Annual Financial Report and AGM Notice

RNS Number : 0355M

Bakkavor Group PLC

06 May 2020

 

6 May 2020

Bakkavor Group plc
  ("Bakkavor", "the Group" or "the Company")

2019 Annual Report and Notice of 2020 Annual General Meeting

Bakkavor announces that it has today published its 2019 Annual Report ("Annual Report") and Notice of 2020 Annual General Meeting ("AGM" or "Meeting") on the Company's website at www.bakkavor.com .

The following documents will be posted to shareholders on or about 12 May 2020, or otherwise made available to shareholders, and as required under DTR 6.3.5R(3):

· Annual Report 2019 (in respect of the 52-week period ended 28 December 2019)

· Notice of 2020 AGM

· Form of Proxy

(together, "the Documents").

As required under Listing Rule 9.6.1, copies of the Documents will be submitted to the UK Listing Authority for publication through the National Storage Mechanism and will shortly become available for inspection at   www.morningstar.co.uk/uk/nsm

The Company's 2020 AGM will be held at 10.00 am on Friday, 12 June 2020 at Fitzroy Place, 5th Floor, 8 Mortimer Street, London, W1T 3JJ. 

The evolving situation in respect of Coronavirus (COVID-19) with respect to the Company's forthcoming AGM will be carefully monitored. In view of the current 'Stay at Home Measures' enacted by the UK Government on 23 March 2020 in response to the outbreak of COVID-19, shareholders will not be permitted to attend the AGM in person and anyone seeking to attend will be refused entry, unless the measures are lifted by the date of the Meeting and the Board considers it safe for shareholders to do so. The format of the meeting will be purely functional, involving the minimum possible number of attendees in person to allow the meeting to take place in accordance with legal requirements.

The Company therefore strongly encourages shareholders to participate in the AGM by voting by proxy, as set out in the Notice of AGM, and by submitting any questions in advance. Any specific questions on the business of the AGM and resolutions can be submitted ahead of the meeting by email to [e-mail] so as to be received no later than 10.00 am on 10 June 2020.  These questions and answers will be published on our website after the Meeting. The voting results of all resolutions to be proposed at the Meeting will also be announced to the market following the Meeting in the usual way.

Arrangements for our AGM are subject to change at short notice. Updates on the status of the AGM and any changes to the proceedings of the Meeting will be announced to the market via a regulatory information service and published on the Company's website.

The Company's Full Year Results announcement in respect of the 52-week period ended 28 December 2019, which was released on 27 February 2020 (RNS Number 2683E), can be viewed   at www.bakkavor.com

The appendix to this announcement contains additional information which has been extracted from the 2019 Annual Report for the purposes of compliance with the FCA's Disclosure & Transparency Rules and should be read together with the Final Results announcement.

Together these constitute the information required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This information is not a substitute for reading the full 2019 Annual Report. 

ENQUIRIES

Institutional investors and analysts:

Peter Gates, Chief Financial Officer

Sally Barrett-Jolley, Head of Corporate Affairs  [phone]

Media:

Tulchan Communications  [phone]

Will Smith

LEI number: 213800COL7AD54YU9949 

Appendix: additional information required by DTR 6.3.5

Page and note references in this appendix refer to page numbers and notes in the 2019 Annual Report.

Directors' Responsibilities and Statements

The following responsibility statement is extracted from the Statement of Directors' Responsibilities on page 116 of the 2019 Annual Report and Accounts and is repeated here solely for the purpose of complying with DTR 6.3.5. The statement relates to the full 2019 Annual Report and Accounts and not the extracted information presented in this announcement or the Final Results announcement.

