TIDMBAKK
RNS Number : 7180T
Bakkavor Group PLC
29 March 2021
29 March 2021
Bakkavor Group plc
("Bakkavor", "the Group" or "the Company")
2020 Annual Financial Report
Bakkavor announces that it has today published its 2020 Annual
Financial Report ("Annual Financial Report") on the Company's
website at www.bakkavor.com
The Annual Financial Report will be posted to shareholders on 29
March 2021, or otherwise made available to shareholders, as
required under DTR 6.3.5R(3).
As required under Listing Rule 9.6.1, a copy of the Annual
Financial Report will be submitted to the Financial Conduct
Authority's National Storage Mechanism (NSM) and will shortly
become available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Company's 2020 Final Results announcement in respect of the
52-week period ended 26 December 2020, including audited financial
statements prepared in accordance with the applicable accounting
standards, was released on 16
March 2021 (RNS Number 3302S), and can be viewed at www.bakkavor.com
The appendix to this announcement contains additional
information which has been extracted from the Annual Financial
Report for the purposes of compliance with the Financial Conduct
Authority's Disclosure Guidance & Transparency Rules and should
be read together with the 2020 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 Annual Financial Report.
LEI number: 213800COL7AD54YU9949
ENQUIRIES
Institutional investors and analysts:
Ben Waldron, Chief Financial Officer
Sally Barrett-Jolley, Head of Corporate Affairs +44 (0) 20 7908
6143
Media:
Will Palfreyman, Tulchan Communications +44 (0) 20 7353 4200
Appendix: additional information required by DTR 6.3.5
Page and note references in this Appendix refer to page numbers
and notes in the Annual Financial Report.
Directors' Responsibilities and Statements
The following responsibility statement is extracted from the
Statement of Directors' Responsibilities on page 143 of the Annual
Financial Report and is repeated here solely for the purpose of
complying with DTR 6.3.5.
The statement relates to the full Annual Financial Report and
not the extracted information presented in this announcement or the
2020 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 Accounting Standards in conformity with the
requirements of the Companies Act 2006. Additionally, the Financial
Conduct Authority's Disclosure Guidance and Transparency Rules
require the Directors to prepare the Group financial statements in
accordance with international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union. The Directors have prepared 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, for the Group, international accounting
standards in conformity with the requirements of the Companies Act
2006 and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union have been followed, 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 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'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 & Accounts,
taken as a whole, is fair, balanced and understandable and provides
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
the Group Board section, confirm that, to the best of their
knowledge:
-- The Group Financial Statements, which have been prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and additionally,
in accordance with International Financial Reporting Standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, 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,
financial position and profit 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 Board by:
A Gudmundsson B Waldron
Chief Executive Officer Chief Financial Officer
15 March 2021
Principal Risks and Uncertainties
The risks and uncertainties set out below are extracted from
pages 74 to 83 of the Annual Financial Report 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. During the year, as the situation has continued to
evolve, the Group has put in place a number of actions to mitigate
the potential impacts to the business in the three regions in which
we operate and across our supply chain. Details of these mitigating
actions were explained in the 2019 Annual Financial Report,
published in May 2020, and are explained in further detail here to
reflect additional actions taken during the remainder of the
year.
Unlike many other industries which have been severely impacted
by COVID-19, such as travel and hospitality, the food manufacturing
industry and provision of food remain 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 was 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
challenges presented by the pandemic throughout the year.
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 and consider the potential impact of the ongoing COVID-19
pandemic on both our financial performance and the Group's
liquidity position and our ability to meet our financial
obligations as they fall due.
United Kingdom
In the UK, we have a mature business employing almost 16,500
people across 23 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 presence of COVID-19 in the local communities in which we
operate has the potential to impact the health and safety of our
colleagues and can lead to a shortage of core staff in our
factories. 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 that we might have to reduce our output to match labour
availability. During the first lockdown in 2020, some of our sites
experienced high levels of staff absence due to illness,
self-isolation and shielding. Weak consumer demand during this
period offset much of the impact of staff shortages.
