On the Beach
Group plc
ANNUAL
REPORT &
ACCOUNTS
FOR THE YEAR ENDED
30 SEPTEMBER 2017
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On the Beach is a fast-growing, leading
online retailer of beach holidays
TOTAL FINANCIAL
P R O T E C T I O N
Welcome to On the Beach
With over 20% share of online sales in the
short haul beach holiday market, we are one of
the UK’s largest online beach holiday retailers.
With significant opportunities for growth, we’re on a long-
term mission to become Europe’s leading online retailer of
beach holidays, so our story’s only really just begun.
Here at On the Beach we’re providing a significant
structural challenge to legacy tour operators and
travel agents as we continue our journey to disrupt
the online retail of beach holidays with our scalable,
flexible, innovative technology, a strong customer-value
proposition and a low cost base. Our model is customer-
centric, asset light, profitable and cash generative.
Visit us online at
www.onthebeachgroupplc.com (Corporate)
www.onthebeach.co.uk (UK)
www.ebeach.se (Sweden)
www.ebeach.no (Norway)
www.sunshine.co.uk
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
Contents
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Strategic Report
02 Our history timeline
03 At a glance
05 Business model
06 Chairman’s statement
08 Chief Executive’s report
11 Key performance indicators
13 Chief Financial Officer’s report
17 Risk management and principal
risks and uncertainties
26 Corporate social responsibility
30 Awards & achievements
Governance
32 Chairman’s Statement
33 Directors’ biographies
35 Corporate Governance Statement
41 Report of the Nomination Committee
42 Report of the Audit Committee
46 Directors’ Remuneration Report
62 Other Statutory and Regulatory
Disclosures
66 Independent Auditor’s Report to the
members of On the Beach Group plc
73 Statement of Directors’ responsibilities in respect
of the Annual Report and the Financial
Statements
Financial Statements
75 Consolidated income statement and statement
of comprehensive income
Consolidated balance sheet
76
77 Consolidated statement of cashflows
78 Consolidated statement of changes in equity
79 Notes to the consolidated financial statements
107 Company balance sheet
108 Company statement of changes in equity
109 Notes to the Company financial statements
111 Shareholder information
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
1
Strategic Report
02 Our history timeline
03 At a glance
05 Business model
06 Chairman’s statement
08 Chief Executive’s report
11 Key performance indicators
13 Chief Financial Officer’s report
17 Risk management and principal
risks and uncertainties
26 Corporate social responsibility
30 Awards & achievements
OUR HISTORY TIMELINE
2004
Established by CEO, Simon
Cooper; On the Beach
launched its first website.
2011
79%
of the Group’s bookings
were made online.
On the Beach launched
its own proprietary
technology platform.
2014
On the Beach continued
to optimise its technology
platform, grew its direct
contracting and invested
in TV advertising
2016
On the Beach achieves
outstanding profit growth
against a challenging
market backdrop
2007
Livingbridge acquired a
majority stake in the Group
for £36 million
2013
Inflexion Equity Partners
acquired a majority stake
in the Group from
Livingbridge.
2015
Launched an international
platform in Sweden under
the “ebeach.se” domain
name. On 28 September
2015, On the Beach listed
on the London Stock
Exchange.
2017
On 9 May 2017 we completed
the acquisition of
Sunshine.co.uk Limited, an
online travel agent based in the
UK, for a net consideration of
£12.0m
2
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
STRATEGIC REPORT
At a Glance
On the Beach has again experienced strong growth,
both in the UK and Internationally, and made its first
significant aquisition.
Financial highlights Group
Group Revenue £m
› Group revenue increased 17.2% to
£83.6m (FY16: £71.3m)
› Group operating profit before
amortisation and exceptional costs
increased 32.8% to £30.3m (FY16: £22.8m)
› Group profit before tax increased 24.9%
to £21.1m (FY16: £16.9m) including a net
charge associated with the recent
failure of Monarch Airlines Ltd amounting
to £2.0m (FY16: £nil)
› Group adjusted profit before tax(1)
increased 33.8% to £28.5m (FY16: £21.3m)
› Basic and diluted earnings per share of
13.8p is a 25.4% increase on prior year
(FY16: 11.0p)
› Adjusted proforma earnings per share(2)
of 17.6p is a 35.4% increase on prior year
(FY16: 13.0p)
› Strong cash conversion of 79%
(underlying operating cash conversion
88%) (FY16: 89%)
› Net external cash(3) at year end of
£33.0m (FY16: £26.1m)
› Proposed final dividend of 1.9p per
share, totalling 2.8p per share for the
year (FY16:2.2p per share), an increase of
27.2%
› On 9 May 2017 we completed the
acquisition of Sunshine.co.uk Limited, an
online travel agent based in the UK, for a
net consideration of £12.0m (Note 5,
page 87)
Financial highlights UK
› Revenue up 16.7% to £81.9m (FY16:
£70.2m), up 14% on a like for like basis(4)
› UK operating profit increased 37.6% to
£26.0m (FY16: £18.7m)
› Revenue after marketing costs up 24.7%
to £44.9m (FY16: £36.0m)
› UK EBITDA up 30.3% to £32.7m
(FY16: £25.1m)
› UK EBITDA as a percentage of revenue
increased to 39.9% (FY16: 35.8%)
£83.6m
+17.2%
(FY16: £71.3m)
Group Operating profit before
amortisation & exceptional
costs £m
£30.3m
+32.8%
(FY16: £22.8m)
Group profit before tax £m
£21.1m
+24.9%
(FY16: £16.9m)
Group adjusted profit before tax(1) £m
Cash conversion
Net external cash(3) £m
£28.5m
+33.8%
(FY16: £21.3m)
Basic & diluted EPS p
13.8p
+25.4%
(FY16: 11.0p)
79%
(FY16: 89%)
£33.0m
(FY16: £26.1m)
Adjusted proforma EPS(2) p
Dividend per share p
17.6p
+35.4%
(FY16: 13.0p)
2.8p
+27.2%
(FY16: 2.2p per share)
(1) Group adjusted profit before tax is the profit before taxation excluding share based
payments £0.5m (FY16: £0.1m), exceptional costs of £2.6m (FY16: £nil) and amortisation of
acquired intangibles of £4.3m (FY16: £4.3m).
(2) Adjusted proforma earnings per share is Group adjusted earnings after tax(1) divided by the
average no. of shares in issue during the year (reconciliation to GAAP measure shown in note
10 in the notes to the financial statements).
(3) Net external cash is defined as cash and cash equivalents excluding the trust accounts
(reconciliation to GAAP measure shown in note 15 in the notes to the financial statements).
UK Revenue(4) £m
UK Operating profit £m
UK Revenue after marketing costs £m
£81.9m
+16.7%
(FY16: £70.2m)
£26.0m
+37.6%
(FY16: £18.7m)
£44.9m
+24.7%
(FY16: £36.0m)
UK EBITDA £m
UK EBITDA % of revenue %
£32.7m
+30.3%
(FY16: £25.1m)
39.9%
(FY16: 35.8%)
(4)
Revenue on a like for like basis is revenue excluding the acquisition of
Sunshine.co.uk Limited, acquired on 9th May 2017.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
3
STRATEGIC REPORT
At a Glance
Financial highlights International
› Revenue increased 48.0% to £1.7m
›
(FY16: £1.1m)
International EBITDA loss of £(2.0)m
(FY16: £(1.8)m), reflecting continued
investment to drive market share growth
in Sweden and launch of Norway
› Online cost per unique visitor increased
15% to £1.12 (FY16: £0.98) (5)
Operational highlights UK
(excluding Sunshine.co.uk)
› Daily unique visitors increased by 13.6%
to 66.0m (FY16: 58.1m) (5)(6)
› Efficiencies in online marketing reduced
spend as a percentage of revenue to
41.2% (FY16: 44.7%) (6)
› Branded and free traffic increased 6.7%
to 59.3% of overall traffic (FY16: 55.6%) (6)
› Directly contracted hotel product
increased to 65% (FY16: 57%) (6)
› Revenue per daily unique visitor
maintained at £1.21 (FY16: £1.21) (5)(6)
Revenue increase £m
International EBITDA loss £m
£1.7m
+48.0%
(FY16: £1.1m)
£(2.0)m
(FY16: £(1.8)m)
Daily unique visitors (5)(6)
Online marketing spend % (6)
Branded & free traffic %
66.0m
+13.6%
(FY16: 58.1m)
41.2%
(FY16: 44.7%)
59.3%
+6.7%
(FY16: 55.6%)
Directly Contracted Hotels % (6)
Revenue per daily UV (5)(6)
65%
(FY16: 57%)
£1.21
(FY16: £1.21)
(5)
The Group now uses Google’s Universal Analytics for website tracking which allows for more
accurate data collection across all digital devices. Due to the differing methods of data
collection between Universal Analytics and the old version of Google Analytics, there is a
variance in UV reporting. UV’s for the past 2 years have been provided on a like-for-like basis
and from Universal Analytics. All future reporting will be based on Universal Analytics only.
Sunshine.co.uk
(6)
For comparability, these KPIs are stated excluding Sunshine.co.uk Limited which was acquired
on 9 May 2017
›
Integration process now complete
› Sunshine’s trading since acquisition in
line with expectations
4
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
STRATEGIC REPORT
Business Model
STRUCTURAL
MARKET
GROWTH &
Business Model
MARKET
SHARE
GROWTH
ADDRESSABLE MARKET
Short haul
beach holidays
dynamically
packaged
X
Online
penetration
X
OTB share of
market traffic
=
Unique
visitors
PERSONALISE
CUSTOMER
PROPOSITION
& LEVERAGE £
REVENUE
DRIVE
EFFICIENT
SHARE
GROWTH &
STRENGTHEN
BRAND
X
£ Revenue per
booking
X
Conversion
=
Revenue per
unique
visitor
=
Revenue
-
Unique
visitors
X
Marketing
spend per
unique visitor
=
Marketing
investment
-
Fixed and
Variable Costs
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OTB’s business model is centred on driving efficient growth in
market share while maintaining and improving both conversion and
£ revenue per booking
SCALE DRIVES
OPERATIONAL
LEVERAGE
Our strategic initiatives are focused on driving the performance of
all of these levers
=
PBT
EBITDA growth is the cumulative effect of improvements in
performance of all of the levers individually
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
5
STRATEGIC REPORT
Chairman’s statement
“On the Beach has swiftly and effectively adapted to being a listed
company, whilst maintaining the dynamism and entrepreneurial flair
that has powered its continued success. During FY17 the business
continued to improve its market position, generate impressive financial
results, expand internationally and undertake an acquisition.”
scalable, meaning it can support the significant growth generated
by the business. Investment into the On the Beach brand,
including online and offline marketing, means it is now one of
the most visible online beach holiday brands. This has resulted
in consumers having more trust and confidence in the brand;
something that is highly valuable during uncertain and unstable
times in the travel industry.
The marketing investment has delivered growth and means
that On the Beach is well-placed to benefit from the continuing
structural shifts in both the travel market and wider consumer
behaviour.
A warm welcome to On the Beach’s third annual report following
its listing in September 2015. This report covers the financial
year ending 30 September 2017 (FY17). It is clear that On
the Beach has swiftly and effectively adapted to being a listed
company whilst maintaining the dynamism and entrepreneurial
flair that has powered its continued success. During FY17 the
business continued to improve its market position, generate
impressive financial results, expand internationally and undertake
an acquisition.
We reported last year that FY16 was a particularly challenging
year for the travel industry, with terrorist attacks, the corporate
failure of a large budget tour operator and the impact of the UK’s
vote to leave the European Union (Brexit). FY17 also brought its
difficulties including further terrorist attacks and unpredictability
caused by the uncertainties arising from Brexit, such as currency
fluctuation. The extent of these challenges was evidenced at the
commencement of FY18 when Monarch Airlines Limited went
into administration. Despite this difficult and unstable trading
backdrop, On the Beach’s agility, cutting edge technology and
focused approach enabled it to deliver Group Adjusted Profit
Before Tax performance of £28.5m that was towards the upper
end of expectations and an increase of 33.8% on prior year. At
the same time, Adjusted Proforma EPS of 17.6p was up 35.4%
on prior year. Given the headwinds facing the travel industry, I
would like to praise and thank Simon Cooper and his team for
this admirable performance.
At the year-end, On the Beach’s balance sheet was strong with
net external cash balances of £33.0m and the Board is pleased
to declare a final dividend of 1.9p per share, totalling 2.8p per
share for the year, an increase of 27.2%.
On the Beach is committed to investing in its people, technology
and brand. The Group recognises the importance of recruiting,
developing and retaining its talent and adapts its HR strategies
to optimise employee satisfaction, recruitment and retention.
To support our continued ability to out-innovate the market
and attract and retain top talent we are actively considering
the potential relocation of our head office within the Greater
Manchester area, together with reviewing our reward
mechanisms for top performers.
On the Beach’s cutting edge technology means it can
continue to enhance its product offering and improve its rate
of conversion throughout the customer journey and it is also
6
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
STRATEGIC REPORT
Chairman’s statement
The Board is committed to delivering both top and bottom line
growth. Where circumstances are volatile, the business reviews
its marketing spend to ensure it is effective and avoids chasing
unprofitable bookings. UK revenue growth for FY17 was 16.7%
ahead of FY16 on the back of a strong performance in the
second half of the financial year (H2), where growth was 26%.
Excluding the acquisition of Sunshine.co.uk Limited, UK revenue
growth for the year was 14% ahead of prior year, with H2
performance up 21%.
The Board evaluates acquisition opportunities that are both
strategic and earnings enhancing. Following the acquisition of
Sunshine.co.uk Limited on 9 May 2017, I am delighted to report
that the business has performed in line with expectations since
the acquisition and that the integration is now complete.
On the Beach has continued to make good progress in our
international markets, with full year revenue growth of 48%. Of
particular note is the significant revenue growth in H2 of 70%
and that the Group’s net investment in international operations
is in line with expectations. This FY17 performance supports
plans to launch in our third international market, Denmark, in
early 2018.
On the Beach is a fast moving business that grows with
purpose and momentum. During FY17, the Group has made
strong progress delivering material growth in both the UK
and international markets and undertaken the Sunshine.co.uk
Limited acquisition in its stride. Across every facet of the
business, talented employees are working hard to develop the
business further. Granular attention to detail is evident across all
functions with the customer remaining at the core of everything
the business does. This customer centric approach means that
the business is innovative in nature and I’m excited by the
opportunities that will be explored over the next few years. The
team is focused on delivering excellent value beach holidays that
meet the individual demands of a wide range of customers. Their
capabilities, passion and commitment is apparent and on behalf
of the Board I would like to thank all my colleagues within On
the Beach for their hard work, efforts, dedication and continued
support.
The Board has a wide range of responsibilities and I would like to
thank my fellow non-executive directors, Lee Ginsberg and David
Kelly, for their continual contribution and support. The Board
works effectively as a team with the appropriate combination of
examination, control, challenge, support and encouragement of
the Executive Directors from the Non-Executive Directors. The
Board carefully reviews ongoing trading performance, agrees
upon the Group’s future strategic direction, monitors risk and
control processes and ensures that corporate governance is
appropriately managed.
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During the year, we undertook an evaluation of the directors
and the functioning of the Board and its committees. This
demonstrated that the Board has the appropriate balance
of skills, experience and perspectives on the Board, which
operates effectually and is properly engaged. The Board
remains committed to profitable growth and the delivery of
long-term value for our shareholders. The performance in FY17
was pleasing and provided good momentum for FY18.
The first quarter of our financial year (calendar Q4) is
historically the quietest trading period for the Group. The
low cost carrier summer 2018 seat release came earlier than
last year and in part helped to offset the disruption caused
by the Monarch Airlines Limited failure and repeated flight
cancellations borne out of air traffic control and pilot strikes.
The Board is pleased to report that current performance is
in line with expectations and believes the business is well
positioned for the key trading period that commences in late
December and continues into Q1 2018.
The Board will provide a further update on trading at our AGM
on 8 February 2018.
The business continues to invest across the organisation – in
its people, technology and brand. On the Beach’s strategic
direction centres around the delivery of profitable market share
growth through the provision of an excellent value proposition,
exceptional performance, increasing customer retention,
the attraction of new customers, controlling overheads and
expanding the territories in which we operate. We will continue
to grow organically (both in the UK and in international
markets) as well as through properly evaluated acquisitions.
The Board recognises that world events can impact the
backdrop within which On the Beach operates. The last two
financial years have demonstrated the agility and resilient
nature of the business. The Group has performed well, has
invested smartly and is well-positioned to face the future with
confidence. As a result, I remain excited about On the Beach’s
future and look forward to the continued development of the
business. As a Board, we remain confident about our prospects
and that our strategy and business plan will allow On the Beach
to continue to grow and create value for our shareholders.
Our AGM will be held at 11am on 8 February 2018 at the
Company’s headquarters at Park Square, Bird Hall Lane,
Cheadle, SK3 0XN. I look forward to welcoming shareholders.
Richard Segal
Chairman
30 November 2017
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
7
STRATEGIC REPORT
Chief Executive’s report
On the Beach continues to be a dynamic, entrepreneurial and
ambitious business. We deliver value-for-money beach holidays
to our customers that are personalised to their individual needs.
We maintain a daily focus to improve the quality of our customer
proposition and the value that we provide to our growing customer
base.
We have continued to grow market share, with daily unique visitors
to site in the UK increasing 13.6% year-on-year (YOY)(1) . We have
focused on driving this share growth efficiently with improvements
to our bespoke bid management capability driving online marketing
spend as a percentage of revenue down 8% to 40.9% (2016:
44.7%) and our revenue after marketing costs increased 24.7% to
£44.9m (2016: £36.0m).
Our continued growth has been delivered by executing a simple
strategy to optimise our customer proposition to increase
conversion and improve margin while driving an efficient increase
in our market traffic share providing further evidence of our ability
to gain market share from traditional tour operators and other
online travel agents (OTAs).
Growth
Growth has come as a result of:
Driving an efficient increase in our share of market, while
investment into our brand has also increased awareness.
Daily unique visitors increased 13.6%(1) with revenue after
marketing costs increasing 21% (1), and with a different
profile of offline investment across the course of the year
our prompted brand awareness at the end of summer was
46% (1) (FY16: 34%).
Market
We believe that overall demand for short haul beach holidays
was flat on the previous year, but that a continued growth in
online penetration resulted in growth in our addressable market.
As one of the most visible online beach holiday brands we
remain well-placed to benefit from this ongoing structural shift in
consumer behaviour.
We have observed the following market trends:
Acts of terrorism in Egypt, Tunisia and Turkey in 2015 drove
demand from the East to West Mediterranean and this
demand for destinations in the Western Mediterranean
remained stronger throughout 2017.
The reprogramming of flight capacity out of the Eastern
Mediterranean led to flight overcapacity into the Western
Mediterranean and a continued mismatch between flight
capacity and bed capacity.
Average flight seat prices into the Western Mediterranean
fell once again because of the supply / demand imbalance
and this helped to offset any increase in basket values borne
out of the weakness of sterling.
Tour operators hedged a proportion of their summer 2017
currency before Brexit and held a significant advantage in the
early sales period (October 2016 – March 2017).
Optimisation and personalisation of our market-leading
multi-device customer proposition driving an increase in
both the number of unique visitors, and the revenue per
unique visitor. Smartphone bookings have increased 44%
YOY.
Increasing engagement by encouraging visitor login with
logged in users up 40% YOY.
Increasing the directness of our relationships with end
suppliers to achieve 65% of hotels sourced directly.
Continuing to provide the highest possible level of customer
service by investing in our service staff and function to
increase repeat purchase volumes by 29% YOY.
Driving an increasing proportion of sales into exclusive
product whilst maintaining our lean cost base and risk-free
model.
Investing to increase our market share in a cost-effective
manner in Sweden and Norway with plans to extend this
further under our eBeach brand into Denmark in early 2018.
The acquisition of Sunshine.co.uk Limited, which supports
our strategic goal to drive an efficient increase in market
share.
(1) UK only excluding Sunshine.co.uk
8
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
STRATEGIC REPORT
Chief Executive’s report
Following the early sell out prior to summer 2016, Western
Mediterranean hoteliers removed peak season early
booking discounts in summer 2017 to slow intake and as a
result there was strong availability and demand in the run
into summer 2017.
The terrorist attack in Barcelona in the middle of August
2017 led to a slowdown in short lead time bookings for
Spanish destinations, but demand for forward bookings
remains strong.
Investment in Brand
We have continued to invest in an efficient multi-channel
approach supported by our sophisticated bid management
capability (which optimises the value gained from our multi-
channel marketing spend) and this in turn has allowed us
to continue to take share of market traffic, with increasing
efficiency. The auction dynamics, which improved immediately
after the Low Cost Travel Group’s administration in July 2016,
remained relatively benign throughout FY17 with transient
periods of aggressive spending by a range of competitors.
Our brand continued to strengthen, supported by our investment
into a fully national offline marketing activity and sponsorship
of the ITV show Benidorm. We completed the internal build of
an econometric model to allow us to monitor the effectiveness
of our offline marketing spend and are well advanced with our
planning for our largest ever campaign from December 2017. In
the three years since we have launched iPhone, iPad and Android
apps, we have achieved c.1 million downloads and an increasing
percentage of traffic and bookings via our apps. We have also
invested to build booking management capabilities into our apps
so that customers can interact with us via the app throughout
the period before, during and after their holidays.
Investment in People
In January we welcomed our new CFO Paul Meehan. Paul
has integrated into the business well and has built strong
relationships both internally and externally.
We have increased our investment to multi-skill our customer-
facing staff to ensure that we can provide an even higher level
of customer support for all of our valued customers. We are
delighted that our Net Promoter Scores have been maintained
and that our repeat purchase rates continued to increase
significantly through FY17. Our dedicated teams have helped
to minimise the effect of the Monarch Airlines Limited failure as
well as the impact of air traffic and pilot strikes on our valued
customers.
The Group has continued to invest into its digital capabilities,
to support our continued ability to out innovate the market and
attract and retain the very best talent. We are also reviewing
potential locations within Greater Manchester for our head
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office, and we have implemented long term incentive plans for
top performing talent. To support our drive to a more exclusive
supply position we are also investing into our service and
supply functions whilst ensuring that our scalable business
model continues to allow us to leverage our cost base by
reducing fixed and variable costs as a percentage of revenue.
Investment in Product
We have been able to drive growth in our direct contracting
function, building on the strong foundations which were put in
place in previous years and delivering 65% of total hotel buying
through in house capability, with significant incremental margin
contribution. The increasing proportion of directly contracted
product has continued to support the improved customer
satisfaction scores as complaint ratios on directly contracted
product are significantly lower than third party sourced
product.
Our continued focus to strengthen our relationships with
key overseas suppliers is giving us increased access to
exclusive rates, ring-fenced capacity and OTA exclusivity while
maintaining our no risk, lightweight business model.
In FY17 more than 20% of our hotel product was contracted
on an exclusive basis with us delivering significant incremental
volume for our key partners and our focus will be to continue
to build on this base throughout 2018. During the course
of 2016 we built capabilities internally to allow us to support
an in-house programme of flying. Against the backdrop of
overcapacity into destinations in the Western Mediterranean
we reduced the in-house programme and focused our
attentions on innovative solutions to deliver incremental
revenue for strategic partner airlines. We continue to monitor
capacity at a route level and will scale our in-house programme
if we believe the market conditions will allow.
We have also invested significantly in our search technologies
to support our strategic objective to drive an increasing
proportion of differentiated flight and hotel product and to
allow us to build innovative search tools for customers who are
destination agnostic.
International
After a slow start to FY17 where revenue growth was impacted
by the tour operator currency hedge we have achieved
full year revenue growth in line with our expectations by
delivering a strengthening performance in H2 with significant
gains in market traffic, a reduction in acquisition costs and an
improvement in awareness of our brand. Our target in Sweden
will now be to deliver a breakeven performance within the next
financial year and to continue to build a presence in Norway
in our second full year. As a result of the improvements in
Sweden we will be launching our third international site in
Denmark in early 2018.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
9
STRATEGIC REPORT
Chief Executive’s report
Strategy and Growth
It continues to be the Group’s vision to be Europe’s leading
online retailer of beach holidays.
On the Beach has delivered significant growth within a growing
market over the last three years by evolving a strategy based
around the following principles:
1. Out-innovating through agility and investment in talent and
technology
2. Driving an efficient increase in market share
3. Optimising and personalising our multi-device customer
proposition
4. Leveraging increased revenue through direct and
differentiated supply
4. Leveraging increased revenue through direct and
differentiated supply
Building a programme of direct and differentiated supply to
leverage margin and gain market share
Building our in-house capability to increase visibility of
differentiated product
Differentiating an exclusive product offering through
innovative and attractive customer and supplier payment
terms
5. Expanding our model into new source markets and products:
Leveraging core capabilities to expand internationally,
delivering improvements to key drivers of conversion, cost
per unique visitor and branded share of traffic
Driving positive returns with a significant market share in
5. Expanding our model into new source markets and products
Sweden
Our key strategic pillars for FY18 remain as:
Rolling out fully formed proposition into further source
markets
Expanding our long haul offering to monetise existing
1. Out-innovating through agility and investment in talent and
search volumes
technology
Continuing to invest into our people and our platform which
allows us to innovate at an increasing pace and in doing so,
stay ahead of the competition
Introducing company-wide values based on innovation,
simplicity, communication, respect and great customer
experience
Reviewing the location of our headquarters and reward
schemes to ensure we are well placed to attract and retain
the best talent
2. Driving an efficient increase in market share
Investing in an efficient multi-channel approach supported
by our sophisticated bid management capability
Increasing investment offline in conjunction with
econometric modelling capability to strengthen brand
awareness and to ensure marketing investment is efficient
Driving performance improvements in Sunshine.co.uk
Limited and reinvesting a proportion of these synergies to
drive increased online visibility
Seeking further value-enhancing merger and acquisition
opportunities
3. Optimising and personalising our multi-device customer
proposition:
Driving an increasingly simplified customer experience
across multiple devices by continually testing changes to
the website versus a control to increase conversion
Encouraging login and showing the most relevant product
to all site visitors on all devices at the earliest possible
opportunity
Building a multifunctional app to engage directly with users
and provide a higher standard of service in an efficient
manner
Building tools to inspire customers who are destination
agnostic
Current trading and outlook
The first quarter of our financial year (calendar Q4) is historically
the quietest trading period for the Group. The low cost carrier
summer 2018 seat release came earlier than last year and in
part helped to offset the disruption caused by the Monarch
Airlines Limited failure and repeated flight cancellations borne
out of air traffic control and pilot strikes. On many of the
routes from regional departure points where Monarch had a
higher proportion of the flight capacity we are already seeing
replacement capacity being positioned. In calendar Q4 last year
sales for summer 2017 were impacted by the tour operator
currency hedge and the Western Mediterranean hotel price
inflation. Neither of these headwinds have been prevalent in
the start to FY18. In addition to this, consumer appetite for and
capacity travelling to destinations in the Eastern Mediterranean
are strongly up year on year and against this backdrop the Board
is pleased to report that current performance is in line with
expectations and believes the business is well positioned for
the key trading period that commences in late December and
continues into Q1 2018.
The Board will provide a further update on trading at our AGM
on 8 February 2018.
Simon Cooper
Chief Executive Officer
30 November 2017
10
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
STRATEGIC REPORT
Key Performance Indicators
UK Segment: Revenue
Marketing spend as a percentage of revenue
Continuing growth with an increase of 16.7% on
the prior year
Marketing % of revenue decreased to 40.9% (2016: 44.7%)
excluding offline and to 45.2% (2016: 48.7%) including offline.
£82m
£70m
£62m
£46m
£38m
60%
50%
40%
30%
20%
10%
0%
52.8%
50.7%
49.9%
51.3%
48.6%
48.7%
44.7%
45.2%
40.9%
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Daily UVs (millions) & revenue per daily UV (1) (2)
Costs as percentage of revenue
Daily UVs: Number of individuals, as defined by
an IP address, visiting pages from the onthebeach.
co.uk website during a 24 hour period
Daily UVs have increased by 14% whilst revenue per daily
UV maintained at £1.21
Fixed costs: Includes head office salaries, office related costs
and IT expenditure
Variable costs: Comprise mainly of contact centre wages and
credit card fees
£1.21
£1.21
£1.15
£0.96
£0.93
80
70
60
50
40
30
20
10
-
)
s
n
o
i
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l
i
m
(
s
V
U
y
l
i
a
D
e
u
n
e
v
e
r
%
s
t
s
o
C
19%
17%
15%
13%
11%
9%
7%
5%
£60m
£50m
£40m
£30m
£20m
£10m
£0m
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2014
2015
2016
2017
2013
2014
2015
2016
2017
Legend
Daily Uvs 2012 - 2016
Daily Uvs 2017
Revenue per Daily UV
Variable Costs
Fixed Costs
Total Costs excluding Holding Co. Costs
(1) UK only excluding Sunshine.co.uk
(2) The Group now uses Google’s Universal Analytics for website tracking which allows for more accurate data collection across all digital devices.
Due to the differing methods of data collection between Universal Analytics and the old version of Google Analytics, there is a variance in UV
reporting and the associated metrics that use UV’s (i.e. Cost per UV, revenue per UV). UV’s, and associated metrics, for the past 2 years have
been provided on a like-for-like basis and from Universal Analytics. All future reporting will be based on Universal Analytics only.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
11
STRATEGIC REPORT
Key Performance Indicators
Direct contracting as a percentage of bed supply
Direct Contracting: sourcing hotel beds for
customers directly from hotels rather than via
third-party bed-banks as intermediaries
Continuing growth to 65%
Operating cash and cash conversion as a percentage of
adjusted EBITDA
Operating cash: Cash generated from continuing operations
less capital expenditure
Cash conversion: Operating cash before exceptional items as
% of adjusted EBITDA
70%
60%
50%
40%
30%
20%
10%
0%
30
25
20
m
£
15
10
5
0
140%
120%
100%
80%
60%
40%
20%
0%
2014
2015
2016
2017
2013
2014
2015
2016
2017
Cash Conversion %
International Segment: Revenue
Share growth with an increase in revenue of 48%
Adjusted profit before tax
Adjusted profit before tax(3)
YOY growth 33.8%
£1.7m
£1.1m
£0.7m
£0.1m
£28.5m
£21.3m
£14.5m
£10.5m
£9.9m
2014
2015
2016
2017
2013
2014
2015
2016
2017
(3) Adjusted profit before tax is stated before exceptional costs of £2.6m (2016: £
nil), amortisation of acquired intangibles of £4.3m (2016: £4.3m), share based payments
£0.5m (2016: £0.1m)
12
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
STRATEGIC REPORT
Chief Financial Officer’s report
The Group organises its operations into two principal financial
reporting segments, being UK (the “UK Segment” the Group’s
established market) and International (the “International
Segment” the Group’s new markets). For FY17, the UK segment
includes the performance of Sunshine.co.uk from the date of
acquisition, 9th May 2017. In each of the UK Segment and the
International Segment, the Group offers dynamically packaged
holidays but with options to book single element products such
as flights or hotels.
