the tables below are based on the average monthly number of employees.
By location
2022
% of total
2021
2020
2019
2018
2017
United Kingdom
15,567
84%
15,863
16,356
16,942
17,004
17,348
US
973
5%
875
808
874
635
595
China
2,009
11%
2,205
2,125
2,266
2,181
1,628
Continental Europe
(Spain, Italy)
31
<0%
29
29
23
22
22
Total
18,580
18,972
19,318
20,105
19,842
19,593
By function
2022
% of total
2021
2020
2019
2018
2017
Production
15,283
82%
15,578
15,938
16,759
16,706
16,653
Management and
administration
2,378
13%
2,521
2,488
2,424
2,183
1,992
Sales and
distribution
919
5%
873
892
922
953
948
Total
18,580
18,972
19,318
20,105
19,842
19,593
By gender
Group
2022
% of total
2021
2020
2019
2018
2017
Female
8,420
45%
8,450
8,654
8,864
8,698
8,389
Male
10,160
55%
10,522
10,664
11,241
11,144
11,204
Total
18,580
18,972
19,318
20,105
19,842
19,593
UK
2022
% of total
2021
2020
2019
2018
2017
Female
6,670
43%
6,612
6,888
7,011
7,055
7,116
Male
8,897
57%
9,251
9,468
9,931
9,949
10,232
Total
15,567
15,863
16,356
16,942
17,004
17,348
International
1
2022
% of total
2021
2020
2019
2018
2017
Female
1,750
58%
1,838
1,766
1,853
1,643
1,273
Male
1,263
42%
1,271
1,196
1,310
1,195
972
Total
3,013
3,109
2,962
3,163
2,838
2,245
1
Includes US, mainland China, Hong Kong, Spain and Italy.
Bakkavor Group plc | Annual Report & Accounts 2022 |
53
STRATEGIC REPORT
ESG: TRUSTED PARTNER
CONTINUED
Gender pay (UK)
2022
2021
1
2020
2019
Median gender pay gap
9.3%
7.3%
2.1%
7.3%
Mean gender pay gap
9.6%
9.3%
8.2%
10.7%
2022
2021
1
2020
2019
M
F
M
F
M
F
M
F
1st quartile (lower paid)
40.9%
59.1%
49.3%
50.7%
58.8%
41.2%
49.5%
50.5%
2nd quartile
62.0%
38.0%
58.6%
41.4%
59.6%
40.4%
59.3%
40.7%
3rd quartile
66.1%
33.9%
63.0%
37.0%
58.1%
41.9%
62.5%
37.5%
4th quartile (highest paid)
67.8%
32.3%
67.4%
32.6%
67.6%
32.4%
67.5%
32.5%
Median gender bonus gap
12.1%
15.2%
14.5%
14.9%
Mean gender bonus gap
21.0%
17.0%
28.1%
13.6%
Proportion of males and females
receiving a bonus
9.3%
7.6%
9.9%
7.8%
9.3%
7.8%
2.4%
2.0%
1
2021 data for the mean and median pay gap, and quartiles has been restated as during the year we identified a calculation error. All other data remains as reported in 2021.
Senior leadership by gender, 2022
Group Board
Senior
Management
1
Management
Board
Senior
Executives
2
Number
%
Number
%
Number
%
Number
%
Female
3
27%
5
33%
2
33%
14
33%
Male
8
73%
10
67%
4
67%
28
67%
Total
11
15
6
42
Senior leadership by ethnicity
4
, 2022
Group Board
Senior
Management
1
Management
Board
2
Senior
Executives
3
Number
%
Number
%
Number
%
Number
%
Of white European heritage
10
91%
14
93%
6
100%
36
86%
Director or Executive of colour
1
9%
1
7%
0
6
14%
Total
11
15
6
42
1
Refers to the definition within the Companies Act 2006 s414C (8)-(10). Data is for financial year.
2
Data is for the financial year.
3
Refers to the Management Board’s direct reports as per the FRC’s 2018 UK Corporate Governance Code Provision 23. Data is for financial year.
4
Reflects the Parker Review methodology and definition of ‘Director of colour’.
54
| Bakkavor Group plc | Annual Report & Accounts 2022
Human Rights, Ethical Trading and Responsible
Operations Policies
Bakkavor is committed to doing business in a fair and
ethical way. We actively work at meeting our moral, legal,
ethical and humanitarian responsibilities. Our Ethical
Trading and Human Rights Policy and our Responsible
Operations Policy provide the principles and framework
that Bakkavor has adopted to manage this commitment,
within both our operations and supply chain. The policies
apply to all of Bakkavor’s own operations and the
permanent, temporary and agency colleagues who
are employed within them.
READ MORE:
Supply Chain Human Rights pg 43.
Responsible Recruitment and Employment pg 50.
Whistleblowing Policy
The Whistleblowing Policy applies to the whole Group and
provides a mechanism through which individuals can raise
concerns on illegal, unsafe or inappropriate activities
including discrimination or harassment in the workplace.
This policy represents Bakkavor’s internal procedure and
the use of this enables Bakkavor to effectively address any
wrongdoing within the business. It was updated in 2021
to reflect a change of provider, offering information on
how to raise an issue through an independently monitored
and confidential reporting hotline. The Bakkavor service,
‘Speak Up’, is available Group-wide by Freephone or
online 24 hours a day/365 days a year and in 15 languages.
Cases logged in 2022 were investigated thoroughly
through local HR contacts, General Managers and/or
Business Directors, as well as the Chief People Officer
(“CPO”), Technical Director, General Counsel or the Chief
Financial Officer (“CFO”) when relevant. Whistleblowing
is also regularly monitored by the Board.
Charity and Political Donations Policy
Bakkavor believes in giving back to the communities
in which we operate. Our Charity and Political Donations
Policy sets out the ways charitable giving may be
channelled: through monetary and product donations;
supporting our colleagues in their fundraising efforts;
and advocating skills and volunteering events, where
appropriate. We never use charitable donations as a
means to gain improper influence and all monies given
to charity in Bakkavor’s name are subject to due process.
Bakkavor does not give financial donations or support
to political individuals, representatives, parties or causes
in any country in which we operate.
READ MORE
on Local Causes and Community
Engagement on pg 51.
Data Protection Policy
Bakkavor recognises that the correct and lawful treatment
of personal data provides for successful business
operations. Protecting the confidentiality and integrity
of personal data is a critical responsibility that Bakkavor
always takes seriously. All staff and business areas are
responsible for ensuring compliance with this policy and
are required to implement appropriate practices,
processes, controls and training to ensure compliance.
In order to re-state the importance of data protection and
supplement this policy, Bakkavor uses our e-learning
platform to roll out training including ‘refresher’ modules
as required. In 2022, Bakkavor rolled out refreshed training
in cyber security for all UK colleagues. As part of its remit,
the Audit and Risk Committee this year considered the
adequacy of these arrangements and concluded that the
policy was adequate.
Anti-Bribery and Business Ethics Policy
This policy, which also includes a Gifts and Hospitality
Policy embedded within it, sets out the highest standards
of business and ethical conduct expected by those who
work for, and on behalf of, Bakkavor in all its business
dealings, whether with customers, suppliers, competitors
or other business partners in all the countries in which
Bakkavor does business. Bakkavor takes a zero-tolerance
approach to bribery and corruption and is committed
to acting professionally, fairly and with integrity in all its
business dealings and relationships wherever Bakkavor
operates and implementing and enforcing effective
systems to counter bribery and corruption.
Bakkavor requires all employees and third parties to
be familiar with the basic principles of anti-bribery law
in order to avoid any actions or omissions which might
infringe those laws.
Our Procurement team assesses our supply chain partners
for corruption and anti-bribery risk through compliance
with our Supplier Code of Conduct. Implementing these
policies, with the support of Bakkavor’s e-learning platform,
has enabled the business to re-state the importance of
vigilance in identifying any bribery and corruption issues
within the business and across the supply chain, together
with greater awareness of reporting procedures. In 2022,
Bakkavor rolled out refreshed anti-bribery and corruption
training for all UK colleagues. As part of its remit,
the Audit and Risk Committee this year considered the
adequacy of these arrangements and concluded that the
policy was adequate.
READ MORE
on pg 86.
Bakkavor Group plc | Annual Report & Accounts 2022 |
55
STRATEGIC REPORT
Climate change is the single biggest sustainability challenge
facing the world. We recognise that our Group does not
operate in isolation and impacts the environment. Bakkavor
has a part to play in reversing the climate emergency and
supporting the shift towards a low-carbon economy.
Consistency with the TCFD recommendations
The following pages comprise our TCFD report using the four sections: Governance (covering disclosures A and B on
pg 57), Strategy (covering disclosures A and B pg 58–61), Risk Management (covering disclosures A, B and C pg 62),
and Metrics and Targets (covering disclosures A on pg 63 and B on pg 64–65). For Strategy disclosure C and Metrics
and Targets disclosure C, please note below. In preparation of the report, Bakkavor also considered the supplemental
guidance for non-financial groups and specifically the Agriculture, Food, and Forest Products group. This is reflected
in our approach to scenario analysis, use of historical trend data for emissions, our consideration of physical risk
exposure and use of relevant metrics such as recyclability of packaging. The disclosures contained within the report
are consistent with these recommendations, with the exception of those listed below:
Disclosure
Level of
consistency
Description
Strategy disclosure C:
Describe the resilience of the
organization’s strategy, taking
into consideration different
climate-related scenarios,
including a 2°C or lower scenario.
PARTIAL
•
We have assessed our resilience and identified risks and
opportunities against two climate-related scenarios and
against our operations and supply chain. However, scenario
modelling against our full business strategy has not yet
been conducted. Through 2023, we intend to include outputs
from our transition planning, including detailed engineering
assessments and financial enablers, to deliver progress in
this area.
Metrics and Targets disclosure C:
Describe the targets used
by the organization to manage
climate-related risks and
opportunities and performance
against targets.
PARTIAL
•
During the year, we prepared and reviewed several interim
targets to underpin our roadmap to delivering Net Zero.
However, further work is required to stress test these
proposed interim targets through rigorous assessments at a
site-level, including engineering and innovation pipelines, and
should enable us to be consistent with the recommendations
in 2023.
•
Whilst we continue to develop our interim targets, we are
still monitoring our progress on reducing our Scope 1 and 2
carbon emissions in the UK, US and China on a quarterly
basis. This includes tracking performance against a target
of a year-on-year reduction in our UK greenhouse gas
(“GHG”) intensity level of 3%, as set out in our 2020
refinancing agreement.
In 2021, we committed to reaching Net
Zero in our Group operations by 2040.
To achieve this, we have undertaken
a detailed assessment of climate risks
that could impact our business, and have
begun to develop our delivery roadmap.
ESG: TCFD
Bakkavor and
climate change:
Report against the recommendations of the
Task Force on Climate-related Financial Disclosures
56
| Bakkavor Group plc | Annual Report & Accounts 2022
• Reviews performance on climate and Net Zero-related matters.
• Provides overall direction of the Group’s Trusted Partner
ESG strategy.
• Identifies financial resources required to meet Net Zero
commitment.
In 2022:
Met quarterly, ahead of Management Board and
ESG Committee meetings.
Our
governance
of climate-related issues
Comprised of Director and other senior-level experts from
ESG, Procurement, Technical, Operations, Legal, Risk, Finance,
Commercial and regional business divisions. Five workstreams
support the delivery of our Net Zero commitment:
1. Net Zero Carbon Emissions: overall working group.
2. Finance and ESG Reporting: ensures regular and accurate
carbon footprint reporting.
3. Operational ESG Integration and Cascading: cascades
commitments across the business.
4. ESG Board Engagement: supports Group Board training
on climate issues.
5. Sustainability Risk Management and Reporting: leads our
approach to understanding climate risk.
Outcomes reported to the Group Board include in-year carbon
emission data and a review of the Company’s climate risk
assessment (see pg 62). The Group Board uses specialist
advisers on climate and related topics from time to time.
As we refine our climate transition plan in 2023, Bakkavor
will review the linking of performance to incentives and
remuneration for future years.
• Accountable for considering the impact of climate-related issues
on the long-term strategy of the Group.
• Oversees progress of Net Zero commitment.
• Reviews Group policies and commitments, including Net Zero
target, KPIs, progress and approach.
In 2022:
The Group Board received regular updates from
the ESG Committee on the execution of the Trusted Partner
ESG strategy and climate risk assessment. This was via the
designated Non-executive Director for ESG matters and the
Group Board ESG Sponsor. ESG Committee members received
a dedicated training session from our Head of Group ESG
strategy, focusing on developing skills in: climate and Net Zero;
responsible sourcing, including biodiversity and deforestation;
food waste; and packaging.
READ MORE
on pg 88 and 120.
• Oversees climate-related issues and performance against
emissions reduction targets.
• Receives updates from the ESG Executive Committee on
performance and climate-related risks on a quarterly basis.
• Direct strategic implementation of, and capital allocation for,
energy efficiency and low-carbon projects.
In 2022:
Quarterly agenda included climate and ESG
matters with updates on developing our climate transition
plan, and carbon emissions progress by region.
• Dedicated Board committee for ESG matters, meeting three
times a year, with ownership of managing climate change
risks and opportunities, including our Net Zero commitment.
• Debates climate issues and provides guidance to the ESG
Executive Committee and recommendations to the Group Board.
In 2022:
Dedicated committee set up and met three times.
Also attended a training session in October, with topics
including climate change, food waste, diversity and inclusion,
packaging and biodiversity.
• Reviews principal risk ‘Climate change and sustainability’
and reporting under TCFD, meeting quarterly.
• Ensures climate-related risks are considered in the Group’s
viability assessment and impairment reviews.
• Ensures financial reporting disclosures of these risks are fair
and balanced, and considers broader impact across assets,
liabilities and future profitability.
In 2022:
Met four times, of which one agenda featured climate
and ESG.
READ MORE
on pg 124.
GROUP BOARD
MANAGEMENT BOARD
ESG EXECUTIVE COMMITTEE
ESG COMMITTEE
AUDIT AND RISK COMMITTEE
ESG Sponsor:
Ben Waldron, CFO and Asia CEO (Until November 2022: Agust Gudmundsson, CEO)
Chair:
Umran Beba, Independent Non-executive Director
Chair:
Jane Lodge, Independent Non-executive Director
Sponsor:
Ben Waldron, CFO and Asia CEO (Until December 2022: Donna-Maria Lee, CPO)
Chair:
UK Finance Director (until December 2022: Head of Corporate Affairs)
Bakkavor Group plc | Annual Report & Accounts 2022 |
57
STRATEGIC REPORT
Impact
1
Negligible
2
Minor
3
Moderate
4
Major
5
Catastrophic
Likelihood
1
Rare
2
Unlikely
3
Possible
4
Likely
5
Almost certain
Costs of implementing low emissions
technology
Scenarios
Likelihood
Impact
‘Well below’ 2°c
4
2
‘Hothouse world’
4
2
How it impacts Bakkavor
Additional operational costs to deliver our Net Zero
transition plan through investments in lower emission
technologies in our manufacturing sites.
Associated opportunity
Utility savings from increased resource efficiency.
Response
In 2022, mapped the ‘levers’ that will enable decarbonisation
of Scope 1 and 2 emissions across the Group, with some
initial capital expenditure costs developed.
In 2023, conducting further detailed analysis of technologies
that will inform our climate transition plan and decision-making.
Will then prepare a financing plan that considers the short-,
medium- and long-term.
Risk reviewed and managed by: dedicated Net Zero
workstream.
Related metrics and targets
Net Zero, Group-wide for operational emissions by 2040.
Non-financial KPI: Group net carbon emissions.
Link to our strategy
Strategy:
climate risks,
opportunities and impact
Risk type
Technology
Market
Policy and legal
Physical
1–5
(short-term)
5–10
(medium-term)
10–50
(long-term)
Time horizon
(years):
UK: Drive returns by leveraging our UK
number one market position
INTERNATIONAL: Accelerate profitable
growth in the US and China
EXCELLENCE: Deliver superior performance
through operational excellence
TRUST: Be a trusted partner for our people,
customers, suppliers and communities
Link to our strategy
Potential financial impact
1
Overall, based on the risk analysis performed and set out in this section, our
risk exposure is deemed to be low. A number of the risks are interdependent,
such as ‘cost of implementing low emissions technology’ and ‘pricing of GHG
emissions’; and ‘increased cost of raw materials’ with ‘actual physical risks
to our supply chain’, and we can mitigate some of the potential impact.
One risk – ‘pricing of GHG emissions’ – emerged as ‘moderate’ and therefore,
financially material. This impacts Bakkavor through increased operating
costs due to forecasted carbon pricing. Using current projections and an initial
assessment of our decarbonisation pathway we have estimated the potential
financial impact to the Group of between £5–10m p.a. by 2030, the medium-
term time horizon. Our mitigation against this risk is directly linked to
successful delivery of our Net Zero commitment and its primary objective
of reducing emissions as far as possible. As we work towards this target the
potential financial impact from GHG emissions pricing would be expected
to reduce to £3–5m p.a. by 2050.
1
Based on ‘Well below’ 2°c scenario.
ESG: TCFD
CONTINUED
READ MORE
on pg 22.
58
| Bakkavor Group plc | Annual Report & Accounts 2022
Increased cost of raw materials
Changing consumer preferences
Scenarios
Likelihood
Impact
‘Well below’ 2°c
4
2
‘Hothouse world’
4
3
How it impacts Bakkavor
Increased spend on raw materials due to price fluctuations
and instability caused by transition and physical climate risks.
Associated opportunity
Opportunity for ongoing rebase of costings as our business
evolves our product offering to reflect trends and seasonality.
Response
Diverse product portfolio means we source a variety of raw
materials and acts as a hedge against sourcing difficulties.
Centralised Procurement team holds strong commercial
relationships with an extensive supply chain and key suppliers.
In addition, colleagues have an on-the-ground presence
in China, Spain, Italy and South America, which is key to
understanding the local supply base.
Our bespoke supplier engagement platform allows us to:
monitor and address compliance with environmental,
social and integrity issues; understand and reduce supplier
risks; and in the long-term, support suppliers to manage
their own environmental and climate risks.
Risk reviewed and managed by: Responsible Sourcing
workstream and Procurement function.
Related metrics and targets
Zero net deforestation, including 100% deforestation and
conversion-free soy by 2025.
Sustainable sourcing standards for key raw materials.
Link to our strategy
Scenarios
Likelihood
Impact
‘Well below’ 2°c
5
2
‘Hothouse world’
5
2
How it impacts Bakkavor
Decreased revenues due to failure to shift product portfolio to
support consumer demand for lower climate-impact products.
Additional costs for potential carbon or eco-labelling.
Associated opportunity
Increased market share, due to ability to respond to changing
consumer demands and provide lower-carbon products.
Response
One of our ESG workstreams, ‘Sustainable Product
Development’, works to integrate sustainability
considerations into the product development process.
Through engagement with IGD, we participate in industry
discussions around eco- and carbon-labelling of food products,
enabling us to shape and adopt practices as they evolve.
Bakkavor market research indicates that consumers
are increasingly favouring food products that support
a reduction of environmental impact. This research is
regularly presented at Board level and supports strategic
decision-making in new and existing product development.
For example, to continue innovating with customers on
plant-based products across our portfolio.
Also support consumers’ values for more sustainable
packaging through work to reduce and remove plastics
where possible and use more recycled/recyclable materials.
Risk reviewed and managed by: Sustainable Product
Portfolio and Packaging workstreams.
Related metrics and targets
% of products that are vegetarian (52%, up from 50%
in 2021) and plant-based (19%, the same as in 2021).
Eliminate problematic or unnecessary single-use
packaging by 2025.
100% of plastic packaging to be reusable, recyclable
or compostable by 2025 (>99.9% in 2022, 99.8% in 2021).
30% average recycled content in plastic packaging by 2025
(achieved 52.3%, compared to 45.6% in 2021.
Link to our strategy
1–5
(short-term)
5–10
(medium-term)
10–50
(long-term)
1–5
(short-term)
5–10
(medium-term)
10–50
(long-term)
Bakkavor Group plc | Annual Report & Accounts 2022 |
59
STRATEGIC REPORT
Pricing of GHG emissions
Scenarios
Likelihood
Impact
‘Well below’ 2°c
4
3
‘Hothouse world’
4
3
How it impacts Bakkavor
Increased operating costs due to forecasted carbon pricing.
Associated opportunity
n/a
Response
Response to this risk links to delivery of Net Zero objectives
including decarbonisation of the business.
Risk reviewed and managed by: Net Zero and the Finance
and ESG Reporting workstreams.
Related metrics and targets
Net Zero, Group-wide for operational emissions by 2040.
Non-financial KPI: Group net carbon emissions.
Link to our strategy
ESG: TCFD
CONTINUED
Impact
1
Negligible
2
Minor
3
Moderate
4
Major
5
Catastrophic
Likelihood
1
Rare
2
Unlikely
3
Possible
4
Likely
5
Almost certain
Risk type
Technology
Market
Policy and legal
Physical
Link to our strategy
1–5
(short-term)
5–10
(medium-term)
10–50
(long-term)
UK: Drive returns by leveraging our UK
number one market position
INTERNATIONAL: Accelerate profitable
growth in the US and China
EXCELLENCE: Deliver superior performance
through operational excellence
TRUST: Be a trusted partner for our people,
customers, suppliers and communities
60
| Bakkavor Group plc | Annual Report & Accounts 2022
Actual physical risks to our operations
Actual physical risks to our supply chain
Scenarios
Likelihood
Impact
‘Well below’ 2°c
4
2
‘Hothouse world’
4
3
How it impacts Bakkavor
Increased energy consumption due to higher cooling
demand, increased water stress, reduced productivity
and logistics disruption (chronic climate impacts).
Site damages, disruption, increased maintenance, repair
and insurance costs from acute events such as floods.
Associated opportunity
Opportunities for innovation through our climate adaptation
response.
Response
Delivery of our climate transition plan and decarbonising
as far as possible.
Successful delivery of our Net Zero commitment prioritises
energy efficiency projects as ways to: maximise utility
efficiency; reduce absolute emissions; and support
site-specific adaptations to heat stress and drought. We also
continue optimising water intensity per tonne of product and
monitoring use through site-level environmental trackers.
No current investment in flood defences. If experience
worsens due to rising sea levels and/or increased
frequency/severity of weather events, we will consider
flood walls on high-risk sites. Future capital projects
and acquisitions will take account of flood risk.
Risk reviewed and managed by: dedicated Net Zero
workstream.
Related metrics and targets
Net Zero, Group-wide for operational emissions by 2040.
Non-financial KPI: Group net carbon emissions.
Link to our strategy
Scenarios
Likelihood
Impact
‘Well below’ 2°c
4
2
‘Hothouse world’
4
3
How it impacts Bakkavo
r
Disruption and higher costs due to decline in agricultural yield,
increased heat stress and drought (chronic climate impacts).
Bottlenecks, shortages and sourcing disruption from
increased exposure to acute climate risks such as floods
and storm events.
Associated opportunity
Supply chain engagement to mitigate risks could increase
resilience and strengthen supplier relationships, increasing
competitive advantage.
Response
Responsible Sourcing strategy is designed to safeguard
supply chain resilience by enabling sourcing of raw
materials as sustainably as possible.
Our Supplier Code of Conduct and associated environmental
compliance questionnaire ensure that suppliers manage
environmental issues in line with our sourcing standards
for key raw materials.
Engagement is monitored through the Bakkavor Supplier
Compliance Manager (“BSCM”) to: assess supplier risk
based on their specific product(s) and location; understand
supplier capabilities and exposures to environmental risks;
and work with them to reduce their risk, as required.
Risk reviewed and managed by: Responsible Sourcing
workstream and Procurement function.
Related metrics and targets
Zero net deforestation, including 100% deforestation and
conversion-free soy by 2025 (progress not yet quantified).
% of suppliers that are compliant with our Supplier Code
of Conduct (100% in 2022, 100% in 2021).
Link to our strategy
1–5
(short-term)
5–10
(medium-term)
10–50
(long-term)
1–5
(short-term)
5–10
(medium-term)
10–50
(long-term)
Bakkavor Group plc | Annual Report & Accounts 2022 |
61
STRATEGIC REPORT
To assess Bakkavor’s exposure to climate-related risks
and identify opportunities, we use a scenario-driven
climate risk assessment. The output of the analysis
conducted on our operations and supply chain indicates
our overall climate risk exposure is deemed to be low,
due to existing mitigation factors such as:
•
Risk sharing mechanisms for raw material price
fluctuations and medium-term energy efficiency; and
•
Successful delivery of our climate transition plan and
objective of reducing emissions as far as possible.
We have integrated our material ESG issues into our
Group risk management framework, which requires
principal risk owners to consider relevant environmental,
social or governance issues when conducting reviews
and assessments of each risk.
Risk management:
assessing and managing
our exposure to climate risks
Our approach for identifying climate-related risks
Bakkavor has undertaken scenario analysis and a
climate risk assessment of our operations and supply
chain. This involved:
1. Building scenarios against which the business could be
stress-tested, following guidance in the TCFD Guidance
on Scenario Analysis for Non-Financial Companies.
2. Running catastrophe and climate modelling for
physical risks.
3. Identifying and evaluating transition risks and quantifying
risks where possible.
The transition risk assessment used scenarios aligned
with projections to keep global warming ‘well below’
2°c by 2030 in line with the ambitions of the Paris
Agreement and considered impacts on different
geographies and sectors.
We have used a single, medium-term time horizon
because the majority of transition risks are associated
with aggressive mitigation action in the next ten years.
This assumes proactive and sustained action to reduce
emissions over the next 30 years to build a low-carbon
economy and the implications this has on environmental,
social, economic, political and technological dimensions.
For example, assuming broader technological
investment away from fossil fuels, towards increased
energy efficiency and renewable technologies. Sources
informing assumptions included projections used in
Shared Socio-Economic Pathways (“SSP”), the IEA
(Sustainable Development), IPCC (RCP 2.6) and NGFS
Below 2°c Orderly Scenario.
Whilst a number of transition risks (e.g. increased raw
material costs and changing consumer preferences) are
deemed highly likely, we are well-placed to mitigate the
impacts on the business, and their financial impact is
considered low to moderate. We have also identified
opportunities regarding several climate risks; for example,
the potential for increasing market share through aligning
our product portfolio to support market trends for more
climate-friendly diets.
Nevertheless, recognising the Group’s impetus to respond
to and continue a robust assessment of Bakkavor’s
risk exposure to climate change, our risk management
framework identifies ‘Climate change and sustainability’
as a principal risk.
READ MORE
on pg 85.
The physical risk assessment looked at the acute and
chronic impacts of climate change. For example, damage
to sites caused by increased frequency and/or severity of
extreme weather events (acute risks) and increased heat
and/or drought stress (chronic risks). We assessed the
potential risks over a medium- (2030) and longer-term
(2050 and beyond) time horizon using the Representative
Concentration Pathways (“RCP”) defined by the
Intergovernmental Panel on Climate Change’s (“IPCC”)
Fifth Assessment Report (“AR5”), specifically the ‘best
possible’ scenario of ‘well below 2°c’ (at +1.5°c) RCP 2.6)
and ‘worst case’ or ‘hothouse world’ scenario of RCP 8.5
(4°c). Acute physical risks are relevant now and under
both scenarios with the likelihood and impacts of these
risks increasing with the ‘hothouse world’ scenario
of RCP 8.5 (4°c) as well as over time (2050 and beyond).
Chronic physical risks emerge under the ‘hothouse
world’ scenario from 2050. For both types, the risk
is more pronounced in some regions than others.
To quantify risks, we have used Bakkavor’s risk
management framework rating criteria. Each risk was
assessed on its likelihood and impact, and the potential
financial impact classified based on these criteria.
To further align, we interpreted the timelines used in
the RCPs to our own risk framework. Other metrics,
such as carbon price forecasts, were used where relevant.
The outcomes were reviewed by both the Group Board
and Management Board.
READ MORE
on pg 85.
ESG: TCFD
CONTINUED
62
| Bakkavor Group plc | Annual Report & Accounts 2022
Building our roadmap to Net Zero
Since 2018 we have targeted year-on-year improvements
in carbon reduction. In early 2021, we formalised our
commitment to Net Zero carbon emissions across the
Group’s operations by 2040. Recognising the need for
longer-term planning to meet our commitment, in 2022
we began to develop our climate transition plan.
We plan to publish our interim targets in more detail
following rigorous stress testing at site-level to be completed
during 2023. During the reporting period we implemented
quarterly measurement of progress on reducing our
Scope 1 and 2 carbon emissions; this includes tracking
performance against a target set within our refinancing
agreement in 2020 of a year-on-year 3% reduction in our
UK business GHG intensity level.
Our
metrics and targets
Our carbon emissions reporting and measurement
This is our fifth year reporting carbon emissions for
the Group, which includes our three regions: UK, US
and China.
GHG emissions for 2022 have been measured and reported
as required under the Companies Act 2006 (Strategic report
and Directors’ report) Regulations, and the Companies
(Directors’ report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations 2018.
The total gross GHG emissions reported include all
Scope 1 and Scope 2 emissions for the Group. This
covers all sites where Bakkavor has full operational
control. Data has not been collected for sites owned
by Bakkavor but leased to tenants as Bakkavor does
not have oversight or control of this energy usage
and emissions data. The Group’s environmental
management system is based on ISO 14001.
Scope 1 emissions:
Those that directly release GHGs
including fuel consumed by our manufacturing facilities,
offices, warehouses and our vehicle fleet, and releases
of fluorinated gases from our refrigeration plant.
Scope 2 emissions:
Released indirectly from our
consumption of energy sources (electricity and
cooling streams).
Scope 3 emissions:
Indirect emissions that are
associated with the operation of the business that
are not under our direct control.
The methodology applied to the calculation of GHG
emissions is the ‘GHG Protocol Corporate Accounting
and Reporting Standard’. An ‘operational control’
boundary has been applied. Carbon factors from Defra’s
UK Government GHG Conversion Factors for Company
Reporting and the International Energy Agency (“IEA”)
database are used to calculate the GHG emissions,
where they are not separately provided by a supplier.
Emissions are reported as tonnes of carbon dioxide
equivalent (tCO
2
e).
The tables on pg 64–65 show GHG emissions and total
annual energy for both the Group and Bakkavor Foods
Limited (UK) and include the data for our Streamlined
Energy and Carbon Reporting (SECR). For narrative on
the principal measures taken to improve our energy
efficiency, see pg 45.
Bakkavor also discloses to CDP’s climate change
questionnaire. The most recent questionnaire is based
on the 2021 reporting cycle and received a disclosure
score of B – see: www.cdp.net.
Bakkavor Group plc | Annual Report & Accounts 2022 |
63
STRATEGIC REPORT
Greenhouse gas emissions metrics (for the period 1January 2022 – 31 December 2022)
The following tables show annual data for 2022 and prior years for GHG emissions for the Group and our UK business,
Bakkavor Foods Limited.
In 2022 we saw a 16.9% reduction in our gross (location-based) carbon footprint (Scope 1 and 2), and an 18.9% decrease
in our net (market-based) carbon footprint. In addition, the carbon efficiency of our business has improved as our intensity
ratio (gross emissions per £million reported revenue) reduced by 27.3% to 67.3tCO
2
e/£m reported revenue. In the UK,
net emissions reduced by 15.3% and the intensity ratio decreased 22.7% to 55.5tCO
2
e/£m reported revenue.
Greenhouse gas emissions – Group
–
tCO
2
e, for the period 1 January 2022 – 31 December 2022
Bakkavor Group plc
2022
Change
2021
2020
Scope 1: Emissions from combustion of fuel and operation of
facilities
UK
59,855
-14.9%
70,336
83,926
US
8,386
-25.6%
11,264
14,515
China
9,029
-49.1%
17,754
8,418
Total Scope 1 emissions
77,270
-22.2%
99,354
106,858
Scope 2: Emissions from purchased electricity and cooling
UK
39,121
-11.1%
44,012
49,396
US
6,052
-6.8%
6,495
7,583
China
21,592
-7.6%
23,375
20,708
Total Scope 2 emissions (location-based)
66,765
-9.6%
73,881
77,687
Green tariff
32,836
-9.6%
37,544
43,007
Total Scope 2 emissions (market-based)
32,836
-9.6%
36,337
34,680
Total gross (location-based) emissions
144,035
-16.9%
173,235
184,545
Total net (market-based) emissions
110,106
-18.9%
135,691
141,538
Intensity ratio (gross tCO
2
e/£m reported revenue)
67.3
-27.3%
92.6
102.9
Annual energy consumption – Group –
kWh, for the period 1 January 2022 – 31 December 2022
2022
Change
2021
2020
Scope 1 – Energy from combustion of fuel and operation of
facilities including transport (kWh)
338,883,129
-3.9%
352,728,213 391,680,450
Scope 2 – Energy from purchased electricity and cooling (kWh)
257,698,953
-2.8%
265,077,689
269,787,168
Total energy (kWh)
596,582,083
-3.4%
617,805,902
661,467,618
Greenhouse gas emissions – UK
1
–
tCO
2
e, for the period 1 January 2022 – 31 December 2022
2022
Change
2021
2020
Scope 1 emissions from combustion of fuel and operation of facilities
59,855
-14.9%
70,336
83,926
Location-based Scope 2 emissions from purchased electricity
and cooling
39,121
-11.1%
44,012
49,396
Green tariff
33,928
-9.6%
37,544
43,007
Market-based Scope 2 emissions
5,193
-19.7%
6,468
6,389
Total gross (location based) emissions
98,976
-13.4%
114,348
133,322
Total net (market-based) emissions
65,048
-15.3%
76,804
90,315
Intensity ratio (gross tCO
2
e/£m reported revenue)
55.5
-22.7%
71.8
85.1
Annual energy consumption – UK
1
–
kWh, for the period 1 January 2022 – 31 December 2022
2022
Change
2021
2020
Total renewable energy consumption (on-site generated), kWh)
–
–
–
–
Total non-renewable energy consumption (kWh)
501,953,056
-3.8%
521,885,147 573,288,445
Total energy consumption (kWh)
501,953,056
-3.8%
521,885,147 573,288,445
Totals may not reflect sum of values shown due to rounding.
1
Data relates to the UK and UK offshore areas (nil).
ESG: TCFD
CONTINUED
64
| Bakkavor Group plc | Annual Report & Accounts 2022
Scope 3 emissions
Scope 3 indirect emissions are those associated with the
operation of the business that are not under our direct
control. These can range from the production of raw
materials, transport of goods to site, disposal of waste,
manufacturing of packaging, colleague commuting and
business travel, to downstream use and disposal of our
products by retailers and consumers. There are challenges
with accurate data measurement due to a reliance on
secondary sources and being outside our direct control.
Nevertheless, in 2021 we conducted a baseline assessment
of our Scope 3 footprint for our UK business. This helped to:
•
Develop a ‘hot spot’ analysis of our upstream and
downstream climate influence;
•
Inform action plans with our direct suppliers; and
•
Identify priority raw materials for action.
Overall, our Scope 3 emissions represent 91% of our UK
carbon footprint, a proportion that is increasing gradually
as our Scope 1 and 2 emissions are reducing steadily.
We know that the vast majority (94%) of our Scope 3
footprint comes from purchased goods and services.
These are predominantly raw materials and ingredients
such as dairy and meat and also plastic packaging.
This increases the importance of working with our
suppliers and customers to capture more representative
data, understand what can be done to reduce emissions,
and support these efforts.
Enabling the climate transition in our broader
value chains
As a business, our influence on Scope 3 emissions comes
through working closely with our supply chain, which we
do through our Responsible Sourcing workstream, and a
programme of engagement to ensure compliance with our
requirements on environmental and social topics, through
our Supplier Code of Conduct (
READ MORE
on pg 42).
In addition, we address emissions associated with
packaging by:
•
Reducing and removing plastics in our packaging
where possible;
•
Increasing use of recycled content;
•
Ensuring widespread recyclability; and
•
Using certified sustainable sources for card-based packaging.
Bakkavor is also influencing Scope 3 emissions associated
with deforestation and land-use change in an indirect
way through our sustainable sourcing approaches for
the forest-risk raw materials we use – soy, palm oil, beef
and timber used for card packaging. For example, for soy
– used as feed for animal and dairy products – we require
evidence from suppliers that the soy used comes from
an origin with low risk of deforestation or conversion,
or by sourcing through appropriate third-party, company
or regional schemes.
Greenhouse gas emissions – UK – Scope 3 –
tCO
2
e, for the period 1 January 2022 – 31 December 2022
Bakkavor Foods Limited (UK)
Emissions (tCO
2
e)
2022
(UK)
Change
2021
(UK)
2020
(UK)
1.
Purchased goods and services
952,420
-5.1%
1,004,066
925,531
2. Capital goods
11,979
-24.1%
15,789
13,577
3. Other fuel-and-energy-related activities
22,127
-11.5%
24,997
20,593
4.
Upstream transportation and distribution
n/a
1
n/a
n/a
1
141
5.
Waste generated in operations
1,857
-0.9%
1,873
2,990
6. Business travel
n/a
1
n/a
n/a
1
688
7. Employee commuting
16,501
-0.6%
16,594
16,596
8. Upstream leased assets
0
3
n/a
0
3
0
3
9.
Downstream transportation and distribution
n/a
1
n/a
n/a
1
1,281
10. Processing of sold products
0
3
n/a
0
3
0
3
11. Use of sold products
0
3
n/a
0
3
0
3
12. End of life treatment of sold products
13,798
-0.7%
13,901
14,694
13. Downstream leased assets
0
2
n/a
0
2
0
3
14. Franchises
0
3
n/a
0
3
0
3
15. Investments
0
3
n/a
0
3
0
3
Total scope 3 emissions
1,018,682
-5.4%
1,077,220
996,092
Totals may not reflect sum of values shown due to rounding.
1
Following the baseline assessment conducted for 2020, these categories were deemed ‘de minimis’, as they contribute less than 1% of total Scope 3 emissions. They were therefore
excluded from 2021 and 2022 calculations.
2
Due to the unusual impact of Covid on business travel in 2020, data from 2019 was used to provide more representative results.
3
Analysis considered there were no further relevant emissions in this area that are not already covered in the above categories.
Bakkavor Group plc | Annual Report & Accounts 2022 |
65
STRATEGIC REPORT
Section 172(1) statement
The Group Board has a duty under Section 172 of the
Companies Act 2006 (“Section 172(1)”) to promote the
success of Bakkavor. In doing so, its decisions must
have regard for a number of factors:
•
The likely consequences of any decision in the long term;
•
The interests of our colleagues; suppliers, customers
and investors;
•
The impact of our operations on the community and
the environment;
•
The desirability to maintain our reputation for having
the highest standards of business conduct; and
•
The need to act fairly as between members of the Company.
A strong understanding of our stakeholders is crucial to
our value creation, long-term growth and success. We are
committed to continually engaging with our stakeholders,
and incorporating their views and interests when making
key business decisions.
Colleagues
Customers
Suppliers
Investors
Communities
STAKEHOLDER ENGAGEMENT
Building strong relationships
with our
stakeholders
We understand there can be different, and sometimes
conflicting, views across our key stakeholder groups.
We therefore seek to balance competing interests
and respond in a way that maximises value for all.
Section 172 factors
considered in Group
Board discussion on
strategy, including how
they underpin long-term
value creation.
Group’s culture fully
considers the potential
impacts of decisions.
Group Board receives
updates on a timely
basis and assurance
where appropriate.
Group Board ensures
Section 172 factors are
taken into consideration
in its decision-making.
Group Board updated and
informed on the outcomes
of its decisions.
Actions taken as a result
of engagement and dialogue
with stakeholders.
We have identified five relevant stakeholder groups:
Management Board and
Senior Executives receive
training on Section 172 and
Directors’ duties to ensure
awareness of the Group
Board’s responsibilities.
Group Board papers include
table of Section 172 factors
and relevant information.
Stakeholder engagement
activities are recorded,
and detail included in Board
papers where applicable.
Firmly embedding Section 172(1) through the Group Board’s decision-making process:
STEPS TAKEN
BOARD ACTIONS
Information gathering
Decision-making
Strategic discussions
66
| Bakkavor Group plc | Annual Report & Accounts 2022
Our
coeagues
Why we engage:
•
Understand what matters to them and incorporate their
views into our Group Board decision-making.
•
Make our colleagues feel valued so we can achieve our
vision together.
What matters most to them:
•
A safe and inclusive workplace.
•
A voice in the Group’s decision-making.
•
Support and the opportunity to realise their potential.
How the Group Board engages:
•
Discusses Company vision and purpose, culture, talent and
people developments at Group Board.
•
Designated workforce engagement Non-executive Director
holds sessions with the SEF and GEF, and relays colleague
feedback, views and outcomes from these sessions to
Group Board.
•
Understands colleague engagement through review of
Employee Engagement Survey (“EES”) results, and takes
action to address employee feedback.
•
Reviews food safety and health and safety data and updates,
and has oversight of technical strategy to ensure protecting
colleagues remains a priority.
•
Reviews wellbeing initiatives and Inclusion and Diversity
updates, ensuring oversight of support offered to colleagues.
How the Company engages:
•
SEFs and GEFs, Wellbeing Committee, Inclusion and
Diversity Forum.
•
Designated workforce engagement Non-executive
Director’s interactions with colleagues.
•
Group-wide EES.
•
Whistleblowing hotline ‘Speak Up!’.
•
Updates via intranet and internal communications;
Just Made quarterly colleague magazine; and monthly
Trusted Partner newsletter.
How we are responding:
•
Embedding our refreshed values. Included Values
Celebration Week and integrated values into colleague
objectives and appraisals.
•
Enhanced training and development: launched two cohorts
on Female Mentoring Programme, implemented a central
hub of learning content, and over 670 colleagues completed
Front-Line Leaders Development Programme.
•
Recognised and celebrated colleagues through our
Proud to Be Awards.
•
EES response rate up 3% to 86% in 2022 (2021: 83%).
Identified opportunities and focus areas for improvement.
•
Updated commitment to conduct Group-wide EES on an
annual basis (previously 18 months).
•
Implemented pay reviews and wider engagement activities
to support retention and recruitment of talent.
•
Launched new Wellbeing Strategy, appointed Wellbeing
Champions, and ran campaigns to promote inclusive
behaviours and allyship.
•
Sought to further standardise food safety, and health
and safety best practices and risk assessments across
the business.
Our people are the heart of our
business, with over 18,500 diverse
and talented colleagues from over
90 countries.
What we have delivered:
READ MORE:
Our people pg 32.
ESG: Trusted Partner pg 40.
ESG Committee report pg 119.
86%
response rate to
our 2022 EES
>670
colleagues completed Front-Line
Leaders Development Programme
Bakkavor Group plc | Annual Report & Accounts 2022 |
67
STRATEGIC REPORT
STAKEHOLDER ENGAGEMENT
CONTINUED
Our
customers
Why we engage:
•
Build long-term strategic relationships through ongoing
engagement and investment.
•
Understand our customers’ and consumers’ needs
so we can respond to new trends through innovation.
•
Support our mutual business models by a fair
and transparent approach to sharing information.
•
Support our customers’ sustainability goals and ambitions
as part of our Trusted Partner ESG strategy.
What matters most to them:
•
Leverage insight to develop innovative and
great-tasting products.
•
Deliver high-quality products, that meet required technical
and food safety standards, at high service levels.
•
Minimise disruption from industry-wide challenges
across supply chain, inflation and labour.
•
Collaborative approach to deliver progress on
sustainability issues.
How the Group Board engages:
•
CEO engages with key customers on a timely basis and
reports back to Group Board on outcomes. This helps to
maintain strategic relationships, connect with the broader
supply chain community and share expertise and knowledge.
•
Reviews updates on supply chain risk management,
any potential impact on service levels, and opportunities
to collaborate with customers to mitigate the impact.
•
Reviews updates on inflation impact and outlook.
Considers levers to offset pressure, including
pass-through mechanisms, pricing discussions,
productivity improvements and cost control.
•
Considers UK market insight updates to understand
consumers’ needs, and how this is leveraged to inform
category plans and new product pipelines.
•
Reviews market updates on latest developments
and growth opportunities in US and China.
How the Company engages:
•
Daily engagement across development, marketing,
commercial and technical functional teams.
•
Regular engagement from CEO and Customer Directors,
outcomes reported back to Group Board.
•
Online surveys, focus groups and research.
•
Announced and unannounced customer audits.
•
Works collaboratively with customers on shared ESG priorities.
How we are responding:
•
Developed new products to respond to changing consumer
behaviours. This focused on value optimisation in the UK
due to cost-of-living pressures, expansion of our range
of fresh meals in the US, and, in China, collaborating with
plant-based specialists to meet demand for healthier,
more sustainable products.
•
Maintained high service levels, despite ongoing supply
chain disruption and labour pressures, leveraging our
scale and expertise.
•
Maintained status as a high-quality manufacturer,
underpinned by strong food safety and health and
safety metrics.
•
Supported customers through our Trusted Partner efforts,
and delivered progress on key sustainability commitments.
•
Customer-dedicated teams continued to support and
proactively manage relationships.
•
Pass-through mechanisms continued to work effectively
and secured price increases across our cost base to help
mitigate inflation impact.
•
Consolidated UK commercial and development structures
to improve operational efficiency, keep our customer-centric
approach and increase category focus.
We have strategic relationships
across our grocery retail, online,
direct-to-consumer, brand and
foodservice customers.
1,500
new and refreshed
products launched in 2022
100%
of UK sites AA+ and A+
BRCGS grade
What we have delivered:
READ MORE:
Non-financial KPIs pg 4.
Our markets pg 18.
Our strategy pg 22.
ESG: Trusted Partner pg 40.
68
| Bakkavor Group plc | Annual Report & Accounts 2022
Our
suppliers
Why we engage:
•
Source breadth of high-quality raw materials that meet
our standards of food safety and technical integrity,
and support innovation.
•
Maintain continuity of supply of raw materials and to help
manage labour availability.
•
Ensure integrity of supply chain through our responsible
sourcing approach.
What matters most to them:
•
Clarity of forecast requirements to enable delivery on time
and in full.
•
Opportunities to improve, innovate and grow their business.
•
A partnership underpinned by trust and transparency.
•
Fair and open discussions on movements in input costs
and pricing.
•
Collaborative approach to managing the impact of Brexit.
How the Group Board engages:
•
Reviews procurement updates to understand actions taken to
mitigate inflationary headwinds and supply chain disruption.
•
Received Procurement Director update on centralised
category procurement structure and Bakkavor Inbound
Logistics (“BIL”) centre of excellence.
•
Oversight of our Responsible Sourcing strategy,
commitments and progress through ESG Committee
and Group Board ESG sponsor.
•
Board reports include financial updates, with detail of
inflation impact and recovery levers, with CFO providing
additional commentary in Group Board meetings.
•
Engages with CEO and CFO regarding plans to tackle supply
chain issues, inflation and the impact of the Ukraine war.
•
Updated on ‘supply chain’ principal risk developments via
the Audit and Risk Committee.
How the Company engages:
•
Daily engagement via procurement colleagues including
workshops and conferences.
•
Ensures supplier relationships are built on a foundation
of contractual mutual agreement.
•
Agrees terms of supply, regular reviews of performance and
improvement plans.
•
Sets expectations of UK suppliers via the Supplier Code
of Conduct. This is the basis of our Responsible Sourcing
requirements, including human rights, environmental
sustainability and technical integrity.
•
Utilises the Sedex online supply chain platform to monitor
and assess labour practices in our supply chain.
•
READ MORE
on pg 40 for our Responsible Sourcing
commitments across deforestation, Supplier Code of Conduct
and whistleblowing channels.
How we are responding:
•
Leveraged scale, experience and strong customer
partnerships to enhance buying power and mitigate the
impact of industry challenges.
•
Forward-purchasing of certain raw materials and energy
provided good visibility of costs through 2022.
•
Reviewed sourcing plans to build further resilience in our
inbound supply chain.
•
Continued to develop our approach to Brexit-related changes,
including contingency plans particularly in relation to disruption
at ports and trade with Northern Ireland.
•
Worked closely with suppliers to ensure early identification
of potential issues and action to minimise disruption.
•
Worked closely with customers on supply performance,
collaborative buying and cost models.
•
Increased supplier payment facility to provide further
opportunity for suppliers to receive payment early.
•
Continue rolling out our Group Supplier Conduct Policy,
adapting the UK Supplier Code of Conduct to support supply
chain engagement on social issues within the US and China.