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 Public Health England ("PHE") guidelines for social
distancing in our offices, rest changing and ancillary areas,
thermal imaging for temperature checks, safety screens for factory
workers on the line, mandatory visors, mandatory masks for
office-based staff, 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,
including the launch of the Bakkavor Coronavirus Management System
("BCMS") portal on our intranet that provides managers and
colleagues with a 'one-stop shop' of all the latest information,
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. In addition to this, we maintain regular dialogue with all
employees by asking them to engage in surveys for feedback on our
health & safety protocols. We therefore believe that the
current practices and the additional new measures recently
introduced should lower the risk of outbreaks at our sites. Where
we have experienced an outbreak, for example at our Newark and
Tilmanstone sites, we have worked very closely with PHE and the
relevant local authorities to put in place a full testing programme
to prioritise the health and safety of our colleagues on site.
The financial and emotional wellbeing of our colleagues during
the pandemic is just as important as physical wellbeing. To support
this, in April we launched a UK-wide Bakkavor Wellbeing Toolkit to
offer colleagues emotional, physical and financial support. The
Toolkit includes a variety of well-established resources, links and
support mechanisms such as our Employee Assistance Programme,
Grocery Aid helpline and Neyber - a financial wellbeing hub
provided as a benefit for colleagues. We cascaded the Toolkit in
physical as well as virtual form by promoting the resources during
Mental Health Awareness Week and on pull-up banners and extra
printed materials for colleagues at site level.
Labour shortage has become a problem at a small number of sites,
within certain times of the year, which we have mitigated by
agreeing to reduce ranges with our customers and/or transferring
production to other sites with spare capacity. Overall, this has
not had a material impact on UK sales. 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 37% from the EU and 16%
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 co-ordinate the buying of fresh produce globally
and the transportation of raw materials from southern Europe to the
UK, and a team in China who co-ordinate 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 47% 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.
Our commercial teams have worked with our customers to create
practical solutions, changing the specification of products and
shifting production to sites that can meet changing demand. This
includes the introduction of pizza manufacturing into Spalding Deli
within five days to meet growing orders during the first UK-wide
lockdown.
Following the virus outbreak, we have taken a number of
mitigating actions throughout 2020. 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 during the early stages of the pandemic. We have also
maintained very close day-to-day contact with our suppliers and
been able to respond with appropriate support for those under
financial pressures.
During 2020 we have experienced few material supply chain
interruptions because of these mitigating actions. Due to the
success in managing supply chain complexity throughout the year, we
are confident in our ability to ensure continuity of supply in 2021
and this view is further reinforced by the signing of the free
trade agreement between the EU and UK.
3. Consumer demand
Finally, demand for our products has been affected by consumers
changing their buying preferences. There is uncertainty for us
around how long this will impact our business volumes.
Mitigating action
Demand throughout the year remained volatile, particularly
during periods of lockdown or heightened restrictions, as consumers
cut back on the number of store visits they made, reverting to
'one-big shop' and consequently switched away from short shelf-life
products. In order to mitigate this, in H1, we began to make use of
the Government's Job Retention Scheme to 'furlough' workers, cut
costs through a reduction of agency staff, made changes to shift
patterns, delayed new product launches, temporarily closed a
factory in Bo'ness to realign our capacity with a rapid drop in
demand of food-to-go products, and identified new and more
efficient ways of working with our customers, which has led to the
restructuring of several office-based functions.
In H2 we experienced an encouraging recovery in sales as the
first COVID-19 lockdown was lifted, however, volumes were adversely
affected in the final quarter by further restrictions. Most
furloughed staff returned to work with only vulnerable staff
remaining on furlough. Whilst our Bo'ness factory reopened in H2,
two other sites were closed to 'right size' our production
facilities to match ongoing demand. Investment in our sites
continued throughout 2020, though at lower levels than originally
planned. Our teams have concentrated on driving growth back into
category as we enjoyed a stronger Christmas period and have
confidence in our ability to handle extra volume increases during
2021.
US
In the US, our business employs over 800 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 any
'Stay at Home' orders that were in place in the states in which we
operate.
