Bakkavor Regulatory News (BAKK)

Risk area

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Risk description

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Mitigating controls

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Developments in 2017

Food safety and integrity

Change in risk level over past 12 months: LEVEL

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Millions of people eat our products every day. We have a duty to make food that is safe and 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.

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Stringent food safety policies in place throughout the organisation and use of Hazard Analysis Critical Control Point ("HACCP") principles to identify and control food safety risks.

Employees trained against documented procedures.

Food safety controls regularly audited by internal and external parties. Emerging risks monitored by working with industry and regulatory bodies.

Food safety audits conducted for new suppliers with regular audits of existing suppliers.

Regular reporting of food safety performance to the Group Board and immediate reporting of significant issues.

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Continued to ensure Bakkavor met all legal and customer standards and is HACCP compliant.

New UK Technical Director joined the team to ensure standards are continually reviewed.

Improved approach to internal audits.

Raw material costs

Change in risk level over past 12 months: HIGHER

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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.

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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.

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Continued to extend numbers of cost models in place with customers through inflationary period.

Continued to work more collaboratively with customers regarding purchasing strategies.

Further strengthened supplier base, particularly in the US and Europe.

Customer concentration

Change in risk level over past 12 months: LEVEL

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We work with four of the largest food retailers in the UK and a significant proportion of our revenue is from these customers.

Any major customer loss would have a significant negative impact on our business.

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Partnership model in place with customers. In the UK, customer specific champions and teams manage strategic customer relationships.

Relationships with all grocery retailers beyond four largest gives breadth of cover.

Strong reputation in 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.

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Continued to drive 'partnership' model with four largest customers to develop deep relationships and arrangements.

Built more strategic relationships with smaller, emerging customers.

Continued to evaluate opportunities outside mainstream grocery retailer base.

Labour scarcity and costs

Change in risk level over past 12 months: HIGHER

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Higher labour costs and the scarcity of labour could affect the Group's business andfuture profitability. TheGroup competes with other manufacturers for good and dependable employees. The supply of such employees is limited and competition to hire and retain them may result in higher labour costs.

Additionally, for the Group's UK operations, Brexit presents a risk as historically the Group has employed a material number of citizens from the European Union.

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Specific campaigns and focus groups in place targeting recruitment of future employees and building attractiveness of careers in 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.

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Centralised resource function to support recruitment process.

Focused on talent development including apprenticeship schemes to build future talent.

Introduced Brexit retention programme to offer advice and support to employees.

IT systems

Change in risk level over past 12 months: HIGHER

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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.

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Group Information Systems ("IS") manage access to business data 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") for critical systems and is working towards delivering DR for important systems.

Group IS has strict policies and actively ensures IS infrastructure and equipment are sufficiently protected against malicious cyber attacks.

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Business as usual continual improvements supported by a continuous Risk and Security programme.

DR delivery programme will continue through to the end of 2018.

Focus areas included improvements to patching regimes and a number of upgrade projects to ensure services remain on supported platforms.

The Risk and Security programme continued to support the delivery of enhancements in these areas.

Health and safety and the environment

Change in risk level over past 12 months: LEVEL

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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.

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H&S and environmental impacts are managed 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.

Culture of employee engagement around accident prevention acrossthe Group.

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Increased central resource.

Changed approach to Internal Audit, increasing frequency and moving to an unannounced format.

Improved data capture process to record environmental performance.

Loss of key employees

Change in risk level over past 12 months: HIGHER

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We have a highly experienced Senior 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.

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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.

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Post the public listing management retention initiatives devised for early 2018 implementation.

Exchange rate

Change in risk level over past 12 months: LEVEL

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In the multi-currency trading environment in which the Group operates, there are inherent risks associated with fluctuations in foreign exchange rates.

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Treasury function operates within framework of strict Group Board-approved policies and procedures.

Active foreign exchange hedging programme maintained.

Active policy of hedging known non-Sterling denominated expenditure both for specific projects and on a rolling basis for material purchases.

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Continued review of exposures and subsequent hedging, with regular reporting back to the Group Hedging Committee and Audit and Risk Committee.

Assessment of financial instruments available for hedging.

Liquidity and covenant compliance

Change in risk level over past 12 months: LOWER

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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.

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Financial results, projections and covenant performance reviewed regularly.

Open and regular dialogue with our lenders and an active investor engagement programme.

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New financing arrangements entered into in 2017 with extended maturity and reduced interest costs. Public bonds redeemed.

Overall net debt and leverage reduced through trading profit and funds raised in the public listing.