"The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union, and Company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law). Under Company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and Company for that period. In preparing the Financial Statements, the Directors are required to:

•     Select suitable accounting policies and then apply them consistently

•   State whether applicable IFRSs, as adopted by the European Union, have been followed for the Group Financial Statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company Financial Statements, subject to any material departures disclosed and explained in the Financial Statements

• Make judgements and accounting estimates that are reasonable and prudent

• Prepare the Financial Statements on the going concern basis, unless it is inappropriate to presume that the Group and Company will continue in business

The Directors are also responsible for safeguarding the assets of the Group and Company, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company. These records must also enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Directors' Confirmations

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Group and Company's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the Governance - Board section confirm that, to the best of their knowledge:

•     The Company Financial Statements, which have been prepared in accordance with United Kingdom Generally

Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company

•     The Group Financial Statements, which have been prepared in accordance with IFRSs, as adopted by the   European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group

•   The Strategic Report includes a fair review of the development and performance of the business, and the  position of the Group and Company, together with a description of the principal risks and uncertainties that it faces.

AGUST GUDMUNDSSON

Chief Executive Officer

5 May 2020"

Principal Risks and Uncertainties 

The risks and uncertainties set out below are extracted from the pages 58 to 65 of the 2019 Annual Report and Accounts and are repeated here solely for the purpose of complying with DTR 6.3.5.

COVID-19 - Risk Summary

COVID-19 emerged as a major risk to companies in China in January and since then has spread to impact companies all around the world. Each day the situation changes and the Group has put in place a number of actions to mitigate the potential impacts to the business in the three regions in which it operates and across its supply chain. Details of these mitigating actions are explained later in this section.

Unlike many other industries which have been severely impacted recently, such as travel and hospitality, the food manufacturing industry and provision of food remains fundamental to consumers. Fresh food and the convenience of FPF supports the health and wellbeing of consumers and maintaining the continuity and availability of our products is a key priority for both our industry and government. For this reason, our Group has in recent weeks been defined as providing a 'key' or 'essential' service and received protection and in some cases exemption from many of the restrictions placed on individuals and companies in these difficult times.

Given that we manufacture and distribute most of our products every day, the Group is used to accommodating volatile and sometimes unpredictable ordering patterns. With a short shelf-life on most of our raw materials and finished goods, we can only hold limited stocks at any time. We therefore have sophisticated supply chains, with robust planning and scheduling procedures and a range of contingency plans are in place in line with our normal operating plans. This gives us a relatively high degree of flexibility and agility in our operations and has served us well in adapting to the current unprecedented situation.

This section addresses the key risks to each of the Group's three markets: the UK, US and China. We have assessed these risks under three general headings: People management, Supply chain and logistics and Consumer demand. We also list the specific mitigating actions available and consider the potential impact of the COVID-19 crisis on both our financial performance and the Group's liquidity position and our ability to meet our financial obligations as they fall due.

Our scenario planning, as set out below, is based on an assessment of a reasonable downside scenario but, given the scale and fast moving nature of the pandemic, it is inevitable that there will remain a high level of uncertainty on the overall impact to the business.

United Kingdom

In the UK, we have a mature business employing over 17,000 people across 25 sites, providing short shelf-life chilled convenience products to a range of major supermarket retailers. The business operates in four key categories: meals, salads, desserts and pizza & bread.

1. People management

The first risk to our business could be the impact of a shortage of core staff and / or management. Our business is a mix of both highly automated and labour-intensive production, and most sites operate 24/7 and 364 days a year. Should a large number of employees be off work, it is possible we might have to reduce our output to match labour availability. Similarly, if we were to lose a number of key management personnel for a period then it could put additional pressure on our ability to operate efficiently.

Mitigating action

As a business, we are fully committed to ensuring we safeguard the health, safety and wellbeing of all our colleagues in carrying out their work. As a large FPF manufacturer, our established controls for managing both people and food safety within our operations are industry-leading. While our regular handwashing procedures and high levels of good manufacturing practice (GMP) and hygiene ensure a safe working environment, we have also implemented a number of additional controls and enhanced safety measures following the virus outbreak. This has included restricted visitor access, suspending all travel unless deemed business critical, a more rigorous return to work procedure, more frequent cleaning regimes at touchpoints, additional handwashing protocols, adhering to PHE guidelines for social distancing in our offices, rest, changing and ancillary areas, as well as following specific PHE guidance for distancing in food manufacturing businesses. We are taking measures to ensure that these operating procedures are fully understood and are rigorously complied with so that we maintain the highest standards. We continue to audit ourselves against both our standard controls and our enhanced COVID-19 protocols on both an announced and unannounced basis.