(2) Revenue on a like for like basis is revenue excluding the acquisition of Sunshine.co.uk
Limited, acquired on 9th May 2017. Revenue in respect of Sunshine.co.uk Limited for
the period since acquisition amounted to £1.9m
(3) UK only excluding Sunshine.co.uk
(4) The Group now uses Google’s Universal Analytics for website tracking which allows
for more accurate data collection across all digital devices. Due to the differing
methods of data collection between Universal Analytics and the old version of Google
Analytics, there is a variance in UV reporting and the associated metrics that use UV’s
(i.e. Cost per UV, revenue per UV). UV’s, and associated metrics, for the past 2
years have been provided on a like-for-like basis and from Universal Analytics. All
future reporting will be based on Universal Analytics only.
Revenue increase £m
Revenue after marketing costs £m
£81.9m
+16.7%
(FY16: £70.2m)
£44.9m
+24.7%
(FY16: £36.0m)
UK EBITDA £m
UK EBITDA %
£32.7m
+30.3%
(FY16: £25.1m)
39.9%
(FY16: 35.8%)
UK Segment performance
Revenue
Revenue after marketing costs
Variable costs
Fixed costs
Holding Company costs
Depreciation and amortisation (1)
EBIT
EBITDA after Holding
Company Costs
EBITDA %
2017
£m
81.9
44.9
(4.9)
(6.2)
(1.1)
(2.4)
30.3
32.7
2016
£m
70.2
36.0
(4.3)
(6.0)
(0.6)
(2.0)
23.1
25.1
39.9% 35.8%
Change
%
16.7%
24.7%
31.2%
30.3%
(1)
Excludes amortisation of acquired brand and website technology intangible assets of
£4.3m (2016: £4.3m)
Revenue and marketing costs
Revenue increased by 16.7% to £81.9m (FY16: £70.2m). On
a like for like basis2, revenue increased by 14.0% to £80.0m
(FY16: £70.2m) with strong growth in H2 of 21%. Revenue per
daily unique visitor was maintained at £1.21 (FY16 £1.21)3 and
revenue per booking was 2.5% higher at £179.6 per booking
(FY16: £175.1)3 this was largely due to further strengthening and
increasing the directness in our relationships with our suppliers
through the volume of in-house accommodation bookings to
64% (FY16: 57%)3.
Marketing expenses (excluding offline) for the year to 30
September 2017 as a percentage of revenue decreased to 41.2%
(FY16: 44.7%)3 with total spend of £32.9m (FY16: £31.4m)3
driving an efficient increase in our share as we continue to
invest in the sophistication of our in house bid tools. We have
again increased spending in the year on offline TV advertising
campaigns to £3.5m (FY16: £2.8m). Our continuation of a
full national campaign together with sponsorship of the ITV
Benidorm programme for the first time, to drive greater brand
awareness.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
13
STRATEGIC REPORT
Chief Financial Officer’s report
EBITDA
We continue to leverage our lightweight cost base and as a
result there has been a further fall in costs as a percentage of
revenue:
Overhead as % of revenue
International Segment performance
Revenue £m
£1.7m
+48.0%
(FY16: £1.1m)
EBITDA £m
£(2.0)m
(FY16: £(1.8)m
Variable costs % revenue
Fixed costs % revenue
Holding Company costs % revenue
Total
2017
6.0%
7.6%
1.3%
14.9%
2016
6.1%
8.5%
0.9%
15.5%
Adjusted profit before tax
The Group reports adjusted profit before tax to highlight the
impact of one-off and other discrete items and to allow better
interpretation of the underlying performance of the business.
Variable costs, which comprise mainly of contact centre wages
and credit card fees, are closely linked to booking volumes and
continue to improve from IT developments and in the ability for
customers to manage their bookings more effectively online, to
6.0% of revenue (FY16: 6.1%). Continued operational leverage
and the revenue benefit of direct relationships reduced overhead
costs as a percentage of revenue to 7.6% (FY16: 8.5%).
Adjusted profit before tax
Group profit before taxation
Amortisation of acquired intangibles
Share Based Payments
Exceptional Costs
Adjusted profit before tax
2017
£m
21.1
4.3
0.5
2.6
28.5
2016
£m
16.9
4.3
0.1
-
21.3
Change
%
24.9%
33.8%
Finance costs
The finance cost for the year was £(0.1)m (FY16: £0.1m). During
the year, the Group extended its revolving credit facility from
£30 million up to £35 million to cover the increased seasonal
working capital requirements as a result of the acquisition of
Sunshine.co.uk, but with strong cash management the maximum
drawdown during the year was £22.0m.
Share based payments
The Group implemented a long term incentive plan in May 2016
as detailed in the remuneration report. Further options under the
scheme were granted in May 2017. In accordance with IFRS2,
the Group has recognised a non-cash charge of £0.5m (FY16:
£0.1m).
Holding company costs have increased in the year by £0.5m to
£1.1m (FY16: £0.6m) due to share based payment charges of
£0.5m (FY16: £0.1m).
EBITDA of £32.7m (FY16: £25.1m) increased by 30.3% and
EBITDA as a percentage of revenue increased from 35.8% to
39.9%. The closest GAAP equivalent measure to EBITDA is UK
operating profit which increased by 37.6% to £26.0m (FY16:
£18.9m).
International Segment performance
Revenue
Revenue after marketing costs
Variable costs
Fixed costs
Depreciation and amortisation
EBIT
EBITDA
Change
%
48.0%
2017
£m
1.7
(1.6)
(0.2)
(0.2)
(0.2)
(2.2)
(2.0)
2016
£m
1.1
(1.4)
(0.2)
(0.2)
(0.1)
(1.9)
(1.8)
In addition to the international platform in Sweden, operating
under the ‘www.ebeach.se’ domain and launched early in 2015,
the Group also launched a further international platform in
Norway in FY17, operating under the ‘www.ebeach.no’ domain.
Losses are derived almost entirely from the marketing investment
required to drive brand awareness and share of traffic which will
in turn improve efficiency. The closest GAAP equivalent measure
to EBITDA is operating loss which increased to £(2.2)m (2016:
£(1.9)m).
14
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
Group profit before taxation £m
Adjusted profit before tax £m
£21.1m
+24.9%
(FY16: £16.9m)
£28.5m
+33.8%
(FY16: £21.3m)
Profit for the year £m
Adjusted profit for the year £m
£18.0m
+25.9%
(FY16: £14.3m)
£22.9m
+35.5%
(FY16: £16.9m)
Basic EPS p
Adjusted proforma EPS pence
13.8p
+25.4%
(FY16: 11.0p)
17.6p
+35.4%
(FY16: 13.0p)
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STRATEGIC REPORT
Chief Financial Officer’s report
Exceptional items
Exceptional items for the year to 30 September 2017 were
£2.6m (FY16: £ nil). These costs relate to deal costs in relation
to the acquisition of Sunshine.co.uk.Limited amounting to £0.6m
(FY16: £nil) and the net costs associated with the recent failure
of Monarch Airlines Ltd. amounting to £2.0m (FY16: £nil).
This represents the expected one-off costs associated with
helping customers to organise alternative travel arrangements
or providing refunds following the failure and is stated net of the
anticipated claim of £5.0m, under the Scheduled Airline Failure
Insurance policy or chargeback.
Taxation
The Group tax charge of £3.1m represents an adjusted
effective tax rate(1) of 12.0% (FY16: 12.5%) which was lower
than the standard UK rate of 19% (FY16: 20.0%). In 2017 this
was affected by a deferred tax credit of £0.6m (FY16: £0.9m)
released in line with the amortisation of £4.3m on the valuation
of acquired intangibles, together with a credit of £1.1m (FY16:
£nil) in respect of the settlement of Advance Thin Capitalisation
Agreements from FY14 and FY15.
(1) Adjusted effective tax rate is calculated as taxation charge divided by adjusted profit
before tax and exceptional items.
Earnings per share
Basic earnings per share, calculated for the current and
comparative period, is based on the weighted average number
of shares in issue and has improved by 25.4% to 13.8 pence in
FY17 (FY16: 11.0 pence).
The adjusted proforma basic earnings per share based on
adjusted earnings increased 35.4% to 17.6 pence (FY16: 13.0
pence). The table below shows the adjustment from actual
earnings:
Profit for the year
Add backs:
Share based payments (net of tax)
Exceptional costs (net of tax)
Amortisation of acquired intangibles
Deferred tax asset on acquired
intangibles
Prior year tax adjustment
Adjusted profit for the year
Number of ordinary shares in issue
at year end; assumed to be
outstanding for the full year and
comparative period (millions)
Adjusted proforma earnings
per share (pence)
2017
£m
18.0
2016
£m
14.3
Change
%
25.9%
0.4
2.2
4.3
(0.9)
0.1
-
4.3
(1.8)
(1.1)
22.9
-
16.9
35.5%
130.4
130.4
17.6
13.0
35.4%
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
15
Adjusted operating cash flow £m
Operating cash conversion %
£24.6m
+17.1%
(FY16: £21.0m)
79%
(FY16: 89%)
Dividend per share p
Net cash (£’m)
2.8p
+27.2%
(FY16: 2.2p)
£33.0m
+26.4%
(FY16: £26.1m)
STRATEGIC REPORT
Chief Financial Officer’s report
Cash flow and net debt
The Group continues to see strong cash generation with
operating cash flows 17.6% higher at £24.6m (FY16: £21.0m),
resulting in cash conversion of 79% (FY16: 89%). Excluding the
working capital movement resulting from the acquisition of
Sunshine.co.uk. Ltd. and the provision for exceptional costs at
year end, underlying operating cash conversion is 88%.
Cashflow and Net Debt
EBITDA excluding Share based
payments charges
Capitalised development spend
Movement in working capital
Capital expenditure
Adjusted operating cash flow
Operating cash conversion
2017
£m
31.2
2016
£m
23.4
Change
%
33.3%
(2.7)
(3.4)
(0.5)
24.6
79%
(2.4)
0.6
(0.6)
21.0
89%
17.1%
Net external cash at the year-end was £33.0m (2016: £26.1m).
Dividend
The Directors are recommending a final dividend of 1.9p per
share, totalling 2.8p per share for the year (FY16: 2.2p per share),
an increase of 27.2%. Subject to shareholders’ approval at the
Annual General Meeting (‘AGM’) on 8 February 2018, the
dividend will be paid on 15 February 2018 to shareholders on
the register of members at the close of business on 12 January
2018.
Paul Meehan
Chief Executive Officer
30 November 2017
16
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
STRATEGIC REPORT
Risk management & principal risks
and uncertainties
The Board believes that effective risk management is critical to ensure that the
Group can deliver on its strategic objectives and to ensure long-term sustainable
growth. As such, the Directors have carried out a robust assessment of the principal
risks and uncertainties facing the Group, including those that could threaten its
business model, growth, future performance, solvency or liquidity.
In this section of the Strategic Report, we explain our approach to risk management, set out the principal
risks and uncertainties, together with an explanation of how those risks are managed and we outline how
the risk profile has changed since the 2016 Annual Report.
RISK MANAGEMENT - RESPONSIBILITIES
Area of the business
Risk management role
Board
The Board has overall responsibility for ensuring maintenance of a sound system of internal
control and risk management. It reviews the effectiveness of the Group’s risk and control
processes to support its strategy and objectives.
Audit Committee
The Audit Committee has the responsibility to review the Group’s internal controls and risk
management systems.
Executive
management team
The executive management team are responsible for:
›
› promptly highlighting to the Board any major risks to the business of which the Board are
identifying, monitoring and managing risk on a daily basis;
not aware, together with their proposals for management of those risks;
›
implementing action plans for management of risks as agreed with the Board; and
› maintaining risk registers and sharing these with the Board and Audit Committee.
RISK MANAGEMENT – PROCEDURES
Identification and evaluation of risks
Identify key risks, assess likelihood
and quantify impact, identify current
management and mitigation, and
proposed action plan.
Record in risk registers which are
reviewed and approved by the Board.
Management of risks
The executive management
implement the risk management plans
agreed by Board and monitor changes
in risks or risk management plans on
an ongoing basis, reporting to Board
as part of monthly Board meetings
or on an ad hoc basis as appropriate.
Where management identifies a major
new risk, or a significant increase
to an existing risk, management
arrange a planning session with each
area of the business represented to
agree a bespoke and detailed risk
management plan, so that if the risk
materialises, it can be managed in an
orderly fashion.
Monitoring
Risk registers are reviewed and
updated twice annually as a matter of
course by the executive management
team, as well as on an ad hoc basis as
required. Risk registers are reviewed
on an annual basis by the Board
and the Audit Committee as part of
their review of internal controls and
risk management procedures. We
also review annually the parameters
within which we assess and quantify
risk, reviewing the categories and
quantification of impact, and the
time period that should be taken into
account when assessing likelihood that
a risk will materialise.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
17
STRATEGIC REPORT
Risk management & principal risks and uncertainties
GOING CONCERN AND VIABILITY STATEMENT
Going concern
The directors have prepared cash flow forecasts that include
key assumptions in respect of the trading subsidiaries
booking numbers, booking profiles, commission rates and
debtor collection periods. The Directors have a reasonable
expectation that the Company and the Group as a whole have
adequate resources to continue in operational existence for the
foreseeable future on both base case and sensitised forecasts.
Accordingly, the financial statements have been prepared on a
going concern basis.
Viability statement
In accordance with the provision of C.2.2. of the 2016 revision
of the UK Corporate Governance Code (the Code), the Directors
have assessed the prospects of the Company over the three
year period to 30 September 2020, being the period considered
under the Group’s three year strategic plan.
The Directors confirm that they have a reasonable expectation
that the Group will continue to operate and meet its liabilities, as
they fall due, for the next three years. In making this statement
the Directors have considered the Group’s current position and
prospects, the Group’s strategy, and the principal risks facing the
Group as detailed on pages 21 to 25 and the potential impact of
these on the business model, future performance and liquidity
over the period.
The Directors have also taken account of the Group’s ability to
renew the credit facility at an appropriate level.
CHANGE TO RISK PROFILE SINCE 2016 ANNUAL REPORT
The nature of the principal risks and uncertainties faced by the Group remain, on the whole, the same as last year, although the risk
profile has changed in a number of areas. Three key factors affecting the Group’s risk profile are Brexit, regulatory changes and security
of supply. We do not consider that these constitute new risks but rather, they are factors which exacerbate existing risks in a number
of areas, as outlined below.
Factor
Risks impacted
Explanation
Vote to leave the
European Union
(known as “Brexit”)
Consumer confidence
Supply chain risk (supplier
failure)
Competition risk
People risk
Foreign exchange risk
VAT complexity
Regulatory risk
Availability of flights
› As part of the Brexit negotiations, new aviation rights need
to be agreed with the remaining EU member states and
standalone agreements need to be reached with non-EU
members. Without such a deal, planes cannot fly. Although
it is considered almost inconceivable that no aviation deal will
be done, there is a theoretical risk that if agreements are not
reached, planes cannot fly, so the Group would be unable
to offer flights to its customers which would have a
catastrophic impact on the business and the whole travel
industry. We are confident that this is purely a theoretical
risk. However, it is feasible that a delay in agreeing a deal
could lead to low cost carriers delaying their flight releases
for 2019 if the positon relating to air traffic rights is not clear
by summer 2018 which could result in a reduced opportunity
for the Group to sell both flights and holidays. The Group
continues to develop plans to mitigate this risk.
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Risk management & principal risks and uncertainties
CHANGE TO RISK PROFILE SINCE 2016 ANNUAL REPORT
Factor
Risks impacted
Explanation
Vote to leave the
European Union
(known as “Brexit”)
(continued)
Consumer confidence
Supply chain risk (supplier
failure)
Competition risk
People risk
Foreign exchange risk
VAT complexity
Regulatory risk
Availability of flights
Regulatory Changes
Consumer confidence
Reputation risk
Regulatory risk
› Since the referendum, the currency markets have
destabilised and the pound has dropped significantly in value,
making holidays more expensive and causing greater
currency fluctuations. Tour operators purchase currency in
advance, whereas OTAs tend to purchase currency to match
orders so (as happened in 2017) if the pound weakens,
the tour operators have an advantage over OTAs. The Group
continues to monitor this issue and develop plans to mitigate
this risk.
› Economists have warned that the UK may fall into a
recession post Brexit and this could also impact on consumer
confidence.
› Uncertainty remains as to the impact of Brexit on UK law and
VAT law.
› The uncertain trading environment has increased risks to
the business in terms of supplier failure (e.g. Monarch), but
also mitigated the competition risk as competitors with less
resilient business models could fail.
› The Group employs many EU citizens who are not UK
nationals, in key areas such as IT development, and
restrictions on freedom of movement may restrict the
Group’s ability to attract and retain talent.
› There are a number of pieces of new legislation coming
into force in 2018 which will bring regulatory challenge for
the business. Any incorrect application of the new rules
could lead to fines and / or damage the Group’s reputation
and there are costs to the business to comply with the new
rules.
› Pursuant to the Package Travel Directive (PTD), from 1 July
2018 each booking taken by the Group which comprises two
or more services will be considered a “package”. This means
that the Group will have certain statutory liabilities in relation
to the performance of each element of the package; this is
not the case under existing legislation. Post implementation
of the PTD the costs of conducting business are likely to
increase and there is increased potential for reputational risk.
Insurance will be put in place to mitigate the Group’s
exposure as well as the operational and legal infrastructure to
deal with the new responsibilities.
› The General Data Protection Regulation (GDPR) comes
into force in May 2018 and will mean some changes to
the way in which the Group collects, processes and uses
data. Fines for non-compliance can be up to €20 million.
The Group has a GDPR compliance steering group which is
planning implementation to ensure compliance.
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STRATEGIC REPORT
Risk management & principal risks and uncertainties
CHANGE TO RISK PROFILE SINCE 2016 ANNUAL REPORT
Factor
Risks impacted
Explanation
Regulatory Changes
(continued)
Consumer confidence
Reputation risk
Regulatory risk
›
In January 2018 the Second Payment Services Directive
comes into force which means that the Group will not be
permitted to charge for credit card payments but will
continue to incur costs.
› Any unfavourable interpretation of existing laws could
adversely affect the Group’s business and financial
performance.
Security of Supply
Consumer confidence
Supply chain risk (supplier
failure)
› The Group relies entirely on third parties for the supply of
flights, hotels and other holiday constituents and the
challenging market backdrop increases the risk of supplier
failure. The failure of a supplier can result in significant costs
for the company (detailed in section 1.2.2 below). The costs
of an airline failure are mitigated by the Group’s ability to
recover the flight costs (e.g. through chargeback rights and
insurance). The group had scheduled airline failure insurance
in place in relation to the failure of Monarch. Due to the
unprecedented scale of the failure, the insurer is still in the
course of processing the claim. The claim process is
progressing well and the group is confident of the prospects
of recovery.
› Recent supplier failures (e.g. Monarch Airlines) makes
customers nervous about booking holidays, however this is
mitigated by the Group’s ATOL protection and trust accounts.
› The Group does not have relationship agreements in place
with a number of low-cost airlines, certain of whom have
sought to block the Group’s access to their websites using
technological, legal, or other means and may do so in the
future. If successful the Group’s offering may be less
extensive which could have a material adverse effect on the
Group’s business.
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Risk management & principal risks and uncertainties
1. TRADING
Operational Risks
Risk Description and Impact
Mitigation & Management
Direction of
Change
1.1
Consumer
Confidence Risk
1.2.1
Supply Chain Risk
(Security of supply)
1.2.2
Supply Chain Risk
(Supplier failure)
› A recession or reduced economic
growth can lead to reduced job
security and a reduction in consumer
leisure spending capacity. A weak
pound makes holidays more expensive.
The Brexit vote has increased this risk.
› Failures of other OTAs and suppliers
(e.g. Monarch) make customers
nervous about booking holidays.
› Terrorist attacks, especially those in
tourist resorts, undermine consumer
confidence and cause consumer
behaviour to shift: some may choose
not to book a holiday, some will delay
booking their holidays (causing a
shortening of lead times), and some
may choose a different destination (e.g.
the shift from east to west
Mediterranean destinations).
The Group does not have relationship
agreements in place with a number of
airlines. The Group is currently able to
use technology to access flight data and
place bookings on behalf of customers.
Certain airlines have sought to hinder or
block the Group’s access to their websites
using technological, legal or other means
and may do so in the future. If successful,
the Group’s offering may be less extensive
which could have a material adverse effect
on the Group’s business.
If a supplier were to collapse (e.g Monarch),
this could result in significant direct and
indirect costs for the Group (e.g. the cost
of refunding customers the money paid
for the flight, plus loss of margin on the
accommodation element of the holiday).
In the case of the failure of a major low
cost carrier, this could have catastrophic
consequences for the Group.
Innovative payment solutions to
›
mitigate reduction in discretionary
spending.
› Expansion of target audience to attract
customers less affected
› Competitive pricing and value
proposition as well as exclusive offers
agreed with top hotels secure bookings
even in a challenging market.
› ATOL and ABTA bonding as well as
trust protection give customers
confidence in booking with OTB.
› Robust and agile business model.
› The Group has a dedicated in-house
team of IT experts whose purpose is
to maintain and develop its proprietary
technology, and it invests significantly
in its technology and its people to
ensure that it can continue to operate
as it does currently.
› Any legal challenges will be vigorously
defended.
› Easyjet and Ryanair are considered at
extremely low risk of failure (even more
so given they will have benefited from
Monarch’s failure).
› The Group closely monitors supplier
failure risk and puts in place risk
management plans where appropriate.
› The failure of a bedbank or a hotel is of
limited impact.
›
In most cases, the group has means by
which to recover the flight costs which
it has to refund to customers.
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STRATEGIC REPORT
Risk management & principal risks and uncertainties
1. TRADING
Operational Risks
Risk Description and Impact
Mitigation & Management
Direction of
Change
1.3
Reputation risk
The Group relies on the strength of its
brand to attract customers to its website
and secure bookings. Any events or
circumstances which give rise to adverse
publicity could cause brand/reputation
damage and lead to a loss of goodwill.
› The Group monitors customer
satisfaction on a regular basis and acts
on feedback received.
› Measures are put in place to prevent
any reputational issues from occurring,
and where any incidents do arise, these
are handled by senior management
with the assistance of our experienced
public relations advisers where
appropriate.
1.4
Competition risk
The Group operates in a very competitive
market. If competitors offer a more
compelling proposition, this could have
a material adverse effect on the Group’s
financial position and prospects. The
shortening of lead times and the lack
of availability in key destinations at high
season could restrict the company’s ability
to compete in a late market.
› The Group monitors competitor pricing
constantly to ensure deals are priced
competitively and offers unique
payment options such as the low
deposit scheme.
› The challenging market dynamics mean
that smaller OTAs will be more likely to
fail, creating opportunities for OTB
to take market share and to reduce
paid search marketing costs.
1.5
System &
technology risk
› A significant business interruption
could impact on the Group’s ability to
trade and/or manage the business.
› The Group is exposed to risks of
security breaches associated with
online commerce security (e.g. loss of
customer data).
›
If the Group’s technology can’t keep up
with growing demand, this could affect
our ability to deliver planned growth.
› Changes in search engine algorithms or
search engine relationships could
adversely affect the ability to drive
traffic to the website.
› The Group has a comprehensive
business continuity and disaster
recovery plan, and robust back up and
failover facilities.
› The Group has stringent security in
place which is regularly tested and
audited. The Group is PCI DSS
compliant which involves regular
external audits.
› The Group regularly assesses capacity
and utilisation of the system, and
carries out a full review every 6
months to ensure that the longer
term infrastructure plan is aligned with
predicted growth and capacity needs.
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Risk management & principal risks and uncertainties
1. TRADING
Operational Risks
Risk Description and Impact
Mitigation & Management
Direction of
Change
1.6
People risk
The Group’s ability to achieve its strategic
objectives is dependent on certain key
personnel, plus its ability to attract and
retain skilled staff. The Group’s location
means that it is competing with many
other digital / technology-focused
businesses for the best talent.
› The Group has a comprehensive
succession plan in place at executive
and senior management level.
› The Group will continue to monitor
and benchmark salaries and packages
(including LTIPs and other share
schemes) to ensure it remains
competitive and adequately
incentivises key management.
› The Group is currently reviewing the
location of its head office to ensure it
can attract and retain the best talent.
2. FINANCE
Operational Risks
Risk Description and Impact
Mitigation & Management
Direction of
Change
2.1
Foreign exchange
risk
› The Group’s costs of sale are incurred
in a different currency to that in which
it sells. If the currency in which the
Group is buying changes unfavourably,
this means the margin is uncertain/
volatile.
› Tour operators purchase currency in
advance, whereas OTAs tend to
purchase currency to match orders
so (as happened in 2017) if the pound
weakens, the tour operators have an
advantage over OTAs.
The Group places forward contracts based
on forecasted orders and sets prices to
reflect the blended FX rate achieved in
those contracts. Hedge effectiveness
and stability of euro rates is monitored
regularly.
2.2
Working capital
risk
Given the seasonality of the business, cash
flow is volatile which could lead to a lack
of liquidity and an inability to trade.
The business maintains a working capital
facility with Lloyds to cover seasonal
requirements and the Group regularly
monitors its liquidity position.
2.3
VAT complexity
risk
Due to the complexity of VAT rules in
the travel industry, HMRC could disagree
with the VAT treatment the Group has
applied, which could result in additional
unrecoverable VAT, plus interest and
penalties, and the costs of litigation if we
chose to challenge the decision.
The Group engages VAT specialists in the
travel industry to provide advice on current
VAT treatment and VAT developments.
This enables us to budget appropriately
and ensure our documentation and
processes support our VAT position.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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STRATEGIC REPORT
Risk management & principal risks and uncertainties
3. LEGAL
Operational Risks
Risk Description and Impact
Mitigation & Management
Direction of
Change
3.1.1
Litigation risk
(airline litigation)
3.1.2
Litigation risk
(consumer litigation)
Airline litigation: The Group is one of
several online travel agents involved
in litigation with Ryanair in connection
with Ryanair’s efforts to prevent OTAs
from booking and selling its flights. The
legal process is ongoing but remains at
an early stage. The position remains as
disclosed in our Prospectus, save that
(with regard to paragraph 13.6 on page
185), OTB issued a motion to compel
delivery of full and proper particulars in
May 2017 and in response to this motion,
Ryanair is proposing to make amendments
to its original statement of claim. This
has resulted in a further delay to the
anticipated timescales set out in the
Prospectus. Litigation is unpredictable and
if Ryanair were to prevail, this could have a
material impact on the Group’s business.
Personal injury claims: Due to the
proliferation of claimant law firms and
claims companies offering “no-win-no-
fee” arrangements, there has been an
increase in personal injury claims across
the industry (e.g. holiday sickness, trips
and falls, swimming pool and balcony
incidents). Despite the fact that OTB
is currently an agent and does not sell
“packages” as defined in the Package
Travel Regulations, claimant solicitors often
argue otherwise and if OTB were found
by a court to have sold a “package” then
OTB could be liable for damages as well as
reputational damage if liability is proved.
When the Package Travel Directive comes
into force in July 2018, the definition of
package will change, and OTB will at that
point be selling packages, so will have to
defend customer claims on the basis of
liability.
The Group has instructed an expert legal
team (including a specialist law firm and a
senior QC) with particular expertise and
experience in such cases to protect its
legal position and maximise its chances of
success.
› OTB acts as a travel agent and not as
principal in relation to each holiday
element, and it does not sell “packages”
(until July 2018). OTB’s processes,
practices and paperwork firmly support
this and it is considered to have the
strongest agency package defence in
the industry. OTB has insurance cover
to mitigate risk and also has
indemnities from a number of its key
suppliers. OTB works with its suppliers
to ensure that customers’ health and
safety is monitored throughout the
supply chain.
› OTB is prepared for the
implementation of the Package Travel
Directive and has plans in place to deal
with the expected increase in personal
injury claims. OTB is well placed to
deal with the new responsibilities
given the narrower range of hotels
it offers and the strong and direct
relationships it has with hotels and
other suppliers. This enables OTB to
agree preferential contractual
protection as well as support to defend
claims when they arise.
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STRATEGIC REPORT
Risk management & principal risks and uncertainties
3. LEGAL
Operational Risks
Risk Description and Impact
Mitigation & Management
Direction of
Change
3.2
Regulatory Risk
The Group’s business is highly regulated
and is subject to a complex regime of
laws, rules and regulations concerning
travel, online commerce, financial services,
consumer rights, and data protection. A
breach of these laws could have serious
financial and reputational implications for
the Group.
The Package Travel Directive, General
Data Protection Regulation and the
Second Payment Services Directive all
come into force during 2018 increasing
the responsibilities and potential liabilities
of the Group. It is also likely that the cost
of conducting the Group’s business will
increase.
Unfavourable changes to or interpretation
of existing laws could adversely affect
the Group’s business and financial
performance.
The Group has an in house legal team
which advise the Group on current and
forthcoming legal requirements. The
Group also has external legal advisers in
place to provide proactive and responsive
legal advice in relation to legal and
regulatory requirements.
The Group has been planning for the
implementation of new legislation in 2018
and has arrangements in place, including
appropriate insurance cover, to mitigate
potential impacts.
The Group reviews closely the draft
proposals for law reform. The Group
also participates in industry steering and
advisory groups, through which it is able to
lobby on legislative change.