Across our well-established global
network of over 1,300 suppliers, we
collaborate closely on supply chain
management as well as responsible
sourcing.
100%
of our UK business’s direct
suppliers registered with Sedex
100%
sustainable sourcing practices
for palm oil, soy in animal feed
and paper packaging
What we have delivered:
READ MORE:
Our strategy pg 22.
ESG: Trusted Partner pg 40.
Risk management and risks pg 76.
Bakkavor Group plc | Annual Report & Accounts 2022 |
69
STRATEGIC REPORT
STAKEHOLDER ENGAGEMENT
CONTINUED
Our
investors
Why we engage:
•
Share our vision, purpose and strategy, and demonstrate
how we create value.
•
Establish an effective channel of communication
with existing and potential shareholders to understand
their priorities.
What matters most to them:
•
Long-term sustainable profitable growth to
underpin returns.
•
Being kept up-to-date on the latest developments,
challenges and opportunities within the business.
•
Fair, balanced and understandable reporting.
•
Understanding the business’s exposure and plans
in relation to ESG issues, including climate risks.
How the Group Board engages:
•
Regular engagement by CEO and CFO with investors
to gather feedback across governance, performance
and strategy.
•
Chairman actively seeks to engage with shareholders.
Senior Independent Director and Committee Chairs
available for direct meetings where required.
•
Attends the Annual General Meeting (“AGM”).
•
Reviews updates on shareholder and analyst feedback,
and shareholder register composition.
•
Receives updates and feedback from brokers on wider
investor sentiment, how the market views Bakkavor and
areas of focus.
•
Approves all financial results: full and half-year results,
Annual Report and Accounts, and trading updates.
•
Oversees the Group’s allocation of capital, including
dividend payments and leverage targets.
•
Reviews regular updates on Trusted Partner ESG
strategy, commitments and progress.
How the Company engages:
•
Investor meetings, calls, conferences and events
attended by CEO, CFO and Head of Investor Relations.
•
Welcomes queries from shareholders via phone,
post, email or via brokers.
•
Updates relevant shareholder communications via
bakkavor.com, includes Annual Report and Accounts,
financial results releases, share price information,
other RNS and press releases.
•
Reports on the TCFD and the Carbon Disclosure Project.
How we are responding:
•
Released full-year, half-year and two quarterly trading
updates to update on business performance and outlook.
•
70 meetings with investors and analysts in 2022, attended
by CEO, CFO and Head of Investor Relations.
•
Invited shareholders to attend the 2022 AGM.
•
Investor engagement key themes: supply chain disruption
and inflation impact; UK volume outlook; labour availability;
strength of balance sheet position; dividend policy;
international growth opportunities; and ESG initiatives.
•
Clear strategy in place with decisive actions taken to protect
profits against persisting headwinds.
•
Final 2022 dividend of 4.16 pence per Ordinary share
approved by Group Board, taking the total dividend to
6.93 pence.
•
Strong balance sheet with 1.9 times leverage maintained
within medium-term target range.
•
Regularly engaged with analysts to discuss business
performance, guidance and review of financial models.
•
Reported under TCFD requirements and expanded
disclosure to Carbon Disclosure Project (Forests and
Water questionnaires).
Regular shareholder engagement
is important; to capture feedback,
respond and promote their interests,
and ultimately deliver value.
What we have delivered:
70
meetings and conferences
with investors and analysts
1.9x
leverage in 2022,
within target range
READ MORE
on pg 98.
70
| Bakkavor Group plc | Annual Report & Accounts 2022
Our
communities
Why we engage:
•
Be a trusted partner by upholding our high standards
and capability to operate responsibly.
•
Support local economic development by creating jobs
and supporting local services.
•
Remain an employer of choice in our local communities;
attract and retain the best talent.
What matters most to them:
•
A business that acts with integrity and operates in a safe,
responsible and sustainable way.
•
A reduction in environmental impact, including improvements
in food waste, carbon emissions and packaging.
•
Support for local community initiatives and provision
of economic opportunities for local people.
•
A business that looks after the health, safety and wellbeing
of its colleagues.
How the Group Board engages:
•
Oversight of our Trusted Partner ESG strategy,
commitments and progress through the ESG Committee
with updates provided to the Group Board and from the
CFO (Group Board sponsor for ESG).
•
Considers climate-related issues alongside the long-term
strategy of the Group, which informs investment decisions.
•
Oversight of the climate transition plan.
•
Reviews and considers community initiatives, how we
are delivering on these and their progress, including our
charity partnerships.
How the Company engages:
•
Supports local communities across charities, schools,
sports teams and projects through fundraising, donations,
volunteering and educational activities.
•
Establishes Group charity partnerships and fundraises
for these with a charity events programme.
•
Undertakes food redistribution, via partners and colleague
outreach with charities.
•
Provides employment opportunities, including
apprenticeships and graduate placements, via use of agencies.
How we are responding:
•
In 2022, food waste reduced by 110 basis points to 8.05%
and Group net carbon emissions reduced by 18.9%.
READ MORE
on pg 40 for detail on our commitments,
progress and activities across sustainability and
engagement and wellbeing.
•
Industry-leading early careers programmes; TheJobCrowd
Top Company for Apprentices to work for in consumer
goods and FMCG and second place for our graduate scheme.
•
£125,880 of charitable donations in 2022, including to our
Group charity partners GroceryAid and Natasha Allergy
Research Foundation.
We operate from 45 sites across the UK,
US and China and recognise we need to
act responsibly and be a trusted partner
to our local communities.
What we have delivered:
280
apprentices in our
award-winning
apprenticeship programme
>630
tonnes of product
donated to redistributors
and local charities
READ MORE:
Our people pg 32.
ESG: Trusted Partner pg 40.
ESG: TCFD pg 56.
Bakkavor Group plc | Annual Report & Accounts 2022 |
71
STRATEGIC REPORT
We delivered a solid performance
in tough conditions. Our balance
sheet strength and clear plan to
protect profits mean we are well-
placed to deliver on our strategy.
— Ben Waldron, Chief Financial Officer
and Asia Chief Executive Officer
FINANCIAL REVIEW
72
| Bakkavor Group plc | Annual Report & Accounts 2022
Revenue
£m
2022
53 weeks
2021
52 weeks
Change
reported
Change
like-for-
like
(“LFL”)
Revenue
2,139.2
1,871.6
14.3%
10.6%
Group revenue increased 14.3% to £2,139.2m (2021: £1,871.6m).
LFL revenue, which excludes the benefit of the 53rd week and
is at constant currency, was up 10.6% to £2,069.0m. Of this
growth, 9.2% was price and 1.4% volume.
UK reported revenue was up 12.0% to £1,783.1m (2021:
£1,592.4m), and up 10.0% on a LFL basis to £1,752.3m. This
was primarily driven by price increases to mitigate significant
inflation seen across our cost base, and some volume growth
in the first part of the year. US reported revenue increased
41.8% to £255.3m (2021: £180.1m), and of this increase
£25.5m reflected the currency impact of a weaker Sterling.
LFL revenue was up 25.6% to £226.2m (2021: £180.1m), driven
by strong volume growth from our existing customers
combined with pricing action taking effect in the second half
of the year. In China, reported revenue increased by 1.7%
to £100.8m (2021: £99.1m), with the benefit of currency
more than offsetting the decline in volume due to the
impact of Covid through the year. LFL revenue was down
8.6% to £90.5m (2021: £99.1m), however, this full-year result
masks volatility in revenue movements with significant
volume declines during months of severe regional lockdowns,
offset by volume recovery as restrictions eased.
Operating profit
Adjusted operating profit decreased by 12.4% to £89.4m
(2021: £102.0m). Whilst it is disappointing to see a reduction
in profit of £12.6m, this was against a backdrop of £230m
of inflation. Adjusted operating margin at 4.2% was down
120 basis points (2021: 5.4%).
In the UK, adjusted operating profit was down 5.2%
at £92.7m, as whilst we have been successful in price
recovery with customers, along with driving operational
efficiency and tight cost control, this has not fully offset
the impact of significant inflationary pressure across the
cost base. In the US, adjusted operating profit of £3.3m
was down 62.9% on 2021. This was driven by the impact
of cost inflation and a lag in pricing recovery, combined
with operational disruption from onboarding significant
volume growth in the first nine months of the year, and
in November 2022, the withdrawal of volume from a
single site due to a contractual dispute. China’s adjusted
operating loss increased by £1.9m to £6.6m. This was
due to severe regional lockdowns which heavily impacted
volumes and reduced efficiency, particularly in the first
half of the year, and again in the final few weeks of the year
as Covid began to spread rapidly across the population.
Robust
performance and in a position
of financial strength
Operating profit decreased by 62.9% to £37.8m (2021:
£102.0m), with margins down 360 basis points at 1.8%.
Operating profit is after a pre-tax exceptional charge of
£50.1m and £1.5m of costs incurred in the year associated
with the configuration and customisation of software
as a service (“SaaS”) projects, treated as an Adjusting item.
Exceptional items
Exceptional items, excluded from adjusted operating
profit, comprise:
£m
2022
2021
Corporate restructuring costs
5.3
–
UK site closures:
– Closure costs
11.8
–
– Impairment charge
19.5
–
Investment in associate impairment
9.7
–
US customer contractual dispute
impairment
3.8
–
Total exceptional items
50.1
–
In 2022, the Group incurred an exceptional charge of £50.1m.
Of this, £17.1m relates to cash 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. The majority of this cash cost will be
incurred in 2023. There is a non-cash impairment charge
of £19.5m, of which £19.3m relates to fixed assets at the
two sites due to close and £0.2m impairment of intangible
assets for one of the businesses. 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 and reduced tourism 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. Of the total
exceptionals, £19.3m is cash costs, with £2.5m incurred
in FY22 and the balance of the outflow to come in FY23.
Finance costs
Group profit before tax was £18.1m (2021: £81.4m),
which includes finance costs of £20.8m in 2022, up 21.6%
on 2021 (2021: £17.1m). This increase was driven by rising
interest rates during 2022, partially offset by the voluntary
repayments of £37.5m of our more expensive debt in April
and September 2021 (previously due to mature in June 2024).
Bakkavor Group plc | Annual Report & Accounts 2022 |
73
STRATEGIC REPORT
FINANCIAL REVIEW
CONTINUED
The interest cost on the Group’s bank facilities is SONIA
plus a margin. To hedge against movements in SONIA the
Group has £150m of fixed rate interest swaps for SONIA
in place until March 2024, at an average rate of 37 basis
points, and has continued to closely monitor its interest rate
exposure. In July 2022, the Group put in place a further
£30m of fixed rate interest swaps for SONIA from March
2024 until March 2026, at an average rate of 233 basis
points. The Group’s cost of debt at the end of 2022 was
c.3.9% per annum and is expected to increase further,
to c.5% in FY23, given the recently announced increase
in UK interest base rates.
Tax
The Group’s profit after tax was £12.5m (2021: £56.8m).
The Group tax charge for 2022 decreased by £19.0m to
£5.6m (2021: £24.6m). The charge represents an effective
tax rate of 30.9% on profit before tax of £18.1m. The
underlying effective tax rate was 21.5% (2021: 29.7%),
which excludes exceptional and Adjusting items. The
effective rate is 2.5% higher than the UK statutory tax
rate of 19% mainly due to the effect of non-deductible
expenses, overseas tax losses not recognised in deferred
tax and the impact of a change in the UK corporation
tax rate to 25%. The latter reflecting the government
announcement that UK corporation tax will increase to
25% effective from 1 April 2023, being the rate at which
timing differences are expected to reverse. This does not
impact current taxes. We expect the effective tax rate for
2023 to increase slightly above the enacted UK corporation
tax rate, 25%, given the UK is where we pay the majority
of our corporate taxes.
£m
53 weeks
ended
31 December
2022
52 weeks
ended
25 December
2021
Profit before tax
18.1
81.4
Tax charge at UK corporation
tax rate of 19% (2021: 19%)
3.4
15.5
Net non-deductible expenses/
(non-taxable income)
(1.2)
(1.8)
Non-deductible impairment
of investment
1.8
–
Adjustment in respect of
prior periods
(0.3)
1.5
Other reconciling items
1
1.9
9.4
Tax charge for the period
5.6
24.6
Add: Tax credit on exceptional
items
9.1
–
Tax charge excl. exceptional
items
14.7
24.6
Add: Tax credit on adjusting
items
0.3
0.8
Underlying tax charge
15.0
25.4
Effective tax rate on
underlying profit before tax
of £69.8m
(2021: £85.4m)
21.5%
29.7%
1
Other reconciling items – see Financial Statements Note 11.
Earnings per share
Basic earnings per share (“EPS”) decreased from 9.8 pence
in 2021 to 2.2 pence in 2022. This was primarily driven by
the impact of the exceptional costs which totalled £50.1m.
Adjusted EPS, which excludes the impact of exceptional
and adjusting items and the change in fair value of
derivative financial instruments, decreased by 0.9 pence
to 9.5 pence in 2022. This decrease was driven by lower
adjusted operating profit, which was partly offset by a
reduction in tax charges. The weighted average number
of shares in issue (used to calculate adjusted EPS) during
2022 was 577,575,716 (2021: 579,425,585), and decreased
on 2021 due to the purchase of the Group’s Ordinary shares
through an Employee Benefit Trust (“EBT”) to satisfy share
awards under the Group’s share scheme plans.
Cash flow
Net cash from operating activities decreased by £16.9m to
£127.1m in 2022 (2021: £144.0m). This was mainly due to the
lower adjusted operating profit. Working capital, excluding
movements in exceptionals, was slightly lower than the
prior year due to the 53rd week in 2022. The cash impact
of exceptional items in 2022 was £2.5m (2021: £1.2m).
Net cash used in investing activities increased by £8.8m
to £63.7m in 2022 (2021: £54.9m). This was driven by
an increase in capital expenditure in 2022, primarily the
strategic investment in the US, and is against a softer
comparative with investment in 2021 delayed to mitigate
against the impact of Covid restrictions.
Free cash flow was an inflow of £66.8m, £24.4m lower
than the prior year due to the factors set out above.
£m
53 weeks
ended
31 December
2022
52 weeks
ended
25 December
2021
Operating profit
37.8
102.0
Exceptional and Adjusting items
51.6
–
Adjusted operating profit
89.4
102.0
Depreciation and other items
69.1
66.1
Net retirement benefits
charge less contributions
(2.2)
(1.4)
Working capital
(excl. exceptionals)
(1.7)
3.6
Interest, share scheme
settlements and tax paid
(24.1)
(24.2)
Dividends received from
associates & interest received
0.2
0.7
Purchases of property, plant
and equipment (net)
(61.0)
(55.6)
Purchases of intangible assets
(2.9)
–
Free cash flow
66.8
91.2
74
| Bakkavor Group plc | Annual Report & Accounts 2022
Capital allocation
We maintain a disciplined approach to capital allocation,
with the overriding objective to enhance shareholder
value. In 2022, we allocated our free cash inflow of £66.8m
across debt reduction (£8.8m) to support the maintenance
of leverage and dividends (£38.8m). To satisfy share
awards under the Group’s share scheme plans, £3.1m
was spent to purchase the Group’s own Ordinary shares
through an EBT. The balance of cash was allocated across
IFRS 16 payments, refinancing fees, exceptional items and
foreign exchange.
Debt reduction
Dividend
EBT
Other
1
£8.8m
£38.8m
£3.1m
£16.1m
Free cash flow
£66.8m
1
Other includes IFRS16 payments, refinancing fees, exceptional items and foreign exchange.
There were no acquisitions in the year, but we continue to
consider these where they are a strategic fit for our business.
In the medium-term, we remain committed to investing
to enhance returns, maintaining leverage within the target
range of 1.5 to 2.0 times.
Investment and returns
Group ROIC was 7.1% for the 12 months to 31 December
2022, compared to 7.2% in the prior year. This reflects the
year-on-year decrease in adjusted operating profit after
tax, with underlying trading performance down, partly offset
by the reduction in effective tax rate. There was also a marginal
decrease in average invested capital, as the Group has
maintained a tight control of capital spend thereby limiting
the increase in invested capital.
READ MORE
on key
projects in the divisional reviews on pg 36–39.
Over the medium-term, the Group expects to see an
improvement in ROIC as recent investments, including the
key strategic projects, deliver an increase in returns. With
the Group’s enhanced focus on managing cash, we expect
the level of capital investment to reduce on the prior year
at c.£50m.
Debt and leverage
Operational net debt decreased £8.8m to £284.9m.
Leverage (the ratio of operational net debt to adjusted
EBITDA) was maintained at 1.9 times at December 2022
and is within the Group’s target range of 1.5–2.0 times.
The Group’s liquidity position remains strong with
headroom of over £200m against debt facilities of £486m,
and comfortable headroom against all financial covenants.
From a debt maturity perspective, on 1 March 2022, the
Group extended the maturity date of £430m of its core
debt facilities from March 2025 to March 2026.
Dividend
During the year, the Group paid £22.8m in respect of the
final dividend for FY21 and £16.0m for the interim dividend
declared in September for FY22.
The strength of our balance sheet and cash generation
supports our long-term growth aspirations and commitment
to delivering returns to shareholders. We propose a final
2022 dividend of 4.16 pence per Ordinary share, resulting
in a total dividend for 2022 of 6.93 pence per Ordinary
share. This represents an increase of 5% on 2021 and is
in line with the interim dividend announced in September
2022. If approved by shareholders, the final dividend will
be paid on 5 June 2023.
Pensions
Under IAS 19 valuation principles, the Group recognised
a surplus of £12.8m for the UK defined benefit scheme as
at 31 December 2022 (26 December 2021: £37.2m surplus).
The decrease in value of plan assets of c.£127m was as a
result of volatile markets due to the wider macro-economic
environment and this was more than the decrease in
the defined benefit obligation arising from the gilt yield
increases despite the liability hedging that is in place.
As a result of the volatility in the gilt markets at the end
of September and in early October, the scheme Trustees
asked the Group 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 to meet this collateral requirement and, following
changes to the scheme’s investments, the line of credit
was fully repaid by the end of the year.
The Group and the Trustee agreed in November 2020 the
triennial valuation of the UK-defined benefit pension scheme
as at 31 March 2019. This resulted in a funding shortfall of
£11.7m, which will be paid over an agreed recovery period
ending on 31 March 2024, with payments of £2.5m per
annum. The Group is currently in discussions with the
Trustee in respect of the latest triennial valuation as at
31 March 2022 and the associated updated funding plan.
Summary
The Group delivered a solid performance against a tough
backdrop. Strong revenue growth reflected our success
in taking pricing action to offset significant inflationary
pressures, and Group adjusted operating profit was in
line with market expectations. We exit the year in a strong
financial position, with leverage within our target range,
financing in place through to FY26 and a good level of
protection against interest rate rises. Whilst macro-
headwinds are expected to persist through 2023, our
balance sheet strength, combined with our clear plan
to protect profits, provide the strong foundations from
which we can continue to deliver on our strategy and
deliver for our customers, colleagues and shareholders.
Ben Waldron
Chief Financial Officer and Asia Chief Executive Officer
7 March 2023
Bakkavor Group plc | Annual Report & Accounts 2022 |
75
STRATEGIC REPORT
Overview
Our risk management process is designed to support
the delivery of our Group strategy and provide long-term
sustainable value, whilst protecting the interests of our
stakeholders and safeguarding our colleagues, finances
and reputation. We have an established risk management
framework to identify, assess, mitigate, monitor, report
and escalate the risks our business faces. This helps
strike the balance between risk and opportunity.
Our approach to risk management
The Group Board is responsible for effective risk management
and understands the need for a robust system of internal
control and risk management framework in accordance
with the 2018 UK Corporate Governance Code (“the Code”).
READ MORE
on pg 122.
The Group Board responsibilities include:
•
Identifying and managing key strategic and emerging risks
in the current year and in the future to support the Group
in delivering its strategic objectives.
•
Reviewing and approving the ongoing risk management
process. This includes the internal control system,
risk management framework, policies and procedures
that outline what can be considered an acceptable level
of risk for an estimated level of return.
•
Setting the risk appetite on an annual basis.
•
Maintaining a formal Risk Register. This identifies:
–
The principal risks faced by the Group;
–
The likelihood of their occurrence;
–
The potential impact on the Group; and
–
The key mitigating actions used to address them.
•
Ownership of each principal risk is assigned to a Senior
Executive. The Risk Register also outlines how we plan to
minimise future probable risks through Bakkavor’s policies
and procedures, Code of Conduct and business ethics. It is
updated on a quarterly basis, reviewed by the Audit and Risk
Committee (“A&RC”), and subsequently the Group Board.
The A&RC reviews and reports to the Group Board on the
effectiveness of the Group’s risk management process and
internal control system. This is delivered through regular
review of:
•
Reports received from the Management Board,
Risk Committees and Senior Executives;
•
The output of internal audit work performed by our external
adviser, KPMG;
•
The output of external audit work performed by our
External Independent Auditors, PwC, relating to financial
controls; and
•
Advice from other experts and advisers.
These reports provide detail on current and emerging
risks related to business activity, internal controls’
effectiveness in dealing with these risks, and an update
on how approved mitigating actions are being implemented.
The Group’s policy is to identify, assess and monitor the
Group’s principal and emerging risks, whilst managing
and responding appropriately. Our risk management
framework incorporates both a top-down approach to
the identification of the Group’s principal risks, and a
bottom-up approach identifying operational risks.
Where new risks are identified and/or existing or emerging
risks evolve, action plans are developed or adjusted
to mitigate each risk, and include clear allocation of
responsibilities and timescales for completion. These
actions will be subject to the level of appetite determined
by the Management Board, reviewed by the A&RC, and
subsequently approved by the Group Board. Progress
towards implementing these plans is monitored on a timely
basis and reported on in the quarterly Risk Committee
meetings, with the output reported to the Group Board
through the A&RC.
Our risk appetite
The Group Board reviews and sets its risk appetite for
each of the principal risks on an annual basis. This helps
to provide clear boundaries on the acceptable level of risk,
and influence our decision-making, to support the delivery
of our strategic objectives.
The Group’s approach is to minimise exposure to reputational,
financial and operational risk, whilst accepting a risk/
reward trade-off in supporting the delivery of its strategic
objectives. As a producer of fresh food, food safety and
integrity are of paramount importance, and the Group
Board has a low appetite for risks which may impact this
area, with all practical efforts made to mitigate them.
Another area of low-risk appetite is in relation to health
and safety. As a large employer, ensuring the health and
safety of our colleagues is key; we take all practical
precautions to protect people during the time they are on
our sites and ensure compliance with laws and regulations.
In making strategic investment decisions there is a
trade-off between risk and reward. We take a measured
approach, and believe that we are well-placed to take
advantage of opportunities and maximise risk-adjusted
return, whilst minimising the potential risk exposure.
All material strategic investment decisions are reviewed
and assessed by the Management Board and the Group
Board. These decisions are supported by detailed analysis
and documentation, as well as expert input as required,
to ensure that the risks associated with each opportunity
and its execution plan are well-understood and accepted.
Our approach to
risk
A process that underpins the sustainable delivery
of our strategic objectives
RISK MANAGEMENT AND RISKS
76
| Bakkavor Group plc | Annual Report & Accounts 2022
• Reports to the Group Board on the effectiveness of the risk management process and internal
control system.
• Delivers regular reports from the Management Board, Risk Committees and Internal and
External Auditors.
• Maintain the Group Risk Register by assigning individual principal risks to relevant parties.
• Manage and monitor owned risks through timely review.
• Escalate additional risks and the evolution in existing or emerging risks to their respective
committee for review.
Functional heads provide regular risk assessments to the Management Board, A&RC and
Group Board. Areas cover health and safety, food safety, ESG, HR, finance, legal and IT.
External parties also perform audits and report to Senior Executives. Includes: British Retail
Consortium (“BRC”) unannounced and announced audits of food safety across our UK sites;
equivalent audits by US Department of Agriculture (“USDA”) and Food and Drug Administration
(“FDA”) in the US; and other subject matter experts across insurance, property, health and
safety, fire safety and cyber.
• Ensures the effective identification and management of key strategic and emerging risks.
• Reports to the A&RC on the outcomes of the Corporate and Regional Risk Committee reports
on a quarterly basis.
• Report directly to the A&RC.
• Agreed annually, with input from the Group
Head of Risk and CFO.
• Aligned with the Group Risk Register to provide
assurance and recommendations on
compliance with Group policies and procedures.
• Supported by KPMG and other internal experts.
• Report directly to the A&RC.
• Provided by PwC as independent assurance
over the Group’s Financial Statements to
ensure they are:
–
Presented fairly in all material respects;
–
Prepared in accordance with the
relevant standards and regulations.
GROUP BOARD
MANAGEMENT BOARD
SENIOR EXECUTIVES AND OTHER MANAGEMENT
INTERNAL AUDIT
EXTERNAL FINANCIAL AUDIT
Underpinned by our risk management process
AUDIT AND RISK COMMITTEE
• Perform a quarterly review of the Group’s principal and emerging risks outlined in the Group
Risk Register.
• Provide a summary of the changes to the Management Board.
• Chaired by Group Head of Risk with Senior Executive and Management Board representation.
CORPORATE RISK
COMMITTEE
UK RISK
COMMITTEE
US RISK
COMMITTEE
CHINA RISK
COMMITTEE
Our risk management process and framework
TOP-DOWN APPROACH
Identification of the Group’s
principal risks
BOTTOM-UP APPROACH
Identification of operational risks,
including food safety, health and
safety and property risks.
Day-to-day reporting to Senior
Executives on key performance
indicators and audit conclusions.
IDENTIFY
key risks
ASSESS
the potential impact
and likelihood
MITIGATE
using appropriate
controls and
management actions
MONITOR
the potential for internal
and external changes to
risks and the continued
efficacy of controls
REPORT & ESCALATE
regularly and proactively
to the Regional Risk
Committees, Group Risk
Committee and A&RC
Bakkavor Group plc | Annual Report & Accounts 2022 |
77
STRATEGIC REPORT
5
7
4
8
11
6
3
14
9
13
12
1
2
15
10
Our principal risks
The principal risks are consistent with those reported in
the 2021 Annual Report and Accounts. The risk profile has
changed for seven principal risks, as shown in the risk
assessment map below.
READ MORE
on our principal risks
on pg 79–86, including: risk description and mitigations;
link to our Group strategy; and key developments in 2022.
Emerging risk
As part of our risk assessment process, both top-down
and bottom-up, we seek to capture and monitor emerging
risks which have the potential to adversely impact it in
the future. Their potential effects on the delivery of our
strategy are considered at our regular risk reviews, using
horizon scanning inputs from both internal and external
sources. Emerging risks of particular note are:
•
Ongoing inflation in our supply chain, including increasing
energy costs;
•
Resistance from retailers to accept further price increases
to recover inflation; and
•
Elasticity of consumer demand in response to higher prices.
Risk assurance
Risk assurance is delivered using the ‘four lines of defence’,
which comprise:
•
Operational management:
Responsible for direct
assurance at the business level including monitoring
of management controls, key performance indicators
and self-assessment;
•
Central functional teams:
Develop policies and procedures,
train and audit the operational teams. Their work is
supplemented by our third line of defence, independent audits;
•
Internal and other independent audits:
Performed on key
risks, with our Internal Audit outsourced to KPMG, and other
independent audits from food safety and health and safety
experts, announced and unannounced customer audits,
insurance audits and professional property advisers; and
•
Regulatory audits:
BRC food safety audits, regulatory
bodies (including but not limited to: Environmental Health
and Trading Standards; Health and Safety Executive;
FDA; USDA) and external financial audits, performed
by our External Auditors PwC.
Internal control system
The internal control system provides the structure and
an ongoing process for risk management. This helps
provide assurance to Senior Executives and operational
management that processes have been implemented
effectively to manage operational risk. The system is
designed to manage rather than eliminate all risks.
This is combined with a central governance framework
which supports the business through Group-wide policies,
procedures and training. Operational management is
responsible for implementing procedures and monitoring
of controls with key risk indicators. We outsource our
Internal Audit to KPMG, which offers independent
assurance over the effectiveness of these controls.
Risk assessment map
Principal risks
Likelihood
(after mitigation)
Business impact
(after mitigation)
1.
Consumer behaviour and demand
2.
Competitors
3.
Strategic growth and change
programmes
4.
Reliance on a small number
of key customers
5.
Food safety and integrity
6.
Health and safety
7.
Supply chain
8.
Availability, recruitment and
retention of colleagues
9.
Brexit disruption
10.
Covid pandemic
11.
IT systems and cyber risk
12.
Climate change and sustainability
13.
Disruption to Group operations
14.
Treasury and pensions
15.
Legal and regulatory
Risk trend
2022
Risk movement; December 2021 to December 2022
Increased
Decreased
Unchanged
RISK MANAGEMENT AND RISKS
CONTINUED
Risk trend
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| Bakkavor Group plc | Annual Report & Accounts 2022
Principal risks
and uncertainties
Consumer behaviour and demand
Link to our strategy
Risk trend
Risk description
Changes in consumer demand and food consumption
may impact the Group. This could be driven by a significant
change to the economy as well as changes in consumer
attitudes, for instance, cost-of-living concerns, sustainability
and health.
Risk mitigation
• Work closely with customers to adapt to changing consumer
trends, such as dietary changes, sustainability concerns and
the impact of cost-of-living pressures.
• Leverage insight gathered from market data analysis,
consumer surveys/feedback and industry reports to inform new
and existing product development to meet consumers’ needs.
• Draw on a well-established global supply chain to source
a wide range of ingredients to help drive innovation.
• Ensure integrity of supply chain and the quality of raw
materials through our Responsible Sourcing approach.
Developments in 2022
Understanding how consumers are changing their
behaviours, particularly in response to cost-of-living
pressures, is more important than ever. We have been
agile in our approach, tailoring how we respond across our
categories and to the different consumer profiles of our
customers, to deliver value without compromising quality.
We also continue to seek to leverage our capability and
attract new consumers to our categories. It is pleasing to
see our ‘The Delicious Dessert Company’ brand performing
strongly – it is now the fifth largest chilled dessert brand.
We also launched a range of ready meals under the Quorn
brand to respond to the growing demand for meat-free/
vegan products, and have launched new products and meal
deal offers under our Pizza Express range.
READ MORE
on the market trends and how we have
responded on pg 18.
Increased
Decreased
Unchanged
Risk trend
UK: Drive returns by leveraging our UK
number one market position
INTERNATIONAL: Accelerate profitable
growth in the US and China
EXCELLENCE: Deliver superior performance
through operational excellence
TRUST: Be a trusted partner for our people,
customers, suppliers and communities
Link to our strategy
Bakkavor Group plc | Annual Report & Accounts 2022 |
79
STRATEGIC REPORT
Competitors
Link to our strategy
Risk trend
Risk description
Increased price competition and/or product, operational and
technical developments in our direct and/or our customers’
competitors could adversely impact the Group, resulting in
loss of market share.
Risk mitigation
• Maintain well-established, multi-level relationships with
key customers.
• Provide strong market/consumer insight, innovation, product
and category expertise.
• Uphold a reputation for high-quality food safety and health
and safety, service levels and overall scale.
• Monitor customer performance and trends on a regular
basis with joint business plans in place.
• Focus on operational excellence to drive efficiency and
advance operational and technical capabilities.
Developments in 2022
We have continued to partner with our customers, and
worked openly and collaboratively against a challenging
macro-backdrop. We have leveraged our deep consumer
insight to inform our category plans and adapt our ranges
to meet consumers’ changing needs. Combined, this has
supported an increase in our market share in the UK,
as well as continuing to drive growth in the US.
Our internal levers to drive efficiency and leverage our
well-established supply chain have been pivotal in helping
mitigate the impact of significant inflationary headwinds.
We have taken decisive action to protect profits, and better
leverage our cost base. This has seen us consolidate our
footprint in the UK, with the closure of two sites; consultation
has completed, and the sites are due to close by the end of
Q1 2023.
Strategic growth and change programmes
Link to our strategy
Risk trend
Risk description
Investments in capital, resource and organisational change
based on forecast financial returns are by their nature
uncertain. Climate change, in terms of acute and chronic
risks, also has the potential to impact future investments.
Risk mitigation
• Leverage the Group’s Capital Allocation Policy to balance
spend across capital expenditure, acquisitions and disposals,
debt reduction and dividends.
• Maintain robust and standardised processes for evaluation
and approval of capital expenditure, outlined in our Capital
Expenditure Policy.
• Track and report regularly to the Management Board and
Group Board on performance of significant projects against
forecast metrics.
Developments in 2022
Against a challenging backdrop, the Group has taken decisive
action to protect profits, resulting in changes to our UK
operations and organisation structures. Off the back of
efficiency gains and capacity enhancements, we have taken
action to better leverage our cost base and consolidate our
UK footprint with the closure of two sites. To streamline
our structure, we have aligned our UK business around two
sectors, Meals and Bakery, and moved to functional
reporting for our HR and Finance teams.
We have been targeted in our approach to capital expenditure,
focusing on our strategic projects and those that support
efficiency improvements. As part of the actions we are
taking to protect the business, we have reviewed our capital
plans and, where necessary, re-prioritised or reduced.
In the UK, we remain committed to our strategic investment
to enhance productivity and increase capacity at our Bakkavor
Bread Crewe site on track to commission in H2 2023.
In China, despite delays due to Covid, our new replacement
site in Xi’an was commissioned with production transferred
in November 2022.
Investment to integrate all HR systems into one platform,
SuccessFactors, is underway.
READ MORE
on pg 35.
RISK MANAGEMENT AND RISKS
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| Bakkavor Group plc | Annual Report & Accounts 2022
Reliance on a small number of key customers
Link to our strategy
Risk trend
Risk description
We work with a select number of customers in each of our
markets. The loss of any of these customers, significant
changes in commercial terms, and/or reputational damage
could result in a significant impact on the Group’s results.
Risk mitigation
• Maintain well-established multi-level relationships with
key customers.
• Provide strong market/consumer insight, innovation, product
and category expertise.
• Uphold a reputation for high-quality food safety and health
and safety, service levels and overall scale.
• Operate a strategic partnership model and focus resource
on our four largest customers in the UK.
• Provide customer-dedicated teams to support and
manage relationships.
Developments in 2022
We have continued to strengthen our key customer
relationships through 2022, supporting them during this
challenging period. In the UK, we further consolidated our
commercial and development structures; this enabled us
to improve operational efficiency, keep our customer-centric
approach and increase our category focus.
In the US, we have built on our existing relationships,
expanded our product ranges and increased penetration,
as well as securing the national supply of a range of ready
meals to one of our strategic customers. We have, however,
been in a contractual dispute with a customer at one site
since November following the publication of findings from a
routine inspection by the FDA (see ‘Food safety and integrity’
principal risk for further detail).
In China, we have continued to make progress against our
strategy of diversifying our channels; retail now comprises
almost 20% of revenue and is up over 60% year-on-year.
Food safety and integrity
Link to our strategy
Risk trend
Risk description
Whilst it is our duty to make sure food is safe and clearly and
correctly labelled, there are still risks of product contamination.
This could affect consumer confidence, breach the trust of our
customers, and lead to product withdrawal or recall, which could
result in financial and/or reputational impact. Global supply chain
disruption, pressure from shortages, and Covid restrictions
in China increase the risk of product adulterations.
Risk mitigation
• Maintain industry-leading standards of food safety.
Includes traceability procedures and processes, overseen by
experienced central Technical function, and clear approach to
Responsible Sourcing under our Trusted Partner ESG strategy.
• Use Hazard Analysis Control Point principles at all sites to
identify and control food safety risks, with colleagues trained
in these procedures.
• Monitor performance against established food safety metrics,
managed via a team of technical/food safety experts at each
site. Report metrics on a monthly basis to Management Board
and Group Board.
• Conduct regular audits against recognised global food
safety standards by our internal central Technical team, and
independent bodies on an announced and unannounced basis.
• Perform regular industry-leading allergen testing to monitor
our controls and raw materials at the Spalding laboratory.
• Continue to monitor emerging issues, in conjunction with
other industry players, to ensure increasing compliance
requirements are met, and to share information and take
practical action around specific emerging risks.
Developments in 2022
The return of more normal working conditions in the UK and US
following periods of Covid-related lockdowns, combined with
a reduction in previously elevated levels of staff absence, has
lowered the risk level; this is supported by our Internal Audit
results. However, the findings from a routine inspection by the
FDA at one of our US sites mean that, overall and at a Group
level, the risk associated with food safety is unchanged. All
of the recommendations from the FDA inspection have been
implemented. Furthermore, we have expanded our food safety
team to ensure we keep pace with supply challenges and the
increasing volumes being manufactured by our US business.
Due to ongoing international and local travel restrictions
in China, we have introduced regular video-based audits
of each of our factories performed by a combination of local
and UK technical experts.
We have heightened focus on management of allergens, with
training and enhanced processes on food ingredient integrity
and labelling, and ongoing participation in industry forums,
including supporting our charity partner, the Natasha
Allergy Research Foundation.
READ MORE
on our progress on Responsible Sourcing
on pg 42–43.
Bakkavor Group plc | Annual Report & Accounts 2022 |
81
STRATEGIC REPORT
Health and safety
Link to our strategy
Risk trend
Risk description
We have a duty to secure and protect the health and safety
of our colleagues, contractors and visitors. Failure to maintain
appropriate health and safety across the Group could result
in a significant reputational, regulatory and/or financial
impact on our business.
Risk mitigation
• Maintain strong health and safety processes and controls
across all sites, supported by an established culture of
engagement around accident prevention.
• Health and safety managed locally by colleagues at sites,
supported by in-house health and safety experts.
• Review and share standards and best practice and support
implementation of new processes and controls.
• Report and monitor performance at each site against key
health and safety metrics on a regular basis.
• Report metrics to the Management Board and Group Board
monthly, with any significant issues reported immediately.
Developments in 2022
Overall the risk has reduced, driven by the normalisation
of working patterns post-Covid and sustained momentum
in enhancing risk control and reduction. The risk was
previously elevated due to the potential risk that Covid
could lead to higher levels of accidents or claims, which it
has not. Specific examples of activities in the year include:
• Embedding the Bakkavor CARE health and safety system
at all UK sites, with a focus on risk reduction, recording
accidents, near misses and environmental incidents,
and new joiner onboarding;
• Conducting external assessments of ammonia system
controls in UK installations;
• Trialling new forklift proximity and infrared detection
technology to better protect colleagues on foot in our
warehouses; and
• Performing risk assessment work on a new electrical panel
fire suppression system.
READ MORE
on our health and safety performance pg 4 and 49.
Supply chain
Link to our strategy
Risk trend
Risk description
The loss and/or interruption from a major supplier could
impact the Group through disruption in factory operations
and customer service levels. External factors such as climate
change, Covid and geo-politics, including the current war in
Ukraine, will also expose suppliers to acute and chronic risks
which could drive inflation and impact availability and quality,
as well as recovery of inflation from our customers.
Risk mitigation
• Agile approach to maintaining a sophisticated supply
chain and robust supplier selection, monitoring and
management processes.
• Leverage scale, experienced central and regional
procurement teams and strong customer partnerships
to enhance buying power.
• Balance price, quality, availability and service levels to meet
demand and supply forecast.
• Seek protection on forward-purchasing and price variations
through agreements with customers. Raw material cost
pass-through mechanisms in place with certain customers.
• Utilise internal levers to mitigate the impact of input cost price
increases; drive productivity improvements, focus on value
optimisation across product portfolios and tight cost control.
• Increase end-to-end control of our supply chains through
Bakkavor Inbound Logistics (“BIL”) team.
Developments in 2022
Due to global events, this risk has remained high. Supply
chains remain fragile and are still seeing significant disruption
after the impacts of the pandemic. Extreme weather, strikes
and labour shortages have also impacted availability, quality
and service. Inflation has also accelerated through the year
and is expected to remain elevated through 2023.
Our well-established supply chain, scale and agile approach
have enabled us to adapt to changes and helped mitigate
disruption to our own business and for our customers.
Our cost pass-through mechanisms continue to work
effectively, and we have been successful in recovering cost
increases from our customers for those costs that sit outside
these mechanisms, alongside efficiency improvements
and tight cost control to help mitigate the impact.
Our approach to forward-purchasing of certain raw
materials and energy has provided us with good visibility
of costs through the year. On energy, we had 12 months of
cover through to the end of March 2023. Beyond this, based
on our daily monitoring of prices, we have contracts in place
that provide us with a good level of cover for the remainder
of 2023. We have also prioritised energy-saving investments.
We have shifted some supply away from China, to Europe
and the UK, to help shorten our supply chain and mitigate
the impact of distribution disruption.
The war in Ukraine has not impacted our supply directly,
but we have seen an indirect impact on availability and cost
of certain products such as flour derivatives, oils and energy.
RISK MANAGEMENT AND RISKS
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| Bakkavor Group plc | Annual Report & Accounts 2022
Availability, recruitment and retention
of colleagues
Link to our strategy
Risk trend
Risk description
Labour availability and cost could be affected by political,
economic, legislative and regulatory developments.
In addition, increasing competition from other similar
businesses and/or local employers could reduce the
availability of labour and increase cost pressure.
Risk mitigation
• Manage recruitment through central talent team, supported
by regional Heads of HR to drive campaigns and initiatives
tailored to the local market.
• Offer competitive remuneration and benefits packages.
• Invest in training and development to upskill colleagues and
support career progression.
• Enhance and upgrade site facilities to make Bakkavor a better
place to work.
• Conduct an Employee Engagement Survey (“EES”) annually
to gather feedback from colleagues.
• Seek to fill vacancies through direct recruitment, and utilise
agency labour to provide short-term solutions to manage
labour requirements.
• Ongoing engagement with employee representatives, including
unions, to build relationship and understand key issues.
Developments in 2022
We have seen some easing in wider labour market pressures
through the year, which supports the decrease in risk
assessment, however overall the risk remains elevated.
Positively, the availability of people has improved, with
a reduced level of absences across our own workforce
and in agencies. Inflationary wage pressures have, however,
persisted and we have implemented in- and out-of-cycle pay
increases across our sites. Staff turnover remains elevated,
albeit the trend has shown some improvement in the second
half of the year.
READ MORE
on our performance on pg 4.
We have deployed several initiatives to support the
recruitment and retention of our colleagues including:
embedding our new values across our business; increased
flexibility in working patterns; referral bonus schemes; free
transport to several UK sites; third-party audits of our agency
labour providers to check compliance with our recruitment
standards; and implementation of SuccessFactors software.
Going forward, the results of our EES, conducted in
September 2022, have provided us with opportunities
to make Bakkavor an even better place to work.
READ MORE
on how we are working to make Bakkavor
a better place to work for all our colleagues on pg 32.
Brexit disruption
Link to our strategy
Risk trend
Risk description
A failure to prepare for regulatory changes associated
with the UK’s departure from the EU could disrupt Group
operations and impact our ability to supply customers.
Risk mitigation
• Maintain well-established Brexit Working Group to identify
risks and issues and review mitigations regularly; e.g.
organisational changes, systems development, customer
plans, stock levels and employee retention.
• Continue to leverage the BIL team for all imports to the
UK business, building on strong direct relationships with
EU suppliers and hauliers.
• Reinforce professional standards of customs clearance
administration through Bakkavor’s Authorised Economic
Operator (“AEO”) status in the UK, UK Trader Scheme,
and Scheme for Authorised Movements to Northern Ireland
(“STAMNI”) attestation arrangements.
Developments in 2022
Changes have been limited as the UK Government has
delayed the implementation of import sanitary and phyto
sanitary arrangements until later in 2023 as part of its
digitalisation planning. As the Northern Ireland Protocol
is still under negotiation between the UK and EU authorities,
our current arrangements are unchanged.
We continue to develop and revisit our contingency and
transition plans as uncertainty over potential disruption
at ports of entry and trade with Northern Ireland remains.
There is therefore a continuing risk of disruption when
export protocols are finalised. In addition, the introduction
of duty payable on the import and export of products could
increase costs and result in products being de-listed.
Bakkavor Group plc | Annual Report & Accounts 2022 |
83
STRATEGIC REPORT
Covid pandemic
Link to our strategy
Risk trend
Risk description
The Covid pandemic has resulted in widespread and
unprecedented challenges globally. Whilst the roll-out
of vaccines has progressed, new variants may cause
disruption to the markets in which we operate. Changes
in governments’ Covid policies, notably in China, could still
affect our business.
Risk mitigation
• Remain focused on prioritising the health and safety
of colleagues; living with Covid is now business as usual
in the regions that we operate in.
• Maintain and evolve our rigorous Covid controls in China in
line with latest guidance. Includes restricted visitor access,
suspension of travel unless deemed business-critical, more
rigorous return to work procedure, more frequent cleaning
regimes at touchpoints, additional handwashing protocols,
social distancing in factories and offices, thermal imaging
temperature checks and safety screens on factory lines.
Developments in 2022
In the UK and US, this risk has decreased year-on-year due to
the easing of government restrictions, and a reduction in case
numbers and the risk profile of the virus. This, in turn, has
lowered absenteeism and the health risk to our colleagues.
In China, local lockdowns continued to impact our business
through 2022, and towards the end of the year high case
numbers caused further disruption as the government
removed their zero-tolerance Covid policy. Disruption to
our sites and impact on our financial performance have also
been caused by supply chain challenges affecting availability
and quality of raw materials. Volatility in volumes also
plays a part, as our customers have had to close stores
periodically and face reduced demand due to mobility
restrictions and depressed consumer sentiment/demand.
READ MORE
on how we have continued to support our
colleagues’ wellbeing through this difficult period on pg 32.
IT systems and cyber risk
Link to our strategy
Risk trend
Risk description
Group infrastructure becomes out-dated, inefficient and/or
vulnerable to attack or malfunction.
Unauthorised access to the Company’s Information
Technology (“IT”) systems could lead to breaches of data
protection and release of market-sensitive information,
which could have a reputational, financial and operational
impact on the Group.
Any breakdown and/or failure in the Group’s IT infrastructure
and/or the Group’s communication networks, including
malicious cyber-attacks by third parties, could cause
disruption to the business.
Risk mitigation
• Investment in IT system modernisation.
• Risk-based approach to managing cyber security.
• Actively identify risks and threats, design layers of control and
implement controls to mitigate risk. The approach balances
controls that prevent attacks, detect events and respond
quickly to reduce impact. Includes business continuity
planning and testing, phishing simulation, extended security
detection and response.
• Evaluated independently against leading industry standards
published by the US Department of Commerce (National
Institute of Standards and Technology Cyber Security
Framework), and partner with external expert advisers
to actively reduce risks posed.
• Information risk and security are mitigated through
delivery of a security programme, and managed and
recalibrated periodically to ensure appropriate investment
and business alignment.
Developments in 2022
The cyber security threat landscape faced by all organisations
has significantly increased in 2022. To protect the Group
from cyber-attack and mitigate this risk, we have continued
to invest in enhancing our systems, controls and processes
through our security programme. This includes increased
investment in our international businesses through 2022.
We have taken a multi-step approach to managing the
heightened risk, namely:
• Increased focus on security awareness, including Company-
wide training;
• Segmented the UK network;
• Integrated our US IT function into the Group, to support
growth and bring controls up to the same level as the UK;
• Enhanced monitoring with our partners, to track indicators
of an attack; and
• Strengthened specific areas of security and reinforced
good practice, including projects to make user compromise
less likely.
RISK MANAGEMENT AND RISKS
CONTINUED
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| Bakkavor Group plc | Annual Report & Accounts 2022
Climate change and sustainability
Link to our strategy
Risk trend
Risk description
A scenario-driven climate risk assessment of our business
has identified four transition risks and two physical risks.
The four transition risks are: costs of implementing low
emissions technology; increased cost of raw materials;
changing consumer preferences; and pricing of GHG
emissions. The two physical risks are to our operations
and supply chain.
In addition, we consider the potential reputational impact
of failing to meet our ESG commitments as outlined under
our Trusted Partner ESG strategy.
Legal and regulatory is a separate principal risk.
READ MORE
on pg 86.
Risk mitigation
• Risk mitigation against the identified climate risks is detailed
in the TCFD section.
• Trusted Partner, our ESG strategy, addresses our wider
material ESG topics.
• Regularly monitor and report on non-financial KPIs, including
net carbon emissions, food waste, packaging use and health
and safety.
• Seek to integrate ESG factors into investment decisions and
wider financial forecasts.
