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TOTAL FINANCIAL
P R O T E C T I O N
On the Beach Group plc
Annual Report
& Accounts
For the year ended 30 September 2018
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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 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.ebeach.dk (Denmark)
www.sunshine.co.uk (UK)
www.classiccollection.co.uk (UK travel agent)
2
2
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Contents
Strategic Report
04 Our history timeline
05 At a glance
07 Business model
08 Chair of the Board report
12 Chief Executive’s report
16 Key performance indicators
18 Chief Financial Officer’s report
23 Risk management and principal
risks and uncertainties
34 Corporate social responsibility
41 Awards & achievements
Governance
43 Chairman’s statement
44 Stakeholder engagement
45 Directors’ biographies
48 Corporate governance statement
55 Report of the nomination committee
57 Report of the audit committee
61 Directors’ remuneration report
85 Other statutory and regulatory disclosures
89 Independent auditor’s report to the members of
On the Beach Group plc
94 Statement of directors’ responsibilities in respect
of the annual report and the financial
statements
Financial Statements
96 Consolidated income statement and statement
of comprehensive income
97 Consolidated balance sheet
98 Consolidated statement of cashflows
99 Consolidated statement of changes in equity
100 Notes to the consolidated financial statements
132 Company balance sheet
133 Company statement of changes in equity
134 Notes to the Company financial statements
136 Glossary of alternative performance measures
(APMs)
139 Shareholder information
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
3
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Strategic report
04 Our history timeline
05 At a glance
07 Business model
08 Chair of the Board report
12 Chief Executive’s report
16 Key performance indicators
18 Chief Financial Officer’s report
23 Risk management and principal
risks and uncertainties
34 Corporate social responsibility
41 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.
2018
Entered FTSE 250 in March
2018.
Acquired Classic Collection
Holidays for a net
consideration of £20m in
August 2018.
Launched eBeach.dk in
Denmark.
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,
On the Beach
completed the
acquisition of
Sunshine.co.uk
Limited, an
online travel
agent based in
the UK, for a net
consideration of
£12m.
4
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
At a glance
On the Beach has again
experienced strong growth
and made a further strategic
acquisition.
Financial highlights Group
› Group revenue(1) increased 24.5% to
£104.1m (FY17: £83.6m)
› Group gross profit(2) increased 10.8% to
£92.6m (FY17: £83.6m)
› Group operating profit before tax
increased 17.9% to £33.6m (FY17:
£28.5m)
› Group profit before tax increased 23.7%
to £26.1m (FY17: £21.1m)
› Strong cash conversion of 79%
(FY17: 79%) – adjusted operating cash
conversion(5) 90% (FY17: 88%)
› Net external cash(6) at year end of
£47.3m (FY17: £33.0m)
› Proposed final dividend of 2.2p per
share, totalling 3.3p per share for the
year (FY17: 2.8p per share), an increase
of 17.9%
Group gross profit (2) £m
£92.6m
+ 10.8%
Group operating profit
before amortisation &
exceptional costs £m
£34.0m
+12.2%
Group profit before tax £m
£26.1m
+23.7%
FY17: £83.6m
FY17: £30.3m
FY17: £21.1m
Group adjusted profit before
tax(3) £m
£33.6m
+17.9%
FY17: £28.5m
Adjusted earnings per share(4)
Net external cash(6) £m
21.2p
+20.5%
FY17: 17.6p
£47.3m
FY17: £33.0m
Basic & diluted EPS pence
Adjusted cash conversion (5)
Total dividend per share pence
16.5p
+19.6%
FY17: 13.8p
90%
3.3p
+17.9%
FY17: 88%
FY17: 2.8p per share
(1) Group revenue includes revenue from Classic Collection Holidays Limited (“Classic”) for the
period since acquisition (15th August 2018) of £13.2m. Classic accounts for revenue
on a “travelled” basis as a principal and therefore reports revenue on a gross basis
(2) Group gross profit includes revenue from Classic less cost of sales and agents’ commission of
£1.7m
(3) Group adjusted profit before tax is profit before tax, amortisation of acquired intangibles of
£4.6m (FY17: £4.3m), share based payments £1.4m (FY17: £0.5m), exceptional costs of
£0.6m (FY17: £2.6m) and one-off property and litigation costs of £0.9m (FY17: nil)
(4) Adjusted earnings per share is Group adjusted profit after tax divided by the average number
of shares in issue during the period
(5) Underlying cash conversion is operating cash flow divided by EBITDA excluding the impact
of the acquisition of Classic and capital expenditure for the new HQ
(6) Net external cash is defined as cash and cash equivalents excluding the trust accounts
Please see glossary of alternative performance measures (APMs) on page 136 for
reconciliations to nearest GAAP number.
5
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Core revenue £m
Core revenue after marketing costs £m
£89.3m
+9.0%
£52.0m
+15.8%
FY17: £81.9m
FY17: £44.9m
Adjusted core EBITDA(7) £m
Core EBITDA % of revenue
£37.9m
+14.2%
FY17: £33.2m
42.4%
FY17: 40.5%
(7) Adjusted Core EBITDA excludes exceptional costs, share based payments
and one-off property and litigation costs. See Glossary on page 136 for the
reconciliation to the nearest GAAP measure.
International EBITDA loss £m
Revenue £m
£(2.2)m
+10.0%
FY17: £(2.0)m
£1.6m
-5.9%
FY17: £1.7m
At a glance
Financial highlights Core
(excludes Classic)
› Core revenue up 9.0% to £89.3m
(FY17: £81.9m)
› Core revenue after marketing costs up
15.8% to £52.0m (FY17: £44.9m)
› Adjusted Core EBITDA(7) up 14.2% to
£37.9m (FY17: £33.2m)
› Core EBITDA as a percentage of revenue
increased to 42.4% (FY17: 40.5%)
› Branded and free traffic increased to
63.9% of overall traffic (FY17: 59.3%)
› Percentage of revenue spent on
marketing decreased to 41.8%
(FY17: 45.2%)
Financial highlights
International
› After significant growth of 51.0% in H1,
International revenue decreased by
(5.9)% for the full year (FY17: 48.0%).
Revenue was heavily impacted by the
unprecedented hot summer in
Scandinavia leading to lower demand for
holidays and widespread discounting of
distressed product by Sweden’s leading
tour operators. We therefore reduced
marketing activity to a background level,
with a significant impact on revenue but
a saving versus forecasted losses with a
view to reinvesting at the start of the
new financial year
› Launch of third international market in
Denmark
›
International EBITDA loss of £(2.2)m
(FY17: £(2.0)m)
Financial highlights Classic
› Acquired 15 August 2018
› As it is a principal rather than an agent,
Classic reports on a “travelled” basis
› EBITDA £1.1m in period since acquisition
6
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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
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
7
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Chair of the Board report
“The Group’s success is
attributable to strong
leadership, clear strategy and
vision, investment in people and
technology, a resilient business
model and entrepreneurial,
innovative and dynamic culture.”
Lee Ginsberg
Chair of the Board, On the Beach Group plc
Group gross profit £m
£92.6m
+ 10.8%
Group profit before tax £m
£26.1m
+23.7%
FY17: £83.6m
FY17: £21.1m
Core revenue after marketing costs £m
Net external cash(3) £m
£52.0m
+15.8%
£47.3m
FY17: £44.9m
FY17: £33.0m
I am delighted to provide the Group’s results for the year
ended 30 September 2018 (FY18). On the Beach has seen
another year of strong growth and is at an exciting time in its
development. My fellow directors and I, and the executive team,
look forward to working together to create further value for all
stakeholders.
On the Beach success story: another milestone
One of the highlights of the year was On the Beach’s entry
into the FTSE 250 in March 2018 which marked an important
milestone in the Group’s history and reflected the success that
On the Beach continues to enjoy.
The Group’s success is attributable to a number of factors,
including strong leadership, a dedicated and talented
workforce, a clear strategy and vision, investment in people
and technology, a strong and resilient business model and the
Group’s entrepreneurial, innovative and dynamic culture.
On the Beach continues to focus on driving long-term,
sustainable growth, building strong relationships with key
stakeholder groups and establishing a culture which is aligned
with the Group’s strategy, vision and values.
FY18: financial performance and final dividend
In each of the three years since listing, On the Beach has
encountered significant headwinds, including terrorism, the
Brexit referendum, currency fluctuations, shifting consumer
demand and reduced consumer confidence. FY18 presented
its fair share of headwinds, including the collapse of Monarch
airlines, flight capacity constraints, the hottest summer for 40
years and the football World Cup in which England performed
strongly, all of which have affected consumer confidence and
demand for beach holidays.
Despite this challenging and unstable trading backdrop, On
the Beach has consistently delivered impressive growth in the
face of these headwinds, underlining its strong and resilient
business model, which is evident more than ever in the financial
results for FY18.
In FY18, Group revenue was £104.1m (FY17: £83.6m
(+24.5%)). This included £13.2m of revenue from Classic
which was acquired on 15 August 2018. Group’s gross profit
increased 10.8% to £92.6m (FY17: £83.6m). Although revenue
growth was slower than expected, increased marketing
efficiency led to strong growth in revenue after marketing which
was £52.0m (FY17: £44.9m (+15.8% year on year)) and Group
adjusted profit before tax which was £33.6m (FY17: £28.5m),
an increase of 17.9% on the prior year.
At the year-end, On the Beach’s balance sheet was strong with
net external cash balances of £47.3m (FY17: £33.0m) and the
Board is pleased to declare a final dividend of 2.2p per share,
totalling 3.3p per share for the year, an increase of 17.9%.
8
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Investment in people, technology & brand
On the Beach is committed to investing in its people,
technology and brand.
To support our continued ability to out-innovate the market
and attract and retain top talent in a fiercely competitive
environment, we have relocated our head office to a bespoke,
state of the art digital office space in central Manchester, and
we will be refurbishing our current office space in Cheadle
where our Contact Centre will continue to be based. We
recently welcomed Stefan Nordin to the business as our new
Chief Technology Officer, whose experience and leadership
skills will support us to achieve our ambition to double the size
of our tech team in the next three to five years.
On the Beach continues to develop its people strategy to
align with overall business strategy, and the Remuneration
Committee has expanded its remit to incorporate remuneration
and benefits for the wider business rather than just Executive
Directors and senior management. The Committee has
introduced new reward mechanisms for top performers
throughout the business, as well as reviewing the Directors’
Remuneration Policy for Executive Directors, to ensure the
business has the tools to attract and retain the talent it needs to
achieve its strategy.
We have continued to invest in the On the Beach brand
through both online and offline marketing. Our brand continues
to strengthen, supported by a national TV marketing campaign
and sponsorship of the ITV programme, Benidorm. As a result,
On the Beach is now one of the most visible online beach
holiday brands, leading to consumers having more trust and
confidence in the brand.
Strategic expansion & international markets
As well as driving growth in the core business, On the Beach
continues to explore further opportunities for strategic growth,
including international growth, expansion of the Group’s
long-haul offering, distribution via travel agents through the
Group’s recent acquisition of Classic, and strategic acquisition
opportunities.
On the Beach has continued to make progress in our
international markets, with the launch of eBeach.dk in Denmark
during the year, completing our Scandinavian rollout.
After significant growth of +51% in H1 FY18, the whole of
Scandinavia experienced unprecedented warm weather from
May until August, which weakened demand and severely
affected eBeach’s competitive position in the market due to
heavy discounting by the tour operators. This led to a significant
impact on full year revenue performance (International revenue
decreased by 5.9% compared with +48% in FY17) but we
reduced marketing spend in line with reduced demand.
Diversity & inclusion
The benefits of a diverse and inclusive leadership and
workforce are clear, with the widest range of perspectives
leading to increased creativity, innovation, debate,
understanding and ultimately better decision making. Our
company values are respect, innovation, simplicity, customer
experience and communication. It therefore follows that
diversity and inclusion have to be at the very heart of our
culture and fully embedded in the business if we are to live up
to our values and achieve our strategy.
As diversity and inclusion are so critical to the long-term
success of the company, this has been an area of particular
focus during FY18, and has been central to a number of
initiatives during the year, including Board appointments,
senior management appointments and succession planning,
stakeholder engagement (both employee and shareholder),
our people strategy, and our review of our corporate culture.
The appointment to the Board of Elaine O’Donnell has gone
some way to addressing the gender imbalance on the Board,
but the Board continues to consider its composition and the
Nomination Committee will continue to focus on diversity
in the widest form when considering any further Board
vacancies. The Board will continue its focus on diversity and
inclusion to ensure the Group’s succession planning, people
strategy, and culture supports an increasingly diverse pipeline
of talent feeding into the most senior levels of the business.
Corporate governance and Board changes
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. We
undertook an evaluation of the directors and the functioning
of the Board and its committees during the year which
demonstrated that the Board has the appropriate balance of
skills and experience and operates effectively.
We had a number of Board changes during the year, which
were overseen by the Nomination Committee.
Elaine O’Donnell was appointed as a Non-Executive
Director in July 2018, and took up the post of Chair of Audit
Committee in September 2018. We extend a warm welcome
to Elaine, who brings to the Board a wealth of experience
across a range of businesses and her expertise will be of
enormous benefit.
9
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Chair of the Board report
Richard Segal, who served as On the Beach’s Chairman
since 2013, stepped down in September 2018. The Directors
express their sincere thanks for the valuable contribution made
by Richard over the years and wish him every success for
the future. Following the recommendation of the Nomination
Committee, I took the role as Chair of the Board and of the
Nomination Committee, and I stepped down from my role as
Senior Independent Director and Chair of Audit Committee, in
September 2018. At the same time, David Kelly was appointed
as Senior Independent Director.
I will step down as Chair of the Board and of the Nomination
Committee at the end of November in order to focus on other
time-commitments, but I will continue to serve as Non-
Executive Director of the Company. David Kelly will serve as
Chair of the Board on an interim basis while the Nomination
Committee oversees the search for a permanent Chair of the
Board.
The Board is committed to ever-increasing standards of
corporate governance. Although the 2018 UK Corporate
Governance Code will not apply to the Company until the
reporting year ending 30 September 2020, the Board is already
taking steps to comply with the new code, in particular in
relation to stakeholder engagement and corporate culture.
Current trading and outlook
The first quarter of our financial year (calendar Q4) is historically
the quietest trading period for the Group. We are pleased to
report a strong early trading performance, supported by a
slightly earlier release of summer capacity by major low cost
carriers, lower year-on-year seat prices for winter departures
and a continued efficiency in marketing spend. This current
performance is in line with our expectations and the Board
believes the business is well positioned for the key trading
period that commences in late December and continues into Q1
2019.
Whilst the consumer environment continues to be challenging,
we remain confident in the resilience and flexibility of our
business model. The Board will also continue to evaluate
acquisition opportunities that will both increase scale and
deliver value for shareholders.
The Board will provide a further update on trading at the AGM
on 7 February 2019.
AGM
Our AGM will be held at 11am on 7 February 2019 at the
Group’s new headquarters at Aeroworks, 5 Adair Street,
Manchester, M1 2NQ.
We look forward to welcoming shareholders.
Lee Ginsberg
Chair of the Board, On the Beach Group plc
28 November 2018
10
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
OTB GROWTH STRATEGY
Huge opportunities exist to build significant
share of our core and adjacent markets
N
N SI O
A
P
X
E
R C O
U
O
OFFLINE
ONLINE
E
R
Drive TRAFFIC
through branded &
direct channels
Personalise
offering to drive
CONVERSION
LONG HAUL
SHORT
HAUL
INNOVATE THROUGH
INVESTMENT IN TALENT
& TECHNOLOGY
UK
INTERNATIONAL
Drive REVENUE
through direct &
differentiated supply
INSPIRE customers
who are destination
agnostic
BEACH
HOLIDAY
HOTEL
ONLY &
VILLAS
11
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Chief Executive Officer’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 focused on driving traffic to site efficiently with
improvements to our bespoke bid management capability,
driving Group online marketing spend as a percentage of
revenue down 4.1 percentage points to 37.2% and our
revenue after marketing costs increasing 15.8%.
Our continued growth has been delivered by executing a
simple strategy to personalise our customer proposition to
increase conversion and improve margin, and at the same
time drive an efficient increase in our market traffic share. Our
growth provides further evidence of our ability to gain market
share from traditional tour operators and other online travel
agents (OTAs) in a summer where unprecedented weather
conditions weakened demand for beach holidays.
The business has also adapted to manage significant
legislative change within the financial year including the
implementation of the second Payment Services Directive
(prohibition of credit card charges for consumers) (PSD2),
the General Data Protection Regulation (GDPR) and The
Package Travel and Linked Travel Arrangements Regulations
(PTRs).
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
with branded share of traffic at its highest ever level of
63.9% of overall traffic (FY17: 59.3%).
› 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 traffic is now 66% of total
traffic and smartphone bookings have increased 48%
year on year.
Increasing the directness of our relationships with end
suppliers to achieve 70% 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 14%
year on year.
› Driving an increasing proportion of sales into exclusive
product whilst maintaining our lean cost base and risk
free model.
Investing to increase the visibility of the Sunshine.co.uk
brand in the paid search auction.
›
› The acquisition of Classic, which supports our strategic
goal to gain a share of the offline market by providing
third party agencies with an online portal which allows
access to a wide range of value-for-money beach holiday
product.
“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.”
Simon Cooper
Chief Executive Officer
Group gross profit £m
Core revenue after marketing costs £m
£92.6m
+ 10.8%
FY17: £83.6m
£52.0m
+15.8%
FY17: £44.9m
12
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Market
We believe that overall demand for short haul beach holidays
was slightly down on the previous year because of the
unprecedented warm weather from May through to August.
These weather conditions had a particularly noticeable effect
on the lates market. We expect that continued growth in online
penetration resulted in our addressable market remaining
broadly flat year on year.
We have observed the following market trends:
› A strong return in appetite for customers to travel to
destinations in the Eastern Mediterranean, most notably
Turkey.
› A shortfall in seat capacity following the Monarch collapse
for departures in the winter and spring followed by a
significant increase in seat prices.
› Lower seat price inflation for summer departures because of
a reprogramming of capacity and a reduction in demand in
the lates market.
› Aggressive discounting by tour operators in the lates
market to fill risk capacity.
› Strong demand for forward bookings with a slight
weakness in the recent period, perhaps attributable to
confusion / confidence over the outcome of Brexit
negotiations.