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Corporate social responsibility
Our vision is to be Europe’s leading
online retailer of beach holidays.
We’re completely focussed on making
it easy for people to find, book and
enjoy their perfect beach holiday. To
reach our goals, we work as a team to
a clearly defined set of values; these
are what make On the Beach a great
place to work for our colleagues and
help us deliver the best experience
possible for our customers.
OUR VALUES
DELI VER ING A GRE AT
C USTO ME R EXPE RIE NCE
DELI VERI NG A GR EAT
CUSTO MER EXPERI ENCE
Our mission is to make it easy for
DELI VERI NG A GR EAT
people to find, book and enjoy their
CUSTO MER EXPERI ENCE
perfect beach holiday.
DELI VER ING A GRE AT
C USTO ME R EXPE RIE NCE
I N N O V A T I O N
I N N O V A T I O N
We are creative and aspire to do
I N N O V A T I O N
I N N O V A T I O N
things differently. We deliver change
with speed and learn quickly.
D ELIVE RI NG A GREAT
CUS TO MER EXPERIENCE
S I M P L I C I T Y
S I M P L I C I T Y
R E S P E C T
R E S P E C T
S I M P L I C I T Y
S I M P L I C I T Y
R E S P E C T
R E S P E C T
Working together, we quickly identify
the simplest solution for every
challenge by being smart and can-do.
We appreciate and understand each other’s
styles, experiences and approaches, by
being down to earth and empathetic. By
S I M P L I C I T Y
bringing people on your journey, ideas can
blossom and people can thrive.
C O M M U N I C A T I O N
C O M M U N I C A T I O N
C O M M U N I C A T I O N
C O M M U N I C A T I O N
C O M M U N I C A T I O N
We help each other by
talking and collaborating. We’ll get
there faster and it’ll be more fun!
People are our business
Our people, coupled with our smart thinking and
smart technology gives On the Beach the edge over
its competition. Recruiting, engaging and retaining
employees with the right On the Beach DNA is critical to
us and we have exciting plans to continue this investment
and develop our fantastic working environment to further
support our values and vision. We are continuing to
grow our business and during the last financial year our
workforce has grown by over 10 per cent.
We have relationships with local colleges and universities,
plus On the Beach runs an annual ‘Ruby Academy’ to help
support and develop graduates in gaining the skills to be
successful within our development team and beyond,
I N N O V A T I O N
while attracting the brightest graduate talent to our team.
Culture is a critical part of OTB and flows through
everything we do. Our values are lived throughout the
business – from the research and development time we
provide to ensure we continue to innovate, to the people
policies have in place and continue to develop to ensure
respect is entrenched in the workplace.
R E S P E C T
Employee Involvement & Engagement
We know the importance of good communication with
our employees, and this year we have been focussing on
ensuring that every team member’s voice is heard.
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Corporate social responsibility
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Communicating
It’s essential to keep employees informed on matters that
concern them and we do this via our intranet, an all-employee
“Communication Group” email address, our online HR system
and notice boards throughout the office.
In addition to the above, during the year, we also launched
our new colleague newsletter, Beach Life, designed to keep
employees up-to-date with business news, internal changes
and to give valuable insight into business performance. This
is a quarterly newsletter created by colleagues, for colleagues
and is a great vehicle to be able to talk to every employee and
recognise their hard work.
We also make sure all employees are aware of the financial and
economic factors affecting the performance of the Company,
and this year we have increased our yearly performance update,
to a bi-yearly update, delivered by senior management to the
rest of the business at social events.
Collaborating
We make sure employees are consulted on a regular basis so
their views can be taken into account, including through line
managers, employee satisfaction questionnaires, employee
suggestion boxes (physical and electronic) and, because
of the flat structure and informal approach, through direct
communication with the executive team (which is encouraged).
This year, we have really focussed on employee engagement,
evidenced by a number of initiatives:
› We introduced “HIVE”, a new method for employee
surveying and engagement.
› We introduced an Employee Engagement Committee
comprising spokespeople from every department in the
business to provide valuable insight to management on
how employee satisfaction can be improved.
› We have set up an ‘Ask the CEO’ email address, providing
a direct line to the CEO for anyone who wishes to submit
any ideas on how we can improve the business even
further.
As a result of the feedback we have received, working with
the Remuneration Committee, we have updated a number of
our employee policies including the introduction of enhanced
maternity and paternity policies. We recognise that shaping
our future employee proposition is an iterative process. Some
of the new initiatives under development include mentoring
schemes and the opportunity to spend time learning skills from
other departments.
It is important to us that all employees are encouraged to feel
part of the Company and be brought-in to its long-term future
and our Remuneration Committee has considered employee
incentives during the year in detail. For more details please see
the Remuneration Committee report on page 46.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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STRATEGIC REPORT
Corporate social responsibility
Equality and Diversity
The Group is committed to the avoidance of discrimination
and encourages diversity amongst employees. We treat all
employees and applicants fairly and with respect. We seek to
create an environment in which individual differences and the
contributions of all our staff are recognised and valued. Please
see the Diversity section on pages 38 and 39 for further details
and for a breakdown of the numbers of persons of each gender
who are: directors of the company, senior managers of the
company and company employees.
Employment of Disabled Persons
The Group’s policies and procedures and Company Handbook
contain policies in relation to the employment of disabled
persons which are carefully adhered to.
Selection for employment, promotion, training and development
(as well as other benefits and awards) are made on the basis
of merit, aptitude and ability and the Group does not tolerate
discrimination in any form, including in relation to disabled
candidates.
The Group puts in place an ‘Employee Wellbeing Plan’ (EWP)
with any employees who need support with any health
conditions, physical or mental. Each EWP is designed to ensure
the Group is meeting all the needs of the relevant employee, for
example risk assessments, and details of all adjustments which
need to be made to accommodate the additional needs of the
relevant employees, e.g. disabled parking space, step-free access,
and specific workstation needs. Moreover, if any employees
should become disabled during the course of their employment
there are policies in place to oversee the continuation of their
employment and to arrange training for these employees.
Anti-corruption and Bribery
On the Beach is committed to operating ethically and employees
do not actively seek gifts or favours from any of our suppliers,
or from other persons or organisations with whom we associate.
We have top level commitment to anti-bribery and corruption,
and ensure all employees behave professionally, fairly and with
integrity in all our business dealings and relationships wherever
we operate, and implement and enforce effective systems to
counter bribery.
We are set up to fully support our employees, should they
need to raise concerns about unethical, criminal or dangerous
activities within the Group, and as such provide a confidential
whistleblowing telephone line, through an independent and
impartial organisation.
Modern Slavery Act
‘Modern Slavery’ is a crime which encompasses slavery,
servitude, forced or compulsory labour and human trafficking.
The Group has a zero tolerance approach to any form of
modern slavery. We are committed to acting with integrity
and transparency to help eradicate any modern slavery in our
business and supply chain.
In accordance with the Modern Slavery Act 2015, the Group has
a modern slavery statement which can be found on our website
www.onthebeachgroupplc.com/responsibility.
Community and Fundraising
We are passionate about giving back to the local community
and encourage and support employees who wish to arrange
fundraising events or initiatives.
This year, we have changed the pace of charity support and have
launched our Charity Committee to help both colleagues and
the business give back. This means there is more opportunity
for colleagues to put in requests for charities they’re passionate
about, more events for people to get involved in and more
support from the business in terms of time and financial aid.
This year we have supported a number of charities including
Children in Need, Comic Relief, The Fire Fighter Charity and
Macmillan. In addition, for the third year running, we sponsored
Rails Girls Manchester, a local event which aims to open up
technology and make it more approachable for girls and women.
As well as sponsorship, we also sent several of our experienced
developers to the event to be mentors to the attendees. Our in-
house development team and innovative technology has always
been an aspect of the business we are extremely proud of and
we welcome the opportunity to be involved with Rails Girls
Manchester.
Environment
We understand our responsibility to protect the environment in
which we operate and are committed to doing so. We encourage
our employees to follow the same ethical code in their day to
day roles; from only printing documents where necessary, to
recycling waste appropriately.
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STRATEGIC REPORT
Corporate social responsibility
Greenhouse Gas Emissions
Because the Group’s business is online only, with no retail
footprint, and the Group operates out of one head office
location, with all employees currently located on two floors, the
Group’s environmental footprint is small, as demonstrated by the
relative emissions, by revenue, as set out in the table below.
We have calculated our Scope 1 and 2 greenhouse gas emissions
in accordance with the mandatory reporting requirements set
out in the Companies Act 2006 (Strategic Report and Directors’
Reports) Regulations 2013. The Group’s head office is a
leasehold property and all electricity and gas is provided
through and billed by the landlord. The Group has therefore
relied on information provided by the landlord. We understand
that the landlord followed the methodology of ISO 14064-
1 using emission factors from UK Government Conversion
Factors for Company Reporting 2014.
Greenhouse Gas Emissions by Scope
Scope 1
Gas consumption
Scope 2
Electricity consumption
Total emissions
Relative emissions, by revenue
Unit
2017
2016
2016
Quantity1
Quantity2
Quantity3
(updated)
(estimated)
Tonnes CO2e
87.69
66.37
85.28
Tonnes CO2e
Tonnes CO2e
Tonnes CO2e/£m
revenue
424.87
512.56
6.1
412.16
478.53
6.7
455.07
540.35
7.6
1
2
3
These figures are based on information from 1 June 2016 to 31 May 2017 so they do not correspond exactly to the reporting period, as the information is not yet available for the year from
1 October 2016 to 30 September 2017 but we believe energy consumption will closely correspond to the equivalent period in 2017. The updated figures for 2017 will be included in next
year’s annual report.
This reflects the actual figures for the period from 1 October 2015 to 30 September 2016.
These were the figures included in the 2016 annual report and related to the year from 1 June 2015 to 31 May 2016.
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STRATEGIC REPORT
Awards & Achivements
STOCKPORT BUSINESS AWARDS 2017
Business of the year (£5m+)
TRAVOLUTION AWARDS 2017
Best for Holidays
TRAVOLUTION AWARDS 2016
Best Technology Team
TTG TOP 50 TRAVEL AGENTS 2016
Top Online Travel Agent
THE SUN TRAVEL AWARDS 2016
Travel Editor's Award
TRAVOLUTION AWARDS 2015
Best Travel Agent Website Award
Best Use of Search Engine
Marketing Award
MEN AWARDS 2015
Business of the Year Award
TRAVOLUTION AWARDS 2014
Brand of the Year - On the Beach
NORTHERN TECH AWARDS 2014
Overall Winner – On the Beach
BVCA MANAGEMENT TEAM AWARDS 2016
National CEO of the Year -
Simon Cooper
TOP 20 RISING STARS OF THE REGION’S TECHNOLOGY
COMMUNITY
Awarded to On the Beach
30
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
Governance
32 Chairman’s Statement
33 Directors’ biographies
35 Corporate Governance Statement
41 Report of the Nomination Committee
42 Report of the Audit Committee
46 Directors’ Remuneration Report
62 Other Statutory and Regulatory
Disclosures
66 Independent Auditor’s Report to the
members of On the Beach Group plc
73 Statement of Directors’ responsibilities in
respect of the Annual Report and the Financial
Statements
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STRATEGIC REPORT
GOVERNANCE
Chairman’s statement
“ We are committed to engaging and
maintaining an active dialogue with
all our shareholders ”
I am pleased to present our corporate governance report, which
outlines the details of our corporate governance arrangements
and reports on the activities of the Nomination, Remuneration
and Audit Committees during the year.
The Board continues to engage with its various different
stakeholders as described both within this governance report
and also within the corporate social responsibility statement set
out on pages 26 to 29.
Shareholder Engagement
We are committed to engaging and maintaining an active
dialogue with all our shareholders. Further details are set out
on page 40. I would like to encourage our shareholders to
attend our Annual General Meeting which will be held at 11am
on 8 February 2018 at Park Square, Bird Hall Lane, Cheadle,
SK3 0XN. It will provide an excellent opportunity to meet the
Executive and Non-Executive Board Directors and to visit our
head office.
I am satisfied that this Board is in the best position to provide
effective leadership to the business. We will continue to review
developments in Corporate Governance best practice and we
are mindful of the increasing focus on all stakeholders. With
this in mind I am confident that the Board will continue to work
effectively together to drive the long term growth and success of
the Company.
Richard Segal
CHAIRMAN
Compliance with UK Corporate Governance Code 2016
In April 2016 the Financial Reporting Council published an
updated edition of the UK Corporate Governance Code (the
“Code”). The Code, applied to the Company for the first time
during the course of this year and I am delighted to confirm that
the Company is in full compliance. The report which follows
this introduction will set out in detail how the Company ensures
compliance with the provisions of the Code.
Board Composition and Diversity
We were delighted to welcome Paul Meehan to the Board on
16 January 2017. Paul replaced Wendy Parry as Chief Financial
Officer (CFO) following Wendy’s retirement. Paul has already
built strong relationships with internal and external stakeholders
and has actively engaged with shareholders. We are pleased
Paul has settled into the business so well.
Wendy’s departure and Paul’s appointment means that the
Board is now entirely male. Gender and diversity as a whole
were considered by the Nomination Committee during the
year and continues to be an area of ongoing focus for the
Board and management. We recognise the gender imbalance
which is prevalent in the technology industry as a whole, and
as an organisation we are committed to taking positive action
to attract and retain women (as outlined on page 38 of our
Corporate Governance Statement). We believe that this, in
conjunction with the Group’s policy on diversity and equality, will
help to address the gender imbalance within the organisation
and in time will filter through to provide a pipeline of candidates
with senior, executive and board potential.
Board Evaluation
We have carried out a full, thorough and tailored Board
Evaluation exercise this year. This covered the Board itself,
each of the Committees, and an evaluation of each individual
Director’s performance. Details are provided on page 40.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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Directors’ biographies
Simon Cooper
CHIEF EXECUTIVE OFFICER
Paul Meehan
CHIEF FINANCIAL OFFICER
Richard Segal
CHAIRMAN
The first Group company was
established by CEO Simon Cooper in
2004, and became a trading subsidiary
of On the Beach Limited in 2008. Simon
was also a founder of On the Piste
Travel Limited incorporated in 1996.
The Group initially operated on a digital
platform operated by Teletext Holidays,
with bookings being taken via a call
centre. The Company launched its first
website in 2004 and expanded rapidly,
securing private equity investment from
Livingbridge in 2007. Simon recruited
the large majority of the current
Executive team and continued to drive
growth in On the Beach, securing
further investment from Inflexion
private equity in 2013.
Paul joined the business as CFO in
January 2017. Prior to that, Paul was
a Director at Gala Coral Interactive
(Gibraltar) Ltd. (now part of the merged
Ladbrokes Coral Group plc). Paul
joined Gala Interactive as Finance
Director in April 2012, as part of a
new management team, successfully
re-launching the online gaming business
in Gibraltar. More recently, Paul was the
director responsible for the Interactive
business planning and integration
aspects of the merger between Gala
Coral Group Limited and Ladbrokes plc.
Paul previously held CFO/FD positions
in a number of businesses in the UK,
including online, gaming and technology
businesses.
Appointed to board:
17 August 2015
Independent:
N/A
External appointments:
Non-executive director of Current Body.
com Limited
Committee memberships:
Disclosure (chairman)
Appointed to board:
16 January 2017
Independent:
N/A
External appointments:
None
Committee memberships:
Disclosure
Richard Segal is Chairman of the
Company. He is also Chairman of Racing
Post and Encore Tickets and (as at the
date of this report) HostelWorld Group
plc. Previously, Richard was Chairman
for Esporta and Barratts PriceLess, a
founding partner of 3i Quoted Private
Equity, a non-executive director at The
Kyte Group, Chief Executive Officer at
PartyGaming Plc and Odeon Cinemas
(where he led a management buy-out
from the Rank Group) and Managing
Director of Rank Group’s entertainment
sector. Richard will step down as
Chairman of HostelWorld Group plc on
1 December 2017 and will leave their
Board on 31 December 2017. He holds
a BA in economics from Manchester
University and is a member of the
Institute of Chartered Accountants of
England and Wales.
Appointed to board:
17 August 2015
Independent:
Yes
External appointments:
Spread A Smile
Hostelworld Group plc (until 31
December 2017)
Encore Tickets
Racing Post
Committee memberships:
Audit, Nomination (chairman),
Remuneration, Disclosure
Simon Cooper
CHIEF EXECUTIVE
OFFICER
Paul Meehan
CHIEF FINANCIAL
OFFICER
Richard Segal
CHAIRMAN
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
33
GOVERNANCE
Directors’ biographies
Lee Ginsberg
NON-EXECUTIVE DIRECTOR
David Kelly
NON-EXECUTIVE DIRECTOR
Lee Ginsberg joined the Company in August 2015
as Senior Independent Non-Executive Director and
Chairman of the Audit Committee. He is a Chartered
Accountant by profession and was previously Chief
Financial Officer of Domino’s Pizza Group plc. Lee
joined Domino’s Pizza in 2004 and retired on 02 April
2014. Prior to his role at Dominos Pizza Group plc, Lee
held the post of Group Finance Director at Health Club
Holdings Limited, formerly Holmes Place plc, where he
also served for 18 months as Deputy Chief Executive.
Lee is a non-executive director and Chairman of the
Audit and Risk Committee of Mothercare plc, a non-
executive director and Chairman of the Audit and Risk
Committee of Trinity Mirror plc and a non-executive
director of Softcat Plc. Lee is also the non-executive
Deputy Chairman, senior independent director and
Chairman of the Audit Committee of Patisserie Valerie
Holdings plc.
David Kelly joined the Company in August 2015
as a Non-Executive Director and Chairman of the
Remuneration Committee. David is currently a Non-
Executive Director of The Gym Group plc, Camelot
UK Lotteries, Trinity Mirror plc and Holiday Extras. He
was previously the Operations Director at Amazon
from 1998 to 2000, the Chief Operating Officer at
Lastminute.com from 2000 to 2003 the Vice President,
Operations/Chief Operating Officer at eBay from 2003
to 2007 and Senior Vice President of International at
Rackspace from 2010 to 2012
In 2007, David co-founded mydeco.com and, more
recently, has built a wide portfolio of non-executive and
advisory positions – including Chairman/Non-Executive
Director of Pure 360.
Appointed to board:
17 August 2015
Independent:
Yes
External appointments:
Softcat Plc
Oriole Restaurants
Mothercare Plc
Trinity Mirror Plc
Patisserie Holdings Plc
Committee memberships:
Audit (chairman), Nomination, Remuneration
Appointed to board:
28 August 2015
Independent:
Yes
External appointments:
The Gym Group Plc
Holiday Extras
Pure 360
Simply Business
Camelot UK Lotteries
Trinity Mirror Plc
Prezola Limited
Committee memberships:
Audit, Nomination, Remuneration (chairman)
Lee Ginsberg
NON-EXECUTIVE DIRECTOR
David Kelly
NON-EXECUTIVE DIRECTOR
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
GOVERNANCE
Corporate Governance Statement
Introduction
This section explains key features of the Company’s governance structure and how it complies with the UK Corporate Governance
Code published in 2016 by the Financial Reporting Council. This section also includes items required by the Listing Rules and the
Disclosure and Transparency Rules (DTRs). The Code is available on the Financial Reporting Council website at www.frc.org.uk.
Compliance with the 2016 Code
The Company is committed to achieving and maintaining the highest standards of corporate governance. During the financial year
ending 30 September 2017 (the “reporting period”) the Company was compliant with the Code in its entirety. There are no areas
of non-compliance and this was achieved through the strong governance structure in place.
Details and explanations of the application of the principles of corporate governance are set out in the following sections of this
Corporate Governance Statement.
Leadership
Role of the Board
BOARD
OF
DIRECTORS
Executive
Directors
Nomination
Committee
Renumeration
Committee
Audit
Committee
Disclosure
Committee
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Team
The Board is comprised of five members: the Chairman, two Executive Directors and two Non-Executive Directors. Details of the skills
and expertise of each member of the Board is set out in the profiles on pages 33 and 34.
The Board is responsible for leading and controlling the Group and has overall authority for the management and conduct of the Group’s
business, strategy and development. The Board is also responsible for ensuring the maintenance of a sound system of internal control
and risk management (including financial, operational and compliance controls and for reviewing the overall effectiveness of systems in
place) and for the approval of any changes to the capital, corporate and/or management structure of the Group.
The Executive Directors are supported by an executive team to whom the Board delegates the detailed implementation of matters
approved by the Board and the day-to-day operational aspects of the business, who cascade this responsibility throughout the Group.
The Board has close contact with the wider executive team, who are regularly invited to attend meetings of the Board to provide
functional presentations in relation to strategic matters of interest to the Board.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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GOVERNANCE
Corporate Governance Statement
Matters reserved to the Board
The Board has reserved certain specific matters to itself for
decision. The full schedule of matters reserved to the Board is
available in the Corporate Governance section of the Company’s
website, or from the Company Secretary upon request, but the
key matters include:
› Approval of (and changes to) annual operating and capital
expenditure budgets;
› Extension of the Group’s activities into new business or
geographic areas;
› Changes to the Group’s capital or corporate structure,
including acquisitions and disposals;
› Financial reporting and controls;
›
Internal controls, including maintenance of a sound system of
internal control and risk management;
› Approval of major contracts and commitments;
› Communication with shareholders;
› Board membership and senior appointments;
› Remuneration;
› Delegation of authority to committees and below board level;
› Corporate governance matters; and
› Approval of policies adopted by the Group.
Board Committees
The Board has delegated certain responsibilities to four Board
Committees to assist it with discharging its duties. A summary
of the terms of reference for each Committee is set out below
but the full terms of reference are available on the Company’s
website and from the Company Secretary upon request.
Committee
Audit Committee
Role and Terms of Reference
Reviews and reports to the Board on the Group’s financial
reporting, internal control and risk management systems,
whistleblowing, internal audit and the independence and
effectiveness of the external auditors.
Members
Lee Ginsberg (Chair)
David Kelly
Richard Segal
Remuneration
Committee
Responsible for all elements of the remuneration of the Executive
Directors and the Chairman, and other members of senior
management.
David Kelly (Chair)
Lee Ginsberg
Richard Segal
Nomination
Committee
Disclosure
Committee
Reviews structure, size and composition of the Board and its
Committees and makes appropriate recommendations to the
Board.
Richard Segal (Chair)
David Kelly
Lee Ginsberg
Responsible for overseeing the Company’s compliance with the
Market Abuse Regulation and making decisions (with support of
advisers) on when information must be disclosed to the market.
Simon Cooper (Chair)
Richard Segal
Paul Meehan
N/A
Report on pages:
42
46
41
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Corporate Governance Statement
Board and Committee Meetings
Board meetings (and Audit Committee meetings, where
appropriate) are scheduled to coincide with the Company’s
financial reporting calendar, including the announcement of full
and half year results, and the AGM.
The Company has a Board and Committee calendar, which is
updated regularly and which sets out all matters to be covered
by the Board and Committees over a rolling twelve-month
period, including strategy, standard business, matters directly
linked with financial reporting and results, corporate governance
requirements and ongoing training for the Board.
During the reporting period, twelve Board meetings were held.
All Board meetings were attended by all Directors who were
entitled to attend.
There have been 3 meetings of the Audit Committee, 8 meetings
of the Remuneration Committee, 2 meetings of the Nomination
Committee and 4 meetings of the Disclosure Committee (each
attended by all members of the Committees).
Disclosure Committee
The Disclosure Committee maintains procedures, systems and
controls for the identification, treatment and disclosure of inside
information and ensures compliance with the obligations falling
on the Company and its directors and employees under the
Market Abuse Regulation (EU) No 596/2014 and the Listing
Rules of the London Stock Exchange.
The Disclosure Committee reviews market announcements,
identifies potential inside information, creates and amends
insider information lists and implements disclosure procedures.
Insurance Cover
The Company has made arrangements for appropriate insurance
cover to be put in place in respect of legal action against its
directors.
Division of responsibilities
The roles of Chairman and Chief Executive Officer are exercised
by different individuals. The division of responsibilities between
the Chairman and the Chief Executive Officer has been defined,
formalised in writing, and approved by the Board.
The Chairman is responsible for:
›
the leadership and effectiveness of the Board and setting its
agenda and ensuring sufficient time is available for discussion
of agenda items, in particular strategic issues;
› ensuring that all Directors receive accurate, timely and clear
information on financial, business and corporate matters to
facilitating the effective contribution of non-executive
make sound Board decisions;
›
Directors;
› ensuring constructive relations between executive and
non-executive Directors;
› ensuring effective communication with shareholders;
› ensuring that the performance of individual Directors, the
Board as a whole and its Committees is evaluated at least
once a year.
The Chief Executive Officer is responsible for managing the
business and driving it forward, including the responsibility for:
›
› developing Group objectives and strategy, having regard
the operations of the Group;
›
to the Group’s responsibilities to its shareholders,
customers, employees and other stakeholders;
following presentation to, and approval by, the Board,
for the successful implementation and achievement of
those strategies and objectives;
› ensuring that the Group’s businesses are managed in line
with strategy and approved business plans, and comply
with applicable legislation and Group policy;
› ensuring effective communication with shareholders; and
›
management development and succession planning for the
setting Group human resource policies, including
senior executive team.
Non-Executive Directors and Senior Independent Director
In addition to the Chairman, the Company has two
independent Non-Executive Directors, who are appointed
to bring independence, impartiality, wide experience, special
knowledge and personal qualities to the Board.
The Code recommends that the board of directors of a
company with a premium listing on the Official List should
appoint one of the Non-Executive Directors to be the Senior
Independent Director to provide a sounding board for the
Chairman and to serve as an intermediary for the other
directors when necessary. The Senior Independent Director
should be available to shareholders if they have concerns
which contact through the normal channels of the Chairman,
CEO or other Executive Directors has failed to resolve or for
which such contact is inappropriate. Lee Ginsberg has been
appointed Senior Independent Director.
Regularly, following the end of board meetings the Chairman
and Non-Executive Directors meet formally without the
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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GOVERNANCE
Corporate Governance Statement
Executive Directors present in order to provide evaluation on the
Executive Directors. Similarly, the Non-Executive Directors meet
to evaluate and appraise the Chairman’s performance. These
regular appraisals are important to evaluate the knowledge and
skills of members of the board.
Where directors have a concern which cannot be resolved about
the company or a proposed action, their concern would be
minuted by the Company Secretary following the relevant Board
or Committee meeting.
EFFECTIVENESS
Composition of the Board: balance of skills and independence
The Code recommends that, as a ‘‘smaller company’’, the
Company should have at least two independent non-executive
directors. The Board consists of two Non-Executive Directors
(excluding the Chairman) and two Executive Directors. The
Company regards both of the Non-Executive Directors as
‘‘independent non-executive directors’’ within the meaning of
the Code and free from any relationship that could materially
interfere with the exercise of their independent judgement.
The Board is satisfied that this is the case notwithstanding the
fact that both Non-Executive Directors are also non-executive
directors of Trinity Mirror plc, on the grounds that in the context
of both Directors’ wider business interests and activities,
having two directorships in common does not threaten their
independence from each other. Indeed, the Board believes that
this common link strengthens the relationships within the Board.
Lee Ginsberg holds a minor shareholding in the Company of
16,300 Ordinary Shares, representing 0.013% of the Company’s
issued ordinary share capital. The Board does not consider this to
threaten Lee’s independence given the shareholding is minor and
is not material in the context of Lee’s wider business interests
and shareholdings.
The UK Corporate Governance Code recommends that the
chairman of a company admitted to the premium listing segment
of the Official List should meet the independence criteria set out
in the Code. The Board regards Richard Segal as an ‘‘independent
non-executive director’’ within the meaning of the UK Corporate
Governance Code. In reaching this determination, the Board
has had regard to: (i) Richard’s shareholding in the Company;
and (ii) the material business relationships he has developed
within the Group over his tenure as Non-Executive Chairman
of OTB since October 2013. The Board is satisfied with the
judgment, experience and approach adopted by Richard and
has determined that Richard is of independent character and
judgment, notwithstanding the circumstances described at (i) and
(ii) above, on the grounds that in the context of Richard’s wider
business interests and shareholdings, this is not material and
therefore unlikely to challenge his independence.
The Board considers, on the recommendation of the Nomination
Committee, that the Board and its Committees have the
appropriate balance of skills, experience, independence and
knowledge of the Company taking into account the respective
skills, experience, independence and knowledge of each of the
Directors. This will continue to be monitored by the Nomination
Committee.
Appointments to the Board
The Nomination Committee leads the process for Board
appointments and makes recommendations to the Board. Please
see page 41 for the report of the Nomination Committee.
The Board can appoint any person to be a Director, either to fill
a vacancy or as an addition to the existing Board. Any Director
so appointed shall hold office only until the next AGM and shall
then be eligible for election by the shareholders.
Following recommendations from the Nomination Committee,
the Board considers that all Directors continue to be effective,
committed to their roles and are able to devote sufficient time
to their duties. Accordingly, all Directors will seek election at the
Company’s forthcoming AGM.
Non-executive directors are typically expected to serve two
three-year terms, although the Board may invite the Director to
serve for an additional period.
Diversity
The Group is committed to eliminating discrimination and
encouraging diversity amongst the workforce. We have an
equality and diversity policy in place in order to promote a
culture that actively values differences and recognises that
people from different backgrounds and experiences can bring
valuable insights to the workplace. We are aware of the need to
keep under review the diversity of our organisation as a whole,
including our Board, in all respects including in terms of socio-
economic background, race, ethnicity, gender, sexual orientation,
age, physical abilities, religious beliefs, political beliefs and other
ideologies.
It is important that we maintain a diverse workforce across all
these areas, but one particular area of focus for the organisation
is gender diversity. In the technology industry as a whole, there
is a considerable gender imbalance, with significantly more men
than women going into the industry. This trend is reflected in
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Corporate Governance Statement
On the Beach’s IT development team, but we are committed to
taking steps to attract and retain women into our IT team (such
as our recent involvement with Rails Girls Manchester, see page
28 for more details).
We are also conscious of the gender imbalance on our Board,
which is entirely male. The Nomination Committee considered
this issue during the year and it was agreed that the Board
should not specifically look to recruit a Director to address
gender balance, and that any Board appointments would be
overseen by the Nomination Committee and would be on the
basis of merit against objective criteria to ensure we appoint
the best individual for each role. However the Company will
continue to monitor diversity both on the Board and across the
business to ensure diversity and equal opportunities.