Developments in 2022
We continued to develop our climate transition plan to
deliver on our commitment to reach Net Zero by 2040,
with detail provided in the TCFD section.
We updated our ESG materiality assessment to ensure
our Trusted Partner commitments and focus on key issues
remain relevant.
We have implemented quarterly reporting of carbon
emissions and monthly reporting for food waste, employee
turnover and health and safety at Management Board level
to better track progress and ensure senior accountability.
Established a dedicated Board-level ESG Committee to review,
monitor and have ultimate ownership of our ESG strategy.
Delivered 18.9% reduction in Group net carbon emissions,
and 110 basis point improvement in UK food waste to 8.05%.
Disruption to Group operations
Link to our strategy
Risk trend
Risk description
Damage to our sites by fire, flood, mechanical breakdown
and natural disaster, or disruption from industrial action,
could present a serious risk to our business operations
and performance.
Risk mitigation
• Employ property management protocols to ensure
safe operations and audit controls in conjunction with
property insurers.
• Following site visits, regular and proactive reporting
on progress of any identified improvements or issues
to encourage timely resolution.
• Establish business continuity and disaster recovery plans
for each site to identify/assess key risks, controls, actions
and preparedness for an event.
• Detail the procedures to be followed in the event of
different disruption scenarios, auditing plans biennially
with insurance brokers.
• Support employee engagement in our factories through
site representatives, employee forums and trade
union engagement.
Developments in 2022
In 2021, we established a rolling two-year crisis
management training programme at all UK sites,
with a subsequent training refresh every two years.
We have continued to perform an audit of our properties,
in conjunction with our insurers and insurance brokers.
In 2022, this covered nine of our UK sites and two of our
China sites. In the US, we completed fire safety investments
in conjunction with our US insurer at two sites.
We concluded multi-year pay deals with recognised trade
unions at two of our UK sites, Bakkavor Salads Spalding
and Bakkavor Salads Tilmanstone. This gives our colleagues
income security whilst mitigating the risk of business
disruption that would have resulted from a trade dispute.
We have continued to develop and build out our business
continuity plans, including in the event of system loss.
READ MORE:
ESG: TCFD pg 56.
ESG: Trusted Partner pg 40.
Non-financial KPIs pg 4.
Bakkavor Group plc | Annual Report & Accounts 2022 |
85
STRATEGIC REPORT
Treasury and pensions
Link to our strategy
Risk trend
Risk description
The Group’s external financial risks include interest rate risk
on borrowings and changes in exchange rates. Changes to
the Group’s financial performance could also result in breach
of financing agreement covenants. This may impact the ability to
maintain or secure finance, and could increase the cost of debt.
Our defined benefit pension scheme (closed to future accrual
in 2011) is also susceptible to movements in interest and inflation
rates, the valuation of assets and changes in life expectancy
for scheme members.
Risk mitigation
• Regular review of the Group’s investment strategy and its
potential impact on liquidity and leverage risk.
• Framework of Group Board approved policies and procedures
for financial risk management; includes funding, liquidity,
currency, interest rate and counterparty credit overseen
by Treasury function.
• Monitor financial results and projections through weekly,
monthly and quarterly reporting and forecasting; includes cash
flow analysis and review, liquidity and covenant performance.
• Maintain regular dialogue with financial lenders, updating them
on business performance and developments.
• Group Hedging Committee meets quarterly to review and
ensure compliance with hedging policy for foreign currency.
• Regularly review defined benefit pension scheme’s investment
strategy. Engage with pension trustees to ensure the target
returns and risk profile are appropriate for the scheme.
• Review performance of pension scheme’s liability hedging strategy
for interest and inflation rates. Discuss potential changes with
pension trustees to ensure scheme deficit volatility is minimised.
RISK MANAGEMENT AND RISKS
CONTINUED
Developments in 2022
In March 2022 we extended the maturity of £430m of our core
debt facilities by 12 months to March 2026 to provide increased
security of funding to the business.
Despite the challenging trading environment, we have continued
to operate with significant liquidity headroom, over £200m
against our debt facilities, and leverage was maintained within
our target range at 1.9 times.
Whilst interest rates increased during the year, the Group has
£150m of interest rate swaps in place through to March 2024. This
helps mitigate the impact of the rate rises. In 2022, £30m of
additional interest rate swaps were put in place from March 2024
to March 2026 to hedge against the impact of future rate rises.
We continued to apply our 18-month rolling hedging policy for
purchases made in Euros to provide certainty on future foreign
exchange rates.
Pension trustees made changes to the defined benefit pension
scheme’s investment strategy to lower the target return to
reduce the overall risk profile of the scheme.
Following significant volatility in gilt markets in September/
October 2022, the trustees were required to increase the
level of collateral held for interest and inflation hedging
strategies. This ensured that the market reduction in the value
of the scheme assets was matched by equivalent reduction in
liabilities. The increased collateral was provided by lowering the
interest rate hedging level from 90% to 75% and by transferring
cash deposits. The Group also provided a short-term credit
line of £15m to the scheme, repaid in full by 31 December 2022.
This allowed the trustees time to review the investment portfolio
and determine what changes needed to be maintained to ensure
appropriate levels of collateral are held going forward.
At 31 December 2022, scheme surplus under IAS 19 valuation
principles was £12.8m, down £24.4m on the prior year
(£37.2m surplus). Cash contributions to the scheme remained
at £2.5m p.a. in line with the recovery plan and the prior year.
Legal and regulatory
Link to our strategy
Risk trend
Risk description
Failure to comply with local laws, regulations (including across
food safety, health and safety, and TCFD), codes of practice,
or breach of internal policies and standards, could risk
impacting our reputation, resulting in financial penalties
and causing operational disruption.
Risk mitigation
• Monitor relevant laws and regulations at Senior Executive level
to ensure compliance across legal, financial, tax, HR, food safety,
health and safety, and environmental matters.
• Engage Internal Auditors to provide assurance on risk
management framework.
• Review and update key Group policies on standards and
procedures via the Group Legal team on an annual basis.
• Maintain annual e-learning compliance programme to raise
awareness of key risk areas for the Group and reinforce best
practice within the business.
• Supplement training with an additional programme of external
legal and governance training for relevant operational teams
across the Group.
Developments in 2022
The Group continued with its e-learning training on anti-bribery
and corruption, and data protection for all salaried colleagues,
and facilitated additional training workshops for key stakeholders
in Commercial, Operations, Procurement, Information Security
and HR on UK GDPR, intellectual property, competition and
employment via external legal advisers.
Organised ESG governance and oversight know-how and
training for the Board ESG Committee. Reported in line with
the recommendations of the TCFD (
READ MORE
on pg 120).
The Company complied with the provisions of the Code for the
period ended 31 December 2022, except for one provision.
READ MORE
on pg 89.
The Financial Conduct Authority introduced a new listing rule
on diversity and inclusion disclosures (applying to financial
periods commencing on or after 1 April 2022). We are pleased
to report the early adoption of the rule where we have been
able to in the year.
86
| Bakkavor Group plc | Annual Report & Accounts 2022
Viability
statement
In line with Provision 31 of the 2018 UK
Corporate Governance Code, the Directors
have carried out a thorough review of the
prospects of the Group and its ability to
meet its liabilities through to at least the
end of December 2025.
The business operates in a fast-moving sector with a high
number of products introduced each year. The Group has
to adapt to meet the changing needs of customers and
consumers; therefore, the Directors have concluded that
a three-year timeframe is an appropriate period for this
assessment, as this is the period over which the Directors
can realistically set the strategic plan for the Group.
The Directors have assessed the principal risks to the
business and the key mitigating actions used to address
them within this three-year timeframe. For each of the
principal risks, action plans have been developed to
mitigate the risk with a clear allocation of responsibilities
for mitigation and the timescales for completion.
Whilst all the risks identified, including food safety and
integrity, could have an impact on the Group’s performance,
the specific risks which could potentially impact the Group’s
financial position include further lockdown restrictions as a
result of Covid within China, and an increase in raw material
and utility costs. In addition, the high level of inflation across
the cost base would need to be recovered through price
increases agreed with our customers which, in turn, could
result in retail price inflation, and ultimately lead to lower
sales volumes.
On 18 March 2020 the Group refinanced existing debt
facilities of £410m with £455m of facilities that mature in
March 2024 on similar terms to those in place under the
previous financing structure. In March 2022 the maturity
of £430m of these facilities was extended to March 2026.
In addition, at the end of 2021 the Group had £31.3m of
other debt facilities that will be repaid on an amortising
basis by March 2028.
As part of our annual strategic planning, the Group
prepares a detailed financial model which forecasts the
consolidated income statement, balance sheet, cash flow,
covenant performance and liquidity requirements of the
Group for a three-year period. A downside scenario that is
severe but plausible has been modelled, taking account of
the potential financial impact of the specific risks outlined
above, including further Covid restrictions in China, the
potential impact of further raw material inflation and the
resultant impact on sales volumes. The downside scenario
model showed that, by reducing capital expenditure
to maintenance levels but by taking no other mitigating
action, the Group would not breach the financial covenants
in its bank facilities agreement and would have significant
liquidity headroom available.
Beyond the three-year timeframe of this viability
statement, the Group would face transition and physical
risks as a result of climate change;
READ MORE
on pg 85.
The Group has a relatively low exposure from the transition
to a low-carbon economy, and at this stage we do not
expect the transition and physical risks to have a material
impact on the business.
Having taken account of the sensitivity analysis, downside
scenario modelling and availability of adequate financing
facilities, the Directors consider that the Group will be able
to continue in operation over the three-year period to the
end of December 2025.
VIABILITY STATEMENT
The Strategic Report was approved by the Group Board and signed on its behalf by:
Mike Edwards
Ben Waldron
Chief Executive Officer
Chief Financial Officer and Asia Chief Executive Officer
7 March 2023
7 March 2023
Bakkavor Group plc | Annual Report & Accounts 2022 |
87
STRATEGIC REPORT
CHAIRMAN’S GOVERNANCE OVERVIEW
Chairman’s
letter on
corporate
governance
Dear fellow shareholders,
On behalf of the Group Board, I am pleased to present to
you our corporate governance report for the year ended
31 December 2022. The UK Corporate Governance Code
(the “Code”), which is available on the Financial Reporting
Council’s website (frc.org.uk), continues to be the standard
against which we measure ourselves. The Group has
complied with the provisions of the Code for FY22, except
as noted in our compliance statement on pg 89, and this
report sets out how we have applied the principles as set
out in the Code.
An area of focus for the Group Board during the year
was to accelerate Bakkavor’s pursuance of its strategic
priorities; this was through the Group Board’s oversight
of and approval for a clear plan to protect profits against
sustained headwinds in 2023 and its approval of certain
key capital projects: Bakkavor Bread Crewe and Bakkavor
Salads Bourne.
These strategic priorities are underpinned by our relentless
focus on operational excellence and our strong governance
structures, which ensure we are a trusted partner for our
stakeholders.
READ MORE
on our strategy on pg 22 and
our approach to corporate governance, including the Group
Board’s activities, on pg 98.
Changes to our Group Board
The Group Board focused on executive succession planning
during the year, with Agust Gudmundsson stepping
down as Chief Executive Officer after 36 years at the
helm. He remains on the Group Board as a Non-executive
Director, and as a significant shareholder. I would like
to express my, and the Group Board’s, thanks to Agust
for his vision, steadfastness, loyalty and high standards
of professionalism.
As I noted in our recent announcement about the Chief
Executive Officer change, one of the characteristics of
a successful leader is the quality of the team they build
around them, and there is no better testament to this
than the appointment of Mike Edwards as our new Chief
Executive Officer following a thorough search of the
market to identify a successor. Mike has delivered
operational excellence, strong customer relationships and
consistent commercial performance in our UK business
and the Group Board is greatly looking forward to working
with him on the next stage of Bakkavor’s development.
We also reviewed Committee responsibilities on the
Group Board and recommended a number of changes,
effective from 1 January 2023, to ensure the right
balance of skills, experience and commitments amongst
the Non-executive Directors.
Denis Hennequin stepped down from the role of Senior
Independent Director and Chair of the Remuneration
Committee, and has been replaced by Jill Caseberry.
Sanjeevan Bala has taken over from Jill Caseberry as
the Designated Workforce Engagement Non-executive
Director.
READ MORE
on other Committee composition
changes on pg 113.
New dedicated ESG Committee
The Group Board takes its responsibility to build a
sustainable business seriously – for our colleagues,
customers, investors, suppliers, communities, and all
the consumers that choose our food. The expectations
of investors and other stakeholders in this area have
noticeably increased over the last year.
READ MORE
on
the Group’s progress and the steps it is taking to tackle
climate change, sustainability challenges and other ESG
issues under our Trusted Partner ESG strategy on pg 40.
In demonstration of our focus on Trusted Partner to
monitor and oversee progress, the Group Board approved
a dedicated ESG Committee, with its first meeting held in
June, chaired by Umran Beba.
Effectiveness of the Group Board and Committees
During the year, a review of the effectiveness of the Group
Board and Committees was undertaken. The evaluation
process was internally facilitated by our Company Secretarial
team and consisted of a questionnaire that was completed by
each of Bakkavor’s Group Board and Committee members.
88
| Bakkavor Group plc | Annual Report & Accounts 2022
The evaluation results were discussed at the Group
Board and Committee meetings, and actions agreed.
I am pleased to confirm that the review found that the
Group Board and its Committees continue to perform
effectively.
READ MORE
on pg 111–112.
Our stakeholders
The Group Board is responsible for leading stakeholder
engagement in line with Section 172 of the Companies
Act 2006 (“Section 172”). In light of this, I have sought to
engage with our investors, and have had the opportunity
in the last year to meet up and discuss with major
shareholders of the Company, including a major
institutional shareholder, about the performance of the
business.
READ MORE
on how the Group Board has
factored shareholder and wider stakeholder interests
into its decision-making processes on pg 105–106.
AGM
I am pleased to confirm that this year’s Annual General
Meeting (“AGM”) will be in person. The Group Board
considers the AGM to be an important opportunity to
engage with our shareholders.
Looking ahead
The governance priorities for 2023 include continued
stakeholder engagement and oversight of the actions
being taken by the Management Board; this is with a
view to mitigate the impact of ongoing industry-wide
challenges. We will also be focused on monitoring
progress against our sustainability targets.
Simon Burke
Chairman
7 March 2023
The Group Board’s role has
been to provide oversight and
guidance to management and
support to the business as it
performs robustly in these
demanding conditions.
– Simon Burke, Chairman
Corporate governance compliance statement
The Company applied the principles of the UK
Corporate Governance Code (the “Code”), which
is available from frc.org.uk.
Except as outlined below, the Group Board
believes that the Company complied with the
provisions of the Code for the period ended
31 December 2022.
Provision 38 – Pension contribution rates
Provision 38 of the Code requires the pension contribution
rates for Executive Directors to be aligned with those of the
workforce. During the financial year, the Chief Executive
Officer (Agust Gudmundsson) and the Chief Financial
Officer (Ben Waldron)’s pension contribution rates were
workforce aligned. However, as explained in last year’s
Directors’ remuneration report, the Chief Operating Officer,
Mike Edwards’ pension remained higher temporarily to
ensure that his fixed pay was not reduced because of his
promotion to the Group Board.
Upon Mike Edwards’ appointment to Chief Executive
Officer on 1 November 2022, the Remuneration Committee
took the opportunity to bring forward the alignment of
his pension contribution rate with that of the general
workforce with effect from 1 November 2022.
Bakkavor Group plc | Annual Report & Accounts 2022 |
89
GOVERNANCE
GOVERNANCE
CORPORATE GOVERNANCE COMPLIANCE STATEMENT
CONTINUED
Section 1: Board leadership and company purpose
pg 91–106
Code principles:
A. Effective and entrepreneurial Board to promote the long-term
sustainable success of the company, generating value for
shareholders and contributing to wider society.
B. Purpose, values and strategy with alignment to culture.
C. Resources for Bakkavor to meet its objectives and measure
performance. Controls framework for management and
assessment of risks.
D. Effective engagement with shareholders and stakeholders.
E. Consistency of workforce policies and practices to support
long-term sustainable success.
•
Chairman’s letter on
corporate governance
88
•
Strategic report
2
•
Section 172 statement and the
Group Board’s engagement with
key stakeholders
66, 105
•
Purpose, values and culture
98
•
Group Board’s key activities
101
Section 2: Division of responsibilities
pg 107–108
Code principles:
F. Leadership of Board by Chair.
G. Board composition and responsibilities.
H. Role of Non-executive Directors.
I.
Company Secretary, policies, processes, information, time and
resources.
•
Group Board composition
109
•
Roles and responsibilities
107
•
Time commitment, external
appointments, independence
and tenure
107
Section 3: Composition, succession and evaluation
pg 109–121
Code principles:
J. Board appointments and succession plans for Board and senior
management and promotion of diversity.
K. Skills, experience and knowledge of Board and length of service
of Board as a whole.
L. Annual evaluation of Board and Directors and demonstration of
whether each Director continues to contribute effectively.
•
Group Board composition
109
•
Nomination and ESG
Committee report
113, 119
•
Inclusion and Diversity
117
•
Group Board, Committee and Director
performance evaluation
111
Section 4: Audit, risk and internal controls
pg 125–131
Code principles:
M. Independence and effectiveness of Internal and External Audit
functions and integrity of financial and narrative statements.
N. Fair, balanced and understandable assessment of the company’s
position and prospects.
O. Risk management and internal control framework and principal risks
the company is willing to take to achieve its long-term objectives.
•
Audit and Risk Committee report
124
•
Risk management
76
•
Fair, balanced and
understandable assessment
127
•
Going concern
157
•
Viability statement
87
Section 5: Remuneration
pg 132–151
Code principles:
P. Remuneration policies and practices to support strategy and
promote long-term sustainable success with executive
remuneration aligned to company purpose and values.
Q. Procedure for executive remuneration, Director and senior
management remuneration.
R. Authorisation of remuneration outcomes.
•
Directors’ remuneration report
132
This report’s key features
This governance statement, which includes the reports of the Nomination, ESG, Audit and Risk, and Remuneration
Committees, explains how we have applied the principles and complied with the provisions of the Code.
90
| Bakkavor Group plc | Annual Report & Accounts 2022
Our governance framework
• Collectively responsible for promoting the long-term sustainable success of the Group.
•
Leads and directs the Group by setting the purpose and strategy of the Group, overseeing management and monitoring and assessing culture.
• Ensures the long-term sustainability of the business, for the benefit of our stakeholders: colleagues, customers, suppliers, investors
and communities.
Chair:
Simon Burke
THE GROUP BOARD
• Assist the Group in the fulfilment of its duties and responsibilities.
• Review and oversee activities within each Committee’s respective Terms of Reference.
• Report to the Group Board via Committee Chairs on the matters discussed at Committee meetings. Reports include information on each
Committee’s respective composition and activities in the year, and can be found in the sections relating to each Committee within this report.
GROUP BOARD COMMITTEES
• Oversees the day-to-day running of the Group’s businesses.
• Implements the strategic objectives set by the Group Board.
• Delegates the detailed planning and implementation of its objectives and policies to management, in accordance with appropriate
risk parameters.
Chair:
Mike Edwards
THE MANAGEMENT BOARD
GROUP GENERAL COUNSEL AND COMPANY SECRETARY
• Supports both the Group Board and Management Board.
• Ensures effective communication of important information.
• Advises on all legal and corporate governance matters.
Annabel Tagoe-Bannerman
DISCLOSURE COMMITTEE
• Comprises: Chairman, CEO, CFO and Group
General Counsel and Company Secretary.
• Oversees the Company’s compliance with
its disclosure obligations.
• Other Directors, representatives from
the Company’s brokers, members of
the Company’s Management Board and
Senior Executives, and other external
advisers, may attend meetings in whole
or in part, if invited.
Chair:
Simon Burke
READ MORE
on pg 100.
NOMINATION COMMITTEE
• Reviews the structure, size and
composition of the Group Board,
ensuring that there is a balance of skills,
knowledge, experience and diversity.
• Reviews succession plans for the
Group Board, Management Board
and Senior Executives.
• Previously responsible for governance
and oversight of ESG matters until
June 2022 when the ESG Committee
was created as a standalone Committee.
• Meets not less than three times a year.
Chair:
Simon Burke
READ MORE
on pg 113.
ESG COMMITTEE
• Set up in June 2022 to have oversight of
the Group’s ESG strategy, Trusted Partner,
and its execution.
• Oversees the communication
of the Group’s ESG activities with
its stakeholders.
• Provides input and advice to the Group
Board and its Committees on ESG matters
as required.
• Meets not less than three times a year.
Chair:
Umran Beba
READ MORE
on pg 119.
Section 1:
Board leadership and company purpose
AUDIT AND RISK COMMITTEE
• Assists the Group Board with the
discharge of its responsibilities in relation
to financial reporting, including reviewing
the Group’s annual and half-year Financial
Statements, accounting policies, risk
management, internal and External
Audit reports, and internal controls.
• Meets not less than four times a year.
Chair:
Jane Lodge
READ MORE
on pg 124.
REMUNERATION COMMITTEE
• Recommends the Group’s policy on
Executive remuneration.
• Determines the levels of remuneration
for Executive Directors, Non-executive
Directors and the Chairman to ensure
that these are in line with the long-term
interests of the Group.
• Prepares an annual remuneration report for
approval by the shareholders at the AGM.
• Meets not less than three times a year.
Chair:
Jill Caseberry
(Until December 2022: Denis Hennequin)
READ MORE
on pg 132.
Bakkavor Group plc | Annual Report & Accounts 2022 |
91
GOVERNANCE
GROUP BOARD AND MANAGEMENT BOARD
Simon Burke
Non-executive Chairman
Committee membership:
Skills and experience:
Simon is a
Chartered Accountant with over 30
years’ experience in the retail and
food sectors. Following a decade
in financial and advisory roles,
he was appointed CEO of Virgin
Retail UK in 1988 and, following
a turnaround of that business,
held increasingly senior roles
until appointed CEO of the global
Virgin Entertainment Group in
1996. In 1999, Simon was
appointed Chairman and Chief
Executive of Hamleys plc where
he completed a successful
restructuring and subsequent
sale of the company in 2003.
Simon then specialised in value
creation roles in both quoted
companies and private equity-
backed businesses. He has
chaired many well-known
consumer businesses, including
Majestic Wine, Mitchells & Butlers,
Bathstore.com and Superquinn.
Appointment:
Simon has served
as a Non-executive Director of
Bakkavor since February 2017
and was appointed as Chairman
in October 2017.
External appointments:
Simon
is a Non-executive Director of
the Co-operative Group Limited
and also Chairman of The Light
Cinemas (Holdings) Limited and
Blue Diamond Limited.
Mike Edwards
Chief Executive Officer
Committee membership:
None.
Skills and experience:
With over
33 years’ experience in the food
industry, including United Biscuits
and Heinz, Mike has extensive
operational and commercial
expertise. Since joining in 2001,
he has held various senior
operational roles across Bakkavor.
He holds a degree from the
Polytechnic of Portsmouth.
Appointment:
Mike joined
Bakkavor in 2001 and became
Chief Operating Officer UK in 2014
and has served as Executive
Director since December 2020. He
was appointed as Chief Executive
Officer in November 2022.
External appointments:
Mike currently has no
external appointments.
Ben Waldron
Chief Financial Officer and
Asia CEO
Group Board ESG Sponsor
Committee membership:
None.
Skills and experience:
Prior to
joining Bakkavor, Ben was an
Assurance and Advisory Director
at Ernst & Young London, bringing
with him extensive experience
in strategy, transactions and
consulting. After joining Bakkavor
as Group Financial Controller,
he became Head of Strategic
Development, supporting the
Group’s IPO in 2017 and leading
acquisitions and the disposal of
non-core business in the UK
and Europe. In January 2019,
he took on responsibility for
the US business as President
of Bakkavor USA and has
successfully transformed the US
operations into a high growth and
profitable business. Ben holds a
Bachelor of Science degree from
the University of Birmingham.
Appointment:
Ben joined
Bakkavor in 2011 as Group
Financial Controller. He has
served as Chief Financial Officer
and Executive Director to the
Group Board since 27 December
2020, and his role expanded with
the appointment as Asia CEO
effective from December 2022.
External appointments:
Ben currently has no
external appointments.
Meet our
Group Board
92
| Bakkavor Group plc | Annual Report & Accounts 2022
Group Board Committees
Audit and Risk Committee pg 124
Nomination Committee pg 113
Remuneration Committee pg 132
ESG Committee pg 119
Committee Chair
Sanjeevan Bala
Independent,
Non-executive Director
Designated workforce
engagement Non-executive
Director since 1 January 2023
Committee membership:
1
1
Member since 1 January 2023.
Skills and experience:
Sanjeevan
is a highly experienced multi-
award-winning data and analytics
professional with a proven track
record of driving customer-
centric business transformations
through the strategic use of
data resulting in EBIT and
revenue growth. Sanjeevan has
successfully operated across
a range of sectors including
media, retail, financial services,
e-commerce and telecoms.
He brings expertise in digital
transformation, data and AI
(both the science and development
of new operating models and
organisational structure to
leverage the value of data),
innovation and culture. Sanjeevan
has had exposure to the food and
beverage sector through his time
consulting with PwC to Bestfoods,
and through his time with
Dunnhumby working with Tesco.
Appointment:
Sanjeevan has
served as a Non-executive Director
of Bakkavor since August 2021.
External appointments:
Sanjeevan is currently the Group
Chief Data & AI Officer at ITV plc
and a Member of the Scholars’
Education Trust.
Umran Beba
Independent,
Non-executive Director
Designated Non-executive
Director for ESG Matters
Committee membership:
2
2
Member since 1 January 2023.
Skills and experience:
Umran is
an experienced senior business
executive with a general
management background and
significant expertise in talent and
diversity. Umran spent 25 years
at PepsiCo Inc., the global food
and beverage company, where
she held a number of international
commercial and functional roles,
with her last position being Senior
Vice President, Chief Global
Diversity and Engagement Officer.
From 2010 to 2015, she served as
an Independent Non-executive
Director on the board of Calbee,
Inc, a major Japanese snack foods
manufacturer, and for eight years
until June 2020 was a Future
Council Member of the World
Economic Forum. She earned
her MBA and Bachelor of Science
in Industrial Engineering from
Bogazici University in Istanbul.
Appointment:
Umran has served
as a Non-executive Director of
Bakkavor since September 2020.
External appointments:
Umran
is currently a partner at August
Leadership, an executive search
firm. She also serves on the
board of the International Youth
Foundation, Baltimore and
as a trustee at the Purchase
College Foundation.
Jill Caseberry
Independent,
Non-executive Director
Senior Independent Director
since 1 January 2023
Committee membership:
3
3
Chair since 1 January 2023.
Skills and experience:
Jill is an
accomplished general manager
with extensive sales, marketing and
general management experience
across a number of blue-chip
companies including Mars, PepsiCo
and Premier Foods. Jill brings a
depth of understanding of the food
industry, spending most of her
career in marketing, commercial
and general management roles
in the food and beverage sector,
where she has been involved
in both turnaround and growth
situations, in a range of branded
and own label businesses.
Appointment:
Jill has served
as a Non-executive Director
of Bakkavor since March 2021.
External appointments:
Jill
is currently a Non-executive
Director, Remuneration
Committee Chair and member
of the Audit and Nomination
Committees of Bellway plc and
Halfords Group plc and a member
of the ESG Committee of Halfords
Group plc. Jill is also a Non-
executive Director and member of
the Remuneration Committee and
ESG Committee of C&C Group plc,
and Senior Independent Director,
Remuneration Committee Chair
and a member of the Audit and
Nomination Committees of St.
Austell Brewery Company Limited.
Bakkavor Group plc | Annual Report & Accounts 2022 |
93
GOVERNANCE
GROUP BOARD AND MANAGEMENT BOARD
CONTINUED
Patrick L. Cook
Non-independent,
Non-executive Director
Committee membership:
Skills and experience:
Patrick
received his education from
Vanderbilt University in
Tennessee, US and is a senior
investment professional with
significant direct investing
experience in food companies.
Appointment:
Patrick has served
as a Non-executive Director
of Bakkavor since July 2018.
External appointments:
Patrick
is currently Managing Director
at the Baupost Group. He is also
a member of the boards of
DRS Acquisition LLC, Surfaces
Southeast Holdco, LLC and H&P
Partners, LLC and a member of
the supervisory board of Tanager
Group B.V.
Agust Gudmundsson
Non-independent,
Non-executive Director
Committee membership:
None.
Skills and experience:
Agust
received his education from the
College of Ármúli in Reykjavik,
Iceland.
Appointment:
Agust is one of the
founders of Bakkavor and has
served as Non-executive Director
of Bakkavor since November 2022.
He served as Executive Chairman
of Bakkavor from 1986, the year
Bakkavor Group plc was founded,
through to May 2006 and served
as Chief Executive Officer from
2006 through to November 2022.
External appointments:
Agust currently has no
external appointments.
Lydur Gudmundsson
Non-independent,
Non-executive Director
Committee membership:
Skills and experience:
Lydur has
unique expertise and insight into
the Company’s business as a
founder of Bakkavor. He received
his education from the Commercial
College of Iceland.
Appointment:
Lydur is one of
the founders of Bakkavor and
has served as a Non-executive
Director since January 2017.
He served as Chief Executive
Officer from 1986 to 2006 and
Non-executive Chairman from
2006 to 2017. He served as
Chairman of Exista from 2006
to 2010.
External appointments:
Lydur currently has no
external appointments.
94
| Bakkavor Group plc | Annual Report & Accounts 2022
Denis Hennequin
Independent,
Non-executive Director
Senior Independent Director
until 31 December 2022
Committee membership:
1
2
1
Chair until 31 December 2022.
2
Member until 31 December 2022.
Skills and experience:
Denis has
extensive leadership experience
within the retail sector, spending
the majority of his career with
the McDonald’s Corporation in
a variety of senior financial and
operational roles before becoming
President and Chief Executive
Officer of McDonald’s Europe,
where he was responsible for
changing the image and concept,
securing its market-leading
position. Denis was appointed
Chairman and Chief Executive
Officer of Accor in 2011 where
he was responsible for an estate
spread across over 90 countries.
He left Accor in 2013 to pursue
an advisory and portfolio career.
Appointment:
Denis has served
as a Non-executive Director of
Bakkavor since February 2017.
External appointments:
Denis is
currently a Non-executive Director
of Eurostar International Limited,
JDE Peet’s and Expresso House.
He is also Vice-Chairman of Pret
A Manger, Chairman of PICARD
Company Limited and Kellydeli, and
a founding partner of investment
fund French Food Capital.
Jane Lodge
Independent,
Non-executive Director
Committee membership:
Skills and experience:
Jane spent
25 years at Deloitte & Touche
LLP, progressing to a Senior
Audit Partner working for major
corporates. She served as the
first female Partner to sit on
the Deloitte UK Board, overseeing
management strategy, acquisitions,
performance against plan and
admission of new partners.
She was also the manufacturing
and industry lead Partner, providing
best practice and insights across
the Deloitte businesses of tax,
auditing, consulting, and corporate
finance. Jane left Deloitte in 2011
to build a non-executive portfolio.
Appointment:
Jane has served
as a Non-executive Director
of Bakkavor since April 2018.
External appointments:
Jane
is currently a Non-executive
Director and Chair of the Audit
Committees of DCC plc and
FirstGroup plc, and a Non-
executive Director of Glanbia plc
and TI Fluid Systems plc.
Annabel Tagoe-Bannerman
Group General Counsel and
Company Secretary
Committee membership:
None.
Skills and experience:
Annabel
has held senior legal positions in
a number of companies including
Britvic plc and Ladbrokes plc.
She was the Group General
Counsel and an Executive
Committee member at Ladbrokes
plc. She trained and began her
career in private practice in the
City of London at the multinational
law firm SJ Berwin LLP. Annabel
obtained her post-graduate law
degree at The University of Law,
UK and qualified as a solicitor
(England and Wales) in March
2005. She is also a Chartered
Company Secretary (ACIS).
Annabel is an alumna of London
Business School.
Appointment:
Annabel joined
Bakkavor as Group General
Counsel and Company Secretary
in June 2019.
External appointments:
Annabel
is currently a Non-executive
Director of Edinburgh Investment
Trust plc.
Bakkavor Group plc | Annual Report & Accounts 2022 |
95
GOVERNANCE
GROUP BOARD AND MANAGEMENT BOARD
CONTINUED
Mike Edwards
Group Chief Executive Officer
READ MORE
on pg 92.
Pete Laport
President, Bakkavor USA
Pete joined Bakkavor in
October 2020, and was part
of the Management Board until
his departure from the Group
on 17 March 2023.
Ben Waldron
Chief Financial Officer and
Asia CEO
READ MORE
on pg 92.
Donna-Maria Lee
Chief People Officer
Donna-Maria Lee joined Bakkavor
Group plc in September 2018.
Donna-Maria has worked within
manufacturing, consumer and
corporate functions for over 25
years. Prior to joining Bakkavor,
she was Senior Vice President,
Global HR, Burberry plc. In this
role Donna-Maria was accountable
for the overall HR strategy, people
and change agenda.
Dave Selleck
Managing Director – Meals
Dave joined Bakkavor in 2001 and
has served as Managing Director
– Meals since December 2022.
Prior to this, he was Business
Director of our Meals Sector.
With almost 40 years’ experience
in the food industry, including
United Biscuits and Heinz, Dave
has held various operational and
general management leadership
positions within Bakkavor,
including at our Pizza Harrow
and Meals London sites.
Shona Taylor
Managing Director – Bakery
Shona joined Bakkavor in 2003 and
has served as Managing Director
– Bakery since December 2022.
Prior to this, Shona was Business
Director of our Desserts Sector
and, with over 24 years of
experience in the food industry,
has extensive cross-functional
leadership experience, holding
various project management,
commercial, operations and
general management roles within
Bakkavor, Northern Foods and
Rannoch Food Group. Shona
holds a Bachelor of Food
Technology and a Post-Graduate
Diploma in Business
Administration from Massey
University in New Zealand.
Meet our
Management Board
96
| Bakkavor Group plc | Annual Report & Accounts 2022
Group Board diversity
as at 7 March 2023
The Financial Conduct Authority introduced a new listing rule (“the Rule”) on diversity and inclusion disclosures (applying
to financial periods commencing on or after 1 April 2022) which forms part of the Listing Rules and Disclosure Guidance
and Transparency Rules that will be required next year. We are pleased to report the early adoption of the Rule and we
have provided this information voluntarily in the reporting tables for the Group Board and Management Board below.
Reporting table on sex and gender representation
Percentage of
the Group Board
Number of Group
Board members
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
Number of
Non-executives
Number of
Executive Directors
Percentage of
Executive Directors
Male
8
3
6
2
18%
Female
3
1
3
–
By tenure
1
Number of Directors
<3 years
3–6 years
7–10 years
>10 years
5
6
0
0
Reporting table on ethnicity representation
Percentage of
the Group Board
Number of
Group Board
members
Number of senior
positions on the
Group Board (CEO,
CFO, SID and Chair)
Number of
Executive
Directors
Percentage of
Executive
Directors
White British or Other White
(including minority White groups)
10
4
2
18%
Mixed Multiple Ethnic Groups
–
–
–
Asian/Asian British
1
–
–
Black African/Caribbean/Black British
–
–
–
Other Ethnic Group including Arab
–
–
–
Not specified/Prefer not to say
–
–
–
Management Board diversity
as at
7
March 2023
Reporting table on sex and gender representation
Percentage of the
Management Board
Number of Management
Board members
Number of
Executive Directors
Percentage of
Executive management
Male
4
2
2
33%
Female
2
2
–
By tenure
1
Number of Directors
<3 years
3–6 years
7–10 years
>10 years
3
3
0
0
Reporting table on ethnicity representation
Percentage of the
Management Board
Number of Management
Board members
Number of
Executive Directors
Percentage of
Executive Directors
White British or Other White
(including minority White groups)
5
2
33%
Mixed Multiple Ethnic Groups
1
–
Asian/Asian British
–
–
Black African/Caribbean/Black British
–
–
Other Ethnic Group including Arab
–
–
1
Since the Company‘s listing on the London Stock Exchange in November 2017.
2
See pg 113 for details on changes to the Management Board.
73%
27%
91%
9%
67%
33%
83%
17%
Bakkavor Group plc | Annual Report & Accounts 2022 |
97
GOVERNANCE
CORPORATE GOVERNANCE REPORT
Board leadership and
Company purpose
The Group Board challenges strategy, performance and the responsibility
of management to: align our purpose, values, strategy and culture; promote
the long-term success of the Group; and create value for all stakeholders.
Responsible for promoting the
long-term success of the
Group through the creation
and delivery of sustainable
stakeholder value.
The role and responsibilities of the Group Board
The Group Board provides effective and
entrepreneurial leadership by setting the long-term
strategic direction of the Group and overseeing
and challenging management’s implementation
of the strategy, as well as establishing our purpose,
vision and values which underpin the culture of
the business.
It is collectively responsible for promoting the
long-term success of the Group through the creation
and delivery of sustainable stakeholder value. In
exercising this responsibility, the Group Board takes
into account the needs of all relevant stakeholders
and its contribution to wider society.
The Group Board endeavours to ensure that workforce
policies and practices are in line with our values and
support the Group’s long-term sustainable success.
It is accountable for ensuring that, as a collective
body, it has the appropriate skills, knowledge,
experience and resources in place to meet its
objectives and perform its role effectively. The Group
Board is provided with timely and comprehensive
information to enable it to discharge its responsibilities,
to encourage strategic debate and to facilitate robust,
informed and timely decision-making. The Group
Board also receives regular presentations from
key heads of functions and updates from the Chair
of each Committee.
Subject to company law and the Articles of
Association, the Directors may exercise all of the
powers of the Company and delegate their power
and discretion to Committees. Decisions reserved
for the Group Board include approval of strategic
plans and annual budgets, acquisitions and disposals,
audited Financial Statements, and appointment
of additional Directors. Its work also includes
engagement with key stakeholders, including our
shareholders. The powers of the Directors are set
out in the Schedule of Matters Reserved for the
Group Board which was updated in November 2022.
This is available for review on our website
(bakkavor.com/en/investors/governance).
98
| Bakkavor Group plc | Annual Report & Accounts 2022
Vision and purpose
The Group Board sets the Group’s vision and purpose.
Both are key to strengthening the Group’s impact among
its stakeholders and are supported by the Group’s values
and strategy.
Our values
Our refreshed values focus on trust and respect: working
together, being open and honest with each other and
ensuring that we treat all colleagues with equal respect.
They are warmer, more personal and more people-focused.
They are the foundation of our culture, guide our behaviours
and reflect who we are today and aspire to be tomorrow.
Our customers and suppliers remain at the heart of what
we do as we value and protect our partnerships, maintain
our commitment to the highest standards of food safety,
integrity and quality, innovate to help customers stay
ahead and work together with our customers to anticipate
future needs.
It is important that we get it right and keep it right, uphold
our standards, stay safe and look after ourselves and each
other and take responsibility for the impact of our actions
on the environment and in our communities.
We are proud of what we do, inspire others to work with
passion and enthusiasm, and look for ways to improve the
way we work.
Assessing our culture
All Directors act with integrity and lead by example to
promote the desired culture: to empower and support
our stakeholders by living our values. The Group Board
is responsible for assessing the Group’s culture, ensuring
it is closely aligned with our strategic priorities which are
underpinned by our focus on operational excellence and
being a responsible, caring and trusted partner for all
our stakeholders.
The Group Board receives updates from the Chief People
Officer (“CPO”) and the designated workforce engagement
Non-executive Director on colleague engagement through
the annual Employee Engagement Survey (“EES”) and the
Site and Group Employee Forums. In 2022, we responded
to feedback received through the 2021 EES by developing
our employer brand, ‘Proud to be Bakkavor’, and in 2022,
by refreshing our values. Employee engagement has
improved and management responded to feedback from
the 2022 survey which was completed in September 2022.
READ MORE:
Detail on our Employee
Engagement Survey pg 32.
How the Group Board assessed
the culture of the Company
during the year pg 102.
Our
vision:
To lead the way in bringing
innovative, great-tasting, freshly
prepared food to people across
our markets.
Our
purpose:
To delight our customers and
consumers through the fresh,
convenient and great-tasting food
that we proudly create every day.
Respect
and trust
each other
Keep the
customer at
the heart of
what we do
Get it right,
keep it right
Be proud of
what we do
Our
culture
:
To empower and support all our
stakeholders by living our values.
Bakkavor Group plc | Annual Report & Accounts 2022 |
99
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
Monitoring our culture
Throughout the year, the Group Board monitored the
Group’s culture and how our colleagues’ feedback was
being implemented, receiving regular updates from
the CPO and an update from the designated workforce
engagement Non-executive Director on two values
feedback sessions held with Bakkavor’s Group Employee
Forum (“GEF”) on the work being done to ensure the
values underpin the Group’s culture and support the
delivery of our vision.
The Group Board reviewed the suggestions made during
the values feedback sessions on how we can continue to
embed the values and agreed that we should look to have
a focus on each value, either on a monthly or quarterly
basis, and the insight gained from these feedback sessions
would be used to continue with initiatives to embed the
values during 2023.
For further information on how the Group Board
monitored the culture of the Company during the year,
please see the Group Board activities section on pg 102.
The Management Board
The Group Board is supported by the Management Board,
which implements the strategic objectives of the Group
Board, agrees on performance criteria, and delegates
the detailed planning and implementation of those
objectives and policies to Senior Executives (being the
Executives within the tier below the Management Board)
in accordance with appropriate risk parameters.
The Management Board monitors compliance with policies
and achievement against objectives by holding Senior
Executives accountable for its activities through monthly
and quarterly performance reporting and budget updates.
Group Board Committees
During the year 2022, the Group Board retained its existing
Committees (Audit and Risk Committee and Remuneration
Committee) and split the Nomination and ESG Committee
into two, by establishing a dedicated ESG Committee,
with the Nomination Committee reverting to its previous
‘Nomination Committee only’ duties.
The Group Board now has four Committees: the Audit and Risk
Committee, the ESG Committee, the Nomination Committee
and the Remuneration Committee. All four Committees
comprise only Non-executive Directors and each Committee
has agreed Terms of Reference which are available on our
website (bakkavor.com/en/investors/governance).
The Group Board also has a Disclosure Committee
which comprises the Chairman, the Chief Executive
Officer, Chief Financial Officer and Group General Counsel
and Company Secretary. The Disclosure Committee has
oversight of the Company’s regulatory compliance with its
disclosure obligations under the Market Abuse Regulation.
These Committees assist with the detailed oversight of
Bakkavor’s financial reporting, disclosure obligations,
risk management, Internal and External Audit work,
ESG matters, establishing the Remuneration Policy and
overseeing its implementation, and building appropriate
succession and contingency plans for the Directors and
Senior Executives, including overseeing workforce
engagement, and establishing a diverse pipeline of talent
for both the Group Board, Management Board and Senior
Executive positions.
Conflicts of interest
Directors have a statutory duty to avoid situations in
which they may have interests that conflict with those
of the Company, unless that conflict is first disclosed and
authorised by the Group Board. Directors are required
to disclose both the nature and extent of any potential
or actual conflicts with the interests of the Company.
In accordance with company law and the Company’s Articles
of Association, at each meeting, Directors declare any
conflicts of interest in respect of the agenda items for the
meeting and the Group Board is permitted to authorise
potential conflicts that may arise and to impose such
conditions or limitations as it deems fit. During the year,
any potential conflicts were considered and assessed
by the Group Board and approved where appropriate.
The Group Board confirms that the procedures in place
to deal with conflicts of interest are operating effectively.
The responsibilities delegated to the
Management Board include, but are not limited
to, the following areas:
•
Preparing strategic proposals, corporate plans
and budgets.
•
Executing the Group corporate strategy agreed
upon by the Group Board.
•
Executing the Trusted Partner ESG strategy.
•
Executing actions in relation to key Group Board
decisions on investments, mergers and
acquisitions, disposals and divestments.
•
Monitoring performance and evaluation of health
and safety.
•
Establishing a system of internal control and
risk management.
•
Review and approval of revised policies prior
to approval by the Group Board.
100
| Bakkavor Group plc | Annual Report & Accounts 2022
Board meetings are an important
mechanism through which the Directors
discharge their duties, particularly under
Section 172 of the Companies Act 2006.
The next few pages describe the Group Board’s activities
during the year under review. Whilst not being an exhaustive
list, it provides an indication of the factors affecting
our stakeholders which are considered as part of those
discussions.
READ MORE
on how the Group Board
discharges its responsibilities under Section 172 of the
Companies Act 2006 and how it considers our stakeholders
in its decision-making on pg 105–106.
For each Group Board and Committee meeting, a tailored
agenda is agreed beforehand by the Chairman, Committee
Chair, Chief Financial Officer and Asia CEO (as appropriate),
and Group General Counsel and Company Secretary.
A typical meeting will comprise reports from the CEO
and the CFO, as well as regional reports (US and China)
on current trading and financial performance. There is
also a report from the Chief People Officer (“CPO”) at each
Group Board meeting reviewing the colleague engagement
plan, Company values and culture as well as the employer
brand. Further, there will be two or three deep dives into
areas of strategic importance.
At each meeting, the Group Board received presentations
on and discussed selected strategically significant matters
in greater depth to evaluate progress, provide insight and,
where necessary, decide on appropriate action.
Key activities
in 2022
Our stakeholders:
Colleagues
Customers
Suppliers
Investors
Communities
Strategy and Company performance
The CEO and CFO led discussions focusing on recent
trading, general business performance and the key
strategic initiatives underway:
Group
•
Approved a clear plan to protect profits against sustained
headwinds in 2023 and underpin the delivery of the
Group strategy. Three focus areas: leaner organisation
structure, clear and focused regional priorities and
enhanced focus on managing cash.
READ MORE
on pg 10.
UK
•
Received updates on UK trading performance.
•
Discussed industry-wide supply chain disruption,
labour shortages and inflationary pressures and the
mitigating actions.
•
Discussed commercial landscape and competitor
environment across the UK business.
•
Approved capital investment in new equipment and
capabilities to accommodate business wins, increase
automation and reduce waste and energy
consumption.
READ MORE
on pg 105.
•
Approved the creation of our own brand, ‘The Delicious
Dessert Company’, and the launch of a range of eclairs
into two of our strategic retailers.
READ MORE
on pg 25.
US
•
Discussed industry-wide labour shortages and
inflationary pressures and the mitigating actions.
•
Discussed future capital plans to deliver on the
regions’ strategic initiatives with regional updates
on project speed and delivery.
•
Discussed ways to grow and strengthen our existing
customer relationships, approved strategic investment
to increase our fresh meals capacity through new
product development, range expansion and assessed
potential new customer opportunities.
•
Approved the launch of market-leading fresh meals
offer at a new customer.
READ MORE
on pg 27.
China
•
Discussed and agreed the forward-looking strategic
priorities in China with a focus on building our scale
in retail and foodservice channels.
•
Approved the launch of a food-to-go fresh sushi offer
with a strategic retail customer.
READ MORE
on pg 27.
•
Discussed Covid disruption and continuation of
delivering business priorities.
•
Continued to discuss ways to grow and strengthen
our relationship with our existing customers through
new product development and expansion of our core
offering with new product categories.
•
Discussed the development of new channel
opportunities in retail and office catering.
Bakkavor Group plc | Annual Report & Accounts 2022 |
101
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
Technical risk management and mitigation –
health and safety and food safety
Culture
Financial updates
•
Received regular updates on the health and safety
auditing of the business against both standard controls
on both an announced and unannounced basis and
our technical strategy through the year.
•
Advocated for the standardising of health and safety
and food safety across the business, which resulted
in the implementation of global policies for health and
safety and food safety.
•
Oversaw the implementation of control measures
based on guidance from the UK Government,
Health Security Agency and wider industry.
•
Reviewed health and safety key performance
indicators (“KPIs”), noting as at year end, our major
accidents reports show that Bakkavor consistently
outperforms the HSE industry average.
•
Approved the technical priorities for 2023: to maximise
talent, develop the team, focus on succession planning,
internal evolution through food safety governance and
food integrity rigour, focus on ESG strategy priorities,
SHE culture and evolution of internal brand.
•
Reviewed feedback from colleagues in response to
the 2021 EES and approved the launch of Bakkavor’s
refreshed values (with a focus on respect and trust).