We have also actioned and continue to take advice from many sources, including HM Government, Public Health England and the NHS. We are also reviewing information from the Chilled Food Associated (CFA) and The Institute of Grocery Distribution (IGD). In addition to this, we maintain regular dialogue with all employees. We therefore believe that the current practices and the additional new measures recently introduced should lower the risk of a large-scale transfer of the virus between our staff on our premises.  

Within our factories we operate a series of shift patterns. This flexible working pattern allows us to move our core staff - those that are well-trained and experienced - between shifts and production areas, as well as between sites. We also operate with a level of agency staff who we can flex up or down depending on our requirements. In the event that the virus does result in a large number of our core staff being temporarily absent for reasons of illness or support for affected relatives, we believe that we would be able to use our remaining employees and agency staff to continue production. In the unlikely event that the shortage became acute, we would concentrate those remaining staff into production of a reduced range of selected products and/or less labour-intensive products. We could also transfer staff between factories where we have several sites within a short distance of each other, for example in Lincolnshire and North London.

In the current situation, which has resulted in a large range of businesses unfortunately having to close, the available pool of agency labour has grown as individuals look for alternative employment.

In the event that we have a number of key managers unavailable, then we will reallocate our managers between multiple sites to cover shortages. If this were for a short period of time, we consider the depth of our Senior Management to be sufficient to continue production across our multiple sites.

We have also received confirmation that our business is classified as critical to the COVID-19 response. This means that all Bakkavor employees are classified as key workers and are therefore entitled to support with childcare and continued education.

Taken together, these factors mean we consider that our employee attendance will continue at an appropriate level such that we can maintain production.

2. Supply chain and logistics

A second risk to our business could be an interruption to our raw material supply chain. Due to the short shelf-life of a number of raw materials that we hold in stock, we are used to operating a sophisticated supply chain that ensures we can procure, manufacture and distribute product every day. Our raw materials are sourced from across the world, with approximately 40% from the EU and 15% from other parts of the world. With low stocks held at site, any disruption in the supply of our raw materials could mean we are unable to meet orders for particular products. Furthermore, in the event of broader economic stress in the regions in which our suppliers operate, we could find availability and cost of our key raw materials under pressure.

Mitigating action

As a business, we are highly experienced in problem-solving issues regarding supply chain and logistics. Our procurement function is largely centralised at our Head Office in Spalding, Lincolnshire, with commodity focused specialists. This expertise gives us a deep knowledge of the supply chain, including well-established relationships with individual farmers, growers and suppliers. In addition, we have 'on the ground' presence with colleagues based in China, Spain, Italy and South America, which is a key strength in understanding what is happening within the supply base and within the local area. This includes a dedicated team based in Spain who coordinate the buying of fresh produce globally and the transportation of raw materials from southern Europe to the UK, and a team in China who coordinate the purchase and shipping of raw materials from Chinese suppliers back to the UK. We make limited use of forwarding agents, preferring to rely on our own professionals to ensure the smooth running of what is in effect a just-in-time operating model. This ensures that in the case of difficulties with product availability or transport we are best placed to seek alternative sources or routes.

We also make full use of UK raw materials wherever possible, with approximately 45% of raw materials purchased from the UK and have a flexible model which allows us to switch suppliers to match seasonal availability, particularly in the spring and summer when UK crops are more readily available. Robust dual-sourcing procedures ensure that we are never completely reliant on one particular supplier and potentially left with no alternatives. With the changing product requirements of our customers, we already have a robust and well established process in place to approve new raw materials and suppliers, and should we need to accelerate this we can work effectively with our customers to ensure the appropriate approvals are obtained.