As at 30 September 2017, the average age of our employees
was 33 years old and the gender split between employees was
as follows:
Male
Female
Directors of the
Company
Senior management
Other employees
5
0
21
127
12
184
Percentage
of female
employees
0%
36%
59%
AGM
Our third Annual General Meeting will be held at 11am on 8
February 2018 at Park Square, Bird Hall Lane, Cheadle, SK3
0XN. All shareholders will have the opportunity to attend and
vote, in person or by proxy, at the AGM. The notice of the AGM
is in the booklet which is enclosed with this report, and sets out
the business of the meeting and an explanatory note. Separate
resolutions are proposed in respect of each substantive issue.
All members of the Board will be present at the AGM and will be
able to answer any questions from shareholders.
Commitment and External Directorships
Any external appointments or other significant commitments of
the Directors require the prior approval of the Board.
The Chairman, the Non-Executive Directors and the CEO each
hold external directorships, and these are disclosed within their
profiles on pages 33 and 34. The CEO took on an external non-
executive directorship during the year which was considered
and approved by the Board. The Board took the view that
such appointment would not impact on the CEO’s commitment
to his role and could be of benefit to both the CEO and the
Company.
The Board is comfortable that the external directorships do not
impact on the time that any director devotes to the Company
and in the Board’s view, these external directorships enhance
the collective experience of the Board.
Directors’ Conflicts of Interests
Directors have a statutory duty to avoid situations in which
they have or may have interests that conflict with those of the
Company, unless that conflict is first authorised by the Board.
This includes potential conflicts that may arise when a Director
takes up a position with another Company. The Company’s
Articles of Association enable the Board to authorise potential
conflicts of interest which may arise and to impose limits or
conditions, as appropriate, when giving any authorisation.
Any decision of the Board to authorise a conflict of interest is
only effective if it is agreed without the conflicted Director(s)
voting or without their vote(s) being counted. In making such
a decision, the Directors must act in a way they consider in
good faith will be the most likely to promote the success of the
Company.
The Company maintains a register of related parties and
register of directors’ interests, which is reviewed by the Board
on a regular basis.
Development of Directors
The Company has an induction programme for all new
directors joining the board and the Chairman continually
reviews the training needs of Directors according to their
individual needs. This review is ongoing and forms part of the
annual appraisal process.
The Directors attend development days during the year
where they are provided with updates on developments and
training on certain areas in order to deepen and develop their
understanding of particular areas of the business. These
development days are in addition to the regular training
arranged by the Company Secretary. Directors also undertake
individual training which gives them the opportunity to
undertake a ‘deep dive’ into certain areas of the business.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
39
GOVERNANCE
Corporate Governance Statement
Information and Support
All Directors have access to the Company Secretary, who advises
them on governance matters.
Directors receive and access their board papers via an electronic
portal. Board papers are generally circulated five days before
a meeting. The Chairman and the Company Secretary work
together to ensure that board papers are clear, accurate and of
sufficient quality to ensure the Board can discharge its duties.
Specific business-related presentations are given by senior
management as part of board meetings where appropriate. As
well as the support of the Company Secretary, Directors have
access to the Company’s professional advisers where considered
necessary.
Board Evaluation
The Board is committed to, and understands the value and
importance of the evaluation and appraisal of the performance
of the Board, its Committees, and of the individual Directors and
the Chairman. The Board has carried out an evaluation to review
the composition, experience and skills to ensure that the Board
and its Committees continue to work effectively and that the
Directors are demonstrating a commitment to their roles.
This year’s board evaluation was the second undertaken by
the Company and it was decided that it would be conducted
in-house as this would be the most simple and effective method
of evaluating the Board This allowed a first-hand assessment in
order to gain a clear picture of any improvements which could be
made.
As part of the evaluation process, questionnaires were
completed by each board member in order to compare
performance against the Corporate Governance Code. The
questionnaire covered leadership, effectiveness, accountability,
shareholder relations, meetings and administration. The
Board approved the agreed questionnaires and then these
were completed electronically. Results were analysed and the
Company Secretary prepared a report for the Chairman. This was
tabled for discussion at a Board meeting.
The evaluation established that the Board and its Committees
were operating effectively and efficiently, with good leadership
and accountability. The Board dynamic works well, with great
dedication and commitment of each of the Board Members, and
with the appropriate level of support and challenge from Non-
Executive Directors. No major issues arose, but it was agreed
that the issue of Board diversity should continue to be a priority
and be considered by the Nomination Committee (see pages 41).
In accordance with the Code the Board will consider whether the
2018 evaluation should be facilitated externally.
Investor Relations
The Company is committed to engaging and maintaining an
active dialogue with all of its shareholders. The Company has
rolled out an investor relations programme enabling dialogue
and meetings between the Executive Directors and institutional
investors, fund managers and analysts. At these meetings, a
wide range of relevant issues including strategy, performance,
management and governance are discussed within the
constraints of information which has already been made public.
The Board is aware that institutional shareholders may
be in more regular contact with the Company than other
shareholders, but care is exercised to ensure that any price-
sensitive information is released to all shareholders, institutional
and private, at the same time, in accordance with the legal
requirements.
Questions from individual shareholders are generally dealt with
by the Executive Directors.
All shareholders can access announcements, investor
presentations and the Annual Report on the Company’s
corporate website (www.onthebeachgroupplc.com).
The Senior Independent Director, Lee Ginsberg, is available
to shareholders if they have concerns which cannot be raised
through the normal channels or if such concerns have not been
resolved. Arrangements can be made to meet with him through
the Company Secretary.
Compliance with 7.2.6R DTR
In accordance with the requirements of the Disclosure and
Transparency Rules, Rule 7.2.6R, pages 62 to 64 contain details
of significant shareholdings, special rights attached to securities
and voting rights and all other matters required to be disclosed.
Approved by the board and signed on its behalf:
K Vickerstaff
Company Secretary
30 November 2017
40
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
GOVERNANCE
Report of the Nomination
Committee
Richard Segal
Chairman, Nomination Committee
I am pleased to introduce the report of the Nomination
Committee for the year ended 30 September 2017.
Members of the Nomination Committee
Richard Segal Chairman
David Kelly
Lee Ginsberg
› Composed of three independent Non-Executive Directors
› At least two meetings held per year
› Meetings are attended by the Chief Financial Officer, Chief
Executive, Company Secretary and other relevant attendees
by invitation.
Two meetings were held during the year:
Meetings
attended/ Total
meetings held
2/2
2/2
2/2
Richard Segal
David Kelly
Lee Ginsberg
Percentage of
meetings
attended
100%
100%
100%
Role of the Committee
The Committee has primary responsibility for leading the process
for board appointments and making recommendations to the
board, bearing in mind the need for diversity and a balance
of skills, experience, independence and knowledge across the
Board, taking care to ensure that appointees have enough time
available to devote to the position.
Appointment of new CFO
During the year, the Committee finalised the recruitment of
Paul Meehan as CFO. As reported last year, after Paul had
been identified as the preferred candidate, the Committee
recommended to the Board that an offer was made to him
in line with the package recommended to the Board by the
Remuneration Committee. Paul accepted the offer on 28
November 2016 and joined the business on 16 January 2017.
Succession Planning
Continuing the work undertaken in the 2015/2016 financial
year, the Committee reviewed the Group’s succession planning
arrangements for the Executive Directors, the executive team
and the senior management team, including the employees
regarded as key for the ongoing success of the Group.
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The Committee monitored the risks in the succession plan, and
recommended that certain actions took place to address any
risk areas, including working with the Remuneration Committee
to ensure that the remuneration for these individuals was at an
appropriate level and in an appropriate structure to incentivise
and retain talent in the business.
Diversity
The Company values equality and diversity (in all respects
including in terms of socio-economic background, race,
ethnicity, gender, sexual orientation, age, physical abilities,
religious and political beliefs) and understands the benefits of a
diverse Board.
The Nomination Committee considered the diversity on the
Board during the year, particularly following the retirement
of Wendy Parry and the appointment of Paul Meehan which
led to the Board being entirely male. In addition to the
gender imbalance there is also an ethnicity imbalance and the
Committee considered diversity as a whole. The Nomination
Committee leads Board appointments and it was agreed
that in relation to Board appointments, diversity and equality
remained a key value for the Company, and that it was the
utmost priority for the Committee to ensure that where there
is a vacancy on the Board, selection is on the basis of merit
against objective criteria to ensure the appointment of the
best individual for each role. It was also agreed that the Board
should not specifically look to recruit a Director to address
the current imbalance of gender and ethnicity. However
the Company will continue to monitor diversity both on the
Board and across the business to ensure diversity and equal
opportunities.
Board Evaluation & Re-election of Directors
The Committee reviewed the results of the Board evaluation
and Director appraisal process as described on page 40
and has recommended to the Board, after evaluating the
balance of skills, knowledge, independence and experience
of each Director, that all Directors will seek re-election at the
Company’s forthcoming AGM.
I will be available at the AGM to discuss any questions that
shareholders have in relation to the work of the Committee.
Richard Segal
Chairman, Nomination Committee
30 November 2017
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
41
GOVERNANCE
Report of the Audit
Committee
Lee Ginsberg
Chair of the Audit Committee
I am pleased to present the Audit Committee Report for 2017.
With the assistance of management and KPMG LLP, the
Committee has considered the main financial reporting issues,
estimates and judgements, and we believe that the information
in the Annual Report is fair, balanced, and understandable and
clearly explains progress against our strategic and operating
objectives. There has been no correspondence from regulators,
including the Financial Reporting Council, during the financial
year.
We believe that rigorous internal controls and robust risk
management processes are an essential part of delivering
shareholder value. The Committee has assisted the Board in
performing a review of effectiveness of the processes and
systems in place.
Members of the Audit Committee
Lee Ginsberg Chairman
David Kelly
Richard Segal
› Composed of three independent Non-Executive Directors
all of whom have experience in the sector in which the
Group operates.
›
Lee Ginsberg is considered by the Board to have extensive
recent and relevant financial experience and all members
have had experience in large organisations (Directors’
biographies appear on pages 33 and 34).
› At least three meetings held per year
› Meetings are attended by the Chief Financial Officer, Chief
Executive, Company secretary and external auditor by
invitation
Three meetings were held during the year:
Meetings
attended/ Total
meetings held
3/3
3/3
3/3
Lee Ginsberg
David Kelly
Richard Segal
Percentage of
meetings
attended
100%
100%
100%
Financial Reporting
The primary role of the Committee in relation to financial
reporting is to review and monitor the integrity of the financial
statements, including annual and half-year reports, result
announcements, dividend proposals and any other formal
announcement relating to the Group’s financial performance.
The Committee has looked at the quality and appropriateness
of the accounting principles and policies adopted and whether
management had made appropriate underlying estimates
and judgements. In carrying out this review, the Committee
has looked at management reports in respect of the main
financial reporting issues and judgements made, together with
reports prepared by the external auditor on the 2017 half-year
statement and Annual Report 2017.
Work undertaken by the Committee in relation to 2017
Financial Statements
The Committee has reviewed the content of the 2017
Annual Report and considered whether, taken as a whole,
in its opinion it is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the Company’s position, performance, business model and
strategy.
The Committee was provided with a draft of the Annual Report
in order to assess the strategic direction and key messages
being communicated. The Committee provided feedback
highlighting any areas in which they felt that further clarity or
information was required and this was then incorporated into
the report provided for Audit Committee approval.
Internal audit
The Group did not have a stand-alone Internal Audit
Department during the year. The Committee has reviewed
the need for an internal audit function during the year and
considers that having no internal audit function is appropriate
on the grounds that:
› The business operates from a single site;
› Procedures and routines are well established across the
business; and
› There is a significant degree of senior oversight, particularly
in respect of ongoing business performance, involving both
the CEO and CFO.
The Committee will, as part of its remit, continue to evaluate
the effectiveness and robustness of the current system of
control as the Group grows as to whether an independent
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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Report of the Audit Committee
Internal Audit Department would be more appropriate and to set
down the guidelines for the operation of such a department.
In line with its terms of reference, during the year, the Audit
Committee has undertaken reviews and internal audits
on the Company’s processes, procedures and safeguards,
commissioning external independent reports where required.
External Auditor
The Committee oversees the Group’s relationship with the
external auditor. The Committee holds meetings with the auditor
without management present with the purpose of understanding
the auditor’s views on the control and governance environment
and management’s effectiveness within it. To fulfil its
responsibilities in respect of the independence and effectiveness
of the external auditor, the Committee reviewed:
› The audit work plan for the Group;
› The detailed findings of the audit, including a discussion
of any major issues that arose during the audit; the Audit
Committee reviewed the findings of the external auditor in
respect of both the financial statements for the six-month
period ending 31 March 2017 and for the year ended 30
September 2017.
› The Committee is mindful of its responsibility to ensure that
the external auditor maintains its independence and
objectivity. It has therefore reviewed, and is satisfied with the
independence of KPMG as the external auditor; and
› The audit fee and the extent of non-audit services provided
during the year.
KPMG LLP was appointed auditor to the Group in 2007.
The mandatory firm rotation (MFR) rules in the UK introduce
requirements that all EU public interest entities (PIEs) must
tender their audit contract at least every 10 years and change
or rotate their auditor at least every 20 years. Audit tenure is
measured from the point at which the Group became a PIE,
being 28 September 2015, the date on which the Group became
listed. As such, the Group will need to run a tender process by
2025. However, the Audit Committee will continue to review
the relationship with the external auditor, and may tender its
audit contract earlier than this, if the Committee believes this
is necessary or desirable. In 2017 there was a rotation of the
Group’s audit partner.
The Committee recommends the re-appointment of KPMG LLP
and confirms that such recommendation is free from influence
by a third party and no restrictive contractual terms have been
placed on the Group.
Non-audit services
The Company’s external auditor may also be used to provide
specialist advice where, as a result of their position as auditors,
they either must, or are best placed to, perform the work in
question. A formal policy is in place in relation to the provision
of non-audit services by the external auditor to ensure that
there is adequate protection of their independence and
objectivity.
The Company’s policy is that, except in exceptional
circumstances, non-audit fees to the audit firm should not
exceed 70% of the amount of the audit fee for the current
financial year (audit fee £124,000). In addition, all non-
audit work in excess of £15,000 should be the subject of a
competitive tender.
It should be noted that, in the current year (FY17), it was
disclosed that fees totalling £6,000 were paid to KPMG LLP for
non-audit services.
UK Corporate Governance Code
Each year the Committee conducts a detailed review of the
Company’s compliance with the UK Corporate Governance
Code. This year particular focus was given to the new
provisions and guidance relating to the composition of audit
committees. The Committee was satisfied that it complied with
all the provisions of the Code; Lee Ginsberg has substantial
recent and relevant financial experience, along with experience
in the technology sector and the other members of the
Committee have experience in both the travel and technology
sectors.
Whistleblowing
A whistleblowing policy has been adopted which includes
access to a whistleblowing telephone service run by an
independent organisation, allowing employees to raise
concerns on an entirely confidential basis. The Committee
receives regular reports on the use of the service, any
significant reports that have been received, the investigations
carried out and any actions arising as a result.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
43
GOVERNANCE
Report of the Audit Committee
Risk management and Internal Control
The primary role of the Audit Committee in relation to risk
management and internal controls is to review the effectiveness
of risk management systems and related internal controls to
ensure that any issues that have arisen are properly dealt with,
and that going forward the systems are fit for purpose. The
Committee performs its duties by:
› Reviewing annually the Group’s system of internal control;
and
› Reviewing reports from the external auditors on any issues
identified in the course of their work, including an internal
control report on control weaknesses, and ensuring that
there is an appropriate response from management.
The Group has in place internal controls and risk management
systems in relation to its financial reporting process and
preparation of consolidated accounts. These systems include
policies and procedures to ensure that adequate accounting
records are maintained and transactions are recorded accurately
and fairly to permit the preparation of financial statements in
accordance with IFRS. The internal control systems include:
Component
Risk Management
Approach
Risks are highlighted through a number of different reviews and culminate in
a risk register. The register identifies the risk area, the probability of the risk
occurring, the impact if it does occur and the actions being taken to manage
the risk to the desired level.
Basis for assurance
Updated by Executive team
twice a year and reviewed
and approved by the Board
annually
Financial
Reporting
Consolidated Group management accounts are produced monthly and
provide relevant, reliable and up-to-date financial and non-financial
information to management and the Board including an income statement,
balance sheet and cash flow statement.
Budgeting and
reforecasting
The Group produces an annual budget and quarterly reforecast against
which management monitor the key business and financial activities
towards achieving the financial objectives each month.
Monitoring of
controls
There are policies and procedures in place to ensure the integrity and
accuracy of the accounting records and to safeguard the Group’s assets.
The review by the audit committee highlighted that effective risk
management and internal controls are in place.
Results are reviewed each
month by management,
the Executive team and the
Board. Results are compared
against expectations and
significant variances are
explained by management.
Performed using a bottom-
up approach with reviews
performed by the Executive
team and the Board.
The Committee has
performed a rigorous and
robust review of internal
controls during the year
including:
› Review of risk registers
› Assessment of
compliance with
corporate governance
code
› Delegated authority and
approval limits
› Review of business
continuity plan
› Basis and monitoring
of capitalised website
development costs
44
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
GOVERNANCE
Report of the Audit Committee
The Committee, with the assistance of management and KPMG,
identified areas of financial statement risk and judgement as
described below:
Description of focus area
Audit Committee action
Capitalised website development costs
The Group incurs significant internal costs in respect of the
development of the On the Beach and ebeach websites. The
accounting for these costs as either development costs which
are capitalised as intangible assets (for enhancement of the
website) or expensed as incurred (in respect of maintenance)
involves judgement.
Failure of Monarch Airlines Ltd. - Recognition of potential cost
and reimbursement asset
The accounting for the recent failure of Monarch Airlines Ltd.,
involves judgement to estimate the value of both the potential
liability and the debtor arising from the claim under the
Scheduled Airline Failure Insurance policy (see page 85 for full
disclosure).
The Audit Committee has reviewed management’s
application of the accounting policy adopted and the
assessment of whether current projects meet the criteria
required for costs to be capitalised and consider the
approach and application of this policy to be appropriate.
The Committee have reviewed the accounting and are
satisfied with the approach of Management. The Committee
are satisfied with the accuracy of the potential liability and
that the recoverability of the associated chargebacks /
insurance debtor is virtually certain.
Valuation of intangibles arising on the acquisition of Sunshine.
co.uk Limited
The accounting for the acquisition of Sunshine involves
judgement to calculate the value and category of intangible
assets to be recognised on the balance sheet.
The Committee have reviewed the acquisition accounting
and intangible and goodwill accounting and are satisfied
with the approach of Management. The Committee are
satisfied with the identification and value of intangible assets
acquired.
Valuation of investments in subsidiaries
The estimated recoverable amount is subjective due to the
inherent uncertainty involved in forecasting and discounting
future cash flows. Their recoverability is not at a high risk of
significant misstatement or subject to significant judgement.
However, due to their materiality in the context of the parent
company financial statements, this is considered to be the area
that had the greatest effect on our overall parent company
audit.
The Committee have reviewed the accounting and are
satisfied with the approach of Management. The Committee
are satisfied with the accuracy of the forecast prepared by
management to support the carrying value of the investment.
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Chair of the Audit Committee
30 November 2017
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
45
GOVERNANCE
Remuneration Report
Annual Statement of the Chairman
of the Remuneration Committee
David Kelly
Chair of the Remuneration Committee
Dear Shareholder,
As Chairman of the Remuneration Committee, I am pleased to
present the Remuneration Report for the year to 30 September
2017.
Since floating in September 2015, the Remuneration Committee
has continued to transition its approach to pay as it moves
from being a private equity backed business to a larger public
company. This is relevant both in terms of having much greater
oversight into the pay and reward of individuals below main
board level as well as ensuring that the executive directors
continue to have a market competitive package in the listed
environment.
As a consequence, and as noted last year, the Committee was
involved in shaping a remuneration package for Paul Meehan
which is in line with both our current remuneration policy and
investor sentiment, and which also provides reward in line with
delivering our strategy.
In our second full year as a listed entity, the Company has
continued to demonstrate strong financial performance including
an increase in Group profit before tax of 24.9%, an increase
in Group adjusted profit before tax of 33.8%, an increase in
adjusted proforma EPS of 39.1% and a total shareholder return
of 90.3%.
The Committee remains satisfied that the policy continues to
support the Company’s strategy for the forthcoming year: to
retain and motivate our management team, to drive strong
returns for our shareholders and to promote the long-term
success of the Company. Shareholders will not therefore
be asked to approve any revisions to the policy at the 2018
AGM. However, it is the Committee’s intention to undertake
a thorough review of the policy during the course of 2018 to
ensure that the remuneration of the Executive Directors is
reflective of the Company’s continued strong performance,
including consultation with our major shareholders, ahead of
seeking approval for policy renewal at the 2019 AGM.
Remuneration highlights for the 2017 financial year
In 2017, remuneration highlights included the following:
› As outlined in our 2016 report, the Executive Directors did
not receive salary increases during the year. The
Remuneration Committee reviewed salaries during the year
and determined that increases of 2% would be awarded in
line with increases awarded to the wider workforce,
effective from 1 January 2018.
› Annual bonus measures were based on financial targets
that link directly to both strategic and operational initiatives
of the Company. Despite the strong performance of the
Company over the year, due to the stretching nature of the
threshold PBT target, no bonus in respect of the 2017
financial year will be paid.
› The second award under the Long-Term Incentive Plan
award was granted during the year. This award will vest at
the end of three years and will be subject to a further two
year holding period. The performance metrics are based
70% on EPS performance and 30% on returns to
shareholders.
› As part of wider employee engagement activities (details
of which are set out on page 26 to 27), an employee
engagement committee was formed during the year with
the intention of strengthening the employee voice on
matters such as remuneration. The Remuneration
Committee has received reports on employee engagement
activities and employee feedback and has been involved
in considering changes required to pay and conditions for
all staff. Matters considered included making changes to
certain HR policies and how the Company’s share schemes
and other remuneration tools can be used to incentivise,
reward and retain talent across the business, particularly
top performers. The Committee intends to further
formalise this engagement in FY18.
Members of the Remuneration Committee
David Kelly Chairman
Lee Ginsberg
Richard Segal
46
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
GOVERNANCE
Remuneration Report
Key activities of the remuneration committee
The Remuneration Committee met 8 times during 2017 and its
key activities were as follows:
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Approval of FY17 performance and remuneration decisions for Executive Directors
Review of remuneration package for new CFO
Review of group-wide pay and conditions
Review of FY16 year end compensation process and budgets for all employees
Review of preliminary FY17 year end compensation budgets
Consideration of reward strategy for the broader employee population
Review of Executive Directors’ remuneration
Assessment of FY16 performance
Approval of FY17 annual bonus plan
Preliminary review of FY18 annual bonus plan
Approval of FY17 performance measures and awards
Grant of LTIP awards
Review of all employee share schemes
Approval of the FY16 DRR
Planning for FY17 DRR
Review performance of independent advisers and fees over the year
Preparation for AGM
Review of feedback received at AGM
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This report has been prepared in accordance with The Large and
Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013, the UKLA Listing Rules and the
UK Corporate Governance Code. The report is split into three
parts:
› This Annual Statement.
› A brief summary of the Company’s remuneration policy for
Directors.
› The Annual Report on Remuneration which sets out
payments made to the Directors and details the link between
Company performance and remuneration for the 2017
financial year. The Annual Report on Remuneration together
with this statement is subject to an advisory shareholder vote
at the AGM on 8 February 2018.
The Remuneration Committee is committed to ensuring that
we are responsive to developments in best practice, and will
proactively consider the implementation of our policy in the
light of this. Additionally, the Committee will consult with
Shareholders in FY18 as it prepares its Policy for re-voting
in FY19. Should you have any queries or comments on
this Report, or more generally in relation to the Company’s
remuneration, then please do not hesitate to contact me via
the Company Secretary.
I hope that you find the information in this Report
informative and I look forward to your continued support at
the Company’s Annual General Meeting
David Kelly
Chair of the Remuneration Committee
30 November 2017
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
47
GOVERNANCE
Summary of Remuneration Policy
It is essential that a fair, competitive and attractive
remuneration policy is in place in order to ensure
the future success of the Company.
Introduction
The Directors’ Remuneration Policy (the ‘Policy’) was approved
by shareholders at the AGM on 5 February 2016 (92.95% of
votes cast being in favour) and became effective from that date.
There are no proposals to amend the Directors’ Remuneration
Policy at the 2018 AGM however we will re-design the Policy for
FY19.
A summary of the policy is included for reference to assist with
the understanding of the contents of this report. The full policy
is detailed in our 2015 Annual Report, which can be found in the
‘Investors centre’ section under ‘Reports and presentations’ on
the Company’s website.
The following table summarises each element of remuneration
and how it supports the Company’s short and long term strategic
objectives.
Performance metrics used,
weighting and time period
applicable
None
Element of remuneration
Operation
Opportunity
Salaries are reviewed annually
and any changes are effective
from 1 January in the
financial year.
Base Salary
Provides a base level of
remuneration to support
recruitment and retention
of Executive Directors
with the necessary
experience and expertise
to deliver the Company’s
strategy.
Base salaries will be set at
an appropriate level within a
comparator group of listed
companies of comparable
size and will normally increase
in line with increases made
to the wider employee
workforce.
The Committee recognises
that Simon Cooper’s current
base salary is below the
market level, but when
setting Simon’s base salary
has given regard to his
considerable shareholding in
the Company, and the desire
to focus the remuneration
structure on a long term
strategy.
48
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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GOVERNANCE
Summary of Remuneration Policy
Element of
remuneration
Operation
Opportunity
Performance metrics used,
weighting and time period
applicable
Benefits
Provides a competitive
level of benefits.
Pensions
Paul Meehan currently
receives an employer’s
contribution equal to
15% of his base salary.
Due to his considerable
shareholdings, Simon
Cooper is not provided
with pension funding.
Annual Bonus Plan
The Annual Bonus Plan
provides a significant
incentive to the
Executive Directors
linked to achievement in
delivering goals that are
closely aligned with the
Company’s strategy and
the creation of value for
shareholders.
The Remuneration
Committee recognises the
need to maintain suitable
flexibility in the determination
of benefits that ensure it is
able to support the objective
of attracting and retaining
personnel. Accordingly, the
Remuneration Committee
expects to be able to adopt
benefits such as relocation
expenses, car allowance
benefit, death in service life
assurance, travel expenses
(including tax if any), tax
equalisation and support
in meeting specific costs
incurred by directors.
The Executive Directors
currently receive benefits
which include family private
health cover.
On recruitment, the
Committee maintains the
ability to provide pension
funding in the form of a salary
supplement, which would not
form part of the salary for
the purposes of determining
the extent of participation
in the Company’s incentive
arrangements.
For every £1 above the
Board approved PBT budget,
a proportion will go into a
bonus pot which will be used
to fund Executive bonuses.
Annual bonuses are paid in
cash after the end of the
financial year to which they
relate.
The maximum will be set
at the cost of providing the
benefits described.
None
15% of base salary p.a.
None
The maximum bonus
opportunity is 100% of base
salary.
Performance is measured
over the financial year.
A bonus pot is only formed
if budgeted PBT is met.
The bonus payout is then
determined based on the
satisfaction of a range of key
strategic objectives.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
49
GOVERNANCE
Summary of Remuneration Policy
Element of
remuneration
Operation
Opportunity
Long-Term Incentive
Plan (LTIP)
Awards are designed to
incentivise the Executive
Directors to maximise
total shareholder returns
by successfully delivering
the Company’s objectives
and to share in the
resulting increase in total
shareholder value.
HMRC Share Incentive
Plan
To encourage wide
employee share
ownership and thereby
align employees’ interests
with shareholders.
Shareholding
Requirement
To support long term
commitment to the
Company and the
alignment of Executive
Director interests with
those of shareholders.
Non-Executive Director
fees
Provides a level of fees
to support recruitment
and retention of Non-
Executive Directors with
the necessary experience
to advise and assist
with establishing and
monitoring the Company’s
strategic objectives.
Awards are granted annually
to Executive Directors in the
form of nil cost options.
These will vest at the end of a
three year period subject to:
the Executive Director’s
›
continued employment at
the date of vesting; and
satisfaction of the
performance conditions.
›
A further two year holding
period post vesting will apply.
The Company has a share
incentive plan in which the
Executive Directors are
eligible to participate (which
is HMRC registered and is
open to all eligible staff).
The Remuneration
Committee has adopted
formal shareholding
guidelines that will encourage
the Executive Directors to
build up over a five year
period and then subsequently
hold a shareholding
equivalent to a percentage of
base salary.
Non-Executive Directors are
paid a base fee and additional
fees for chairmanship of
committees. The chairman
of the Company does not
receive any additional fees for
membership of committees.
Fees are reviewed annually
based on equivalent roles in
an appropriate comparator
group used to review salaries
paid to the Executive
Directors.
Performance metrics used,
weighting and time period
applicable
The performance conditions
for awards are currently split
between earnings per share
(“EPS”) growth (70%) and
absolute total shareholder
return (“TSR”) (30%).
Maximum award of 150% of
base salary.
At least 25% of the award
will vest for threshold
performance. 100% of the
award will vest for maximum
performance. Straight line
vesting between these points.
UK scheme in line with
HMRC limits as amended
from time to time.
None
150% of salary.
None
The base fees for Non-
Executive Directors are set at
a market rate.
None
50
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
GOVERNANCE
Summary of Remuneration Policy
Malus is applied up to the date of the bonus determination
and during the three year period from grant to vesting for the
LTIP. Clawback will apply for two years from the date of bonus
determination and for the two year period post vesting for the
LTIP.
How remuneration links with strategy
It is essential that a fair, competitive and attractive remuneration
policy is in place in order to ensure the future success of the
Company. Our remuneration policy is designed to be fair
and competitive, support the strategic objectives of the
Company, and motivate the Executive Directors to deliver
the short and long term strategy as set out in the CEO’s
statement on pages 8 to 10.