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 current guidance against domestic travel.
However, following the temporary closure of our Breadeli site, we
moved colleagues over to our nearby meals production facility in
Charlotte, North Carolina. The site has since reopened. There are
also actions we could take to reduce the complexity in our product
ranges, thereby reducing the reliance on labour.
We are also considering a move to mandatory vaccination in 2021
once supplies become available.
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.
We have experienced occasional disruption from supplier
factories being affected by COVID-19, notably from one of our
chicken suppliers who was forced to temporarily close one of their
factories due to high levels of staff absence. With that said, this
did not lead to any material interruption to our service levels as
we were able to secure alternative supplies from another
source.
3. Consumer demand
As outlined in the UK section, there was a risk that consumer
demand for our products could fall over the long term if consumers
were to change their buying preferences and / or our customers were
to limit or change the range of products that they offered. In the
first half it was true that volumes were adversely affected, but in
H2 volumes have picked up and FPF is increasing strongly with fresh
prepared meals in particular growing in penetration.
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 multiproduct, 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 is only produced
at our Breadeli site in Charlotte, North Carolina.
China
In China, our business employs approximately 2,100 people and
operates from nine sites, including one in Hong Kong, and one
farm. 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.
Compared to the UK, the incidence of COVID-19 has been much
lower in China generally with no recorded cases in our factories on
mainland China. Early in the year our Wuhan factory was closed for
several weeks, but all other factories remained open and were used
by the local government as examples of how companies should respond
to the pandemic. During H2 operations have been more or less back
to normal as temperature checks and face coverings were in use
pre-COVID-19.
Hong Kong continues to experience more disruption with repeated
lockdown periods and continuing COVID-19 cases in the general
public that are leading to local lockdowns, which can in turn
affect staff availability.
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.
We have not experienced any material supply shortages, in part
due to lower demand levels at the peak of the crisis.
3. Consumer demand
As outlined in the UK section, there is a risk that demand for
our products could continue to fall if consumers were to change
their buying preferences over the long term 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
any further 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. In February, when it
became necessary to temporarily close a number of our factories, we
maintained customer service levels by transferring production
across our remaining locations, including our new site at Haimen.
Given the challenging nature of the operating environment, we also
took a number of necessary actions to control costs. As in other
parts of the Group, these included temporary salary cuts and
recruitment freezes and in Hong Kong we have streamlined our
operating structure.
We also continued to offer our customers innovative products by
developing in-home meal solutions that meet the needs of
foodservice providers as they adjust to the fact that consumers are
spending more time at home.
Demand was badly affected in the first half of the year but by
the last quarter customer demand on mainland China was only
slightly below pre-COVID-19 levels. This being said, it continues
to be occasionally disrupted at individual factories by local
lockdowns. In Hong Kong, demand continues to be depressed by the
ongoing COVID-19 cases and lockdowns.
Brexit - Risk Summary
Overall risk
At the end of the transition period, the introduction of EU and
UK border controls will increase administrative costs and may lead
to food inflation and disruption at ports of entry. In addition to
this, new immigration controls could affect labour
availability.
Mitigating action
The Brexit Working Group, a multidiscipline team, established in
2018, on behalf of the Group Board have kept Brexit mitigations
under review, including organisational changes, systems
development, customer plans, stock levels and staff retention.
1. Disruption at ports of entry
The new administrative procedures required at the ports of entry
into the UK, notwithstanding the transitional arrangements that the
UK Government have introduced, are likely to result in delays that
could lead to a shortage of supplies and disruption to the
manufacturing and delivery process.
Mitigating action
Where possible, Bakkavor increased stocks of longer-life raw
materials and packaging in advance of the year-end and will hold
these levels during the first quarter of 2021.
In conjunction with Bakkavor's customers, the Group has sought
to reduce dependence on EU imports where equivalent raw material is
available from UK sources. Notable examples are the increase in the
proportion of both raw chicken and liquid egg that are now sourced
from within the UK.
Bakkavor has secured permission to use Customs Simplified
Freight Procedures ("CFSP") from the beginning of 2021 to simplify
and speed up border arrangements.
