Bakkavor Regulatory News (BAKK)

Risk area

Risk description

Mitigating controls

Risk Trend 2018

Food safetyand integrity

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.

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

Employees trained againstdocumented 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 fornew suppliers with, regular auditsof existing suppliers.

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

The level of risk has remained unchanged.

Raw material and inputcost inflation

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.

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.

The risk has marginallyincreased due to ongoing uncertainty around Brexit.

Reliance on a small number of key customers

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.

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.

Customer concentration has remained unchanged.

Manpower scarcity and costs

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

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

Brexit concerns have increased the risk.

IT systems and cyber risk

Unauthorised access of the Company's Information Technology ("IT") systemscould 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.

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") for all critical systems in the UK and is working towards delivering DR for other important systems.

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

Local teams in the US and China are developing our IS infrastructure capabilities.

Cyber threats have become more common in the wider economy. Whilst the Group has increased investment in this area, overall therisk has marginally increased.

Health and safety

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 seriouslegal consequences.

H&S and environmental impacts are managed locally by our teams and 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 across the Group.

The level of risk has remained unchanged.

Investment and development​

Much of our future growth willbe delivered from new factorybuilds and acquisitions. This adds a level of execution risk tocontinuing operations.​

Detailed planning and sharing of best practice within the Group minimises risk.​

Increased investment in development projects has increased execution risk.

Liquidity, interest rates, exchange rates and covenant compliance

To achieve our growth objectives, we require a strongfinancial 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.

Financial results, projections and covenant performance reviewed regularly.

Open and regular dialogue withour lenders and an active investor engagement programme.

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

Active foreign exchange hedging programme maintained.

Active policy of hedging knownnon-sterling denominated expenditure both for specific projects and on a rolling basisfor material purchases.

Liquidity metrics have remained unchanged.

Brexit disruption

It is possible that the way in which Brexit is delivered 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.

We have recently obtained AEO status which should help us streamline and simplify our import processes.

Longer-life packaging and raw material stocks will be increased as necessary.

Current uncertainty regarding the outcomeof Brexit has increasedthe risk.​

Disruptionto Group operations

Catastrophic damage to one of our food factories by fire, flood or IS disruption would interrupt supplies.​

Building and property management protocols are employed and audited in conjunction with our property insurers.

Business continuity plans are in place and for many products alternative Bakkavor factories could supply in the event ofa major issue.​

The level of risk has remained unchanged.

Sustainability

To continue with our growth agenda we must ensure that the business is developing in a sustainable way.​

We are increasing our focus and monitoring of performance and development in relation to carbon, waste, water, plastics and responsible sourcing.​

Increased pressure from our customers and consumersto demonstrate sustainability has increased the risk.

Consumer behaviour and demand​

Changes in consumer demand due to a serious change in the UK economy or other consumption factors could impact our plans. ​

We work closely with our customers to adapt to changing consumer trends.​

Higher prices arising from weaker sterling and changingdemand focus has increased risk.

Competitors ​

The Group operates in a highly competitive market.​

Developing and maintaining strong working relationships with our customers underpinned by high service levels and constant product development and innovation. ​

The level of risk has remained unchanged.