Where disruption has occurred historically, potentially causing transport delays and additional costs, our commercial teams have worked with our customers to create a practical solution, changing the specification of products if necessary. Our broad range of product offerings also means that we can quickly and easily provide alternative products to our customers.

Following the virus outbreak, we have taken a number of mitigating actions. This has included increasing stock holding across the supply chain, review of alternative and additional suppliers for critical raw materials, implementation of alternative supply options and daily Procurement Leadership Team reviews. We have also maintained very close day-to-day contact with our suppliers and been able to respond with appropriate support for those under particular financial pressures.

3. Consumer demand

Finally, since our fresh prepared foods are distributed through retail stores and the retailers' own home-delivery networks, there is a risk that demand for our products could fall if consumers changed their buying preferences and / or our customers decided to limit or change the range of products that they offered in store. This could be as a result of retailers streamlining their operations including supply chain, labour allocation and store processes as well as store closure due to lack of available staff.

Mitigating action

As a large food manufacturing business, we adjust volumes to match demand daily. Whilst each of our 25 sites is dedicated to a particular key food category (meals, salads, pizza & bread or desserts), all are multi-product, most are multi-customer and all are geared to production of the full range of their products every day. This means the sites are operationally flexible and used to accommodating changing priorities. We are also used to supplying the same product at two different sites should it become necessary, because of particularly high short-term promotional volumes for example.

Should demand for particular products fall, then our breadth and range would allow us to provide alternative products to our customers. In the event that volumes were to fall suddenly in a particular category, which impacted a site more broadly, there are a number of mitigating actions that could be taken including use of the Government's Job Retention Scheme to 'Furlough' workers, cutting costs through a reduction of agency staff, changes to shift patterns, delay new product launches, slow or stop the supply of raw materials and review overhead cost saving opportunities. If these reduced volumes held in place over the longer term and indicated a fundamental shift in consumer buying patterns, then it could become necessary to reassess the viability of an individual site.

US

In the US, our business employs over 850 people and operates from five sites, producing chilled convenience food for US grocery retailers.

1. People management

The risks to our US business of the impact of a shortage of core staff and / or management are the same as the UK business, and described above.

Mitigating action

The mitigating actions outlined for the UK business can equally apply to the US, with the following additional points of note.

We have also actioned and continue to take advice from many sources including state, federal and county bodies, the US Food and Drug Administration, the US Department of Agriculture and public health organisations.

The food manufacturing sector is classified as a critical infrastructure industry, which means our business is required to continue to operate as usual and our staff are exempt from the 'Stay at Home' orders in place in the states that we operate in.

In the event of an acute shortage of labour, our ability to transfer employees between sites is limited due to the geographical spread of our sites and existing travel restrictions in place. However, following the temporary closure of our Breadeli site, we have moved colleagues over to our nearby meals production facility in Charlotte, North Carolina. There are also actions we could take to reduce the complexity in our product ranges, thereby reducing the reliance on labour.

2. Supply chain and logistics

A second risk to our business could be an interruption to our raw material supply chain. Due to the short shelf-life of a number of raw materials that we hold in stock, we are used to operating a sophisticated supply chain that ensures we can manufacture and distribute product every day. Our raw materials are primarily sourced locally in the US, with a small number of products sourced from other parts of the world including Mexico, Chile, Argentina and China. With low stocks held at site, any disruption in the supply of our raw materials could mean we were unable to meet orders for particular products.

Mitigating action

The mitigating actions outlined for the UK business can equally apply to the US, with the following additional points of note.

Our procurement function in the US primarily operates from individual sites, although overall management rests centrally. We source most of our raw materials locally, minimising the risk of disruption through restrictions imposed as a consequence of the outbreak, especially as the food manufacturing sector is classified as a critical infrastructure industry and therefore ensuring it is fully-operational is a key priority for authorities.

3. Consumer demand

As outlined in the UK section, there is a risk that consumer demand for our products could fall if consumers were to change their buying preferences and / or our customers were to limit or change the range of products that they offered.