In the table below, we summarise how the Company’s
strategic priorities are aligned with the remuneration policy.
Strategic objective
Performance measure
Link to the remuneration policy
Out-innovating through
agility and investment in
talent and technology
Revenue growth per daily
unique visitor
Driving an efficient
increase in market traffic
share
Marketing cost as % of
revenue
Captured within the
strategic element of the
annual bonus plan
Leveraging increased
revenue through direct
and differentiated supply
Directly contracted
hotels as a percentage of
sales
Revenue growth
Expanding our model
into new source markets
and products
Growth in international
sales and other new
products
Delivery of shareholder
value
Total shareholder return
EPS
Measured through the
profit elements of the
annual bonus plan
Over the longer term,
will flow into EPS which
is measured through the
long term incentive plan
Measured directly
through the long term
incentive plan
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
51
GOVERNANCE
Annual Report on Remuneration
Single total figure of remuneration (audited)
Executive and Non-Executive Directors (audited)
The table below sets out the single total figure of remuneration
and breakdown for each Executive and Non-Executive Director
in respect of the 2017 financial year. Comparative figures for the
2016 financial year have also been provided. Figures provided
have been calculated in accordance with the new UK disclosure
requirements: the Large and Medium-Sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013
(Schedule 8 to the Regulations).
Name
Salary / Fee
(£’000)
Benefits
(£’000)
Bonus
(£’000)
LTIP
(£’000)
Pension
(£’000)
Total
(£’000)
2017(2) 2016(1)
2017 2016
2017 2016
2017 2016
2017 2016
2017 2016
Simon Cooper
200
182
Paul Meehan(3)
178
-
Wendy Parry(4)
61
163
Richard Segal
100
100
Lee Ginsberg
David Kelly
58
50
58
50
1
1
1
-
-
-
1
-
2
-
-
-
-
-
-
-
-
-
56
-
49
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22
-
-
-
-
-
-
-
-
-
-
201
239
201
-
62
214
100
100
58
50
58
50
Executive Director salaries were reviewed on Admission and increased with effect from 1 January 2016 to £200,000 for Simon Cooper and £175,000 for Wendy Parry.
Notes:
(1)
(2) No salary or fee increases were awarded during the year.
(3)
Paul Meehan was appointed to the Board with effect from 16 January 2017. His FY17 base salary, benefits, pension and annual bonus relate to the period he served as an Executive Director.
(4) Wendy Parry retired on 16 January 2017, however she remained in the business until 31 January 2017 to ensure a full and orderly handover of her responsibilities to Paul Meehan. Her FY17 base
salary and benefits relate to the period from 1 October 2016 to 31 January 2017.
Additional information regarding single figure table (audited)
The Remuneration Committee considers that performance
conditions for all incentives are suitably demanding, having
regard to the business strategy, shareholder expectations, the
markets in which the Group operates and external advice. To the
extent that any performance condition is not met, the relevant
part of the award will lapse. There is no retesting of performance.
Bonus awards (audited)
2017 annual bonus awards and performance targets
A bonus pot for Executive bonuses is formed from a proportion
of the excess PBT above a pre-determined target. For 2017, the
Group Adjusted profit before tax excluding exceptional items
was £27.7m(1) (before amortisation of acquired intangibles, share
based payments and any bonuses are paid), which was in
line with budget. As a result, the Remuneration Committee
determined that no bonus pot was created for the bonus pot
for Executive Directors.
The performance targets for the 2017 annual bonus award
are set out below. Had a bonus pot been created, the
Remuneration Committee would have determined individual
allocations of this pot based on satisfaction of a matrix of key
strategic targets including UK revenue, international revenue,
traffic from branded and free sources and directly contracted
hotels as a percentage of sales. However as no bonus pot
was created, no consideration was given as to the extent to
which strategic metrics had been met.
Threshold
Maximum
Actual
performance(1)
Excess over
threshold
Bonus pool
Group Adjusted PBT
£27.7m
£33.3m
£27.7m
£0
£0
(1) Excluding the performance of Sunshine.co.uk Limited.
52
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
GOVERNANCE
Annual Report on Remuneration
2016 annual bonus performance targets (audited)
The performance targets for the 2016 annual bonus awards
were considered to be commercially sensitive at the time of
completing the 2016 Directors’ Remuneration Report. The
Company committed to disclose these in full this year.
A bonus pot is only formed if budgeted PBT is met. The
2016 annual bonus pool was based on the achievement of a
PBT target as set out below:
Threshold
Maximum
Actual
performance
Excess over
threshold
Bonus pool
Adjusted UK PBT
£20.1m
£24.8m
£21.8m
£1.7m
£0.1m*
* Bonus pool including senior managers was £0.4m
Following the stellar performance of the Company over the
year, the outperformance of budgeted PBT and the resulting
bonus pot which was created, the Remuneration Committee
determined individual allocations of this pot based on
satisfaction of a matrix of key strategic targets. These included
UK revenue, international revenue, traffic from branded and free
sources and directly contracted hotels as a percentage of sales.
Based on the Executive Directors’ performance against this
matrix of strategic targets, the Remuneration Committee
determined that both Simon and Wendy were eligible to receive
annual bonuses equal to 35.8% of their respective base salaries.
bonus allocation. This was approved by the Remuneration
Committee and both Simon and Wendy received an annual
bonus equal to 27.8% of base salary in respect of FY16.
It should be noted that as part of the policy renewal in 2019,
the annual bonus will be an area of focus for the Committee
to bring into line with best practice, including consideration
of whether part of the bonus may be satisfied in shares.
This is part of the Committee’s continuing commitment to
transition the Company’s remuneration policy from a private
company to fully listed business to ensure it remains fit for
purpose in a highly competitive market for the best talent.
However, in order to reflect the strong performance of the
senior management team in the Company’s first year since
listing and to provide additional bonus funding to reward them
for this, Simon and Wendy requested that the Remuneration
Committee exercise discretion to reduce their individual annual
Long term incentives awarded in 2017 (audited)
The table below sets out the details of the Long-Term
Incentive Plan awards granted in the 2017 financial year.
Vesting will be determined according to the achievement of
performance conditions as outlined below.
Director
LTIP
Value of
award
Face value of
award (£’000)
Number of
shares awarded
Exercise Price
(£)
Percentage of
award vesting
at threshold
performance
Performance
period end date
Performance
conditions
Simon
Cooper
LTIP – nil
cost option
100% of
salary
Paul
Meehan
LTIP – nil
cost option
150% of
salary
200
99,502
Nil
25%
375
186,567
Nil
25%
30 September
2019
30 September
2019
EPS (70%)
Absolute
TSR (30%)
EPS (70%)
Absolute
TSR (30%)
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
53
GOVERNANCE
Annual Report on Remuneration
The awards were granted on 26 May 2017. The number of shares awarded is calculated
using the closing share price on 30 September 2016, which was 201p.
The EPS condition applying to 70% of the awards is provided in the table below:
EPS for year ending 30 September 2019
Less than 24.48p
24.48p
29.92p or above
Vesting
0%
25%
100%
Between 24.48p and 29.92p
Straight line vesting between 25% and 100%
The Absolute TSR condition applying to 30% of the awards is provided in the table below:
Annualised TSR of the Company over the three year
period to 30 September 2019
Less than 15%
15%
25% or above
Vesting
0%
25%
100%
Between 15% and 25%
Straight line vesting between 25% and 100%
Absolute TSR is averaged over a one month period prior to the beginning and end of the
performance period or such shorter period as is available.
54
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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GOVERNANCE
Annual Report on Remuneration
Payments to past directors / payments for loss of office (audited)
There were no such payments in the financial year.
Statement of directors’ shareholdings and share interests (audited)
Shareholding requirements in operation at the Company are currently 150% of base salary for the CEO
and the CFO. Executive Directors are required to build up their shareholdings over a five year period. The
number of shares of the Company in which current Directors had a beneficial interest and details of long-
term incentive interests as at 30 September 2017 are set out in the table below:
Director
Simon Cooper
Paul Meehan(1)
Wendy Parry(2)
Shareholding
requirement
(% of salary)
Current
shareholding*
(% of salary)
Beneficially
Owned
Shares
4,018%
0%
-
-
150%
150%
N/A
4,815%
N/A
80,275
Unvested LTIP
interests subject
to performance
conditions
191,245
186,567
Shareholding
requirement met?
Yes
No
N/A
Notes:
(1)
(2) Wendy Parry retired on 16 January 2017. The figures in the table above reflect Wendy’s shareholding requirements and shareholdings as at this date. The share price of
Paul Meehan joined the Company as CFO on 16 January 2017 and has five years to build up his shareholding requirement.
267.5 pence as at 16 January 2017 has been taken for the purpose of calculating the shareholding as a percentage of salary at that date.
*The share price of 395 pence as at 30 September 2017 has been taken for the purpose of
calculating the current shareholding as a percentage of salary. Unvested LTIP awards do not count
towards satisfaction of the shareholding guidelines. No changes in the above Directors’ interests
have taken place between 30 September 2017 and the date of this report.
Non-Executive Directors are not subject to a shareholding requirement. Details of their interests
in shares are set out below:
Director
Richard Segal
Lee Ginsberg
David Kelly
Shares held 30 September 2017
406,680
16,300
-
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
55
GOVERNANCE
Annual Report on Remuneration
Comparison of overall performance and pay (TSR graph)
The graph below shows the value of £100 invested in the Company’s shares since listing compared
to the FTSE Small Cap index. The graph shows the Total Shareholder Return generated by both
the movement in share value and the reinvestment over the same period of dividend income. The
Remuneration Committee considers that the FTSE Small Cap index is the appropriate comparator as
On the Beach is a constituent of this index. This graph has been calculated in accordance with the
Regulations. It should be noted that the Company listed on 28 September 2015 and therefore only
has a listed share price for the period from 28 September 2015 to 30 September 2017.
n
r
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e
r
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r
e
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t
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0
0
1
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n
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u
s
s
a
(
i
IPO
250
200
150
100
50
0
30 September
2015
30 September
2016
30 September
2017
On the Beach
FTSE Small Cap
Chief Executive Officer historical remuneration
The table below sets out the total remuneration delivered to the Chief Executive Officer over the
last three years valued using the methodology applied to the single total figure of remuneration. The
Remuneration Committee does not believe that the remuneration payable in its earlier years as a private
company bears any comparative value to that paid in its later years and therefore the Remuneration
Committee has chosen to disclose remuneration only for the four most recent financial years:
Chief Executive Officer
2017
2016
2015
2014
Total Single Figure (£000s)
201
239
131
131
Annual bonus payment level achieved
(% of maximum opportunity)
-
27.8%
-
-
LTIP vesting level achieved (% of maximum
opportunity)
N/A
N/A
N/A
N/A
It should be noted that the Company only introduced the LTIP on Admission.
56
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
GOVERNANCE
Annual Report on Remuneration
Change in Chief Executive Officer’s remuneration compared
with employees
The following table sets out the change in the remuneration paid
to the Chief Executive Officer from 2016 to 2017 compared
with the average percentage change for employees.
The Chief Executive Officer’s remuneration disclosed in the table
below has been calculated to take into account base salary (with
the salary increase which was effective from 1 January 2016
pro-rated for the year), taxable benefits, and annual bonus
(including any amount deferred). The employee pay (on
which the average percentage change is based) is calculated
using the increase in the earnings of full-time UK employees
using P60 and P11d data from tax years 2016 and 2017.
The same individuals have been included in each year to
ensure a true like for like comparison. Consequently, 2016
figures have been updated. Part time employees have been
excluded from the analysis, as have any employees who have
been promoted or changed role.
Salary
Taxable benefits
Bonus
£’000
2017 2016
Percentage
change
£’000
2017 2016
Percentage
change
£’000
2017 2016
Percentage
change
Chief Executive Officer
200
182
10%
Total for all employees
3,679
3,472
Number of employees
Average per employee
96
38
96
36
6%
0%
6%
1
21
-
-
1
20
-
-
-
5%
-
-
-
56
(100%)
397
141
182%
96
4
96
1
0%
182%
An employee engagement committee was formed during the year with the intention of strengthening the employee voice on
matters including remuneration. Further details can be found on pages 26 to 27.
Relative importance of the spend on pay
The table below sets out the relative importance of spend on pay in the 2016 and 2017 financial years compared with other
disbursements. All figures provided are taken from the relevant Company Accounts.
Disbursements from profit in
2017 financial year
Disbursements from profit in
2016 financial year
% change
Profit distributed by way
of dividend
Overall spend on pay
including Executive
Directors
£m
4.0
10.0
£m
2.9
8.6
38%
16%
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
57
GOVERNANCE
Annual Report on Remuneration
Shareholder voting at general meeting
The Committee is committed to shareholder dialogue, seeks to ensure optimal alignment for all stakeholders and to ensure shareholders’
views are taken into account in shaping remuneration policy and practice. The Directors’ remuneration policy was subject to a shareholder
vote at the AGM on 5 February 2016 and the Directors’ Annual Report on Remuneration was subject to a shareholder vote at the AGM
on 2 February 2017, the results of which were as follows:
Chief Executive Officer
For
Against
Abstentions
Ordinary Resolution to approve the directors’
remuneration policy for the year ended 30
September 2015
92,568,002
(92.95%)
7,022,131
(7.05%)
Ordinary Resolution to approve
the Directors’ remuneration report for the
year ended 30 September 2016
94,110,445
(99.99%)
12,458
(0.01%)
0
(0%)
0
(0%)
Implementation of remuneration policy in financial year 2018
The Remuneration Committee proposes to implement the policy for 2018 as set out below:
Salary
The Remuneration Committee has determined that salary increases of 2% will be applied, effective from
1 January 2018, in line with increases to be awarded to the wider workforce. The current salaries are set
out below:
Salary (£)
Percentage Change
2018
2017
Simon Cooper
£204,000
£200,000
Paul Meehan
£255,000
£250,000
+2%
+2%
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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GOVERNANCE
Annual Report on Remuneration
Changes to NED fees
No changes are proposed to the current fee components in
place. The breakdown of fee components will remain as follows:
Position
Chairman Fee
Base Fee
Additional fees are paid for:
Senior Independent Director
Chair of Audit Committee
Chair of Remuneration Committee
Fee
£100,000
£45,000
£5,000
£7,500
£5,000
These fees will be reviewed during FY18 to coincide with the end of the first three-year term of the appointments
of the Non-Executive Directors.
Benefits and pension
No changes are proposed to benefits or pension.
Annual Bonus Plan
The maximum bonus opportunity for the Executive Directors will
remain at 100% of salary.
A bonus pot will be determined based on achievement of
budgeted Group Profit Before Tax and the proportion of the pot
allocated to individuals will be based on the achievement of key
strategic objectives.
Actual targets will be published 12 months after the end of
the performance periods in line with established practice
so shareholders can fully assess the basis for any pay-outs
under the annual bonus.
LTIP award
It is intended that a grant under the LTIP will be made during
FY18. The maximum LTIP awards for the Executive Directors
will be 150% of salary. The performance conditions will be
based 70% on EPS performance and 30% on absolute TSR
measured over a three year period.
Illustration of remuneration in 2018
Element
Description
Minimum
Salary, benefits and
Salary, benefits and
Included.
On-Target
Included.
Maximum
Included.
pension
Annual Bonus
pension (fixed).
Annual Bonus
No variable payable
50% of maximum
100% of maximum
bonus.
bonus.
Long-Term Incentive
Award under the
No annual minimum.
50% of the
100% of the maximum
Plan
Long-Term Incentive
Multiple year and
maximum award.
award.
Plan.
variable.
Dividend equivalents have not been added to LTIP share awards.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
59
GOVERNANCE
Annual Report on Remuneration
CEO (£'000)
CEO (£'000)
Maximum
On-Target
33%
47%
Minimum
100%
33%
33%
23%
29%
£0
£100
£200
£300
£400
£500
£600
£700
Salary, Benefits & Pension Bonus LTIP
At minimum, variable remuneration is 0% of salary; at target, variable remuneration represents 113% of salary and at maximum, variable
remuneration represents 200% of salary. Benefits are assumed to be in line with those received during 2017.
CFO (£'000)
CFO (£'000)
Maximum
On-Target
32%
45%
Minimum
100%
27%
41%
19%
36%
£0
£100
£200
£300
£400
£500
£600
£700
£800
£900
£1,000
Salary, Benefits & Pension Bonus LTIP
At minimum, variable remuneration is 0% of salary; at target, variable remuneration represents 144% of salary and at maximum, variable
remuneration represents 250% of salary. Benefits are assumed to be in line with those received during 2017.
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GOVERNANCE
Annual Report on Remuneration
Composition and terms of reference of the Remuneration
Committee
The Board has delegated to the Remuneration Committee, under
agreed terms of reference, responsibility for the remuneration
policy and for determining specific packages for the Chairman,
Executive Directors and such other senior employees of the
Group as the Board may determine from time to time. The terms
of reference for the Remuneration Committee are available on
the Company’s website, onthebeachgroupplc.com, and from the
Company Secretary at the registered office.
All members of the Remuneration Committee are independent
Non-Executive Directors and were appointed on 28 September
2015. The Remuneration Committee receives assistance from
the CEO, CFO and Company Secretary, who attend meetings by
invitation, except when issues relating to their own remuneration
are being discussed. The Remuneration Committee met 8 times
during 2017.
Advisers to the Remuneration Committee
During the financial year the Committee took advice from
PricewaterhouseCoopers LLP (PwC) who were retained
as external independent remuneration advisors to the
Committee.
During the financial year, PwC advised the Company on all
aspects of remuneration policy for Executive Directors and
members of the Executive Team including the grant of the
first LTIP award.
The Remuneration Committee is satisfied that the advice
received was objective and independent. PwC is a member
of the Remuneration Consultants Group and the voluntary
code of conduct of that body is designed to ensure
objective and independent advice is given to remuneration
committees.
PwC received fees of £22,250 for their advice during the
year to 30 September 2017.
On behalf of the board
David Kelly
Chair of the Remuneration Committee
30 November 2017
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GOVERNANCE
Other Statutory and Regulatory Disclosures
Statutory Information
Information required to be part of the Directors’ Report can
be found elsewhere in this document, as indicated in the table
below and is incorporated into this Report by reference:
Management Report
This Directors’ Report (pages 31 to 73) together with the
Strategic Report (pages 2 to 30) form the Management Report
for the purposes of DTR 4.1.5R.
Section of Report
Community
Page reference
Strategic Report; Corporate Social
Responsibility (page 26)
Employee involvement
Corporate Social Responsibility
(page 26)
Employees with
disabilities
Corporate Social Responsibility
(page 28)
Future developments
of the business
Strategic Report (page 10)
Going concern
Strategic Report (page 18)
Greenhouse gas
emissions
Corporate Social Responsibility
(page 29)
Risk management
Strategic Report (page 17) and note
21 to the consolidated financial
statements
Significant related
party agreements
Note 24 to the consolidated
financial statements
Directors’ Report
All sections under the heading “Governance” on page 31 of this
document comprise the Directors’ Report for On the Beach
Group plc (company number 09736592) (the “Company”) and
its subsidiaries (together the “Group”) for the financial year to 30
September 2017.
Strategic Report
All sections under the heading “Strategic Report” on page 2 of
this document comprise the Strategic Report. The Strategic
Report sets out the development and performance of the
Group’s business during the financial year, the position of the
Group at the end of the year and a description of the principal
risks and uncertainties (including the financial risk management
position) which is set out on pages 17 to 25.
UK Corporate Governance Code
The Company’s statement with regards to its adoption of
the UK Corporate Governance Code can be found in the
Corporate Governance Statement on page 35. The Corporate
Governance Statement forms part of this Directors’ Report and
is incorporated into it by reference.
Appointment and replacement of Directors
The appointment and replacement of directors is governed
by the Company’s Articles of Association, the UK Corporate
Governance Code, the Companies Act 2006 and related
legislation. The directors may from time to time appoint one
or more directors. The Board may appoint any person to be a
director (so long as the number of directors does not exceed
the limit prescribed in the Articles). Under the Articles, any
such director shall hold office only until the next AGM and shall
then be eligible for election. The Articles also require that at
each AGM any director who held office at the time of the two
preceding AGMs and who did not retire at either of them must
retire, and any director who has been in office, other than a
director holding an executive position, for a continuous period
of nine years or more must retire from office. Any director who
retires at an AGM may offer himself for re-appointment by the
shareholders.
All current directors will retire and stand for re-election at the
2017 AGM.
Amendment of Articles of Association
The Company’s Articles of Association may only be amended
by way of a special resolution at a general meeting of the
shareholders. No amendments are proposed to be made at
the forthcoming Annual General Meeting.
Share capital and control
The Company’s issued share capital comprises ordinary shares
of £0.01 each which are listed on the London Stock Exchange
(LSE: OTB.L). The ISIN of the shares is GB00BYM1K758.
The issued share capital of the Company as at 30 September
2017 comprised 130,434,763 ordinary shares of £0.01 each.
Further information regarding the Company’s issued share
capital can be found on page 97 of the financial statements.
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Other Statutory and Regulatory Disclosures
Details of the movements in issued share capital during the
year are provided in note 19 to the Group’s financial statements
contained on page 97. All the information detailed in note 19 on
page 97 forms part of this Directors’ Report and is incorporated
into it by reference.
At the Annual General Meeting of the Company to be held
on 8 February 2018 the Directors will seek authority from
shareholders to allot shares in the capital of the Company up to
a maximum nominal amount of £869,595.10 (86,956,510 shares
of £0.01 each). Half of this amount (being an aggregate nominal
amount of £434,782.55 (representing 43,478,255 shares)) may
be allotted or made the subject of rights to subscribe for or to
convert any security into shares in any circumstances and the
other half (being an aggregate nominal amount of £434,782.55
(representing 43,478,255 shares)) may be allotted or made the
subject of rights to subscribe for or to convert any security into
shares in connection with a rights issue, to existing shareholders
in proportion (as nearly as may be practicable) to their existing
shareholdings.
Employee share schemes
The Company has three employee share schemes in place:
1. A HMRC-approved Share Incentive Plan (“SIP”) to encourage
wide employee share ownership and thereby align
employees’ interests with shareholders;
2. A Long Term Incentive Plan (“LTIP”) under which nil cost
share options are granted to Executive Directors and senior
management linked to achievement in delivering goals which
are closely aligned with the Company’s strategy and the
creation of value for shareholders; and
3. A Save As You Earn Plan (“SAYE”) which is an all employee
savings related share option plan. Although the SAYE was
approved at the 2017 AGM, it has not yet been rolled out to
employees and there are no immediate plans to do so.
Further details are provided in the Directors’ Remuneration
Report on pages 46 to 61.
Authority to purchase own shares
The Company was authorised by shareholders at the last
AGM to purchase, in the market, up to 10% of the Company’s
ordinary share capital, as permitted by the Company’s Articles of
Association. No shares were bought back under this authority
for the year ended 30 September 2017. This standard authority
is renewable annually and the Directors will seek to renew the
authority at the forthcoming AGM to allow the Company to
purchase, in the market, up to a maximum of 10% of its own
ordinary shares either to be cancelled or retained as treasury
shares. The Directors will only use this power after careful
consideration, taking into account the financial resources of
the Company, the Company’s share price and future funding
opportunities. The Directors will also take into account the
effects on earnings per share and the interests of shareholders
generally.
Rights attaching to shares
All shares have the same rights (including voting and dividend
rights and rights on a return of capital) and restrictions as
set out in the Articles, described below. Except in relation to
dividends which have been declared and rights on a liquidation
of the Company, the shareholders have no rights to share
in the profits of the Company. The Company’s shares are
not redeemable. However, following any grant of authority
from shareholders, the Company may purchase or contract
to purchase any of the shares on or off market, subject to
the Companies Act 2006 and the requirements of the Listing
Rules.
No Shareholder holds shares in the Company which carry
special rights with regard to control of the Company. There
are no shares relating to an employee share scheme which
have rights with regard to control of the Company that are not
exercisable directly and solely by the employees, other than in
the case of the On the Beach Share Incentive Plan and the On
the Beach Long Term Incentive Plan, where share interests of a
participant in such schemes can be exercised by the personal
representatives of a deceased participant in accordance with
the Scheme rules.
Voting rights
Each ordinary share entitles the holder to vote at general
meetings of the Company. A resolution put to the vote of
the meeting shall be decided on a poll and every member
who is present in person or by proxy shall have one vote for
every share of which they are a holder. The Articles provide a
deadline for submission of proxy forms of not than less than 48
hours before the time appointed for the holding of the meeting
or adjourned meeting. No member shall be entitled to vote
at any general meeting either in person or by proxy, in respect
of any share held by him, unless all amounts presently payable
by him in respect of that share have been paid. Save as noted,
there are no restrictions on voting rights nor any agreement
that may result in such restrictions.
Restrictions on transfer of securities
The Articles do not contain any restrictions on the transfer
of ordinary shares in the Company other than the usual
restrictions applicable where any amount is unpaid on a
share. Certain restrictions are also imposed by laws and
regulations (such as insider trading and marketing requirements
relating to close periods) and requirements of the Market
Abuse Regulation and the Company’s securities dealing code
whereby all employees of the Company require approval to
deal in the Company’s securities.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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GOVERNANCE
Other Statutory and Regulatory Disclosures
Change of control
Save in respect of a provision of the Company’s share
schemes which may cause options and awards granted to
employees under such schemes to vest on takeover, there
are no agreements between the Company and its Directors
or employees providing for compensation for loss of office
or employment (whether through resignation, purported
redundancy or otherwise) because of a takeover bid.
The Revolving Credit Facility contains customary prepayment,
cancellation and default provisions including, if required by a
lender, mandatory prepayment of all utilisations provided by that
lender upon the sale of all or substantially all of the business and
assets of the Group or a change of control.
Annual General Meeting
The Annual General Meeting will be held at 11 am on 8 February
2018 at the Company’s registered office at Park Square, Birdhall
Lane, Stockport, Manchester, SK3 0XN.
The Notice of Meeting which sets out the resolutions to be
proposed at the forthcoming AGM specifies deadlines for
exercising voting rights and appointing a proxy or proxies to vote
in relation to resolutions to be passed at the AGM. All proxy
votes will be counted and the numbers for, against or withheld
in relation to each resolution will be announced at the AGM and
published on the Company’s website.
DTR 5 and Substantial shareholdings
Information provided to the Company pursuant to the DTRs
is published via a RNS and also appears on the Company’s
website. As at 30 September 2017, the following information
had been received since publication of the previous annual
report, in accordance with DTR 5, from holders of notifiable
interests in the Company’s issued share capital.
Name of
Shareholder
Number of
shares
PDMR /
PCA
Nature of
holding
as per
disclosure
Alistair Daly
3,149,943
Hawksford Trustees
Jersey Limited as
trustees of Sule
Cooper
9,296,649
Wendy Parry
3,149,943
Jonathan Smith
3,149,943
OTB Holdings Limited
Partnership (Inflexion)
3,833,194
Hargreave Hale Limited
6,850,960
Canaccord Genuity
Group Inc.
8,236,734*
2.41%
(direct)5
7.13%
(direct)
2.41%
(direct)2
2.41%
(direct)5
2.94%
(direct)3, 4
5.25%
(indirect)
6.31%
(indirect)
PDMR
PCA of
Simon
Cooper1
PDMR
until 16
January
2017
PDMR
None
None
None
1
Simon Cooper does not himself hold shares that exceed 3% of the issued shares. There
has been no change to Simon’s shareholding since IPO (he holds 2,034,301, being
1.56% of the issued capital).
2 and 3 These holdings may have changed since the Company was notified, however,
notification of any change is no longer required as they are under the 3% threshold.
4 During the financial year OTB Holdings Limited Partnership also notified the company
5
when their shareholding dropped to 23.51% (30,665,539 shares).
Although there is no longer a requirement to notify pursuant to DTR5, between 30
September 2017 and the date of this report the following interests were notified to the
Company:
-
On 24 October 2017 Jonathan Smith sold 1,000,000 shares reducing his
shareholding to 2,149,943 shares (1.65% of shares)
On 24 October 2017 Alistair Daly sold 1,000,000 shares reducing his
shareholding to 2,149,943 shares (1.65% of shares)
-
*
Figure amended on 12 February 2018 due to typographical error.
Between 30 September 2017 and the date of this report the
Company has been notified, on 21 November 2017, that the
aggregate of Standard Life Aberdeen plc affiliated investment
management entities with delegated voting rights on behalf
of multiple managed portfolios has reached 5.33% (indirect)
representing 6,953,122 shares.
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Other Statutory and Regulatory Disclosures
Transactions with related parties
There were no related party transactions during the year.
Events post year end
Other than with the failure of Monarch Airlines Ltd immediately
post year end (see Notes 2, 3 & 16 to the Financial Statements)
there we no events post year end to report.
Indemnities and insurance
The Company maintains appropriate insurance to cover
Directors’ and officers’ liability for itself and its subsidiaries.
The Company also indemnifies the Directors under a qualifying
indemnity for the purposes of section 236 of the Companies Act
2006 in the Articles. Such indemnities contain provisions that are
permitted by the Director liability provisions of the Companies
Act and the Company’s Articles. Such indemnities were in force
throughout the period under review and are in force as at the
date of this report.
Save for the indemnities disclosed in this report, there are no
other qualifying third party indemnity provisions in force.
Research and development
Innovation, specifically in the customer proposition on the
website, is a critical element of the strategy, and therefore of
the future success of the Group. Accordingly the majority of the
Group’s research and development expenditure is predominantly
related to this area.
Environmental
Information on the Group’s greenhouse gas emissions is set out
in the Corporate Social Responsibility section on page 29 and
forms part of this report by reference.
Financial instruments
Details of the financial risk management objectives and policies
of the Group, including hedging policies and exposure of the
entity to price risk, credit risk, liquidity risk and cash flow risk
are given on pages 98 to 103 in note 21 to the consolidated
financial statements, and forms part of this report by reference.
Political contributions
Neither the Company nor any of its subsidiaries made any
political donations or incurred any political expenditure during
the year.
External branches
The Group has a Swedish branch (identity number 516408-
9186) to enable it to execute its strategy on international
expansion.
Results and dividends
The Group’s and Company’s audited financial statements for the
year are set out on pages 74 to 110.