•
Considered results of the 2022 EES and approved
recommended areas for action in 2023, including
ensuring colleagues feel confident that we are taking
decisive action to protect our business; embedding
our refreshed values; and continuing to focus on pay
and the benefits that matter to our colleagues.
•
Received reports on targeted recruitment efforts
from early careers to senior levels through the launch
of our new Bakkavor Careers Website.
•
Approved the Group’s employer brand with the launch
of our refreshed values in early 2022 and supported
Group-wide Values Celebration Week as a way to
embed values into the business.
•
Received updates from Jill Caseberry, designated
workforce engagement Non-executive Director,
and the CPO on the refreshed values and the feedback
sessions with the GEF on embedding the values into
the business.
•
Approved the appointment of Sanjeevan Bala as
designated workforce engagement Non-executive
Director effective from 1 January 2023.
•
Oversaw the launch of the Wellbeing Strategy and
the Wellbeing Toolkit providing practical, emotional,
physical and financial wellbeing support to colleagues,
which in the opinion of the Group Board is critical
during this time of increased inflation and the
cost-of-living crisis.
•
Approved enhanced benefit offering to factory-based
colleagues, including implementation of an out-of-
cycle pay increase for the majority of factory-based
colleagues, continuing to pay above the National
Living Wage in the UK.
•
Approved enhanced training and development;
including the launch of two cohorts on the Female
Mentoring Programme, a central hub of learning
content, and received updates on the Front-line
Leaders Programme.
•
Approved investment in the talent pipeline through
award-winning apprenticeship and graduate
programmes.
READ MORE
on pg 32.
•
Reviewed financial KPIs and non-financial KPIs.
•
Approved an interim dividend of 2.77 pence per
Ordinary share on 14 October 2022 to shareholders
and agreed to propose a final dividend of 4.16 pence
per Ordinary share at the AGM on 31 May 2023.
•
Discussed the balance sheet strategy, capital
efficiency and leverage position of the Group.
•
Reviewed financial performance in the UK,
US and China.
•
Received updates on performance against the prior
year and against the budget.
•
Approved the 2023 budget including material capital
expenditure projects.
•
Considered and approved the Group Tax Strategy
and Policy and the Group Treasury Policy.
•
Received regular updates from the Audit and Risk
Committee Chair on the Committee’s oversight
of financial performance.
•
Approved the viability and going concern statements.
•
Approved the reappointment of PwC as the Company’s
External Auditors subject to shareholder approval at
the 2023 AGM.
•
Oversaw a disciplined approach to, and the
implementation of, the capital allocation framework
to enhance shareholder value.
READ MORE
in the financial review on pg 72.
102
| Bakkavor Group plc | Annual Report & Accounts 2022
Governance and legal
•
Considered and approved the appointment of
Mike Edwards as CEO.
•
Approved and effected the change in the composition
of the Group Board Committees.
•
Considered and approved the appointment of
Jill Caseberry as the Senior Independent Director.
•
Undertook an internal evaluation of the Group Board,
Committees’ and individual Directors’ effectiveness
and considered the output and recommendations from
the evaluation as described on pg 111–112.
•
Led by the Senior Independent Director, undertook an
evaluation of the performance of the Chairman.
•
Approved the Annual Report and Accounts and the
half-year results, going concern and longer-term viability
statement, Notice of AGM and the Modern Slavery
Statement which can be viewed on the Bakkavor website
(bakkavor.com/en/esg/policies-and-documents).
•
Reviewed and approved the Schedule of Matters Reserved
for the Board. This can be viewed on the Bakkavor
website (bakkavor.com/en/investors/governance/).
•
Reviewed and approved the Terms of Reference
of the newly created dedicated ESG Committee.
•
Reviewed and approved revisions to the Group’s
Whistleblowing Policy.
•
Received governance updates and ongoing training
on relevant matters throughout the year.
•
Approved the set-up of the Bakkavor Group plc
Employee Benefit Trust (“the Trust”) and the purchase
of the Company’s Ordinary shares from the market to
be held by the Trust to satisfy share awards under the
Group’s share schemes.
READ MORE
on pg 113.
Investor engagement
ESG
Risk
•
Received regular updates on Bakkavor’s share price
performance, analyst consensus, ratings and target
prices, and summary of listed peer results.
•
Received, reviewed and discussed draft financial
results statements and accompanying presentations.
•
Received investor feedback post roadshows and
meetings, included in the Group Board pack, and in
discussion with the CFO and the Company’s brokers. Key
areas of focus: inflation and supply chain impact, volumes
and consumer behaviours, capital allocation approach
(leverage, dividend, capital expenditure) and status
and outlook on US and China growth opportunities.
•
Reviewed investor relations calendar, including
consideration of quarterly trading updates.
•
Chairman actively seeks to engage with shareholders.
Senior Independent Director and Committee Chairs
available for direct meetings where required.
READ MORE
on pg 70.
•
Reviewed and approved the creation of a dedicated
ESG Committee.
•
Received updates from the ESG Committee,
designated Non-executive Director for ESG matters
and the Group Board ESG Sponsor on the execution
of the Trusted Partner ESG strategy.
•
Reviewed and considered the Group’s community
initiatives, how we are delivering these and our
progress in doing so.
•
Received updates on Task Force on Climate-related
Financial Disclosures (“TCFD”) requirements and
reviewed overall outcomes of climate risk assessment.
•
Approved the steps to the climate transition plan to
meet the commitment to Net Zero in 2040.
READ MORE
on pg 119.
•
Reviewed the Group’s principal risks and agreed the
Group risk appetite for each of the principal risks.
•
Received technical updates at each meeting from
the UK, US and China across health and safety,
food safety and whistleblowing.
•
Considered risk appetite in connection with major
capital proposals and transformation projects
(supported by detailed analysis to ensure the risks
associated with each project are fully understood).
•
Discussed the impact of climate change and
sustainability risk on the Group.
•
Assessed the impact of reputational cyber risk and
approved strategies in place to scale technology, drive
change and deliver change in cyber maturity within
the UK and considered 2023 cyber risk priorities and
a new wave of technology transformation, including the
proposal to investigate the replacement of our ERP
systems in the UK.
•
Received regular updates from the Audit and Risk
Committee Chair on the activities of the Audit and Risk
Committee during the full-year 2022.
READ MORE
on pg 76.
Bakkavor Group plc | Annual Report & Accounts 2022 |
103
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
Customers and suppliers
Remuneration
Group IT strategy
Key priorities for the Board in 2023
•
Continuing to foster relationships and engaging with
stakeholders, including colleagues, customers,
suppliers, investors and communities.
•
Oversight of the delivery of the strategy to protect profits
and underpin the three focus areas; being a leaner
organisational structure, clear and focused regional
priorities, and enhanced focus on managing cash.
•
Engaging with capital markets to drive share
performance.
•
Reviewing strategy and plan to enhance returns
on capital.
•
Aligning culture and values with strategy.
•
Aligning colleague engagement and talent pipeline
development.
•
Focusing on the ESG framework and its implementation.
•
Received Procurement Director updates on centralised
category procurement structure and Bakkavor Inbound
Logistics (“BIL”) centre of excellence.
•
Oversight of our Responsible Sourcing strategy,
commitments and progress through ESG Committee
and Group Board ESG Sponsor.
•
Received updates on the proactive engagement with
suppliers and customers to review the potential risks
within the supply chain due to labour and raw material
shortages and inflationary pressures.
•
Oversight of collaboration with customers on sourcing raw
materials and discussions with customers in relation to
our pricing models to enable us to secure price increases
across our cost base to help mitigate inflation impact.
•
Discussed and constructively challenged the
management of labour requirements and oversaw the
decision to focus on core ranges to ensure customer
services levels are maintained.
•
Approved value optimisation in the UK due to cost-
of-living pressures, expansion of our range of fresh
meals in the US and, in China, collaborating with
plant-based specialists to meet demand for healthier,
more sustainable products.
•
Approved the consolidation of our UK commercial
and development structures to improve operational
efficacy, keep our customer-centric approach and
increase category focus.
•
Approved forward-purchasing of certain raw
materials and energy to provide good visibility of costs
through 2022.
•
Reviewed sourcing plans to build further resilience
in our inbound supply chain.
•
Approved approach to Brexit-related changes,
including contingency plans particularly in relation
to disruption at ports and trade with Northern Ireland.
•
Received updates on engagement with suppliers to
ensure early identification of potential issues and the
action taken to minimise disruption.
•
Received updates on engagement with our customers
on supply performance, collaborative buying and
cost models.
•
Approved plan to roll out Group Supplier Conduct
Policy in 2023, adapting the UK Supplier Code of
Conduct to support supply chain engagement on social
issues within the US and China.
•
Engaged with commercial consultants to understand
the challenges and headwinds facing the sector.
•
Considered UK market insight updates to understand
consumers’ needs, and how this is leveraged to inform
category plans and new product pipelines.
•
Reviewed market updates on latest developments and
growth opportunities in US and China.
READ MORE
on pg 68-69.
•
Determined and agreed with the Remuneration
Committee, the remuneration arrangements for the
Chairman, Executive Directors and Management Board.
•
Reviewed workforce remuneration and related
policies, taking into account the alignment of incentives
and rewards with wider Company pay policy when
setting the policy for Executive Director remuneration.
•
Received regular updates from the Remuneration
Committee Chair on the activities of the Remuneration
Committee during 2022.
READ MORE
on pg 132.
•
Reviewed Group IT objectives, strategy and tactics to
deliver business trust, value and security resilience.
•
Monitored the progress made against the 2022 Group
IT priorities.
•
Reviewed the status of the UK cyber programme and
Group IT international programme.
•
Considered proposal to investigate the replacement of
our ERP systems in the UK.
READ MORE
on pg 84.
104
| Bakkavor Group plc | Annual Report & Accounts 2022
Governance
in action:
Capital investment and
engagement initiatives at Bakkavor Salads Bourne
Background
As a result of Bakkavor securing new business with
a strategic customer for the supply of stir-fry products,
the Group Board approved a significant capital investment in
our Bakkavor Salads Bourne site in the UK. This investment
increased site capacity, improved performance and
provided further headroom for future growth. Our new
smart manufacturing system was also implemented,
providing real time data, visual reporting and KPI
standards to enhance operational efficiency.
As part of the transformation of the site, we introduced
several initiatives to attract, retain and engage with
colleagues, enhancing on-site benefits and facilities,
and embedding the new Bakkavor values, promoting
respect and trust and ensuring we keep the customer
at the heart of what we do.
Following the completion of this investment, the Group
Board visited the site in June 2022. It completed a site
tour and received presentations from the site leadership
and customer team on the site transformation and the
initiatives implemented.
Section 172 factors considered
Prior to approval, the Group Board considered how the
investment would promote the long-term success of the
Group through the creation and delivery of sustainable
stakeholder value, and, in doing so, considered the needs
of all relevant stakeholders, including customers,
suppliers and colleagues.
Long-term consequences of the decision
The Bourne site investment has delivered in line with
expectations; operational efficiency has improved and
the site is well-placed to capitalise on future opportunities
with headroom for growth.
Fostering relationships with suppliers and customers
For our customers, it is imperative we maintain our high
levels of service and continue to deliver high-quality
products. Our forward-planning ensured disruption was
minimised, and the factory improvements have resulted in
improved health and safety and product safety standards,
and enabled us to focus on the quality of the product and
improve on our already low number of customer complaints.
Bakkavor’s development teams delivered a best-in-class
product approval process to the customer and customer
feedback has been positive. The investment in the site
has ensured that there is now additional capacity and
infrastructure in place to accommodate further business wins.
Impact on the community and environment
As we strive to deliver progress under our Group Trusted
Partner ESG strategy, the site transformation has helped
lower its environmental impact. The investment included the
replacement of packaging equipment to reduce plastic
usage, with annualised saving of 465 tonnes of plastic.
A factory waste-reduction programme was also introduced
with surplus products sold in our staff shop, and noodle
and coleslaw waste used for animal feed, in line with the
waste-reduction initiatives we have at all our Group sites.
Acting fairly between shareholders
The Group Board believes the plans are in the interests
of all shareholders. The investment was return enhancing,
and delivered in line with the plan. It also creates more
opportunities for further business wins, and financial
performance at the site has improved.
Maintaining reputation for high standards
of business conduct
The customer has strong trust and confidence in the
Bourne site’s capacity for future delivery and it is ideally
placed for future growth opportunities.
Overall, the capital investment and introduction of
colleague engagement initiatives at Bourne have had
a positive impact on the business. We reshaped the
relationships with our stakeholders whilst also creating
capacity for further growth and improved the financial
performance of the site.
Interests of our colleagues
Key initiatives were introduced to improve benefits
and resources for colleagues:
•
Attraction:
improved pay offer, varied shift patterns,
free staff bus facilities and recruitment open-days.
•
Retention:
New Starter Champions in place,
improved PPE (shoes, wellies, jackets), and
enhanced on-site facilities.
•
Engagement:
making time to listen, supporting
front-line leadership development, improving
communication, utilising the facilities to fundraise,
supporting group-led events, additional management
briefs and embedding the new Bakkavor values.
Bakkavor Group plc | Annual Report & Accounts 2022 |
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CORPORATE GOVERNANCE REPORT
CONTINUED
Background
Due to macro-headwinds persisting through 2022,
the Group Board had oversight of the Management Board’s
decisive action to protect future profits which is focused
on three areas: leaner organisation structure, clear
and focused regional priorities, and enhanced focus on
managing cash (
READ MORE
in the CEO review on pg 10).
Section 172 factors considered
When overseeing the action taken by the Management
Board, the Group Board considered the respective
interests of our stakeholders, recognising the challenge
in balancing these competing interests to maximise
the value for all those connected with the organisation.
Long-term consequences of the decision
The Group Board recognised that the implementation
of the plan was crucial to protect future profits against
ongoing headwinds, and provide significant long-term
security for Bakkavor, thus having a long-term benefit
for all of our stakeholders.
Interests of our colleagues
The introduction of a leaner leadership structure and
the closure of two sites (Bakkavor Desserts Leicester
and Bakkavor Salads Sutton Bridge) has been a difficult
decision which has impacted many of our colleagues, and
we have sought to engage with and support those affected.
Consultation at the two UK sites has completed, with the
sites due to close by the end of Q1 2023. The Group Board
has been supportive of the actions the Management
Board has taken to support colleagues including finding
alternative roles and access to our wellbeing resources.
Fostering relationships with suppliers and customers
We proactively engaged with our customers and suppliers
on the proposed site closures, and have developed detailed
plans to ensure the smooth transition of volumes to our
other sites, seeking to mitigate any potential disruption.
In the last few years, we have enhanced capacity across
most of our sites through investment and we have flexed our
manufacturing output by dynamically transferring business
between sites in response to supply chain challenges.
This means that despite the reduction in our UK footprint,
we remain well-placed to accommodate future growth.
Along with the footprint rationalisation, the alignment
of the UK business to two sectors will also drive further
synergies and enable us to be more targeted on efficiency
improvements, which helps to protect our business to
continue to deliver for our customers, and create longer-
term value for our investors.
Impact on the community and environment
The two sites due to close have provided employment
opportunities and contributed to the local communities
in which they operate. We have arranged job fairs and
are working with the JobCentre and local businesses
to support colleagues in finding alternative roles.
Acting fairly between shareholders
We updated the investor community and analysts on the
above planned actions as part of our Q3 2022 trading update
in November 2022. The news was well-received and
investors were supportive of the need to take early action to
address the ongoing macro challenges. The Group Board
believes the plans are in the interests of all shareholders.
Maintaining reputation for high standards of
business conduct
As part of the enhanced focus on managing cash, the Group
Board commenced a review of capital plans for 2023 and
remains committed to our strategic investment in bread
at Crewe. Plans will also ensure all our sites continue
with any critical compliance projects to maintain our high
standards. Under the new senior leadership team there
is a renewed drive to ensure that all communications are
simple, consistent and focused for all of our stakeholders.
Governance
in action:
Protecting our profits against
sustained headwinds into 2023
Despite the reduction in our
UK footprint, we remain
well-placed to accommodate
future growth.
106
| Bakkavor Group plc | Annual Report & Accounts 2022
The Group Board is satisfied that there is a clear division of responsibility between the
leadership of the Group Board and the Executive leadership of the business.
Through the leadership of the Chairman, a culture of debate and open dialogue is promoted with the effective contribution
of all Non-executive Directors who provide constructive challenge and hold management to account.
Key roles and responsibilities
Non-executive
Chairman
Simon Burke
The Chairman leads the Group Board. His leadership style fosters a culture of openness, active
participation, dialogue and debate at the Board level. This promotes cohesion on the Group Board.
He facilitates the right conditions to ensure effectiveness in all aspects of the role of the Group
Board and its Committees.
Working with the Chief Executive Officer and the Group General Counsel and Company Secretary,
the Chairman sets the agenda for the Group Board meetings, taking cognisance of Group Board
members’ priorities. He ensures that Group Board papers are made available to all Directors in
good time before meetings and allows sufficient time for robust and constructive discussions at
meetings. He encourages and facilitates active engagement by all Directors, drawing on their skills,
knowledge and experience. Each Director contributes and constructively reviews management’s
updates and requests, thereby holding management accountable.
The Chairman promotes effective communication between the Group Board, Senior Executives,
shareholders and other key stakeholders. Through regular investor relations updates and investor
engagement feedback, the Chairman ensures that the Group Board, as a whole, has a clear
understanding of investors’ views, and how those views have influenced the Group Board’s decisions.
He maintains close working relationships with the Chief Executive Officer and the Group General
Counsel and Company Secretary to ensure that the strategies and actions agreed by the Group
Board are implemented.
At least annually, the Chairman meets with the Non-executive Directors without the Executive
Directors present to discuss, amongst other matters, the performance of Executive Directors,
the Group Board as a whole, the Committees and the interaction between the Executive and
Non-executive Directors.
Chief Executive Officer
Mike Edwards
The Chief Executive Officer has specific responsibility for recommending the Group’s strategy to the
Group Board, for the execution of strategy once approved and for overseeing the day-to-day running
of the business. In undertaking such responsibilities, the Chief Executive Officer is supported
by the Management Board and his Senior Executive team. Together with the CFO and Asia CEO,
the Chief Executive Officer monitors the Group’s operational efficiency and financial performance
as he directs the daily business of the Group. The Chief Executive Officer is also responsible for
the recruitment and development of the Group’s Senior Executive team below Group Board level.
Chief Financial Officer
and Asia CEO
Ben Waldron
The CFO and Asia CEO is an Executive Director and is responsible for the financial reporting of
the Group, monitoring the Group’s operating and financial results and management of the Group’s
internal financial risk management and financial control systems. He supports the CEO in
implementing the Group’s strategy and, in relation to the financial and operational performance
of the Group, is also responsible for the Group Treasury, Tax, Legal, Investor Relations, Risk and
Information Systems functions.
Section 2:
Division of responsibilities
Bakkavor Group plc | Annual Report & Accounts 2022 |
107
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
Non-executive
Directors
Sanjeevan Bala
Umran Beba
Simon Burke
Jill Caseberry
Patrick L. Cook
Agust Gudmundsson
Lydur Gudmundsson
Denis Hennequin
Jane Lodge
The role of the Non-executive Directors is to offer guidance and advice to the Group Board as
a whole and the Executive Directors in particular, drawing on their wide experience across many
industries. They also provide scrutiny, constructive challenge and oversight of the Executive
Directors and Senior Executives. The roles and responsibilities of each Non-executive Director
are approved by the Group Board and set out in their letters of appointment.
Of the nine Non-executive Directors, six are Independent Non-executive Directors whilst three are
Non-independent Non-executive Directors.
Non-executive Directors’ role at Board meetings
Independent and Non-independent Non-executive Directors assess, challenge and monitor the
Executive Directors’ delivery of strategy within the risk appetite and governance structures agreed
by the Group Board.
As Group Board Committee members, they also review the integrity of the Group’s Financial
Statements, recommend appropriate succession plans, monitor Group Board diversity and set
the Directors’ remuneration.
Non-executive Director time commitment
Each Director commits to dedicating an appropriate amount of time to their duties during the
financial year and it is expected that each Non-executive Director will meet the time commitment
reasonably expected of them, pursuant to their letters of appointment. Where Directors are unable
to attend meetings, they are encouraged to give the Chairman their views in advance on the agenda
items. They also have the option to dial-in for meetings.
External appointments
In advance of any new Group Board appointments, each potential new Non-executive Director is asked
to disclose details of all other directorships and significant commitments, together with a broad indication
of the time commitment associated with such other directorship(s) or significant commitments(s).
Prior to undertaking any additional external appointments, Directors must seek prior approval
of the Group Board. Before approving any additional external appointments, the Group Board shall
consider the time commitment required for the role, as well as the experience, skills and other
commitments of the Director. Each proposed external appointment shall be reviewed independently.
The Company recognises that external appointments enable Directors to broaden their knowledge
and experience. However, they must not interfere or conflict with their roles on the Group Board.
Monitoring Non-executive Director independence
During the Group Board and Committees’ annual effectiveness review, the Nomination Committee
and the Group Board review the independence of the Non-executive Directors, giving consideration
to the circumstances which are likely to impair, or could appear to impair, a Non-executive Director’s
independence, as set out in provision 10 of the UK Corporate Governance Code (“the Code”). With
the exception of Agust Gudmundsson, Lydur Gudmundsson and Patrick L. Cook, the Group Board
considers the remaining Non-executive Directors to be independent and the Chairman was
considered to be independent on appointment.
Tenure
The Company maintains clear records of the terms of service of the Chairman and Non-executive
Directors to ensure that they continue to meet the requirements of the Code. Neither the Chairman
nor any of the Non-executive Directors have exceeded the maximum nine-year recommended term
of service set out in the Code.
Senior Independent
Director
Denis Hennequin
until 31 December 2022
Jill Caseberry
from 1 January 2023
The Senior Independent Director (“SID”) acts as a sounding board for the Chairman and serves
as a trusted intermediary for the other Directors when necessary. The SID is also available to
shareholders if they are unable to resolve any concerns through communication with the Chairman,
the Chief Executive Officer or other Executive Directors, or when shareholders prefer to speak to the
SID directly.
The SID is responsible for evaluating the performance of the Chairman on behalf of the other
Directors. Led by the SID, the Non-executive Directors meet without the Chairman at least annually
to appraise the Chairman’s performance, and on other occasions as necessary.
Group General
Counsel and
Company Secretary
Annabel Tagoe-
Bannerman
The Group General Counsel and Company Secretary supports the Group Board, its Committees
and the Management Board. She advises the Chairman, the Executive Directors and the Group
Board Committee Chairs in setting agendas for meetings of the Group Board and its Committees,
and supports the accurate, timely and clear flow of information to and from the Group Board
and its Committees, and between Directors and the Management Board and Senior Executives.
She leads the Legal function and the Group Company Secretariat and advises the Group Board
on corporate governance matters and is responsible for administering Bakkavor’s Share Dealing
Code and organising the AGM.
108
| Bakkavor Group plc | Annual Report & Accounts 2022
Section 3:
Composition, succession and evaluation
The Group Board continuously evaluates the balance of skills, experience, diversity,
knowledge and independence among the Directors.
Group Board composition
The Group Board consists of a total of 11 Directors – two Executive Directors and nine Non-executive Directors – and
collectively is well-resourced, with a combination of skills, experience and knowledge. The biographical details of each
of the Directors, along with each of their individual dates of appointment, are set out on pg 92–95.
Meeting attendance
The Group Board held eight scheduled meetings during the year and the meeting attendance is set out below.
Sufficient time is provided, periodically, for the Chairman to meet privately with the Senior Independent Director and
the Non-executive Directors to discuss any matters arising.
Current Directors except as noted
Group Board
Annual General Meeting
Total number of meetings in 2022
9
1
Meetings attended/scheduled meetings eligible to attend
Executive Directors
Agust Gudmundsson
1
9/9
1/1
Mike Edwards
2
8/9
1/1
Ben Waldron
9/9
1/1
Non-executive Directors
Simon Burke (Chairman)
9/9
1/1
Sanjeevan Bala
4
9/9
1/1
Umran Beba
4
9/9
1/1
Jill Caseberry
4
9/9
1/1
Patrick L. Cook
3
8/9
1/1
Lydur Gudmundsson
9/9
1/1
Denis Hennequin
4
9/9
1/1
Jane Lodge
4
9/9
1/1
1
Agust Gudmundsson attended all meetings in his capacity as Chief Executive Officer, with the exception of 17 November 2022, when he attended as Non-executive
Director, following his resignation as Chief Executive Officer on 1 November 2022.
2
Mike Edwards did not attend the Group Board meeting on 28 September 2022 in relation to the approval of his appointment as Chief Executive Officer.
3
Patrick L. Cook could not attend the Group Board meeting on 29 June 2022 due to personal commitments.
4
Considered to be independent.
Group Board Committee composition as at 1 January 2023
Director
Audit and Risk
Committee
Remuneration
Committee
Nomination
Committee
ESG Committee
Other
Sanjeevan Bala
Designated Workforce
Engagement NED
Umran Beba
Simon Burke
Jill Caseberry
Senior Independent
Director
Patrick L. Cook
Lydur Gudmundsson
Agust Gudmundsson
Denis Hennequin
Jane Lodge
Committee Chair
Committee member
Bakkavor Group plc | Annual Report & Accounts 2022 |
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GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
Group Board skills and expertise
In light of the current and future needs of the Group Board, part of the role of the Chairman and the Nomination Committee
is to maintain a balance of skills and expertise on the Group Board and to make recommendations to the Group Board
where changes are required to maintain that balance. When doing so, they take account of the Group Board knowledge
and skills matrix, which identifies key areas of diversity, skill or experience that add to the effectiveness and reach of the
Group Board.
Collectively and individually, the Directors are highly experienced with a wide range of skills, understanding and expertise
which facilitates effective and entrepreneurial leadership. The Group Board comprises individuals from a varied range
of backgrounds, each of whom brings a different perspective on a number of key issues for the Group, including strategy,
performance, operations, culture, sustainability, health and safety, data analytics, leadership, ethics and regulation,
diversity, finance, risk and IT. This range of backgrounds and expertise is invaluable to both the Group Board and the
Group as a whole.
Group Board skills and experience
Number of Directors
Non-executive Director of Listed Company Experience
7/11
Audit and/or Risk Committee Membership Experience
9/11
Remuneration Committee Membership Experience
6/11
Nomination Committee Membership Experience
7/11
Senior Management Experience (CEO, CFO, COO)
9/11
General experience
Strategic Planning/Oversight
9/11
Corporate Development/M&A
9/11
Manufacturing, Food Production, Food Retail
7/11
Operational, Food Safety and Hygiene
8/11
Qualified Accountant/Auditor (financial expertise)
8/11
IT, E-commerce, Technology & Innovation
5/11
HR & Talent Development
7/11
Legal & Regulatory
4/11
Experience Leading Diversity & Inclusion Initiatives
6/11
Public Relations/Media/Investor Relations
8/11
Operation of an International Business
8/11
Environmental/Sustainability
7/11
For further information on the skills and experience of each Director and appointments to the Group Board, see the Group
Board biographies on pg 92–95.
Group Board succession and changes to the Group Board
For information about Group Board succession and changes to the Group Board,
READ MORE
on pg 114–116 of the
Nomination Committee report.
Group Board inductions
Following appointment, each Director receives a comprehensive and formal induction to familiarise them with their
duties and Bakkavor’s business operations and risk and governance arrangements. The induction programme, which is
co-ordinated by the Chief People Officer and the Group General Counsel and Company Secretary, includes briefings on
industry and regulatory matters relating to Bakkavor, site visits, and face-to-face meetings with the Management Board,
Senior Executives and different teams within the business.
Ongoing professional development and skills training
In order to facilitate greater awareness and understanding of Bakkavor’s business and the environment in which it
operates, all Directors are given regular updates on changes and developments in the business. Directors will continually
update and refresh their skills and knowledge and seek independent professional advice when required. During the
year, the Group Board received dedicated training on climate issues and the ESG Committee received dedicated training
focusing on developing skills in climate and Net Zero; responsible sourcing, including biodiversity and deforestation; food
waste and packaging. The Group Board received presentations throughout the year from various departments within the
business on key topics including financial performance, human resources, legal, audit, risk and compliance, food safety,
health and safety, sustainability, investor relations, corporate governance and corporate finance.
110
| Bakkavor Group plc | Annual Report & Accounts 2022
Annual re-election of the Group Board
The rules governing the appointment and replacement of Directors can be found in the Articles of Association,
the Code, the Companies Act 2006 and related legislation. Under the Terms of Reference of the Nomination Committee,
any appointment must be recommended by the Nomination Committee for approval by the Group Board.
In compliance with the Code, all Directors will retire and offer themselves for election or re-election, as appropriate,
on an annual basis. At our fifth AGM, held on 25 May 2022, each Director offered himself or herself for election or re-election
as a Director. All Directors will retire at the 2023 AGM to be held on 31 May 2023 and offer themselves for election or
re-election, as appropriate.
Internal Group Board and Committee evaluation
1
2
3
4
STAGE 1
Group Board
to complete
questionnaires
STAGE 2
Results collated,
reported and
evaluated
STAGE 3
Presentation to
the Group Board
and discussion
STAGE 4
Action plan agreed
Process
The Code requires us to undertake a formal and rigorous annual evaluation of the performance of the Group Board,
its Committees, the Chairman and individual Directors and that the Group Board should have an externally facilitated
evaluation, carried out by an independent consultant, at least once every three years.
The Group Board operates a three-year cycle of evaluations. Year one of the cycle comprises an externally facilitated
evaluation, carried out by an independent consultant. Our externally facilitated evaluation was carried out in 2020 by
Clare Chalmers Limited, an independent provider of Board evaluations, with no connections to the Group or any individual
Directors. The evaluation covered areas including Group Board composition and expertise, succession planning, the
Company’s long-term business strategy, stakeholders, culture, risk management and managing through Covid.
The evaluation process comprised interviews with all Group Board members and a wide range of other stakeholders
including Management Board and Senior Executives and external advisers such as the External Auditors. The input of
each participant was kept confidential by the external consultant, allowing for honest and in-depth feedback and a report
on the findings was presented to the Group Board in November 2020. The report concluded that the Group Board and its
Committees was operating effectively and as well as recognising the Group Board’s strengths, the report also contained
some recommendations to further enhance the Group Board’s effectiveness. The recommendations and resulting actions
were followed up in 2021 and progress was reviewed again as part of the 2021 Group Board and Committee evaluation
process which was conducted internally. The Group Board and Committee evaluations were conducted internally in 2021
and 2022 and there will be an externally facilitated evaluation in 2023.
The 2022 internal evaluation of the Group Board and its Committees was undertaken in November 2022 based on a
questionnaire which covered the following topics:
•
Board Composition and Culture:
Composition, Leadership, Dynamics and Decision-making.
•
Role of the Chairman
•
Board Oversight:
Strategy, Performance, Risk and People.
•
Engagement with our Stakeholders:
Shareholders, Customers and Suppliers, Other Stakeholders, Purpose, Values and Culture.
•
Board Efficiency:
Board Meetings, Agendas, Minutes and Secretariat.
•
Committees:
Audit and Risk Committee, ESG Committee, Nomination Committee and Remuneration Committee and role of
Committee Chairs.
The internal review was facilitated by the General Counsel and Company Secretary and the questionnaire was completed
by all Group Board members. A report on the outcome of the evaluation exercise was prepared by the General Counsel
and Company Secretary and presented to the Group Board.
Bakkavor Group plc | Annual Report & Accounts 2022 |
111
GOVERNANCE
Group Board and Committee evaluation insights
The report concluded from the feedback to the questionnaire that Bakkavor operated an efficient and effective Group
Board and Committees and that the Group Board’s composition is well-balanced in terms of the skills, knowledge,
experience and expertise required in order to perform its role appropriately. The new values, linked to the Group strategy,
will continue to be a central focus of the Group Board.
The insights and action points from the evaluation exercise were noted by the Group Board.
The Group Board Committees were also evaluated and, overall, were considered to function well in terms of their
effectiveness, decision-making and the rigorous way they addressed all issues brought to their attention. The performance
of each Director was effective, and both the Group Board and its Committees continued to provide effective leadership
and exert the required levels of governance and control and the Chairman was considered to provide robust leadership
for the Group Board.
The Group Board will continue to review its procedures, effectiveness and development in the year ahead.
As well as considering the results of this year’s performance evaluation, the Group Board also reviewed performance
against the areas identified in the 2021 internal evaluation report. The recommendations are summarised below:
2021 recommendations
Actions taken during 2022
Group Board and Committee composition
Group Board Committee composition was reviewed
to ensure the Company has the appropriate balance of
Independent Non-executive Directors on the Group Board
and its Committees and that the roles of the Non-executive
Directors were balanced, taking into consideration their
respective time commitments. A number of changes to
Group Board Committee membership were approved
by the Group Board effective from 1 January 2023.
Focus on ESG matters
A dedicated ESG Committee was established in June 2022
to have oversight of ESG matters and the execution of the
Trusted Partner strategy.
Arrange additional site visits for Group Board members
The Group Board visited the Bourne Salads site in June
2022. The Chairman and the designated Non-executive
Director for Workforce Engagement visited sites during
the course of the year.
2022 recommendations
Actions to be taken in 2023
Group Board and Committee Composition
In light of changes to the Group Board Committee
membership approved by the Group Board effective
from 1 January 2023, keep under review the composition
and skills of the Group Board and its Committees.
Succession planning
A key focus area for the Nomination Committee will be on
clear succession plans for the Group Board and Management
Board (and their direct reports two levels down).
Management and Senior Executives are included in
meetings currently. It would be good to have in addition,
regular presentations from other senior leaders and
management (e.g. Heads of Group roles, Divisional
Managing Directors, Functional Heads and their direct
reports) over the next year.
As well as the Management Team, presentations from
a wider selection of Senior Executives will be included
on the 2023 agenda.
It is clear how the Company’s purpose cascades down
into the strategy, values and target culture, which will
need to be reiterated under the new leadership to
ensure continuity.
Discussion and review of Company purpose will continue to
feature on the 2023 agenda. To include regular Group Board
updates from the Chief People Officer to report back on
actions being taken within the business to embed the values
and culture as well as feedback from colleague engagement.
CORPORATE GOVERNANCE REPORT
CONTINUED
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| Bakkavor Group plc | Annual Report & Accounts 2022
During 2022, the Committee oversaw the
selection process for the appointment of our
new CEO, reviewed the composition of the Group
Board Committees and oversaw a number of
initiatives in response to feedback received in
the Employee Engagement Surveys of the last
two years.
– Simon Burke, Chair of the
Nomination Committee
Committee
purpose:
To review the structure, size and
composition of the Group Board, and make
recommendations on new appointments
of Executive and Non-executive Directors.
Main duties of the Committee
The role of the Committee is to review and
report on the leadership and succession
needs of the Group and ensure that appropriate
procedures are in place for nominating,
training, evaluating and succession planning
for the Group Board, Management Board and
Senior Executives; and to consider the benefits
of diverse senior leadership, including gender,
social and ethnic backgrounds, cognitive and
personal strengths. The Committee remains
vital in ensuring that the Group has a strong,
diverse and effective Board and executive
leadership team, with a broad range of relevant
professional backgrounds, skills and experience
to deliver our long-term strategic objectives.
The Committee discharges its responsibilities
appropriately through a series of scheduled
meetings during the year, linked to the
Committee’s Terms of Reference, which are
available on the Bakkavor website (bakkavor.
com/en/investors/governance). The Terms
of Reference were last updated in June 2022.
Following each Committee meeting, the Committee
Chair reports to the Group Board on its activities
and makes recommendations to the Group
Board as appropriate.
The Group General Counsel and Company
Secretary attends all Committee meetings
to record minutes and provide advice to the
Directors. The Chief People Officer (“CPO”)
is invited to regularly attend and provide
updates on matters such as succession planning,
talent acquisition, learning and development,
and colleague engagement. No Director attends
discussions relating to their own appointment.
3
meetings were held
during the year:
Details of members’ attendance at the meetings are set out below:
Member
Member since
Meetings
attended/Total
meetings held
% of
meetings
attended
Simon Burke (Chair)
19 October 2020
3/3
100%
Umran Beba
1 September 2020
3/3
100%
Jill Caseberry
13 August 2021
3/3
100%
Lydur Gudmundsson
20 October 2017
3/3
100%
Denis Hennequin
20 October 2017
3/3
100%
NOMINATION COMMITTEE REPORT
Committee meetings and membership
The Committee consists of three Independent Non-executive
Directors, one Non-independent Non-executive Director, and
the Chair of the Committee who is also the Group Board Chair.
READ MORE
on the experience, skills and qualifications of the
Committee members on pg 92–95.
100%
meeting attendance by
all Committee members
Bakkavor Group plc | Annual Report & Accounts 2022 |
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GOVERNANCE
NOMINATION COMMITTEE REPORT
CONTINUED
The Committee’s 2022
activities
There were four focus areas for the Committee:
1
Executive succession planning
On 29 September 2022, we announced that Agust
Gudmundsson, the Chief Executive Officer and
co-founder, was retiring from the business. The Committee
undertook a robust recruitment and selection process,
which led to the appointment of Mike Edwards as
Chief Executive Officer, the details of which are outlined
further below. The process was supported by Russell
Reynolds Associates, who were engaged as independent
external search agents.
2
Group Board Committee changes and change
to our designated Workforce Engagement
Non-executive Director
The Committee reviewed the composition of the
Group Board Committees to ensure that the roles of
the Non-executive Directors were balanced, taking into
consideration their skills, experience and respective time
commitments. The Committee recommended a number
of changes to the Group Board Committee membership
for Group Board approval. The changes were announced
on 18 November 2022, with an effective date of 1 January
2023. Further, Sanjeevan Bala was appointed as the
new designated Workforce Engagement Non-executive
Director effective 1 January 2023.
3
Workforce engagement and Employee
Engagement Survey (“EES”)
The Committee received updates from Jill Caseberry,
the designated Workforce Engagement Non-executive
Director, and oversaw actions taken in response to the
feedback from our 2021 EES, notably the introduction
and embedding of Bakkavor’s refreshed values.
The Committee discussed the results and recommended
areas for action arising from the 2022 EES which will
be carried out in 2023.
4
Board and Committee performance evaluation
The Code and the recommendations of the Financial
Reporting Council’s Guidance on Board Effectiveness,
require us to undertake a formal and rigorous annual
evaluation of the performance of the Group Board, its
Committees, the Chairman and individual Directors and
that the Group Board should have an externally facilitated
evaluation, carried out by an independent consultant with
no connections to the Group or any individual Directors,
at least once every three years. The Group Board and
Committee evaluation was externally facilitated in 2020
and conducted internally in 2021 and 2022. There will
be an externally facilitated evaluation in 2023.
The 2022 internal evaluation of the Group Board and its
Committees was undertaken in November 2022 based
on a questionnaire about Board composition and culture,
the role of the Chairman, Board oversight, engagement
with our stakeholders, Board efficiency and the Group
Board Committees and roles of Committee Chairs.
A report on the outcome of the internal evaluation was
prepared by the Group General Counsel and Company
Secretary and was presented to the Committee and
the Group Board in November 2022.
The report concluded from the feedback to the
questionnaire that Bakkavor operated an efficient
and effective Group Board and Committees, and that
the Group Board’s composition was well-balanced in
terms of the skills, knowledge, experience and expertise
required in order to perform its role appropriately.
A key focus area for 2023 for the Committee is on clear
succession plans for the Group Board and Management
Board (and their direct reports two levels down).
READ MORE
on pg 111–112.
114
| Bakkavor Group plc | Annual Report & Accounts 2022
Details of
key activities
Chief Executive Officer succession planning
I am delighted that, following a thorough
recruitment and selection process, the Group
Board appointed Mike Edwards as the new Chief
Executive Officer. Mike has delivered operational
excellence, strong customer relationships and
consistent commercial performance since
joining Bakkavor 20 years ago.
– Simon Burke, Chairman
On 29 September 2022, it was announced that Agust
Gudmundsson would be retiring from the role of Chief
Executive Officer after 36 years at the helm, and would
be replaced by Mike Edwards effective 1 November 2022.
The search process for our new CEO was led by the
Group Board Chairman and extensively supported by the
Committee. Russell Reynolds Associates, having supported
the Group Board in recruiting other Non-executive Directors
and therefore having a good understanding of the Group’s
operations, was best placed to support the Committee in
the process, completed in accordance with the Committee’s
Terms of Reference. Russell Reynolds Associates is
an independent search consultant, which has no other
affiliation to the Group or any individual Director.
The Committee is responsible for ensuring that the Company
has a formal, rigorous and transparent process in place for
Board appointments. At the start of the process in June 2022,
the Committee evaluated the experience, skills, knowledge
and profile of the potential candidate suitable for the CEO
role. A role profile, including the candidate job specification,
was prepared on the basis of the requirements stipulated by
the Committee and shared with Russell Reynolds Associates,
which undertook a comprehensive search and rigorous
assessment of potential candidates suitable for the role.
Their search resulted in an international longlist of potential
candidates being presented to the Committee, which then
calibrated the individuals against the agreed specification.
This led to a shortlist of four candidates – three external
as well as the internal candidate, Mike Edwards – and the
Committee interviewed all four candidates.
Following the interviews, the Committee unanimously
favoured Mike Edwards as the candidate and potential
successor to Agust Gudmundsson and made a
recommendation accordingly to the Group Board. It was
noted that Mike had joined Bakkavor in 2001 and had been
promoted into a series of challenging and demanding
roles before becoming Chief Operating Officer, UK, in 2014.
His leadership of the UK business had been exceptional,
and his insight and commercial experience had made
an invaluable contribution to the Group Board (joined in
December 2020). The Group Board concluded that Mike
was the best candidate for the role when compared to the
other shortlisted candidates and unanimously approved
his appointment on 28 September 2022. See the RNS
announcement of 29 September for comments from
Agust Gudmundsson and Mike Edwards regarding the
Chief Executive Officer change.
Group Board appointments
More generally, prior to making new appointments
to the Group Board, the role profile for proposed new
Directors is prepared on the basis of the criteria laid down
by the Committee, taking into account the Group Board
knowledge and skills matrix which identifies key areas
of diversity, skill or experience that would add to the
effectiveness and reach of the Group Board. For detailed
information on the Group Board knowledge and skills
matrix,
READ MORE
on pg 110.
In all Director recruitment activity, a formal and rigorous
selection process is followed and the Committee
employs the services of an experienced independent
search consultant (who has no affiliation with the Group
nor any individual Director and who has adopted the
Voluntary Code of Conduct for Executive Search Firms on
gender diversity and best practice). A longlist of candidates
is reviewed by the Committee and reduced to a credible
shortlist of candidates who are then interviewed by
members of the Committee. The ideal candidate is then
recommended to the Group Board for formal approval.
Board and leadership succession planning
The Committee plays a vital role in promoting effective
Board and leadership succession. During the year, it reviewed
succession planning at Group Board, Management Board
and Senior Executive level to ensure a diverse pipeline for
succession, considering the skills and expertise required
by the business.
The review included contingency arrangements
relating to sudden and unforeseen exits, to ensure
orderly replacement, and medium- to long-term planning
for identifying potential candidates within the Group.
It also considered areas where external recruitment may
be required. This work highlighted that we have robust plans
for our key roles across the business, supported by our
Senior Executive Development Programme. High-performing
senior colleagues are sometimes invited to attend Group
Board or Committee meetings to present on specific matters,
projects or their divisions’ performance. This serves as good
exposure for our colleagues and is also an opportunity for
the Group Board to assess the Group’s talent pool.
Bakkavor Group plc | Annual Report & Accounts 2022 |
115
GOVERNANCE
NOMINATION COMMITTEE REPORT
CONTINUED
Board division
Committee action
Group Board
• Used Group Board knowledge and skills matrix
to inform the Group Board recruitment criteria.
• Ensured the Group Board has the necessary
mix of skills and experience to contribute
to the Group’s strategic objectives.
Management
Board
• Looked at succession planning for the
Management Board, identifying future
successors using our performance rating scale/
high-potential framework and aligned to our
talent principles (to encourage the development
of leaders at all levels, invest in those with high
potential, develop capabilities required three
years into the future and promote those who
are 8O% ready for a new role).
Senior
Executives
• Considered longer-term planning for two
levels below Management Board, focused
on identifying potential candidates within
the Group for progression and areas where
external recruitment may be required.
Feedback from our 2021 EES
The feedback from colleagues in response to the 2021 EES
had resulted in:
•
The introduction of Bakkavor’s refreshed values,
with a focus on respect and trust; and
•
The launch of a new Front-line Leaders Programme and
Executive Development programme.
During the year, the Committee monitored the embedding
of the values across the business, with a focus on talent
and leadership training and development. It received
regular updates from the Chief People Officer (“CPO”) on
the progress made in these areas. Jill Caseberry presented
to the Committee on two feedback sessions with the Site
and Group Employee Forums (“SEF” and “GEF”). This
looked at how the refreshed values had been received
across Bakkavor and the ongoing initiatives that had been
agreed in order to continue to embed the values.
Committee
composition changes
In 2022, the Committee reviewed the composition
of the Group Board Committees to ensure the roles
of the Non-executive Directors were balanced, taking
into consideration their respective time commitments,
and recommended a number of changes which were
approved by the Group Board.
Group Board changes as announced on 18 November
2022 and effective on 1 January 2023:
•
Denis Hennequin stepped down from his role as Senior
Independent Director and Chair of the Remuneration
Committee, to be succeeded by Jill Caseberry in both roles.
•
Denis also stepped down from, and Umran Beba became
a member of, the Audit and Risk Committee.
•
Jill Caseberry stepped down as Designated Workforce
Engagement Non-executive Director and was succeeded
by Sanjeevan Bala, who also joined as a member of the
Remuneration Committee.
Time commitment of Non-executive Directors
The Group Board Committee composition changes
have resulted in ensuring the responsibilities of the
Non-executive Directors are sufficiently balanced.
When reviewing the composition, the Committee
considered the Non-executive Directors’ time
commitment, the number of Group Board and
Committee meetings held during the year, and the
preparation required for and attendance at those meetings,
and is pleased to report that there are no over-boarding
concerns at the current time. It believes that the
Non-executive Directors have devoted sufficient time
to be effective representatives of stakeholders’ interests.
Independence of Non-executive Directors
The Committee considered the continued independence
of the Non-executive Directors, giving consideration
to the circumstances which are likely to impair,
or could appear to impair, a Non-executive Director’s
independence, as set out in provision 10 of the Code.
The Committee concluded that all Non-executive
Directors remained independent. This excludes:
Agust Gudmundsson, appointed Non-executive Director
effective from 1 November 2022, and still a significant
shareholder of the Company; Lydur Gudmundsson,
a Non-executive Director and significant shareholder
of the Company; and Patrick L. Cook, who is the Group
Board representative of the Baupost Group, a significant
shareholder of the Company.
116
| Bakkavor Group plc | Annual Report & Accounts 2022
Feedback from our 2022 EES
The Committee considered the results of the 2022 EES
conducted in September 2022 and discussed the following
recommended areas for action which it will continue
to oversee during 2023:
•
Reassuring colleagues that we are taking decisive action
to protect our business;
•
Embedding our refreshed values;
•
Continuing to focus on pay and the benefits that matter
to our employees; and
•
Giving colleagues the opportunity to develop and grow
their careers.
READ MORE
on pg 32.
Engagement and wellbeing in our workplaces
and communities
The Committee received regular updates from the CPO
on the ‘Engagement and Wellbeing in our Workplaces and
Communities’ pillar of our Trusted Partner ESG strategy,
which addresses five material issues:
•
Inclusive and diverse workplaces;
•
Colleague wellbeing, health and safety;
•
Responsible recruitment and employment;
•
Engagement, development and retention; and
•
Local causes and community engagement.
READ MORE
on pg 40.
Inclusive and diverse workplaces
The success of our business relies on the skills, experience
and commitment of the diverse range of people who work
for Bakkavor. Therefore, all appointments, including
recruitments and internal promotions, are based on merit,
qualification and abilities. The Committee considers the
importance and benefits of greater diversity, social and
ethnic background and cognitive and personal strengths.
However, simply having a diverse workforce is not enough.
We strive to create an equal and inclusive workplace where
colleagues feel valued, included and inspired to perform
their best.