Mitigating action

The mitigating actions outlined for our UK business apply to the US, with the following additional points of note.

Consistent with our UK business, in the US we adjust volumes to match demand on a daily basis. We operate from five sites in the US and our products are supplied to both local and national grocery retailers. While each site is generally dedicated to a particular key food category, all are multi-product, most are multi-customer and are geared to production of the full range of their products every day. This means they are operationally flexible and used to accommodating changing priorities.

In some instances, we can also supply the same product from two different sites should it become necessary, because of supplying both East and West Coast retail stores, as well as particularly high short-term promotional volumes for example. This applies to all key food categories, except for bread, which, until its recent temporary closure, was only produced at our Breadeli site in Charlotte, North Carolina. That site has now been temporarily closed as we are able to draw from our frozen stock which should be sufficient to supply for up to two months.

China

In China, our business employs approximately 2,000 people and operates from nine sites, including one in Hong Kong. It supplies fresh prepared foods and vegetables, mainly to western foodservice customers.

1. People management

The risks to our business in China of the impact of a shortage of core staff and / or management are the same as the UK business.

Mitigating action

The mitigating actions outlined for the UK business apply to China, with the following additional points of note.

We have also actioned and continue to take advice from all relevant Chinese Government authorities, including the Food Safety Administration, Department of Labour and the Tax bureau. In addition to this, we maintain regular dialogue with all employees, many of whom live on-site in company dormitories making it easier for us to ensure that they are maintaining the highest hygiene standards.

Due to our customer base, we are not considered 'critical' to the COVID-19 response but are permitted to continue production.

2. Supply chain and logistics

A second risk to our business could be an interruption to our raw material supply chain. As we hold limited stocks of short shelf-life products, we are used to operating a sophisticated supply chain that ensures we can manufacture and distribute product every day. Our raw materials are almost exclusively sourced locally, with very little imported from outside China. With low stocks held at site, any disruption in the supply of our raw materials could mean we were unable to meet orders for particular products.

Mitigating action

The mitigating actions outlined for the UK business apply to China, with the following additional points of note.

As a business, we are extremely experienced in problem-solving issues regarding supply chain and logistics. Our procurement function in China is largely operated out of individual sites, although overall management rests centrally. We source most of our products locally, minimising the risk of disruption through restrictions imposed as a consequence of the outbreak, especially since maintaining a fully operational food industry is a key priority for authorities.

3. Consumer demand

As outlined in the UK section, there is a risk that demand for our products could fall if consumers were to change their buying preferences or our customers were to limit or change the range of products that they offered. Our customer base in China is primarily with western foodservice players and therefore they may be unable to keep stores open due to local and / or central government restrictions put in place.

Mitigating action

As a large food manufacturing business, we adjust volumes to match demand daily. We operate through nine sites in China and across a number of categories. All our sites are multi-product, multi-customer and are geared to production of the full range of their products every day. This means they are all extremely flexible and used to changing priorities.

We are also used to supplying the same product at two different sites should it become necessary. An example of this is our existing requirement to supply a consistent product range in a number of regions for existing national customers. In some instances however this might be challenging due to the distances between sites and the short life of our products. If this was the case, we have alternative suppliers that could be used and would work with our customers to obtain the required approvals so we can maintain supply.

Scenario planning

Due to the unprecedented nature of the COVID-19 outbreak, the Group has considered how the ongoing crisis could impact on the financial results and overall liquidity position of the business. We have also looked at a range of mitigating actions that could be taken in the short term to protect profits and cash.

The scenario that was envisaged included the following assumptions;

·     Sales volumes in the UK being down overall by 10% against our initial expectations for the months of April through to July 2020. We modelled this in detail across the four key categories although a volume reduction for each category has a broadly similar impact on gross profit. Overheads were assumed to be unchanged, but we acknowledge that a reduction in overheads would be a key part of the mitigating actions described below.

· Sales volume and hence gross profit reducing by 33% in the US through the months of April to July 2020.