2. Shortage of customs clearance services
The customs clearance industry will have to expand massively to
cope with the new customs declarations at the UK ports of entry and
there is a risk that there will not be enough qualified staff.
Mitigating action
The Bakkavor Inbound Logistics team ("BIL"), based in Southern
Spain and Lincolnshire, have been responsible for the importing of
salad items from Southern Europe for many years. As part of the
Group's Brexit preparations at the beginning of 2020, they
successfully took on responsibility for the importation and customs
clearance of all imports from outside of the EU. BIL trained some
of its existing staff as clearance agents, recruited and trained
additional customs clerks, and implemented software which connects
the ERP system with the customs computer systems. At the end of the
transition period they took responsibility for imports from the EU
and the rest of world and have recruited and trained additional
staff as clearance agents. With this experience, Bakkavor is in a
strong position to take on the clearance of EU imports.
3. Accurate customs declarations and security controls for
imports
With many UK factories there was a risk that importing from the
EU would not be carried out consistently.
Mitigating action
In early 2019 Bakkavor was accredited with AEO status in the UK,
for both security and customs clearance. This accreditation
established a relationship with the customs authorities and should
facilitate border crossings in the future.
Ordering from EU suppliers has been centralised by expanding the
BIL team responsibilities to give them ownership over order
placement with EU suppliers on behalf of all of our Bakkavor UK
factories. In order to ensure this process happens, the IS team has
developed a portal to allow EU suppliers to provide the information
required for UK clearance.
BIL is also responsible for controlling transport into the UK.
They have added a clear service level agreement with all major
hauliers to confirm them as trusted traders, which will allow them
to deliver direct to Bakkavor sites in the UK. BIL has arranged for
hauliers without the Trusted Trader Status to report to a
third-party site in Kent in order to carry out the security checks
required.
To facilitate exports from small suppliers in Southern Spain,
BIL has established a LAME facility in Northern Spain which has
been approved by the Spanish customs authorities as a consolidation
facility for the export of produce from the region. In addition to
this, Bakkavor's Spanish office has gained European AEO status.
4. New border controls for exports to Ireland
Beginning in 2021, exports to the Republic of Ireland and
Northern Ireland will be subject to new border control
arrangements.
Mitigating action
Bakkavor has been liaising with customers to prepare for the new
border procedures required when exporting to the Republic of
Ireland and Northern Ireland, including possible duty payments.
All of Bakkavor's packaging has already been modified to include
both Irish and UK addresses. Bakkavor has registered for the UK
Government Trader Support Scheme, which provides guidance on the
implementation of the Northern Ireland Protocol.
Export Health Certs ("EHC") are required for exports to the EU
containing products of animal origin ("POAO") to confirm that the
product meets the health requirements of the EU. Bakkavor supplies
many composite products to the stores of its retail customers in
Ireland. From the beginning of 2021, because a number of these
products include POAO, they will require export health
certification. For composite products of the sort that Bakkavor
exports, the UK Government has introduced a groupage system which
Bakkavor is adopting.
We have appointed vets to attest production at each of our UK
sites every 30 days and have appointed vets to authorise EHCs at
point of departure from Bakkavor's premises. All Bakkavor UK sites
have collected the information they need to provide evidence of the
safety of their products and the Group IS team has developed
software to make this information available to our vets and/or our
customers.
5. Brexit impact on currency movements
Following the transition period it is also possible that
Sterling will fall in value, increasing the cost of imports. The
additional costs of raw materials will need to be passed on to
consumers via higher prices in stores and may reduce consumer
demand.
Mitigating action
Bakkavor will be forced to pass on raw material inflation and
clearance costs to its customers.
In the event of Sterling weakness Bakkavor will seek to increase
the proportion of its raw materials purchased from UK sources.
It is Bakkavor Group Policy to mitigate exposure to movements in
the Sterling-Euro exchange rate by purchasing forward currency
contracts, in order to reduce the risk of currency fluctuation. The
proportion covered in 2021 has been increased beyond the normal
policy levels in light of potential Brexit disruption.