Our Inclusion and Diversity Policy has three main objectives:
1. To live the Bakkavor core values;
2. To build an inclusive and diverse workforce across all levels
of the organisation; and
3. To provide opportunity for colleagues to succeed.
These objectives support the delivery of the ‘Trust’ element
of our Group strategy as we seek to provide our people with
a great place to work where they feel valued, included and
inspired to perform at their best. A copy of our Inclusion and
Diversity Policy can be found on the Bakkavor website
(bakkavor.com/en/investors/governance).
The Committee received regular updates on the work
of the Inclusion and Diversity Forum chaired by the Group
General Counsel and Company Secretary throughout the
year including:
•
A focus on collection and analysis of gender data by
function, site and the Group as a whole to inform initiatives
being undertaken in the year, such as the Female Mentoring
Programme designed to develop and progress female
talent within Bakkavor;
•
Targeted recruitment efforts from early careers to senior
levels through the launch of our new Bakkavor Careers
Website (jobs.bakkavor.com) with a breadth of content
to help prospective candidates understand our business,
including career stories from current colleagues and
a one-stop-shop for all Bakkavor job opportunities;
•
The development of the Group’s employer brand with the
launch of our refreshed values in early 2022; and
•
The Group-wide Values Celebration Week where teams
came together to learn about our values and celebrate
what it means to work at Bakkavor.
The Forum also supported a calendar of events throughout
2022 to promote inclusive behaviours, including:
•
International Women’s Day and World Cultural Day;
•
Communicating the theme and value of allyship through
Pride Month; and
•
Celebrating Black History Month by highlighting the
contributions of Black culture and raising awareness around
issues including microaggressions and unconscious biases.
The Committee reviewed and agreed the Inclusion and
Diversity focus areas for 2023 which are: to continue
to embed the values, enhance leadership development,
EES action planning, launch a values-based recognition
programme and plan the 2023 Inclusion and Diversity
engagement calendar.
Colleague wellbeing, health and safety
The Committee received regular updates on wellbeing
during the year, overseeing the Wellbeing Strategy launch,
the re-launch of Bakkavor’s Wellbeing Toolkit, the launch
of Wellbeing Champions and the Wellbeing engagement
calendar. This year, the Wellbeing Toolkit provided
practical emotional, physical and financial wellbeing
support, resources and benefits to colleagues. Several
articles and resources have been made available to
colleagues on financial literacy and emotional wellbeing
considering the current high cost of living. To deliver our
promise on the Wellbeing Toolkit, we have fully trained
Wellbeing Champions on site at each location to help
colleagues access these resources and support.
Responsible recruitment and employment
The Committee considered updates covering the training
received by our colleagues on modern slavery, to drive
awareness and action on this issue, rolling out campaigns
and training to raise colleagues’ awareness of the
indicators and how to report them. The Committee also
considered updates in relation to rolling out the new
Self-Assessment Questionnaire and risk assessment
at sites; this ensures that we work only with UK Labour
Providers that are Gangmasters and Labour Abuse
Authority (GLAA) licensed, and commit to work towards
the standards of the Responsible Recruitment Toolkit.
For more information, see our Modern Slavery Statement
on Bakkavor’s website (bakkavor.com/en/esg/policies-
and-documents).
Bakkavor Group plc | Annual Report & Accounts 2022 |
117
GOVERNANCE
NOMINATION COMMITTEE REPORT
CONTINUED
The Chief People Officer updated the Committee and
received support on the following issues:
•
Over 670 factory-based UK colleagues completed our
Front-Line Leaders Programme, giving them the skills
to reach their potential and support them as leaders
in our business. In the US, we engaged with external
consultants to develop the coaching skills of our Front-line
Managers and rolled out a high-potential leadership
development programme;
•
Enhanced our benefit offering to factory-based colleagues
and implemented an out-of-cycle pay increase for the
majority, continuing to pay above the National Living Wage
in the UK;
•
Launched a new online learning portal to support
more flexible ways of working, offering Group Services
colleagues over 100 courses in 17 languages for
self-directed learning; and
•
Continued to invest in our talent pipeline through our
award-winning apprenticeship and graduate programmes.
For the third year Bakkavor was voted the top FMCG
company for apprentices by TheJobCrowd, and our
graduate programme took second place.
Local causes and community engagement
The Committee received updates and had oversight
of our work with our charity partner, GroceryAid,
and our Employee Assistance Programme, where we
have provided: free flu jab vouchers for 548 colleagues
and their families, cashback and discounts on purchases
at some high street shops and supermarkets and an onsite
fast-track physio referral programme at Bakkavor Pizza
Holbeach and Bakkavor Meals Spalding, with continuing
roll-out across other UK sites.
Group Board diversity
The Committee recognises the importance of diversity
and understands the significant benefits and balance
that come with having a diverse Board. All Group Board
succession discussions take place in consideration
of this. The Committee is proud of its progress in this
area and is pleased that Bakkavor is compliant with the
recommendations of the Parker Review. The Group Board
will continue to appoint on merit, based on the skills
and experience required, being mindful of the Hampton-
Alexander and Parker Reviews when considering future
appointments, and considering all forms of diversity when
the Committee reviews the Group Board’s composition.
The Company ensures that during the recruitment of
Non-executive Directors, the lists of potential candidates
reflect the Group Board’s diversity commitments in
respect of gender and ethnicity. All lists of potential
appointments include at least 50% female candidates,
and the Company is committed to ensuring that candidates
from all ethnicities are considered. For appointments
to the Group Board, the Company uses executive search
consultants who have signed up to the Voluntary Code
of Conduct for Executive Search Firms, setting out the
key principles of best practice in the recruitment process.
These principles include a recommendation that search
firms should consider gender diversity.
The Financial Conduct Authority introduced a new listing
rule (“the Rule”) on diversity and inclusion disclosures,
applying it to financial periods commencing on or after
1 April 2022. We are pleased to report the early adoption
of the Rule with the appointment of Sanjeevan Bala
to the Group Board in August 2021 and Jill Caseberry
as Senior Independent Director, effective 1 January 2023.
With respect to the requirement that at least 40% of the
individuals on the Board are female, it is our aim to meet
this requirement when there is suitable opportunity
to do so. Currently, there are three women out of the
11 members on the Group Board. We have provided this
information voluntarily in the reporting table on pg 97.
The Committee considered the gender balance of the
Management Board, Senior Executives and their direct
reports and received regular updates on this from the CPO
throughout the year.
READ MORE
on the gender balance
of Senior Managers and their Direct Reports on pg 53.
Corporate governance
The Committee received regular updates on corporate
governance developments from the Group General
Counsel and Company Secretary and know-how training
from external legal advisers.
Overall, there has been good progress made this year.
I would like to express my thanks to my colleagues on
the Committee for their ongoing support.
Simon Burke
Chair, Nomination Committee
7 March 2023
118
| Bakkavor Group plc | Annual Report & Accounts 2022
ESG COMMITTEE REPORT
The Committee recognises the
positive progress made on our
Trusted Partner commitments
during the year and is confident
that our ESG agenda complements
our Group strategy.
– Umran Beba, Chair of the ESG Committee
Committee
purpose:
To reflect the escalating importance of ESG at all levels of the
business and the increased focus on ESG by our stakeholders,
we formalised a dedicated Group Board ESG Committee.
This was set up in June 2022 to have oversight of the Group’s
ESG strategy, Trusted Partner, and its execution.
Specifically, the Committee recognises that our Group-wide
commitment to Net Zero by 2040 is a significant challenge that
requires a multi-faceted approach across our functions and
operations, supported by financial investment. The Committee
will oversee work already underway to get a full and detailed
understanding of where we stand, and what we need to do in
the years to come to set and achieve our climate transition plan.
Main duties of the Committee
The role of the Committee is to have oversight of
the Group’s ESG strategy, Trusted Partner, and
its execution. It also oversees the communication
of the Group’s ESG activities with its stakeholders
and provides input and advice to the Group Board
and its Committees on the Group’s performance
against ESG metrics and on the setting of ESG
targets and other ESG matters as required.
The Committee discharges its responsibilities
appropriately through a series of scheduled
meetings during the year, linked to the
Committee’s Terms of Reference, which
are available on the Bakkavor website
(bakkavor.com/en/investors/governance).
The Terms of Reference were last updated
in June 2022. Following each Committee
meeting the Committee Chair, who is also
the designated Non-executive Director for
ESG matters, reports to the Group Board
on the activities of the Committee and makes
recommendations to the Group Board
as appropriate.
The Group General Counsel and Company
Secretary attends all Committee meetings
to record minutes and provide advice to the
Directors. The Chief Financial Officer, who is
the ESG Group Board Sponsor, the Chief People
Officer, the UK Finance Director and the Head
of Group ESG Strategy are standing attendees
at the Committee meetings.
3
meetings held
during the year
100%
meeting attendance by
all Committee members
The Committee held three scheduled meetings during the year
in accordance with its Terms of Reference and will continue
to hold three scheduled meetings a year (in addition to any
unscheduled meetings required from time to time). Details
of members’ attendance at the meetings are set out below:
Member
Meetings attended/Total meetings held
Umran Beba (Chair)
1
3/3
Sanjeevan Bala
2
2/3
Patrick L. Cook
2
2/3
Jane Lodge
2
2/3
1
One of the meetings was attended earlier on in the year as part of the Nomination and ESG Committee.
2
Member of the Committee since June 2022.
Committee meetings and membership
The Committee consists of three Independent Non-executive
Directors and one Non-independent Non-executive Director.
READ MORE
on the experience, skills and qualifications of the
Committee members on pg 92–96.
Bakkavor Group plc | Annual Report & Accounts 2022 |
119
GOVERNANCE
ESG COMMITTEE REPORT
CONTINUED
Group Board and Committee evaluation
During the year, the Committee undertook an internal
evaluation of its effectiveness in accordance with
the requirement of the Code and recommendations
of the Financial Reporting Council’s Guidance
on Board Effectiveness.
The resulting report indicated that whilst this is a newly
formed Committee, it is considered to be operating effectively
and efficiently. It also showed that the Committee’s
membership is well-balanced in terms of the skills,
knowledge, experience and expertise required to perform
its role appropriately.
The cadence of meetings and the annual cycle of reports
and deep-dives will be fine-tuned as is necessary.
READ MORE
about the internal Group Board and
Committee evaluation process on pg 111–112.
The Committee 2022
activities
1
Set up as a dedicated ESG Group Board
Committee in June 2022
The Terms of Reference were approved,
responsibilities and priorities were agreed and
the Committee determined the direction for
our oversight of ESG strategy and implementation.
2
Reviewed and signed off the Group’s 2022
ESG materiality assessment and updated
our Trusted Partner strategy
Its focus areas, priority issues and commitments include:
•
Responsible Sourcing;
•
Sustainability and Innovation; and
•
Engagement and Wellbeing.
3
Received a dedicated training session from
our Head of Group ESG Strategy
This sought to develop skills in the following areas:
climate and Net Zero, sourcing standards including
biodiversity and deforestation, food waste and packaging.
4
Oversaw the steps taken to develop the
Group’s climate transition plan
This included work required to stress test this plan.
5
Received updates from management on
non-financial KPIs: UK food waste, UK
accidents, Group net carbon emissions and UK
employee turnover
These are considered to be material issues for the
whole business and would impact our overall Group
strategy. The Committee will receive quarterly
updates on these KPIs.
Trust is embedded in our Group strategy
and values, and our action to ensure we
deliver progress across the environmental
and social issues that matter most to our
stakeholders and is shaped by the focus
areas of our Trusted Partner ESG strategy.
– Umran Beba, Chair of the ESG Committee
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| Bakkavor Group plc | Annual Report & Accounts 2022
Details of
key activities
Oversight of Trusted Partner ESG strategy and
materiality assessment
The Committee reviewed the Trusted Partner priority
issues and approved:
•
Our updated Trusted Partner ESG strategy, which included
refreshed commitments for launch in 2023.
•
The ESG-related sections in the Annual Report and Accounts;
READ MORE
on pg 40 and pg 56.
•
A separate ESG report will be available in April on our
website: bakkavor.com/esg, with more detailed information
for specialist audiences.
Non-financial KPIs
Reducing food waste, accidents and carbon emissions
in a challenging year for the business demonstrates
the resilience and embeddedness of our ESG objectives.
The Committee received updates from the CFO and the
Head of Group ESG Strategy on the following non-financial
KPIs: UK food waste, UK accidents, Group net carbon
emissions and UK employee turnover.
READ MORE
on
our KPIs on pg 4 and the year-on-year trends on pg 40.
Environmental
This year has seen a major focus on our Group-wide Net
Zero commitment. This is clearly a significant challenge
that requires cross-functional support and teamwork.
The Committee has received updates on detailed work
undertaken to start developing our long-term climate
transition plan, climate risk assessment, short-term
priorities and next steps to build out and achieve the
transition plan. This continues to involve bringing together
key stakeholders from across the business to:
•
Understand what this commitment means for our
long-term strategy;
•
Energise thinking around our response; and
•
Plan the roll-out of the roadmap across the business
and to support delivery.
Our approach is a work in progress, but will provide us
with the structure we need to push on and work towards
our goal –
READ MORE
on pg 56.
The Committee received regular updates on environmental
issues under the Trusted Partner strategic focus
areas including:
•
Responsible Sourcing: supply chain human rights
and environmentally sustainable sourcing, including
deforestation and biodiversity topics; and
•
Sustainability and Innovation: food waste, resource efficiency
and emissions, impact of packaging and product innovation.
We are pleased with the improvements made to support
our progress towards achieving The UK Plastics Pact’s
2023 industry goals: eliminated 2,429.3 tonnes of plastic
across our UK product ranges and the average recycled
content of our plastic packaging was 52.9%, up from 45.6%
in 2021 well above the goal of 30%, as well as a reduction
in food waste by 110 basis points to 8.05%.
READ MORE
on pg 59.
Social – engagement and wellbeing
The Committee received updates from the CPO and the
Head of Group ESG Strategy on the ESG impacts on our
Communities and Colleagues stakeholder groups, including:
•
Updates on colleague safety, wellbeing and engagement,
development and retention;
•
Information on our risk-based approach managing human
rights issues in both our supply chain and own operations;
•
Succession planning; and
•
Inclusion and Diversity initiatives and activities undertaken
at local sites.
Governance
Given the increased focus on ESG matters, the Group
Board agreed to separate the ESG Committee from the
Nomination Committee for a dedicated ESG Committee
to be formed in June 2022. New Terms of Reference were
approved, and agreement reached on the Committee’s
responsibilities and priorities.
Looking ahead, it is likely to be another highly challenging
year in many ways. However, the Committee remains
confident that our ESG agenda strengthens and complements
Bakkavor’s business strategy and helps the Company to
fulfil its purpose and grow in a positive and sustainable way.
READ MORE:
The ESG governance framework pg 41.
The governance framework in relation to climate pg 57.
Umran Beba
Chair, ESG Committee
7 March 2023
Bakkavor Group plc | Annual Report & Accounts 2022 |
121
GOVERNANCE
AUDIT, RISK AND INTERNAL CONTROL
Accountability
Disclosure Guidance and Transparency Rules (DTR) 7.2.6
and the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (SI 2008/410).
Disclosures required under DTR 7.2.6 and the Large
and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008 (SI 2008/410), providing
information on major interests in shares, the Company’s
Articles of Association, share capital and capital structure,
restrictions attaching to shares and the powers of the
Company issuing or buying back shares.
READ MORE
on pg 154 of the Directors’ report.
Audit, risk and internal control
READ MORE
on the Group’s approach to risk management,
risk management framework, and principal risks and
uncertainties on pg 76–86. The principal risks and
uncertainties form part of the Directors’ report on
pg 152–157.
Risk management and internal control
The Group Board has overall responsibility for the Group’s
system of internal control and risk management. It ensures
the effective identification and management of key strategic
and emerging risks, and the review and approval of the
ongoing risk management process, including clear policies
that outline what can be considered an acceptable level of risk.
The Group Board has established procedures to:
•
Manage risk, oversee the internal control framework and
determine the nature and extent of the principal risks that
Bakkavor is willing to take in order to achieve its long-term
strategic objectives; and
•
Ensure the maintenance of the Group’s risk management
and internal control systems, reviewing them annually.
The risk management framework is supported by
a system of internal controls designed to embed the
effective management of the key business risks
throughout the Group.
The Group Board receives presentations on Group risk
twice a year. This includes a comprehensive review and
consideration of changes to both existing and emerging
risks, with particular attention to appetite across the
principal risks. Detailed risk and control reviews are
conducted for each of the principal risks, with additional
presentations from the Group IT Director covering cyber
security and the Group Technical Director covering health
and safety and food safety.
As delegated by the Group Board, the Audit and Risk
Committee is responsible for establishing procedures
to oversee the internal control framework. It reviews the
effectiveness of the Group’s risk management process
and internal control system and receives regular reports
from management and both internal and External Auditors.
These include: the risks that are relevant to business
activity; the effectiveness of internal controls in dealing
with these risks; and an update on any necessary
corrective actions.
The Group Board receives regular reports from the Audit
and Risk Committee and verbal updates from the latter’s
Chair after each meeting. This enables an evaluation
of how the Group can continue to improve the effectiveness
of its approach to risk management.
Day-to-day risk management is led by Senior Management,
with ownership of individual risks per the Risk Register
assigned to members of the Senior Management team.
Management of risk is embedded in daily working practices
and underpinned by Bakkavor’s policies, Code of Conduct
and business ethics. Where risks are identified, action plans
are developed to mitigate each risk, with clear allocation
of responsibilities and timescales for completion.
Progress towards implementing these plans is monitored
by the Audit and Risk Committee as part of a structured
business review, and reported back to the Group Board.
The process for identifying, evaluating and managing the
principal risks has been in place throughout the financial
year. Up to the date of approval of the Annual Report and
Accounts, the process accords with the Financial Reporting
Council (“FRC”)’s guidance on risk management, internal
control and related financial and business reporting. It is
regularly reviewed by the Group Board and the Audit and
Risk Committee.
Audit, risk and internal control
122
| Bakkavor Group plc | Annual Report & Accounts 2022
The internal control system provides Senior Management
with an ongoing process for risk management. It can
only provide reasonable, and not absolute, assurance,
as it is designed to manage rather than eliminate all risks.
In analysing and reviewing risk and the Group’s system
of internal controls, the Audit and Risk Committee and
the Group Board consider:
•
The nature and extent of the risks, including principal risks,
facing the Group, as well as emerging risks;
•
The extent and categories of risks that they regard as
desirable or acceptable for the Group to bear;
•
The likelihood that the risk concerned will materialise,
and the associated impact of this as a consequence;
•
The Group’s ability to reduce the incidence and impact
on its business for risks that do materialise;
•
The operation of the relevant controls and control processes;
•
The costs of operating particular controls relative to the
benefits in managing related risks; and
•
The Group’s risk culture.
The Directors confirm that the Group Board has carried
out a robust assessment of the principal and emerging
risks facing the Group, including those that would threaten
its business model, future performance, solvency and
liquidity. No significant failings or weaknesses were
identified in the Group Board’s assessment of the Group’s
systems of risk management or internal control.
Internal controls over financial reporting
The Group’s financial reporting process has been designed
to provide assurance regarding the reliability of the financial
reporting and preparation of its Financial Statements,
including Consolidated Financial Statements, for external
purposes in accordance with UK-adopted International
Financial Reporting Standards (“IFRS”). The annual review
of the effectiveness of the Group’s system of internal
controls included reviews of systems and controls relating
to the financial reporting process.
Internal controls over financial reporting include
procedures and policies that:
•
Pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions
of the Group.
•
Provide reasonable assurance that:
–
Transactions are recorded as necessary to allow the
preparation of Financial Statements; and
–
Receipts and expenditures are being made only in
accordance with authorisations of management
and Directors.
•
Provide reasonable assurance regarding prevention or
timely detection of unauthorised acquisition, use or disposal
of Group assets that could have a material effect on the
Group’s financial and operational controls, and compliance
with laws and regulations.
Bakkavor Group plc | Annual Report & Accounts 2022 |
123
GOVERNANCE
Committee meetings and membership
The Committee currently comprises three Independent
Non-executive Directors. Jane Lodge has recent and relevant
financial experience, having spent 25 years at Deloitte & Touche
LLP, and the Committee as a whole has competence relevant
to the sector in which Bakkavor operates.
READ MORE
on
the experience, skills and qualifications of the Committee
members on pg 93–95.
AUDIT AND RISK COMMITTEE REPORT
The Committee focused its core
responsibilities on supporting
the Group Board and protecting
the interests of shareholders in
relation to financial reporting
and internal control.
– Jane Lodge, Chair of the Audit and
Risk Committee
Committee
purpose:
The Committee’s remit covers accounting
and financial reporting, the effectiveness
of internal controls, identification and
management of risks, and the External
and Internal Audit processes.
Main duties of the Committee
The role of the Committee is to monitor the integrity
of the Group’s Financial Statements and
announcements, review internal financial controls
and risk management systems, monitor and review
the Internal Audit function, recommend the
appointment of the External Auditors, review
the effectiveness of their work and to develop
and implement policy on the use of the External
Auditors for non-audit services.
The Committee discharges its responsibilities
appropriately through a series of scheduled
meetings during the year, linked to the
Committee’s Terms of Reference, which
are available on the Bakkavor website
(bakkavor.com/en/investors/governance).
The Terms of Reference were last updated
in February 2021. Following each Committee
meeting, the Committee Chair reports to the
Group Board on the activities of the Committee
and makes recommendations to the Group
Board as appropriate.
Only Committee members have the right to
attend meetings, but the Chief Financial Officer,
the Group Financial Controller, the Group Head
of Risk, the Internal Auditors (KPMG) and the
External Auditors (PwC) are invited to attend
meetings of the Committee as the Committee
feels appropriate.
The Committee also meets privately without
management present and the Committee Chair
meets with the External and Internal Auditors,
without management present, on a regular basis in
order to discuss any issues which may have arisen.
4
meetings were held
during the year:
Details of members’ attendance at the meetings are set out below:
Member
Member since
Meetings
attended/Total
meetings held
% of
meetings
attended
Jane Lodge (Chair)
3 April 2020
4/4
100%
Sanjeevan Bala
1 August 2021
4/4
100%
Denis Hennequin
1
20 October 2017
3/4
75%
1
Denis Hennequin was unable to attend the meeting on 16 November 2022 due to travel disruption.
On 1 January 2023, Denis Hennequin stepped down from
the Committee. We wish to thank Denis for his dedication
and contributions during his tenure and are delighted to
welcome Umran Beba, who was appointed as a member
of the Committee on 1 January 2023.
92%
meeting attendance of
Committee members
124
| Bakkavor Group plc | Annual Report & Accounts 2022
Key activities
in 2022
1
Ensured that the Group can manage its risks
and has the processes needed to enable going
concern and make viability confirmations, through:
•
A robust and consolidated risk management process.
•
An effective internal control framework.
2
Conducted in-depth reviews of our risk
management and mitigation in health and safety,
food safety and environment, Group IT, tax compliance,
treasury and pensions.
3
Continued to focus on ensuring the integrity,
quality and compliance of the Group’s external
financial reporting.
4
Focused its attention on challenging and
supporting management’s response to a tough
operating environment with significant inflation and
supply chain disruption. This was done by ensuring that
the ongoing risks and the relevant mitigating actions
have been appropriately modelled and managed.
5
Continued to oversee the alignment of ESG
focus areas and ESG material issues with the
Group’s principal risks. This was done in conjunction
with the ESG Committee.
6
Reviewed the Group’s financial reporting
approach to the recommendations of the TCFD.
Group Board and Committee evaluation:
During the year, the Committee undertook an internal
evaluation of its effectiveness in accordance with
the requirement of the Code and recommendations
of the Financial Reporting Council’s Guidance on
Board Effectiveness.
The evaluation indicated that:
•
The Committee continues to operate effectively and
efficiently and has the skills and expertise required
in order to perform its role appropriately.
•
The Committee possesses the skills, competence and
relevant financial and commercial expertise to enable it
to discharge its responsibilities robustly and independently.
•
The Committee’s composition should be reviewed, taking
into consideration the respective time commitments of the
Non-executive Directors. Taking this into account, effective
1 January 2023, Denis Hennequin stepped down from,
and Umran Beba became a member of, the Committee.
•
The Group Board is satisfied that the Chair, Jane Lodge,
has significant financial experience in the UK listed
environment, and the necessary qualifications, skills
and experience, to fulfil the role as the Committee Chair.
READ MORE
on the experience, skills and
qualifications of the Committee members on
pg 93–95, and on the internal evaluation process
on pg 111–112.
Details of
key activities
during the year
How the Committee has discharged its responsibilities during 2022
Key areas of focus
The Committee has an extensive agenda which focuses on the audit, assurance and risk management processes within
the business. During 2022, the work of the Committee principally fell under the following key areas:
KEY AREAS OF FOCUS AND MATTERS CONSIDERED
Financial reporting
The Committee reviewed the form and content of the Annual Report and Accounts as well as the half-year and full-year
results statements, including the key estimates and judgements made by management in the preparation of the
Financial Statements.
In order to fulfil these duties, during the year under review, the Committee:
•
Considered the implications of the highly inflationary environment and the potential for weaker consumer demand on the
full-year Financial Statements, including the recognition and presentation of the relevant exceptional costs.
•
Reviewed and challenged management on the appropriateness of estimates and judgements made in the preparation
of the Financial Statements, including financial reporting and disclosure considerations in respect of climate change.
•
Reviewed the critical judgements and key sources of estimation uncertainty disclosed in the Financial Statements to ensure
they fairly reflected the potential financial impact on the business.
Section 4:
Audit, risk and internal controls
Bakkavor Group plc | Annual Report & Accounts 2022 |
125
GOVERNANCE
KEY AREAS OF FOCUS AND MATTERS CONSIDERED
Monitoring the integrity of the 2022 Financial Statements including significant judgements
The Committee:
•
Reviewed the appropriateness of Group accounting principles, practices and policies and monitored changes to,
and compliance with, accounting standards on an ongoing basis.
•
Reviewed the half-year and full-year results statements for 2022. Before recommending their release to the Group Board,
we compared the results to management financial statements and budgets, focusing on key areas of judgement and also
discussed the statements with the External Auditors.
•
Reviewed, prior to making recommendations to the Group Board, the Annual Report and Accounts for the period ended
31 December 2022.
In undertaking the review, the Committee discussed with management and the External Auditors the critical accounting
policies and issues considered most significant in preparing the Annual Report and Accounts.
Going concern
•
The Committee reviewed the Group’s assessment of going concern which is for a period of 12 months from the date
of approval of the Financial Statements. Management presented a number of stress scenarios to the Committee which
considered historical forecasting inaccuracy and the implications of further inflation, weaker sales volumes from lower
consumer demand due to the level of retail price increases and the potential for future Covid restrictions in China.
In assessing going concern, the Committee also reviewed the steps taken by management to ensure adequate liquidity
is available to the Group. The Committee concluded that under the scenarios presented, the Group would have sufficient
financial resources available to continue to operate through to at least March 2024 and it was therefore appropriate
to recommend the adoption of the going concern basis in preparing the Financial Statements.
Impairment of goodwill and intangible assets
As at 31 December 2022, the Group had significant amounts of goodwill and intangible assets that are subject to an
annual impairment review under IFRS.
The Committee:
•
Reviewed a paper prepared by management that set out the basis and assumptions for the annual impairment review.
The paper set out the determination of cash-generating units (“CGUs”), the cash flow forecasts used and the discount rate
to be applied for the purpose of the value-in-use calculation. The impairment review allowed for the forecasted costs and
expenditure required from 2030 for the Group to meet its Net Zero carbon commitment. The paper also considered downside
scenarios if financial performance was below the forecasted amounts. The impairment review indicated that no impairment
provisions were required for the period ended 31 December 2022.
•
Reviewed and approved the associated disclosure in the Financial Statements including the sensitivity analysis in respect
of the UK and US CGUs given the lower level of headroom this year.
Customer deduction accruals
The Group has arrangements in place with its customers to provide volume-related rebates and is required to make
estimates in determining the value and timing of accruals for these customer deductions due in respect of sales.
The Committee:
•
Reviewed a paper prepared by management that set out the rationale for the calculation and timing of the accruals held
under these arrangements at 31 December 2022. The paper included a summary of the key agreements in place and the level
of accruals held across the business.
•
Challenged management on the logic that had been applied to determine the level of accruals held under these
arrangements at 31 December 2022.
•
Acknowledged that this was a highly subjective area but concurred with the rationale applied by management to determine
the value of these accruals.
Recognition and presentation of exceptional costs
The Group undertook significant restructuring activity towards the end of 2022 to protect its ongoing profitability in light
of the challenging economic environment. The closure of two UK operating sites by the end of Q1 2023 combined with
other restructuring activity, has resulted in costs of £36.6m. In addition, 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 trading performance, and an ongoing contractual dispute with a US customer resulted in a £3.8m impairment of
inventory and receivables related to this customer. This has resulted in total exceptional charges of £50.1m in 2022
as set out in Note 7 to the Consolidated Financial Statements.
The Committee has reviewed a paper prepared by management that sets out the rationale for the restructuring and
calculation of the associated costs. The Committee challenged management on the assumptions used and concurred
with managements reporting of these costs as exceptional.
AUDIT AND RISK COMMITTEE REPORT
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126
| Bakkavor Group plc | Annual Report & Accounts 2022
KEY AREAS OF FOCUS AND MATTERS CONSIDERED
Fair, balanced and understandable reporting
Each year, in line with Provision 25 of the Code and the Committee’s Terms of Reference, the Committee is asked by the
Group Board to assess, through discussion with, and the challenge of, the Management Board and Senior Executives,
whether disclosures in the Group’s published Financial Statements were fair, balanced and understandable and whether
or not the disclosures provide the information necessary for shareholders to assess the Group’s position and
performance, business model and strategy.
The Committee:
•
Received papers on key judgement areas that set out management’s accounting treatment, and also sought and obtained
confirmation from the Chief Financial Officer and his team that they considered the disclosures to be fair, balanced and
understandable.
•
Discussed this evaluation with the External Auditors, which took this into account when conducting their audit. It also
established through reports from management that there were no indications of fraud relating to financial reporting matters.
•
Received a detailed paper covering key points and areas of consideration in the preparation of the Group’s published Financial
Statements for the period ended 31 December 2022, to assist the Committee with its assessment that the disclosures were
considered to be fair, balanced and understandable.
•
Having assessed the available information and the assurances provided by management, concluded that the processes
underlying the preparation of the Group’s published Financial Statements were appropriate in ensuring that those statements
were fair, balanced and understandable.
Risk management and internal control
The Committee is required to assist the Group Board in the annual review of the effectiveness of the Company’s risk
management process and internal control systems.
READ MORE
on Audit, Risk and Internal Control on pg 122.
In order to fulfil these duties, during the year under review, the Committee:
•
Received regular reports and assessments of the current and emerging risks that might threaten the Group’s business
model, future performance or liquidity.
•
Received reports on the risk management and mitigation for health and safety, environment, and food safety, IT risks
(cyber security risks and business continuity), climate change and sustainability risks, treasury and pensions, and tax
(including approval of the Group Tax Strategy and Policy).
•
Considered and challenged management on the overall effectiveness of the risk management and internal control systems
in accordance with the Group Board’s risk appetite and recommended steps to be taken to enhance the systems of risk
management and internal control.
•
Reviewed relevant disclosures within the ‘Audit, risk and internal control’ section of the corporate governance report of the
Annual Report and Accounts.
READ MORE
on pg 98.
•
Reviewed and approved the Internal Audit Plan for 2023, which sets out the planned activities for the year ahead.
In light of the above, the Committee continues to be satisfied that the Group control environment remains appropriate
and effective and that the risk management and internal control procedures comply with the requirements of the
Guidance on Risk Management, Internal Control and Related Financial and Business Reporting published by the FRC.
The Committee has reported this opinion to the Group Board.
Principal risks and viability
The Committee reviewed and approved the principal risks and uncertainties disclosures on pg 79–86 of the Annual Report
and Accounts and the viability statement on pg 87 of the Annual Report and Accounts.
The Committee evaluated a report from management that set out the view of the Group’s longer-term viability and the
forecasts over the Group’s three-year planning horizon, taking account of the potential risks faced by the business
over that period.
Taking the management assessment into account and having considered other relevant information in terms of the
risk profile of the Group, the Committee agreed to recommend the Viability Statement to the Group Board for approval.
READ MORE
on pg 87.
Bakkavor Group plc | Annual Report & Accounts 2022 |
127
GOVERNANCE
KEY AREAS OF FOCUS AND MATTERS CONSIDERED
TCFD
The Group has reported under the TCFD framework for 2022. The Committee, in conjunction with the ESG Committee,
reviewed the Group’s financial reporting approach to TCFD.
The Committee:
•
Challenged management’s approach to reporting under the TCFD framework for 2022.
•
Reviewed the TCFD report prepared by management, including the Scope 3 emissions and carbon emissions data for 2022,
to ensure it was prepared and disclosed on a consistent basis.
•
Considered the impact of future carbon tax on the Group’s impairment review assumptions.
The Committee was satisfied that the TCFD report prepared by management adequately summarised the progress the
Group has made under the TCFD framework and that the impact of TCFD had been considered in the Group’s annual
impairment review.
External Audit
Following a competitive tender carried out in 2018, PwC have been the Group’s External Auditors since the appointment
in 2019. The current External Audit partner is Sandeep Dhillon who has held this role since October 2021 and will
continue in this role in 2023. During the year, the Committee considered the approach, scope and risk assessments
of External Audit.
The Committee:
•
Met with the key members of the PwC Audit team to discuss the 2022 Audit Plan and agree areas of focus.
•
Assessed regular reports from PwC on the progress of the 2022 Audit and any material issues identified, including
management override of controls and fraud in revenue recognition.
•
Reviewed and debated the draft audit opinion for the 2022 year-end and was briefed by PwC on their approach to the audit
of critical accounting estimates and areas where significant judgement is needed.
•
Approved the Audit Plan and the main areas of focus, including valuation of customer deduction accruals and impairment
reviews for goodwill and intangible assets.
•
Reviewed and discussed with PwC its Audit and Risk Committee report on the 2022 Financial Statements which highlighted
any matters arising from the audit work undertaken by the External Auditors and no significant issues were identified.
Audit and audit-related fees
The Committee:
•
Reviewed and approved a recommendation from management on the Company’s audit and audit-related fees payable to the
Company’s External Auditors, PwC.
•
Considered the 2022 audit fees to be in line with those expected for a listed company of this type given the complexities of the
business, the external reporting requirements and recent regulatory developments that require External Auditors to exercise
greater independence and rigour in the provision of their services and in the setting of their fees.
•
Total audit fees of £1.1m were paid to the External Auditors in 2022.
Non-audit fees
To prevent the objectivity and independence of the External Auditors becoming compromised, the Committee has
a formal policy governing the engagement of the External Auditors to provide non-audit services which is reviewed
on an annual basis.
The Committee reviews and updates the Group’s policy for the provision of non-audit services to be provided by the
External Auditors to ensure that it is in line with regulatory guidance for public-interest entities. The Committee ensures
that there are no exceptions to the policy. All non-audit services to the Group provided by the External Auditors will be
put to the Committee for prior consideration and approval.
The External Auditors do not provide any non-audit services to the Group other than:
•
Subscription to PwC’s online technical portal (Viewpoint) which is a generic accounting subscription service. Management
confirmed this platform met their requirements.
•
The half-year review of the Financial Statements. The Committee provided prior approval for this, having noted that the
External Auditors’ knowledge of the business made them the preferred choice.
•
Non-audit fees of £41,000 were paid to the External Auditors for these services.
Further information on the Audit and non-audit fees can be found in Note 6 of the Notes to the Consolidated Financial
Statements on pg 185.
The Committee confirms that it has complied with the requirements of the CMA Order 2014 regarding audit tendering,
Auditors’ appointment, negotiation and agreement of audit fees and approval of non-audit services.
AUDIT AND RISK COMMITTEE REPORT
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128
| Bakkavor Group plc | Annual Report & Accounts 2022
KEY AREAS OF FOCUS AND MATTERS CONSIDERED
External Audit effectiveness
Under its Terms of Reference, the Committee assesses annually the qualifications, expertise, resources and
independence of the External Auditors as well as the quality and effectiveness of the audit process.
The Committee assessed the External Auditors’ performance and effectiveness through a questionnaire completed
by the Committee members and other relevant internal parties. The Committee reviewed the FRC’s practice aid on
assessing audit quality and considered the following factors in assessing the effectiveness of the External Audit process:
•
The experience and expertise of the Audit partner and the audit team;
•
The internal quality-control processes in place;
•
The findings from external inspections, including the FRC’s July 2022 Audit Quality Inspection report;
•
The level of professional scepticism displayed throughout the audit process;
•
The extent to which the Audit Plan was met and the quality of its delivery and execution;
•
The robustness and perceptiveness of work performed on key accounting and audit judgements; and
•
The content of reports on audit findings and other communications.
The assessment highlighted that PwC had provided a detailed review of the full-year 2021 Annual Report and Accounts
and best-practice approaches on disclosures as well as demonstrating strong technical knowledge. The assessment
also highlighted proposed actions for further consideration to ensure the smooth running of the full-year 2022 External
Audit and these were reflected in the approach to the management of the full-year 2022 audit.
In assessing the External Auditors’ professional scepticism, the Committee noted in the current year that PwC had
robustly challenged management’s assumptions and judgements made in carrying out the impairment review of
goodwill and intangible assets and the recognition and value of customer deduction accruals and the presentation
of costs as exceptional. In addition, PwC challenged management’s assumptions around downside scenarios including
the impact of further inflation, lower consumer demand following retail price increases, and the potential for future
Covid restrictions in China as part of their work on assessing the viability of the business.
External Auditors’ independence
In assessing the independence of the External Auditors, the Committee takes into account the information and assurances
provided by the External Auditors confirming that its engagement team and its network firms involved in the audit are
independent of any links with the Company.
During the year, the Committee reviewed and considered the following factors to assess the objectivity and
independence of PwC:
•
PwC’s procedures for maintaining and monitoring independence, including those to ensure that the partners and staff have
no personal or business relationships with the Group, other than those in the normal course of business permitted by UK
ethical guidance.
•
The degree of challenge to management and the level of professional scepticism shown by the Audit partner and the audit
team throughout the process.
•
PwC’s policies for rotation of the Audit partner every five years, and regular rotation of key audit personnel. The current Audit
partner, Sandeep Dhillon, has held this role since October 2021.
Following consideration of the performance and independence of the External Auditors, the Committee recommended to
the Group Board that the reappointment of PwC as the Company’s External Auditors should be proposed to shareholders
at the 2023 AGM.
Bakkavor Group plc | Annual Report & Accounts 2022 |
129
GOVERNANCE
KEY AREAS OF FOCUS AND MATTERS CONSIDERED
Our Internal Audit
The Committee oversees the performance, resourcing and effectiveness of the Internal Audit’s activity.
Internal audit services have been outsourced to KPMG, who were appointed with effect from the beginning of the 2019
financial year. Overall responsibility and direction for the Group’s internal audit activity is retained by the Group Head
of Risk, who reports to the Committee. The Internal Audit provides assurance over the effectiveness of key internal
controls, as identified as part of the risk assessment process. KPMG reports to the Group Head of Risk throughout the
year and to the Committee at least four times a year.
The Committee:
•
Reviewed and assessed the Internal Audit Plan for 2022. The proposed plan represents the assurance plan that KPMG put in
place on its appointment as the Company’s Internal Auditors and will be a mixture of full systems audits, in-flight reviews and
high-level limited-scope reviews, as agreed with the Committee. The IA Plan responds to certain factors across the Group’s
operations such as: i) the requirement to continue providing assurance over financial controls across the UK, US and China
in support of ‘operational excellence’; ii) maintaining a strong system of internal controls across the Group; and iii) coverage
of information security/cyber controls and the continued importance of infrastructure, network and data security to the Group.
•
Reviewed and approved the Internal Audit Charter.
•
Assessed the Audit quality.
•
Reviewed and monitored management’s responsiveness to the findings and recommendations of the Internal Audit’s activity.
•
Reviewed the satisfactory findings following a full compliance review for UK food safety activities with on-site visits and
detailed testing as well as desktop reviews for the US and China.
•
Received all reports from the Internal Audit reports and, in addition, received summary reports on the results of the work
of the Internal Audit on a periodic basis.
The Committee reviewed and approved the IA Plan for 2023 and is actively engaged in strengthening the Internal Audit’s
activity and extending its scope during 2023.
Our Internal Audit’s effectiveness
The Committee has a duty to carry out an annual assessment of the effectiveness of the Internal Audit function,
and as part of this assessment:
•
Determine whether it is satisfied that the quality, experience and expertise of the Internal Audit is appropriate for the
business; and
•
Review and monitor management’s responsiveness to the Internal Auditors’ findings and recommendations.
The Committee recommended that the Internal Audit function was highly effective and noted that for 2023, the Internal Audit
function would continue to cultivate relationships within the business to have more impact and influence in the Company.
Whistleblowing
The Committee considered the adequacy of the Group’s arrangements by which colleagues may, in confidence,
raise concerns about improprieties in matters of financial reporting or other matters.
There are several confidential modes for colleagues and third parties to communicate any improprieties in matters of
financial reporting or other areas. Moreover, whistleblowing is monitored by the Group Board at each Group Board meeting.
The Whistleblowing Policy is reviewed annually and recommended by the Committee for approval by the Group Board.
Anti-Bribery and Business Ethics Policy
The Committee considered the adequacy of the Group’s arrangements with regard to its anti-bribery and corruption
and business ethics processes.
The Committee reviewed the Anti-Bribery and Business Ethics Policy which applies across the Group.
The Committee concluded that the Anti-Bribery and Business Ethics Policy remains adequate.
In 2022, as part of our annual legal and governance compliance programme, UK colleagues undertook their mandatory
refresher training module on anti-bribery and corruption.
AUDIT AND RISK COMMITTEE REPORT
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130
| Bakkavor Group plc | Annual Report & Accounts 2022
KEY AREAS OF FOCUS AND MATTERS CONSIDERED
Group IT risks
The Group IT Director provides the Committee with regular updates on cyber security and, during the year, the Committee
received an in-depth report on Group IT risks.
In the past three years the Company has rapidly scaled technology, driven change and delivered some major successes
at an operational, people and security level and 2022 delivered a step-change in our cyber maturity within the UK, with
our key technology-based mitigations being delivered. USA Maturity, Privilege Access and Security Controls/Operations
are our 2023 priorities.
During the year, the Group implemented a new HR system, SuccessFactors, and made further progress in respect
of a new payroll system planned to go live in the second quarter of 2023. Further work has taken place in relation to
technology transformation, including approving a proposal to investigate the replacement of our ERP systems in the UK.
Treasury and pensions risk
The Committee received an update from the Group Treasurer on the Group’s pension schemes and the Group’s interest
and exchange rate exposure and the impact on these as a result of the volatility in the financial markets during 2022.
Priorities for 2023
The Committee’s key priorities for 2023 include the following:
•
Continue to focus on the integrity, quality and compliance of the Group’s external reporting including disclosures in respect
of going concern and viability statement.
•
Provide challenge in respect of significant judgements and critical estimates that impact financial reporting.
•
Detailed monitoring of the Group’s principal risks including receiving and challenging in-depth reviews of the risk management
and mitigation of the Group’s principal risks.
•
Review the Group’s financial reporting relating to TCFD with particular focus on the actions to address the two areas where the
Group is only partially compliant, this includes details of the Group’s climate transition plan.
•
Reviewing current capability of IT systems and the current framework of controls.
•
Once the expected changes to the internal control reporting requirements for UK listed companies have been finalised,
reviewing management’s practical plans to address these points in light of the system and control framework review.
Jane Lodge
Chair, Audit and Risk Committee
7 March 2023
Bakkavor Group plc | Annual Report & Accounts 2022 |
131
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
The Committee reviewed Executive
Director pay and incentive
performance and received feedback
from colleagues on remuneration
via our workforce engagement
Non-executive Director.
– Denis Hennequin, Chair of the
Remuneration Committee
Committee
purpose:
The Remuneration Committee
(“the Committee”) designs and implements
the Directors’ Remuneration Policy
(the “Remuneration Policy”), setting the
framework and parameters within which
Directors are paid, ensuring this is in line
with the long-term interests of the Group.
Main duties of the Remuneration
Committee
The role of the Committee is to set
remuneration for the Executive Directors,
Chairman and key management personnel,
ensuring that decisions are taken with a
clear understanding of the Company’s wider
remuneration principles and practices.
The Committee is key in ensuring that the
Group’s approach to remuneration attracts
and motivates Executives and aligns with
the long-term interests of shareholders.
The Committee discharges its responsibilities
appropriately through a series of scheduled
meetings during the year, linked to the Committee’s
Terms of Reference and Remuneration Policy,
which are available on the Bakkavor website
at bakkavor.com/en/investors/governance.
The Terms of Reference were last updated in
January 2023 and the Remuneration Policy
was approved by shareholders at the 20 May
2021 AGM. Following each Committee meeting,
the Committee Chair reports to the Group Board
on the activities of the Committee as appropriate.
4
meetings were held
during the year
The Committee comprised three Independent
Non-executive Directors.
Member
Member since
Meetings
attended/Total
meetings held
% of
meetings
attended
Denis Hennequin
(Chair)
20 October 2017
4/4
100%
Jill Caseberry
1 March 2021
4/4
100%
Umran Beba
1 September 2020
4/4
100%
On 1 January 2023, Denis Hennequin stepped down from the
role of Chair of the Committee and has been succeeded by
Jill Caseberry. On the same date Sanjeevan Bala, an independent
Non-executive Director, became a member of the Committee.
Therefore from 1 January 2023, the Committee comprised
Jill Caseberry (Chair), Sanjeevan Bala and Umran Beba.
READ MORE:
Committee member biographies on pg 93–95.
Committee meetings and membership
100%
meeting attendance by
all Committee members
132
| Bakkavor Group plc | Annual Report & Accounts 2022
Key activities in 2022
•
Determining the CEO’s and CFO’s base salary increases,
effective from 1 January 2022, in the context of increases
across the wider Bakkavor workforce.
•
Reviewing performance against the FY21 Annual
Bonus Plan and FY19 LTIP targets and determining
the payout/vesting.
•
Determining the measures and performance targets
for the FY22 Annual Bonus Plan and LTIP awards.
•
Consideration of developments in market trends, good
practice and updated investor and proxy agency guidance.
•
Received updates from the CPO on employment and pay
and conditions across the wider workforce and how wider
workforce incentives are aligned with Bakkavor’s culture
and those applying to senior colleagues.
•
An update and Q&A session with Jill Caseberry
(our Non-executive Director tasked with workforce
engagement and bringing colleague views to the
Group Board) at our Group Employee Forum ‘workforce
engagement session’ in February 2022 on how executive
remuneration aligns with Bakkavor’s wider pay policies.
•
Approving the measures and targets applying to LTIP
awards granted to key US management.
•
Agreeing the terms of the new CEO’s remuneration upon
his promotion from COO, UK on 1 November 2022.
•
Determining the increase for the CFO’s salary from
December 2022 following a leadership restructure
leading to significant additional responsibilities being
added to the role, now being CFO and Asia CEO.
This report comprises:
•
Annual Statement
: A summary of the work of the
Committee during the year and our approach to
remuneration –
READ MORE
on pg 133–135.
•
Summary of the 2021 Directors’ Remuneration Policy:
Details the framework and parameters within which
Directors are paid –
READ MORE
on pg 136–142.
•
Annual remuneration report:
Sets out the pay and
incentive outcomes for the year under review and how
the Remuneration Committee intends to implement the
Remuneration Policy in 2023 –
READ MORE
on pg 143–151.
There will be an advisory vote at the AGM on 31 May 2023
on this Directors’ remuneration report, excluding the
Directors’ Remuneration Policy.
Annual Statement
FY22 business performance
Through 2022 the operating environment remained
tough as the business faced significant inflationary
headwinds and ongoing supply chain disruption due to
global events. Against this backdrop we have delivered
a solid performance, with 10.6% growth in like-for-like
revenue. We have been able to largely offset the impact
of unprecedented inflation through our multi-faceted
approach and delivered Group adjusted operating profit
in line with market expectations at £89.4m, albeit down
£12.6m year-on-year. The Group’s balance sheet remains
in a strong position, with leverage within the target range
and significant liquidity headroom against debt facilities.