Investment in brand
We have continued to invest in an efficient multi-channel
approach supported by our sophisticated bid management
capability and have enhanced our cross-device attribution
capability, giving us greater clarity on the return on marketing
investment of multi-device traffic. This has allowed us to
continue to take share of market traffic, with increasing
efficiency. The auction dynamics have remained relatively
benign throughout FY18 with transient periods of aggressive
spending by a range of competitors.
Our brand continues to strengthen, supported by our
investment into a fully national offline marketing campaign and
sponsorship of the ITV show Benidorm. We have optimised
our in-house econometric modelling to allow us to monitor
the effectiveness of our offline marketing spend and are well
advanced with our planning for our largest ever campaign
in 2019. In the three years since we launched iPhone, iPad
and Android apps, we have achieved in excess of one million
downloads, and an increasing percentage of traffic and
bookings comes via our mobile apps. We have also invested
to build booking management capabilities and reminder
functionality 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
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 and support
the sale of package holidays post the implementation of the
new PTRs on 1 July 2018. We are delighted to have maintained
our excellent Net Promoter Scores and that our repeat purchase
rates have increased significantly through FY18.
The Group has now moved its headquarters into a bespoke
facility close to the centre of Manchester and believes this will
better support our drive to recruit and retain the best digital
talent to allow us to out-innovate the market. The Contact
Centre will continue to operate from its current base in Cheadle,
where we will refit the existing contact centre with 50% more
desk space to support our continued growth.
We continue to recruit and grow talent internally and have
recently moved to a twice annual ‘Ruby Academy’ to train
20 internal and external candidates each year to add to our
technology teams. In October we welcomed our new CTO
Stefan Nordin into the business and we believe his prior
experience will greatly assist us in our ambition to double the
size of our digital capability over the next three-to-five years.
We are also pleased to welcome on board the team of 124
staff from Classic who will continue to operate out of Classic’s
existing office in Worthing.
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 70% 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.
We have also added resource to build our portfolio of directly
contracted hotel product in longer haul destinations to support
our expansion into Dubai and over the coming year we will add
resource and product in the Indian Ocean, Thailand and the
Caribbean.
In FY18 more than 30% 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 2019 and to convert our
differentiated supply position into incremental margin. We
continue to explore opportunities to contract with partner
airlines on a more strategic basis to deliver incremental revenue
for partner airlines.
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 via an
opaque booking path and to allow us to build innovative search
tools for customers who are destination agnostic.
International
After significant growth of 51% in H1, the whole of
Scandinavia experienced unprecedented warm weather for the
period from early May until the middle of August. Against this
backdrop, demand weakened and our competitive position in
the market was severely impacted by widespread discounting
of distressed product by Sweden’s leading tour operators.
13
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Chief Executive Officer’s report
In these conditions, across the four month period, the sensible
course of action was to cut marketing activity to a background
level, with a significant impact on revenue performance but
a saving versus forcast losses with a view to reinvesting the
savings made at the start of the new financial year.
During FY18 we launched ebeach.dk in Denmark to complete
the Scandinavian rollout. Against the backdrop of the warm
summer the investment into this brand was naturally limited by
lack of demand in the background market.
Strategy and growth
It continues to be the Group’s vision to be Europe’s leading
online retailer of beach holidays.
On the Beach continues to deliver significant growth in its core
and adjacent markets 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 traffic through branded and
direct channels
3. Personalising our customer proposition
4. Leveraging increased revenue through direct and
differentiated supply
5. Expanding our model into new search technologies, source
markets, destinations, channels and products
Our key strategic pillars for FY19 are:
1. Out-innovating through agility and investment in talent and
technology;
›
Continuing to invest into our people and our
platform to allow us to innovate at an increasing pace
and in doing so, stay ahead of the competition.
Reinforce company-wide values based on
innovation, simplicity, communication, respect and
great customer experience.
Use our new digital HQ in central Manchester to
ensure we are well placed to attract and retain the
best talent.
2. Driving an efficient increase in traffic through branded and
direct channels;
›
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 and reinvesting a proportion of these
synergies to drive increased online visibility.
Seeking further value-enhancing merger and
acquisition opportunities.
›
›
›
›
›
3. Personalising our 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.
Enhancing personalisation by supplementing
capabilities with data science and machine learning.
Building a multifunctional app to engage directly
with users and provide a higher standard of service in
an efficient manner.
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 search technologies, source
markets, destinations, channels and products;
›
›
›
›
›
Building online functionality to inspire customers who
are destination agnostic.
Leveraging our core capabilities to expand
internationally.
Expanding our long haul offering to monetise existing
search volumes.
Building and launching an online portal to allow
third party agencies to offer our product to the five
million holidaymakers booking through offline
channels.
Expanding our product offering to include a wider
range of hotel and villa product.
Current trading and outlook
The first quarter of our financial year (calendar Q4) is historically
the quietest trading period for the Group. Demand for travel
in 2019 has started off strongly supported by a slightly earlier
release of summer capacity by major low cost carriers and
lower year-on-year seat prices for winter departures. This
has been supported by ongoing efficiencies in the Group’s
marketing spend.
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 2019.
The Board will provide a further update on trading at the AGM
on 7 February 2019.
Simon Cooper
Chief Executive Officer
28 November 2018
14
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Our top destinations
Sliema
Costa Del Sol
Rhodes
Florida
Riviera
Maya
Sardinia Mykonos
Marsa Alam Larnaca
Ibiza
Dubai
Venice
Goa
Hurghada
NeapolitanRiviera
Costa CalidaBodrum
Dubrovnik Riviera
Crete Corfu
Zante
Dalaman
Santorini
Kos
Fuerteventura
Antalya
Qawra
Mellieha
Tremithousa
Limassol
Split Dalmatia
St Julians
Athens
Costa De Almeria
Agadir Bugibba
Varna
Halkidiki
Gran Canaria
Costa Brava
Lanzarote
SkiathosPaphos
Tenerife
Sunny Beach
MarrakechSicily
Kusadasi Area
Lisbon
St Pauls Bay
Preveza
Monastir
Milan
Barcelona
Majorca
Costa Blanca
Algarve
Costa Dorada Rome
Sal Island MenorcaIzmir Area
Provence Alpes Cote d Azur
Kefalonia
15
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Key performance indicators
Core segment: revenue (1)
Marketing spend as a percentage of revenue (1)
Continuing growth with an increase of 9.0% on the
prior year
Marketing % of revenue decreased to 37.2% (2017: 40.9%)
excluding offline and to 41.8% (2017: 45.2%) including offline
£89m
£82m
£70m
£62m
£46m
£38m
52.8%
50.7%
51.3%
48.7%
48.6%
49.9%
45.2%
44.6%
40.9%
41.8%
37.2%
e
u
n
e
v
e
r
s
a
%
i
)
e
n
fl
f
o
.
l
c
x
e
(
g
n
i
t
e
k
r
a
M
60%
50%
40%
30%
20%
10%
0%
2013
2014
2015
2016
2017
2018
2013
2014
2015
2016
2017
2018
Marketing spend (excl. offline)
Offline spend
Marketing (excl. offline) % revenue
Marketing % revenue total
Costs as percentage of revenue (1)
Daily UVs (millions) & revenue per daily UV (1)
Fixed costs: Includes head office salaries, office related
costs and IT expenditure
Variable costs: Comprise mainly of Contact Centre wages
and credit card fees
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 1% whilst revenue per daily UV
increased to £1.27 (2017: £1.17)
e
u
n
e
v
e
r
%
s
t
s
o
C
19%
17%
15%
13%
11%
9%
7%
5%
2013
2014
2015
2016
2017
2018
)
s
n
o
i
l
l
i
m
(
s
V
U
y
l
i
a
D
80
70
60
50
40
30
20
10
-
£1.21
£1.17
£1.27
£1.15
£0.96
£0.93
Variable costs
Fixed costs
Legend
Total costs excluding holding Co. costs
Daily UVs
2012 - 2017
Daily UVs 2018
Revenue per daily UV
2013
2014
2015
2016
2017
2018
(1) UK only excluding Classic Collection Holidays
£60m
£50m
£40m
£30m
£20m
£10m
£0m
£1.40
£1.20
£1.00
£0.80
£0.60
£0.40
£0.20
£0.00
-
16
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Direct contracting as a percentage of bed supply
International segment: revenue
Direct contracting: Sourcing hotel beds for customers
directly from hotels rather than via third-party bed-banks as
intermediaries
Continuing growth to 70%
Decrease in revenue of 5.9% in FY18
80%
70%
60%
50%
40%
30%
20%
10%
0%
£1.7m
£1.6m
£1.1m
£0.7m
£0.1m
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Operating cash and cash conversion as a percentage of
adjusted EBITDA
Adjusted profit before tax (2)
Operating cash: Cash generated from continuing operations
less capital expenditure
Adjusted profit before tax grows by 17.9% to £33.6m
(FY17: £28.5m)
Cash conversion: Operating cash before exceptional items as
% of adjusted EBITDA
35
30
25
20
15
10
5
0
140%
120%
100%
80%
60%
40%
20%
0%
£14.5m
£10.5m
£9.9m
£33.6m
£28.5m
£21.3m
2013
2014
2015
2016
2017
2018
2013
2014
2015
2016
2017
2018
Operating cash
Cash conversion %
(2) Group Adjusted profit before tax is profit before tax, amortisation of acquired
intangibles of £4.6m (FY17: £4.3m), share based payments £1.4m (FY17:
£0.5m) and non-underlying costs of £1.5m (FY17: £2.7m)
17
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Chief Financial Officer’s report
The Group now organises its operations into three principal
financial reporting segments, being Core (the “Core segment”;
the Group’s established market), International (the “International
segment” being the Group’s international markets) and
Business to Business (B2B) (the “B2B” segment is the Group’s
recently acquired business Classic Collection Holidays and
its subsidiaries). For FY18, the B2B segment includes the
performance of Classic and its subsidiaries from the date of
acquisition, 15th August 2018. As a principal, Classic and its
subsidiaries account for revenue on a “travelled” basis and
therefore report revenue on a gross basis.
In each of the Core segment and the International segment, the
Group offers dynamically packaged holidays but with options to
book single element products such as flights or hotels, in each
case acting as an agent rather than a principal.
Core segment performance
Revenue
Revenue after marketing costs
Variable costs
Fixed costs
Holding Company costs
Share based payments
Depreciation and amortisation (1)
EBIT
Adjusted EBITDA(2)
EBITDA %
2018
2017 Change
%
£m
£m
9.0%
89.3 81.9
44.9
52.0
15.8%
(4.9)
(6.6)
(6.2)
(6.7)
(0.6)
(0.8)
(0.5)
(1.4)
(2.4)
(3.0)
30.3
33.5
37.9
33.2
42.4% 40.5%
10.6%
14.2%
(1) Excludes amortisation of acquired brand and website technology intangible
assets of £4.4m (2017: £4.3m)
(2) EBITDA excludes share based payments
Revenue and marketing costs
Revenue increased by 9.0% to £89.3m (FY17: £81.9m).
Revenue per daily unique visitor increased by 8.5% to £1.27
(FY17 £1.17). During the year we also continued to increase the
directness in our relationships with our suppliers through the
volume of in-house accommodation bookings to 70% (FY17:
65%).
Marketing expenses (excluding offline) for the year to 30
September 2018 as a percentage of revenue decreased to
37.2% (FY17: 40.9%) with total spend of £33.2m (FY17:
£33.5m). This reflects further optimisation of our online spend,
a continued increase in the share of branded and direct traffic
together with lower demand during the summer.
We have again increased spending in the year on offline TV
advertising campaigns to £4.1m (FY17: £3.5m). Continuation
of the full national campaign, together with the second year of
sponsorship of the ITV Benidorm programme, drove greater
brand awareness.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
“We completed a further
acquisition, Classic Collection
Holidays, which gives On The
Beach a ‘business to business’
channel through which we can
access the circa five million
short haul beach holidays that
each year are booked offline.”
Paul Meehan
Chief Financial Officer
Group gross profit £m
Core revenue after marketing costs £m
£92.6m
+ 10.8%
FY17: £83.6m
£52.0m
+16.0%
FY17: £44.9m
Adjusted core EBITDA £m
Core EBITDA % of revenue %
£37.9m
+14.2%
FY17: £33.2m
18
42.4%
FY17: 40.5%
EBITDA
Overheads excluding holding company costs increased to
14.9% of revenue, reflecting higher average booking values,
operational investment ahead of Package Travel Regulations
and the impact of Sunshine.co.uk acquisition.
Overheads as % of revenue
Variable costs % revenue
Fixed costs % revenue
Overheads % revenue
Holding Company costs % revenue
Total
2018
2017
7.4% 6.0%
7.6%
7.5%
13.6%
14.9%
0.7%
1.0%
14.3%
15.9%
Holding company costs have increased in the year to £0.8m
(FY17: £0.6m) due entirely to National Insurance charges on
share based payments.
Adjusted Core EBITDA of £37.9m (FY17: £33.2m) increased by
14.2% and Adjusted Core EBITDA as a percentage of revenue
increased from 40.5% to 42.4%. The closest GAAP equivalent
measure to Adjusted Core EBITDA is Core operating profit
which increased by 18.4% to £27.7m (FY17: £23.4m).
International segment performance
Revenue
Revenue after marketing costs
Variable costs
Fixed costs
Depreciation and amortisation
EBIT
EBITDA
2018
£m
1.6
(1.4)
(0.3)
(0.5)
(0.2)
(2.4)
(2.2)
2017 Change
%
£m
5.9%
1.7
(1.6)
12.5%
(0.2)
(0.2)
(0.2)
(2.2)
(2.0)
9.1%
10.0%
In addition to the international platforms in Sweden and
Norway, operating under the ‘www.ebeach.se’ and ‘www.
ebeach.no’ domains respectively, the Group also launched a
further international platform in Denmark in FY18, operating
under the ‘‘www.ebeach.dk’’ 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 International EBITDA is operating loss
which increased to £(2.4)m (2017: £(2.2)m).
International Segment performance
Revenue £m
£1.6m
-5.9%
FY17: £1.7m
EBITDA £m
£(2.2m)
-10.0%
FY17: £(2.0)m
B2B segment performance
Revenue
Revenue after marketing costs
Variable costs
Fixed costs
Depreciation and amortisation
EBIT
EBITDA
2018
£m
13.2
1.6
(0.1)
(0.4)
(0.2)
0.9
1.1
On 15th August 2018, we completed a further acquisition,
Classic Collection Holidays, which gives On The Beach a
‘business to business’ channel through which we can access
the circa five million short haul beach holidays that each year are
booked offline.
As a principal, Classic accounts for revenue on a ‘travelled’ basis
and therefore reports revenue on a gross basis.
Group gross profit
Group gross profit now comprises core, international and B2B
revenues and has increased by 10.8% in the year to £92.6m
(FY17: £83.6m). This is a result of growth in core revenue of
9.0% and the inclusion of Classic revenue since the date of
acquisition. The resulting increase in Group profit before tax is
23.7% to £26.1m (FY17: £21.1m), the prior year having been
impacted by the exceptional costs relating to the Monarch
failure.
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.
2018
£m
2017 Change
%
£m
Group profit before taxation
26.1
21.1
23.7%
Amortisation of acquired intangibles 4.6
Share based payments
Exceptional costs
Non-underlying costs(1)
1.4
0.6
0.9
4.3
0.5
2.6
-
Adjusted profit before tax
33.6
28.5
17.9%
(1) Non-underlying costs comprise one-off property and litigation costs
19
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Chief Financial Officer’s report
Group profit before taxation £m
Adjusted profit before tax £m
£26.1m
+23.7%
FY17: £21.1m
£33.6m
+17.9%
FY17: £28.5m
Profit for the year £m
Adjusted profit for the year £m
£21.5m
+19.4%
FY17: £18.0m
£27.7m
+20.9%
FY17: £22.9m
Basic EPS pence
16.5p
+19.6%
FY17: 13.8p
Adjusted proforma EPS pence
21.2p
+20.5%
FY17: 17.6p
Finance costs
The net finance cost for the year was £0.1m (FY17: £0.1m).
With strong cash management the maximum revolving credit
facility drawdown during the year was £29.5m. During the
year, the Group extended the revolving credit facility to 31
December 2019 and reduced its facility from £35 million to
£28.5 million to cover seasonal working capital requirements.
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, October 2017
and December 2017. In accordance with IFRS2, the Group has
recognised a non-cash charge of £1.4m (FY17: £0.5m).
Exceptional items
Exceptional items for the year to 30 September 2018 were
£0.6m (FY17: £2.7m). These costs relate to deal costs in
relation to the acquisition of Classic. In FY17 exceptional costs
included costs related to the failure of Monarch Airlines Ltd and
the acquisition of Sunshine.co.uk Ltd amounting to £2.7m.
Taxation
The Group tax charge of £4.6m represents an effective tax rate
of 17.6% (FY17: 12.0%) which was lower than the standard
UK rate of 19.0% (FY17: 19.0%).
Earnings per share
Basic and diluted 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 19.6% to 16.5
pence in FY18 (FY17: 13.8 pence).
The adjusted earnings per share based on adjusted earnings
increased 20.5% to 21.2 pence (FY17: 17.6 pence). The table
below shows the adjustment from actual earnings:
2018
£m
21.5
2017 Change
%
£m
19.4%
18.0
Profit for the year
Add backs:
2.2
0.5
Exceptional costs
-
Non underlying costs
0.7
3.4
Amortisation of acquired intangibles 3.8
0.4
1.2
Share based payments
ATCA(1) tax adjustment
(1.1)
-
Adjusted profit for the year
27.7 22.9
Number of ordinary shares in issue
at year end; assumed to be
outstanding for the full year and
comparative period (millions)
Adjusted earnings per share (pence) 21.2
131.0 130.4
17.6
20.9%
20.5%
(1) The adjustment in respect of FY17 is in relation to an agreed Advanced Thin
Capitalisation Agreement (ATCA) for financial years ended 30 September
2014 and 2015
The adjustments above are stated net of tax at 19.0%
20
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Cash flow and net debt
The Group continues to see strong cash generation with
operating cash flows 18.0% higher at £28.9m (FY17: £24.6m),
resulting in cash conversion of 79% (FY17: 79%). Excluding
the working capital movement resulting from the acquisition
of Classic, and capital expenditure relating to the new HQ,
underlying operating cash conversion(1) is 90%.