The Group has adopted a progressive dividend policy. Whilst
the Group operates a highly cash generative business model, a
significant majority of profits are reinvested in the business to
support further growth.
The Directors recommend payment of a final dividend of 1.9
pence per share, totalling 2.8 pence per share for the year
(2016: 2.2 pence per share) to be paid on 15 February 2018
to shareholders on the register of members at 12 January
2018, subject to approval at the 2018 AGM.
Information to be disclosed under Listing Rule 9.8.4R
Information required to be disclosed pursuant to LR 9.8.4R(4)
on long-term incentive schemes can be found on page 59.
There is no information to disclose in relation to LR 9.8.4R (1),
(2), (5-14) (A) (B).
Independent auditors
KPMG LLP has confirmed its willingness to continue in office
as auditor of the Group. In accordance with section 489
of the Companies Act 2006, separate resolutions for the
reappointment of KPMG LLP as auditors of the Group and for
the Audit Committee to determine the remuneration will be
proposed at the forthcoming AGM of the Company.
Disclosure of information to auditor
Each of the Directors has confirmed that:
(i) so far as the Director is aware, there is no relevant audit
information of which the Company’s auditors are unaware; and
(ii) the Director has taken all the steps that he/she ought to
have taken as a Director to make him/herself aware of any
relevant audit information and to establish that the Company’s
auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of Section 418 of the
Companies Act 2006.
Approval of the Annual Report
The Strategic Report and Corporate Governance Report were
approved by the Board on 30 November 2017.
Approved by the board and signed on its behalf:
K Vickerstaff
Company Secretary
30 November 2017
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
65
Independent
auditor’s report
to the members of On the Beach Group plc
1. Our opinion is unmodified
We have audited the financial statements of On the
Beach Group Plc (“the Group”) for the year ended
30 September 2017 which comprise the
consolidated income statement and statement of
comprehensive income, consolidated balance
sheet, consolidated statement of cash flows,
consolidated statement of changes in equity,
company balance sheet, company statement of
cash flows, company statement of changes in
equity and the related notes, including the
accounting policies in note 2.
In our opinion:
— the financial statements give a true and fair
view of the state of the Group’s and of the
parent Company’s affairs as at 30 September
2017 and of the Group’s profit for the year then
ended;
— the Group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards as
adopted by the European Union;
— the parent Company financial statements have
been properly prepared in accordance with UK
accounting standards, including FRS 102 The
Financial Reporting Standard applicable in the
UK and Republic of Ireland; and
— the financial statements have been prepared in
accordance with the requirements of the
Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS
Regulation.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (“ISAs
(UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit
evidence we have obtained is a sufficient and
appropriate basis for our opinion. Our audit opinion
is consistent with our report to the audit committee.
We were appointed as auditor by the directors on 28
September 2015. The period of total uninterrupted
engagement has been for the 3 financial years ended 30
September 2017. We have fulfilled our ethical
responsibilities under, and we remain independent of the
Group in accordance with, UK ethical requirements
including the FRC Ethical Standard as applied to listed
public interest entities. No non-audit services prohibited
by that standard were provided.
Overview
Materiality: Group financial
statements as a whole
Coverage
£1.1m (2016: £0.9m)
5% (2016: 5%) of Group
profit before tax
100% (2016:100%) of
Group profit before tax
Risks of material misstatement vs 2016
Recurring risks
Capitalised website
development costs
◄►
Parent: Valuation of
Investments in subsidiaries
◄►
Event driven
New: Provision for Monarch
Airlines
Event driven
New: Monarch
reimbursement asset
Event driven
New: Valuation of brand
arising on acquisition
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2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and
include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had
the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We
summarise below the key audit matters in decreasing order of audit significance, in arriving at our audit opinion above, together with our key
audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were
addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial
statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate
opinion on these matters.
2. Key audit matters: our assessment of risks of material misstatement (continued)
Parent: Valuation of
Investments in subsidiaries
Capitalised website
development costs
(£132.6 million; 2016: £132.6
million)
(£2.6 million; 2016: £2.4
million)
Refer to page [ ] (Audit Committee
Report), page [ ] (accounting
Refer to page 45 (Audit
policy) and page [ ] (financial
Committee Report), page
disclosures).
82 (accounting policy) and
page 93 (financial
disclosures).
The risk
Our response
The risk
Forecast-based valuation
Our response
Our procedures included:
Accounting treatment
The carrying amount of the parent
company’s investments in subsidiaries
represents [ ] % (2016: y%) of the
company’s total assets. Their
recoverability is not at a high risk of
significant misstatement or subject to
significant judgement. However, due to
their materiality in the context of the
parent company financial statements,
this is considered to be the area that had
the greatest effect on our overall parent
company audit.
The Group incurs significant internal
costs in relation to the ongoing
website and development cost of
the On the Beach and eBeach
websites. The determination of
whether these costs are capital or
expenditure involves judgement and
is dependent upon the nature of the
related development project. More
specifically, the costs are either
capital in nature (relating to the
enhancement of the website) or
The estimated recoverable amount is
expenditure in nature (relating to the
subjective due to the inherent
operations and ongoing
uncertainty involved in forecasting and
maintenance of the website), and
discounting future cash flows.
there is a risk that the amounts
capitalised as development could
include an element of maintenance
expenditure.
Our procedures included:
— Control design: Evaluating the Company’s
budgeting procedures upon which the cash
— Control design: We evaluated the Group’s processes and controls
flow forecasts are based;
over the identification and classification of website development
costs, which comprise primarily of internal staff costs
— Our sector experience: Evaluating
assumptions used, in particular those
— Tests of detail: We selected a sample of website development
relating to forecast revenue growth and
projects to determine whether they satisfied the requirements for
profit margins for online travel agents
capitalisation in accordance with accounting standards;
sector.
— Testing application: We agreed a sample of capitalised
— Benchmarking assumptions: Comparing
development costs in the period back to payroll records to assess
the assumptions to externally derived data
whether the expenditure had been incurred and that only persons
in relation to key inputs such as projected
employed as website developers had been included within the
economic growth, competition, cost inflation
costs capitalised. We also made inquiries with a sample of IT
and discount rates;
developers to confirm their day to day responsibilities and the
nature of the projects they worked on.
— Sensitivity analysis: Performing breakeven
analysis on the assumptions noted above;
— Our sector experience: We challenged the judgements made over
the level of capitalisation based on the company’s accounting
— Comparing valuations: Comparing the sum
policies, knowledge of the sector and underlying nature of the
of the discounted cash flows to the Group’s
projects; and
market capitalisation to assess the
reasonableness of those cash flows; and
— Assessing transparency: We considered the adequacy of the
Our results
— Assessing transparency: Assessing
Group’s disclosures detailing the judgement involved in recognition
of intangible assets pertaining to the website development costs.
whether the Group’s disclosures about the
sensitivity of the outcome of the impairment
assessment to changes in key assumptions
reflected the risks inherent in the valuation
of investments in subsidiary undertakings.
— We found the capitalised development costs to be acceptable.
Provision for Monarch
Airlines
(Provision of £7.0 million;
2016: £nil)
Refer to page 45 (Audit
Committee Report), page
85 (accounting policy) and
page 96 (financial
disclosures).
Subjective estimate
The provision required for the cost
of providing either alternative travel
arrangements or refunds involves
judgement over a number of
assumptions around customer
preferences and the cost of
alternative travel arrangements.
There is a risk that the assumptions
and judgements underpinning this
provision are not appropriate.
Our procedures included:
Our results
— We found the Group’s assessment of the
— Accounting analysis: We assessed whether the provision met the
requirements of accounting standards at the balance sheet date.
recoverability of the investments in
subsidiaries to be acceptable.
— Our sector experience: We challenged assumptions within the
provision such as the cost of alternative travel arrangements based
on our knowledge of the sector.
— Tests of detail: We assessed the reasonableness of the provision
assumptions made around customer preferences and the cost of
alternative travel arrangements by comparing the provision to
actual costs incurred since year end;
— Sensitivity analysis: We performed sensitivity analysis over the
Group’s provision calculation to determine whether the range of
outcomes could lead to a materially different outcome; and
— Assessing transparency: We considered the adequacy of the
Group’s disclosures in respect of the sensitivity of the provision to
certain assumptions.
Our results
— We found the estimate of the provision to be acceptable.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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2. Key audit matters: our assessment of risks of material misstatement (continued)
2. Key audit matters: our assessment of risks of material misstatement (continued)
The risk
Our response
Monarch reimbursement asset
Accounting treatment
The risk
Our procedures included:
Our response
(Insurance debtor of £5.0 million;
Parent: Valuation of
2016: £nil)
Investments in subsidiaries
Refer to page 45 (Audit Committee
(£132.6 million; 2016: £132.6
Report), page 81 (accounting
million)
policy) and page 95 (financial
disclosures).
Refer to page [ ] (Audit Committee
Report), page [ ] (accounting
policy) and page [ ] (financial
disclosures).
Under the terms of its SAFI policy, the
Forecast-based valuation
Group is entitled to seek reimbursement
from its insurers for any net loss suffered
The carrying amount of the parent
as a result of the Monarch Airlines
company’s investments in subsidiaries
administration. The Group is also
represents [ ] % (2016: y%) of the
entitled to seek reimbursement for
company’s total assets. Their
amounts paid via the payment card
recoverability is not at a high risk of
provider.
significant misstatement or subject to
significant judgement. However, due to
There is a risk that the amounts claimed
their materiality in the context of the
from the payment card provider and
parent company financial statements,
from the Group’s insurers under their
this is considered to be the area that had
SAFI policy are not determined to be
the greatest effect on our overall parent
appropriate and/or accepted by the
company audit.
counterparty, and as such there is a risk
that these amounts did not meet the
The estimated recoverable amount is
criteria for recognition as an asset at the
subjective due to the inherent
balance sheet date.
uncertainty involved in forecasting and
discounting future cash flows.
— Our sector experience: Evaluating
— Accounting analysis: We assessed whether the
Our procedures included:
receivable met the requirements of accounting
standards at the balance sheet date.
— Control design: Evaluating the Company’s
budgeting procedures upon which the cash
— Tests of detail: We obtained a complete list of open
flow forecasts are based;
bookings at the year-end and tested a sample of the
Monarch bookings to check that they were included
within the insurance claim. We also selected a sample
assumptions used, in particular those
of bookings that were included within the insurance
relating to forecast revenue growth and
claim to confirm that they related to Monarch. We
profit margins for online travel agents
obtained the Group’s SAFI policy to evaluate whether
sector.
the Group had complied with the terms and conditions
— Benchmarking assumptions: Comparing
relevant to the Monarch bookings. We selected a
the assumptions to externally derived data
sample of transactions included within the claim and
in relation to key inputs such as projected
agreed to relevant documentation to establish whether
economic growth, competition, cost inflation
the transaction was covered within the policy document.
and discount rates;
We obtained correspondence between the Group and
its insurers, and between the Group and its legal
— Sensitivity analysis: Performing breakeven
advisors, to assess the validity of the claim; and
analysis on the assumptions noted above;
— Assessing transparency: We considered the
— Comparing valuations: Comparing the sum
adequacy of the Group’s disclosures in respect of the
of the discounted cash flows to the Group’s
judgements made in recognising the reimbursement
market capitalisation to assess the
asset.
reasonableness of those cash flows; and
Our results
— Assessing transparency: Assessing
Valuation of brand arising on
acquisition
(Sunshine brand of £1.5 million;
2016: £nil)
Forecast-based valuation
On 9 May 2017 the Group acquired
100% of the share capital of
Sunshine.co.uk Limited.
Refer to page 45 (Audit Committee
Report), page 82 (accounting
policy) and page 87(financial
disclosures).
The accounting for this acquisition
involves judgement in respect of the
recognition and valuation of intangible
assets, in particular the brand, due to
the inherent uncertainty involved in
forecasting and discounting future cash
flows.
whether the Group’s disclosures about the
— We found the recognition of the Monarch
sensitivity of the outcome of the impairment
reimbursement asset to be acceptable.
assessment to changes in key assumptions
reflected the risks inherent in the valuation
of investments in subsidiary undertakings.
Our procedures included:
Our results
— Assessing experts: We assessed the competency of
— We found the Group’s assessment of the
PwC who were commissioned by the Group to value the
recoverability of the investments in
brand. Using our knowledge of the sector we challenged
subsidiaries to be acceptable.
the conclusions reached;
— Assessing forecasts: We evaluated the assumptions
used in the forecasts, in particular the royalty rate that
such a brand could achieve, using our own valuation
specialists;
— Sensitivity analysis: We performed sensitivity analysis
over the royalty rate used in the brand valuation to
determine its impact upon the valuation;
— Assessing transparency: We assessed the adequacy
of the Group’s disclosures over the determination of the
brand valuation.
Our results
— We found the fair value of the brand acquired as part of
the Sunshine.co.uk Limited acquisition to be acceptable.
68
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
2. Key audit matters: our assessment of risks of material misstatement (continued)
2. Key audit matters: our assessment of risks of material misstatement (continued)
Parent: Valuation of
Investments in subsidiaries
Parent: Valuation of
Investments in subsidiaries
(£132.6 million; 2016: £132.6
million)
(£132.6 million; 2016: £132.6
million)
Refer to page 45 (Audit Committee
Report), page 109 (accounting
Refer to page [ ] (Audit Committee
policy) and page 109 (financial
Report), page [ ] (accounting
disclosures).
policy) and page [ ] (financial
disclosures).
The risk
Our response
The risk
Forecast-based valuation
Our response
Our procedures included:
Forecast-based valuation
The carrying amount of the parent
company’s investments in subsidiaries
The carrying amount of the parent
represents 64% (2016: 64%) of the
company’s investments in subsidiaries
company’s total assets. Their
represents [ ] % (2016: y%) of the
recoverability is not at a high risk of
company’s total assets. Their
significant misstatement or subject to
recoverability is not at a high risk of
significant judgement. However, due to
significant misstatement or subject to
their materiality in the context of the
significant judgement. However, due to
parent company financial statements,
their materiality in the context of the
this is considered to be the area that had
parent company financial statements,
the greatest effect on our overall parent
this is considered to be the area that had
company audit.
the greatest effect on our overall parent
company audit.
The estimated recoverable amount is
subjective due to the inherent
The estimated recoverable amount is
uncertainty involved in forecasting and
subjective due to the inherent
discounting future cash flows.
uncertainty involved in forecasting and
discounting future cash flows.
— Our sector experience: Evaluating
— Our sector experience: Evaluating
Our procedures included:
— Control design: Evaluating the Company’s
budgeting procedures upon which the cash
— Control design: Evaluating the Company’s
flow forecasts are based;
budgeting procedures upon which the cash
flow forecasts are based;
assumptions used, in particular those
relating to forecast revenue growth and profit
assumptions used, in particular those
margins for online travel agents sector.
relating to forecast revenue growth and
profit margins for online travel agents
— Benchmarking assumptions: Comparing
sector.
the assumptions to externally derived data in
relation to key inputs such as projected
— Benchmarking assumptions: Comparing
economic growth, competition, cost inflation
the assumptions to externally derived data
and discount rates;
in relation to key inputs such as projected
economic growth, competition, cost inflation
— Sensitivity analysis: Performing breakeven
and discount rates;
analysis on the assumptions noted above;
— Sensitivity analysis: Performing breakeven
— Comparing valuations: Comparing the sum
analysis on the assumptions noted above;
of the discounted cash flows to the Group’s
market capitalisation to assess the
— Comparing valuations: Comparing the sum
reasonableness of those cash flows; and
of the discounted cash flows to the Group’s
market capitalisation to assess the
— Assessing transparency: Assessing
reasonableness of those cash flows; and
whether the Group’s disclosures about the
sensitivity of the outcome of the impairment
assessment to changes in key assumptions
whether the Group’s disclosures about the
reflected the risks inherent in the valuation of
sensitivity of the outcome of the impairment
investments in subsidiary undertakings.
assessment to changes in key assumptions
reflected the risks inherent in the valuation
of investments in subsidiary undertakings.
— We found the Group’s assessment of the
Our results
— Assessing transparency: Assessing
recoverability of the investments in
subsidiaries to be acceptable.
— We found the Group’s assessment of the
Our results
recoverability of the investments in
subsidiaries to be acceptable.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
69
2. Key audit matters: our assessment of risks of material misstatement (continued)
Normalised Group profit
before tax
£23.7m (actual) (2016:
£17.0m)
3. Our application of materiality and an
The risk
overview of the scope of our audit
Forecast-based valuation
Parent: Valuation of
Investments in subsidiaries
Materiality for the Group financial statements as a
whole was set at £1.1 million determined with
reference to a benchmark of group profit before
tax, normalised to exclude this year’s net
exceptional costs as disclosed in note 6 of
£2.7million, of which it represents 5% (2016: 5%)
(£132.6 million; 2016: £132.6
million)
Refer to page [ ] (Audit Committee
Report), page [ ] (accounting
policy) and page [ ] (financial
disclosures).
Materiality for the Parent Company financial
statements as a whole was set at £1.0 million
(2016: £1.0 million), determined with reference to
a benchmark of company total assets of £207.8
million of which it represents 0.5% (2016: 0.5%).
The carrying amount of the parent
company’s investments in subsidiaries
represents [ ] % (2016: y%) of the
company’s total assets. Their
recoverability is not at a high risk of
significant misstatement or subject to
significant judgement. However, due to
their materiality in the context of the
parent company financial statements,
this is considered to be the area that had
the greatest effect on our overall parent
company audit.
23.7
Normalised PBT
Group materiality
The estimated recoverable amount is
subjective due to the inherent
uncertainty involved in forecasting and
discounting future cash flows.
We agreed to report to the Audit Committee any
corrected or uncorrected identified
misstatements exceeding £55k, in addition to
other identified misstatements that warranted
reporting on qualitative grounds.
Of the Group’s 9 (2016: 8) reporting
components, we subjected 5 (2016: 4) to full
scope audits for group purposes.
The components within the scope of our work
accounted for 100% of the Group’s revenue
(2016: 100%), 100% of the Group’s profit before
tax (2016: 100%) and 99.9% (2016: 99.9%) of
Group total assets.
Our response
Group Materiality
£1.1m (2016: £0.9m)
Our procedures included:
£1.1m
Whole financial
— Control design: Evaluating the Company’s
statements materiality
budgeting procedures upon which the cash
(2016: £0.9m)
flow forecasts are based;
— Our sector experience: Evaluating
£1.0m
assumptions used, in particular those
Range of materiality at 9
1.1
relating to forecast revenue growth and
components (£0.8m to £1.0m)
profit margins for online travel agents
(2016: £0.01m to £0.9m)
sector.
— Benchmarking assumptions: Comparing
the assumptions to externally derived data
in relation to key inputs such as projected
economic growth, competition, cost inflation
and discount rates;
£55k
Misstatements reported to the
audit committee (2016: £42.5k)
— Sensitivity analysis: Performing breakeven
analysis on the assumptions noted above;
— Comparing valuations: Comparing the sum
of the discounted cash flows to the Group’s
market capitalisation to assess the
reasonableness of those cash flows; and
— Assessing transparency: Assessing
whether the Group’s disclosures about the
sensitivity of the outcome of the impairment
assessment to changes in key assumptions
reflected the risks inherent in the valuation
of investments in subsidiary undertakings.
Our results
— We found the Group’s assessment of the
recoverability of the investments in
subsidiaries to be acceptable.
70
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
2. Key audit matters: our assessment of risks of material misstatement (continued)
4. We have nothing to report on going concern
The risk
We are required to report to you if:
Forecast-based valuation
Parent: Valuation of
Investments in subsidiaries
(£132.6 million; 2016: £132.6
million)
— we have anything material to add or draw attention to in
relation to the directors’ statement in note 2b) to the
financial statements on the use of the going concern
basis of accounting with no material uncertainties that
may cast significant doubt over the Group and
Company’s use of that basis for a period of at least
Refer to page [ ] (Audit Committee
twelve months from the date of approval of the financial
Report), page [ ] (accounting
statements; or
policy) and page [ ] (financial
disclosures).
— if the related statement under the Listing Rules set out
on page 18 is materially inconsistent with our audit
knowledge.
The carrying amount of the parent
company’s investments in subsidiaries
represents [ ] % (2016: y%) of the
company’s total assets. Their
recoverability is not at a high risk of
significant misstatement or subject to
significant judgement. However, due to
their materiality in the context of the
parent company financial statements,
this is considered to be the area that had
the greatest effect on our overall parent
company audit.
We have nothing to report in these respects.
5. We have nothing to report on the other information in
the Annual Report
The estimated recoverable amount is
subjective due to the inherent
uncertainty involved in forecasting and
discounting future cash flows.
The directors are responsible for the other information
presented in the Annual Report together with the financial
statements. Our opinion on the financial statements does
not cover the other information and, accordingly, we do not
express an audit opinion or, except as explicitly stated
below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in
doing so, consider whether, based on our financial
statements audit work, the information therein is materially
misstated or inconsistent with the financial statements or
our audit knowledge. Based solely on that work we have
not identified material misstatements in the other
information.
Strategic report and directors’ report
Based solely on our work on the other information:
— we have not identified material misstatements in the
strategic report and the directors’ report;
— in our opinion the information given in those reports
for the financial year is consistent with the financial
statements; and
— in our opinion those reports have been prepared in
accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Disclosures of principal risks and longer-term viability
Our response
Our procedures included:
Based on the knowledge we acquired during our financial
statements audit, we have nothing material to add or draw
attention to in relation to:
— Control design: Evaluating the Company’s
budgeting procedures upon which the cash
flow forecasts are based;
— the directors’ confirmation within the viability statement
that they have carried out a robust assessment of the
— Our sector experience: Evaluating
principal risks facing the Group, including those that
would threaten its business model, future performance,
solvency and liquidity;
assumptions used, in particular those
relating to forecast revenue growth and
profit margins for online travel agents
sector.
— the principal risks and uncertainties disclosures
describing these risks and explaining how they are being
managed and mitigated; and
— Benchmarking assumptions: Comparing
the assumptions to externally derived data
in relation to key inputs such as projected
economic growth, competition, cost inflation
— the directors’ explanation in the viability statement of
and discount rates;
how they have assessed the prospects of the Group,
over what period they have done so and why they
considered that period to be appropriate, and their
statement as to whether they have a reasonable
— Comparing valuations: Comparing the sum
expectation that the Group will be able to continue in
of the discounted cash flows to the Group’s
operation and meet its liabilities as they fall due over the
market capitalisation to assess the
period of their assessment, including any related
reasonableness of those cash flows; and
disclosures drawing attention to any necessary
qualifications or assumptions.
— Sensitivity analysis: Performing breakeven
analysis on the assumptions noted above;
— Assessing transparency: Assessing
Under the Listing Rules we are required to review the
viability statement. We have nothing to report in this
respect.
whether the Group’s disclosures about the
sensitivity of the outcome of the impairment
assessment to changes in key assumptions
reflected the risks inherent in the valuation
of investments in subsidiary undertakings.
Corporate governance disclosures
Our results
We are required to report to you if:
— We found the Group’s assessment of the
recoverability of the investments in
— we have identified material inconsistencies between the
subsidiaries to be acceptable.
knowledge we acquired during our financial statements
audit and the directors’ statement that they consider that
the annual report and financial statements taken as a
whole is fair, balanced and understandable and provides
the information necessary for shareholders to assess the
Group’s position and performance, business model and
strategy; or
— the section of the annual report describing the work of
the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We are required to report to you if the Corporate
Governance Statement does not properly disclose a
departure from the eleven provisions of the UK Corporate
Governance Code specified by the Listing Rules for our
review.
We have nothing to report in these respects.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
71
2. Key audit matters: our assessment of risks of material misstatement (continued)
6. We have nothing to report on the other matters on
which we are required to report by exception
The risk
Auditor’s responsibilities
Our response
Parent: Valuation of
Investments in subsidiaries
Under the Companies Act 2006, we are required to report to
you if, in our opinion:
Forecast-based valuation
(£132.6 million; 2016: £132.6
million)
— adequate accounting records have not been kept by the
parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
— the parent Company financial statements and the part
Refer to page [ ] (Audit Committee
Report), page [ ] (accounting
policy) and page [ ] (financial
disclosures).
of the Directors’ Remuneration Report to be audited are
not in agreement with the accounting records and
returns; or
The carrying amount of the parent
company’s investments in subsidiaries
represents [ ] % (2016: y%) of the
company’s total assets. Their
recoverability is not at a high risk of
significant misstatement or subject to
significant judgement. However, due to
their materiality in the context of the
parent company financial statements,
this is considered to be the area that had
the greatest effect on our overall parent
company audit.
— certain disclosures of directors’ remuneration specified
— we have not received all the information and
explanations we require for our audit.
by law are not made; or
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
The estimated recoverable amount is
subjective due to the inherent
uncertainty involved in forecasting and
discounting future cash flows.
As explained more fully in their statement set out on page
73, the directors are responsible for: the preparation of the
financial statements including being satisfied that they give
a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial
statements that are free from material misstatement,
whether due to fraud or error; assessing the Group and
parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Company or to cease operations, or have no realistic
alternative but to do so.
— Our sector experience: Evaluating
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
Our procedures included:
material misstatement, whether due to fraud, other
— Control design: Evaluating the Company’s
irregularities, or error, and to issue our opinion in an
budgeting procedures upon which the cash
auditor’s report. Reasonable assurance is a high level of
flow forecasts are based;
assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from
assumptions used, in particular those
fraud, other irregularities or error and are considered
relating to forecast revenue growth and
material if, individually or in aggregate, they could
profit margins for online travel agents
reasonably be expected to influence the economic decisions
sector.
of users taken on the basis of the financial statements. The
— Benchmarking assumptions: Comparing
risk of not detecting a material misstatement resulting from
the assumptions to externally derived data
fraud or other irregularities is higher than for one resulting
in relation to key inputs such as projected
from error, as they may involve collusion, forgery, intentional
economic growth, competition, cost inflation
omissions, misrepresentations, or the override of internal
and discount rates;
control and may involve any area of law and regulation not
just those directly affecting the financial statements.
— Sensitivity analysis: Performing breakeven
analysis on the assumptions noted above;
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
— Comparing valuations: Comparing the sum
of the discounted cash flows to the Group’s
market capitalisation to assess the
reasonableness of those cash flows; and
8. The purpose of our audit work and to whom we owe
our responsibilities
— Assessing transparency: Assessing
This report is made solely to the Company’s members, as a
whether the Group’s disclosures about the
body, in accordance with Chapter 3 of Part 16 of the
sensitivity of the outcome of the impairment
Companies Act 2006. Our audit work has been undertaken
assessment to changes in key assumptions
so that we might state to the Company’s members those
reflected the risks inherent in the valuation
matters we are required to state to them in an auditor’s
of investments in subsidiary undertakings.
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s
members, as a body, for our audit work, for this report, or for
the opinions we have formed.
— We found the Group’s assessment of the
recoverability of the investments in
subsidiaries to be acceptable.
Our results
Will Baker (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
8 Princes Parade
Liverpool
L3 1QH
30 November 2017
72
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
GOVERNANCE
Statement of Directors’ responsibilities in respect of
the Annual Report and the Financial Statements
The Directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the company’s website. Legislation in the UK governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
Each of the Directors, whose names and functions are
listed on pages 33 to 34 confirm that to the best of their
knowledge:
›
the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit
or loss of the company and the undertakings included in
the consolidation taken as a whole; and
the management report includes a fair review of the
development and performance of the business and the
position of the issuer and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
›
The Directors consider the annual report and accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess
the group’s position and performance, business model and
strategy.
Paul Meehan
Chief Financial Officer
30 November 2017
The Directors are responsible for preparing the Annual Report
and the group and parent company financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare group and parent
company financial statements for each financial year. Under that
law they are required to prepare the group financial statements
in accordance with IFRSs as adopted by the EU and applicable
law and have elected to prepare the parent company financial
statements in accordance with UK Accounting Standards,
including FRS 102 The Financial Reporting Standard applicable in
the UK and Republic of Ireland.