A number of initiatives were also put in place to focus
on reducing employee turnover, a key measure for the
Group. These included: a thorough review of the new
joiner experience resulting in the implementation of
a new 13-week induction process; the recruitment of
New Starter Champions at sites to support with colleague
onboarding; and a review of pay rates and subsequent
increases for our weekly paid colleagues.
READ MORE:
Chairman’s statement
pg 6.
Chief Executive’s overview
pg 10.
Remuneration outcomes for FY22
Variable pay – Annual Bonus Plan
The Annual Bonus Plan for 2022 was based on two
measures:
Element
Weighting
Metric
Outcome
Financial
75%
Group adjusted
EBIT, also
referred to as
Group adjusted
operating profit
No bonus payable:
FY22 Group
adjusted EBIT
of £89.4m versus
threshold of £102m
Non-financial 25%
Colleague
engagement
measured through
UK employee
turnover
Full bonus payable:
FY22 UK employee
turnover of 28.1%,
versus threshold
of 31.8% and
maximum of 28.6%
The Committee is aware of the sensitivity of paying out a
bonus based on non-financial performance when the profit
threshold has not been achieved, and carefully considered
whether a payment was appropriate or whether any
adjustment or use of negative discretion was required
to reflect the overall performance of the business and the
impact on broader stakeholders. On balance, the Committee
felt that a bonus outcome of 25% of maximum was
appropriate in the circumstances as employee turnover is
a critical metric for Bakkavor in a challenging labour market
and that the initiatives undertaken by management to
maintain a stable workforce in a company with over 18,500
employees should be rewarded. In addition, the employee
turnover measure applies to all c.1,300 middle and senior
managers and to not pay out on this measure would discredit
the design of our employee bonus scheme. Furthermore,
the 25% payout fairly reflects the resilient performance
of the business during 2022. In arriving at this decision,
the Committee took into account the following factors:
•
The Group delivered a solid financial performance against
a challenging backdrop, with significant inflation across the
cost base and on household budgets, which has impacted
consumer behaviour;
Section 5:
Remuneration
Bakkavor Group plc | Annual Report & Accounts 2022 |
133
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
•
The balance sheet remains robust, with leverage within
the target range and significant liquidity headroom
on debt facilities;
•
Total FY22 dividend of 6.93 pence per Ordinary share,
an increase of 5% on FY21; and
•
Implementation of an out-of-cycle pay increase across
the majority of our UK sites at the start of 2022 to support
weekly paid colleagues, in addition to the standard,
negotiated annual increase.
Variable pay – performance and restricted share awards
Mike Edwards and Ben Waldron were granted performance
share and restricted share awards under the LTIP in
October 2020, prior to their joining the Group Board. These
awards were delayed from the usual April grant date as the
Board and the Remuneration Committee prioritised their
efforts on dealing with the emergence of the pandemic.
The performance share awards are subject to a relative
total shareholder return (“TSR”) condition which will
be measured to October 2023. As the vesting outcome
is unknown at this time, we will report it in the 2023
remuneration report, together with the outcome of
the performance share awards granted in April 2021.
The restricted share awards are due to vest in October
2023 subject to continued service only.
Change of CEO
As announced on 29 September 2022, Agust Gudmundsson
gave notice of his intention to retire from the role of CEO,
effective 31 October 2022. Agust remains a significant
shareholder of the Company and became a Non-executive
Director on 1 November 2022. Up until the date of his
retirement as CEO, he continued to receive his salary,
benefits and pension and he will receive a pro rata
bonus for this period. As a Non-executive Director from
1 November 2022, he received a fee (pro rata) of £73,903
per annum in line with our Remuneration Policy and
the fee rate applied to other Non-executive Directors.
Mike Edwards was appointed as CEO, effective from
1 November 2022. This followed a thorough market search
to identify a successor. Mike joined Bakkavor in 2001 and
was promoted into a series of challenging and demanding
roles before becoming Chief Operating Officer, UK in 2014.
His exceptional insight and commercial experience saw
him promoted to the Group Board in December 2020.
In Bakkavor’s 2018 remuneration report, the first post IPO,
we explained how base salaries of the Executives in situ at
the time were positioned at competitive levels prior to IPO
and therefore the Committee decided not to change fixed
pay levels after listing in 2017 or in 2018, being the first
full year post IPO. This context is helpful as it emphasises
how Bakkavor’s remuneration philosophy, spanning the
period as a private and listed company, has been to have
a relatively high level of fixed pay relative to variable pay.
As such, consistent with this philosophy, the Committee
has retained the fixed to variable remuneration balance
and set Mike’s base salary as CEO at £700,000 p.a. to
reflect his promotion and the additional responsibilities
associated with this. In determining Mike’s base salary,
the Committee took into account several factors:
•
Mike’s 20 plus years’ experience at Bakkavor and being
the outstanding candidate for the role, having completed
a thorough market search.
•
There should be an appropriate premium for taking
on the role of CEO. Mike’s fixed pay (comprising salary,
benefits and pension) as CEO will be £747,000 which is 20%
higher than his previous fixed pay as COO, UK (£624,000).
•
A £700,000 base salary is lower than the previous CEO’s
base salary of £789,891 although noting that the previous
CEO’s incentive opportunities were lower.
•
Bakkavor’s scale, complexity and geographic reach with
FY22 revenue of £2.14bn (akin to a large FTSE 250 business),
over 18,500 employees, international footprint across UK,
US, Spain and China, 45 sites and a complex supply chain
and customer network, albeit these factors are not currently
reflected in the market capitalisation of the business.
Overall, the Committee believes his base salary has
been positioned competitively against the market
(when considered against companies of a similar market
capitalisation) and is fair given the complexity of the business
and taking into account a broader range of metrics.
Mike’s employer pension contribution rate will reduce
from 20% to 3% of salary from 1 January 2023 to align to
the workforce rate, a year earlier than originally scheduled
under the Remuneration Policy approved by shareholders.
His salary will next be reviewed in January 2024.
There will be no change to his incentive opportunities
which remain at 125% of salary under the bonus scheme
and 150% of salary under the LTIP. This is notwithstanding
the higher annual bonus (150% of salary) and LTIP (200%
of salary) opportunities available under the shareholder-
approved Remuneration Policy.
CFO’s additional responsibilities
The scope of the CFO’s role has increased significantly
since he became CFO & Asia CEO on 1 December 2022.
In addition to taking responsibility for Bakkavor’s Asia
business, Ben Waldron has taken accountability for
the climate transition plan and ESG, ownership of
the Procurement function and delivering our Finance
transformation agenda, which includes a review of our
IT capability. Reflecting his exceptional performance
over 2022, his importance to the Group and the expanded
breadth of his responsibility, the Committee increased
Ben’s salary by 10.8% to £450,000 with effect from
1 December 2022. This move coincided with the timing
of a significant restructure which impacted our senior
leadership team and has resulted in annualised overhead
(people-related cost) savings of c.£8m. Benchmarking
was used as a secondary reference point and the Committee
takes comfort that Ben’s salary, total fixed pay and total
remuneration are not out of line with comparable sector
peers. The Committee is acutely aware of the importance
of alignment with wider workforce pay, noting this is also
the CFO’s second consecutive above workforce rate salary
increase. However, we are satisfied that the increase is
warranted given his significant additional responsibilities.
His next salary review will be in January 2024.
134
| Bakkavor Group plc | Annual Report & Accounts 2022
659
26
132
20
529
26
76
165
410
23 12
128
£000s
Agust
Gudmundsson
1
Total remuneration
837
£000s
2022
2021
Base salary
659
769
Benefits
26
22
Pension entitlements
20
26
Bonus
132
461
LTIP
0
0
Total
837
1,278
£000s
Mike Edwards
2
Total remuneration
796
£000s
2022
2021
Base salary
529
481
Benefits
26
31
Pension entitlements
76
85
Bonus
165
451
LTIP
0
0
Total
796
1,048
£000s
Ben Waldron
3
Total remuneration
573
£000s
2022
2021
Base salary
410
370
Benefits
23
12
Pension entitlements
12
11
Bonus
128
347
LTIP
0
0
Total
573
740
1
Agust Gudmundsson’s FY22 remuneration is for his 10 months in his role as CEO and excludes the two months during which he was a Non-executive Director.
2
Mike Edwards’ FY22 remuneration includes 10 months as COO, UK and two months as CEO.
3
Ben Waldron’s FY22 remuneration includes 11 months as CFO and one month as CFO and Asia CEO.
How the Committee will apply the
Remuneration Policy in 2023
The Committee intends to operate the Remuneration
Policy for Executive Directors for 2023 as follows:
•
The Committee has set the CEO’s salary at £700,000,
effective from appointment on 1 November 2022, and set
the CFO’s salary at £450,000, effective 1 December 2022,
to coincide with his change of role to CFO and Asia CEO.
These salaries will remain unchanged in 2023.
•
Upon his promotion to CEO, Mike Edwards’ pension
contribution rate has been reduced from 20% to 3% of
salary. Both Mike Edwards and Ben Waldron have employer
pension contributions aligned with the workforce rate.
•
Annual bonus opportunities will remain at 125% of salary
for the CEO and CFO and Asia CEO. The Annual Bonus
measures will be in line with 2022: 75% based on Group
adjusted EBIT and 25% on UK employee turnover. These
criteria also apply to the broader workforce in the UK,
covering c.1,300 colleagues. Regional profit performance
is assessed where relevant in the US and China.
•
It is expected that LTIP awards will be granted in 2023 at
150% of salary to the CEO and CFO and Asia CEO. As in
previous years, the award will be split 50/50 between TSR
performance and EPS targets.
Alignment with the Code and shareholder
feedback
In designing the 2021 Remuneration Policy, the Committee
considered the key themes set out in the Code – clarity,
simplicity, risk, predictability, proportionality and
alignment to culture. The Committee has addressed each
of these in determining the remuneration outcomes for
2022 and the approach to paying our Executives in 2023.
The Remuneration Committee was pleased to note the
very high level of shareholder support for the 2021
remuneration report at the 2022 AGM, with 99.8% of votes
in favour. The current Remuneration Policy is in its third
and final year and therefore the Committee intends
to review Directors’ remuneration in 2023 and bring
a Remuneration Policy to shareholders for approval at
the AGM in 2024. In anticipation of the review, if you have
any comments on our current approach to remuneration,
please contact me via the Company Secretary (email:
company.secretariat@bakkavor.com).
This 2022 remuneration report will be subject to the usual
advisory shareholder vote at the 2023 AGM and I hope you
will be supportive of the resolution.
Denis Hennequin
Chair, Remuneration Committee
7 March 2023
Executive Director total remuneration in FY21 and FY22
Bakkavor Group plc | Annual Report & Accounts 2022 |
135
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DIRECTORS’ REMUNERATION REPORT
CONTINUED
Summary
of the 2021 Directors’ Remuneration Policy
The Remuneration Policy for the Group was prepared in accordance with Schedule 8: The Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) and the UK Listing Authority’s Listing
Rules. This Remuneration Policy was put to a binding shareholder vote at the AGM on 20 May 2021 and is effective for
three years from approval. No changes have been made to the Remuneration Policy.
Below is a summary of the key terms of the Remuneration Policy, and a full copy is included in the 2020 Annual Report and
Accounts which can be found in the ‘Investors’ section of the Company’s website: bakkavor.com/en/investors/annual-reports.
As mentioned above, the Directors’ Remuneration Policy has not changed. However, as a result of our change in CEO
in 2022, a supporting comment has been added to the pension, annual bonus and LTIP policy disclosures below to clarify
the policy that applies to the new CEO, Mike Edwards.
The Policy considered the principles of the 2018 UK Corporate Governance Code and the voting guidelines of major UK institutional
investor bodies. Under the Code, the Remuneration Committee is asked to address six factors in determining the Policy:
1. Clarity – the Policy is well understood by our Directors and Management Board and has been clearly articulated to
shareholders and proxy voting agencies.
2. Simplicity – the Remuneration Committee believes the current market-standard remuneration structure is simple and
well-understood. We have purposefully avoided any complex structures which have the potential to deliver unintended outcomes.
3. Risk – our Policy and approach to target setting seek to discourage any inappropriate risk-taking. Measures may be a blend
of share price, financial and non-financial objectives and the targets are appropriately stretching to help ensure that the risk
of inappropriate actions being taken is mitigated. Enhanced malus and clawback provisions will apply.
4. Predictability – Executives’ incentive arrangements are subject to individual participation caps. An indication of the range of
values in packages is provided in the reward scenario charts included in the Policy report. Deferred bonus and LTIP awards
provide alignment with the share price and their values will depend on share price at the time of vesting.
5. Proportionality – there is a clear link between individual awards, delivery of strategy and our long-term performance.
6. Alignment to culture – pay and policies cascade down the organisation and are fully aligned to Bakkavor’s culture.
Remuneration Policy table
A summary of how remuneration is structured and how it supports the Group’s strategy.
Executive Directors
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
Base salary
To recruit and retain
Executives of the
highest calibre who are
capable of delivering
the Group’s strategic
objectives, reflecting
each individual’s
experience and role
within the Group.
Base salary is designed
to provide an
appropriate level of
fixed income to avoid
an over-reliance on
variable pay elements
that could encourage
excessive risk-taking.
Salaries are normally reviewed
annually, and changes are
generally effective from the
start of the financial year.
The annual salary review
of Executive Directors takes
a range of factors into
consideration, including:
• Business performance.
• Salary increases awarded to
the overall colleague population.
• Skills and experience of the
individual over time.
• Scope of the individual’s
responsibilities.
• Changes in the size and
complexity of the Group.
• Market competitiveness
assessed by periodic
benchmarking.
• The underlying rate of inflation.
Whilst there is no prescribed formulaic
maximum, any increases will take into
account prevailing market and economic
conditions and the approach to colleague
pay throughout the organisation.
Base salary increases are awarded
at the discretion of the Remuneration
Committee; however, salary increases
will normally be no greater than the
general increase awarded to the wider
workforce, in percentage of salary terms.
Percentage increases beyond those
granted to the wider workforce may
be awarded in certain circumstances,
such as when there is a change in the
individual’s role or responsibility or where
there has been a fundamental change
in the scale or nature of the Company.
In addition, a higher increase may be made
where an individual had been appointed
to a new role at below-market salary
whilst gaining experience. Subsequent
demonstration of strong performance
may result in a salary increase that is
higher than for the wider workforce.
Executive Directors’
performance is a factor
considered when
determining salaries.
No recovery or withholding
provisions apply.
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| Bakkavor Group plc | Annual Report & Accounts 2022
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
Benefits
Benefits in kind offered
to Executive Directors
are provided to assist
with retention and
recruitment.
The Company aims to offer
benefits that are in line with
typical market practice.
The main benefits currently
provided include:
• Family private medical
insurance.
• Life assurance.
• Income protection.
• Health screening.
• Company car/car allowance.
• Travel insurance.
Under certain circumstances,
the Group may offer relocation
allowances or assistance.
Expatriate benefits may be
offered where required.
Travel and any reasonable
business-related expenses
(including tax thereon) may be
reimbursed on a gross-of-tax basis.
Executive Directors may become
eligible for other benefits which are
introduced for the wider workforce
on broadly similar terms.
The value of each benefit is not
predetermined and is typically
based upon the cost to the Group.
Not performance-related.
No recovery or withholding
provisions apply other than
for any relocation costs that
may be provided.
A proportion of any relocation
costs may be recovered where
a Director leaves the employment
of the Group within a specified
time period after appointment
or date of relocation.
Pension
The Group aims to
provide a contribution
towards life in
retirement.
Directors are eligible to receive
employer contributions to the
Company’s pension plan (which
is a defined contribution plan)
or a salary supplement in lieu
of pension benefits, or a mixture
of both.
The CEO’s contribution rate from
1 February 2021 and the CFO’s rate is
in line with the workforce rate, currently
3% of salary.
The current COO’s UK pension
contribution rate will continue at the
level in place prior to his joining the Group
Board – 20% of salary – and this will
reduce to the workforce rate (currently,
3% of salary) from 1 January 2024.
Any future Executive Director
appointments will receive pension
contributions aligned with the workforce
contribution rate in place at the time.
Update:
following Board changes in 2022,
from 1 November 2022, the new CEO’s
(Mike Edwards) pension provision upon
his promotion from COO, UK has been
set at 3% of salary. It was previously 20%
of salary until 1 January 2024.
Not performance-related.
No recovery or withholding
provisions apply.
Bakkavor Group plc | Annual Report & Accounts 2022 |
137
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
Short-Term Incentive Plan (“STIP”) or Annual Bonus Plan
The Annual Bonus
Plan rewards the
achievement of
stretching objectives
that support the
Group’s corporate
goals and delivery of
the business strategy.
Delivery of a proportion
in deferred bonus
shares provides a
retention element
and alignment with
shareholders.
Bonuses are determined based
on measures and targets that
are agreed by the Remuneration
Committee. Bonus is based on
performance over the relevant
financial year.
Two-thirds of the annual bonus
will be payable in cash, typically
in March following the end of the
financial year.
Up to one-third of the bonus
is compulsorily deferred in
shares for three years under
the Deferred Annual Bonus Plan.
At the discretion of the
Remuneration Committee,
participants may also be entitled
to receive the value of dividends
paid between grant and vesting on
vested shares. The payment may
assume dividend reinvestment.
The maximum annual bonus opportunity
is 150% of salary for Executive Directors.
The current CEO’s bonus opportunity
is lower, at 80% of his base salary.
The normal maximum for the CFO
and COO, UK is 125% of salary, although
this may be increased in line with the
maximum 150% of salary limit.
Update:
as part of the Board changes
in 2022, the new CEO’s (Mike Edwards)
bonus opportunity upon his promotion
from COO, UK remains subject to the
Policy limit, being a maximum of 150%
of salary limit.
Performance measures are
determined by the Remuneration
Committee each year and may
vary to ensure that they promote
the Company’s long-term
business strategy and
shareholder value.
The majority of the annual bonus
outcome will be based on financial
measures. This may be a single
measure, such as profit, or a mix
of measures as determined by
the Remuneration Committee.
Personal objectives and/or
strategic KPIs may also be chosen.
Where a sliding scale of targets
applies to financial measures,
up to 20% of that element may be
payable for threshold performance.
The bonus measures are
reviewed annually, and the
Remuneration Committee has
the discretion to vary the mix
of measures or to introduce new
measures taking into account
the strategic focus of the
Company at the time.
The Remuneration Committee
may alter the bonus outcome
if it considers that the payout is
inconsistent with the Company’s
overall performance, taking
account of any factors it considers
relevant. This will help to ensure
that the payout reflects overall
Company performance during
the period. The Remuneration
Committee will consult with
leading investors if appropriate
before any exercise of its discretion
to increase the bonus outcome.
Bonus payments, including
deferred bonus awards,
are subject to recovery
and withholding provisions
(see ‘Recovery and withholding’
in the ‘Notes to the policy table’
for further detail).
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| Bakkavor Group plc | Annual Report & Accounts 2022
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
Long-Term Incentive Plan (“LTIP”)
The LTIP is designed
to incentivise the
successful execution
of business strategy
over the longer term
and provide long-term
retention.
It facilitates share
ownership to provide
further alignment with
shareholders.
Awards will typically be granted
annually to Executive Directors
in the form of nil or nominal cost
options that vest according to
performance conditions normally
measured over three financial
years. The Remuneration
Committee will consider the
prevailing share price when
deciding on the number of
shares to be awarded as part
of any LTIP grant.
Awards are subject to an
additional post-vesting holding
period, which requires awards
to be retained for a period of two
years from the end of the vesting
period, except for shares sold
to pay personal tax upon vesting
or exercise.
At the discretion of the
Remuneration Committee,
participants may also be entitled
to receive the value of dividends
paid between grant and vesting
(or, if applicable, between grant
and the earlier to occur of the
expiry of any holding period
and the exercise of an award)
on vested shares. The payment
may be in cash or shares and may
assume dividend reinvestment.
The individual plan limit is 200% of base
salary in any financial year.
The award policy for the CFO and COO,
UK is set at 150% of base salary, although
the Remuneration Committee has the
discretion to make an award of up to
200% of base salary.
Update:
as part of the Board changes
in 2022, the new CEO’s (Mike Edwards)
LTIP award limit following his promotion
from COO, UK remains subject to the
Policy limit, being a maximum of 200%
of base salary.
Performance is normally
measured over no less than
three financial years.
Awards will be subject to
the achievement of stretching
targets designed to incentivise
performance in support of the
Group’s strategy and business
objectives.
LTIP awards may be subject to
relative TSR and earnings per
share growth targets. However,
the Remuneration Committee
has the flexibility to vary the
mix of measures or to introduce
new measures for future awards,
taking into account business
priorities at the time of grant.
For TSR and financial measures,
no more than 25% of each
element may vest for threshold
performance.
The Remuneration Committee
may alter the vesting outcome
if it considers that the level of
vesting is inconsistent with the
Company’s overall performance,
taking account of any factors
it considers relevant. This will
help to ensure that vesting
reflects overall Company
performance during the period.
Awards are subject to recovery
and withholding provisions
(see ‘Recovery and withholding’
in the Notes to the policy table
for further detail).
All-colleague share schemes
Encourage colleague
share ownership and
therefore increase
alignment with
shareholders.
The Company may, from time
to time, operate tax-approved
share plans (such as the
HMRC-approved Save As You
Earn Option Plan and Share
Incentive Plan) for which
Executive Directors could
be eligible.
The schemes are subject to the limits
set by HMRC from time to time.
Not performance-related.
No recovery or withholding
provisions apply.
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139
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
Share ownership guidelines
Encourage Executive
Directors to build a
meaningful
shareholding in the
Group so as to further
align their interests with
those of shareholders.
Executive Directors are required
to retain at least half of any share
awards vesting as shares (after
the sale of any shares to settle
tax due) until they have reached
the required level of holding.
Shares owned outright by
the Executive Director or a
connected person are included.
Shares or share options which
are subject to a performance
condition are not included.
Unvested deferred bonus shares
and vested LTIP awards which
remain unexercised may count
towards the in-employment
guideline on a net of tax basis.
During employment: Executive Directors
are required to build and retain a
shareholding in Bakkavor equivalent
to at least 200% of their base salary.
Post-employment: Executive Directors
are normally required to hold shares
at a level equal to the lower of their
shareholding at cessation and 200%
of salary for two years post cessation
(excluding shares purchased with own
funds and any shares from share plan
awards granted before the approval
of this policy).
Not performance-related.
Chairman and Non-executive Directors’ fees
To attract Non-
executive Directors who
have a broad range of
experience and skills.
To provide the Group
with access to
independent judgement
on issues of strategy,
performance,
resources and
standards of conduct.
Non-executive Directors may
receive fees paid monthly in
cash, which consist of an annual
basic fee. They may also receive
additional fees for additional
responsibilities.
The Chairman’s fee is reviewed
annually by the Remuneration
Committee (without the
Chairman present).
Fee levels for the Non-executive
Directors are determined by the
Chairman and Executive Directors.
In exceptional circumstances
if there is a temporary, yet
material, increase in the time
commitments for Non-executive
Directors, the Group Board may
pay extra fees to recognise that
additional workload.
Non-executives ordinarily do
not participate in any pension,
bonus or share incentive plans.
Travel, accommodation and
other business-related expenses
incurred in carrying out a
Non-executive role will be paid
by the Company including, if
relevant, any ‘gross-up’ for tax.
As was disclosed in the
prospectus prepared on
Admission and in the Policy
approved by shareholders in
2018, Lydur Gudmundsson is
currently employed to provide
consulting services to the Group
for an annual fee. He receives
medical cover for the benefit
of his family in the UK.
When reviewing fee levels, account
is taken of market movements in the
fees of Non-executive Directors, Group
Board Committee responsibilities and
ongoing time commitments.
Actual fee levels are disclosed in the
annual remuneration report for the
relevant financial year.
Not performance-related.
No recovery or withholding
provisions apply.
140
| Bakkavor Group plc | Annual Report & Accounts 2022
Notes to the Remuneration Policy table
Recovery and withholding
Awards under the Annual Bonus Plan, the Deferred Annual Bonus Plan (DABP) and the Long-Term Incentive Plan (LTIP)
are subject to recovery and withholding provisions which permit the Remuneration Committee, at its discretion, to reduce
the size of any future bonus or share award granted to the colleague, to reduce the size of any granted but unvested share
award held by the colleague, or to require the colleague to make a cash payment to the Company. The circumstances in
which the Company may apply the recovery and withholding provisions are the discovery of a material misstatement of
financial results, a miscalculation or error in assessing any condition (including any performance condition) applying to
the award, in the event of serious misconduct committed by the colleague, or where there has been corporate failure
or reputational damage.
In respect of cash bonus payments under the Annual Bonus Plan, the recovery and withholding provisions apply for one
year from the date of payment of the bonus (or, if later, the date of publication of the Company’s financial results for the
year following the relevant year over which the bonus was earned).
In respect of share awards under the DABP and the LTIP, the recovery and withholding provisions apply up until the third
anniversary of the date on which the relevant award vests, although the Committee may extend this period for a further
two years if there is an ongoing investigation into the circumstances of any event that, if determined to have occurred,
would permit the Committee to operate the recovery and withholding provisions.
Executive Director remuneration scenarios
The charts below show an estimate of the 2023 remuneration package for each Executive Director under four
performance scenarios, which are based on the Remuneration Policy set out above.
0
500
1000
1500
2000
2500
3000
3500
Max with growth
Maximum
On-target
Minimum
Max with growth
Maximum
On-target
Minimum
Long-term incentive
Annual bonus
Fixed
Share price growth
CEO
£000s
CFO and Asia CEO
100%
£747
52%
£1,447
28%
£2,672
24%
30%
18%
33%
27%
39%
33%
16%
£3,197
100%
£487
52%
£937
28%
£1,724
24%
30%
18%
33%
27%
39%
33%
16%
£2,062
Assumptions:
Performance scenario
Minimum
Target
Maximum
Maximum with share price growth
Base salary
As at 1 January 2023
Benefits
Estimated value for 2023
Pension
3% of salary
Bonus
0% of maximum
50% of maximum
100% of maximum
(being 125% of salary)
LTIP
0% of maximum
25% of maximum
100% of maximum
(being 150% of salary)
As per the maximum, plus a 50%
share price increase over three
years is assumed
Bakkavor Group plc | Annual Report & Accounts 2022 |
141
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Executive Director service contracts
The Company does not have agreements with any Director that would provide compensation for loss of office or
employment resulting from a takeover except that provisions of the Company’s share schemes and plans may cause
options and awards granted to colleagues under such schemes and plans to vest on a takeover. In accordance with
long-established policy, all Executive Directors have rolling service agreements which may be terminated in accordance
with the terms of these agreements. Directors’ service agreements are kept for inspection by shareholders at the
Company’s registered office.
Name
Date of joining Bakkavor
Date of service contract
Notice period
Mike Edwards
4 September 2001
28 September 2022
12 months either party
Ben Waldron
1 June 2011
12 October 2020
12 months either party
Non-executive Directors’ terms of engagement
Each of the Non-executive Directors are engaged under a market-standard Non-executive Director appointment letter,
which states that the appointment will continue for a renewable three-year term provided that the appointment must
not continue for more than nine years in total. In any event, each appointment is terminable by either party on one month’s
written notice with no other right to compensation for loss of office. All Non-executive Directors are subject to annual
re-election at each AGM. The dates of appointment of each of the Non-executive Directors serving at the date of this
report are summarised in the table below.
Non-executive Director
Date of joining Bakkavor
Date of contract or date of first appointment
Simon Burke (Chairman)
1 December 2016
20 October 2017
Sanjeevan Bala
1 August 2021
5 July 2021
Umran Beba
1 September 2020
1 September 2020
Jill Caseberry
1 March 2021
24 February 2021
Patrick L. Cook
12 July 2018
12 July 2018
Agust Gudmundsson
1
1 August 1986 (founder)
28 September 2022
Lydur Gudmundsson
1 August 1986 (founder)
20 October 2017
Denis Hennequin
20 October 2016
20 October 2017
Jane Lodge
3 April 2018
3 April 2018
1
Agust Gudmundsson retired as CEO on 31 October 2022 and became a Non-executive Director from 1 November 2022.
The Chairman, in consultation with the Executive Directors, is responsible for proposing changes to the Non-executive
Directors’ fees. The Committee is responsible for proposing changes to the Chairman’s fees.
In proposing such fees, account is also taken of the time commitments of the Group’s Non-executive Directors. The decision
on fee changes is taken by the Group Board as a whole. Individual Non-executive Directors do not take part in discussions
in relation to their own remuneration.
142
| Bakkavor Group plc | Annual Report & Accounts 2022
Annual report
on remuneration
This section of the report has been prepared in accordance with Part 3 of The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008 (as amended) and Rule 9.8.6 of the Listing Rules. The Annual Statement
and Annual Report on Remuneration will be put to a single advisory shareholder vote at the AGM on 31 May 2023.
This part of the report comprises five sections:
A. Remuneration for 2022
B. Directors’ share ownership and share interests
C. Pay comparison
D. Remuneration Committee membership, governance and voting
E. Implementation of Remuneration Policy in 2023
A. Remuneration for 2022
Single total figure of Directors’ remuneration (audited)
The total remuneration of the individual Directors who served during the financial year is shown below.
£000s
Base
salary/fee
Benefits
5
Pension
Total fixed
remuneration
Bonus
LTIP
6
Total variable
remuneration
Total
remuneration
Executive Directors
Mike Edwards
1
2022
529
26
76
631
165
–
165
796
2021
481
31
85
596
451
–
451
1,048
Ben Waldron
2
2022
410
23
12
445
128
–
128
573
2021
370
12
11
394
347
–
347
740
Agust Gudmundsson
1
2022
659
26
20
705
132
–
132
837
2021
769
22
26
817
461
–
461
1,278
Non-executive Directors
Simon Burke (Chairman)
2022
211
1
–
212
–
–
–
212
2021
206
–
–
206
–
–
–
206
Sanjeevan Bala
3
2022
74
–
–
74
–
–
–
74
2021
30
–
–
30
–
–
–
30
Umran Beba
2022
74
5
–
79
–
–
–
79
2021
72
1
–
73
–
–
–
73
Jill Caseberry
3
2022
74
1
–
75
–
–
–
75
2021
60
–
–
60
–
–
–
60
Patrick L. Cook
4
2022
0
–
–
–
–
–
–
0
2021
0
–
–
–
–
–
–
0
Agust Gudmundsson
1
2022
12
–
–
12
–
–
–
12
2021
–
–
–
–
–
–
–
–
Lydur Gudmundsson
5
2022
277
1
–
278
–
–
–
278
2021
267
1
–
268
–
–
–
268
Denis Hennequin
2022
74
–
–
74
–
–
–
74
2021
72
–
–
72
–
–
–
72
Jane Lodge
2022
74
2
–
76
–
–
–
76
2021
72
1
–
73
–
–
–
73
Total
2022
2,468
85
108
2,661
425
–
425
3,086
2021
2,399
68
122
2,589
1,259
0
1,259
3,848
Notes to the remuneration table:
1
Agust Gudmundsson retired as CEO on 31 October 2022 and became a Non-executive Director of the Group from 1 November 2022. Mike Edwards was promoted from COO,
UK to CEO from 1 November 2022. On promotion, his base salary was increased from £494,326 p.a. to £700,000 p.a.
2
Ben Waldron changed role and salary with effect from 1 December 2022.
3
Jill Caseberry and Sanjeevan Bala joined the Group Board on 1 March 2021 and 1 August 2021 respectively.
4
Patrick L. Cook receives no fee for his services.
5
Lydur Gudmundsson’s Non-executive Director base fee is £73,903 p.a. In addition, given his unique expertise and insight into the Company’s business as a founder of the Bakkavor
Group plc, pursuant to an agreement between Lydur Gudmundsson and Bakkavor Iberica S.L.U., and a service agreement between Bakkavor Iberica S.L.U. and Bakkavor Holdings
Limited, Lydur Gudmundsson continued to be employed to provide consulting services to the Group for a fee of €230,000 per annum. The exchange rate used to convert to GBP for
the above table is £1:€1.13 (2021: £1:€1.18). This agreement ceased with effect from 31 December 2022.
6
For Executive Directors, taxable benefits comprised car allowance, benefit allowance and private medical cover. For Non-executive Directors, benefits values are for reasonable
expenses related to business-related travel and accommodation only, with the exception of Lydur Gudmundsson who was also entitled to medical cover in the UK for the benefit
of his family (ceasing with effect from 31 December 2022).
7
The 2020 performance share awards were granted in October 2020 under the LTIP and are due to vest in October 2023 based on a relative TSR condition measured over a three-year
period from the date of grant. Therefore, there were no LTIPs capable of vesting based on performance to December 2022 or shortly after. The outcome of the October 2020 LTIP
awards will be reported in next year’s remuneration report alongside the vesting outcome of the April 2021 LTIP award.
Bakkavor Group plc | Annual Report & Accounts 2022 |
143
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
2022 Annual Bonus Plan outcome (audited)
In 2022, c.1,300 colleagues were eligible for an annual bonus, subject to meeting performance objectives, established at
the beginning of the financial year by reference to suitably challenging corporate goals over the 12-month period. In 2022,
the Annual Bonus Plan targets and performance-related outcomes were as follows:
Metrics
Weighting
Threshold
(0%)
Maximum
(100%)
Actual
performance
%
outcome
Group adjusted EBIT
75%
£102m
£114m
£89.4m
0%
UK employee turnover
25%
31.8%
28.6%
28.1%
25%
Total (% of max)
25%
As set out in the Annual Statement, the Committee considered carefully the appropriateness of paying a bonus in a year
when the profit threshold was not achieved. For our business, employee turnover is a critical metric in a challenging
labour market and the benefits of maintaining a stable workforce in a company with over 18,500 employees is a key goal
for us with clear related financial benefits. The business has placed significant attention on reducing employee turnover
and has performed admirably in achieving the demanding 2022 target set by the Committee. Reflecting on this, and the
experience of our wider stakeholders, the Committee believes a total bonus payout of 25% of maximum is warranted.
The Committee took into account the following factors in making its decision on 2022 bonuses:
•
The Group delivered a solid financial performance against a challenging backdrop, with significant inflation across the cost
base and on household budgets, which has impacted consumer behaviour;
•
The balance sheet remains robust, with leverage within the target range and significant liquidity headroom on debt facilities;
•
Total FY22 dividend of 6.93 pence per Ordinary share, an increase of 5% on FY21; and
•
Implementation of an out-of-cycle pay increase across the majority of our UK sites at the start of 2022 to support weekly paid
colleagues, in addition to the standard, negotiated annual increase.
Furthermore, the employee turnover measure applies to all c.1,300 middle and senior managers and to not pay out on this
measure would discredit the design of our employee bonus scheme.
Maximum bonus
opportunity
(% of salary)
Bonus payout
(% of maximum)
Bonus earned
(£000s)
Mike Edwards
1
125%
25%
165
Ben Waldron
1
125%
25%
128
Agust Gudmundsson
2
80%
25%
132
1
Mike Edwards’ and Ben Waldron’s bonuses have been calculated on a pro-rata basis on their salaries in their different roles during the year.
2
Agust Gudmundsson’s bonus has been pro-rated to reflect his time as an executive from the start of the financial year to 31 October 2022.
Two-thirds of the bonus earned will be paid in cash and the remaining one-third will be deferred in shares under the DABP
for the new CEO (Mike Edwards) and CFO and Asia CEO for three years. There are no performance conditions attached to the
vesting of deferred shares and these awards vest subject to continued employment. The previous CEO (Agust Gudmundsson)
will receive a pro-rated cash bonus for the 10 months he served as an Executive in 2022.
2020 LTIP update
Prior to their joining the Group Board, Mike Edwards was granted awards over 460,121 performance shares and 230,060
restricted shares and Ben Waldron was granted awards over 208,333 performance shares and 104,166 restricted shares
under the LTIP on 14 October 2020 which are capable of vesting on 14 October 2023. The performance share awards are
based 100% on relative TSR targets measured over a three-year period ending on 13 October 2023 and the restricted
share awards are subject to a service condition only.
The outcome of the TSR assessment for the performance share awards will be provided in next year’s remuneration
report alongside the vesting of the LTIP awards granted on 26 April 2021. As a consequence of the pandemic the 2020 LTIP
awards were granted later than the usual April grant date, and therefore there is no value assigned in respect of the 2020
LTIP in the 2022 single total figure of remuneration.
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| Bakkavor Group plc | Annual Report & Accounts 2022
Payments to former Directors and loss of office payments (audited)
There were no payments to former Directors or payments for loss of office during the year.
On 31 October 2022, Agust Gudmundsson retired from his role as CEO and became a Non-executive Director of the Group.
Agust received his salary, benefits and pension until the point of ceasing to become an Executive. Agust received a
pro-rated cash bonus for the 10 months he served as an Executive in 2022. Agust holds DABP awards in the form of cash
conditional awards which will vest on their normal vesting dates (14 October 2023 and 13 April 2025). Following his move
to Non-executive Director, Agust received a pro rata fee for his services in line with the NED fee rate for other serving
Non-executive Directors (£73,903 p.a.).
Peter Gates retired from the Group Board on 26 December 2020. He was granted awards over 1,118,051 performance shares
under the LTIP on 15 September 2020 based 100% on relative TSR targets measured over a three-year period ending
14 September 2023. The outcome of the TSR assessment will not be known until after the end of the performance period.
B. Directors’ share ownership and share interests
LTIP and deferred bonus awards granted in 2022 (audited)
On 13 April 2022 the following awards, structured as nil-cost options, were made under the LTIP to Executive Directors:
Date of grant
Basis of award
(% of salary)
Face value of
awards at grant
1
Number of shares
under award
Date of
vesting
Mike Edwards
13 April 2022
150%
£741,488
680,889
13 April 2025
Ben Waldron
13 April 2022
150%
£608,999
559,228
13 April 2025
1
Based on the three-day average share price of £1.089 to 12 April 2022. 25% vests for delivering threshold performance.
The awards will ordinarily become exercisable on the third anniversary of grant subject to continued service and to
the extent to which adjusted earnings per share (“EPS”) and total shareholder return (“TSR”) performance conditions
are satisfied that each apply with equal weighting. The performance period for both measures ends in December 2024.
Relative TSR
1
Earnings per share (for FY24)
Portion of award vesting
Below median
Less than 12.0p
0%
Median
12.0p
25%
Between median and upper quartile
Between 12.0p and 13.8p
Pro-rata on straight-line basis between 25% and 100%
Upper quartile
13.8p
100%
1
TSR is measured over the three-year period commencing from the start of the 2022 financial year against the following companies: Associated British Foods, A.G Barr, Britvic,
Coca-Cola HBC, Compass Group, Cranswick, Devro, Diageo, Domino’s Pizza Group, DP Eurasia NP, Fuller Smith Turner, Greencore Group, Greggs, Hilton Food Group, JD Wetherspoon,
J Sainsbury, Marston’s, McColls Retail Group, Mitchells Butlers, Ocado Group, Premier Foods, Restaurant Group, SSP Group, Tate Lyle, Tesco, Unilever and Whitbread.
Awards will be subject to a two-year post-vesting holding period following vesting as well as malus and clawback provisions.
On 13 April 2022, deferred bonus awards were granted under the Deferred Annual Bonus Plan calculated as one third
of the FY21 annual bonus as follows:
Date of grant
Form of award
Face value of
awards at grant
1
Number of shares
under award
Date of
vesting
Mike Edwards
13 April 2022
Nil cost option
£150,343
138,055
13 April 2025
Ben Waldron
13 April 2022
Nil cost option
£115,625
106,175
13 April 2025
Agust Gudmundsson
13 April 2022
Cash conditional award
£153,750
141,184
13 April 2025
1
Based on the three-day average share price of £1.089 to 12 April 2022.
Bakkavor Group plc | Annual Report & Accounts 2022 |
145
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Outstanding LTIP and deferred bonus awards
Details of all outstanding performance share awards (“PSAs”), restricted share awards (“RSAs”) and deferred annual
bonus awards (“DABPs”) held by Executive Directors:
Award type
1
Ex.
price
Grant
date
Interest at
December
2021
Awards
granted
in year
Awards
vested
in year
Awards
lapsed
in year
Interest at
December
2022
Date of
vesting
Mike Edwards
LTIP 2017
£0
1 July 2017
600,000
600,000
1 April 2020
LTIP 2017
£0
1 July 2017
400,000
400,000
1 April 2022
LTIP 2018 RSA
£0
9 April 2018
81,385
81,385
9 April 2021
LTIP 2019 PSA
£0
9 April 2019
236,188
236,188
–
9 April 2022
LTIP 2019 RSA
£0
9 April 2019
118,094
118,094
118,094
9 April 2022
LTIP 2020 PSA
£0
14 Oct 2020
460,121
460,121
14 Oct 2023
LTIP 2020 RSA
£0
14 Oct 2020
230,060
230,060
14 Oct 2023
LTIP 2021 PSA
£0
26 Apr 2021
545,872
545,872
26 Apr 2024
LTIP 2022 PSA
£0
13 Apr 2022
680,889
680,889
13 Apr 2025
DABP 2022
£0
13 Apr 2022
138,055
138,055
13 Apr 2025
Ben Waldron
LTIP 2017
£0.764
1 July 2017
134,163
134,163
1 April 2020
LTIP 2019 PSA
£0
9 April 2019
96,852
96,852
–
9 April 2022
LTIP 2019 RSA
2
£0
9 April 2019
48,426
48,426
48,426
9 April 2022
LTIP 2020 PSA
£0
14 Oct 2020
208,333
208,333
14 Oct 2023
LTIP 2020 RSA
£0
14 Oct 2020
104,166
104,166
14 Oct 2023
LTIP 2021 PSA
£0
26 Apr 2021
419,818
419,818
26 Apr 2014
LTIP 2022 PSA
£0
13 Apr 2022
559,228
559,228
13 Apr 2025
DABP 2022
£0
13 Apr 2022
106,175
106,175
13 Apr 2025
1
Ben Waldron and Mike Edwards received restricted share awards in their roles as Senior Executives prior to joining the Group Board.
2
Award exercised during FY22.
Statement of Directors’ shareholdings and share interests (audited)
The share interests of each Director as at 31 December 2022 (together with interests held by connected persons) are
set out in the table below. To align Executives with the interests of shareholders, the Remuneration Committee has
implemented shareholding guidelines for Executive Directors and key senior colleagues. The guidelines require that
Executive Directors build up and maintain an interest in the Ordinary shares of the Company that is 200% of their annual
base salary and retain half of any vested deferred bonus and LTIP awards (net of any taxes due) until this guideline is met.
Shareholdings for Directors who have held office during the year ended 31 December 2022 are set out as a percentage
of salary or fees in the table below. There were no options exercised during the year by Directors. During the period from
31 December 2022 to the publication of this report, there have been no changes in the Directors’ share interests and none
of the Directors hold any loans against their shares or otherwise use their shares as collateral.
Beneficially
owned shares
31 December 2022
Vested but
unexercised
share awards
Unvested share
awards – LTIP
Unvested share
awards – DABP
Total interests
held at
31 December 2022
Shareholding
as a % of salary
2
Executive Directors
Mike Edwards
–
1,199,479
1,916,942
138,055
3,254,476
24.6%
1
Ben Waldron
59,902
182,589
1,291,545
106,175
1,640,211
30.3%
1
Non-executive Directors
Simon Burke (Chairman)
50,000
–
–
–
50,000
n/a
Sanjeevan Bala
Umran Beba
Jill Caseberry
Patrick L. Cook
Agust Gudmundsson
3
142,103,505
142,103,505
Lydur Gudmundsson
142,303,505
142,303,505
Denis Hennequin
Jane Lodge
50,000
50,000
1
Calculation based on share price of £0.961 as at 31 December 2022.
2
Shares owned outright by the Executive Director or a connected person are included. Shares or share options which are subject to a performance condition are not included. Unvested
restricted share awards are excluded. Unvested deferred bonus shares and vested LTIP awards (excluding pre-IPO awards) which remain unexercised are included on a net of tax basis
and count towards the in-employment guideline.
3
Agust Gudmundsson has retained his shareholding since retiring as CEO and there has been no change in his shareholding between 31 December 2022 and the date this report has
been signed off.
146
| Bakkavor Group plc | Annual Report & Accounts 2022
C. Pay comparison
Percentage change in Directors’ remuneration versus employee pay
The table below shows the percentage change in salary, benefits and annual bonus earned between the 2022 financial year and
the prior year for the Group Board compared to the average earnings of all of the Group’s other UK colleagues. The change
in remuneration is also shown for the previous two years. Whilst the regulations require comparison against employees
of the Company (being Bakkavor Group plc), the Remuneration Committee chose the Group’s UK salaried colleagues for pay
comparison with the CEO as the most meaningful comparator group as the Company itself does not have any employees.
2022
2021
2020
Salary/
Fees
Benefits
Annual
bonus
Salary/
Fees
Benefits
Annual
bonus
Salary/
Fees
Benefits
Annual
bonus
Mike Edwards
2.75%
-16.1%
-66.7%
n/a
n/a
n/a
n/a
n/a
n/a
Ben Waldron
9.7%
91.7%
-66.7%
n/a
n/a
n/a
n/a
n/a
n/a
Agust Gudmundsson
1
2.75%
18.2%
-66.7%
0.00%
1000%
n/a
0%
-75%
-100%
Simon Burke (Chairman)
1
2.75%
0%
n/a
2.75%
-100%
n/a
0%
100%
n/a
Sanjeevan Bala
2.75%
n/a
n/a
n/a
n/a
n/a
–
–
–
Umran Beba
1
2.75%
400%
n/a
2.75%
100%
n/a
0%
n/a
n/a
Jill Caseberry
2.75%
100%
n/a
n/a
n/a
n/a
–
–
–
Patrick L. Cook
n/a
n/a
n/a
n/a
n/a
n/a
0%
n/a
n/a
Lydur Gudmundsson
1
2.75%
0%
n/a
2.75%
-50%
n/a
0%
-50%
n/a
Denis Hennequin
1
2.75%
0%
n/a
2.75%
0%
n/a
0%
n/a
n/a
Jane Lodge
1
2.75%
100%
n/a
2.75%
-66.7%
n/a
0%
100%
n/a
Colleague average
2.75%
0%
-66.7%
2.75%
0%
300%
0%
n/a
n/a
1
As part of the swift actions taken by the Group Board to preserve cash at the onset of the pandemic, the Group Board agreed on voluntary reductions in salary/fees for three months
from April to June 2020. The Chairman and Non-executive Directors took a 50% reduction in fees, whilst the Group’s founders (CEO at the time, Agust Gudmundsson and Non-executive
Director, Lydur Gudmundsson) did not take a salary or fee during this period. These temporary salary and fee reductions have been excluded to enable easier like-for-like comparisons
between 2020 and 2021.
Given the makeup of our 18,500+ colleagues, the majority of UK colleagues do not participate in an annual bonus scheme
or receive taxable benefits and therefore it is not possible to make any meaningful comparison on the percentage change
in annual bonus or benefits.
CEO pay ratio
In line with the reporting regulations, set out below is the ratio of CEO pay compared to the pay of UK full-time equivalent
colleagues of the Group for the financial year ended 31 December 2022. We expect the pay ratio to vary from year to
year, driven largely by variability in incentive outcomes for the CEO, which will significantly outweigh any other general
employee pay changes at Bakkavor. The CEO single total figure remuneration of £998k (based on the total remuneration
paid to the previous and new CEOs in relation to the period they were each undertaking the role of CEO) is used in the table
below. The Remuneration Committee is satisfied that the pay ratio is reasonable and consistent with the Company’s wider
policies on colleague pay, reward and progression.
Method
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
2022
Option B
49:1
40:1
40:1
2021
Option B
69:1
59:1
46:1
2020
Option B
41:1
34:1
28:1
2019
Option B
56:1
39:1
36:1
The key reason for the significant decrease in the pay ratio from full-year ended 2021 is the lower payment for annual
bonus in 2022 (25% of the maximum) compared to 2021 (75% of the maximum). The calculation is further complicated
by the fact that there were two different CEOs during the reporting period. For this reason, the Group believes the median
pay ratio for the relevant financial year is consistent with the pay, reward and progression policies for the Group’s UK
colleagues taken as a whole.
Bakkavor Group plc | Annual Report & Accounts 2022 |
147
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
Bakkavor has calculated the pay ratio using Option B alongside its gender pay data, as it involved the simplest method of
calculation, given our large number of colleagues. The gender pay gap data from the pay date of 8th April 2022 was used
to identify colleagues at the 25th, 50th and 75th percentiles. Data was analysed for a number of colleagues around each
quartile figure to ensure that there were no anomalies and to ensure an appropriate representation of P25, P50 and P75.