Adjusted operating cash flow £m
Operating cash conversion %
£28.9m
+18.0%
FY17: £24.6m
79%
FY17: 79%
2018
£m
36.8
Cashflow and Net Debt
EBITDA excluding Share based
payments charges
(3.8)
Capitalised development spend
(1.9)
Movement in working capital
(2.2)
Capital expenditure
28.9
Underlying operating cash flow
Operating cash conversion
79%
Adjusted operating cash conversion 90%
Dividend per share pence
Net external cash(3) £m
2017 Change
%
£m
17.9%
31.2
3.3p
+17.9%
FY17: 2.8p
£47.3m
FY17: £33.0m
(2.7)
(3.3)
(0.6)
24.6
79%
88%
18.0%
(1) Adjusted cash conversion is operating cash flow divided by EBITDA
excluding the impact of the acquisition of Classic, and capital expenditure
relating to the new HQ. Please see glossary on page 136 for reconciliation to
nearest GAAP measure.
Net external cash at the year-end was £47.3m (2017: £33.0m).
Dividend
The Directors are recommending a final dividend of 2.2p per
share, totalling 3.3p per share for the year (FY17: 2.8p per
share), an increase of 17.9%. Subject to shareholders’ approval
at the Annual General Meeting (‘AGM’) on 7 February 2019, the
dividend will be paid on 14 February 2019 to shareholders on
the register of members at the close of business on 11 January
2019.
Paul Meehan
Chief Finance Officer
28 November 2018
21
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
OUR VALUES: SIMPLICITY
“
Working with teams from across the business
means that we’re able to consider numerous
perspectives and look at problems from
different angles to make sure that we always
deliver a simple solution that exceeds our
James Senior UX Designer
customers’ expectations. ”
22
22
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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 which could threaten its business model, 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 2017
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 as set
out below.
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.
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.
Management of risks
The Executive management
implement the risk management
plans agreed by the Board and
monitor changes in risks or risk
management plans on an ongoing
basis, reporting to the 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.
23
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Risk management & principal risks
and uncertainties
CHANGE TO RISK PROFILE SINCE 2017 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.
Factor
Risks impacted
Explanation
The exit of the
United Kingdom
from the European
Union (“Brexit”)
Consumer confidence
Supply chain risk
Competition risk
People risk
Foreign exchange risk
VAT complexity
Regulatory risk
The UK will leave the EU on 29 March 2019 at 11pm. On the Beach
has carried out a thorough Brexit impact assessment and has
considered the impact of various Brexit outcomes on the business
including its business model, future performance, solvency and
liquidity.
Risks if deal agreed
Provided that a binding agreement can be reached on the terms
of the withdrawal, and political agreement can be reached on the
future relationship, there will be a transition period until at least 31
December 2020 in which a binding agreement will be reached on the
terms of the future relationship. During the transition period, the UK
remains within the single market and customs union so the rights of
businesses and citizens remain largely untouched so the impact of
the UK being outside the EU would be minimal in this period.
If there is a delay in agreeing a deal, this could affect consumer
confidence and consumer demand, particularly in the peak season for
bookings in January.
Risks if no deal agreed
Flight disruption
In the event that the UK exits the EU with no deal agreed, there could
be disruption to flights for a short time while new aviation rights are
agreed. The government says that even in the event of “no deal”
it is likely to be able to agree a “bare bones aviation agreement” to
prevent disruption to flights.
If there was disruption to flights, On the Beach would incur costs
in repatriating/accommodating customers stranded overseas,
would lose margin on the holidays cancelled as a result of the
disruption, and consumer appetite to book holidays during the
period of disruption may be reduced. However, by virtue of its
asset-light, flexible business model, where it does not carry flight
or accommodation stock, the impact to On the Beach is inherently
reduced when compared with airlines and tour operators.
Failure of suppliers or other travel companies
The biggest risk for On the Beach in the event of flight disruption is
the higher likelihood of airline failures and the costs On the Beach
would incur as a result (see supplier failure risk). However, the failure
of competing travel companies would have a positive effect on On
the Beach’s competitive proposition.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
CHANGE TO RISK PROFILE SINCE 2017 ANNUAL REPORT (CONT.)
Factor
Risks impacted
Explanation
The exit of the
United Kingdom
from the European
Union (“Brexit”)
continued.
Regulatory Changes
Consumer confidence
Reputation risk
Regulatory risk
Currency
A no deal scenario could have a destabilising effect on the
currency markets. Our hedging policy removes transactional
currency risk, but there is a risk that as the pound weakens,
holidays are more expensive and this affects consumer
demand, and makes On the Beach more expensive than tour
operators who bulk-buy currency in advance. Conversely, if the
pound were to strengthen, holidays become cheaper, mitigating
competition risk.
Consumer confidence
Consumer confidence and appetite to book may be reduced in
the event of a no deal scenario, especially if the UK falls into a
recession.
People risk
The Group employs many EU citizens, in key areas of the
business, 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 which came
into force in 2018 which brought regulatory changes for the
business. Any incorrect application of the new rules could
lead to fines and / or damage the Group’s reputation.
› By virtue of the PTRs, each booking taken by the Group
after 1 July 2018 which comprises two or more services will
be considered a package. This means that, although On the
Beach/Sunshine remain as agent and the customer’s
contracts are with the end suppliers, we will have statutory
obligations to ensure the proper performance of the
package by the suppliers and to compensate the customer
where something goes wrong. The Group is therefore
exposed to claims from customers and although we have
insurance in place, and we can often recover from the
relevant supplier, the costs of putting in place the insurance
and handling claims are higher than before.
› GDPR came into force in May 2018. Fines for non-
compliance can be up to €20 million. The Group planned
and prepared carefully to ensure it was compliant with
GDPR. We continue to monitor GDPR compliance along
with data security.
›
In January 2018 the Second Payment Services Directive
came into force which means that it is prohibited to charge
customers for credit card payments but the Group continues
to incur costs.
› Any unfavourable interpretation of existing laws
could adversely affect the Group’s business and financial
performance, for example HMRC could challenge the
VAT treatment the Group has applied which could result in
additional unrecoverable VAT, plus interest and penalties.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Risk management & principal risks
and uncertainties
CHANGE TO RISK PROFILE SINCE 2017 ANNUAL REPORT (CONT.)
Factor
Risks impacted
Explanation
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.
› Recent supplier failures make customers nervous about
booking holidays, however this is mitigated by the Group’s
ATOL and ABTA protection which gives consumers financial
security.
› The Group does not have relationship agreements in place
with a number of low-cost airlines, some 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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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Principal risks & uncertainties
1. TRADING
Operational risks
Risk description and impact
Mitigation & management
Direction of
change
1.1
Consumer
confidence risk
›
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.
› Brexit, and particularly the possibility
of a “no deal” Brexit, with disruption to
flights, affects consumer confidence.
This is likely to worsen the longer the
delay in agreeing a deal.
› 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.
› Failures of other OTAs and suppliers
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.
1.2.1
Supply chain risk
(no deal Brexit/
disruption to flights)
If the UK exits the EU with no deal, there
could be a short period of disruption to
flights while an aviation deal can be done.
This would cause financial loss for the
Group as well as indirect consequences
including potential supplier failure, and
reduced consumer demand.
› This is considered extremely unlikely
because of the dire consequences for
both the UK and the EU.
1.2.2
Supply chain risk
(security of supply)
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.
› 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.
› We are building strong relationships
with certain airlines.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Principal risks & uncertainties
1. TRADING (CONT.)
Operational risks
Risk description and impact
Mitigation & management
Direction of
change
1.2.3
Supply chain risk
(supplier failure)
If a supplier were to collapse, this could
result in significant direct and indirect
costs for the Group (e.g. the cost of
replacing flights or refunding customers,
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.
› The airlines that would cause the most
financial loss (easyJet and Ryanair) are
considered at extremely low risk of
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.
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. If the
pound is weak, tour operators have a
competitive advantage because they
hedge currency in advance. If demand is
low in late summer, the tour operators will
heavily discount committed stock.
› 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 likely
to fail, creating opportunities for OTB
to take market share and to reduce
paid search marketing costs.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
1. TRADING (CONT.)
Operational risks
Risk description and impact
Mitigation & management
Direction of
change
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 six
months to ensure that the longer
term infrastructure plan is aligned with
predicted growth and capacity needs.
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.
A Brexit deal, or no deal, that restricts free
movement of people restricts our ability to
attract and retain EU staff.
› 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 has relocated its head
office to a new digital HQ in central
Manchester to ensure it can attract
and retain the best talent.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Principal risks & uncertainties
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.
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
Tax complexity
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.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
3. LEGAL
Operational risks
Risk description and impact
Mitigation & management
Direction of
change
The Group has instructed an expert
legal team with particular expertise and
experience in such cases to protect its
legal position and maximise its chances of
success.
3.1.1
Litigation risk
(airline litigation)
Ryanair 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 previous annual report, which
was that 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 caused a delay to the
anticipated timescales communicated in
the Prospectus issued at the time of IPO.
Litigation is unpredictable and if Ryanair
were to prevail, this could have a material
impact on the Group’s business.
3.1.2
Litigation risk
(consumer litigation)
Personal injury claims: OTB receives
personal injury claims from customers
(e.g. holiday sickness, trips and falls,
swimming pool and balcony incidents).
For bookings made prior to 1 July 2018,
OTB has no legal liability although
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.
For package bookings made after 1 July
2018, On the Beach has liability as the
package organiser for personal injury
claims and has to defend these claims
on the basis of liability, and to recover
costs from the relevant suppliers and/or
insurance.
› For bookings made before 1 July
2018: OTB acts as a travel agent and
not as principal in relation to each
holiday element, and it does not sell
“packages”. OTB’s processes,
practices and paperwork firmly
support this and it is considered
to have the strongest agency/package
defence in the industry.
› For bookings made after 1 July 2018,
OTB has internal and external legal
support to manage claims and
mitigate risk.
› 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.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Principal risks & uncertainties
3. LEGAL (CONT.)
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 Regulation, General
Data Protection Regulation and the
Second Payment Services Directive all
came into force during 2018 increasing
the responsibilities and potential liabilities
of the Group and the costs of doing
business.
Unfavourable changes to our
interpretation of existing laws could
adversely affect the Group’s business and
financial performance.
The Company has an internal legal team
and external legal advisers to advise the
Group on current and forthcoming legal
requirements and to manage legal and
regulatory issues as they arise.
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.
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 2021, 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
23 to 32 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.
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OUR VALUES: DELIVERING A GREAT CUSTOMER EXPERIENCE
“
We’re here to ensure our customers
enjoy their perfect beach holiday, and
providing 24/7 support whilst they’re
in resort means we’re only ever a
quick phone call or email away. ”
Lauren Senior Operations Advisor
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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Corporate social responsibility
We have a clear vision which lies at the heart of all that we do:
To be Europe’s leading retailer of beach holidays. Our purpose
is to make it easy for people to find, book and enjoy their
perfect beach holiday.
Remaining focused on our goal, and working hand in hand to
get there, are critical to us achieving our aims. A clearly defined
set of company values that run through the business and act as
a guide, a thriving culture, and of course our people, are central
to our success.
D ELIVE RI NG A GREAT
CUS TO MER EXPERIENCE
These five values run as a central seam through everything that
we do: from the people that we recruit, to the time we devote
to research and development in support of innovation, and from
our emphasis on collaboration to our policies. Embedding these
values at every level of the business ensures that we remain
aligned and focused. These values also provide the pillars on
which our company culture is built and thrives.
Our Values
S I M P L I C I T Y
DELI VERIN G A G RE AT
CUSTO ME R EXPERI EN CE
Our mission is to make it easy for
DELI VERIN G A G RE AT
people to find, book and enjoy their
DEL IVERI NG A G RE AT
CUSTO ME R EXPERI EN CE
CUSTO MER EXPERI ENCE
perfect beach holiday.
I N N O V 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!
I N N O V A T I O N
I N N O V A T I O N
S I M P L I C I T Y
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
Working together, we quickly identify
the simplest solution for every
challenge by being smart and can-do.
R E S P E C T
R E S P E C T
We appreciate and understand each other’s
styles, experiences and approaches, by
being down to earth and empathetic. By
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
DEL IVERI NG A G RE AT
CUSTO MER EXPERIE NCE
I N N O V A T I O N
We are creative and aspire to do
things differently. We deliver change
with speed and learn quickly.
Our people and culture
Our people are the driving force behind On the Beach’s
success, so attracting, retaining and engaging colleagues
that share our values is really important. We are therefore
committed to making On the Beach a great place to work
and ensuring that colleagues feel valued and happy in their
careers. Our company culture, working environment and
colleague engagement all play a pivotal role in this.
I N N O V A T I O N
R E S P E C T
Company culture
In 2018 we undertook a piece of work to give us
comprehensive insight into our company culture and its
impact on our stakeholders. This will allow us to define what
a successful culture for the business looks like and establish
a cultural framework to embed this in the business. The first
stage of this project has involved consulting with colleagues
to understand what makes up the On the Beach DNA,
how this impacts on our stakeholders, and identify how we
continue to ensure that this thrives. This project will continue
in the coming year as we implement a cultural framework that
drives success.
Working environment
We are committed to providing a working environment that
supports and reflects our values, and in which our employees
can flourish. In November 2018, On the Beach opened a
new, campus style digital headquarters at the Aeroworks
building in Manchester’s city centre, which has become home
to the business’ digital teams. This provides us with the
opportunity to create a best in class office space and working
environment that will allow us to attract and retain the very
best digital talent in the region and beyond.
The plans for the office opening and relocation of our digital
teams involved an extensive employee engagement initiative,
which included one-to-one interviews, workshops and online
surveys. As a result, the new space and its state-of-the-art
facilities have been designed specifically for our employees
and provide a working environment that allows us to become
more collaborative, increasing our ability to innovate.
This office opening provides the space needed for the
company to expand its digital teams from its current numbers
of 200 to more than 350 in the next three to five years
(bringing the total workforce to more than 500 employees by
2023).
The Contact Centre will remain at the Group’s Cheadle office,
which will also undergo a major redesign and refit in January
2019, again creating a working environment which engages
and enables employees.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
S I M P L I C I T Y
R E S P E C T
C O M M U N I C A T I O N
On the Beach new digital headquarters
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The new office at Manchester’s Aeroworks building
is designed with our employees, our values and
our company culture in mind. Features such as
an auditorium and theatre, as well as plenty of
collaborative workspace will allow teams to work
together, share information and innovate more easily.
State-of-the-art communication and collaboration
technology has been installed throughout the entire
space and social areas, including a relaxation space, bar
and a games room also provide the facilities to create
a fun and engaging working environment that allows
us to compete with the Northwest’s leading digital
businesses to attract and retain the very best talent.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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On the Beach new digital headquarters
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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Corporate social responsibility
Colleague communication
With communication one of our core values, maintaining a
two-way dialogue with employees is essential. To support
this, a range of communication channels and tools are in place
which not only keep employees informed of key business news,
updates and developments, but also allow them to share their
thoughts, ideas and feedback, helping to make sure that their
voices are heard – and, importantly, listened to.
A quarterly company magazine, Beach Life, which is created by
colleagues for colleagues, shares the latest news and updates
from around the business and its brands, as well as colleague
insight to help bring us closer together. It also celebrates our
teams and business triumphs to help maintain our drive for
success. Business updates are held on a quarterly basis and
bring all employees together to hear from our Executive and
senior leadership teams on the latest company performance
and news.
A central communications email has been introduced, from
which regular email updates are shared with colleagues to
provide timely business insight – feedback to these emails is
always encouraged and responded to.
Face to face ‘Ask the CEO’ sessions take place frequently on
a departmental basis and provide teams with the opportunity
to ask any questions they have regarding the business directly
to our CEO, providing an excellent opportunity for feedback
and two-way communication. An Ask the CEO email address
supports these sessions, and allows people to email the CEO
directly with questions or suggestions for the business and
receive a direct response. An ‘Ideas@’ inbox is also in place to
encourage creative thinking and foster a culture of innovation
across the business.
As we approached the opening of the Manchester office, a
number of communications activities were introduced to inform
colleagues, seek their input and feedback and engage them
ahead of the move. This includes the creation of a working
group of departmentally-appointed representatives, the launch
of a microsite housing video content, articles, a calendar for
key dates and Trello board to provide an open insight into the
planning process and its progression. Regular ‘townhall’-style
meetings have also been introduced as well as Q&A sessions
with the working group. Surveys have been carried out on
everything from office facilities to transport and travel to make
sure that employee input is sought and considered.
Engagement
Engaged employees are essential to achieving our aims and
realising our mission of becoming Europe’s leading online
retailer of beach holidays.
A number of initiatives are in place to support this:
› Hive, our employee survey tool was introduced in 2017 and
twice yearly surveys have been carried out since then to
gauge employee satisfaction and engagement. In May
2018’s survey, completion rates increased by 15% and
satisfaction scores increased by 9% on that of November
2017.
› An Employee Engagement committee, comprising
spokespeople from every department, meets quarterly to
provide feedback to senior management on satisfaction and
engagement within teams and look at ways in which this
can be constantly improved.
› Social events take place regularly within the business to
help foster On the Beach’s friendly and open culture, as well
as encourage collaboration through forging stronger
relationships between colleagues. These include the annual
Christmas party, as well as a summer picnic and BBQ, along
with departmental activities.
› Employees’ length of service is rewarded and celebrated,
with colleagues receiving Long Service Awards for their five
and ten year anniversaries with the business.
› Hive Fives are a feature of our Hive employee survey tool,
and allow employees to give a colleague a virtual ‘Hive
Five’ in celebration of a job well done. They are serving as
an excellent way for colleagues to share feedback whilst
also motivating and celebrating employees.
› We have trialled wellbeing activities in the office, including
free exercise and yoga classes to provide employees with
an opportunity to focus on their own health and wellbeing,
which is something which we intend to continue.
Community and fundraising
Making a meaningful contribution to the community is
something which we are passionate about - whether that’s
supporting charity activities or giving local school children
opportunities to explore technology and learn new skills.
This year we have been involved in a number of community
initiatives:
› We provide work experience opportunities on a regular
basis and this year hosted seven students on week-long
placements across the business.
› As a part of the Manchester Digital group, we supported
Tameside Hack – a week-long hack event for children in
secondary school for which we provided mentors from our
Development team.