6. Immigration law changes
The new immigration law, post-Brexit, will restrict our ability
to recruit EU staff as the majority of our workforce are paid below
the new minimum levels for work visas.
Mitigating action
To mitigate this, the Group has regularly encouraged existing EU
staff to obtain settled or pre-settled status. This includes
holding workshops and providing internet access to help assist with
these applications. During 2020 our staff turnover level fell
during the COVID-19 lockdown period as EU staff remained in the UK.
We're expecting it to increase once lockdown measures are fully
released and will likely be further exacerbated after January 2021
when the new immigration law is introduced. There is a need to
concentrate recruitment in the UK, which includes looking at
different shift patterns such as more family-friendly shift
patterns to encourage local recruitment. Bakkavor is also seeking
to further reduce its reliance on agency labour, which has a high
proportion of EU nationals.
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 Mitigating controls Risk Trend
Millions of people eat our Stringent food safety 2020
products every day. We have policies in place throughout NO CHANGE
a duty to make food that is the organisation and The risk
safe and that is clearly and use of Hazard Analysis has stayed
correctly labelled. Critical Control Point the same.
principles to identify
Consumer safety and confidence and control food safety
are vital to our business; risks. Employees trained
any issue that breaches that against documented procedures.
trust could result in loss
or reduction of customer business Supply chain food safety
and also impact our credibility and integrity is understood
and reputation. and managed through robust
risk assessment and management
Link to strategy process.
Food safety audits conducted
1, 2, 3 for new suppliers with
regular audits of existing
suppliers.
Regular reporting of
food safety performance
to the Board and immediate
reporting of significant
issues.
---------------------------------- --------------
Raw material and input cost inflation
--------------
Description Mitigating controls Risk Trend
The Group's cost base and Central procurement team 2020
margin are vulnerable to fluctuations focused on achieving NO CHANGE
in the price and availability a balance between price, The risk
of raw materials, packaging quality, availability has remained
materials and freight. and service levels. the same
with COVID-19
Ability to pass on any increases Forward purchasing agreed and Brexit
in these costs to customers and price variations having the
within a reasonable timeframe passed on where possible. potential
is a challenge and failure Agreements in place with to disrupt
to do so could impact the some customers on recovery supply chains
Group's profitability and of raw material cost leading to
hence its ability to continue impacts. higher costs
to invest in the business. and/or
Continued focus on cost shortages.
Link to strategy reduction and productivity
enhancements.
1, 3
---------------------------------- --------------
Reliance on a small number of key customers
--------------
Description Mitigating controls Risk Trend
We work with four of the largest Close partnership model 2020
food retailers in the UK and in place with customers. NO CHANGE
a significant proportion of In the UK, customer-specific Customer
our revenue is from these champions and teams manage concentration
customers. In the US we work strategic customer relationships. has remained
with a small number of large unchanged.
retailers and in China a small Relationships with all
number of large food service grocery retailers beyond
customers. the four largest gives
breadth of cover. Strong
Any major customer loss would reputation for food safety
have a significant negative and quality.
impact on our business.
Reputation amongst customers
Link to strategy for strong insights and
innovation capabilities.
1, 3
Significant investment
in manufacturing facilities
and highly complex 'just
in time' manufacturing
process.
---------------------------------- --------------
Labour Availability and Costs
Description Mitigating controls Risk Trend
Manpower scarcity and higher Specific campaigns and 2020
labour costs could affect focus groups in place UP
the Group's business and future targeting recruitment The potential
profitability. of future employees and medium-term
building attractiveness impact from
The Group competes with other of careers in the food reduced immigration
manufacturers for good and industry. and the retention
reliable employees. The supply of existing
of such employees is limited Initiatives in place EU colleagues
and competition to hire and to enhance and upgrade following
retain them may result in factory site facilities Brexit has
higher labour costs. to help attract and retain increased
employees. the risk
Additionally, in the UK, Brexit of labour
presents a risk as historically Central staff dedicated availability
the Group has employed a material to recruitment and management in the UK.
number of people who are citizens of staff costs.
of EU countries.