Remuneration for each of these individuals was then re-calculated for FY22, in line with the methodology for calculating
the CEO’s remuneration. The Remuneration Committee is satisfied that the resulting figures are reasonable and are
appropriately representative for the purposes of the CEO pay ratio calculations. Set out in the table below is the base
salary and total pay and benefits for each of the percentiles.
25th percentile
Median
75th percentile
Salary
£19,695
£24,032
£24,506
Total pay and benefits
£20,317
£24,751
£25,242
Total shareholder return (TSR) and CEO single figure history
The chart below shows the Company’s TSR performance compared with that of the FTSE 250 Index (excluding investment
trusts) and the FTSE SmallCap over the period from the date of the Company’s Admission to the London Stock Exchange
to 31 December 2022. The FTSE 250 and SmallCap indices are considered by the Group Board to be the most appropriate
broad equity comparator indices for Bakkavor as it has been a member of each in the recent period.
TSR is defined as the return on investment obtained from holding a company’s shares over a period. It includes dividends
paid, the change in the capital value of the shares and any other payments made to or by shareholders within the period.
0
20
40
60
80
100
120
140
31 Dec
2022
25 Dec
2021
26 Dec
2020
28 Dec
2019
29 Dec
2018
30 Dec
2017
15 Nov
2017
FTSE 250 Ex Investment Trusts
Value (£) (rebased)
Bakkavor Group
FTSE SmallCap Ex Investment Trusts
Source: Datastream (Thomson Reuters)
CEO single figure history
CEO
CEO single figure of total
remuneration £’000
Annual bonus payout as a
proportion of maximum
LTIP vesting as a proportion
of maximum
2022
Mike Edwards
£161
25%
n/a
2022
Agust Gudmundsson
£837
25%
n/a
2021
Agust Gudmundsson
£1,278
75%
n/a
2020
Agust Gudmundsson
£694
0%
n/a
2019
Agust Gudmundsson
£987
12.4%
n/a
2018
Agust Gudmundsson
£864
0%
n/a
The 2022 figures for Mike Edwards and Agust Gudmundsson are based on the period in post as Chief Executive during
the 2022 financial year. For Mike Edwards, there was no LTIP capable of vesting based on performance ending in December
2022 and Agust Gudmundsson did not participate in the LTIP.
Relative importance of the spend on pay
The following table shows the Company’s actual spend on pay for all Group colleagues relative to dividends:
2022
2021
% change
Staff costs
1
£594.7m
£539.2m
10.3%
Dividends
£38.8m
£38.5m
0.8%
1
Note 8 of the Financial Statements.
148
| Bakkavor Group plc | Annual Report & Accounts 2022
D. Remuneration Committee membership, governance and voting
Remuneration Committee membership
The Remuneration Committee in 2022 comprised Denis Hennequin as Chair of the Committee, Umran Beba and Jill
Caseberry, all independent Non-executive Directors. The Committee met four times during the year and all Committee
members were present. On 1 January 2023, Denis Hennequin stepped down from the role of Chair of the Committee and
has been succeeded by Jill Caseberry. On the same date Sanjeevan Bala became a member of the Committee. Therefore
from 1 January 2023, the Committee comprised Jill Caseberry (Chair), Sanjeevan Bala and Umran Beba. The biographies
of the Remuneration Committee members are set out on pg 93–95.
Members of management, including the CEO, the CFO and Asia CEO, the CPO, the Group Head of Reward and the independent
adviser to the Remuneration Committee, are invited to attend meetings where appropriate. The Group Company Secretary
and General Counsel is the secretary to the Remuneration Committee. Attendees are not involved in any decisions and
are not present for any discussions regarding their own remuneration. The Company Chairman may attend meetings but
is not present when his own remuneration arrangements are being decided.
Independent advisers
The Remuneration Committee takes account of information from both internal and independent sources, including
FIT Remuneration Consultants LLP (“FIT”) which acts as the Remuneration Committee’s independent adviser. FIT was
appointed by the Remuneration Committee as a result of a tender process and advised the Remuneration Committee
on all aspects of Senior Executive remuneration, including remuneration trends and corporate governance best practice.
FIT is a founder member of the Remuneration Consultants’ Group and complies with its Code of Conduct, which sets out
guidelines to ensure that its advice is independent and free of undue influence. The Remuneration Committee reviews
the performance and independence of its advisers on an annual basis. The Remuneration Committee was satisfied that
FIT’s advice was independent and objective. Bakkavor incurred fees of £57,218 excluding VAT during 2022 relating to
Remuneration Committee advice. FIT billed on a time and materials basis and did not provide any other services other
than share plan implementation advice to Bakkavor during 2022.
Shareholder voting
The Company is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there
are substantial votes against resolutions in relation to Directors’ remuneration, the Company seeks to understand the
reasons for any such vote and will report any actions in response to it. The following table sets out actual voting at the AGM
on 25 May 2022 in respect of the Directors’ remuneration report for the year ended 25 December 2021 and at the AGM
on 20 May 2021 in respect of the current Directors’ Remuneration Policy:
Remuneration report
At AGM 25 May 2022
Total number
of votes
% of
votes cast
For and Discretionary
1
564,080,140
99.79%
Against
1,194,447
0.21%
Total votes cast (excluding withheld votes)
565,274,587
100.0%
Total votes withheld
88,269
0.0%
Total votes cast (including withheld votes)
565,362,856
100.0%
1
There were no discretionary votes.
Remuneration Policy
At AGM 20 May 2021
Total number
of votes
% of
votes cast
For and Discretionary
1
560,488,633
99.72%
Against
1,552,056
0.28%
Total votes cast (excluding withheld votes)
562,040,689
100.0%
Total votes withheld
625
0.0%
Total votes cast (including withheld votes)
562,041,314
100.0%
1
13,951 were based on discretionary votes.
Bakkavor Group plc | Annual Report & Accounts 2022 |
149
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
E. Implementation of Remuneration Policy in 2023
Mike Edwards
Ben Waldron
Annual base
salary
•
2023: £700,000.
•
From 1 November 2022: £700,000 (upon promotion
to CEO).
•
From 1 January 2022: £494,326.
•
2023: £450,000.
•
From 1 December 2022: £450,000 (upon promotion
to CFO and Asia CEO) and to reflect additional
responsibilities.
•
From 1 January 2022: £406,000.
•
The average 2023 increase for the UK salaried workforce is c.4% with increases ranging from 3% to 5%.
Benefits and
pension
•
Pension contribution reduced from 20% of salary
to 3% of salary upon his promotion from COO, UK.
•
Benefits are provided in line with the approved
Remuneration Policy.
•
Pension contribution is workforce aligned at 3%
of salary.
•
Benefits are provided in line with the approved
Remuneration Policy.
Annual
bonus
•
2023 annual bonus maximum is 125% of salary.
•
For 2023, the annual bonus for the Executive Directors will comprise two measures, consistent with the
approach taken in 2022, namely Group adjusted EBIT (75%) and colleague engagement measured through
employee turnover (25%).
•
Specific targets have not been disclosed in advance as this would give a clear indication of the Group’s business
objectives, which are commercially sensitive. Full details of the targets and performance against them will
be disclosed in the 2023 Annual Report and Accounts.
•
Awards for financial measures will be subject to an underlying performance override, enabling them
to be scaled back to reflect the Group’s underlying performance. Malus and clawback provisions apply.
•
In line with the Remuneration Policy, one-third of any bonus earned will be deferred for three years, conditional
upon continued employment.
Long-Term
Incentive
Plan awards
•
The Remuneration Committee intends to grant awards of nil-cost options under the LTIP in April 2023
to the CEO and CFO & Asia CEO in line with the Remuneration Policy.
•
Awards will have a face value of up to 150% of salary, with the exact number of shares to be granted
to be determined with reference to the prevailing share price around the date of grant.
•
The awards will be subject to EPS and relative TSR (measured against a bespoke group of food and drink
companies) measures, each with equal weighting.
•
The adjusted EPS target requires a minimum performance of 10.0p to trigger threshold vesting (25% of that
element) with performance of 11.5p to achieve maximum. For performance outcomes between threshold and
maximum, the vesting percentage will be determined on the basis of a straight line sliding scale. In setting
these targets, the Committee took into account the Group’s strategic plan; the expected impact of the change
in the Group’s underlying tax rate from 21.5% (in 2022) to c. 26%; and market expectations based on analyst
forecasts. Whilst the Committee recognises the EPS range is lower than the previous award, it is confident
that the targets are stretching for the three-year performance period.
•
The Relative TSR performance condition is unchanged from the FY22 award with performance assessed over
the period FY23 to FY25, relative to the following bespoke group of sector peers: A.G. Barr, Associated British
Foods, Britvic, Coca-Cola HBC, Compass Group, Cranswick, Devro, Diageo, Domino’s Pizza Group, DP Eurasia
NV, Fuller Smith & Turner, Greencore Group, Greggs, Hilton Food Group, JD Wetherspoon, J Sainsbury,
Marston’s, Mitchells & Butlers, Ocado Group, Premier Foods, Restaurant Group, SSP Group, Tate & Lyle,
Tesco, Unilever (UK) and Whitbread. Performance will need to be median to trigger threshold vesting (25%
of that element) and at least upper quartile to trigger full vesting of that element. For performance outcomes
between threshold and maximum, the vesting percentage will be determined on the basis of a straight line
sliding scale.
•
In line with our usual approach, a windfall gain assessment will be made at the time of grant. In addition, before
an award vests the Remuneration Committee must be satisfied that the underlying performance of the Group
is satisfactory. The Remuneration Committee believes that having a performance override is an important
feature of the plan as it mitigates the risk of unwarranted vesting outcomes.
•
Awards will be subject to a two-year holding period following vesting as well as malus and clawback.
150
| Bakkavor Group plc | Annual Report & Accounts 2022
Non-executive Directors’ fees for 2023
Fees for the Non-executive Directors and Chairman have not been increased for FY23 and remain as follows:
Fee
Chairman
£211,151
Base Non-executive Director fee
£73,903
Notes:
Patrick L. Cook does not receive any fees for his role as Non-executive Director.
Given his unique expertise and insight into the Company’s business as a founder of Bakkavor Group plc, pursuant to an
agreement between Lydur Gudmundsson and Bakkavor Iberica S.L.U., and a service agreement between Bakkavor Iberica
S.L.U. and Bakkavor Holdings Limited, Lydur Gudmundsson has historically been employed to provide consulting services
to the Group for a fee of €230,000 per annum and has also been entitled to private medical cover in the UK for the benefit
of his family. This agreement ceased with effect from 31 December 2022 after which Lydur will be entitled to the standard
Non-executive Director fee and reasonable expenses only.
No additional fee is payable to any Non-executive Directors for additional responsibilities such as serving on a Committee
of the Group Board. Each Non-executive Director is also entitled to reimbursement of reasonable expenses, including
international travel expenses.
On behalf of the Group Board
Denis Hennequin
Chair, Remuneration Committee (during FY22)
7 March 2023
Bakkavor Group plc | Annual Report & Accounts 2022 |
151
GOVERNANCE
The Directors present their report, together with
the audited Group Financial Statements, for the year
ended 31 December 2022.
Principal activities and business review
Bakkavor Group plc produces fresh prepared food in
its three markets, the UK, US and China. The Company
employs over 18,500 colleagues worldwide and is
headquartered in London, UK.
Directors’ report content
For the purposes of the Companies Act 2006, the strategic
report, the corporate governance report and the Directors’
remuneration report are all incorporated by reference into,
and should be read as part of, this report.
Registered office
Bakkavor Group plc is incorporated as a public limited
company and is registered in England with the number
10986940. Bakkavor Group plc’s registered office is Fitzroy
Place, 5th Floor, 8 Mortimer Street, London, England, W1T 3JJ.
Our registrars are Equiniti Limited, located at Aspect
House, Spencer Road, Lancing, West Sussex, BN99 6DA.
Corporate governance statement
In compliance with the Financial Conduct
Authority(“FCA”)’s Disclosure Guidance and Transparency
Rules (“DTRs”) Rule 7, the corporate governance statement,
Board Committees’ reports, and Directors’ remuneration
report are included in this Directors’ report.
READ MORE
on the corporate governance statement, and how the
Group complies with the 2018 UK Corporate Governance
Code (“the Code”) on pg 89 and a description of the
composition and operation of the Group Board and its
Committees on pg 92–95.
All required disclosures have been made. Other than the
area of non-compliance identified on pg 89, the Group has
complied with the Code throughout the accounting period.
Engagement with suppliers, customers and others
In accordance with the Large and Medium-sized Companies
and Groups (Accounts and Report) Regulations 2008
(as amended by the Companies (Miscellaneous Reporting)
Regulations 2018), the Company’s statement on engagement
with, and having due regard to, the interests of colleagues
and key stakeholders is contained within the Section 172
statement in the strategic report on pg 66.
Strategic report
Section 414A of the Companies Act 2006 (“the Act”) requires
the Directors to present a strategic report in the Annual
Report and Accounts.
READ MORE
on pg 2–87. The Directors
are satisfied with the Group’s net asset position as at
31 December 2022.
Management report
For the purposes of DTR Rules 4.1.5R (2) and 4.1.8,
the Directors’ report and the strategic report on pg 2–87
comprise the management report.
DIRECTORS’ REPORT
Disclosures
This Directors’ corporate governance report fulfils the
requirements of the Directors’ report for the purposes
of the Act. The strategic report can be found on pg 2–87;
it encompasses our ESG strategy, Trusted Partner.
In line with the Regulations which implement the European
Union Accounting Directive (SI 2015/980), a complete list of
the Group’s subsidiaries has been included on pg 219–220
to comply with section 409 of the Act.
We have chosen, in accordance with the Act, to include
certain information in our strategic report or Financial
Statements that would otherwise be required in the
Directors’ report. This is as follows:
Page
Important events since the financial year end
213
Likely future developments in the business
22–31
Research and development
156
Use of financial instruments
18
Colleague engagement
67
Greenhouse gas emissions
64
Risk management and risks
76–86
Details of subsidiaries
219–220
Listing Rule 9.8.4 Disclosures
In accordance with Listing Rule 9.8.4 of the FCA’s Listing
Rules, the table below sets out the location of the following
sections/information within the Annual Report and Accounts:
Listing
Rule
9.8.4
Required disclosure
Page reference
(1)
Interest capitalised and
tax relief
Note 9 to the Financial
Statements
(2)
Publication of unaudited
financial information
Not applicable
(4)
Details of long-term
incentive schemes
Note 31 to the Financial
Statements and
pg 136–151 of Directors’
remuneration report
(5)
Waiver of emoluments
by a Director
Pg 136–151 of Directors’
remuneration report
(6)
Waiver of future
emoluments by a Director
Pg 136–151 of Directors’
remuneration report
(7)
Non pre-emptive issues
of equity for cash
Not applicable
(8)
Non pre-emptive issues
of equity for cash by major
subsidiary undertakings
Not applicable
(9)
Parent participation in a
placing by a listed subsidiary
Not applicable
(10)
Contracts of significance
involving a Director
Pg 154 of Directors’ report
(11)
Provision of services by
a controlling shareholder
Pg 155 of Directors’ report
(12)
Shareholder waivers
of dividends
Not applicable
(13)
Shareholder waivers
of future dividends
Not applicable
(14)
Agreements with
controlling shareholders
Pg 155 of Directors’ report
152
| Bakkavor Group plc | Annual Report & Accounts 2022
Results
READ MORE
on the results for the year ended
31 December 2022 on pg 72 and 169.
Dividend
An interim dividend of 2.77p per Ordinary share was paid
on 14 October 2022 to shareholders whose names were
in the register of members as at 16 September 2022.
The Group Board will propose a final dividend of 4.16 pence
per Ordinary share at the Company’s AGM on 31 May 2023.
This will result in a total dividend for the financial year 2022
of 6.93 pence per Ordinary share. Subject to shareholder
approval, the final dividend declared at the AGM will be paid
on 5 June 2023 to shareholders on the register of members
as at close of business on 28 April 2023.
The Group’s profit after tax for the financial year amounts
to £12.5m (2021: £56.8m).
Board of Directors
The Directors of the Company who were in office during
the year and up to the date of signing the financial
statements are set out below and their profiles are set
out on pg 92–95 of this report.
An agreed list of matters for the Directors’ consideration is set
out in the Schedule of Matters Reserved to the Group Board,
which is reviewed and updated annually and is available on the
Bakkavor website at bakkavor.com/en/investors/governance/.
Appointment and retirement of Directors
The rules governing the appointment and replacement
of Directors can be found in the Articles, the Code, the Act
and related legislation. Under the Terms of Reference of
the Nomination Committee, the appointment of Directors
must be recommended by the Nomination Committee for
approval by the Group Board. The process for appointment
and removal of Directors is captured in the Terms of
Reference of the Nomination Committee. Pursuant to
the provisions of the Code, at each AGM, all Directors will
retire and stand for election or re-election to the Group
Board. Directors’ individual biographies are set out on
pg 92–95.
Directors’ dates of appointment are shown in the table below:
Name
Role
Effective date of
appointment
Sanjeevan Bala
Independent
Non-executive Director
1 August 2021
Simon Burke
Chairman
20 October 2017
Umran Beba
Independent
Non-executive Director
1 September 2020
Jill Caseberry
Independent
Non-executive Director
1 March 2021
Patrick L. Cook
Non-independent
Non-executive Director
12 July 2018
Mike Edwards
Chief
Executive Officer
27 December 2020
1
Agust
Gudmundsson
Non-independent
Non-executive Director
28 September 2017
2
Lydur
Gudmundsson
Non-independent
Non-executive Director
20 October 2017
Denis Hennequin
Independent
Non-executive Director
20 October 2017
Jane Lodge
Independent
Non-executive Officer
3 April 2018
Ben Waldron
Chief Financial Officer
and Asia CEO
27 December 2020
1
Mike Edwards was appointed as Chief Executive Officer on 1 November 2022.
2
Agust Gudmundsson stepped down as Chief Executive Officer on 31 October 2022 and
was appointed as a Non-independent Non-executive Director on 1 November 2022.
Subject to applicable law, the Articles and any directions
given by special resolution, the business of the Company
will be managed by the Group Board, which may exercise
all powers of the Company.
Directors’ insurance and indemnities
Bakkavor has made qualifying third-party indemnity
provisions (as defined in the Act) for the benefit of its
Directors. These provisions were in force throughout
the year and remain at the date of approval of this Annual
Report and Accounts. In accordance with the Articles,
and to the extent permitted by law, Bakkavor may indemnify
its Directors out of its own funds to cover liabilities arising
as a result of their office.
Bakkavor holds Directors’ and Officers’ liability insurance
cover for any claim brought against Directors or Officers for
wrongful acts in connection with their positions, but the cover
does not extend to claims arising from dishonesty or fraud.
Service contracts
The Company’s policy regarding Directors’ service contracts
and appointment terms takes account of market practice
and their notice periods are not excessive. No Director has
a service contract with a notice period in excess of one year.
Bakkavor Group plc | Annual Report & Accounts 2022 |
153
GOVERNANCE
DIRECTORS’ REPORT
CONTINUED
Directors’ interests in Company shares
Directors’ direct and indirect shareholding interests which
have been notified to the Company as of 31 December 2022
and as at the date of the publication of this report, are
set out in the table below. There were no changes to the
shareholding interests between 31 December 2022 and
the date of publication:
31 December 2022
Date of publication
Name
Number of
shares
% of voting
rights
Number of
shares
% of voting
rights
Simon Burke
50,000
0.01%
50,000
0.01%
Agust
Gudmundsson
142,103,505
24.52%
142,103,505
24.52%
Lydur
Gudmundsson
142,303,505
24.56%
142,303,505
24.56%
Jane Lodge
50,000
0.01%
50,000
0.01%
Ben Waldron
59,902
0.01%
59,902
0.01%
Articles of Association
The Company’s Articles of Association set out the
objects and powers of the Company. The Company’s
Articles of Association may be amended by a special
resolution passed by the shareholders at an AGM
or EGM of the Company. A copy of the Articles of
Association can be obtained from the Company’s website,
bakkavor.com/en/investors/governance.
Share capital and capital structure
The Company’s issued share capital as at 31 December
2022 comprised a single class of shares divided into
Ordinary shares of 2 pence each. At the date of publication,
the Company’s issued share capital comprised
579,425,585 Ordinary shares. Details of the Company’s
issued share capital are also shown in Note 28 to the
Consolidated Financial Statements.
Details of colleague share schemes are set out in Note 31
to the Consolidated Financial Statements.
Restrictions attaching to shares
In line with the Articles of Association of the Company,
the Company has a single class of share which carries
no right to fixed income. Each share is non-redeemable,
carries equal voting rights and ranks equally for dividends and
capital distributions, whether on a winding up or otherwise.
There are no specific restrictions on the size of a holding
nor on the transfer of Ordinary shares, which are both
governed by the general provisions of the Articles and
prevailing legislation. The Company is not aware of any
agreements between holders of securities that may result
in restrictions on the transfer of securities or that may
result in restrictions on voting rights.
There are no persons who hold securities carrying special
rights regarding the control of the Company.
Powers for the Company issuing or buying back shares
Under the Articles, the Group Board has general and
unconditional authority for each prescribed period to
exercise all the powers of the Company to allot shares
in the Company or to grant rights to subscribe for or
to convert any security into shares in the Company
in accordance with section 551 of the Act.
The Company was given authority at the 2022 AGM to
make market purchases of up to 10% of its issued share
capital as permitted under the Articles. This standard
authority is renewable annually; the Directors will seek
to renew this authority at the AGM on 31 May 2023.
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 (“the 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. The number of Ordinary shares of £0.02 each held
by the Trust at 31 December 2022 was 2,940,514 and as at
the date of publication of this report remains at 2,940,514.
This represents 0.51% of total called up share capital at
31 December 2022. Total cash purchases made through
the Trust during the year amounted to £3.1m. No own
shares held of the Company were cancelled during the
periods presented.
A special resolution will be proposed to renew the
Directors’ authority to repurchase the Company’s shares
within certain limits and as permitted by the Articles at
the AGM on 31 May 2023.
Significant agreements and relationship change of control
There are a number of agreements that take effect,
alter or terminate upon a change of control of the
Company, such as commercial contracts, property lease
arrangements and colleague share plans. During the
year under review, there were no contracts of significance
impacting on the business of the Group as a whole
involving a Director (except as explained below).
The agreement that governs the Company’s Term Loan
and Revolving Credit Facilities (“Facilities Agreement”)
provides that, on a change of control, any lender may
on notice cancel its commitments under the Facilities
Agreement. In the event of a takeover, the exercise by
the lenders under the Facilities Agreement of the right
to cancel could have a significant impact on the business
of the Group, as the outstanding amounts thereunder
would become immediately due and payable.
The Directors are not aware of any agreements between
the Company and its Directors or colleagues that provide
for compensation for loss of office or employment that
occurs because of a takeover bid.
There are no colleague share scheme rights with regard
to control of the Company.
154
| Bakkavor Group plc | Annual Report & Accounts 2022
Controlling shareholders
The aggregate shareholding in the Company of Carrion Enterprises Limited (the corporate holding structure of Agust
Gudmundsson), Umbriel Ventures Limited (the corporate holding structure of Lydur Gudmundsson) and their concert
party group (the “controlling shareholders”) is 50.19%. The Company is party to a relationship agreement with Carrion
Enterprises Limited, Umbriel Ventures Limited, the trustee(s) of The A.G. Trust (which owns 100% of Carrion Enterprises
Limited) and the trustee(s) of The L.G. Trust (which owns 100% of Umbriel Ventures Limited).
Lixaner Co Limited (an entity which is a concert party of Carrion Enterprises Limited and Umbriel Ventures Limited
following its acquisition of shares in the Company on 23 May 2019) executed a Deed of Adherence to the relationship
agreement on 15 April 2020 and is duly bound by its terms.
This agreement regulates the relationship between the Company and the controlling shareholders as required by the Listing
Rules, including Listing Rule 9.2.2AR(2)(a) and Listing Rule 6.1.4DR. In accordance with the requirements of Listing Rule
9.8.4R(14), the Group Board confirms that: (i) the Company has complied with the independence provisions set out in the
relationship agreement during the period under review; and (ii) so far as the Company is aware, the controlling shareholders
complied with the independence provisions set out in the relationship agreement during the period under review.
There were no contracts for the provision of services to the Group by a controlling shareholder, other than under their
service contract or letter of appointment as set out on pg 142 of the Directors’ Remuneration Report.
Substantial shareholding
The Group has been notified in accordance with the Financial Conduct Authority’s (“FCA”) Disclosure Guidance and
Transparency Rules (“DTRs”), or was otherwise aware, that the following held, or were beneficially interested in,
3% or more of Bakkavor’s issued Ordinary shares.
31 December 2022
Date of publication
Name
Nature of
holding
Number of
Ordinary shares
% of voting rights
Number of
Ordinary shares
% of voting rights
Carrion Enterprises Limited
(corporate holding structure of Agust
Gudmundsson)
Indirect
142,103,505
24.52
142,103,505
24.52
Umbriel Venture Limited (corporate
holding structure of Lydur
Gudmundsson)
Indirect
142,303,505
24.56
142,303,505
24.56
BP-PE5 L.L.C. (corporate holding
structure of the Baupost Group)
Indirect
143,832,928
24.82
143,832,928
24.82
Aberforth Partners LLP
Indirect
42,508,445
7.34
42,508,445
7.34
FIL Investment Advisors (UK) Limited
Indirect
40,633,413
7.01
41,958,071
7.24
Ruffer LLP
Indirect
18,466,613
3.19
17,940,565
3.10
Engagement with shareholders
In accordance with the Code and the UK Stewardship
Code, the Group Board promotes engagement and
interaction between the Group and its major shareholders.
Opportunities are created for investors and shareholders
to engage directly with the Chairman, Senior Independent
Director, Audit and Risk and Remuneration Committee
Chairs, CEO and CFO and Asia CEO. An appropriate range
of investor relation conferences and events were held in
the year 2022 following the publication of the half-year and
full-year financial results.
Annual General Meeting
Bakkavor’s AGM provides the Group Board with the
opportunity to communicate with private and institutional
investors, with time set aside at the meeting for
shareholders to ask questions.
At the AGM, the Chairman provides a brief summary of the
Company’s activities during the previous year. All resolutions
at the last AGM were duly passed. As recommended by
the Code, all resolutions were voted on separately and
the final voting results, which included all votes cast for,
against and withheld, were released to the London Stock
Exchange as soon as practicable after the meeting.
This year’s AGM on 31 May 2023 will be in person. Full
details of the 31 May 2023 AGM are set out in the Notice
of AGM, including: general arrangements; the resolutions
to be proposed; shareholders’ rights with respect to
attendance; participation in the meeting; and the process
for submission of proxy votes in advance of the meeting.
The Notice of AGM and additional information for shareholders
can be found on our website at bakkavor.com/en/investors.
Bakkavor Group plc | Annual Report & Accounts 2022 |
155
GOVERNANCE
DIRECTORS’ REPORT
CONTINUED
Research and development
Developing innovative new products remains core to our
business. The Group uses insights gained through analysis
of consumer research and data, as well as knowledge of
food trends sourced from around the world, to build an
understanding of what consumers desire. Teams of chefs
and product development experts continuously create
and test recipes, and work collaboratively with the Group’s
commercial and marketing teams to ensure products
taste great, are commercially viable and reinforce the
Group’s market-leading position.
READ MORE
on how
we have responded to changes in consumer behaviour
on pg 79, and progress under our strategy on pg 22,
and Note 2 to the Group Financial Statements.
Colleagues with disabilities
Applications for employment by prospective colleagues
with disabilities are given full and fair consideration having
regard to candidates’ aptitudes and abilities. On occasions
where existing colleagues develop a disability, every effort
is made to ensure that their employment with the Group
continues, and any reasonable adjustments are made to
accommodate them. Appropriate training is also provided.
It is the policy of the Group that the training, career
development and promotion of colleagues with disabilities
should, as far as possible, be the same as that of our
other colleagues.
Colleague engagement
Open and constructive communication allows us to hear
views from all levels of the business, keeping our over
18,500 colleagues informed and updated on economic
and financial factors. Regular updates are posted on the
intranet and engagement events are hosted with members
of the Management Board. Colleagues are provided with
information on matters of concern to them in their work
through regular briefing meetings and internal publications.
Colleagues have regular performance reviews, with their
goals aligned to supporting business performance and
their individual career development. Certain colleagues
are eligible to receive a bonus, which is typically linked
to certain financial and non-financial metrics.
We perform a Group-wide Employee Engagement Survey
annually and our latest survey, completed in September
2022, had a response rate of 86%. The 2022 survey provided
valuable insights that were analysed at local, site, business
and Group level and have fed into localised action plans
and informed our colleague priorities.
Additionally, our UK Group Employee Forum (“GEF”) and
Site Employee Forum (“SEF”) create an open and regular
channel of communication between colleagues and
management. Outputs are shared back in Management
Board and Group Board meetings to ensure colleagues’
interests are considered in key decisions. SEF representatives
are elected by peers and play a vital role in sharing best
practices across sites, supporting local causes and
charities, providing support and seeking advice. The GEF
comprises SEF representatives at Group level. We have
continued to seek feedback from the UK GEF, SEF and our
office-based colleagues to evolve our ways of working.
Certain initiatives introduced through Covid have remained
or evolved, such as increased flexibility in shift patterns,
part-time work and working from home.
This year, Jill Caseberry, the Company’s designated
workforce engagement Non-executive Director, held a
number of workforce engagement sessions, including
meeting with the GEF to discuss the alignment of Executive
remuneration with the wider company pay policy and how
Bakkavor’s refreshed values had been received across the
Company and the ongoing initiatives that had been agreed
in order to continue to embed the values. Jill stepped down
from the role and Sanjeevan Bala was appointed with
effect from 1 January 2023. Sanjeevan will continue this
valuable work and has a number of engagement sessions
with the GEF scheduled for 2023.
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
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.
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
Bakkavor Group plc | Annual Report & Accounts 2022 |
157
GOVERNANCE
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.
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
Ben Waldron
Chief Executive Officer
Chief Financial Officer and
7 March 2023
Asia Chief Executive Officer
7 March 2023
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
158
| Bakkavor Group plc | Annual Report & Accounts 2022
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC
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
•
the Financial Statements have been prepared in accordance
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.
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
accruals (Group)
•
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.
Report on the audit of the
Financial Statements
Bakkavor Group plc | Annual Report & Accounts 2022 |
159
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC
CONTINUED
Recoverability 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 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 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 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.
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| Bakkavor Group plc | Annual Report & Accounts 2022
Key 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.
At the planning stage of the audit, we assessed the design and implementation
of controls over the impairment review process.
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.
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.
Refer to the Audit and Risk Committee report for
discussion of this key audit matter.
• 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 STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC
CONTINUED
Key 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.
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Key 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.
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.
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 assessed the control procedures that relate to the preparation,
review and approval of the amounts included in exceptionals.
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.
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.
Refer to the Audit and Risk Committee report for
discussion of this key audit matter.
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 STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC
CONTINUED
Key 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
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.
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The 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).
£4.0m (2021: £4.1m).
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).
1% of total assets.
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.
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 STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC
CONTINUED
Conclusions 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.
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;
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•
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;
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167
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF BAKKAVOR GROUP PLC
CONTINUED
•
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
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CONSOLIDATED INCOME STATEMENT
53 WEEKS ENDED 31 DECEMBER 2022
53 weeks ended 31 December 2022
52 weeks ended 25 December 2021
£m
Note(s)
Underlying
activities
Exceptional
items
1
Total
Underlying
activities
Exceptional
items
1
Total
Continuing operations
Revenue
4,5
2,139.2
–
1,871.6
–
Cost of sales
(1,576.5)
–
(1,576.5 )
(1,330.9)
–
(1,330.9 )
Gross profit
562.7
–
540.7
–
Distribution costs
(89.4)
–
(89.4 )
(75.1)
–
(75.1 )
Other administrative costs (net)
6
(385.6)
(50.1)
(435.7 )
(363.9)
–
(363.9 )
Share of results of associates after tax
17
0.2
–
0.3
–
Operating profit/(loss)
87.9
(50.1)
102.0
–
Finance costs
9
(20.8)
–
(20.8 )
(17.1)
–
(17.1 )
Other gains and (losses)
10
1.1
–
(3.5)
–
(3.5 )
Profit/(loss) before tax
6
68.2
(50.1)
81.4
–
Tax (charge)/credit
11
(14.7)
9.1
(5.6 )
(24.6)
–
(24.6 )
Profit/(loss) for the period
53.5
(41.0)
56.8
–
Earnings per share
Basic
12
Diluted
12
1
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.
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169
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
53 WEEKS ENDED 31 DECEMBER 2022
£m
Note
53 weeks ended
31 December
2022
52 weeks ended
25 December
2021
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
32
(26.3 )
Tax relating to components of other comprehensive (expense)/income
11
(6.6 )
(19.7 )
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
(1.4 )
Tax relating to components of other comprehensive income/(expense)
11
(3.1 )
(0.2 )
Total other comprehensive income
Total comprehensive income
The Notes to the Consolidated Financial Statements form an integral part of the Consolidated Financial Statements.
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
£m
Note
31 December
2022
25 December
2021
Non-current assets
Goodwill
13
Other intangible assets
14
Property, plant and equipment
15
Interests in associates and other investments
17
Deferred tax asset
23
Retirement benefit asset
32
Derivative financial instruments
22
Current assets
Inventories
18
Trade and other receivables
19
Cash and cash equivalents
20
Derivative financial instruments
22
Total assets
Current liabilities
Trade and other payables
25
(430.0 )
(390.8 )
Current tax liabilities
(1.1 )
(1.3 )
Borrowings
21
(13.1 )
(3.0 )
Lease liabilities
24
(11.3 )
(10.8 )
Provisions
26
(22.0 )
(8.5 )
Derivative financial instruments
22
(0.3 )
(1.7 )
(477.8 )
(416.1 )
Non-current liabilities
Borrowings
21
(309.2 )
(317.6 )
Lease liabilities
24
(85.9 )
(73.8 )
Provisions
26
(15.0 )
(14.3 )
Derivative financial instruments
22
(0.4 )
Deferred tax liabilities
23
(35.7 )
(40.6 )
(445.8 )
(446.7 )
Total liabilities
(923.6 )
(862.8 )
Net assets
Equity
Called up share capital
28
Own shares held
28
(3.1 )
Merger reserve
28
(130.9 )
(130.9 )
Hedging reserve
28
Translation reserve
28
Retained earnings
Total equity
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
Ben Waldron
Chief Executive Officer
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
Note
Called up
share capital
Own shares
held
Merger
reserve
Hedging
reserve
Translation
reserve
Retained
earnings
Total
equity
Balance at 27 December 2020
(130.9 )
(0.7 )
Profit for the period
Other comprehensive income for the period
Total comprehensive income for the period
Reclassification
(0.2 )
Dividends
28
(38.5 )
(38.5 )
Credit for share-based payments
31
Cash-settlement of share based payments
31
(0.6 )
(0.6 )
Deferred tax
11
(0.1 )
(0.1 )
Balance at 25 December 2021
(130.9 )
Profit for the period
Other comprehensive income/(expense) for the period
(19.7 )
Total comprehensive income/(expense) for the period
(7.2 )
Reclassification to inventory
(1.0 )
(1.0 )
Purchase of own shares
28
(3.1 )
(3.1 )
Dividends
28
(38.8 )
(38.8 )
Credit for share-based payments
31
Cash-settlement of share based payments
31
(0.6 )
(0.6 )
Deferred tax
11
(0.2 )
(0.2 )
Balance at 31 December 2022
(3.1 )
(130.9 )
The Notes to the Consolidated Financial Statements form an integral part of the Consolidated Financial Statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
53 WEEKS ENDED 31 DECEMBER 2022
£m
Note
53 weeks ended
31 December
2022
52 weeks ended
25 December
2021
Net cash generated from operating activities
29
Investing activities:
Interest received
Dividends received from associates
17
Purchases of property, plant and equipment
(61.1 )
(59.8 )
Proceeds on disposal of property, plant and equipment
Purchase of intangibles
(2.9 )
Net cash used in investing activities
(63.7 )
(54.9 )
Financing activities:
Dividends paid
28
(38.8 )
(38.5 )
Own shares purchased
28
(3.1 )
Increase in borrowings
Repayment of borrowings
(9.2 )
(60.9 )
Principal elements of lease payments
24
(14.0 )
(11.7 )
Net cash used in financing activities
(55.4 )
(83.0 )
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
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 STATEMENTS
(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
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
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
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
53 WEEKS ENDED 31 DECEMBER 2022
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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
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
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.
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175
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2. Significant accounting policies
continued
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.
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
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.
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.
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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
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
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
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177
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2. Significant accounting policies
continued
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
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
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.
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
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
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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.
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
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
Bakkavor Group plc | Annual Report & Accounts 2022 |
179
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2. Significant accounting policies
continued
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
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
Intangible assets and property, plant and equipment are tested for impairment when an event that might affect asset
values has occurred. Examples of such triggering events include: significant planned restructuring, a major change in
market conditions or technology, expectations of future operating losses, or a significant reduction in cash flows.
An impairment loss is recognised, in the income statement, to the extent that the carrying amount cannot be recovered
either by selling the asset or by the discounted future earnings from operating the assets in accordance with IAS 36
‘Impairment of Assets’.
Inventories 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
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.
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•
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
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
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.
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
Bakkavor Group plc | Annual Report & Accounts 2022 |
181
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
2. Significant accounting policies
continued
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.
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
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will
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.
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Present 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
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
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
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 STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
4. Segmental information
continued
The following table provides an analysis of the Group’s segmental information for the period to 31 December 2022:
£m
Note
UK
US
China
Un-allocated
Total
Revenue
36
1,783.1
255.3
100.8
–
2,139.2
Adjusted EBITDA
36
147.7
12.4
(0.1)
–
160.0
Depreciation
(52.8)
(8.7)
(6.8)
–
(68.3)
Amortisation
(0.3)
(0.4)
–
–
(0.7)
Share scheme charges
(1.9)
–
–
–
(1.9)
Profit on disposal of property, plant and equipment
–
–
0.1
–
0.1
Share of results of associates
–
–
0.2
–
0.2
Adjusted operating profit/(loss)
36
92.7
3.3
(6.6)
–
89.4
Exceptional items
7
(36.6)
(3.8)
(9.7)
–
(50.1)
Configuration and customisation costs for SaaS projects
(1.5)
–
–
–
(1.5)
Operating profit/(loss)
54.6
(0.5)
(16.3)
–
37.8
Finance costs
(20.8)
Other gains and (losses)
1.1
Profit before tax
18.1
Tax
(5.6)
Profit for the period
12.5
Other segment information:
Capital additions
46.0
39.0
1.9
–
86.9
Interests in associates
–
–
3.6
–
3.6
Total assets
1,215.1
200.2
73.3
52.8
1,541.4
Non-current assets
1,018.1
167.8
55.5
9.9
1,251.3
The following table provides an analysis of the Group’s segmental information for the period to 25 December 2021:
£m
Note
UK
US
China
Un-allocated
Total
Revenue
36
1,592.4
180.1
99.1
–
1,871.6
Adjusted EBITDA
36
149.3
15.7
1.8
–
166.8
Depreciation
(52.0)
(6.4)
(6.8)
–
(65.2)
Amortisation
(0.1)
(0.4)
–
–
(0.5)
Share scheme charges
(2.3)
–
–
–
(2.3)
Profit on disposal of property, plant and equipment
2.9
–
–
–
2.9
Share of results of associates
–
–
0.3
–
0.3
Adjusted operating profit/(loss)
36
97.8
8.9
(4.7)
–
102.0
Exceptional items
–
–
–
–
–
Operating profit/(loss)
97.8
8.9
(4.7)
–
102.0
Finance costs
(17.1)
Other gains and (losses)
(3.5)
Profit before tax
81.4
Tax
(24.6)
Profit for the period
56.8
Other segment information:
Capital additions
59.6
9.0
6.8
–
75.4
Interests in associates
–
–
11.7
–
11.7
Total assets
1,238.7
144.1
86.7
34.0
1,503.5
Non-current assets
1,068.9
120.2
66.8
2.6
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.
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Each of these four customers accounts for a significant amount of the Group’s revenue and are all in the UK segment.
The percentage of Group revenue from these customers is as follows:
2022
2021
Customer A
32.6%
33.4%
Customer B
20.5%
20.3%
Customer C
12.2%
11.5%
Customer D
7.9%
The Group derives all revenue from the sale of goods in the following geographic locations:
£m
2022
2021
Continuing operations
UK
1,783.1
1,592.4
US
255.3
180.1
China
100.8
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
Profit before tax for the period has been arrived at after charging/(crediting):
£m
Note
2022
2021
Depreciation of property, plant and equipment:
– Owned
55.7
53.2
– Leased
12.6
12.0
Research and development costs
9.0
8.6
Cost of inventory recognised as an expense
1,022.3
836.0
Net movement of inventory provision recognised as expense/(gain)
0.1
(0.2)
Amortisation of intangible assets
0.7
0.5
Exceptional items
7
50.1
–
Profit on disposal of property, plant and equipment
(0.1)
(2.9)
Share scheme charges
31
1.9
2.3
Foreign exchange gains
10
(1.2)
(0.5)
Staff costs
8
594.7
539.2
Other administrative costs (net) before exceptionals are comprised of:
£m
2022
2021
Other administrative costs
(385.6)
(371.1)
Other operating charges
–
(0.3)
Total operating costs
(385.6)
(371.4)
Other operating income
–
7.5
Other administrative costs (net) before exceptionals
(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
The analysis of the Auditors’ remuneration is as follows:
£m
2022
2021
The audit of the Company’s Consolidated Financial Statements
0.4
0.3
The audit of the Company’s subsidiaries pursuant to legislation
0.7
0.7
Total audit fees
1.1
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 STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
7. 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
2022
2021
Corporate restructuring costs
(5.3)
–
UK site closures:
– Closure costs
(11.8)
–
– Impairment charge
(19.5)
–
Investment in associate impairment
(9.7)
–
US customer contractual dispute impairment
(3.8)
–
Total exceptional items
(50.1)
–
Tax on exceptional items
9.1
–
Total exceptional items after tax
(41.0)
–
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.
The average monthly number of employees (including Executive Directors) during the period was:
2022
Number
2021
Number
Production
15,283
15,578
Management and administration
2,378
2,521
Sales and distribution
919
873
18,580
18,972
Their aggregate remuneration comprised:
£m
Note
2022
2021
Wages and salaries
518.0
471.1
Social security and other costs
63.5
55.9
Other pension costs
32
13.2
12.2
594.7
539.2
Details of the emoluments paid to Directors are included from pg 132–151 in the Directors’ remuneration report and in
£m
Note
2022
2021
Interest on borrowings
16.9
14.2
Interest on lease liabilities
3.1
2.7
Unwinding of discount on provisions
26
0.8
0.2
Total
20.8
17.1
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| Bakkavor Group plc | Annual Report & Accounts 2022
There 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
10. Other gains and (losses)
£m
2022
2021
Foreign exchange gains
1.2
0.5
Change in the fair value of derivative financial instruments
(0.1)
(4.0)
1.1
(3.5)
£m
Note
2022
2021
Current tax:
Current period
9.7
7.6
Prior period adjustment
1.7
0.2
Total current tax charge (pre-exceptional items)
11.4
7.8
Deferred tax:
Deferred tax relating to the origination and reversal of temporary differences in the period
3.7
7.6
Deferred tax relating to changes in tax rates
1.6
7.9
Prior period adjustment
(2.0)
1.3
Total deferred tax charge (pre-exceptional items)
23
3.3
16.8
Tax on exceptional items:
Current tax
(3.4)
–
Deferred tax
(5.7)
–
Total tax credit on exceptional items
(9.1)
–
Total tax charge for the period
5.6
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:
2022
£m
2022
%
2021
£m
2021
%
Profit before tax:
18.1
100.0
81.4
100.0
Tax charge at the UK corporation tax rate of 19% (2021: 19%)
3.4
19.0
15.5
19.0
Net non-deductible expenses/(non-taxable income)
(1.2)
(6.9)
(1.8)
(2.0)
Non-deductible impairment of investment
1.8
10.2
–
–
Prior period adjustment
(0.3)
(1.7)
1.5
1.7
Tax effect of losses carried forward not recognised
1.0
5.5
0.7
0.9
Unprovided deferred tax assets now recognised
–
–
(0.1)
(0.2)
Overseas taxes at different rates
0.4
2.2
0.9
1.1
Deferred tax rate differential
0.5
2.6
7.9
9.7
Tax charge and effective tax rate for the period
5.6
30.9
24.6
30.2
Bakkavor Group plc | Annual Report & Accounts 2022 |
187
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
11. 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:
2022
£m
2021
£m
Tax relating to components of other comprehensive income/(expense):
Deferred tax:
Remeasurements on defined benefit pension scheme actuarial (loss)/gain
(5.0)
4.6
Deferred tax rate change on defined benefit pension scheme actuarial (loss)/gain
(1.6)
2.0
Cash flow hedges and cost of hedging
3.1
0.2
Deferred tax on share schemes
0.2
0.1
(3.3)
6.9
Tax relating to components of other comprehensive income/(expense):
(3.5)
6.8
Tax relating to share-based payments recognised directly in equity:
0.2
0.1
(3.3)
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
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
2022
2021
Profit for the period
12.5
56.8
Number of shares
‘000
2022
2021
Weighted average number of Ordinary shares
577,576
579,426
Effect of potentially dilutive Ordinary shares
9,767
9,775
Weighted average number of Ordinary shares including dilution
587,343
589,201
2022
2021
Basic earnings per share
2.2p
9.8p
Diluted earnings per share
2.1p
9.6p
The Group calculates adjusted basic earnings per Ordinary share and details of this can be found in Note 36, Alternative
188
| Bakkavor Group plc | Annual Report & Accounts 2022
£m
Cost
At 27 December 2020
702.1
Exchange differences
1.0
At 25 December 2021
703.1
Exchange differences
5.5
At 31 December 2022
708.6
Accumulated impairment losses
At 27 December 2020
(52.5)
Exchange differences
(0.5)
At 25 December 2021
(53.0)
Exchange differences
(0.5)
At 31 December 2022
(53.5)
Carrying amount
At 31 December 2022
655.1
At 25 December 2021
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
31 December
2022
25 December
2021
UK
603.8
603.8
US
51.3
46.3
China
–
–
655.1
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
UK
US
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 STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
13. 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
£m
Customer
relationships
Software
Total
Cost
At 27 December 2020
88.9
–
88.9
Exchange differences
–
–
–
At 25 December 2021
88.9
–
88.9
Reclassified from Property, Plant and Equipment (Note 15)
–
13.5
13.5
Additions
–
2.9
2.9
Exchange differences
0.7
–
0.7
At 31 December 2022
89.6
16.4
106.0
Accumulated amortisation and impairment
At 27 December 2020
(86.7)
–
(86.7)
Charge for the period
(0.5)
–
(0.5)
Exchange differences
–
–
–
At 25 December 2021
(87.2)
–
(87.2)
Reclassified from Property, Plant and Equipment (Note 15)
–
(8.7)
(8.7)
Charge for the period
(0.6)
(0.1)
(0.7)
Impairment charge (Note 7)
(0.2)
–
(0.2)
Exchange differences
(0.4)
–
(0.4)
At 31 December 2022
(88.4)
(8.8)
(97.2)
Carrying amount
At 31 December 2022
1.2
7.6
8.8
At 25 December 2021
1.7
–
190
| Bakkavor Group plc | Annual Report & Accounts 2022
£m
Land and
buildings
Plant and
machinery
Fixtures and
equipment
Total
Cost
At 27 December 2020 as previously reported
389.1
559.8
100.2
1,049.1
Restatement
1
(49.9)
69.9
5.2
25.2
At 25 December 2020 restated
1
339.2
629.7
105.4
1074.3
Reclassification
(0.3)
(2.4)
1.7
(1.0)
Additions
18.6
39.4
17.4
75.4
Disposals
(2.8)
(5.5)
(1.5)
(9.8)
Exchange differences
1.9
1.8
0.3
4.0
At 25 December 2021 restated
1
356.6
663.0
123.3
1,142.9
Additions
30.8
37.8
18.3
86.9
Disposals
(3.2)
(3.3)
(16.1)
(22.6)
Reclassified to Intangible Assets (Note 14)
–
(0.8)
(12.7)
(13.5)
Exchange differences
6.6
6.5
0.9
14.0
At 31 December 2022
390.8
703.2
113.7
1,207.7
Accumulated depreciation and impairment
At 27 December 2020 as previously reported
(154.3)
(293.3)
(66.2)
(513.8)
Restatement
1
43.9
(72.5)
3.4
(25.2)
At 25 December 2020 restated
1
(110.4)
(365.8)
(66.2)
(539.0)
Reclassification
0.1
0.6
0.3
1.0
Charge for the period
(20.0)
(33.0)
(12.2)
(65.2)
Impairment
(1.3)
–
–
(1.3)
Disposals
1.8
5.4
1.3
8.5
Exchange differences
(0.6)
(0.9)
(0.2)
(1.7)
At 25 December 2021 restated
1
(130.4)
(393.7)
(73.6)
(597.7)
Charge for the period
(21.0)
(34.6)
(12.7)
(68.3)
Impairment
(4.6)
(11.6)
(3.1)
(19.3)
Disposals
3.2
3.3
16.1
22.6
Reclassified to Intangible Assets (Note 14)
–
0.4
8.3
8.7
Exchange differences
(2.6)
(2.4)
(0.6)
(5.6)
At 31 December 2022
(155.4)
(438.6)
(65.6)
(659.6)
Carrying amount
At 31 December 2022
235.4
264.6
48.1
548.1
At 25 December 2021 Restated
1
226.2
269.3
49.7
545.2
1
Please refer to Note 2 for details of the restatement.