› We attended the 2018 Manchester Digital Skills Festival
where we talked to students about our graduate
development opportunities.
› A number of our Development team are STEM (Science,
Technology, Engineering, Mathematics) Ambassadors,
meaning they provide support and mentoring to children
aged 5 – 18.
› Each year we run our Ruby Academy – a training scheme
for developers in using Ruby code – and this year we
welcomed six onto the training scheme.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Corporate social responsibility
› With the opening of digital headquarters in Manchester,
we plan to host a range of events to engage the city’s
growing technology and digital communities, including
lightning talks, knowledge shares and showcases and an
Events coordinator role is being introduced to oversee this.
› Our charity committee brings together employees to look at
how we can support a range of causes. The committee is
responsible for engaging people around the business to
galvanise support for worthy causes and this year we have
supported a number of charities, including Children in Need,
Manchester Children’s Hospital, Cancer Research and
Macmillan.
Diversity and inclusion
The benefits of a diverse and inclusive leadership and workforce
are clear, with the widest range of perspectives leading to
increased creativity, innovation, debate, understanding and
ultimately better decision making.
Our company values are respect, innovation, simplicity,
customer experience and communication. Diversity and
inclusion have to be at the very heart of our culture and fully
embedded in the business if we are to live up to our values and
achieve our strategy.
As diversity and inclusion are so critical to the long-term
success of the company, this has been an area of particular
focus during 2018, and has been central to a number of
initiatives during the year, including Board appointments,
senior management appointments and succession planning,
stakeholder engagement (both employee and shareholder), our
people strategy, and our review of our corporate culture.
We know this is an area that our stakeholders are passionate
about, and it will continue to be an area of clear focus with top
level commitment.
Gender pay gap
In March 2018 On the Beach published its first Gender Pay Gap
Report, looking at the difference in average pay between all
men and women in the company’s workforce (as at April 2017).
The report found, on average, hourly pay for a woman to be
26.7% less than a man.
This is due to the high proportion of men in technology and
digital roles and the ratio of men to women in senior roles. As a
result, the highest paid people in the organisation are made up
more of men than women.
Whilst the pay gap at On the Beach is typical of tech
businesses - and is considerably smaller than that of most
businesses in the travel industry - it is by no means something
which we are complacent about. We are committed to
reducing the gender pay gap, as well as encouraging diversity
throughout the business – beyond gender and in its widest
form.
In response to this, an internal project has been established
to focus on helping the business create an environment that
supports the development and recruitment of women into its
most senior and technology roles. Engaging a cross-section
of women from around the business, the outputs of this
project will include the introduction of mentoring schemes
and coaching, educational activities such as unconscious bias
workshops, and a review of our HR policies and our equality &
diversity policy.
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 benefits of a diverse
and inclusive leadership and
workforce are clear, with the
widest range of perspectives
leading to increased creativity,
innovation, debate,
understanding and ultimately
better decision making. ”
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate social responsibility
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.
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.
Greenhouse gas emissions
Because the Group’s business is online only, with no retail
footprint, the Group’s environmental footprint is small, as
demonstrated by the relative emissions, by revenue, as set out
in the table below. The Group’s footprint has grown this year
due to the fact that we took occupation of our new office in
April 2018 and we became responsible for paying utilities on
the new office at that point.
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 offices are leasehold and all electricity and gas is
provided through and billed by the landlords. The Group has
therefore relied on information provided by the landlords. The
methodology used to calculate the numbers below used the UK
Government GMG Conversion Factors for Company Reporting
(2017/2018 as appropriate).
Greenhouse gas emissions by Scope
Scope 1
Gas consumption
Scope 2
Electricity consumption
Total emissions
Relative emissions, by revenue
Unit
2018
Quantity2
2017
Quantity1
Tonnes CO2e
88.18
87.69
Tonnes CO2e
Tonnes CO2e
Tonnes CO2e/£m
revenue
422.95
511.13
5 6.1
424.87
512.56
1
These figures are based on information from 1 June 2016 to 31 May 2017 so they do not correspond exactly to the FY17 reporting period, but the actual energy
consumption during the reporting period was not materially different from the stated period.
2 These figures are based on information from 1 June 2017 to 31 May 2018 so they do not correspond exactly to the FY18 reporting period, but we expect that the
actual energy consumption during the reporting period will not be materially different from the stated period.
40
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Awards & achievements
TRAVOLUTION AWARDS 2018
Best Travel Agent Website
TRAVOLUTION AWARDS 2018
Most User-Friendly App
TRAVOLUTION AWARDS 2018
Best Use of Data
TRAVOLUTION AWARDS 2018
Travolution Lifetime Achievement
Award - Simon Cooper
UK STOCKMARKET AWARDS 2018
Best Travel and Leisure PLC
HITWSE WISE AWARDS
Fastest Risers in Audience-Based Digital
Marketing E-Commerce
FEEFO AWARDS 2017
Trusted Service Award 2017
TRAVOLUTION AWARDS 2017
Best for Holidays
TRAVOLUTION AWARDS 2016
Best Technology Team
THE SUN TRAVEL AWARDS 2016
Travel Editor’s Award
BVCA MANAGEMENT TEAM AWARDS 2016
National CEO of the Year - Simon Cooper
TTG TOP 50 TRAVEL AGENTS 2016
Top Online Travel Agent
TRAVOLUTION AWARDS 2015
Best Travel Agent Website Award Best Use
of Search Engine Marketing Award
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Governance
Stakeholder Engagement
43 Chairman’s Statement
44
45 Directors’ biographies
48 Corporate Governance Statement
55 Report of the Nomination Committee
57 Report of the Audit Committee
61 Directors’ Remuneration Report
85 Other Statutory and Regulatory
Disclosures
89 Independent Auditor’s Report to the
members of On the Beach Group plc
94 Statement of Directors’ responsibilities in
respect of the Annual Report and the Financial
Statements
42
42
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Introduction from Chair of the Board
Board composition and diversity
There have been a number of changes to the Board during the
course of the year.
Following a recruitment process (described in detail on page
56) we were delighted to welcome Elaine O’Donnell to the
Board on 3 July 2018. Elaine has completed a thorough
induction process and has immersed herself in the Group and,
she continues to add value in a number of areas.
On 3 September 2018 I succeeded Richard Segal as Chair of
the Board and Chair of the Nomination Committee. On the
same day, David Kelly succeeded me as Senior Independent
Director and Elaine O’Donnell succeeded me as Chair of the
Audit Committee.
I will step down as Chair of the Board and of the Nomination
Committee at the end of November in order to focus on other
time-commitments, but I will continue to serve as Non-
Executive Director of the Group. David Kelly will serve as
Chair of the Board on an interim basis while the Nomination
Committee oversees the search for a permanent Chair of the
Board.
Elaine’s appointment has gone some way to addressing the
gender imbalance on the Board. However, the Board continues
to consider its composition and diversity will continue to be a
key matter considered by the Nomination Committee in any
future Board recruitment process. Diversity and inclusion were
considered by the Nomination Committee during the year and
continue to be a key area of ongoing focus for the Board and
management (see pages 39 and 56).
Board evaluation
We have carried out a full, thorough and tailored internal 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 53.
Shareholder engagement
We are committed to engaging and maintaining an active
dialogue with all our shareholders. I would like to encourage our
shareholders to attend our Annual General Meeting which will
be held at 11am on 7 February 2019 at our new headquarters
at Aeroworks, 5 Adair Street, Manchester, M1 2NQ. It will
provide an excellent opportunity to meet the Executive and
Non-Executive Board Directors and to visit our new digital
headquarters in Manchester.
We will continue to review developments in Corporate
Governance best practice and we are mindful of the increasing
focus on all stakeholders.
Lee Ginsberg
Chair of the Board
43
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 illustrated on the opposite page.
Compliance with UK Corporate Governance Code 2016
The 2016 edition of the Financial Reporting Council (FRC) UK
Corporate Governance Code (the “Code”) applied to the Group
during the course of this year and I am pleased to confirm that
the Group is in full compliance. During FY18, the Group was
classed as a “smaller company” for the purposes of the 2016
Code. Due to the Group’s promotion to the FTSE 250 in FY18,
the Group will cease to be a “smaller company” in FY19 and a
number of additional provisions will apply to the Group during
the course of FY19 and the Group is taking steps to facilitate
compliance with the reporting requirements which will apply to
it in FY19.
The FRC released an updated version of the Code on 16 July
2018 which applies to accounting periods beginning on or
after 1 January 2019. The new Code will therefore apply to
the Group during the course of the financial year ending 30
September 2020 (FY20). However, the Board is fully supportive
of the new Code, particularly around the importance of
stakeholder engagement and corporate culture, and the Board
is taking steps to comply with the new Code in FY19.
The report which follows this introduction will set out in detail
how the Group ensures compliance with the provisions of the
2016 Code and how it is moving towards compliance with
the additional provisions of the 2016 Code which will apply
in FY19, and its progress to preparing for compliance with the
2018 Code.
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Stakeholder engagement in 2018
Examples of engagement
Examples of issues addressed by stakeholders
Customers
› Customer Service
› 24/7 emergency assistance
› Assistance line for customers
in resort
› Social Media
› Net Promoter Score
› Online surveys and focus groups
› Personalised experiences
› Flexible payment plans
› Holiday checklist
› Airline insolvency
› Resolve supplier issues
Increase service quality
›
› Deliver product (supply) quality
› Enhance product e.g. payment plans
›
Increase repeat purchase rates
› Pre-departure checks/assistance
Employees
› HIVE (internal engagement barometer)
› Values and culture workshops
› Beach Life (Internal magazine)
› OTB employee council
› Role swaps
› R&D weeks (innovation weeks)
› Meet the CEO/ Ideas inbox
› OTB Big Breakfasts/Picnics/BBQ
› Townhall meetings
› Hack week
› Office relocation/refurbishment
› Employee satisfaction
› Gender Pay Gap Report
› Remuneration and benefits
› Development, Training & Qualifications
› Volunteering Opportunities
› Diversity & Inclusion
› Culture
› Spanish language classes
› Company performance
› Share schemes
Innovations
›
Shareholders
› Annual general meeting
› Annual Report
›
Individual meetings
› OTB growth strategy
› Corporate Governance
› Remuneration
› Diversity & Inclusion
Suppliers
› Conferences and forums
› Business tools and MI development
› Daily interactions and quarterly meetings
› Supply strategy – drive more volume into
top selling partnerships
Improve co-operation and partnerships
›
› Drive deeper relationships with key suppliers
› Customer service
› Package Travel Regulations
44
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Directors’ biographies
Simon Cooper
CHIEF EXECUTIVE OFFICER
Paul Meehan
CHIEF FINANCIAL OFFICER
Lee Ginsberg
NON-EXECUTIVE CHAIR OF THE BOARD
Simon Cooper is the founder and Chief
Executive Officer of On the Beach.
Simon began his career in the travel
industry while attending university
when he founded ski holiday company
On the Piste Travel Limited in 1996,
which went on to be purchased by
Thomson (now TUI) in 2008.
On the Beach was created in 2004 as
a sister company, specialising in beach
holidays and running on a platform
operated by Teletext Holidays, with
bookings taken via a call centre. The
Company launched its first website
in 2004 and expanded rapidly,
securing private equity investment
from Livingbridge in 2007 and going
on to secure further investment from
Inflexion private equity in 2013.
Simon led the business through its IPO
in 2015 and its entry into the FTSE 250
in 2018.
Simon is also a Non-Executive Director
of CurrentBody.com Limited
Appointed to Board:
17 August 2015
Independent:
No
External appointments:
Non-Executive Director of
Current Body.com Limited
Committee memberships:
Disclosure
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.
Paul previously held CFO/FD positions
in a number of businesses in the UK,
including online retail, gaming and
technology businesses.
Appointed to Board:
16 January 2017
Independent:
No
External appointments:
None
Committee memberships:
Disclosure
Lee Ginsberg joined the Company in
August 2015 and became Chair on 3
September 2018. He is a Chartered
Accountant by profession and was
previously Chief Financial Officer of
Domino’s Pizza Group plc, having
joined the business in 2004 and retired
on 2 April 2014.
Prior to his role at Domino’s 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
Chair of the Audit and Risk Committee
of Reach plc and a Non-Executive
Director and Senior Independent
Director of Softcat Plc. Lee is also the
Non-Executive Deputy Chair, Senior
Independent Director and Chair of the
Audit Committee of Patisserie Valerie
Holdings plc.
Appointed to Board:
17 August 2015
Independent:
Yes
External appointments:
Softcat Plc
Oriole Restaurants
Reach Plc
Patisserie Valerie Holdings plc
Committee memberships:
Audit (Chair until 3 September 2018),
Nomination (Chair from 3 September
2018), Remuneration
45
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Directors’ biographies
Richard Segal
NON-EXECUTIVE CHAIR OF THE BOARD
UNTIL 3 SEPTEMBER 2018
David Kelly
NON-EXECUTIVE DIRECTOR & SENIOR
INDEPENDENT DIRECTOR
Elaine O’Donnell
NON-EXECUTIVE DIRECTOR
Richard Segal served as the Non-
Executive Chair of the Board until
3 September 2018 and as a Non-
Executive Director until 28 September
2018. He is Chairman of Racing Post,
Direct Ferries and Encore Tickets.
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. He holds a BA in Economics
from Manchester University and is a
member of the Institute of Chartered
Accountants of England and Wales.
David Kelly joined the Company in
August 2015 as a Non-Executive
Director and Chair of the Remuneration
Committee. David was appointed
Senior Independent Director on 3
September 2018. David is currently
a Non-Executive Director of The Gym
Group Plc. 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 Chair/
Non-Executive Director of Pure 360.
Appointed to Board:
17 August 2015 (resigned on 28
September 2018)
Independent:
Yes
External appointments:
Spread A Smile
Encore Tickets
Racing Post
Direct Ferries
Committee memberships:
Audit, Nomination (chairman until 3
September 2018),
Remuneration, Disclosure
Appointed to Board:
28 August 2015
Independent:
Yes
External appointments:
The Gym Group Plc
Reach Plc
Holiday Extras
Pure 360
Simply Business
Camelot UK Lotteries
Prezola Limited
Atcore Technology Group Ltd
Committee memberships:
Audit, Nomination,
Remuneration (chair)
Elaine joined the company in July 2018
as a Non-Executive Director and is
Chair of the Audit Committee. Elaine
is also currently a Non-Executive
Director at Findel Plc (where she is
also Chair of Audit Committee), Games
Workshop Group Plc (where she is
Chair of Remuneration and Nomination
Committee) and MSIF (where she is
also Chair of the Board of the wholly
owned subsidiary Alliance Fund
Managers (AFM)).
Prior to that Elaine was a Partner
at Ernst & Young LLP where she
specialised in Corporate Finance,
Mergers and Acquisitions. Elaine is a
Chartered Accountant and holds a BA
(Joint Hons) in Accountancy and Law.
Appointed to Board:
3 July 2018
Independent:
Yes
External appointments:
MSIF
Games Workshop
Findel plc
Committee memberships:
Audit (chair from 3 September 2018),
Nomination, Remuneration
46
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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“
OUR VALUES: COMMUNICATION
Two heads are nearly
always better than
one and our working
environment, which
supports collaboration
and open communication,
is brilliant for bringing
teams together to share
news and develop ideas.”
Andrea Head of Communications and Content
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
47
47
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
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 Guidance 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 2018 (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.
Throughout the reporting period, the Company was a
“smaller company” as defined in the Code. As the Company
entered the FTSE 250 during the reporting period, the
Company will cease to be a smaller company with effect
from the reporting period commencing on 1 October 2018
and ending on 30 September 2019 (FY19).
Details and explanations of the application of the principles
of corporate governance are set out in the following sections
of this Corporate Governance Statement.
BOARD
OF
DIRECTORS
Executive
Directors
Nomination
Committee
Renumeration
Committee
Audit
Committee
Disclosure
Committee
Executive
Team
Leadership
Role of the Board
The Board is comprised of five members: the Non-Executive
Chair of the Board, two Executive Directors and two Non-
Executive Directors (for the period between 3 July 2018 and 28
September 2018, there were three Non-Executive Directors).
Details of the skills and expertise of each member of the Board
is set out in the profiles on pages 45 and 46.
The Board is also 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.
48
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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;
›
› 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.
Internal controls, including maintenance of a sound system of internal control and risk management;
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
Role and terms of reference
Members
Report on page
Audit Committee
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.
Elaine O’Donnell (member since 3 July 2018,
Chair from 3 September 2018)
Lee Ginsberg (Chair until 3 September 2018)
David Kelly
Richard Segal (until 28 September 2018)
Remuneration
Committee
Responsible for all elements of
the remuneration of the Executive
Directors and the Chair, and other
members of senior management.
David Kelly (Chair)
Lee Ginsberg
Richard Segal (until 28 September 2018)
Elaine O’Donnell (from 3 July 2018)
Nomination
Committee
Reviews structure, size and
composition of Board and its
Committees and makes appropriate
recommendations to Board.
Lee Ginsberg (Chair from 3 September 2018)
Richard Segal (Chair until 3 September 2018,
member until 28 September 2018)
David Kelly
Elaine O’Donnell (from 3 July 2018)
Disclosure
Committee
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)
Lee Ginsberg (from 3 September 2018)
Richard Segal (until 3 September 2018)
Paul Meehan
57
61
55
N/A
49
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE 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 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;
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 and 3 meetings of
the Nomination 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 Chair and Chief Executive Officer are exercised by
different individuals. The division of responsibilities between
the Chair and the Chief Executive Officer has been defined,
formalised in writing, and approved by the Board.
The Chair 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
›
›
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
›
setting Group human resource policies, including
›
management development and succession planning for
the Senior Executive team.
Non-Executive Directors and Senior Independent Director
In addition to the Chair, 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
Chair 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 Chair, CEO or
other Executive Directors has failed to resolve or for which
such contact is inappropriate. David Kelly was appointed
Senior Independent Director on 3 September 2018 when
Lee Ginsberg stepped down from this position upon his
appointment as Chair of the Board.
Regularly, following the end of board meetings the Chair
and Non-Executive Directors meet formally without the
Executive Directors present in order to provide evaluation on
the Executive Directors. Similarly, the Non-Executive Directors
meet to evaluate and appraise the Chair’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.
facilitating the effective contribution of Non-Executive
ensuring constructive relations between Executive and
make sound Board decisions;
›
Directors;
›
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.