· In China, a decrease in EBITDA of £9 million over the course of the year.

Based on the above scenario Group EBITDA could be £25 million lower than 2019. The cash impact of these lower trading assumptions was also reflected through to working capital, tax payments and net interest.

As part of its COVID-19 Trading Update on 2 April 2020, the Group committed to a number of important actions to preserve liquidity as set out below:

·       A tight control on costs will be maintained, and all non-essential capital investment and discretionary expenditure has been placed on hold.

·     We are reviewing capacity across our facilities to better match the current levels of demand and, wherever possible, we will be supporting any impacted colleagues by making use of the Job Retention Scheme (Furlough) introduced by the Government in the UK.

·       In addition to the pro-active steps we are taking around cash and investment, the Board has decided to suspend the proposed final dividend. We will review our dividend policy in due course.

·       Members of the Board and Management Board have also agreed voluntary reductions in remuneration for the coming three months: the Chairman and Non-executive Directors' have agreed to a 50% reduction in base salaries and fees, while the Group's founders(CEO, Agust Gudmundsson and Non-executive Director, Lydur Gudmundsson) have volunteered not to take a salary in the period. The wider Management Board have also agreed to a voluntary 20% reduction in base salaries.

The Group has £562.5 million of debt facilities currently available with £455 million maturing in March 2024, £25 million in August 2020, £20 million in November 2021, £37.5 million in June 2024, and £25 million in September 2026.

Having considered the potential impact on short-term profitability and taking account of the mitigating actions in respect of capital expenditure and dividends, the Board expects that under the scenario assumptions set out above all financial covenants would be met, including a leverage ratio of c.2.7x at June 2020 and c.2.6x at December 2020 and significant liquidity headroom will continue to be available. Therefore, the Board has concluded that the Group would be able to absorb a significant downturn in trading as a consequence of COVID-19 and could therefore continue as a going concern in the period under review.

In 2019, the Group extended its principal risks and uncertainties to include legal and regulatory risks to recognise the wider responsibilities which come with our listed status.

Link to Our Strategic Priorities

1:  LEVERAGING NUMBER ONE POSITION IN THE UK

2:  ACCELERATING GROWTH IN HIGH-POTENTIAL INTERNATIONAl MARKETS

3:  IMPROVING OPERATIONAL EFFICIENCY

Food safety and integrity
Description Millions of people eat our products every day. We have a duty to make food that is safe and that is clearly and correctly labelled. Consumer safety and confidence are vital to our business; any issue that breaches that trust could result in loss or reduction of customer business and also impact our credibility and reputation. Link to strategy 1, 2, 3	Mitigating controls Stringent food safety policies in place throughout the organisation and use of Hazard Analysis Critical Control Point principles to identify and control food safety risks. Employees trained against documented procedures. Supply chain food safety and integrity is understood and managed through robust risk assessment and management process. Food safety audits conducted for new suppliers with regular audits of existing suppliers. Regular reporting of food safety performance to the Board and immediate reporting of significant issues.	Risk Trend 2019 DOWN The level of risk has reduced marginally reflecting effective mitigation in this area and our experience over the last few years.
Raw material and input cost inflation
Description The Group's cost base and margin are vulnerable to fluctuations in the price and availability of raw materials, packaging materials and freight. Ability to pass on any increases in these costs to customers within a reasonable timeframe is a challenge and failure to do so could impact the Group's profitability and hence its ability to continue to invest in the business. Link to strategy   3	Mitigating controls Central procurement team focused on achieving a balance between price, quality, availability and service levels. Forward purchasing agreed and price variations passed on where possible. Agreements in place with some customers on recovery of raw material cost impacts. Continued focus on cost reduction and productivity enhancements.	Risk Trend 2019 DOWN The risk has reduced somewhat due to the recent strengthening of Sterling.
Reliance on a small number of key customers
Description We work with four of the largest food retailers in the UK and a significant proportion of our revenue is from these customers. In the US we work with a small number of large retailers and in China a small number of large food service customers. Any major customer loss would have a significant negative impact on our business. Link to strategy 1, 3	Mitigating controls Close partnership model in place with customers. In the UK, customer-specific champions and teams manage strategic customer relationships. Relationships with all grocery retailers beyond the four largest gives breadth of cover. Strong reputation for food safety and quality. Reputation amongst customers for strong insights and innovation capabilities. Significant investment in manufacturing facilities and highly complex 'just in time' manufacturing process.	Risk Trend 2019 NO CHANGE Customer concentration has remained unchanged.