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 STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
15. 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
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
31 December
2022
25 December
2021
Name of associate
La Rose Noire Limited
2.8
11.2
Patisserie et Chocolat Limited
0.8
0.5
Total associates
3.6
11.7
Other investments
0.1
0.1
Total associates and other investments
3.7
Details of the associated undertakings of the Group at 31 December 2022 and 25 December 2021 were as follows:
Proportion of Ordinary shares
Place of registration
and operation
Principal activity
31 December
2022
25 December
2021
Method of
accounting
Name of associate
La Rose Noire Limited
Hong Kong
Producer of bakery and pastry products
45%
45%
Equity
Patisserie et Chocolat Limited
Hong Kong
Producer of bakery and pastry products
45%
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
31 December
2022
25 December
2021
Revenue
10.7
9.4
(Loss)/profit before taxation
(0.1)
0.5
Taxation
–
(0.1)
(Loss)/profit after taxation
(0.1)
0.4
Group’s share of (loss)/profit after taxation (45%)
(0.1)
0.2
Associate’s statement of financial position
£m
31 December
2022
25 December
2021
Non-current assets
1.0
0.9
Current assets
6.4
5.5
Current liabilities
(1.3)
(1.2)
Net assets
6.1
5.2
Group’s share of net assets (45%)
2.8
2.3
Goodwill on acquisition
9.7
8.9
Impairment recognised
(9.7)
–
Carrying amount of associate at end of period
2.8
11.2
192
| Bakkavor Group plc | Annual Report & Accounts 2022
Carrying amount of associate
£m
31 December
2022
25 December
2021
At beginning of period
11.2
11.7
Share of (loss)/profit after taxation of associate
(0.1)
0.2
Impairment recognised (Note 7)
(9.7)
–
Exchange differences
1.4
–
Dividends received
–
(0.7)
At end of period
2.8
11.2
The following table summarises the carrying amount of the Group’s immaterial associate, Patisserie et Chocolat Limited:
£m
31 December
2022
25 December
2021
Associates that are not individually material
At beginning of period
0.5
0.4
Share of profit after tax
0.3
0.1
At end of period
0.8
£m
31 December
2022
25 December
2021
Raw materials and packaging
73.0
60.7
Work-in-progress
3.0
2.0
Finished goods
10.2
8.1
86.2
70.8
£m
31 December
2022
25 December
2021
Amounts receivable from trade customers
130.4
118.2
Expected credit loss
(3.6)
(2.8)
Net amounts receivable from trade customers
126.8
115.4
Other receivables
23.2
17.2
Prepayments
11.0
10.2
161.0
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
19. Trade and other receivables
continued
The following table is an ageing analysis of net trade receivables from customers:
£m
31 December
2022
25 December
2021
Not past due
120.4
106.8
Past due by 1 – 30 days
5.2
7.0
Past due by 31 – 60 days
0.9
0.8
Past due by 61 – 90 days
0.3
0.4
Past due by more than 90 days
–
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
31 December
2022
25 December
2021
Balance at beginning of the period
(2.8)
(1.6)
Allowances recognised against receivables
(2.1)
(2.5)
Amounts written off as uncollectible during the period
0.2
0.6
Amounts recovered during the period
0.6
0.6
Allowance reversed
0.5
0.1
Balance at end of the period
(3.6)
£m
31 December
2022
25 December
2021
Cash and cash equivalents
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 interest rates and currency profile of the Group’s borrowings at 31 December 2022 were as follows:
Currency
Facility amount
£m
Amount drawn
down at year
end £m
Interest rate
Non-utilisation
fee
Maturity
date
Term Loan
GBP
225.0
225.0
SONIA
2
plus a margin of 2.1%
N/A
Mar 2026
1
Revolving Credit Facility (“RCF”)
GBP
230.0
60.0
SONIA
2
plus a margin of 2.1%
0.735%
Mar 2026
1
Asset Finance Facility
GBP
19.2
19.2
Fixed interest rate
N/A
Aug 2027
Asset Finance Facility
GBP
10.4
10.4
Fixed interest rate
N/A
Jun 2028
Asset Finance Facility
USD
1.7
1.7
SOFR
3
plus 2.12%
N/A
Feb 2023
Total
486.3
316.3
4
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.
4
£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
The 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
31 December
2022
25 December
2021
Bank overdrafts
8.2
–
Bank loans
314.1
320.6
322.3
320.6
Borrowings repayable as follows:
On demand or within one year
13.1
3.0
In the second year
16.1
2.9
In the third to fifth years inclusive
292.4
303.1
Over five years
0.7
11.6
322.3
320.6
Analysed as:
Amount due for settlement within 12 months (shown within current liabilities)
13.1
3.0
Amount due for settlement after 12 months
309.2
317.6
322.3
320.6
2022
%
2021
%
The weighted average interest rates paid were as follows:
Bank loans and overdrafts
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
31 December
2022
25 December
2021
Fair value of the Group’s borrowings
324.5
323.8
Bakkavor Group plc | Annual Report & Accounts 2022 |
195
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
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
31 December
2022
25 December
2021
Analysis of net debt
Cash and cash equivalents
40.2
31.1
Borrowings
(14.1)
(4.1)
Interest accrual
(0.4)
(0.2)
Unamortised fees
1.4
1.3
Lease liabilities
(11.3)
(10.8)
Debt due within one year
(24.4)
(13.8)
Borrowings
(310.4)
(319.7)
Unamortised fees
1.2
2.1
Lease liabilities
(85.9)
(73.8)
Debt due after one year
(395.1)
(391.4)
Group net debt
(379.3)
£m
31 December
2022
25 December
2021
Foreign currency contracts – designated in a hedging relationship
1.5
0.1
Interest rate contracts – designated in a hedging relationship
8.4
2.5
Included in non-current assets
9.9
2.6
Foreign currency contracts – designated in a hedging relationship
2.6
0.3
Interest rate contracts – designated in a hedging relationship
0.1
–
Included in current assets
2.7
0.3
Foreign currency contracts – held at fair value through profit and loss
–
(0.9)
Foreign currency contracts – designated in a hedging relationship
(0.2)
(0.8)
Interest rate contracts – designated in a hedging relationship
(0.1)
–
Included in current liabilities
(0.3)
(1.7)
Foreign currency contracts – designated in a hedging relationship
–
(0.4)
Included in non-current liabilities
–
(0.4)
Total
12.3
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.
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
Accelerated tax
depreciation
1
Fair value
gains
Provisions
Retirement
benefit
obligations and
share schemes
Overseas tax
losses and
accrued
interest
US
goodwill
Total
At 27 December 2020
(25.9)
0.2
0.5
(1.9)
28.9
(8.5)
(6.7)
(Charge)/credit to income
(13.8)
0.2
0.2
–
(2.6)
(0.8)
(16.8)
Exchange differences
(0.1)
–
–
–
(0.2)
–
(0.3)
Charge to equity and other comprehensive income
–
(0.2)
–
(6.7)
–
–
(6.9)
At 25 December 2021
(39.8)
0.2
0.7
(8.6)
26.1
(9.3)
(30.7)
(Charge)/credit to income
(6.3)
(0.2)
0.2
0.5
3.4
(0.9)
(3.3)
Credit to income on exceptional items
4.7
–
–
–
1.0
–
5.7
Exchange differences
(0.9)
–
–
–
3.1
–
2.2
(Charge)/credit to equity and other comprehensive income
–
(3.1)
–
6.4
–
–
3.3
At 31 December 2022
(42.3)
(3.1)
0.9
(1.7)
33.6
(10.2)
(22.8)
1
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
Certain deferred tax assets and liabilities have been offset where the Group has a legally enforceable right to do so.
The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:
£m
31 December
2022
25 December
2021
Deferred tax asset
12.9
9.9
Deferred tax liabilities
(35.7)
(40.6)
(22.8)
(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
31 December
2022
25 December
2021
Capital losses
5.0
3.4
Trading losses
21.2
14.6
26.2
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.
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
31 December
2022
25 December
2021
Net book value of leased property, plant and equipment excluding right-of-use assets
0.5
2.8
Net book value of right-of-use assets
86.7
73.2
87.2
76.0
Bakkavor Group plc | Annual Report & Accounts 2022 |
197
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
24. Leases
continued
£m
Land and
buildings
Plant and
machinery
Total
Balance at 27 December 2020
68.6
3.1
71.7
Additions
12.8
1.4
14.2
Depreciation charge
(9.8)
(1.6)
(11.4)
Impairment for the period
(1.3)
–
(1.3)
At 25 December 2021
70.3
2.9
73.2
Additions
25.2
0.3
25.5
Depreciation charge
(10.9)
(1.2)
(12.1)
Impairment for the period
(0.3)
(0.3)
(0.6)
Exchange differences
0.7
–
0.7
At 31 December 2022
85.0
1.7
Lease liabilities
Present value of
minimum lease payments
£m
31 December
2022
25 December
2021
Amounts payable under leases:
Within one year
11.3
10.8
In the second to fifth years inclusive
36.6
29.3
Over five years
49.3
44.5
Present value of lease obligations
97.2
84.6
Analysed as:
Amount due for settlement within 12 months
11.3
10.8
Amount due for settlement after 12 months
85.9
73.8
97.2
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
31 December
2022
25 December
2021
Lease liabilities relating to leases previously recognised under IAS 17
0.6
1.0
Lease liabilities relating to leases recognised under IFRS 16
96.6
83.6
97.2
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
2022
2021
Interest on lease liabilities
3.1
2.7
Expenses relating to low-value leases
3.3
2.2
Expenses relating to short-term leases
1.4
0.9
7.8
5.8
Amounts recognised in the statement of cash flows
£m
2022
2021
Cash outflow for lease principal payments
14.0
11.7
Cash outflow for lease interest payments
3.1
2.7
Total cash outflow for leases
17.1
198
| Bakkavor Group plc | Annual Report & Accounts 2022
£m
31 December
2022
25 December
2021
Trade payables
287.5
237.6
Other taxation
2.1
2.1
Other payables
26.8
21.5
Accruals and deferred income
113.6
129.6
Trade and other payables due within one year
430.0
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.
£m
Onerous
contracts
Dilapidation
provisions
Legal and other
provisions
Restructuring
provisions
Total
At 27 December 2020
1.2
16.6
6.4
1.2
25.4
Utilisation of provision
(0.4)
(0.2)
(0.9)
(0.5)
(2.0)
Additional provision in the year
1.1
–
0.5
–
1.6
Release of provision
(0.1)
–
(2.1)
(0.2)
(2.4)
Unwinding of discount
–
0.2
–
–
0.2
At 25 December 2021
1.8
16.6
3.9
0.5
22.8
Included in current liabilities
0.2
4.3
3.9
0.1
8.5
Included in non-current liabilities
1.6
12.3
–
0.4
14.3
At 26 December 2021
1.8
16.6
3.9
0.5
22.8
Transferred between classifications
0.5
–
–
(0.5)
–
Utilisation of provision
(0.3)
–
(0.1)
(1.8)
(2.2)
Additional provision in the year
–
2.1
–
16.6
18.7
Release of provision
(0.5)
(0.1)
(2.6)
–
(3.2)
Unwinding of discount
0.2
0.6
–
–
0.8
Exchange differences
–
0.1
–
–
0.1
At 31 December 2022
1.7
19.3
1.2
14.8
37.0
Included in current liabilities
0.4
5.6
1.2
14.8
22.0
Included in non-current liabilities
1.3
13.7
–
–
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 STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
26. 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
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
31 December
2022
25 December
2021
Debt (excluding IFRS 16 lease liabilities)
322.9
321.6
Cash and cash equivalents
(40.2)
(31.1)
Net debt
282.7
290.5
Equity
617.8
640.7
Net debt to net debt plus equity
31.4%
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
31 December
2022
25 December
2021
Financial assets
Fair value through profit and loss:
Trade receivables
62.0
53.8
Derivative financial instruments
12.6
2.9
Measured at amortised cost:
Trade receivables
64.8
61.6
Other receivables
23.2
17.2
Cash and cash equivalents
40.2
31.1
202.8
166.6
£m
31 December
2022
25 December
2021
Financial liabilities
Fair value through profit and loss:
Derivative financial instruments
0.3
2.1
Other financial liabilities at amortised cost:
Trade payables
287.5
237.6
Other payables
26.8
21.5
Accruals
112.3
128.4
Borrowings
322.3
320.6
Lease liabilities
97.2
84.6
846.4
794.8
200
| Bakkavor Group plc | Annual Report & Accounts 2022
The 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.
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
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
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.
Profit or (loss)
10% strengthening in currency
Profit or (loss)
10% weakening in currency
£m
31 December
2022
25 December
2021
31 December
2022
25 December
2021
Euro
3.1
1.9
(3.8)
(2.3)
USD
3.9
0.3
(4.8)
(0.4)
HKD
(0.3)
(0.2)
0.4
0.3
RMB
(0.5)
(0.7)
0.7
0.8
Bakkavor Group plc | Annual Report & Accounts 2022 |
201
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
27. 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:
Foreign currency (m)
Average exchange rate
Contract value (£m)
Fair value movement (£m)
Outstanding contracts
2022
2021
2022
2021
2022
2021
2022
2021
Net Euros:
3 months or less
–
8.0
–
1.10
–
7.2
–
(0.5)
3 to 6 months
–
6.0
–
1.11
–
5.4
–
(0.3)
Net US dollars:
3 months or less
–
1.5
–
1.33
–
1.2
–
–
–
13.8
–
(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)
Outstanding contracts
2022
2021
2022
2021
2022
2021
2022
2021
Net Euros:
3 months or less
37.5
20.8
1.08
1.16
32.0
18.0
1.3
(0.4)
3 to 6 months
38.5
22.2
1.06
1.16
33.2
19.1
1.1
(0.3)
6 to 12 months
37.8
31.4
1.05
1.16
32.8
27.2
1.1
(0.4)
Over 12 months
19.8
12.0
1.14
1.16
17.3
10.3
0.5
0.0
Net US dollars:
3 months or less
4.4
4.8
1.23
1.35
3.5
3.6
0.1
0.1
3 to 6 months
3.3
4.7
1.21
1.35
2.8
3.5
–
0.0
6 to 12 months
6.0
9.4
1.21
1.35
5.0
7.0
(0.1)
0.0
Over 12 months
0.8
1.7
1.22
1.36
0.7
1.3
–
0.0
127.3
90.0
4.0
(1.0)
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
2022
2021
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Forward contracts – EURO
1.08
1.16
115.3
74.6
4.0
(1.1)
5.1
(1.1)
Forward contracts – USD
1.21
1.35
12.0
15.4
–
0.1
(0.1)
0.1
Nominal amount of the hedge
item (liabilities)
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
Hedging items
2022 Foreign
currency
m
2021 Foreign
currency
m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Foreign currency purchases – EURO
133.6
86.4
(4.0)
1.1
4.0
(1.1)
–
–
Foreign currency purchases – USD
14.5
20.6
–
(0.1)
–
0.1
–
–
202
| Bakkavor Group plc | Annual Report & Accounts 2022
The 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
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Foreign currency purchases
5.0
(1.0)
–
–
Other gains
and losses
–
–
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
(Loss)/profit
31 December 2022
(Loss)/profit
25 December 2021
Effects of 100 basis points increase in interest rate
(1.4)
(1.8)
Effects of 100 basis points decrease in interest rate
1.4
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
(Loss)/profit
31 December 2022
(Loss)/profit
25 December 2021
Effects of 100 basis points increase in interest rate
(1.4)
(1.2)
Effects of 100 basis points decrease in interest rate
1.4
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.
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
Hedging instruments
2022
%
2021
%
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Interest rate swaps maturing 13 March 2024
0.4
0.4
150.0
150.0
7.4
2.5
4.9
3.4
Interest rate swaps commencing 13 March 2024
2.3
N/A
30.0
N/A
1.0
N/A
1.0
N/A
Bakkavor Group plc | Annual Report & Accounts 2022 |
203
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
27. Financial instruments
continued
Nominal amount of the
hedged item (liabilities)
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
Hedged items
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Variable rate borrowings
(180.0)
(150.0)
(5.9)
(3.4)
8.4
2.5
–
–
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
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Variable Rate borrowings
5.9
3.4
–
–
Other gains
and losses
–
–
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 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
31 December
2022
25 December
2021
UK
120.9
104.2
US
15.4
12.4
China
13.7
16.0
150.0
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
204
| Bakkavor Group plc | Annual Report & Accounts 2022
Commodity risk management
The Group acquires substantial quantities of raw materials for its operations. The Group is therefore exposed to
commodity price and supply risks for these raw materials. The Group takes action to reduce overall material costs and
exposure to price fluctuations by sourcing raw materials from suppliers all over the world, thereby decreasing geographic
risk. It also frequently tenders to benchmark market prices. In general, requirements are managed using contracts for
periods of between three to twelve months forward. The Group also manages any local currency exposure in line with
agreed contracts. As at 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 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,
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
31 December
2022
25 December
2021
Non-derivatives due within one year:
Trade payables
287.5
237.6
Other payables
26.8
21.5
Accruals
112.3
128.4
Borrowings
1
23.2
11.2
Lease liabilities
14.2
13.3
Total non-derivatives due within one year
464.0
412.0
Non-derivatives due in the second to fifth years inclusive:
Borrowings
1
349.4
324.9
Lease liabilities
44.6
36.5
Total non-derivatives due in the second to fifth years
394.0
361.4
Non-derivatives due after five years:
Borrowings
1
0.7
11.8
Lease liabilities
63.2
58.2
Total non-derivatives due after five years
63.9
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
31 December
2022
25 December
2021
Derivative financial liabilities
Due within one year
0.3
1.7
Due in the second to fifth years inclusive
–
0.4
Total
0.3
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
2022
2021
Finance costs
On financial liabilities held at amortised cost
(20.8)
(17.1)
Changes in fair values recognised in Other gains and (losses)
On financial liabilities held at fair value through profit and loss
(0.1)
Bakkavor Group plc | Annual Report & Accounts 2022 |
205
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
Called up share capital
£m
31 December
2022
25 December
2021
Issued and fully paid:
579,425,585 (2021: 579,425,585) Ordinary shares of £0.02 each
11.6
11.6
All Ordinary shares of £0.02 each are non-redeemable, and carry equal voting rights and rank for dividends and capital
distributions, whether on a winding up or otherwise.
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 own shares held represents the cost of shares in Bakkavor Group plc purchased in the market and held by the Trust
to satisfy share awards under the Group’s share scheme plans (refer to Note 31).
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
Number of
shares
£000
Balance at 26 December 2021
–
–
Acquisition of shares by the Trust
2,994,036
3,128
Distribution of shares under share scheme plans
(53,522)
(54)
Balance at 31 December 2022
2,940,514
3,074
No own shares held of Bakkavor Group plc were cancelled during the periods presented.
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
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
206
| Bakkavor Group plc | Annual Report & Accounts 2022
£m
2022
2021
Operating profit
37.8
102.0
Adjustments for:
Share of results of associates after tax
(0.2)
(0.3)
Depreciation of property, plant and equipment
68.3
65.2
Amortisation of intangible assets
0.7
0.5
Profit on disposal of property, plant and equipment
(0.1)
(2.9)
Impairment of assets
29.2
1.3
Share scheme charges
1.3
1.7
Net retirement benefits charge less contributions
(2.2)
(1.4)
Operating cash flows before movements in operating assets and liabilities
134.8
166.1
(Increase) in inventories
(15.8)
(7.0)
(Increase) in receivables
(17.3)
(6.2)
Increase in payables
32.8
18.9
Increase/(decrease) in exceptional provisions
1
18.4
(0.4)
(Decrease) in provisions
(1.4)
(2.9)
Cash generated by operations
151.5
168.5
Income taxes paid
(5.1)
(6.5)
Interest paid
(19.3)
(18.0)
Net cash generated from operating activities
127.1
144.0
1
Included within the increase in exceptional provisions are inventory and receivable provision movements of £3.3m (2021: £nil).
£m
26 December
2021
Cash
flow
Lease
additions
Exchange
movements
Other non-cash
movements
1
31 December
2022
Borrowings
(320.6)
(0.5)
–
(0.2)
(1.0)
(322.3)
Lease liabilities
(84.6)
14.0
(25.6)
(1.0)
–
(97.2)
Total liabilities from financing activities
(405.2)
13.5
(25.6)
(1.2)
(1.0)
(419.5)
Cash and cash equivalents
31.1
8.0
–
1.1
–
40.2
Net debt
(374.1)
21.5
(25.6)
(0.1)
(1.0)
(379.3)
£m
27 December
2020
Cash
flow
Lease
additions
Exchange
movements
Other non-cash
movements
1
25 December
2021
Borrowings
(354.6)
32.8
–
–
1.2
(320.6)
Lease liabilities
(82.0)
11.7
(14.2)
(0.1)
–
(84.6)
Total liabilities from financing activities
(436.6)
44.5
(14.2)
(0.1)
1.2
(405.2)
Cash and cash equivalents
24.8
6.1
–
–
0.2
31.1
Net debt
(411.8)
50.6
(14.2)
(0.1)
1.4
(374.1)
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
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
The Group has the following amounts of letters of credit issued:
£m
31 December
2022
25 December
2021
Letters of credit
4.4
1.0
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 STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
31. Share-based payments
continued
Details of the share options outstanding during the year were as follows:
Number of share options
Weighted average exercise price
31 December
2022
25 December
2021
31 December
2022
25 December
2021
Outstanding at the beginning of the period
17,713,853
17,016,003
£0.12
£0.18
Granted during the period
5,723,603
4,094,843
–
–
Granted in lieu of dividends during the period
23,834
15,884
–
–
Exercised during the period
(1,628,144)
(1,204,191)
£0.74
£0.70
Forfeited during the period
–
(98,773)
–
–
Expired and lapsed during the period
(3,071,943)
(2,109,913)
–
–
Outstanding at the end of the period
18,761,203
17,713,853
£0.05
£0.12
Exercisable at the end of the period
2,635,939
3,613,752
£0.21
£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:
Number of share options
Weighted average exercise price
31 December
2022
25 December
2021
31 December
2022
25 December
2021
£nil
16,461,600
13,839,628
–
–
£0.01 – £1.00
2,299,603
3,874,225
£0.44
£0.57
Outstanding at the end of the period
18,761,203
17,713,853
£0.05
£0.12
Exercisable at the end of the period
2,635,939
3,613,752
£0.21
£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
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 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
The 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
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
3 July 2017
8,178,785
4.5
£1.44
38.2%
–
0.87%
2.75%
£0.65
20 October 2017
600,000
4.8
£1.44
37.5%
–
0.47%
2.75%
£1.34
20 October 2017
400,000
4.8
£1.44
37.7%
–
0.56%
2.75%
£1.26
9 April 2018
1,312,855
5.3
£1.78
23.5%
–
1.17%
0.00%
£1.78
9 April 2019
1,839,345
6.3
£1.33
31.0%
–
0.69%
0.00%
£0.59
9 April 2019
314,156
6.3
£1.33
31.0%
–
0.69%
0.00%
£1.33
15 September 2020
1,118,051
2.7
£0.68
35.7%
0.71
(0.10%)
0.00%
£0.42
14 October 2020
5,497,110
2.8
£0.65
35.7%
0.79
(0.09%)
0.00%
£0.40
14 October 2020
451,069
2.8
£0.65
35.7%
0.79
(0.09%)
0.00%
£0.64
30 October 2020
354,823
2.8
£0.59
35.7%
0.83
(0.07%)
0.00%
£0.34
30 October 2020
177,411
2.8
£0.59
35.7%
0.83
(0.07%)
0.00%
£0.58
27 January 2021
157,594
3.1
£0.59
35.7%
1.07
(0.07%)
0.00%
£0.34
26 April 2021
1,333,857
3.3
£1.36
41.5%
1.32
0.16%
0.00%
£1.08
26 April 2021
1,333,857
3.3
£1.36
43.7%
1.32
0.33%
0.00%
£1.30
26 April 2021
482,845
3.3
£1.36
41.5%
1.32
0.16%
0.00%
£1.08
26 April 2021
482,845
3.3
£1.36
43.7%
1.32
0.33%
0.00%
£1.30
26 April 2021
136,823
3.3
£1.36
43.7%
1.32
0.33%
0.00%
£1.30
14 September 2021
83,511
3.7
£1.29
42.0%
1.70
0.21%
0.00%
£1.01
14 September 2021
83,511
3.7
£1.29
42.0%
1.70
0.21%
0.00%
£1.24
13 April 2022
1,758,278
9.3
£1.08
41.4%
2.28
1.61%
0.00%
£0.64
13 April 2022
1,758,278
9.3
£1.08
41.4%
2.28
1.61%
0.00%
£1.08
13 April 2022
620,059
9.3
£1.08
41.4%
2.28
1.61%
0.00%
£0.64
13 April 2022
620,059
9.3
£1.08
41.4%
2.28
1.61%
0.00%
£1.08
13 April 2022
128,036
9.3
£1.08
41.2%
2.28
1.61%
0.00%
£1.08
13 October 2022
40,645
9.8
£0.91
48.4%
2.79
3.95%
0.00%
£0.61
13 October 2022
40,644
9.8
£0.91
48.4%
2.79
3.95%
0.00%
£0.91
13 October 2022
505,072
9.8
£0.91
46.8%
2.79
3.95%
0.00%
£0.91
13 October 2022
252,534
9.8
£0.91
46.8%
2.79
3.95%
0.00%
£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
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 STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
32. Retirement benefit schemes
continued
Pension costs charged in arriving at profit on ordinary activities before taxation were:
£m
31 December
2022
25 December
2021
UK defined contribution scheme net charge
12.6
11.1
UK defined benefit scheme net charge
0.6
1.1
Total charge
13.2
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:
31 December
2022
25 December
2021
Future pension increases for in-payment benefits (majority of liabilities)
3.10%
3.25%
Discount rate applied to Scheme liabilities
4.80%
1.80%
Inflation assumption (CPI)
2.80%
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:
Males’ expected
future lifetime
2022
Males’ expected
future lifetime
2021
Females’
expected future
lifetime
2022
Females’
expected future
lifetime
2021
Member aged 45
41.4
41.3
43.9
43.8
Member aged 65
21.8
21.8
23.9
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
Approximate impact on scheme liabilities
Discount rate
Increase/decrease by 1.0%
Decrease £22.4m/increase £28.1m
Rate of inflation
Increase/decrease by 0.5%
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
2022
2021
Past service cost
–
0.1
Net interest on net defined benefit asset/liability
(0.7)
(0.2)
Administration costs incurred during the period
1.3
1.2
Total charge
0.6
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
The amount included in the statement of financial position arising from the Group’s obligations in respect of its defined
benefit retirement benefit schemes is as follows:
£m
31 December
2022
25 December
2021
Fair value of Scheme assets
185.9
313.5
Present value of defined benefit obligations
(173.1)
(276.3)
Scheme surplus
12.8
37.2
Related deferred taxation liability (Note 23)
(3.2)
(9.3)
9.6
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
Present value
of DBO
Fair value of
Scheme assets
Net amount
At 27 December 2020
(283.5)
294.7
11.2
Past service cost – plan amendments
(0.1)
–
(0.1)
Interest (expense cost on the DBO)/income on Scheme assets
(3.9)
4.1
0.2
Administrative costs paid
–
(1.2)
(1.2)
Total amount recognised in the consolidated income statement
(4.0)
2.9
(1.1)
Return on Scheme assets greater/(less) than discount rate
–
21.5
21.5
Actuarial loss – financial assumptions
3.0
–
3.0
Total amount recognised in other comprehensive income
3.0
21.5
24.5
Contributions from the sponsoring companies
–
2.6
2.6
Benefits paid from Scheme assets
8.2
(8.2)
–
At 25 December 2021
(276.3)
313.5
37.2
Past service cost – plan amendments
–
–
–
Interest (expense cost on the DBO)/income on Scheme assets
(4.9)
5.6
0.7
Administrative costs paid
–
(1.3)
(1.3)
Total amount recognised in the consolidated income statement
(4.9)
4.3
(0.6)
Return on Scheme assets greater/(less) than discount rate
–
(124.7)
(124.7)
Actuarial loss – experience
(13.6)
–
(13.6)
Actuarial gain – financial assumptions
112.0
–
112.0
Total amount recognised in other comprehensive income
98.4
(124.7)
(26.3)
Contributions from the sponsoring companies
–
2.5
2.5
Benefits paid from Scheme assets
9.7
(9.7)
–
At 31 December 2022
(173.1)
185.9
12.8
The analysis of the Scheme assets at the statement of financial position date was as follows:
Fair value of assets
£m
31 December
2022
25 December
2021
Structured UK equity
2.3
13.0
Overseas equity
9.9
30.7
High yield bonds
8.5
7.5
Corporate bonds
50.5
74.4
Government bonds
81.3
141.7
Cash
9.6
11.3
Other
23.8
34.9
185.9
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 STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
32. 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).
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
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.
2022
2021
£m
Directors
Senior
Management
Total
Directors
Senior
Management
Total
Short-term employee benefits
3.1
1.1
4.2
3.8
1.1
4.9
Post-employment benefits
1
–
–
–
–
–
–
Share-based payments
2
0.4
0.3
0.7
0.5
0.3
0.8
3.5
1.4
4.9
4.3
1.4
5.7
1
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.
2
This is the income statement charge for the year which represents the fair value of the share-based payments to the Directors and Senior Management. Details of the share-based
payments are set out in Note 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
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
2022
2021
Change %
Statutory revenue
2,139.2
1,871.6
14.3%
Effect of currency movements
(34.2)
–
Week 53 revenue
(36.0)
–
Like-for-like revenue
2,069.0
1,871.6
10.6%
Bakkavor Group plc | Annual Report & Accounts 2022 |
213
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
36. Alternative performance measures
continued
The following tables provide the information used to calculate like-for-like revenue for each segment.
UK
£m
2022
2021
Change %
Statutory revenue
1,783.1
1,592.4
12.0%
Week 53 revenue
(30.8)
–
Like-for-like revenue
1,752.3
1,592.4
10.0%
US
£m
2022
2021
Change %
Statutory revenue
255.3
180.1
41.8%
Effect of currency movements
(25.5)
–
Week 53 revenue
(3.6)
–
Like-for-like revenue
226.2
180.1
25.6%
China
£m
2022
2021
Change %
Statutory revenue
100.8
99.1
1.7%
Effect of currency movements
(8.7)
–
Week 53 revenue
(1.6)
–
Like-for-like revenue
90.5
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.
£m
Note
2022
2021
Operating profit
37.8
102.0
Exceptional items
7
50.1
–
Configuration and customisation costs for SaaS projects
1.5
–
Adjusted operating profit
89.4
102.0
Depreciation
68.3
65.2
Amortisation
0.7
0.5
Share scheme charges
1.9
2.3
Profit on disposal of property, plant and equipment
(0.1)
(2.9)
Share of results of associates after tax
(0.2)
(0.3)
Adjusted EBITDA post IFRS 16
160.0
166.8
Less IFRS 16 impact
(13.8)
(12.6)
Adjusted EBITDA pre IFRS 16
1
146.2
154.2
Covenant adjustments
0.6
1.4
Adjusted EBITDA (pre IFRS 16 and including covenant adjustments)
146.8
155.6
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
Operational net debt and leverage
Operational net debt excludes the impact of non-cash items on the Group’s net debt. The Directors use this measure as it
reflects actual net borrowings at the relevant reporting date and is most comparable with the Group’s free cash flow 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
Note
31 December
2022
25 December
2021
Group net debt
21
(379.3)
(374.1)
Unamortised fees
(2.6)
(3.4)
Interest accrual
0.4
0.2
Lease liabilities recognised under IFRS 16
96.6
83.6
Group operational net debt
(284.9)
(293.7)
Adjusted EBITDA (pre IFRS 16 and including covenant adjustments)
146.8
155.6
Leverage (Operational net debt/adjusted EBITDA pre IFRS 16 and including covenant adjustments)
1.9
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
2022
2021
Net cash generated from operating activities
127.1
144.0
Interest received
0.2
–
Dividends received from associates
–
0.7
Purchases of property, plant and equipment
(61.1)
(59.8)
Proceeds on disposal of property, plant and equipment
0.1
4.2
Purchase of intangibles
(2.9)
–
Cash impact of exceptional items
2.5
1.2
Refinancing fees
0.9
0.9
Free cash flow
66.8
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
2022
2021
Profit for the period
12.5
56.8
Exceptional items (Note 7)
50.1
–
Configuration and customisation costs for SaaS projects
1.5
–
Change in fair value of derivative financial instruments
0.1
4.0
Tax on the above items
(9.4)
(0.8)
Adjusted earnings
54.8
60.0
Add back: Tax on adjusted profit before tax
15.0
25.4
Adjusted profit before tax
69.8
85.4
Effective tax rate on underlying activities
(Tax on adjusted profit before tax/adjusted profit before tax)
21.5%
29.7%
Bakkavor Group plc | Annual Report & Accounts 2022 |
215
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
36. Alternative performance measures
continued
Number of shares
‘000
2022
2021
Weighted average number of Ordinary shares
577,576
579,426
Effect of dilutive Ordinary shares
9,767
9,775
Weighted average number of diluted Ordinary shares
587,343
589,201
2022
2021
Adjusted basic earnings per share
9.5p
10.4p
Adjusted diluted earnings per share
9.3p
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
Note
2022
2021
Operating profit
37.8
102.0
Exceptional items
7
50.1
–
Configuration and customisation costs for SaaS projects
1.5
–
Adjusted operating profit
89.4
102.0
Taxation at the underlying effective rate
(19.2)
(30.3)
Adjusted operating profit after tax
70.2
71.7
Invested capital
Total assets
1,541.4
1,503.5
Total liabilities
(923.6)
(862.8)
Net debt at period end
379.3
374.1
Derivatives not designated as hedges
–
0.9
Retirement benefit scheme surplus
(12.8)
(37.2)
Deferred tax liability on retirement benefit scheme
3.2
9.3
Invested capital
987.5
987.8
Average invested capital for ROIC calculation
987.7
994.4
ROIC (%)
7.1%
216
| Bakkavor Group plc | Annual Report & Accounts 2022
AS AT 31 DECEMBER 2022
£m
Notes
31 December
2022
25 December
2021
Non-current assets
Shares in Group undertakings
4
309.5
309.5
Current assets
Loans to Group undertakings
6
95.6
97.2
Deferred tax assets
0.9
0.2
96.5
97.4
Total assets
406.0
406.9
Current liabilities
Loans from Group undertakings
6
(1.6)
(0.2)
Total liabilities
(1.6)
(0.2)
Net assets
404.4
406.7
Equity
Called up share capital
7
11.6
11.6
Own shares held
7
(3.1)
–
Merger reserve
7
23.8
23.8
Retained earnings
372.1
371.3
Total equity
404.4
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
Ben Waldron
Chief Executive Officer
Chief Financial Officer and Asia Chief Executive Officer
COMPANY STATEMENT OF CHANGES IN EQUITY
53 WEEKS ENDED 31 DECEMBER 2022
£m
Note
Called up
share capital
Own
shares held
Merger
reserve
Retained
earnings
Total
equity
Balance at 27 December 2020
11.6
–
23.8
323.2
358.6
Profit for the period
–
–
–
85.0
85.0
Dividends
7
–
–
–
(38.5)
(38.5)
Credit for share-based payments
–
–
–
2.3
2.3
Cash-settlement of share-based awards
–
–
–
(0.6)
(0.6)
Deferred tax
–
–
–
(0.1)
(0.1)
At 25 December 2021
11.6
–
23.8
371.3
406.7
Profit for the period
–
–
–
38.5
38.5
Purchase of own shares
7
–
(3.1)
–
–
(3.1)
Dividends
7
–
–
–
(38.8)
(38.8)
Credit for share-based payments
–
–
–
1.9
1.9
Cash-settlement of share-based awards
–
–
–
(0.6)
(0.6)
Deferred tax
–
–
–
(0.2)
(0.2)
At 31 December 2022
11.6
(3.1)
23.8
372.1
Bakkavor Group plc | Annual Report & Accounts 2022 |
217
FINANCIAL STATEMENTS
NOTES TO THE COMPANY 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 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
Investment in
Group companies
Balance at 25 December 2021 and 31 December 2022
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:
Name
Place of
registration and
operation
Principal activity
% of voting
shares as at
31 December
2022
% of voting
shares as at
25 December
2021
Directly held investments:
Bakkavor Holdings Limited
1
UK
Holding company
100%
100%
Indirectly held investments:
Bakkavor Finance (2) Limited
1
UK
Holding company
100%
100%
Bakkavor (London) Limited
1
UK
Holding company
100%
100%
Bakkavor Finance Limited
2
UK
Customer invoicing and financing of receivables
100%
100%
Bakkavor Limited
1
UK
Holding company
100%
100%
Bakkavor USA Inc
4
USA
Holding company
100%
100%
Bakkavor USA Limited
1
UK
Holding company
100%
100%
Bakkavor Foods USA Inc
4
USA
Manufacture of fresh prepared meals and bakery
products
100%
100%
Bakkavor China Limited
1
UK
Holding company
100%
100%
Bakkavor Bakery Holdings Limited
5
Hong Kong
Holding company
100%
N/A
Bakkavor Hong Kong Limited
5
Hong Kong
Preparation and marketing of fresh prepared foods
100%
100%
Bakkavor China Holdings Limited
5
Hong Kong
Holding company
100%
100%
Wuhan Bakkavor Food Company Limited
6
China
Manufacture of salad products
100%
100%
Wuhan Bakkavor Agricultural Product Processing
Company Limited
20
China
Manufacture of salad products
100%
100%
Jiangsu Bakkavor Food Company Limited
7
China
Manufacture of salad products
100%
100%
Shaanxi Bakkavor Food Company Limited
8
China
Manufacture of salad products
100%
100%
Beijing Bakkavor Food Company Limited
9
China
Manufacture of salad products
100%
100%
Guangzhou Bakkavor Food Company Limited
10
China
Manufacture of salad products
100%
100%
Bakkavor (Shanghai) Management Company Limited
11
China
Holding company
100%
100%
Shaanxi Bakkavor Agriculture Processing
Company Limited
12
China
Manufacture of salad products
100%
100%
Fujian Bakkavor Food Company Limited
13
China
Manufacture of salad products
100%
100%
Bakkavor (Taicang) Baking Company Limited
14
China
Manufacture of bakery products
100%
100%
Chengdu Bakkavor Foods Company Limited
15
China
Manufacture of salad products
100%
100%
Bakkavor Foods Limited
1
UK
Manufacture of fresh prepared foods
100%
100%
Bakkavor Estates Limited
2
UK
Property management
100%
100%
Bakkavor Pension Trustees Limited1*
UK
Pension trustee holding company
100%
100%
Bakkavor European Marketing BV
16
Netherlands
Holding company
100%
100%
NV Bakkavor Belgium BV
17
Belgium Non-trading
100%
100%
BV Restaurant Group Limited
1
UK
Production and distribution of fresh prepared foods
100%
100%
Bakkavor Iberica S.L.U.
18
Spain Distribution
100%
100%
Bakkavor Central Finance Limited
2
UK
Customer invoicing and financing of receivables
100%
100%
Dormant companies
Bakkavor Dormant Holdings Limited
1
*
UK
Holding company
100%
100%
Bakkavor Finance (1) Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor Finance (3) Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor Acquisitions (2008) Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor Invest Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor (Acquisitions) Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor Asia Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor Overseas Holdings Limited
1
*
UK
Dormant non-trading company
100%
100%
BV Foodservice Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor Desserts Leicester Limited
1
UK
Dormant non-trading company
100%
100%
Bakkavor Fresh Cook Limited
1
*
UK
Dormant non-trading company
100%
100%
English Village Salads Limited
1
*
UK
Dormant non-trading company
100%
100%
Notsallow 256 Limited
1
*
UK
Dormant non-trading company
100%
100%
Kent Salads Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor Group plc | Annual Report & Accounts 2022 |
219
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
Name
Place of
registration and
operation
Principal activity
% of voting
shares as at
31 December
2022
% of voting
shares as at
25 December
2021
Laurens Patisseries Limited
1
*
UK
Dormant non-trading company
100%
100%
Hitchen Foods Limited
1
*
UK
Dormant non-trading company
100%
100%
Bakkavor Brothers Limited
1
*
UK
Dormant non-trading company
100%
100%
Cucina Sano Limited
1
*
UK
Dormant non-trading company
100%
100%
Butterdean Products Limited
1
*
UK
Dormant non-trading company
100%
100%
Exotic Farm Prepared Limited
1
*
UK
Dormant non-trading company
100%
100%
Exotic Farm Produce Limited
1
*
UK
Dormant non-trading company
100%
100%
Associate companies
La Rose Noire Limited
19
Hong Kong
Operation of bakery and food and beverage outlets
45%
45%
Patisserie et Chocolat Limited
19
Hong Kong
Operation of bakery and food and beverage outlets
45%
45%
1
The registered address of all these companies is Fitzroy Place, 5th Floor, 8 Mortimer Street, London, England, W1T 3JJ.
2
The registered address of these companies is West Marsh Road, Spalding, Lincolnshire, England, PE11 2BB.
3
The registered address of this company is Thorvaldsensstræti 6, 6th floor, 101 Reykjavík, Iceland.
4
The registered address of these companies is 2700 Westinghouse Boulevard, Charlotte, NC 28273.
5
The registered address of these companies is Units 1902-1912, 19/F., Eight Commercial Tower, No 8 Sun Yip Street, Chai Wan, Hong Kong.
6
The registered address of this company is Mujiajing ZhangDuHu Farm, Xinzhou District, Wuhan, China.
7
The registered address of this company is Agricultural Development Area, Changle Town, Haimen City, Jiangsu Province, China.
8
The registered address of this company is Qinghua Keji Garden, Middle of Shiji Road, Xianyang City, Shanxi Province, China.
9
The registered address of this company is South Xitai Road, Da Sun Gezhuang Town, Shunyi District, Beijing, China.
10 The registered address of this company is No. 55 Banyutang Road, High Tech Development Area, Guangzhou, China.
11 The registered address of this company is Room 01, 3A Floor, Number 16 Lane 1977, Jinshajiang Road, Putuo District, Shanghai, China.
12
The registered address of this company is No.424, Building 4, Chongwen tower scenic area (phase I), Jinghe new town, Xixian new district, Shaanxi province
13 The registered address of this company is Jiulong Industry Park of Hua An Economic Development Zone, China.
14 The registered address of this company is Taicang City, No 29 Qingdao East Road, China.
15
The registered address of this company is Rong Tai Road, Cross-Straits Science & Technology Industry Development Park, Wenjiang District, Chengdu, China.
16 The registered address of this company is Prins Bernhardplein 200, 1097 JB Amsterdam, The Netherlands.
17 The registered address of this company is Lammerdries-Zuid 16F, 2250 Olen, Belgium.
18 The registered address of this company is Calle Cartagena 57, 1º D Torre Pacheco, Murcia CP 30700, Spain.
19
The registered address of these companies is 2/F Corporation Square 8 Lam Lok Street, Kowloon Bay, Kowloon, Hong Kong. La Rose Noire and Patisserie et Chocolat Limited are
associate companies of Bakkavor Group plc, owned by Bakkavor China Limited.
20
The registered address of this company is Room 706, 7th floor, No. 1 Entrepreneurship service centre, Hanshi No. 1 road, Honggang village, Wuhan yangluo economic development zone
* These companies are UK dormant companies who file dormant accounts which are exempt from audit by virtue of s479A of Companies Act 2006.
6. Financial instruments
Foreign currency risk
The Company is not exposed to any significant foreign currency risk as principally all its balances are in Pounds Sterling.
Interest rate risk management
The Company has intercompany loan receivables. There are no interest-bearing balances and therefore the Company
is not exposed to any interest rate risk.
Categories of financial instruments
£m
31 December
2022
25 December
2021
Financial assets and liabilities
Measured at amortised cost:
Loans to Group undertakings
95.6
97.2
Loans from Group undertakings
(1.6)
(0.2)
5. Subsidiaries
continued
220
| Bakkavor Group plc | Annual Report & Accounts 2022
7. Called up share capital and reserves
Called up share capital
£m
31 December
2022
25 December
2021
Issued and fully paid:
579,425,585 (2021: 579,425,585) Ordinary shares of £0.02 each
11.6
11.6
All Ordinary shares of £0.02 each are non-redeemable, and carry equal voting rights and rank for dividends and capital
distributions, whether on a winding up or otherwise.
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 own shares held represents the cost of shares in Bakkavor Group plc purchased in the market and held by the Trust
to satisfy share awards under the Group’s share scheme plans (refer to Note 31). 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).
£m
Number of
shares
£000
Balance at 26 December 2021
–
–
Acquisition of shares by the Trust
2,994,036
3,128
Distribution of shares under share scheme plans
(53,522)
(54)
Balance at 31 December 2022
2,940,514
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.
Bakkavor Group plc | Annual Report & Accounts 2022 |
221
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
8. Related party transactions
During the period, the Company entered into the following transactions with related parties:
£m
31 December
2022
25 December
2021
Loans to Group undertakings
95.6
97.2
Loans from Group undertakings
(1.6)
(0.2)
Loans to Group undertakings relate to corporate loans of £nil (2021: £85.0m) due from Bakkavor Holdings Limited and
£95.6m (2021: £12.2m) due from Bakkavor Finance (2) Limited.
These amounts are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have
been made for expected credit losses in respect of the amounts owed by related parties.
Amounts are denominated in Sterling. All related party receivables are held at amortised cost.
Loans to Group undertakings do not carry interest on the outstanding corporate loan balances.
Loans from Group undertakings relate to a corporate loan of £1.6m (2021: £0.2m) due from Bakkavor Foods Limited.
Loans from Group undertakings do not carry interest on the outstanding corporate loan balances.
9. Events after the statement of financial position date
There are no events after the statement of financial position date that need to be disclosed.
10. Controlling party
Two of the Company’s Directors, Agust Gudmundsson and Lydur Gudmundsson, hold shares in the Company through
their beneficial ownership of Carrion Enterprises Limited (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).
222
| Bakkavor Group plc | Annual Report & Accounts 2022
General Counsel and Company Secretary
Annabel Tagoe-Bannerman
Registered office
Fitzroy Place, 5th Floor
8 Mortimer Street
London
England
W1T 3JJ
Company number
10986940
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
BN99 6DA
Bankers
Barclays Bank PLC
Multinational Corporates
One Churchill Place
London
E14 5HP
Independent Auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London
WC2N 6RH
Brokers
Citigroup Global Markets Limited
Citigroup Centre
33 Canada Square
London
E14 5LB
Peel Hunt LLP
100 Liverpool Street
London
EC2M 2AT
Solicitors
Freshfields Bruckhaus Deringer LLP
100 Bishopsgate
London
EC2P 2SR
ADVISERS AND REGISTERED OFFICE
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223