50
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
EFFECTIVENESS
Composition of the Board: balance of skills and
independence
As a ‘‘smaller company’’, the Code recommends that the
Company should have at least two independent non-executive
directors. The Board consists of two Non-Executive Directors
(excluding the Chair) 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.
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
Chair 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 each of Richard Segal (Chair until
3 September 2018) and Lee Ginsberg (Chair from 3 September
2018) 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) each
Director’s shareholding in the Company; and (ii) the material
business relationships he has developed within the Group over
his tenure with the Company. The Board is satisfied with the
judgment, experience and approach adopted by each Director
and has determined that each Director is of independent
character and judgment, notwithstanding the circumstances
described at (i) and (ii) above, on the grounds that in the context
of each Director’s wider business interests and shareholdings,
this is not material and therefore unlikely to challenge their
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. The
Nomination Committee were involved in all Board changes
during the year. Please see page 55 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
On the Beach’s IT development team, but we are committed to
taking steps to attract and retain women into our IT team (see
page 39 for more details).
Should a Board vacancy arise, the recruitment process will
be led by the Nomination Committee who will ensure that
diversity, in all forms, is taken into consideration. See the report
of the Nomination Committee on page 55 for further details.
51
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Corporate governance statement
As at 30 September 2018, the average age of our employees
was 33 years old and the gender split between employees was
as follows:
Male
Female Percentage
of female
employees
Directors of the
Company
Senior management
Other employees
4
1
20%
29
151
13
307
31%
49%
AGM
Our Annual General Meeting will be held at 11am on 7
February 2019 at Aeroworks, 5 Adair Street, Manchester M1
2NQ. All shareholders will have the opportunity to attend and
vote, in person or by proxy, at the AGM. The notice of the AGM
is available on our corporate website 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 Chair, the Non-Executive Directors and the CEO each hold
external directorships, and these are disclosed within their
profiles on pages 45 and 46.
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.
Other employees
Senior Management
Directors of the Group
0%
20% 40% 60% 80% 100%
Male
Female
Development of Directors
The Company has an induction programme for all new
Directors joining the board which was completed by Elaine
O’Donnell during the year. The Chair 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.
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. The Chair 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.
52
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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 Chair. 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 third undertaken by the
Company and was conducted in-house. Next year the Board
will consider whether to consider to undertake an externally
facilitated evaluation.
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 Chair. 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 and it was
acknowledged that the appointment of Elaine O’Donnell
had improved diversity on the Board which was previously a
concern.
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.
David Kelly, as Chair of the Remuneration Committee, has
engaged major shareholders in advance of the proposed
changes to the remuneration policy (see pages 65 to 72).
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, David Kelly, 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 85 to 87 contains
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
28 November 2018
53
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE “
OUR VALUES: INNOVATION
As a tech driven company,
innovation isn’t just a buzz word
to us. We’re proud to punch above
our weight, and we’re aiming every
day to out-innovate the market, be
they industry stalwarts or Silicon
Valley start-ups. ”
Chris Director of Product and Innovation
54
54
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Report of the Nomination Committee
I am pleased to introduce the report of the Nomination
Committee for the year ended 30 September 2018.
Members of the Nomination Committee
Richard Segal (until 28 September 2018, Chair until 3
September 2018)
Lee Ginsberg (Chair from 3 September 2018)
David Kelly
Elaine O’Donnell (from 3 July 2018)
› 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.
Three meetings were held during the year:
Percentage of
Meetings
attended/ Total meetings
meetings held attended
3/3
Richard Segal
3/3
David Kelly
Lee Ginsberg
3/3
Elaine O’Donnell N/A
100%
100%
100%
N/A
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.
Succession planning - Board
In accordance with its Terms of Reference the Committee
must ensure progressive refreshing of the Board, taking into
account the challenges and opportunities facing the Company
and what balance of skills and expertise are needed on the
Board in the future. At the Committee meeting in May 2018,
the Committee noted that the current Board had been in place
since the Company listed in September 2015 and therefore it
was a natural point for directors to consider their future with
the Board.
Appointment of new Chairman - May 2018
Richard Segal expressed his intention to step down following
an orderly succession management process. In line with Code
Provision B.3.1, the Committee prepared a job specification
including an assessment of the time commitment expected,
recognising the need for availability in the event of crises.
I was identified by the Committee as an obvious and suitable
candidate to succeed Richard as Non-Executive Chair of the
Board.
The Committee concluded that I met the requirements of
the role specification, was independent for the purposes of
the Code and could devote sufficient time to the role. It was
further noted that as Senior Independent Director, and having
served as a Director for three years, I was well qualified for the
role of Chair, so it was not necessary or desirable to undertake
an external search.
The Committee therefore recommended the appointment of
Lee to the Board of the Company as Non-Executive Chair of
the Board.
“Diversity is critical to the future
success of the business and the
Committee fully appreciates the
benefit of a diverse Board in ensuring
the broadest range of views,
constructive debate and challenge
and in good decision making.”
Lee Ginsberg
CHAIRMAN, NOMINATION COMMITTEE
55
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Report of the Nomination Committee
Appointment of Senior Independent Director - May 2018
My appointment to Non-Executive Chair of the Board meant
that there was a need to appoint a new Senior Independent
Director (SID).
The purpose of the SID, as set out in the Code, was to provide
a sounding board for the Chair and to serve as an intermediary
for the other Directors when necessary. The SID would also be
available to shareholders if they had concerns which could not
be addressed through the usual channels.
The Committee concluded that David Kelly, who had served as
Non-Executive Director and Chair of Remuneration Committee
for three years, had the appropriate skills to be able to discharge
the role of SID and therefore the Committee recommended this
appointment to the Board.
Appointment of additional Non-Executive Director and
Chair of Audit Committee - July 2018
My appointment to Non-Executive Chair of the Board meant
that there was a need to appoint a new Chair of Audit
Committee and a new Non-Executive Director and the
Committee led the search for a new Director that had the skills
to fulfil this role. The Committee engaged the services of PWC
LLP to assist with the search.
Appointments to the Board continue to be made on the basis
of merit against objective criteria to ensure the appointment of
the best candidate for the role. However, given the importance
of diversity, the Committee requested that the shortlist of
candidates was as diverse as possible and that there be a fair
gender balance. The strongest candidate for the role by far
was Elaine O’Donnell, who was not only an excellent cultural
fit but also whose wealth of experience in finance and across
a range of businesses (including M&A expertise) was clearly of
enormous benefit to the Group.
Succession planning
Continuing the work undertaken in the 2017 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. 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.
In particular, the Committee was involved in the succession
management processes for:
› Alistair Daly (formerly Chief Marketing Officer), who was
succeeded by Alan Harding, who stepped up into a
Jonathan Smith (formerly Chief Technology Officer), who
Marketing Director role in April 2018; and
›
was succeeded by Stefan Nordin as the new CTO in
October 2018.
Diversity
Diversity (in all respects including in terms of socio-economic
background, race, ethnicity, gender, sexual orientation, age,
physical abilities, religious and political beliefs) is critical to
the future success of the business and the Committee fully
appreciates the benefit of a diverse Board in ensuring the
broadest range of views, constructive debate and challenge and
in good decision making.
The Nomination Committee considered the diversity on the
Board during the year, particularly the fact that following
the retirement of Wendy Parry and the appointment of Paul
Meehan in 2017, the Board became all-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 agreed that the
Board should not specifically look to recruit a Director purely
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.
Further Board changes - November 2018
I will step down as Chair of the Board and of the Nomination
Committee at the end of November in order to focus on other
time commitments, but I will continue to serve as Non-
Executive Director of the Company. David Kelly will serve as
Chair of the Board on an interim basis while the Nomination
Committee oversees the search for a permanent Chair of the
Board.
Board evaluation & re-election of Directors
The Committee reviewed the results of the Board evaluation
and Director appraisal process as described on page 53 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.
Lee Ginsberg
Chair, Nomination Committee
28 November 2018
56
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Report of the Audit Committee
I am pleased to present the Audit Committee Report for 2018,
my first as Chair of Audit Committee.
Three meetings were held during the year:
With the assistance of management and KPMG, 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 audit 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
Elaine O’Donnell (member since 3 July 2018, Chair since 3
September 2018)
Lee Ginsberg (Chair until 3 September 2018)
Richard Segal (member until 28 September 2018)
David Kelly
› Composed of three independent Non-Executive Directors
› Elaine O’Donnell 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 45 and 46).
› At least three meetings held per year
› Meetings are attended by the Chief Financial Officer, Chief
Executive, Company Secretary and external auditor by
invitation
Meetings
attended
3/3
Lee Ginsberg
3/3
David Kelly
Richard Segal
3/3
Elaine O’Donnell 1/1
Percentage of
meetings
attended
100%
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 2018 half-year
statement and Annual Report 2018.
Work undertaken by the Committee in relation to 2018
Financial Statements
The Committee has reviewed the content of the 2018 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.
“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. ”
Elaine O’Donnell
CHAIR, AUDIT COMMITTEE
57
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Report of the Audit Committee
The Group will shortly commence a tender process for the
appointment of an external auditor. The tender process
will be supervised by the Committee, who will then make
a recommendation to the Board on the appointment or
reappointment of the audit (as applicable).
In the meantime, the Group will be propsing the re-appointment
of its current auditor at the 2019 AGM.
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 £0.2m). 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 (FY18), it was
disclosed that fees totalling £nil were paid to KPMG 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. The Committee was satisfied that it complied with all the
provisions of the Code; Elaine O’Donnell has (and prior to her
appointment, Lee Ginsberg had) substantial recent and relevant
financial experience, along with experience in the technology
and/or consumer sector and the other members of the
Committee have experience in both the travel and technology
and/or consumer 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 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.
No whistleblowing reports were recevied during the year.
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 (in particular with the move to two
head-office sites, and the acquisition of Classic Collection) as
to whether an independent Internal Audit Department would
be more appropriate and to set down the guidelines for the
operation of such a department, or alternatively, whether the
Group should operate a rolling programme of internal audit with
the support of an external adviser.
In line with its terms of reference, during the year, the Audit
Committee has undertaken reviews on the Company’s
processes, procedures and safeguards.
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 findings of the external auditor in respect of both the
financial statements for the six-month period ending 31
March 2018 and for the year ended 30 September 2018.
› 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 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, due to the length of time
that KPMG have been auditors to the Group (11 years), the
Committee considers that it is in the best interests of the Group
to undertake a tender of the external audit.
58
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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;
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:
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.
Component
Approach
Basis for assurance
Risk
management
Financial
reporting
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.
Updated by the Executive team twice a year
and reviewed and approved by the Board
annually
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.
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.
Budgeting and
reforecasting
Reviews structure, size and composition of the
Board and its Committees and makes appropriate
recommendations to the Board.
Performed using a bottom-up approach with
reviews performed by the Executive team and
the Board.
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.
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
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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
Valuation of intangibles arising on the acquisition of
Classic Collection Holidays Limited
The accounting for the acquisition of Classic Collection
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 accuracy of the completion accounts for the acquisition of
Classic Collection and the post-sale funds flow.
60
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Remuneration report
Annual Statement of the Chairman of the Remuneration Committee
Dear Shareholder,
As Chairman of the Remuneration Committee, I am pleased to
present the Company’s Remuneration Report for the year to 30
September 2018.
The Group has continued to deliver strong financial results
this year, including an increase of Group profit before tax of
23%, an increase in Group adjusted profit before tax of 17.9%,
an increase in adjusted proforma EPS of 20.5% and a total
shareholder return of 25.3%
In the context of this performance and as noted last year, one of
the main activities of the Committee over the past 12 months
has been to review the Remuneration Policy (the “Policy”)
which was approved by shareholders following the Group’s
IPO in September 2015 and is therefore due for renewal
at the 2019 AGM. The Committee’s review also took into
consideration the significant progress of the business since
flotation.
As set out earlier in the report, the strategy of the business has
evolved since the Group’s IPO as evidenced by the M&A activity
in particular. In order to support this, the Board understood the
need to carefully underpin the values and behaviours in the
business and reinforce the culture required to drive the business
forward. This has touched many parts of the business including
the investment into a new office in the heart of Manchester
city centre. From a remuneration perspective, the Committee
has sought to enhance the remuneration strategy to ensure
continued strong alignment with the delivery of business
objectives and reward the successful delivery of these.
As a consequence, the Committee undertook a detailed
review which highlighted that the link between performance
and reward needed to be strengthened to enable the Group
to ensure it can recruit and retain key talent at all levels. The
Committee’s review therefore has been focussed on ensuring
an appropriate mix of fixed versus variable pay in order that
the senior team remain aligned with shareholders by creating
shareholder value, balanced with ensuring that the level of
variable pay that can be realised is enhanced when robust
performance conditions are met.
Following this review and having taken into account developing
market practice and feedback received from shareholders
through a detailed consultation process, the Committee will
be putting forward a new Policy for approval at the AGM on 7
February 2019.
Full details of the proposed Policy are set out on pages 65 to72,
but the key changes are:
› The introduction of bonus deferral, such that up to 50% of
future annual bonus awards will be deferred into shares
for two years;
› The introduction of non-financial bonus performance
measures to increase alignment with the wider business
strategy, while retaining a primary focus on stretching
financial performance;
› The LTIP opportunity will increase from 150% to 200% of
base salary; and
› The shareholding requirement will increase from 150% to
200% of base salary.
The Committee has also begun to consider how it will meet
the requirements of the new UK Corporate Governance
Code (the “Code”) from next year. The Group already has
an established employee engagement programme in place,
with regular employee engagement meetings chaired by the
CEO, separate working groups for specific projects (including
diversity & inclusion and the new office), and the Committee
has determined that the most appropriate approach to ensure
an effective two-way dialogue between the wider employee
population and the Board is to appoint a Non-Executive
Director responsible for this role. Over the coming year the
Group will identify which of the Independent Non-Executive
Directors will take on this responsibility and formalise how and
when their involvement will be incorporated into the existing
employee engagement framework.
“The Committee has sought to
enhance the remuneration strategy
to ensure continued strong alignment
with the delivery of business
objectives ”
David Kelly
CHAIR, RENUMERATION COMMITTEE
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Remuneration report
While the Committee already has oversight of the remuneration
practices of the senior management and across the wider
business, the Committee’s terms of reference will also be
reviewed to formally reflect the requirements of the new Code,
including the extension of remit.
Remuneration highlights for the 2018 financial year
In 2018, remuneration highlights included the following:
› As part of its wider review of remuneration this year the
Committee also reviewed base salaries during the year. The
Chief Financial Officer’s base salary was increased
to £310,000 from 1 October 2018 to reflect his strong
performance since appointment and increased
responsibilities around M&A activity and shareholder
engagement.
› The Committee recognises that the Chief Executive Officer’s
current base salary is below the market level, but when
setting his base salary has continued to have regard to his
considerable shareholding in the Company and so no
increase will be awarded this year.
› The annual bonus measures were based on financial targets
which 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
2018 financial year will be paid.
› The performance period for the LTIP awards which were
granted following our IPO ended on 30 September
2018. Performance was assessed against EPS (70%
weighting) and returns to shareholder (30% weighting).
EPS performance in 2018 was 21.3 pence and therefore
0% of this element of the LTIP awards vested. Exceptional
value was created for shareholders over the three year
performance period with an annualised TSR of 32.4%. As
a result, 100% of the TSR element of the LTIP awards
vested. Overall therefore 30% of the first grant of LTIP
awards vested.
› LTIP awards for the 2018 financial year were granted on 20
December 2017. The awards will vest at the end of a
three year performance period and will be subject to a
further two year holding period. In line with previous
awards, the performance metrics for these awards are
based 70% on EPS performance and 30% on returns to
shareholders.
› The Committee approved the award of restricted stock to
a number of key members of the senior management team
in October 2017 in order to maximise alignment between
the senior management team and shareholders and address
the retention challenges being faced by the Company at this
level. The awards will vest in October 2020. No awards
were made to Executive Directors.
62
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
7
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Key activities of the remuneration committee
The Remuneration Committee met 8 times during the 2018
financial year and its key activities were as follows:
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Approval of FY17 performance and remuneration decisions for Executive Directors
Review of group-wide pay and conditions
Review of FY17 year end compensation process and budgets for all employees
Consideration of reward strategy for the broader employee population and employee
engagement
Review of Executive Directors’ remuneration
Review of gender pay report
Assessment of FY17 performance
Approval of FY18 annual bonus plan
Preliminary review of FY19 annual bonus plan in light of policy review
Approval of FY18 performance measures and awards
Grant of LTIP awards
Approval of FY18 restricted share award
Review of proposal for FY19 restricted share awards
Review of in-flight awards
Approval of the FY17 DRR
Planning for FY18 DRR
Review performance of independent advisers and fees over the year
Preparation for AGM
Market update session
Review Terms of Reference
Update on Remuneration Policy review
63
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Remuneration report
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.
› The Directors’ Remuneration Policy, which sets out the
Company’s proposed remuneration policy for directors, the
key factors which were taken into consideration in setting
the policy and details of the changes from the current policy.
The proposed policy will be put to a binding shareholder
vote at the 2019 AGM and will apply for three years from
the date of approval.
› The Annual Report on Remuneration which sets out
payments made to the Directors and details the link
between Company performance and remuneration for
the 2018 financial year. The Annual Report on
Remuneration together with this statement is subject to
an advisory shareholder vote at the 2019 AGM.
The Committee is committed to ensuring that we are
responsive to developments in best practice, as well as a
transparent approach in respect of executive pay. 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 helpful
and informative, and I look forward to your continued
support at the Company’s Annual General Meeting
David Kelly
Chair of the Remuneration Committee
28 November 2018
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Remuneration policy
Introduction
This section describes the Committee’s Policy on the
remuneration of Directors. The Policy will be put to shareholders
for approval at the AGM on 7 February 2019. If approved, it will
come into effect from the date of the AGM and is intended to
apply for a period of three years.
The Remuneration Committee considers that a successful
remuneration policy needs to be sufficiently flexible to
take account of future changes in the Company’s business
environment and in remuneration practices, while delivering
appropriate remuneration for the performance, responsibility,
skills and experience of Executive Directors.