Labour Availability and Costs
Description Manpower scarcity and higher labour costs could affect the Group's business and future profitability. The Group competes with other manufacturers for good and reliable employees. The supply of such employees is limited and competition to hire and retain them may result in higher labour costs. Additionally, in the UK, Brexit presents a risk as historically the Group has employed a material number of people who are citizens of EU countries. Link to strategy 1, 2, 3	Mitigating controls Specific campaigns and focus groups in place targeting recruitment of future employees and building attractiveness of careers in the food industry. Initiatives in place to enhance and upgrade factory site facilities to help attract and retain employees. Central staff dedicated to recruitment and management of staff costs. Initiatives in place to support employees with Brexit-related concerns.	Risk Trend 2019 UP The potential medium-term impact from reduced immigration and the retention of existing EU colleagues following Brexit has increased the risk of labour availability in the UK.
IT systems and cyber risk
Description Unauthorised access of the Company's Information Technology ("IT") systems could lead to breaches of data protection and release of market sensitive information. Any breakdown or failure in the Group's IT infrastructure or the Group's communication networks, including malicious cyber-attacks by third parties, could delay or otherwise impact the Group's day-to-day business. Link to strategy 1, 2	Mitigating controls Group Information Systems ("IS") manage access to business data in the UK through strong password protection, role-based access to business systems and policies to ensure appropriate use. The Group IS department has delivered Disaster Recovery ("DR") processes for all critical systems in the UK. Group IS has strict policies and actively ensures that the IS infrastructure and equipment in the UK in particular are sufficiently protected against malicious cyber-attacks. Local teams in the US and China are developing our IS infrastructure capabilities.	Risk Trend 2019 NO CHANGE Cyber threats have become more common in the wider economy. The Group has increased investment in this area and transferred some of the risk to insurers so that, overall, the risk has remained the same.
Health and safety
Description We understand our duty of care to secure and protect the health and safety ("H&S") of our employees and to reduce the environmental impact of our operations. Failure to maintain the H&S of employees could have a significant reputational impact and also have serious legal consequences. Link to strategy 1, 2	Mitigating controls H&S and environmental impacts are managed locally by our teams and by the Group's in-house experts who embed and monitor practices. Stringent processes are implemented for identifying and managing H&S and environmental risks. Regular reporting of H&S Key Performance Indicators to the Group Board and immediate reporting of significant issues. An established culture of employee engagement around accident prevention across the Group.	Risk Trend 2019 NO CHANGE The level of risk has remained unchanged.
Recruitment and retention of key employees
Description We have a highly experienced management team who are passionate about our business and who are integral to our continued growth and success as a market leader. The loss of any of these personnel, or the Group's inability to recruit new personnel, would have an adverse impact on the Group. We risk being unable to achieve our strategic growth objectives without the recruitment, development and retention of talented and committed people who understand and respect our values. Link to strategy 1, 2, 3	Mitigating controls Company values used to recruit, appraise, reward and develop employees. Ongoing succession planning, commitment to training and bonus schemes in place to retain key personnel and manage staff turnover. Graduate recruitment and apprenticeship schemes have been expanded. Training and career development opportunities have been enhanced.	Risk Trend 2019 UP The risk is marginally higher due to an increased requirement for skilled labour across our international businesses.