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 parent company and
of their profit or loss for that period. In preparing each of the
group and parent company financial statements, the Directors
are required to:
›
select suitable accounting policies and then apply them
consistently;
› make judgements and estimates that are reasonable and
›
›
prudent;
for the group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the
EU;
for the parent company financial statements, state whether
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in
the parent company financial statements; and
› prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and the
parent company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent
company’s transactions and disclose with reasonable accuracy at
any time the financial position of the parent company and enable
them to ensure that its financial statements comply with the
Companies Act 2006.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the group
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
73
Financial Statements
75 Consolidated income statement and statement
of comprehensive income
Consolidated balance sheet
76
77 Consolidated statement of cashflows
78 Consolidated statement of changes in equity
79 Notes to the consolidated financial statements
107 Company balance sheet
108 Company statement of changes in equity
109 Notes to the Company financial statements
74
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
FINANCIAL STATEMENTS
Consolidated Income Statement and
Statement of Comprehensive Income
Year ended 30 September 2017
September
Revenue
Administrative expenses
Group operating profit before amortisation and exceptional costs
Exceptional costs
Amortisation of intangible assets
Group operating profit
Finance costs
Finance income
Net finance (costs)/income
Profit before taxation
Taxation
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
For the 53
weeks ended
30
2017
Note
£’000
2016
£’000
4
6
6
8
8
9
83,555
71,321
(62,407)
(54,499)
30,257
(2,667)
(6,442)
21,148
(177)
97
(80)
21,068
(3,068)
18,000
-
22,793
-
(5,971)
16,822
(100)
230
130
16,952
(2,645)
14,307
-
18,000
14,307
18,000
14,307
Basic and diluted earnings per share attributable to the equity Shareholders of the Company:
Basic and diluted earnings per share
10
13.8p
11.0p
Adjusted proforma basic earnings per share*
10
17.6p
13.0p
Adjusted profit measure
Adjusted PBT
(before amortisation of acquired intangibles and exceptional costs)*
6
28,515
21,315
* This is a non GAAP measure, refer to note 6d
The company has no other comprehensive income in the current or prior year
The notes on pages 79 to 106 form part of the financial statements.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
75
FINANCIAL STATEMENTS
Consolidated Balance Sheet
At 30 September 2017
ended
September
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Total current assets
Total assets
Equity
Share capital
Retained earnings
Capital contribution reserve
Merger reserve
Total equity
Non-current liabilities
Deferred tax
Total non-current liabilities
Current liabilities
Corporation tax payable
Trade and other payables
Provisions
Derivative financial instruments
Total current liabilities
Total liabilities
Total equity and liabilities
For the 53
weeks
30
2017
2016
Note
£’000
£’000
11
12
14
15
21
19
20
20
20
72,512
64,662
1,396
747
73,908
65,409
56,508
29,933
71,569
51,632
-
1,683
128,077
83,248
201,985 148,657
1,304
1,304
226,849 212,427
500
500
(132,093) (132,093)
96,560
82,138
18
6,441
7,007
6,441
7,007
16
16
21
2,406
3,647
89,453
55,865
7,000
-
125
-
98,984
59,512
105,425
66,519
201,985 148,657
The financial statements from pages 75 to 106 were approved by the Board of Directors and authorised for issue
Paul Meehan
Chief Financial Officer
30 November 2017
On the Beach Group plc. Reg no 09736592
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
FINANCIAL STATEMENTS
Consolidated Statement of Cashflows
Year ended 30 September 2017
Profit before taxation
Adjustments for:
Depreciation
Amortisation of intangible assets
Finance costs
Finance income
Share based payment charges
Changes in working capital:
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Decrease in trust account
Cash generated from underlying operating activities
IPO costs paid
Cash generated from operating activities
Tax paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Acquisition of subsidiary, net of cash acquired
Net cash outflow from investing activities
Cash flows from financing activities
Equity dividends paid
Interest paid
Net cash outflow from financing activities
Net increase in cash at bank and in hand
Cash at bank and in hand at beginning of year
Cash at bank and in hand at end of year
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2017
2016
Note
£’000
£’000
21,068
16,952
442
397
6,442
5,971
177
100
(97)
(230)
465
105
28,497
23,295
(9,589)
247
10,950
1,999
(4,729)
(1,661)
(3,368)
585
25,129
23,880
-
(3,010)
25,129
20,870
(5,110)
(2,780)
20,019
18,090
12
11
(475)
(617)
(2,651)
(2,407)
97
230
(5,795)
-
(8,824)
(2,794)
(4,043)
-
(177)
(100)
(4,220)
(100)
6,975
15,196
15
26,052
10,856
33,027
26,052
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
77
FINANCIAL STATEMENTS
Consolidated Statement of changes in Equity
Year ended 30 September 2017
Share capital
Share
premium
Merger
reserve
contribution Retained
earnings
reserve
Total
Capital
£’000
195,652
£’000
£’000
13,856
(132,093)
£’000
550
£’000
£’000
(10,239)
67,726
(194,348)
(13,856)
(50)
208,254
-
-
1,304
-
-
-
-
-
-
-
-
-
105
105
14,307
14,307
(132,093)
500
212,427
82,138
-
-
-
-
-
-
465
465
(4,043)
(4,043)
18,000
18,000
(132,093)
500
226,849
96,560
-
-
-
-
-
-
-
Balance at 30 September 2015
Capital reduction
Share based payment charges
Total comprehensive income for the year
Balance at 30 September 2016
Share based payment charges
Dividends paid during the year
Total comprehensive income for the year
Balance at 30 September 2017
1,304
The notes on pages 79 to 106 form part of these financial statements
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
Year ended 30 September 2017
1. General Information
On the Beach Group plc is a public limited company which is listed on the London Stock Exchange and is domiciled and incorporated in the
United Kingdom under the Companies Act 2006. The address of the registered office is given on page 111.
2. Accounting Policies
a) Basis of preparation
The consolidated financial statements presented in this document have been prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union. The Company’s financial statements have been prepared in accordance with Financial
Reporting Standard 102 “The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland” (“FRS 102”) and as
applied in accordance with the provisions of the Companies Act 2006. The Company has taken advantage of the exemption provided under
section 408 of the Companies Act 2006 not to publish its individual income statement and related notes.
These financial statements are presented in pounds sterling (£’000) because that is the currency of the primary economic environment in
which the Group operates.
b) Going concern
The financial results relating to the Group have been prepared on the going concern basis. The Directors believe the Group is well placed to
manage its business risks successfully and therefore have a reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the consolidated
financial statements.
c) New standards, amendments and interpretations
The following Adopted IFRSs have been issued but have not been applied by the Group in these financial statements. The Group is
currently assessing the effect of these standards on the financial statements.
›
IFRS 15 Revenue from contracts with customers (European Union effective date 1 January 2018).
IFRS 15 introduces a five-step approach to the timing of revenue recognition based on performance obligations in customer contracts.
Our initial impact assessment of IFRS 15 included a systematic review to ensure the new standard is fully understood in advance of the
effective date. Management expect there to be no material impact upon adoption of this standard on either revenue from customers or
overrides from suppliers.
With respect to revenue from customer bookings, management believes adopting IFRS15 will have no material impact because of the
following: The Group’s revenue is earned as an agent in consumer purchases of travel products from third party suppliers and therefore
recognised on a booked basis when our performance obligations are met as per the Group’s terms of business and booking conditions.
With respect to revenue from supplier overrides, management believes adopting IFRS15 will have no material impact because of the
following: For the majority, according to the override agreement, the Group’s performance obligations are met and overrides are earned
when the customer has either booked or travelled depending on the agreement. Therefore overrides, once agreed with suppliers, are
recognised on a booked or travelled basis, in line with the agreement.
Although we do not consider there will be a material impact upon adoption of the standard, we will continue to monitor adoption in the
travel industry as we progress towards the date of adoption.
›
IFRS 9 Financial Instruments (European Union effective date 1 January 2018).
The revised standard replaces IAS 39 Financial Instruments: Recognition and Measurement and introduces new guidance for
classification and measurement, impairment of financial instruments and hedge accounting. On the basis of our inital impact
assessement our view of the new standard is that we expect there to be no material impact upon adoption of this standard. The new
standard represents a more principle based standard. This is not expected to impact the Group’s ability to hedge account, although there
will be additional disclosures required to complement its principle based approach.
›
IFRS 16 Leases (European Union effective date 1 January 2019).
IFRS 16, “Leases” provides guidance on the classification, recognition and measurement of leases to help provide useful information
to the users of financial statements. The main aim of this standard is to ensure material leases will be reflected on the balance sheet.
The new standard will replace IAS 17 “Leases” and is effective for annual periods beginning on or after 1 January 2019 unless adopted
early. We intend to quantify the impact of the changes (if any) no later than in the Annual Report and Financial Statements for the year
ended 30 September 2018.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
79
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
d) Basis of consolidation
The Group’s consolidated financial statements consolidate the financial statements of On the Beach Group plc and all of its subsidiary
undertakings. Sunshine.co.uk Limited was acquired on 9 May 2017. The Company’s results have been consolidated from the date of
acquisition to the 30 September 2017.
i.
ii.
Subsidiaries are entities controlled by the Company. Control exists when the Company has power over the investee, the company
is exposed, or has rights to variable returns from its involvement with the subsidiary and the company has the ability to use its
power of the investee to affect the amount of investor’s returns.
Transactions eliminated on consolidation
Intragroup balances, and any gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the
consolidated financial information. Gains arising from transactions with jointly controlled entities are eliminated to the extent of the Group’s
interest in the entity. Losses are eliminated in the same way as gains, but only to the extent that there is no evidence of impairment.
e) Goodwill
Goodwill arising on the acquisition of subsidiary undertakings and trade and assets represents the excess of the cost of acquisition over
the fair value of the identifiable assets and liabilities at the date of acquisition. Goodwill is initially recognised as an asset at cost and is
subsequently remeasured at cost less any accumulated impairments losses. Goodwill which is recognised as an asset is reviewed for
impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. On
disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
For the purposes of impairment testing, goodwill is allocated to the cash generating units expected to benefit from the combination. If the
recoverable amount is less than the carrying amount of the unit, the impairment loss is allocated to first reduce the amount of goodwill
allocated to the unit and then the other assets in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent
period.
An impairment loss recognised for goodwill is not reversed. Impairment losses recognised for other assets are reversed only if the reasons
for the impairment have ceased to apply.
f) Foreign currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to
the functional currency at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised in the income statement.
g) Financial instruments
i. Derivative financial instruments, including hedge accounting
Fair value hedges
The Group enters into forward foreign exchange contracts to manage exposure to foreign exchange rate risk. Further details of
these derivative financial instruments are disclosed in note 21 of these financial statements.
On initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the
hedging instrument and hedged item, including the risk management objectives and strategy in understanding the hedge
transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging
relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis,
of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of
the respective hedged items attributable to the hedged risk, and whether the actual results of each hedge are within a range of 80
– 125 percent.
Derivatives are recognised initially at fair value; any attributable transaction costs are recognised in profit or loss as incurred.
Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are charged immediately in the profit
and loss account.
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
ii.
iii.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised
cost using the effective interest method, less any impairment losses.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the
purpose only of the cash flow statement.
All customer monies are held in a trust account until after the provision of the holiday service. The trust account is governed
by a deed between the Group, the Civil Aviation Authority Air Travel Trustees, ABTA and independent trustees (Zedra Trust
Company Limited and Travel Trust Services Limited) which determines the inflows and outflows from the account.
All customer receipts are paid into the trust account in full before the holiday departure date. These payments are held in
the trust account until the service is provided; for flights on payment to the supplier and for hotels and ancillaries on the
customer’s return from holiday. The Group does not therefore use customer prepayments to fund its business operations.
iv. Trade and other payables
Trade and other payables including deferred consideration are recognised initially at fair value. Subsequent to initial
recognition they are measured at amortised cost using the effective interest method.
h) Segment reporting
IFRS 8 requires operating segments to be reported in a manner consistent with the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the management team, including the Chief Executive Officer and Chief Finance Officer. For management purposes,
the Group is organised into segments based on location, and information is provided to the management team on these segments for the
purposes of resource allocation and segment performance management and monitoring.
The management team considers there to be two reportable segments:
(i)
(ii)
“Core” - activity via UK websites (www.onthebeach.co.uk, www.sunshine.co.uk and www.onthebeachtransfers.co.uk)
“International” - activity via Swedish and Norweigan websites (eBeach.se and eBeach.no)
i) Revenue recognition
Commission is measured at the fair value of consideration received or receivable, net of VAT, cancellations, discounts and other associated
taxes. Cancellations are estimated at the reporting data based on the historical profile of bookings. Revenue on bookings is recognised on the
date of booking.
The Group’s commission is earned as an agent for the supplier or consumer in purchases of travel products such as flight tickets or hotel
accommodation from third party suppliers. Override income is only recognised when the Group has either confirmation of a figure from the
supplier or when the cash has been received. These are recognised within revenue.
j) Dividend distribution
Final dividend distribution to the Group’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the
dividends are approved by the Group’s shareholders.
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
k) Business combinations
All business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the
acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.
For acquisitions, the Group measures goodwill at the acquisition date as:
›
›
›
›
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any
contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity,
it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent
consideration are recognised in the income statement.
I) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property,
plant and equipment. Land is not depreciated. The estimated useful lives are as follows:
Fixtures, fittings and equipment
Buildings freehold
Buildings leasehold
3-5 years
50 years
50 years
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Assets held under finance leases are depreciated over their expected useful economic lives on the same bases as owned assets, or where
shorter, over the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference
between the sales proceeds and the carrying amount of the asset and is recognised in income.
m) Intangible assets
i. Research and development
Expenditure on research activities is recognised in the income statement as an expense as incurred. Expenditure on development
activities directly attributable to the design and testing of identifiable and unique software products are capitalised if the product
or process meet the following criteria:
›
›
›
›
The completion of the development is technically and commercially feasible to complete,
Adequate technical resources are sufficiently available to complete development,
It can be demonstrated that future economic benefits are probable
the expenditure attributable to the development can be measured reliably
Development activities involve a plan or design for the production of new or substantially improved products or processes. Directly
attributable costs that are capitalised as part of the software product, website or system include employee costs. Other development
expenditures that do not meet these criteria as well as ongoing maintenance are recognised as an expense as incurred.
Development costs for software, websites and systems are carried at cost less accumulated amortisation and are amortised over their
useful lives (not exceeding five years) at the point in which they come into use.
ii. Brand
Upon acquisition of the Group by OTB Topco, the On the Beach brand was identified as a separately identifiable asset. On acquisition
of Sunshine.co.uk Limited by On the Beach Travel Limited on 9 May 2017, consideration has been given to other intangibles that
are recognisable under IFRS 3 Business Combinations and the Sunshine brand name has been identified and recognised separately
from goodwill at fair value.
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
iii. Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless
such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at
each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives
are as follows:
Website technology:
Website & development costs:
Brand:
10 years
3 years
10-15 years
Impairment of non-financial assets
n)
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangibles assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other
assets, the group estimates the recoverable amount of the cash generating unit to which the asset belongs. The recoverable amount of an asset
or cash-generating unit is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that
cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).
The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units, or (“CGU”).
Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated
are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting
purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the
combination.
An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses
are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.
o) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line
basis over the period of the lease.
p) Employee benefits
i.
ii.
Pension scheme
The Group operates a defined contribution pension scheme. A defined contribution scheme is a post-employment benefit plan
under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income
statement in the years during which services are rendered by employees.
Share-based payment transactions
Equity-settled awards are valued at grant date, and the difference between the grant date fair value and the consideration paid
by the employee is charged as an expense in the income statement spread over the vesting period. Fair value of the awards are
measured using Black-Scholes and Monte Carlo pricing models. The credit side of the entry is recorded in equity.
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83
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
q) Financing income and expenses
Financing expenses comprise interest payable, finance charges on shares classified as liabilities and finance leases recognised in profit or
loss using the effective interest method, unwinding of the discount on provisions, and net foreign exchange losses that are recognised in the
income statement (see foreign currency accounting policy). Borrowing costs that are directly attributable to the acquisition, construction or
production of an asset that takes a substantial time to be prepared for use, are capitalised as part of the cost of that asset. Financing income
comprise interest receivable on funds invested, dividend income, and net foreign exchange gains.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is
recognised in the income statement on the date the entity’s right to receive payments is established. Foreign currency gains and losses are
reported on a net basis.
r) Exceptional costs
The Group presents on the face of the income statement, those material items of income and expense which, because of the nature and
expected infrequency of events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of
financial performance in the year, so as to facilitate comparison with prior years and to assess better trends in financial performance.
s) Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that
it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill;
the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and
differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of
deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax
rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised.
t) Share capital
Ordinary shares are classified as equity. Preference shares are classified as liabilities where in substance they have features of debt
instruments, otherwise they are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as
a deduction from the proceeds.
Where the Group purchases its own equity share capital, the consideration paid is deducted from equity attributable to the Group’s owners
until the shares are cancelled or reissued. Where such shares are subsequently reissued, any consideration received is included in equity
attributable the Group’s owners.
u) Share premium and other reserves
The amount subscribed for the ordinary shares in excess of the nominal value of these new shares is recorded in ‘share premium’. The
amount subscribed for the preference shares in excess of the nominal value of these new preference shares is recorded in ‘other reserves’.
Costs that directly relate to the issue of ordinary shares are deducted from share premium net of corporation tax.
v) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit
attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. For diluted EPS, the
weighted average number of ordinary shares is adjusted to assume conversion of all dilutive potential ordinary shares.
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
w) Capital Management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In
order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
x) Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event,
that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. The Group
specifically provides for the cancellation of bookings. The provision is estimated by applying historical cancellation data to bookings not
travelled at the reporting date.
3. Critical accounting estimates and judgements
The Group’s accounting policies have been set by management. The application of these accounting policies to specific scenarios requires
reasonable estimates and assumptions to be made concerning the future. These are continually evaluated based on historical experience
and expectations of future events. The resulting accounting estimates will, by definition, seldom equal the related actual results. Under
IFRSs estimates or judgements are considered critical where they involve a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities from period to period. This may be because the estimate or judgement involves matters which are highly
uncertain, or because different estimation methods or assumptions could reasonably have been used.
Capitalisation of website development costs
Determining the amounts to be capitalised involves judgement and is dependent upon the nature of the related development; namely
whether it is capital (as relating to the enhancement of the website) or expenditure (as relating to the ongoing maintenance of the website)
in nature. Development costs that are directly attributable to the design and testing of identifiable and unique software products, websites
and systems controlled by the Group are recognised as intangible assets if the recognition criteria set out in the accounting policies 2m
above are met.
Monarch insolvency
The ongoing viability of Monarch Airlines Limited (‘Monarch’), a major supplier of low cost flights, was increasingly uncertain at the balance
sheet date. On 2 October 2017, Monarch announced that it had ceased trading and entered administration. Bound by their terms of
business and obligations under the ATOL regulations, the Group has a responsibility to organise alternative travel arrangements or provide
a refund to affected customers. As a result of the increasing uncertainty at the balance sheet date the Directors considered a present
obligation arising from a past event for which a provision was required. A £7 million provision (note 16) has been recognised in the balance
sheet relating to these obligations. Further, through chargebacks and holding Scheduled Airline Failure Insurance (‘SAFI’), the Directors
considered part of the provision could be mitigated and accordingly a £5 million receivable (note 14) relating to the amounts expected to be
reclaimed from either chargebacks or insurance was recognised.
Determining the amounts to be provided for the remaining bookings involves judgement and is dependent upon a number of assumptions
by management including the number of suitable alternative flights for the customer and fluctuations in flight pricing. Sensitivity analysis for
these remaining bookings was performed based on various scenarios and the range of resulting losses were not considered to be material
on the provision recognised. Management expect the remaining 14% of affected bookings to have been dealt with before the end of the
first half of 2018 and further to be no material effect on the carrying value of the assets and liabilities affected.
At the time of signing the accounts, the Group had either found a suitable alternative replacement flight or refunded 86% of the affected
bookings which crystalised a number of the assumptions used at year end.
Monarch reimbursement asset
As noted in IAS 37, paragraph 53, when some or all of the expenditure required to settle a provision is expected to be reimbursed by
another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the
entity settles the obligation.
The Directors have exercised judgement in determining whether the threshold of virtual certainty has been met in recognising the Monarch
reimbursement asset. In arriving at this judgement the Directors have considered the level of cover introduced within the policy, the right to
recover amounts from the payment card provider, correspondence and discussions with insurers to date and relevant legal advice they have
sought.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
85
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
Valuation of intangible assets arising on acquisition
The amount of goodwill initially recognised as a result of a business combination is dependent on the allocation of the purchase price to
the fair value of the identifiable assets acquired and the liabilities assumed. To determination of the fair value of the assets and liabilities
management sought the assistance of an independent professional advisor, however to a considerable extent, these advisors are reliant
on information and forecasts prepared by management. Management have prepared the forecasts using assumptions based on historical
evidence and their extensive knowledge and experience of the market. In determining the fair value of the brand intangible, one of the key
assumptions used by the independent professional advsior was the royalty rate. In order to ensue that this rate was reasonable, with the
assistance of the professional advisors, management was able to benchmark this rate against a number of similar transactions within the
market.
4. Segmental report
As explained in note 2h, the management team considers the reportable segments to be ‘‘Core’’ and ‘‘International’’. All segment
revenue, operating profit assets and liabilities are attributable to the Group from its principal activities as an online travel agent.
Sunshine.co.uk Limited is disclosed within the “Core” segment. The 2017 numbers include transactions since acquisition.
Income
Revenue
EBITDA (before holding company costs)
Holding company costs
EBITDA
Depreciation and amortisation
Segment operating profit/(loss)
Exceptionals
Group operating profit
Finance costs
Finance income
Profit before taxation
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
2017
2016
Core
£’000
International
£’000
Total
£’000
Core
£’000
International
£’000
Total
£’000
81,865
1,690
83,555
70,177
1,144
71,321
33,724
(1,029)
32,695
(6,729)
25,966
(2,667)
23,299
(1,996)
-
(1,996)
(155)
(2,151)
-
(2,151)
25,599
(607)
24,992
(6,257)
18,735
-
18,735
(1,802)
-
(1,802)
(111)
(1,913)
-
(1,913)
31,728
(1,029)
30,699
(6,884)
23,815
(2,667)
21,148
(177)
97
21,068
31,624
40,636
1,396
-
252
-
31,624
40,888
1,396
21,544
42,853
747
-
265
-
23,797
(607)
23,190
(6,368)
16,822
-
16,822
(100)
230
16,952
21,544
43,118
747
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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A
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
5. Business combinations
Acquisition of Sunshine.co.uk Limited
On 9 May 2017 the Group acquired the entire share capital of Sunshine.co.uk Limited in exchange for cash and contingent
consideration. The primary reason for the business combination was to increase the Group’s market share.
Asset acquired and liabilities recognised at the date of acquisition
The amounts recognised in respect of identifiable assets and liabilities relating to the acquisition are as follows:
September
Net assets acquired
Intangible assets
Property plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities
Net identifiable assets and liabilities
Consideration
Cash paid
Contingent consideration
Total consideration
Net working capital cash adjustment
Net consideration
Goodwill
ended 30
Recognised values
on acquisition
£’000
1,561
616
25,815
3,205
(29,018)
(259)
1,920
12,980
3,000
15,980
(3,980)
12,000
10,080
Under IFRS 3 Business Combinations, the Sunshine.co.uk brand, including the domain name, has been identified as an asset separate
from Goodwill with a value of £1,456,000. The recognition of the brand has resulted in a deferred tax liability of £256,000.
The Goodwill balance represents the realisation of the potential increase in market share and efficiencies as a result of economies of
scale provided by the existing Group infrastucture. None of the goodwill identified on this acquisition is expected to be deductible for
tax purposes.
The Board believes the acquisition will be earnings enhancing because of the Group’s ability to quickly leverage its modular technology
platform to deliver a market leading customer proposition, access directly sourced, higher margin product and deliver proprietary
personalisation and bid management technology. The acquisition will accelerate On the Beach’s growth and the compelling economic
benefits of scale will create short to medium term synergies and further margin opportunity.
The fair value of the contingent consideration at acquisition amounts to £3,000,000, which is the agreed payment amount. There is
one condition attached which may result in any expenses incurred being deducted from this consideration but the occurence of this
condition is considered to be remote by management.
Acquisition related costs amounting to £667,000 have been excluded from the consideration transferred and were recognised
as an expense in the profit and loss account within the exceptional costs line. The agreed purchase price for Sunshine.co.uk was
£12,000,000. Excess working capital was paid upon acquisition as additional consideration. Included in the operating profit for the
period ended 30 September 2017 is £535,000 attributable to the additional business generated by Sunshine.co.uk Limited.
Had the business combination been effected as 1 October 2016, the revenue for the Group would have been £86,191,000 and the
operating profit for the period would have been £22,159,000. Revenue for the year ended 30 September 2017 includes £1,859,000 in
respect of Sunshine.co.uk.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
87
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
6. Operating profit
a) Operating expenses
Expenses by nature including exceptional items and impairment charges:
Marketing
Depreciation
Staff costs
IT hosting, licences & support
Credit / debit card charges
Other
Total administrative expenses before exceptional cost and amortisation of intangible assets
Exceptional costs
Amortisation of intangible assets
Total exceptional and cost amortisation
Total administrative expenses
en
2017
£’000
2016
£’000
40,270
442
6,916
1,054
2,168
2,448
53,298
2,667
6,442
9,109
62,407
35,591
397
7,808
878
1,519
2,335
48,528
-
5,971
5,971
54,499
b) Exceptional items
Exceptional items in the period include £667,000 of costs incurred in relation to the purchase of Sunshine.co.uk Limited and a
£2,000,000 net charge following the failure of the Monarch Travel Group on 2nd October 2017. The £2,000,000 net charge is the net
of a £5,000,000 asset relating to the amounts expected to be reclaimed from either chargebacks or from insurers and a provision of
£7,000,000 relating to our obligations under ATOL regulations to arrange refunds or alternative flights for our affected customers.
c) Services provided by the company auditor
During the year, the Group obtained the following services from the operating company’s auditor.
Audit of the parent company financial statements
Amounts receivable by the Company’s auditor and its associated in respect of:
– Audit of financial statements of subsidiaries pursuant to legislation
– Review of interim financial statements
– Other assurance services
d) Adjusted PBT
Management measures the overall performance of the Group by reference to Adjusted PBT, a non-GAAP measure:
2017
£’000
2016
£’000
66
90
37
21
6
130
-
-
3
93
Profit before taxation
Exceptional acquisition costs
Monarch charge (net)
Amortisation of acquired intangibles
Share based payments charge
Adjusted PBT
ended 30 September
2017
£’000
2016
£’000
21,068
667
2,000
4,315
465
28,515
16,952
-
-
4,258
105
21,315
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
7. Employees and Directors
a) Payroll costs
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Defined contribution pension cost
Social security costs
Share-based payment charges
end
2017
£’000
10,063
61
977
465
11,566
2016
£’000
8,618
46
799
105
9,568
Staff costs above include £2,651,000 (2016: £2,407,000) employee costs capitalised as part of software development.
b) Employee numbers
Average monthly number of people (including Executive Directors) employed:
By reportable segment:
UK
International
c) Directors’ emoluments
The remuneration of Directors was as follows:
Aggregate emoluments
Defined contribution pension
Share-based payment charges
ended 30 September
2017
No.
322
15
337
2016
No.
299
16
315
2017
£’000
849
22
112
983
r
2016
£’000
623
-
29
652
Remuneration was paid by On the Beach Limited and On the Beach Beds Limited, both subsidiary companies of the Group.
The remuneration of the highest paid director was as follows:
Aggregate emoluments
Share-based payment charges
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
2017
£’000
290
63
353
2016
£’000
206
15
221
89
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
d) Key management compensation
Key management comprised the six members of the executive team.
Remuneration of all key management (including directors) was as follows:
Wages and salaries
Short-term non-monetary benefits
Post-employment benefits
Share-based payment charges
2017
£’000
1,152
22
25
338
1,537
r
2016
£’000
759
8
-
75
842
e) Retirement benefits
Pension contributions payable by the Group are £61,000 (2016: £46,000) of which £22,000 (2016: £nil) is made to a personal pension
scheme in relation to one Executive Director.
8. Finance income and finance costs
a) Finance costsr
Rolling credit facility interest
Finance costs
b) Finance income
ended 30 September
Bank interest receivable
Finance income
2017
£’000
177
177
2016
£’000
100
100
2017
£’000
97
97
2016
£’000
230
230
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
9. Taxation
ended 30 September
Current tax on profit for the year
Adjustments in respect of prior years *
Total current tax
Deferred tax on profits for the year
Origination and reversal of temporary differences
Impact of change in tax rate
Total deferred tax (note 18)
Total tax charge
2017
£’000
2016
£’000
4,956
(1,063)
3,893
4,318
-
4,318
(825)
-
(825)
3,068
(776)
(897)
(1,673)
2,645
The differences between the total taxation shown above the amount calculated by applying the standard UK corporation taxation rate to
the profit before taxation on continuing operating are as follows. The Group earns its profits primarily in the UK therefore the rate used for
taxation is the standard rate for UK corporation tax.
* The adjustment in respect of prior years is in relation to an agreed Advanced Thin Capitalisation Agreement (ATCA) for financial years ended
30 September 2014 and 2015.
Profit on ordinary activities before tax
Profit on ordinary activities multiplied by the effective rate of corporation tax in
the UK of 19.5% (2016: 20%)
Effects of:
Other expenses not deductible
Adjustments in respect of prior years
Effect of rate changes on current tax
Effect of rate changes on deferred tax
Total taxation charge
2017
£’000
2016
£’000
21,068
16,952
4,109
3,390
-
(1,063)
22
-
3,068
152
-
-
(897)
2,645
The tax charge for the year is based on the effective rate of UK Corporation tax for the period of 19.5% (2016: 20%). A reduction in the UK
corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantially enacted on 2 July 2013. Further reductions to 19%
(effective from 1 April 2017) on to 18% (effective 1 April 2020) were substantially enacted on 26 October 2015 and an additional reduction
to 17% (effective 1 April 2020) was substantially enacted on 6 September 2016. This will reduce the Company’s future current tax charge
accordingly. The deferred tax liability at 30 September 2017 has been calculated based on these rates.
I
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
10. Earnings per share
Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of On the Beach Group plc by the
weighted average number of ordinary shares issued during the year.
Adjusted pro-forma earnings per share figures are calculated by dividing adjusted earnings after tax for the year by the weighted average
number of shares.
Basic and diluted earnings per share are the same as there is no difference between the basic and diluted number of shares.
Year ended 30 September 2017
Basic and diluted EPS
Adjusted proforma EPS
Year ended 30 September 2016
Basic and diluted EPS
Adjusted proforma EPS
Adjusted earnings after tax is calculated as follows:
Basic weighted
average number
of Ordinary Shares
(m)
130.4
130.4
130.4
130.4
Profit for the year after taxation
Exceptional acquisition costs (net of tax at 19%)
Monarch net charge (net of tax at 19%)
Amortisation of acquired intangibles
Share based payment charges (net of tax at 19.3%) *
Adjustments in respect of prior years
Deferred tax movements relating to amortisation of acquired intangibles
Adjusted earnings after tax
* The share based payment charges are in relation to options which are not yet exercisable.
Total
Pence
earnings per share
’000
18,000 13.8p
17.6p
22,946
14,307
16,922
11.0p
13.0p
2017
£’000
2016
£’000
14,307
18,000
-
540
1,620
-
4,315 4,258
375 105
-
(1,063)
(1,748)
(841)
16,922
22,946
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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A
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I
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A
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
11. Intangible assets
Cost
At 1 October 2015
Additions
Disposals
At 1 October 2016
Assets acquired on acquisition
Additions
At 30 September 2017
Accumulated amortisation
At 1 October 2015
Charge for the year
Disposals
At 1 October 2016
Charge for the year
At 30 September 2017
Net book amount
At 30 September 2017
At 30 September 2016
Brand
Goodwill
£’000
£’000
Website &
development
Costs
£’000
Website
technology
Total
£’000
£’000
30,079
-
-
30,079
1,456
-
31,535
4,010
2,005
-
6,015
2,062
8,077
21,544
-
-
21,544
10,080
-
31,624
-
-
-
-
-
-
5,023
2,407
(3,628)
3,802
105
2,651
6,558
2,419
1,713
(3,628)
504
2,127
2,631
22,513
-
-
22,513
-
-
22,513
4,504
2,253
-
6,757
2,253
9,010
79,159
2,407
(3,628)
77,938
11,641
2,651
92,230
10,933
5,971
(3,628)
13,276
6,442
19,718
23,458
31,624
3,927
13,503
72,512
24,064
21,544
3,298
15,756
64,662
Assets acquired on acquisition
These assets were recognised upon acquisition of Sunshine.co.uk Limited. The amounts recognised are at fair value at acquisition date.