The Policy is therefore designed around the following key
principles:
› Shareholder alignment - Ensure a strong link between
reward and individual and Company performance to align
the interests of Executive Directors, senior management and
employees with those of shareholders;
› Competitive remuneration - Maintain a competitive
package against businesses of a comparable size and
nature in order to attract, retain and motivate high calibre
talent to help ensure the Company’s continued growth and
success;
› Strategic alignment - Provide a package with an
appropriate balance between short and longer term
performance targets linked to the delivery of the Company’s
business plan;
› Performance focused compensation - Encourage and
support a high performance culture; and
› Setting appropriate performance conditions - in line with
the agreed risk profile of the business.
Changes to the remuneration policy that were approved by
shareholders at the AGM in 2016
The Committee has undertaken a review of the existing
remuneration policy to ensure it is fit for purpose following the
Company’s transition into a more mature, business over the last
three years since IPO. As a result, the Committee is proposing
to make changes to the incentive plans as well as to increase
the shareholding requirement, as outlined below.
Element of
remuneration
Current policy
Amendment to policy
Reason for change
Base salary and
benefits
Salaries are reviewed annually and any
changes are normally effective from 1
January in the financial year.
No change
N/A
Pension
A competitive level of benefits is provided.
15% of base salary for existing Executive
Directors. Pension contribution will be
aligned with the wider workforce for any
future recruited Executive Director.
Annual bonus
Up to 100% of base salary.
For every £1 above the Board
approved PBT budget, a proportion
goes into a bonus pot which is
used to fund Executive and Senior
Manager bonuses.
No change
N/A
Up to 100% of base
salary, with up to 50%
of any award deferred
into shares for a period
of two years.
The majority of the
annual bonus will be
based on performance
against stretching
PBT targets, with the
balance based on non-
financial metrics which
are aligned to the
business strategy.
Introduction of bonus deferral
aligns with market best practice
and ensures that performance is
sustained over the longer term.
Adjustment of performance
measures ensures stronger
alignment between performance
of the business and annual
bonus outcomes and enables
measurement of non-financial
metrics which are core to the
wider business strategy, while
maintaining an appropriate level
of stretch.
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Remuneration policy
Element of remuneration
Current policy
Amendment to policy
Reason for change
Long term incentive plan
Up to 150% of base salary.
Three year performance period plus a
two year post-vesting holding period.
Performance based on EPS and TSR
performance.
Up to 200% of base
salary.
Three year
performance period
plus a two year post-
vesting holding period.
Performance based
on EPS and TSR
performance.
Shareholding
requirement
150% of base salary
200% of base salary
Maximise alignment
between Executive
Directors and
shareholders
by increasing
weighting on the
long term elements
of the remuneration
policy.
Increase alignment
with more typical
incentive levels in
the wider market.
Maximise alignment
between Executive
Directors and
shareholders.
66
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018 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
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.
Operation
Opportunity
Salaries are reviewed annually and
any changes are normally effective
from 1 January in the financial year.
When determining an appropriate
level of salary, the Remuneration
Committee considers:
›
within the Company;
›
remuneration practices
the performance of the
individual Executive
Director;
the individual Executive
›
Director’s experience and
›
›
›
responsibilities;
the general performance
of the Company;
salaries within the ranges
paid by the companies
in the comparator group
used for remuneration
benchmarking; and
the economic
environment.
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.
Individuals who are recruited or
promoted to the Board may, on
occasion, have their salaries set
below the targeted policy level
until they become established
in their role. In such cases
subsequent increases in salary
may be higher than the average
until the target positioning is
achieved.
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.
Benefits
Provides a
competitive level
of benefits.
The Executive Directors receive
benefits which include family private
health cover.
The maximum will be set
at the cost of providing the
benefits described.
None
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.
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Remuneration policy
Element of remuneration
Operation
Opportunity
15% of base salary
p.a. for existing
Executive Directors.
The Committee
intends to align the
pension contribution
with the wider
workforce for any
Executive Directors
recruited in the
future.
The maximum bonus
opportunity is 100%
of base salary.
Pensions
Paul Meehan currently
receives an employer’s
contribution equal
to 15% of his base
salary. Due to
his considerable
shareholding, Simon
Cooper is not provided
with pension funding.
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.
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.
Annual bonuses are part
paid in cash and part in
shares. Up to 50% of any
award will be deferred into
shares for two years.
Malus will apply up to
the date of the bonus
determination and clawback
will apply for two years
from the date of bonus
determination.
Performance metrics used, weighting
and time period applicable
None
Performance is measured over the
financial year.
The majority of the annual bonus will
be based on performance against
stretching PBT targets, with the
balance based on non-financial
metrics which are aligned to the
business strategy.
The Remuneration Committee
is of the opinion that given the
commercial sensitivity arising in
relation to the detailed financial
targets used for the annual bonus,
disclosing precise targets for the
bonus plan in advance would not
be in shareholder interests. Actual
targets, performance achieved and
awards made will be published at
the end of the performance periods
so shareholders can fully assess the
basis for any pay-outs under the
annual bonus.
The Remuneration Committee
retains discretion in exceptional
circumstances to change
performance measures and targets
and the weightings attached to
performance measures part-way
through a performance year if there
is a significant and material event
which causes the Remuneration
Committee to believe the original
measures, weightings and targets
are no longer appropriate. Discretion
may also be exercised in cases
where the Remuneration Committee
believe that the bonus outcome is
not a fair and accurate reflection of
business performance.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Element of
remuneration
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.
The use of earnings
per share (“EPS”)
ensures Executive
Directors are focused
on ensuring the annual
profit performance
targeted by the
Annual Bonus Plan
flows through to long-
term sustainable EPS
growth.
The use of absolute
TSR measures
the success of the
implementation of the
Company’s strategy in
delivering a minimum
level of return.
HMRC Share
Incentive Plan
To encourage
wide employee
share ownership
and thereby
align employees’
interests with
shareholders.
Operation
Opportunity
Performance metrics used, weighting
and time period applicable
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.
›
The Remuneration Committee
may award dividend equivalents
on awards to the extent that
these vest.
A further two year holding
period post vesting will apply.
Malus will apply for the period
from grant to vesting with
clawback applying for the two
year period post vesting.
Maximum award
of 200% of base
salary.
25% of the
award will vest
for threshold
performance. 100%
of the award will
vest for maximum
performance.
Straight line vesting
between these
points.
The performance conditions
for awards are currently split
between earnings per share
(“EPS”) growth (70%) and
absolute total shareholder return
(“TSR”) (30%).
The Remuneration Committee
may change the balance of
the measures, or use different
measures for subsequent awards,
as appropriate. No material
change will be made to the type
of performance conditions without
prior shareholder consultation.
The Remuneration Committee
retains discretion in exceptional
circumstances to change
performance measures and
targets and the weightings
attached to performance
measures part-way through a
performance period if there is
a significant and material event
which causes the Remuneration
Committee to believe the original
measures, weightings and targets
are no longer appropriate.
Discretion may also be exercised
in cases where the Remuneration
Committee believe that the
vesting outcome is not a fair and
accurate reflection of business
performance.
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).
UK scheme in line
with HMRC limits
as amended from
time to time.
None
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Remuneration policy
Element of remuneration
Operation
Opportunity
Performance metrics used, weighting
and time period applicable
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.
200% of salary.
None
None
The base fees for
Non-Executive
Directors are set at a
market rate.
In general, the level
of fee increase for
the Non-Executive
Directors will be
set taking account
of any change in
responsibility and
will take into account
the general rise in
salaries across the
UK workforce.
The Company will
pay reasonable
expenses incurred
by the Chairman
and Non-Executive
Directors.
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.
Adherence to these
guidelines is a condition of
continued participation in the
equity incentive
arrangements.
The Board as a whole is
responsible for setting the
remuneration of the
Non-Executive Directors,
other than the Chairman
whose remuneration
is considered by the
Remuneration Committee
and recommended to the
Board.
Non-Executive Directors
are paid a base fee and
additional fees for acting
as chair of committees. The
Chair of the Board does
not receive any additional
fees for membership of
committees.
Fees are typically reviewed
every three years based
on equivalent roles in an
appropriate comparator
group used to review
salaries paid to the Executive
Directors. Fees may be
reviewed more regularly
than this in exceptional
circumstances, such as a
significant increase in the
size or complexity of the
business.
Non-Executive Directors do
not participate in any variable
remuneration or benefits
arrangements.
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Discretion
The Remuneration Committee has discretion in several areas of
Policy as set out in this report. The Remuneration Committee
may also exercise operational and administrative discretions
under relevant plan rules approved by shareholders as set
out in those rules. In addition, the Remuneration Committee
has the discretion to amend the Policy with regard to minor or
administrative matters where it would be, in the opinion of the
Remuneration Committee, disproportionate to seek or await
shareholder approval.
The Remuneration Committee’s policy is not to provide sign on
compensation. However, in exceptional circumstances where
the Remuneration Committee decides to provide this type of
compensation it will endeavour to provide the compensation
in equity, subject to a holding period during which cessation
of employment will generally result in forfeiture and subject to
the satisfaction of performance targets. The maximum value of
this one off compensation will be proportionate to the overall
remuneration offered by the Company and in all circumstances
is limited to 100% of salary.
Differences in policy from the wider employee population
The Group aims to provide a remuneration package for all
employees that is market competitive and operates the same
reward and performance philosophy throughout the business.
As with many companies, the Group operates variable pay
plans primarily focussed on mid to senior management level.
Recruitment policy
The Company’s approach when setting the remuneration of
any newly recruited Executive Director will be assessed in line
with the same principles for the Executive Directors, as set
out in the remuneration policy table above. The Remuneration
Committee’s approach to recruitment remuneration is to pay no
more than is necessary to attract candidates of the appropriate
calibre and experience needed for the role from the market in
which the Company competes.
The Remuneration Committee will have regard to guidelines
and shareholder sentiment regarding one-off or enhanced
short-term or long-term incentive payments made on
recruitment and the appropriateness of any performance
measures associated with an award.
The remuneration package for a new Executive Director would
be set in accordance with the terms of the Company’s approved
policy. Given a new Executive Director would not have the
significant shareholding of the current Executive Directors, the
base salary on recruitment may be higher than the incumbent.
In the year of recruitment, the maximum variable pay will be
300% of salary (other than in exceptional circumstances where
up to 400% of salary may be made if sign-on compensation
is provided). The pension contributions for a newly recruited
Executive Director will be in line with the wider workforce.
The Committee will carefully consider this matter to ensure
consistency with the principles outlined earlier, particularly in
relation to shareholder alignment, and will take appropriate
external advice before finalising a decision in this regard and
where practical consult with the Company’s key shareholders.
The Remuneration Committee’s policy is not to provide buyouts
as a matter of course. However, should the Remuneration
Committee determine that the individual circumstances of
recruitment justified the provision of a buyout, the equivalent
value of any incentives that will be forfeited on cessation of a
director’s previous employment will be calculated taking into
account the following:
›
›
›
the proportion of the performance period completed on the
date of the Director’s cessation of employment;
the performance conditions attached to the vesting of these
incentives and the likelihood of them being satisfied; and
any other terms and condition having a material effect on
their value (“lapsed value”).
The Remuneration Committee may then grant up to the
same value as the lapsed value, where possible, under the
Company’s incentive plans. To the extent that it was not
possible or practical to provide the buyout within the terms of
the Company’s existing incentive plans, a bespoke arrangement
would be used.
Where an existing employee is promoted to the Board, the
policy set out above would apply from the date of promotion
but there would be no retrospective application of the policy
in relation to subsisting incentive awards or remuneration
arrangements.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Remuneration policy
Accordingly, prevailing elements of the remuneration package
for an existing employee would be honoured and form part
of the ongoing remuneration of the person concerned. These
would be disclosed to shareholders in the Remuneration Report
for the relevant financial year.
The Company’s policy when setting fees for the appointment
of new Non-Executive Directors is to apply the policy which
applies to current Non-Executive Directors.
Service agreements and letters of appointment
Each of the Executive Directors’ service agreements is for
a rolling term and may be terminated by the Company
or the Executive Director by giving 6 months’ notice. The
Remuneration Committee’s policy for setting notice periods is
that a 6 month period will apply for Executive Directors. The
Remuneration Committee may in exceptional circumstances
arising on recruitment, allow a longer period of up to 12
months, which would in any event reduce to 6 months
following the first year of employment.
The Non-Executive Directors of the Company (including the
Chair of the Board) do not have service contracts. The Non-
Executive Directors are appointed by letters of appointment
which set out the terms and conditions of their appointment.
The dates of appointment of the Non-Executive Directors and
their notice periods are as stated in the table below.
The terms of the Non-Executive Directors’ positions are subject
to their re-election by the Company’s shareholders at the AGM
scheduled to be held on 7 February 2019 and to re-election at
any subsequent AGM at which the Non-Executive Directors
stand for re-election.
Non-Executive Director
Date of original appointment
Notice period
Lee Ginsberg
David Kelly
Elaine O’Donnell
28 September 2015
28 September 2015
3 July 2018
3 months
3 months
3 months
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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
OUR VALUES: RESPECT
“
Our regular employee engagement
surveys, as well as our employee
engagement committee, provide
opportunities for everyone to express
their view and have their voice heard.
And we really listen to what they have
to say – it helps us perform better and
build stronger teams. ”
Charlene HR Advisor
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
73
73
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCEFINANCIAL STATEMENTS
Annual Report on Remuneration
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 12 to 14. In the diagram
below, we summarise how the Company’s strategic priorities are aligned with the remuneration policy.
LTIP
Annual bonus
Short term:
Profit before
Tax
Longer term:
EPS
Longer term:
TSR
Annual bonus
Short to medium term:
Employee engagement
Score
Annual bonus
Short term:
Profit before
tax
Longer term:
EPS
Longer term:
TSR
LTIP
Short term:
Profit before
tax
Annual
bonus
Longer term:
EPS
Longer term:
TSR
LTIP
Short term:
Profit before
Tax
Short to medium
term:
Net promoter score
Annual bonus
74
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Illustrations of application of remuneration policy
The charts below illustrate how the potential future
remuneration of the Executive Directors may vary at different
levels of performance and the percentage each element may
form together with the possible total value. For the purpose of
this chart, the following assumptions have been made:
› The base salary levels are those in effect as at the date of
the 2019 AGM.
› Fixed elements comprise of base salary, pension and other
benefits.
› Benefits levels are assumed to be the same as in the 2018
› Bonus opportunity and LTIP award levels are the
maximum levels set out in the Policy table above.
› For target performance, assumptions of bonus payout
of 60% of maximum and LTIP vesting at 62.5% of
maximum.
› For maximum performance, assumptions of bonus
payout of 100% of maximum and maximum vesting
(100%) for LTIP.
› No share price increase has been assumed, save for in
the scenario which illustrates the impact of 50%
share price appreciation on the potential value of future
remuneration.
financial year for each Executive Director.
› Dividend equivalents have not been added to LTIP share
awards.
CEO (£'000)
Maximum (with share
price appreciation)
20.2%
20.0%
39.9%
20.0%
1,022
Maximum
25.2%
24.9%
49.9%
818
On-Target
35.3%
21.0%
43.7%
583
Minimum
100%
206
£0
£200
£400
£600
£800
£1,000
£1,200
Salary, Benefits & Pension
Bonus
LTIP
LTIP (50% share price growth)
CFO (£'000)
Maximum (with share
price appreciation)
22.5%
19.4%
Maximum
27.9%
24.0%
38.8%
48.1%
19.4%
1,600
1,290
On-Target
38.5%
19.9%
41.5%
933
Minimum
100%
360
£0
£200
£400
£600
£800
£1,000
£1,200
£1,400
£1,600
£1,800
Salary, Benefits & Pension
Bonus
LTIP
LTIP (50% share price growth)
At minimum, variable remuneration is 0% of salary; at target, variable remuneration represents 185% of salary and at maximum,
variable remuneration represents 300% of salary for both the CEO and CFO.
On the basis of 50% share price growth over the three year LTIP performance period the maximum value of one year’s remuneration
for the CEO and CFO would increase to £1,022,000 and £1,600,000 respectively as illustrated above.
75
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
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 2018 financial year. Comparative figures for
the 2017 financial year have also been provided.
Figures provided have been calculated in accordance with the
Large and Medium-Sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013.
Name
Salary / Fee
(£’000)
Benefits
(£’000)
Bonus
(£’000)
LTIP
(£’000)
Pension
(£’000)
Total
(£’000)
2018(1) 2017(2)
2018 2017
2018 2017
2018 2017
2018 2017
2018 2017
Simon Cooper
203
200
Paul Meehan(4)
253
178
Richard Segal
95(5)
100
Lee Ginsberg
David Kelly
61(6)
50(7)
58
50
Elaine O’Donnell
12(8)
-
2
3
-
-
-
-
1
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
111(3)
-
-
-
-
-
-
-
-
-
-
-
-
42
-
-
-
-
-
316
201
22
298
201
-
-
-
-
95
61
50
12
100
58
50
-
Notes:
(1) Executive Director salaries were increased with effect from 1 January 2018 to £204,000 for Simon Cooper and £255,000 for Paul Meehan.
(2) No salary or fee increases were awarded during FY17.
(3) The value of the LTIP for 2018 relates to the 2016 award, which had a three-year performance period ending 30 September 2018. Based on performance over this
period, the Remuneration Committee determined that 30% of the maximum award vested on 27 November 2018, equivalent to 27,522 nil-cost options. The value of
the award included above is therefore £110,638.44 based on the closing share price of 402 pence at the vesting date. £50,640.48 of this is attributable to share price
appreciation over the period to the vesting date based on the original share price of 218 pence used to determine the original number of awards on grant.
(4) 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 during FY17.
(5) From 3 September 2018, Richard Segal stepped down as Non-Executive Chair of the Board and Chair of the Nomination Committee and stepped down from the Board
on 28 September 2018.
(6) From 3 September 2018, Lee Ginsberg stepped down as Senior Independent Director and Chair of the Audit Committee. From this date, he succeeded Richard
Segal as Non-Executive Chair of the Board and Chair of the Nomination Committee.
(7) From 3 September 2018, David Kelly succeeded Lee Ginsberg as Senior Independent Director.
(8) Elaine O’Donnell was appointed to the Board with effect from 3 July 2018 and succeeded Lee Ginsberg as Chair of the Audit Committee on 3 September 2018.