Initiatives in place
Link to strategy to support employees
with Brexit-related concerns.
1, 2, 3
--------------------------------- --------------------
IT systems and cyber risk
--------------------
Description Mitigating controls Risk Trend
Unauthorised access of the Group Information Systems 2020
Company's Information Technology ("IS") manage access UP
("IT") systems could lead to business data in the The risk
to breaches of data protection UK through strong password has increased
and release of market sensitive protection, role-based as cyber
information. access to business systems threats have
and policies to ensure become more
Any breakdown or failure in appropriate use. The common during
the Group's IT infrastructure risk associated with the COVID-19
or the Group's communication high levels of home working pandemic.
networks, including malicious have been addressed with
cyber-attacks by third parties, enhanced processes and
could delay or otherwise impact the introduction of two
the Group's day-to-day business. factor authentication.
Link to strategy Group IS has strict policies
and actively ensures
1, 2 that the IS infrastructure
and equipment in the
UK in particular, are
sufficiently protected
against malicious cyber-attacks.
We work closely with
our cyber security partner
and continue to enhance
our controls. In addition,
we have cyber insurance
and therefore some of
the risk of a cyber-attack
is passed onto our insurers.
Local teams in the US
and China are developing
our IS infrastructure
capabilities.
--------------------------------- --------------------
Health and safety
--------------------
Description Mitigating controls Risk Trend
We understand our duty of H&S and environmental 2020
care to secure and protect impacts are managed locally UP
the health and safety ("H&S") by our teams and by the The level
of our employees and to reduce Group's in-house experts of risk has
the environmental impact of who embed and monitor remained
our operations. practices. unchanged
in terms
Failure to maintain the H&S Stringent processes are of accidents
of employees could have a implemented for identifying at work,
significant reputational impact and managing H&S and however COVID-19
and also have serious legal environmental risks. has provided
consequences. an additional
Regular reporting of risk to the
Link to strategy H&S Key Performance Indicators health of
to the Group Board and our colleagues.
1, 2 immediate reporting of
significant issues.
An established culture
of employee engagement
around accident prevention
across the Group.
--------------------------------- --------------------
Recruitment and retention of key employees
--------------------
Description Mitigating controls Risk Trend
We have a highly experienced Company values used to 2020
management team who are passionate recruit, appraise, reward NO CHANGE
about our business and who and develop employees. The level
are integral to our continued of risk has
growth and success as a market Ongoing succession planning, remained
leader. The loss of any of commitment to training unchanged.
these personnel, or the Group's and bonus schemes in
inability to recruit new personnel, place to retain key personnel
would have an adverse impact and manage staff turnover.
on the Group.
Graduate recruitment
We risk being unable to achieve and apprenticeship schemes
our strategic growth objectives have been expanded.
without the recruitment, development
and retention of talented Training and career development
and committed people who understand opportunities have been
and respect our values. enhanced.
Link to strategy
1, 2, 3
--------------------------------- --------------------
Strategic Growth and Change programmes
Description Mitigating controls Risk Trend
Much of our future growth All capital investment 2020
will be delivered from new and organisational change DOWN
factory builds and acquisitions. projects are subject The risk
This adds a level of execution to detailed review by has decreased
risk to continuing operations. the Board and Senior in the short
Link to strategy Management considering term as we
1, 2, 3 the risks and opportunities have reduced
of each proposal. capital expenditure
on new factory
Detailed planning and builds, while
sharing of best practice new ventures
within the Group minimises have become
risk. more mature.
----------------------------------- ------------------------------- ----------------------
Treasury and Pensions
----------------------
Description Mitigating controls Risk Trend
To achieve our growth objectives, Financial results, projections 2020
we require a strong financial and covenant performance NO CHANGE
platform. reviewed regularly. The Group
has proved
The Group has significant Open and regular dialogue resilient
facilities governed by financing with our lenders and over the
agreements under which we an active investor engagement last 12 months
are subject to various financial programme. and has good
covenants and undertakings. levels of
Treasury function operates headroom
Breaching any covenant would within framework of strict on its facilities.
impair our ability to maintain Group Board-approved
existing financing and secure policies and procedures.
future financing, thereby
destabilising the business. Active policy of hedging
known non-Sterling denominated
The Group has a closed defined expenditure both for
benefit pension plan which specific projects and
is exposed to interest and on a rolling basis for
inflation rates, values of material purchases.
assets and increased life
expectancy. The pension scheme has
hedges in place for a
Link to strategy large portion, but not
all, of its risks.