Strategic Growth and Change programmes
Description Much of our future growth will be delivered from new factory builds and acquisitions. This adds a level of execution risk to continuing operations. Link to strategy 1, 2, 3	Mitigating controls Detailed planning and sharing of best practice within the Group minimises risk.	Risk Trend 2019 UP Increased investment in development projects has increased execution risk.
Treasury and Pensions
Description To achieve our growth objectives, we require a strong financial platform. The Group has significant facilities governed by financing agreements under which we are subject to various financial covenants and undertakings. Breaching any covenant would impair our ability to maintain existing financing and secure future financing, thereby destabilising the business. The Group has a closed defined benefit pension plan which is exposed to interest and inflation rates, values of assets and increased life expectancy. Link to strategy 3	Mitigating controls Financial results, projections and covenant performance reviewed regularly. Open and regular dialogue with our lenders and an active investor engagement programme. Treasury function operates within framework of strict Group Board-approved policies and procedures. Active policy of hedging known non-Sterling denominated expenditure both for specific projects and on a rolling basis for material purchases. The pension scheme has hedges in place for a large portion, but not all, of its risks.	Risk Trend 2019 UP Debt ratios have worsened somewhat, largely as a result of our acquisition and investment programme.
Brexit disruption
Description It is possible that the way in which the UK leaves the European Union at the end of 2020 will result in disruption at the UK ports leading to increasing costs and availability problems, especially with short-life raw materials, which ultimately might impact sales volumes. Link to strategy 1	Mitigating controls We have recently obtained AEO status which should help us streamline and simplify our import processes. Customs clearance staff have been recruited and trained to use new systems linked to the Customs Authorities. Longer-life packaging and raw material stocks will be increased as necessary.	Risk Trend 2019 DOWN Recent developments have lessened the probability of disruption in 2020 but it remains a threat after the transition period.
Disruption to Group operations
Description Catastrophic damage to one of our factories by fire, flood or mechanical breakdown as well as disruption due to information systems failure or pandemics. Link to strategy 1, 2	Mitigating controls Building and property management protocols are employed and audited in conjunction with our property insurers. Business continuity plans are in place for each factory site and for many products alternative Bakkavor factories could supply in the event of a major issue.	Risk Trend 2019 UP The Coronavirus has affected our Chinese operations in early 2020 and will affect our operations in the UK and US as it continues to spread.

Sustainability
Description To continue with our growth agenda we must ensure that the business is developing in a sustainable way. Link to strategy 1, 2, 3	Mitigating controls The Board has approved a new Corporate Responsibility Strategy, 'Trusted Partner', and as part of this, we are scaling up our focus and performance monitoring in relation to a number of key areas including carbon, waste, water packaging and responsible sourcing.	Risk Trend 2019 UP Increased pressure from our customers and consumers to demonstrate strong sustainability performance has increased the risk.
Consumer behaviour and demand
Description Changes in consumer demand due to a serious change in the economy or other consumption factors could impact our plans. Link to strategy 1	Mitigating controls We work closely with our customers to adapt to changing consumer trends.	Risk Trend 2019 UP A generally soft market and changing demand focus in the UK has increased the Group risk.
Competitors
Description The Group operates in a highly competitive market. Link to strategy 1, 2	Mitigating controls Developing and maintaining strong working relationships with our customers underpinned by high service levels and constant product development and innovation.	Risk Trend 2019 NO CHANGE The level of risk has remained unchanged.
Legal and Regulatory
Description Bakkavor is subject to a wide range of legislation, regulations and codes of practice covering many aspects of our business including food safety, health & safety, data privacy, competition, ethical business, tax and financial reporting. Failure to comply could impact our reputation and lead to financial penalties. Link to strategy 1, 2	Mitigating controls We have well developed food industry processes in place to manage food safety and health & safety issues, including internal and external audits. Our legal, financial, tax, and environmental teams monitor relevant laws and regulations to ensure compliance. Our outsourced internal audit team provides assurance on key risks. In 2020 we are introducing e-learning training for key global policies.	Risk Trend 2019 NO CHANGE The risk level remains the same but the increasing focus associated with compliance due to our listed status warrants its inclusion as a principal risk.

 

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