76
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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)
2018 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 2018, the
Group Adjusted profit before tax excluding exceptional items was
£33.6m (before amortisation of acquired intangibles, share based
payments and any bonuses are paid) which was lower than the
bonus target set. As a result, the Remuneration Committee
determined that no bonus pot was created for the Executive
Directors.
The performance targets for the 2018 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
Excess over
threshold
Bonus pot
Group adjusted
PBT
£34.3m
£35.7m
£33.6m
£0
£0
Long term incentives awarded in 2018 (audited)
The table below sets out the details of the Long-Term Incentive
Plan awards granted in the 2018 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
200
50,441
Paul
Meehan
LTIP – nil
cost option
150% of
salary
375
94,578
Nil
Nil
25%
25%
30 September
2020
30 September
2020
EPS (70%)
Absolute
TSR (30%)
EPS (70%)
Absolute
TSR (30%)
77
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Annual report on remuneration
The awards were granted on 20 December 2017. The number of shares awarded was calculated using the
closing share price on 30 September 2017, which was 396.5 pence.
The EPS condition applying to 70% of the awards is provided in the table below:
EPS for year ending 30 September 2020
Less than 29.25p
29.25p
35.75p or above
Vesting
0%
25%
100%
Between 29.25p and 35.75p
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 2020
Less than 8%
8%
15% or above
Vesting
0%
25%
100%
Between 8% and 15%
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.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Long term incentives awarded in 2016 with performance period ending in 2018 (Simon Cooper only)
The Company’s first long term incentive award was granted on 20 May 2016 with a three year performance period commencing
on 1 October 2015 and ending on 30 September 2018. The award vested on 27 November 2018. Performance under the
awards was based on EPS (70% weighting) and annualised TSR (30% weighting), as set out below.
The EPS condition applying to 70% of the awards is provided in the table below:
EPS for year ending 30 September 2018
Less than 21.5p
21.5p
23.3p or above
Vesting
0%
25%
100%
Between 21.5p and 23.3p
Straight line vesting between 25% and 100%
Actual EPS: 21.3p
0%
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 2018
Less than 15%
15%
25% or above
Vesting
0%
25%
100%
Between 15% and 25%
Straight line vesting between 25% and 100%
Actual TSR: 32.4%
100%
Based on the above performance outcomes, 30% of the awards vested on 27 November 2018 which is equivalent to 27,522
nil-cost options. The value of the award included above is therefore £110,638.44 based on the closing share price of 402 pence
at the vesting date. £50,640.48 of this is attributable to share price appreciation over the period to the vesting date based on the
original share price of 218 pence used to determine the original number of awards on grant.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Annual report on remuneration
Payments to past directors / payments for loss of office (audited)
Wendy Parry, former Chief Financial Officer, was granted 80,275 nil-cost options on 20 May 2016 under the Company’s first LTIP grant
alongside Simon Cooper. She retired from the Board as a good leaver on 16 January 2017. As such, her entitlement to awards under
the 2016 grant will be pro-rated for time and performance on vesting, such that 7.9% of the maximum award will vest, equivalent to
6,368 nil-cost options. The value of these awards is £25,599.36 based on the closing share price of 402 pence at the vesting date 27
November 2018.
Statement of directors’ shareholdings and share interests (audited)
Shareholding requirements in operation at the Company as 28 September 2018 were 150% of base salary for the CEO and the CFO.
These will increase to 200% from the date of the 2019 AGM subject to approval of the proposed Remuneration Policy. 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 2018 are set out in the table below:
Director
Shareholding
requirement
(% of salary)
Current
shareholding*
(% of salary)
Beneficially
Owned
Shares
Unvested LTIP
interests subject
to performance
conditions
Shareholding
requirement
met?
Simon Cooper
150%
4,936%
Paul Meehan(1)
150%
0%
-
-
241,686(2)
281,145
Yes
No
Notes:
(1) Paul Meehan joined the Company as CFO on 16 January 2017 and has five years from this date to build up his shareholding requirement.
(2) Under the 2016 LTIP, 27,523 nil cost options vested on 27 November 2018. The remaining 64,220 nil cost options lapsed on this date.
*The share price of 495 pence as at 28 September 2018 (the last business day of the financial year ending 30 September 2018)
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 27
September 2018 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
Shares held 30 September 2018
Richard Segal
Lee Ginsberg
David Kelly
Elaine O’Donnell
406,680
16,300
0
0
80
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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 both the FTSE 250 and
FTSE Small Cap indices. 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 250 index is the
appropriate comparator as On the Beach became a constituent of this index over the last financial year. The comparison against
the FTSE Small Cap index is included for consistency with previous years. 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 2018.
IPO
300
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
)
O
P
I
t
a
d
e
t
s
e
v
n
i
0
0
1
£
g
n
m
u
s
s
a
(
i
250
200
150
100
50
0
30 September
2015
30 September
2016
30 September
2017
30 September
2018
On the Beach
FTSE Small Cap
FTSE 250
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 five most recent financial years:
Chief Executive Officer
2018
2017
2016
2015
2014
Total Single Figure (£000s)
316
201
239
131
131
Annual bonus payment level achieved
(% of maximum opportunity)
-
-
27.8%
-
-
LTIP vesting level achieved (% of maximum
opportunity)
30%
N/A
N/A
N/A
N/A
It should be noted that the Company only introduced the LTIP on Admission, with the first grant made in May 2016.
81
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
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 2017 to 2018
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, 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 2017 and 2018. The
same individuals have been included in each year to ensure
a true like for like comparison. Consequently, 2017 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
2018 2017
Percentage
change
£’000
2018 2017
Percentage
change
£’000
2018 2017
Percentage
change
Chief Executive Officer
203
200
1.5%
Total for all employees
5,432
4,972
9%
Number of employees
152
152
Average per employee
36
33
-
9%
2
26
-
-
1
21
-
-
100%
-
-
-
24%
207
184
13%
-
-
152
152
1
1
-
-
The employee engagement committee formed last year and other engagement initiatives continue to meet and have a
tangible input into all matters affecting the company, including remuneration and benefits. Further details on these initiatives
can be found on pages 34, 38 to 39.
Relative importance of the spend on pay
The table below sets out the relative importance of spend on pay in the 2017 and 2018 financial years compared with other
disbursements. All figures provided are taken from the relevant Company Accounts.
Disbursements from profit
in 2018 financial year
Disbursements from profit
in 2017 financial year
% change
Profit distributed by
way of dividend
Overall spend on pay
including Executive
Directors
£m
4.3
13.3
£m
4.0
10.0
7.5%
33%
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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’ Annual Report on
Remuneration was subject to a shareholder vote at the AGM on 8 February 2018, the results of which were as follows:
Resolution
For
Against
Abstentions
Ordinary Resolution to approve the
Directors’ remuneration report for the
year ended 30 September 2017
92,479,656
(99.76%)
221,627
(0.24%)
0
(0%)
Implementation of remuneration policy in financial year 2019
The Remuneration Committee proposes to implement the policy for 2019 as set out below:
Salary
The Remuneration Committee has determined that a salary increase of 22% will be applied for Paul
Meehan, effective from 1 October 2018. No salary increase will be awarded to Simon Cooper. The
current salaries are set out below:
Salary (£)
Percentage Change
2019
2018(1)
Simon Cooper
£204,000
£204,000
0%
Paul Meehan
£310,000
£255,000
+22%
Note:
(1) Salaries effective from 1 January 2018
Changes to NED fees
The NED fees approved by the Board at IPO were in place for the period from 28 September 2015 for a period of three years.
Following a thorough benchmarking process, the Board approved the following fees for a period of three years from 28 September
2018. The breakdown of fee components is as follows:
Position
Chair of the Board
Non Executive Director
Additional fees are paid for:
Senior Independent Director
Chair of Audit Committee
Chair of Remuneration Committee
Fee
£161,000
£48,000
£6,000
£9,000
£9,000
No additional fee is paid to the Chair of the Nomination Committee
83
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Annual report on remuneration
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 and it’s implementation for
Executive Directors and members of the Executive team.
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 £54,900 for their advice during the year
to 30 September 2018.
On behalf of the board
David Kelly
Chair of the Remuneration Committee
28 November 2018
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 with up to 50% of any award
being deferred into shares for two years.
In line with the proposed Policy, 70% of the annual bonus for
the 2019 financial year will be based on PBT performance,
with the remaining 30% based on performance against non-
financial targets aligned with the company’s strategy. For the
2019 financial year the non-financial metrics will be based on
Net Promoter Score and Employee Engagement Score.
The Remuneration Committee is of the opinion that given
the commercial sensitivity arising in relation to the detailed
performance targets used for the annual bonus, disclosing
precise targets for the bonus plan in advance would not be in
shareholder interests. Actual targets will be published following
the end of the performance period 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
FY19. The maximum LTIP awards for the Executive Directors
will be 200% of salary in line with the proposed Policy.
The performance conditions will be based 70% on EPS
performance and 30% on absolute TSR measured over a three
year period.
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 currently under review to ensure alignment
with the new UK Corporate Governance Code, and the current
terms of reference 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, with the exception of Elaine O’Donnell who was
appointed on 3 July 2018. 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 2018.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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:
Section of report
Page reference
Community
Strategic report; Corporate social
responsibility (page 38)
Employee involvement
Corporate social responsibility
(pages 34, 38 to 39)
Employees with
disabilities
Corporate social responsibility
(page 39)
Future developments
of the business
Strategic report (page 14)
Going concern
Strategic report (page 32)
Greenhouse gas
emissions
Corporate social responsibility
(page 40)
Risk management
Strategic report (page 23 to 32)
and note 23 to the consolidated
financial statements
Significant related
party agreements
Note 25 to the consolidated
financial statements
Directors’ report
All sections under the heading “Governance” on page 42 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 2018.
Strategic report
All sections under the heading “Strategic report” on page 4 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 23 to 32.
Management report
The Directors’ report (pages 42 to 94) together with the
Strategic report (pages 4 to 41) form the Management report
for the purposes of DTR 4.1.5R.
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 43. 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
AGM on 7 February 2019.
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
2018 comprised 131,042,510 ordinary shares of £0.01 each.
Further information regarding the Company’s issued share
capital can be found on page 121 of the financial statements.
Details of the movements in issued share capital during the
year are provided in note 21 to the Group’s financial statements
contained on page 121. All the information detailed in note
21 on page 121 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 7 February 2019 the Directors will seek authority from
shareholders to allot shares in the capital of the Company up
to a maximum nominal amount of £873,616.73 (87,361,673
shares of £0.01 each.
85
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Other statutory and regulatory disclosures
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. The
Company also makes grants of nil cost share options under
the LTIP plan in the form of restricted stock awards to key
employees (not including the Executive Directors) for
retention purposes, and these are
accompanied by a CSOP market value option for tax
efficiency purposes; 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 69.
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 2018. 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 them, 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.
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 on a change of control.
Annual General Meeting
The Annual General Meeting will be held at 11am on 7
February 2019 at the Company’s new headquarters at
Aeroworks, Adair Street, Manchester.
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.
86
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Interests in voting rights
During the year the Company has been notified, in accordance
with Chapter 5 of the Financial Conduct Authority’s Disclosure
Guidance and Transparency Rules (DTR5) of the following
increases or decreases in significant interests in the issued
ordinary share capital of the Company.
These figures represent the number of shares and percentages
held as at the date of notification to the Company. These
holdings may have changed since notification however
notification of any change is not required until the next
applicable threshold is crossed.
Name of
Shareholder
Number of
shares
Date of
notification
Nature of
holding
as per
disclosure
Standard Life
6,953,122
5.33%
20/11/17
Standard Life
6,366,841
4.88%
28/03/18
Schroders plc
5,881,081
4.51%
18/04/18
Royal London Asset
Management
6,666,441
5.11%
24/05/18
Armor Advisors
4,033,400
3.00%
25/07/18
Between 30 September 2018 and the date of this report,
no further interests have been notified to the Company in
accordance with DTR5.
Transactions with related parties
There were no related party transactions during the year.
Events post year end
There are 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 40 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 123 to 127 in note 23 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.
87
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Other statutory and regulatory disclosures
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 96 to 135.
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 2.2
pence per share, totalling 3.3 pence per share for the year
(2017: 2.7 pence per share) to be paid on 14 February 2019 to
shareholders on the register of members at 11 January 2019,
subject to approval at the 2019 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 78
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. The Group will shortly commence a tender
process for the appointment of the external auditor. The tender
process will be supervised by the Audit Committee, who will
then make a recommendation to the Board on the appointment
or reappointment of the external auditor. Following the
appointment, an annoucement will be made. In the meantime,
a resolution to re-appoint KPMG LLP as external auditor will be
proposed at the AGM on 7 February 2019.
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 Group’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
Group’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 28 November 2018.
Approved by the board and signed on its behalf:
K Vickerstaff
Company Secretary
28 November 2018
88
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Independent
auditor’s report
to the members of On the Beach Group plc
1. Our opinion is unmodified
We have audited the financial statem ents of On the
Beach Group Plc (“the Com pany”) for the year
ended 30 Septem ber 2018 which com prise the
consolidated incom e statem ent and statem ent of
com prehensive incom e, consolidated balance
sheet, consolidated statem ent of cash flows,
consolidated statem ent of changes in equity,
com pany balance sheet, com pany statem ent of
changes in equity and the related notes, including
the accounting policies in note 2.
In our opinion:
— the financial statem ents give a true and fair
view of the state of the Group’s and of the
parent Com pany’s affairs as at 30 Septem ber
2018 and of the Group’s profit for the year then
ended;
— the Group financial statem ents have been
properly prepared in accordance with
International Financial Reporting Standards as
adopted by the European Union;
— the parent Com pany financial statem ents 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 statem ents have been prepared in
accordance with the requirem ents of the
Com panies Act 2006 and, as regards the Group
financial statem ents, 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
com m ittee.
We were first appointed as auditor by the directors on 28
Septem ber 2015. The period of total uninterrupted
engagem ent is for the 4 financial years ended 30
Septem ber 2018. We have fulfilled our ethical
responsibilities under, and we rem ain independent of the
Group in accordance with, UK ethical requirem ents
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
statem ents as a whole
Coverage
£1.3m (2017: £1.1m )
5% (2017: 5%) of
Norm alised Group profit
before tax
100% (2017:100%) of
Group profit before tax
Risks of material misstatement vs 2017
Event driven
New: Valuation of brand,
custom er relationships
(agents) and custom er
relationships (individuals)
arising on the Classic
Collection acquisition
Recurring risks
Parent: Valuation of
Investm ents in subsidiaries
(cid:379)(cid:377)
Following Monarch Airline entering adm inistration on 2
October 2017, two event driven risks were noted in our
report last year; Provision for Monarch Airlines and
Monarch Reim bursem ent Asset which are not included
this year.
89
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018 2. Key audit matters: our assessment of risks of material misstatement
Key audit m atters are those m atters that, in our professional judgm ent, were of m ost significance in the audit of the financial statem ents and
include the m ost significant assessed risks of m aterial m isstatem ent (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 engagem ent team .
We sum m arise below the key audit m atters, in decreasing order of audit significance, in arriving at our audit opinion above, together with our
key audit procedures to address those m atters and, as required for public interest entities, our results from those procedures. These m atters
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 statem ents as a whole, and in form ing our opinion thereon, and consequently are incidental to that opinion, and we do not provide a
separate opinion on these m atters.
Valuation of b rand,
customer relationships
(agents) and customer
relationship s
(individuals) arising on
the Classic Collection
acquisition
Brand of £4.4m m illion
Custom er relationships
(agents) of £4.4m
Custom er relationships
(individuals) of £2.1m
Refer to page 57 (Audit
Com m ittee Report), page
104 (accounting policy)
and page 115 (financial
disclosures).
The risk
Our resp onse
Forecast-b ased valuation
Our procedures included:
On 15 August 2018 the Group
acquired Classic Collection Holidays
Lim ited and its subsidiaries.
The accounting for this acquisition
involves judgem ent in respect of
the recognition and valuation of
intangible assets, in particular the
brand and custom er relationships
due to the inherent uncertainty
involved in forecasting and
discounting future cash flows which
are the basis for the valuation of
these intangibles.
— Assessing exp erts: We assessed the com petency of PwC who
were com m issioned by the Group to value the brand, custom er
relationships with agents and custom er relationships with
individuals. Using our knowledge of the sector we challenged the
basis used to derive the valuations and the conclusions reached;
— Sensitivity analysis: We perform ed sensitivity analysis over
assum ptions used in the determ ining the valuation of the Classic
Collection brand, custom er relationships with agents and custom er
relationships with individuals in order to identify the key
assum ptions over which to focus our work.
— Assessing forecasts: We evaluated the assum ptions used to
calculate the fair value of the brand, custom er relationships with
agents and custom er relationships with individuals, in particular the
royalty rate that such a brand could achieve using our valuation
specialists and the attrition rates attributed to custom er
relationships with agents. We also assessed the assum ptions
driving the cash flow forecasts for the brand and both custom er
relationships.
— Assessing transp arency: We assessed the adequacy of the
Group’s disclosures over the determ ination of the Classic
Collection brand, custom er relationships with agents and custom er
relationships with individuals’ valuations.
Our results
— We found the fair value of the brand, custom er relationship (agents
and custom er relationships (individuals) acquired as part of the
Classic Collection acquisition to be acceptable.
We continue to perform procedures over the capitalisation of website developm ent costs. However, as the subjectivity required in the process
for determ ining the costs that are capitalised has reduced we have not assessed this as one of the m ost significant risks in our current year audit.
Therefore, it is not separately identified in our report this year.
90
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
2. Key audit matters: our assessment of risks of material misstatement (continued)
Recoverab ility of p arent
comp any’s investment in
sub sidiary
(£132.6 m illion; 2017: £132.6
m illion)
Refer to page 57 (Audit
Com m ittee Report), page 134
(accounting policy) and page 134
(financial disclosures).
The risk
Our resp onse
Low risk, high value
Our procedures included:
The carrying am ount of the parent
com pany’s investm ent in subsidiary
represents 64% (2017: 64%) of the
com pany’s total assets. Their
recoverability is not at a high risk of
significant m isstatem ent or subject to
significant judgem ent. However, due to
their m ateriality in the context of the
parent com pany financial statem ents,
this is considered to be the area that had
the greatest effect on our overall parent
com pany audit.