Impairment of goodwill
Goodwill acquired through business combinations has been allocated for impairment testing purposes to one cash generating unit, which is the
core segment. This represents the lowest level within the Group at which goodwill is monitored for internal management purposes.
The Group performed its annual impairment test as at 30 September 2017 on the cash generating unit (“CGU”). The recoverable amount of the
CGU has been determined based on the value in use calculations using cash flow projections derived from financial budgets and projections
covering a five year period. The initial three years grow 20 percent over the period, years’ four and five are extrapolated at a growth rate of 5
percent; the forecasts are then extrapolated in perpetuity based on an estimated growth rate of 2 percent, this being the Directors’ estimated
view of the long term compound growth in the economy. This is deemed appropriate because the CGU is considered to be a long term
business. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the
risks specific to this CGU. The discount rate applied is 11 percent. The main assumptions on which the forecast cash flows were based include
the level of sales and administrative expenses within the business and have been set by the Directors based on their past experience of the
business and its industry, together with their expectations of the market. The level of sales depends upon the size of the markets in which the
Group operates together with the Directors’ estimations of its market share and competitive pressures, including the level of supplier overrides.
Administrative expenses are dependent upon the net costs to the business of purchasing services. Expenses are based on the current cost base
of the Group adjusted for variable costs.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
93
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
Development costs
Capitalised development costs are not treated as a realised loss for the purpose of determining the Company’s distributable profits as the
costs meet the conditions requiring them to be treated as an asset in accordance with IAS 38.
Additions in the year relate to domain name acquisition costs and the development of software. The amortisation period for website
development costs is 3 years straight line. Domain names are amortised over 10 years. Amortisation has been recognised within operating
expenses.
Sensitivity to changes in assumptions
Sensitivity analysis has been completed on key assumptions in isolation, and the headroom taken is significant. This indicates that the value
in use will be equal to its carrying amount following a reduction in EBITDA of 78%. Management believes that no reasonably possible
change in any of the above key assumptions would cause the carrying value of the unit to exceed its recoverable amount.
12. Property, plant and equipment
Cost
At 1 October 2015
Additions
Disposals
At 1 October 2016
On Acquisition
Additions
At 30 September 2017
Accumulated deprecation
At 1 October 2015
Charge for the year
Disposals
At 1 October 2016
Charge for the year
At 30 September 2017
Net book amount
At 30 September 2017
At 30 September 2016
Freehold
property
£000
Buildings
leasehold
equipment
£000
Fixtures,
fittings and
Total
£000
£000
-
-
-
-
300
-
300
-
-
-
-
2
2
-
-
-
-
299
-
299
-
-
-
-
3
3
1,304
617
(610)
1,311
17
475
1,803
775
397
(608)
564
437
1,001
1,304
617
(610)
1,311
616
475
2,402
775
397
(608)
564
442
1,006
298
296
802
1,396
-
-
747
747
£616,000 (2016: £nil) of these assets were recognised upon acquisition of Sunshine.co.uk Limited on 9 May 2017 The amounts recognised
are at fair value at acquisition date which equates to the net book value of these assets
The depreciation expense of £442,000 for the year ended 30 September 2017 and the depreciation expense of £397,000 for the year
ended 30 September 2016 have been recognised within administrative expenses.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
13. Investments
Principal subsidiary undertakings of the Group consists of the parent company, On the Beach Group plc, incorporated in the UK and a number
of subsidiaries held directly by On the Beach Group plc, which is incorporated in the UK. The registered address for each subsidiary is Park
Square, Birdhall Lane, Cheadle, SK3 0XN.
The table below shows details of the wholly owned subsidiaries of the Group.
Subsidiary
On the Beach Topco Limited
On the Beach Limited*
On the Beach Beds Limited
On the Beach Bidco Limited
On the Beach Travel Limited
On the Beach Trustees Limited
On the Beach Holidays Limited
Sunshine.co.uk Limited
Sunshine Abroad Limited
Nature
of business
Proportion of
ordinary shares
held by the Group
Holding company
Internet travel agent
Bedbank
Holding company
Holding company
Employee trust
Dormant
Internet travel agent
Dormant
100%
100%
100%
100%
100%
100%
100%
100%
100%
*On the Beach Limited has a Swedish trading division which has a corporate identity number of 516408-9186.
There are no restrictions on the Company’s ability to access or use the assets and settle the liabilities of the Company’s subsidiaries.
14. Trade and other receivables
ended 30 September
Amounts falling due within one year:
Trade receivables – net
Other receivables
Prepayments
Other taxes and social security reclaimable
2017
£’000
2016
£’000
47,375 27,764
1,272
8,296
328
837
569
-
56,508 29,933
Other receivables includes £5m receivable in respect of the Monarch Reimbursement Asset following the failure of the Monarch Group on 2
October 2017.
15. Cash and cash equivalents
ended 30 September
Trust accounts are restricted cash held separately and only accessible at the point the customer has travelled.
Cash at bank and in hand
Trust account
2017
£’000
2016
£’000
33,027
38,542
71,569
26,052
25,580
51,632
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
95
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
16. Trade, other payables and provisions
ended 30 September
Trust accounts are restricted cash held separately and only accessible at the point the customer has travelled.
Current
Trade payables
Accruals and deferred income
Contingent consideration
Total trade and other payables
Provision
Total
2017
£’000
79,602
6,851
3,000
89,453
7,000
96,453
2016
£’000
47,562
8,303
-
55,865
-
55,865
The £7,000,000 provision is in respect of the Monarch airline failure. The amount recognised is an estimate of the cost the Group will
incur to fulfil its obligations to customers under the ATOL regulations to arrange refunds or alternative flights.
The £7,000,000 represents the gross costs incurred by the Group, of which £5,000,000 is expected to be recovered from the Groups
insurers (see note 14).
17. Borrowings
ended 30 September
Bank Facility
The Company entered into a revolving credit facility on 18 September 2015 with Lloyds (the “Facility”) in an aggregate amount of up to
£35m.
The Company renewed the Facility on 9 May 2017 with Lloyds to extend the Facility until 31 December 2018.
The borrowing limits under the Facility will vary monthly throughout the period of the Facility to reflect the seasonal borrowing
requirements of the Group, ranging from £2m in one month to the full £35m in another month. It is to be repaid in monthly instalments
which vary in accordance with the Group’s seasonal requirements. No early prepayment fees are payable.
The margin contained in the Facility is dependent on gross leverage ratio and the rate per annum ranges from 1.10% to 1.90% for the
utilised Facility and 0.39% to 0.67% for the non-utilised Facility.
The terms of the Facility include the following financial covenants:
(i)
(ii)
that the ratio of total debt to EBITDA in respect of any relevant period shall not exceed 2:1 (with a one-off increase to a ratio of
2.5:1); and
that the ratio of EBITDA to finance charges in respect of any relevant period shall not be less than 5:1.
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
18. Deferred tax
2017
Assets
Liabilities
Total
2016
Assets
Liabilities
Total
30 September 2015
Recognised in income
30 September 2016
Acquired on acquisition
Recognised in income
30 September 2017
19. Share capitalptember
Intangible
asset
revaluation
Property,
plant and
equipment
Capitalised
development
Costs
Other
Tax assets
/(liabilities)
£’000
£’000
£’000
£’000
£’000
-
(6,484)
(6,484)
-
(7,069)
(7,069)
43
-
43
16
-
16
-
-
-
-
-
-
Intangible
asset
revaluation
Property,
plant and
equipment
Capitalised
development
Costs
£’000
(8,818)
1,749
(7,069)
(256)
841
(6,484)
£’000
173
(157)
16
(3)
30
43
£’000
(35)
35
-
-
-
-
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
-
-
-
46
-
46
43
(6,484)
(6,441)
62
(7,069)
(7,007)
Other
Total
£’000
-
46
46
-
(46)
-
£’000
(8,680)
1,673
(7,007)
(259)
825
(6,441)
2017
2016
£’000
£’000
1,304
1,304
1,304
1,304
Allotted, called up and fully paid
130,434,763 Ordinary shares @ £0.01 each (2016:130,434,763 @ £0.01 each)
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
meetings of the Group.
On 18 November 2015 the Company completed a reduction of share capital (the ‘Capital Reduction’), whereby the entire amount
outstanding on the Company’s share premium account and capital redemption reserve were cancelled. The Capital Reduction has created a
significant amount of distributable reserves for the Company as disclosed in the consolidated statement of changes in equity.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
97
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
20. Reserves
The analysis of movements in reserves is shown in the statement of changes in equity.
Details of the amounts included in other reserves are set out below:
The merger reserve arose on the purchase of On the Beach TopCo Limited in the year ended 30 September 2015.
The capital redemption reserve arose as a result of the redemption of preference shares in the year ended 30 September 2015.
21. Financial instruments
Details of significant accounting policies and methods adopted, including criteria for recognition, the basis of measurement and
the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity
instrument are disclosed in the statement of accounting policies.
At the balance sheet date the Group held the following:
Financial Assets
Derivative financial assets
Forward exchange contracts used for hedging
Loans and receivables
Cash and cash equivalents
Trade and other receivables (note 14)
Total financial assets
Financial liabilities
Trade and other payables (note 16)
Contingent consideration (note 5)
Forward exchange contracts used for hedging
Total financial liabilities
The following table provides the fair values of the Group’s financial assets and liabilities:
Forward exchange contracts
Contingent consideration
2017
£’000
2016
£’000
-
1,683
71,569 51,632
55,671 29,036
127,240 82,351
(47,562)
(79,602)
-
(3,000)
(125)
-
(82,727) (47,562)
FV Level
2017
£’000
2016
£’000
2
3
(125)
(3,000)
1,683
-
There is no difference between the carrying value and fair value of cash and cash equivalents, trade and other receivables and
trade and other payables
98
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
a) Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
(i) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices)
(iii) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
Forward exchange contracts
As at 30 September 2017
As at 30 September 2016
Contingent consideration
As at 30 September 2017
Level 1
£’000
Level 2
£’000
Level 3
£’000
-
-
-
(125)
1,683
-
-
-
(3,000)
The forward contracts have been fair valued at 30 September 2017 with reference to forward exchange rates that are quoted in an active
market, with the resulting value discounted back to present value.
The contigent consideration has been fair valued at 30 September 2017 using a discounted cashflow to determine the present value of
the expected future payment.
b) Financial Risk Management
In the course of its business the Group is exposed to market risk (including foreign exchange risk and interest rate risk), credit risk, liquidity
risk and technology risk. The Group’s overall risk management strategy is to minimise potential adverse effects on the financial performance
and net assets of the Group. These policies are set and reviewed by senior finance management and all significant financing transactions are
authorised by the Board of Directors.
c) Market Risk
The Group’s key financial market risks are in relation to foreign currency rates. Foreign currency risk results from the substantial cross-border
element of the Group’s trading and arises on sales and purchases that are denominated in a currency other than the functional currency of
the business. Group cash resources are matched with the net funding requirements sourced from three sources namely internally generated
funds, loan facilities and bank funding arrangements.
The foreign currency risk is managed at Group level by the purchase of foreign currency contracts for use as a commercial hedge. During
the course of the period there has been no changes to the market risk or manner in which the Group manages its exposure. The Group is
exposed to interest rate risk that arises principally through the Group’s revolving credit facility.
Liquidity risk, credit risk and capital risk is considered below. The executive team is responsible for implementing the risk management
strategy to ensure that appropriate risk management framework is operating effectively, embedding a risk mitigation culture throughout the
Group. The Board are provided with a consolidated view of the risk profile of the Group. All major exposures are identified and mitigating
controls identified and implemented. Regular management reporting and assessment of the effectiveness of controls provide a balanced
assessment of the key risks and the effectiveness of controls.
The Group does not speculate with derivatives or other financial instruments.
I
S
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A
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E
G
C
R
E
P
O
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G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
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E
M
E
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
99
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
Interest rate risk
d)
The Group only have a revolving credit facility which is subject to fluctuations in LIBOR.
e) Foreign currency risk management
The majority of the Group’s purchases are sourced from outside the United Kingdom and as such the Group is exposed to the fluctuation
in exchange rates (currencies are principally Sterling, US Dollar, Euro and Swedish Krona). The Group places forward cover on the net
foreign currency exposure of its purchases. The Group foreign currency requirement is reviewed twice weekly and forward cover is
purchased to cover expected usage.
The carrying amount of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as
follows:
Euro
Cash
Trade payables
Forward exchange contracts
Balance sheet exposure
US Dollar
Cash
Trade payables
Forward exchange contracts
Balance sheet exposure
Swedish Krona
Cash
Trade payables
Trade receivables
Forward exchange contracts
Balance sheet exposure
Norwegian Krona
Cash
Trade receivables
Trade payables
Forward exchange contracts
Balance sheet exposure
2017
€’000
8,437
(63,290)
50,797
(4,056)
2016
€’000
5,110
(46,497)
44,875
3,488
2017
$000
168
(1,008)
655
(185)
2016
$000
218
(559)
350
9
2017
Kr ‘000
6,683
(64)
4,810
(2,650)
8,779
2016
Kr ‘000
3,667
(137)
3,379
(3,220)
3,689
2017
Kr ‘000
2,987
496
(38)
(1,700)
1,745
2016
Kr ‘000
-
-
-
-
-
100
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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G
C
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P
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G
O
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E
R
N
A
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I
F
I
N
A
N
C
A
L
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
Foreign currency sensitivity
The following table details the Group sensitivity to a percentage change in Pounds Sterling against these currencies with regards to equity.
The sensitivity analysis of the Group’s exposure to foreign currency risk at the reporting date has been determined based on a 10 per cent
change taking place at the beginning of the financial period and held constant throughout the reporting period:
Euro
Weakening - 10%
Strengthening - 10%
US Dollar
Weakening -10%
Strengthening - 10%
SEK
Weakening -10%
Strengthening - 10%
NOK
Weakening -10%
Strengthening - 10%
DKK
Weakening -10%
Strengthening - 10%
2017
£’000
(168)
205
(13)
15
73
(89)
15
(18)
(3)
4
2016
£’000
(335)
274
(1)
1
37
(30)
-
-
-
-
The Group uses forward exchange contracts to hedge its foreign currency risk against sterling. The forward contracts have maturities of
less than one year after the balance sheet date.
As a matter of policy the Group does not enter into derivative contracts for speculative purposes. The details of such contracts at the
year-end, by currency were:
EUR 30 September
Less than 3 months
3 to 6 months
6 to 12 months
Greater than 12 months
Total
USD 30 September
Less than 3 months
3 to 6 months
6 to 12 months
Total
2017
Foreign
currency
€’000
36,772
9,775
4,250
-
50,797
Foreign
currency
$’000
480
170
5
655
Notional
value
£’000
32,401
8,701
3,782
-
44,884
2017
Notional
value
£’000
371
130
4
505
Fair
value
£’000
7
(80)
(34)
-
(107)
Fair
value
£’000
(12)
(3)
(1)
(16)
Foreign
currency
€’000
31,275
5,950
7,650
2016
Notional
value
£’000
25,637
4,960
6,516
Fair
value
£’000
1,400
183
97
44,875
37,113
1,680
Foreign
currency
$’000
295
50
5
350
2016
Notional
value
£’000
217
37
3
257
Fair
value
£’000
10
2
-
12
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
101
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
SEK 30 September
Less than 3 months
3 to 6 months
Total
NOK 30 September
Less than 3 months
Total
2017
Foreign
currency
Kr ’000
(2,450)
(200)
(2,650)
Foreign
currency
Kr ’000
(1,700)
(1,700)
Notional
value
£’000
(213)
(18)
(231)
2017
Notional
value
£’000
(159)
(159)
Fair
value
£’000
(2)
(0)
(2)
Fair
value
£’000
-
-
Foreign
currency
Kr ’000
(3,120)
(100)
(3,220)
Foreign
currency
$’000
-
-
2016
Notional
value
£’000
(272)
(8)
(280)
2016
Notional
value
£’000
-
-
Fair
value
£’000
(8)
(1)
(9)
Fair
value
£’000
-
-
f) Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk
arises from cash balances and derivative financial instruments, as well as credit exposures to customers, including outstanding receivables,
financial guarantees and committed transactions. Credit risk is managed separately for treasury and operating related credit exposures.
The ageing of trade receivables at the balance sheet date was:
At 30 September 2017
At 30 September 2016
Not past
due
£’000
47,284
27,756
Past due
0-30 days
£’000
68
4
Past due
>30 days
£’000
23
4
Total
£’000
47,375
27,764
The maximum exposure to credit risk at each reporting date is the fair value of financial assets and trade receivables.
102
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
g) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
It is Group policy to maintain a balance of funds, borrowing, committed bank loans and other facilities sufficient to meet anticipated short-
term and long-term financial requirements. In applying the policy the Group continuously monitors forecast and actual cash flows against the
maturity profiles of financial assets and liabilities. It is Group policy to ensure that a specific level of committed facilities is always available based
on forecast working capital requirements. Cash forecasts identifying the Group’s liquidity requirements are produced and are sensitised for
different scenarios including, but not limited to, decreases in profit margins and weakening of sterling against other functional currencies.
The following are the contractual maturities of financial liabilities:
Financial liabilities at amortised cost
Sept-17
Trade payables
Accrruals and deferred income
Sept-16
Trade payables
Other payables
h) Capital management
Carrying
amount
£’000
79,602
6,851
86,453
£’000
47,562
8,303
55,865
Contractual Within 1
cash flows
£’000
79,602
6,851
86,453
year
£’000
79,602
6,851
86,453
£’000
47,562
8,303
55,865
£’000
47,562
8,303
55,865
It is the Group’s policy to maintain an appropriate equity capital base so as to maintain investor, creditor and market confidence and to sustain
the future development of the business.
The capital structure of the Group consists of the net cash (borrowings disclosed in note 17) and equity of the Group as disclosed in note 19.
The Group is not subject to any externally imposed capital requirements.
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P
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A
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I
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A
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
103
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
22. Share based payments
At 30 September 2017, the Group has the following share-based payment arrangement.
2016 LTIP
On the 26th May 2016, the Group awarded 633,282 nil cost options under the scheme. The extent to which such awards will vest will
depend on the Group’s performance over a three year period commencing from 1 October 2015. The vesting in September 2018 (Vesting
Date) of 30% of the award will be dependent on a relative TSR performance condition measure over the performance period and the
vesting of 70% of the award will be dependent on the satisfaction of an Earnings per share target measured at the end of the performance
period.
All share-based incentives are subject to service conditions. Such conditions are not taken into account in the fair value of the service
received.
The fair value of services received in return for share-based incentives is measured by reference to the fair value of share-based incentives
granted.
The LTIP awards have been valued using the Monte Carlo model for the TSR element and the Black Scholes model for the EPS element and
the resulting share-based payment charge is being spread evenly over the period between the grant date and the vesting date.
Share price
at grant date
Exercise Expected Option
volatility
price
Life
Risk free Dividend Non-
rate
yield vesting
Fair value
at grant
2016 LTIP
26 May 2016 (TSR dependent)
26 May 2016 (EPS dependent)
(£)
2.595
2.595
(£)
Nil
Nil
(%)
(years)
(%)
conditions date
(£)
(%)
(%)
30%
-
3.0
3.0
0.44%
0.44%
2.00%
2.00%
0.0
0.0
0.806
2.470
104
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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A
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E
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C
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P
O
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G
O
V
E
R
N
A
N
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E
I
F
I
N
A
N
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FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
2017 LTIP Award
On the 26th May 2017, the Group awarded 602,425 to key management. On the 31 May 2017, the Group awarded 204,668 to senior
managers.
The extent to which such awards will vest will depend on the Group’s performance over a three year period commencing from 1 October
2016. The vesting in September 2019 (Vesting Date) of 30% of the award will be dependent on a relative TSR performance condition
measure over the performance period and the vesting of 70% of the award will be dependent on the satisfaction of an Earnings per share
target measured at the end of the performance period.
Share price
at grant date
Exercise Expected Option
volatility
price
Life
Risk free Dividend
Non-
yield vesting
Fair value
at grant
rate
2017 LTIP
26 May 2017 (TSR dependent)
26 May 2017 (EPS dependent)
31 May 2017 (TSR dependent)
31 May 2017 (EPS dependent)
(£)
4.120
4.120
3.910
3.910
(£)
Nil
Nil
Nil
Nil
(%)
(years)
(%)
conditions date
(£)
(%)
(%)
30.00
-
30.00
-
3.0
3.0
3.0
3.0
0.07%
0.07%
0.07%
0.07%
0.75%
0.75%
0.79%
0.79%
0.0
0.0
0.0
0.0
2.890
4.050
2.590
3.840
Expected volatility is estimated by considering historic average share price volatility at the grant date.
2017 2016
No of No of
options options
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Outstanding at the year end
-
633,282
807,093 633,282
(97,431)
1,342,944 633,282
-
The total share based payment charge for the year ended 30 September 2017 is £465,000 (2016: £105,000). The company charge for the
year was £465,000.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
105
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
23. Commitments and contingencies
a) Capital commitments
The company had no capital commitments for the years ended 30 September 2017 and 2016
b) Operating lease commitments
One year
Two to Five Years
Over 5 years
2017
Land
2016
Land
& Buildings & Buildings
£’000
340
1,359
1,019
2,718
£’000
340
1,359
1,359
3,058
The Group’s lease commitments relate to its head office. During the year the Group signed a ten year lease on its head office; the
head office remains in the same location and has expanded the floor space available. During the year £214,000 (2016: £333,000) was
recognised as an expense in the income statement in respect of operating leases.
c) Contingencies
In September 2010, proceedings were initiated against On the Beach Limited by Ryanair alleging infringement of, inter alia, its intellectual
property rights. Proceedings remain at an early stage and there have been no material developments. Therefore the amount of the claim by
Ryanair is unquantified as at the date of this document. The Group expects that final resolution of the dispute might take some time.
24. Related party transactions
No related party transactions have been entered into during the year.
Transactions with key management personnel have been disclose in note 7(d).
106
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
FINANCIAL STATEMENTS
Company balance sheet
At 30 September 2017
Fixed assets
Investments
Current assets
Debtors
Cash at bank
Creditors: amounts falling due within one year
Corporation tax
Net assets
Equity
Share capital
Capital contribution reserve
Retained earnings
The financial statements were approved by the Board of Directors and authorised for issue.
Paul Meehan
Chief Financial Officer
30 November 2017
On the Beach Group plc. Reg no 09736592
Note
2017
£’000
2016
£’000
4
5
6
132,613
132,613
73,978
76
74,054
75,303
-
75,303
(2,863)
(85)
(2,948)
(394)
(85)
(479)
203,719
207,437
1,304
500
201,915
203,719
1,304
500
205,633
207,437
I
S
T
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A
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E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
107
FINANCIAL STATEMENTS
Company statement of changes in equity
Year ended 30 September 2017
Balance at 30 September 2015
Capital reduction
Share based payment charges
Total comprehensive profit for the year
Balance at 30 September 2016
Share based payment charges
Dividends paid during the year
Total comprehensive loss for the year
Balance at 30 September 2017
Share
capital
£’000
195,652
(194,348)
-
-
1,304
Share
premium
£’000
13,856
(13,856)
-
-
-
Capital
contribution
£’000
550
(50)
-
-
500
-
-
-
1,304
-
-
-
-
-
-
-
500
Retained
earnings
£’000
(3,134)
208,254
105
408
205,633
465
(4,043)
(140)
201,915
Total
£’000
206,924
-
105
408
207,437
465
(4,043)
(140)
203,719
108
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
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C
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P
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O
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R
N
A
N
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F
I
N
A
N
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FINANCIAL STATEMENTS
Notes to the Company financial statements
Year ended 30 September 2017
1. Accounting policies
On the Beach Group plc is a public limited company which is listed on the London Stock Exchange and is domiciled and incorporated in the
United Kingdom under the Companies Act 2006.
Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 102 The Financial Reporting Standard applicable
in the UK and Republic of Ireland (“FRS 102”) as issued in August 2014. The presentation currency of these financial statements is sterling.
All amounts in the financial statements have been rounded to the nearest £1,000.
The financial information presented is at and for the years ended 30 September 2017 and 30 September 2016
As permitted by Section 408 of the Companies Act 2006, an entity profit and loss account is not included as part of the published
consolidated financial statements of On the Beach Group plc. The loss for the year ended 30 September 2017 dealt with in the financial
statements of the parent company is £140,000 (2016: £408,000 (profit)).
In these financial statements, the Company is considered to be qualifying entity (for the purposes of this FRS) and has applied the
exemptions available under FRS 102 in respect of the following;
- Reconciliation of the number of shares outstanding from the beginning to end of the period;
- Cashflow Statement and related notes; and
- Key Management Personnel compensation.
As the consolidated financial statements of the Company include the equivalent disclosure, the Company has also taken the exemptions
under FRS 102 available in respect of the following disclosures;
- Certain disclosures required by FR 102.26 Share Based Payments; and,
- The disclosures required by FRS 102.11 Basic Financial Instruments and FRS 102.12 Other Financial Instrument Issues in respect of
financial instruments not failing within the fair value accounting rules of Paragraph 36(4) of Schedule 1.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial
statements. The financial statements are prepared on the historical cost basis.
The directors have used the going concern principal on the basis that the current financial projections and facilities of the consolidated
Group will continue in operating for the foreseeable future.
Investment in subsidiaries
Investments in subsidiaries are held at cost, less any provision for impairment. Annually, the Directors consider whether any events or
circumstances have occurred that could indicate that the carrying amount of fixed asset investments may not be recoverable, if such
circumstances do exist, a full impairment review is undertaken to establish whether the carrying amount exceeds the higher of net realisable
value or value in use. If this is the case, an impairment charge is recorded to reduce the carrying value of the related investment. The
estimated recoverable amount is subjective due to the inherent uncertainty involved in forecasting and discounting future cashflows.
Related party transactions
Under the provisions of FRS 102.33.1A, the company is exempt from disclosing the details of related party transactions on the basis that
they are wholly owned subsidiaries.
2. Director’s emoluments
The Company has no employees other than the Directors. Full detail of the Directors’ remuneration and interests are set out in the Annual
Report on Renumeration on pages 46 to 61.
3. Shared based payments
The Company recognised total expenses of £0.5m (2016: £0.1m) in the year in relation to the Long Term Incentive Plan. Details of this
scheme is described in note 22 to the consolidated financial statements.
Investments
4.
The £132,613,000 investment in subsidiary undertakings made in 2015 relates to the capital re-organisation of the Group. There has been
no movement in the current year.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
109
FINANCIAL STATEMENTS
Notes to the Company financial statements
5. Debtors
Amounts falling due within one year:
Amounts owed by group undertakings
Other taxes and social security
Prepayments
6. Creditors due within one year
Current
Amounts owed to group undertakings
Bank overdraft
Trade payables
Accruals
7. Called-up share capital
Allotted, called up and fully paid
130,434,763 Ordinary shares @ £0.01 each (2016: 130,434,763 @ £0.01 each)
2017
£’000
73,886
25
67
73,978
2016
£’000
75,159
130
14
75,303
2017
£’000
2,696
-
-
167
2,863
2016
£’000
-
211
38
145
394
2017
£’000
1,304
1,304
2016
£’000
1,304
1,304
8. Contingent liabilities and guarantees
The company is a guarantor to a borrowing facility relating to a rolling credit facility provided to the Group. The amount borrowed under this
agreement at 30 September 2017 was £nil (2016: £nil).
110
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
Shareholder Information
Registered Office
Park Square,
Bird Hall Lane,
Cheadle
SK3 0XN
United Kingdom
Tel: c/o FTI Consulting on 020 3727 1000
Web: www.onthebeachgroupplc.com (Corporate)
Web: www.onthebeach.co.uk (UK)
Web: www.ebeach.se (Sweden)
Web: www.ebeach.no (Norway)
Web: www.sunshine.co.uk (UK)
Investor relations: corporate@onthebeach.co.uk
Cautionary statement
The purpose of this Annual Report is to provide information to the
members of the Company. The Company and its Directors accept no
liability to third parties in respect of this Annual Report save as would
arise under English law.
This Annual Report contains certain forward-looking statements with
respect to the financial condition, results, operations and businesses
of the Company. Forward looking statements are sometimes, but
not always, identified by their use of a date in the future or such
words as ‘anticipates’, ‘aims’, ‘due’, ‘will’, ‘could’, ‘may’, ‘should’, ‘expects’,
‘believes’, ‘intends’, ‘plans’, ‘targets’, ‘goal’ or ‘estimates’. These
forward-looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that may or may
not occur in the future.
There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied
by these forward-looking statements, including factors outside the
Company’s control. The forward-looking statements reflect the
knowledge and information available at the date of preparation of
this Annual Report and will not be updated during the year. Nothing
in this Annual Report should be construed as a profit forecast.
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Company Secretary
Kirsteen Vickerstaff
Park Square
Bird Hall Lane
Cheadle
SK3 0XN
Corporate Brokers
Numis Securities Limited
10 Paternoster Row
London
EC4M 7LT
Independent auditors
KPMG LLP
8 Princes Parade
Liverpool
L3 1QH
Registrar
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Corporate solicitors
Addleshaw Goddard LLP
One Peter’s Square
Manchester
M2 3DE
Corporate PR advisers
FTI Consulting
200 Aldersgate
Aldersgate Street
London
EC1A 4HD
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2017
111
I N N O V A T I O N
C O M M U N I C A T I O N
S I M P L I C I T Y
R E S P E C T
C U S T O M E R E X P E R I E N C E
Park Square, Bird Hall Lane, Cheadle, SK3 0XN United Kingdomwww.onthebeachgroupplc.com Corporatewww.onthebeach.co.uk UKwww.ebeach.se Swedenwww.ebeach.no Norwaywww.sunshine.co.uk UK