3
------------------------------- ----------------------
Brexit disruption
----------------------
Description Mitigating controls Risk Trend
Read more about our Brexit Learn more about our 2020
risk summary above and on mitigating actions above DOWN
pages 78-79. and on pages 78-79 of Disruption
the Brexit risk summary. at ports
Link to strategy of entry
is possible
1 in the first
quarter of
2021 whilst
new Administrative
procedures
bed in. However,
overall,
the risks
have been
reduced significantly
following
the signing
of the free
trade deal.
------------------------------- ----------------------
Disruption to Group operations
----------------------
Description Mitigating controls Risk Trend
Catastrophic damage to one Building and property 2020
of our factories by fire, management protocols DOWN
flood or mechanical breakdown are employed and audited COVID-19
as well as disruption due in conjunction with our mitigations
to information systems failure property insurers. are now well
or pandemics. established
Business continuity plans and resulting
Link to strategy are in place for each disruption
factory site and for has reduced
1, 2 many products alternative over time.
Bakkavor factories could
supply in the event of
a major issue.
------------------------------- ----------------------
Sustainability
Description Mitigating controls Risk Trend
To continue with our growth Under our Corporate 2020
agenda we must ensure that the Responsibility strategy, UP
business is developing in a Trusted Partner, we COVID-19
sustainable way. are scaling up our and Brexit
focus and performance have both
Link to strategy monitoring in relation introduced
to a number of key an increased
1, 2, 3 areas including carbon, level of
waste, packaging and uncertainty.
responsible sourcing.
-------------------------------------- ----------------------------- -----------------
Consumer behaviour and demand
-----------------
Description Mitigating controls Risk Trend
Changes in consumer demand due We work closely with 2020
to a serious change in the economy our customers to adapt UP
or other consumption factors to changing consumer COVID-19
could impact our plans. trends such as dietary restrictions
changes, sustainability have temporarily
Link to strategy concerns and the impact reduced demand
of COVID-19 on shopping for fresh
1 habits. prepared
foods.
----------------------------- -----------------
Competitors
-----------------
Description Mitigating controls Risk Trend
The Group operates in a highly Developing and maintaining 2020
competitive market. strong working relationships NO CHANGE
with our customers The level
Link to strategy underpinned by high of risk has
service levels and remained
1, 2 constant product development unchanged.
and innovation.
----------------------------- -----------------
Legal and Regulatory
-----------------
Description Mitigating controls Risk Trend
Bakkavor is subject to a wide Our legal, financial, 2020
range of legislation, regulations tax, and environmental NO CHANGE
and codes of practice covering teams monitor relevant The level
many aspects of our business laws and regulations of risk has
including food safety, health to ensure compliance. remained
& safety, data privacy, competition, unchanged.
ethical business, tax and financial Our outsourced internal
reporting. Failure to comply audit team provides
could impact our reputation assurance on key risks.
and lead to financial penalties.
In 2020 we introduced
Link to strategy e-learning training
for key global policies,
1, 2 including anti-bribery
& corruption and cyber
security.
----------------------------- -----------------
COVID-19 Pandemic
Description Mitigating controls Risk Trend
Read more about our COVID-19 Learn more about our 2020
risk summary above and on pages mitigating actions NEW
74-77. above and on pages UP
74-77 of the COVID-19 The impact
risk summary. of COVID-19,
Link to strategy raising costs
and affecting
1, 2, 3 consumer
demand, is
expected
to continue
but for an
unknown amount
of time.
----------------------------- -----------------
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END
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March 29, 2021 02:00 ET (06:00 GMT)
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