— Test of detail: Com paring the carrying
am ount of the investm ent with the
subsidiary’s draft balance sheet to identify
whether its net assets, audited as part of
the Group’s audit and being an
approxim ation of its m inim um recoverable
am ount, was in excess of its carrying
am ount and assessing whether the
subsidiary has historically been profit-
m aking; and
— Comp aring valuations: Com paring the
carrying am ount of the investm ent to the
group’s m arket capitalisation to assess
whether there are any indicators of
investm ent’s im pairm ent.
Our results
— We found the Group’s assessm ent of the
recoverability of the Parent Com pany’s
investm ent in subsidiary to be acceptable.
3. Our application of materiality and an
overview of the scope of our audit
Materiality for the Group financial statem ents as a
whole was set at £1.3 m illion determ ined with
reference to a benchm ark of group profit before
tax, norm alised to exclude this year’s Classic
Collection acquisition costs of £0.6m illion (2017:
norm alized to exclude exceptional costs of £2.7m
as set out in Note 6), of which it represents 5%
(2017: 5%)
Materiality for the Parent Com pany financial
statem ents as a whole was set at £1.1 m illion
(2017: £1.0 m illion), determ ined with reference
to a benchm ark of com pany total assets of
£206.5 m illion (2017: £206.7m of which it
represents 0.5% (2017 0.5%).
We agreed to report to the Audit Com m ittee any
corrected or uncorrected identified
m isstatem ents exceeding £70k, in addition to
other identified m isstatem ents that warranted
reporting on qualitative grounds.
Of the Group’s 10 (2017: 9) reporting
com ponents, we subjected 4 (2017: 5) to full
scope audits for group purposes.
The com ponents within the scope of our work
accounted for 100% of the Group’s revenue
(2017: 100%), 100% of the Group’s profit before
tax (2017: 100%) and 99.9% (2017: 99.9%) of
Group total assets. All work was perform ed by
the group audit team .
Normalised Group p rofit
b efore tax
£26.7m (actual) (2017:
£23.8m)
26.7
1.3
Group Materiality
£1.3m (2017: £1.1m)
£1.3m
Whole financial
statements materiality
(2017: £1.1m)
£1.1m
Range of materiality at 10
(2017: 9) components (£0.31m
to £1.1m)
(2017: £0.8m to £1.0m)
Normalised PBT
Group materiality
£66k
Misstatements reported to the
audit committee (2017: £55k)
91
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018 4. We have nothing to report on going concern
Disclosures of principal risks and longer-term viability
We are required to report to you if:
— we have anything m aterial to add or draw attention to
in relation to the directors’ statem ent in note 2b) to the
financial statem ents on the use of the going concern
basis of accounting with no m aterial uncertainties that
m ay cast significant doubt over the Group and
Com pany’s use of that basis for a period of at least
twelve m onths from the date of approval of the
financial statem ents; or
— if the related statem ent under the Listing Rules set out
on page 32 is m aterially inconsistent with our audit
knowledge.
We have nothing to report in these respects.
5. We have nothing to report on the other information
in the Annual Report
The directors are responsible for the other inform ation
presented in the Annual Report together with the financial
statem ents. Our opinion on the financial statem ents does
not cover the other inform ation 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 inform ation and, in
doing so, consider whether, based on our financial
statem ents audit work, the inform ation therein is m aterially
m isstated or inconsistent with the financial statem ents or
our audit knowledge. Based solely on that work we have
not identified m aterial m isstatem ents in the other
inform ation.
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 .
Based on the knowledge we acquired during our financial
statem ents audit, we have nothing m aterial to add or draw
attention to in relation to:
— the directors’ confirm ation within the viability statem ent
that they have carried out a robust assessm ent of the
principal risks facing the Group, including those that
would threaten its business m odel, future perform ance,
solvency and liquidity;
— the principal risks and uncertainties disclosures
describing these risks and explaining how they are being
m anaged and m itigated; and
— the directors’ explanation in the viability statem ent of
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
statem ent as to whether they have a reasonable
expectation that the Group will be able to continue in
operation and m eet its liabilities as they fall due over the
period of their assessm ent, including any related
disclosures drawing attention to any necessary
qualifications or assum ptions.
Under the Listing Rules we are required to review the
viability statem ent. We have nothing to report in this
respect.
Corporate governance disclosures
We are required to report to you if:
— we have identified m aterial inconsistencies between the
knowledge we acquired during our financial statem ents
audit and the directors’ statem ent that they consider
that the annual report and financial statem ents taken as
a whole is fair, balanced and understandable and
provides the inform ation necessary for shareholders to
assess the Group’s position and perform ance, business
m odel and strategy; or
— the section of the annual report describing the work of
the Audit Com m ittee does not appropriately address
m atters com m unicated by us to the Audit Com m ittee.
We are required to report to you if the Corporate
Governance Statem ent 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.
6. We have nothing to report on the other matters on
which we are required to report by exception
Irregularities – ability to detect
Under the Companies Act 2006, we are required to report
to you if, in our opinion:
— 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
of the Directors’ Remuneration Report to be audited
are not in agreement with the accounting records and
returns; or
— certain disclosures of directors’ remuneration specified
by law are not made; or
— we have not received all the information and
explanations we require for our audit.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
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.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud, other
irregularities, or error, and to issue our opinion in an
auditor’s report. Reasonable assurance is a high level of
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 fraud, other irregularities or error and are considered
material if, individually or in aggregate, they could
reasonably be expected to influence the economic
decisions of users taken on the basis of the financial
statements. The risk of not detecting a material
misstatement resulting from fraud or other irregularities is
higher than for one resulting from error, as they may involve
collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control and
may involve any area of law and regulation not just those
directly affecting the financial statements.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our sector experience, and
through discussion with the directors and other
management (as required by auditing standards).
We had regard to laws and regulations in areas that directly
affect the financial statements including financial reporting
(including related company legislation) and taxation
legislation. We considered the extent of compliance with
those laws and regulations as part of our procedures on the
related financial statement items.
In addition we considered the impact of laws and
regulations in the specific areas of the ATOL regulation and
The Package Travel and Linked Travel Arrangements
Regulations recognising the financial and regulated nature
of the group’s activities and its legal form. With the
exception of any known or possible non-compliance, and as
required by auditing standards, our work in respect of these
was limited to enquiry of the directors and other
management and inspection of regulatory and legal
correspondence.
We communicated identified laws and regulations
throughout our team and remained alert to any indications
of non-compliance throughout the audit.
As with any audit, there remained a higher risk of non-
detection of non-compliance with relevant laws and
regulations (irregularities), as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls.
8. The purpose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
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.
Will Baker (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
8 Princes Parade
Liverpool
L3 1QH
27 November 2018
92
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
6. We have nothing to report on the other matters on
6. We have nothing to report on the other matters on
which we are required to report by exception
which we are required to report by exception
Irregularities – ability to detect
Irregularities – ability to detect
Under the Companies Act 2006, we are required to report
Under the Com panies Act 2006, we are required to report
to you if, in our opinion:
to you if, in our opinion:
— 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
— adequate accounting records have not been kept by the
parent Com pany, or returns adequate for our audit have
not been received from branches not visited by us; or
We identified areas of laws and regulations that could
reasonably be expected to have a material effect on the
financial statements from our sector experience, and
through discussion with the directors and other
management (as required by auditing standards).
We identified areas of laws and regulations that could
reasonably be expected to have a m aterial effect on the
financial statem ents from our sector experience, and
through discussion with the directors and other
m anagem ent (as required by auditing standards).
We had regard to laws and regulations in areas that directly
affect the financial statements including financial reporting
(including related company legislation) and taxation
legislation. We considered the extent of compliance with
those laws and regulations as part of our procedures on the
related financial statement items.
We had regard to laws and regulations in areas that directly
affect the financial statem ents including financial reporting
(including related com pany legislation) and taxation
legislation. We considered the extent of com pliance with
those laws and regulations as part of our procedures on the
related financial statem ent item s.
In addition we considered the im pact of laws and
In addition we considered the impact of laws and
regulations in the specific areas of the ATOL regulation and
regulations in the specific areas of the ATOL regulation and
The Package Travel and Linked Travel Arrangem ents
The Package Travel and Linked Travel Arrangements
Regulations recognising the financial and regulated nature
Regulations recognising the financial and regulated nature
of the group’s activities and its legal form . With the
of the group’s activities and its legal form. With the
exception of any known or possible non-compliance, and as
exception of any known or possible non-com pliance, and as
required by auditing standards, our work in respect of these
required by auditing standards, our work in respect of these
was limited to enquiry of the directors and other
was lim ited to enquiry of the directors and other
m anagem ent and inspection of regulatory and legal
management and inspection of regulatory and legal
correspondence.
correspondence.
We communicated identified laws and regulations
throughout our team and remained alert to any indications
of non-compliance throughout the audit.
We com m unicated identified laws and regulations
throughout our team and rem ained alert to any indications
of non-com pliance throughout the audit.
As with any audit, there remained a higher risk of non-
detection of non-compliance with relevant laws and
regulations (irregularities), as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal controls.
As with any audit, there rem ained a higher risk of non-
detection of non-com pliance with relevant laws and
regulations (irregularities), as these m ay involve collusion,
forgery, intentional om issions, m isrepresentations, or the
override of internal controls.
8. The purpose of our audit work and to whom we owe
our resp onsib ilities
8. The p urp ose of our audit work and to whom we owe
our responsibilities
This report is made solely to the Company’s members, as a
This report is m ade solely to the Com pany’s m em bers, as a
body, in accordance with Chapter 3 of Part 16 of the
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken
Com panies Act 2006. Our audit work has been undertaken
so that we m ight state to the Com pany’s m em bers those
so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s
m atters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent
report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume
perm itted by law, we do not accept or assum e
responsibility to anyone other than the Com pany and the
responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this
Com pany’s m em bers, as a body, for our audit work, for this
report, or for the opinions we have form ed.
report, or for the opinions we have formed.
— the parent Company financial statements and the part
— the parent Com pany financial statem ents and the part
of the Directors’ Remuneration Report to be audited
are not in agreement with the accounting records and
returns; or
of the Directors’ Rem uneration Report to be audited
are not in agreem ent with the accounting records and
returns; or
— certain disclosures of directors’ remuneration specified
— certain disclosures of directors’ rem uneration specified
by law are not made; or
by law are not m ade; or
— we have not received all the information and
explanations we require for our audit.
explanations we require for our audit.
— we have not received all the inform ation and
We have nothing to report in these respects.
We have nothing to report in these respects.
7. Respective responsibilities
7. Respective responsibilities
Directors’ responsibilities
Directors’ responsibilities
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.
As explained m ore fully in their statem ent set out on page
94, the directors are responsible for: the preparation of the
financial statem ents including being satisfied that they give
a true and fair view; such internal control as they determ ine
is necessary to enable the preparation of financial
statem ents that are free from m aterial m isstatem ent,
whether due to fraud or error; assessing the Group and
parent Com pany’s ability to continue as a going concern,
disclosing, as applicable, m atters related to going concern;
and using the going concern basis of accounting unless
they either intend to liquidate the Group or the parent
Com pany or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
whether the financial statem ents as a whole are free from
material misstatement, whether due to fraud, other
m aterial m isstatem ent, whether due to fraud, other
irregularities, or error, and to issue our opinion in an
irregularities, or error, and to issue our opinion in an
auditor’s report. Reasonable assurance is a high level of
auditor’s report. Reasonable assurance is a high level of
assurance, but does not guarantee that an audit conducted
assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material
in accordance with ISAs (UK) will always detect a m aterial
misstatement when it exists. Misstatements can arise
m isstatem ent when it exists. Misstatem ents can arise
from fraud, other irregularities or error and are considered
from fraud, other irregularities or error and are considered
material if, individually or in aggregate, they could
m aterial if, individually or in aggregate, they could
reasonably be expected to influence the economic
reasonably be expected to influence the econom ic
decisions of users taken on the basis of the financial
decisions of users taken on the basis of the financial
statements. The risk of not detecting a material
statem ents. The risk of not detecting a m aterial
misstatement resulting from fraud or other irregularities is
m isstatem ent resulting from fraud or other irregularities is
higher than for one resulting from error, as they may involve
higher than for one resulting from error, as they m ay involve
collusion, forgery, intentional omissions,
collusion, forgery, intentional om issions,
misrepresentations, or the override of internal control and
m isrepresentations, or the override of internal control and
may involve any area of law and regulation not just those
m ay involve any area of law and regulation not just those
directly affecting the financial statements.
directly affecting the financial statem ents.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
A fuller description of our responsibilities is provided on the
FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Will Baker (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
8 Princes Parade
Liverpool
L3 1QH
27 November 2018
Will Baker (Senior Statutory Auditor)
for and on b ehalf of KPMG LLP, Statutory Auditor
Chartered Accountants
8 Princes Parade
Liverpool
L3 1QH
27 Novem ber 2018
93
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018 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 46 to 46 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
28 November 2018
Directors Responsibility Statement
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.
94
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Financial statements
96 Consolidated income statement and statement
of comprehensive income
97 Consolidated balance sheet
98 Consolidated statement of cashflows
99 Consolidated statement of changes in equity
100 Notes to the consolidated financial statements
132 Company balance sheet
133 Company statement of changes in equity
134 Notes to the Company financial statements
136 Glossary of alternative performance
measures (APMs)
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 2018
95
95
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTGOVERNANCE
Consolidated Income Statement and
Statement of Comprehensive Income
Year ended 30 September 2018
Note
4
6
6
6
8
8
9
10
10
6
2018
£’m
104.1
(11.5)
92.6
(66.4)
34.0
(0.6)
(7.2)
2017
£’m
83.6
-
83.6
(62.4)
30.3
(2.7)
(6.4)
26.2
21.2
(0.3)
0.2
(0.1)
26.1
(4.6)
21.5
-
21.5
(0.2)
0.1
(0.1)
21.1
(3.1)
18.0
-
18.0
21.5
18.0
16.5p
21.2p
13.8p
17.6p
33.6
28.5
Revenue**
Cost of sales
Gross profit
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
Total other comprehensive income
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Basic and diluted earnings per share attributable to the equity Shareholders of
the Company:
Basic and diluted earnings per share
Adjusted earnings per share *
Adjusted profit measure *
Adjusted PBT (before amortisation of acquired intangibles, exceptional & non
underlying costs and share based payments) *
* This is a non GAAP measure, refer to notes
**
In 2018 revenue is a combination of revenue received as an agent and revenue
received as a principal. This is a result of the acquisition of Classic Collection which
accounts for revenue on a “travelled” basis and therefore reports revenue and cost of
sales on a gross basis.
The Group has no other comprehensive income in the current or prior year
The notes on pages 100 to 131 form part of the financial statements.
96
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Consolidated Balance Sheet
Year ended 30 September 2018
ended
September
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Total non-current assets
Current assets
Trade and other receivables
Assets held for sale
Derivative financial instruments
Corporation tax receivable
Cash and cash equivalents
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
2018
2017
Note
£’m
£’m
11
12
13
15
16
23
17
21
22
22
22
20
18
18
23
88.1
4.5
0.8
72.5
1.4
-
93.4
73.9
71.1
0.5
0.1
0.7
85.7
158.1
56.5
-
-
-
71.6
128.1
251.5
202.0
1.3
245.6
0.5
1.3
226.9
0.5
(129.5)
(132.1)
117.9
96.6
7.2
7.2
6.4
6.4
-
126.4
-
-
126.4
2.4
89.5
7.0
0.1
99.0
133.6
251.5
105.4
202.0
The financial statements from pages 96 to 131 were approved by the Board of Directors and authorised for issue
Paul Meehan
Chief Financial Officer
28 November 2018
On the Beach Group plc. Reg no 09736592
97
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Consolidated Statement of Cashflows
Year ended 30 September 2018
ended
September
Profit before taxation
Adjustments for:
Depreciation
Amortisation of intangible assets
Finance costs
Finance income
Share based payments
Changes in working capital:
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Increase in trust account
Cash flows from operating activities
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
Contingent consideration
Acquisition of subsidiary, net of cash acquired (note 5)
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
The notes on pages 100 to 131 form part of the financial statements.
For the 53
weeks
30
2018
2017
Note
£’m
£’m
26.1
21.1
0.5
7.2
0.3
0.4
6.4
0.2
(0.2)
(0.1)
1.4
35.3
0.5
28.5
(7.8)
6.1
(0.2)
(1.9)
(9.6)
11.0
(4.7)
(3.3)
33.4
(7.1)
25.2
(5.1)
26.3
20.1
12
11
(2.2)
(0.6)
(3.8)
(2.7)
0.2
0.1
(3.0)
-
5
1.0
(5.8)
(7.8)
(9.0)
(3.9)
(0.3)
(4.0)
(0.2)
(4.2)
(4.2)
14.3
6.9
33.0
26.1
47.3
33.0
17
17
98
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Consolidated Statement of Changes in Equity
Year ended 30 September 2018
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
Share based payment charges
Share issued during the year
Dividends paid during the year
Total comprehensive income for the year
Balance at 30 September 2018
Share capital
£’m
1.3
-
-
-
Merger
reserve
£’m
(132.1)
-
-
-
Capital
contribution
reserve
£’m
0.5
-
-
-
Retained
earnings
£’m
212.4
0.5
(4.0)
18.0
1.3
(132.1)
0.5
226.9
-
-
-
-
-
2.6
-
-
-
-
-
-
1.2
-
(4.0)
21.5
Total
£’m
82.1
0.5
(4.0)
18.0
96.6
1.2
2.6
(4.0)
21.5
1.3
(129.5)
0.5
245.6
117.9
On 15th August 2018 the Group issued 607,747 shares as part of the acquisition of the Classic Collection Group. 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.
The notes on pages 100 to 131 form part of these financial statements
99
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the Consolidated Financial Statements
Year ended 30 September 2018
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 139.
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 (£’m) 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 have concluded that there will 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 IFRS 15 will have no material impact because
of the following:
›
›
For customer bookings made as agent, the group performance obligations, to make the travel arrangements on behalf of the
customer, will be met once the booking has been confirmed to them, this is at the same point under IAS 18.
For customer bookings made as principal, the Group will recognise revenue once it has fulfiled its performance obligations to
provide the package holiday. This is at the same point under IAS 18.
With respect to revenue from supplier overrides, management believes adopting IFRS 15 will have no material impact. For the
majority, according to the override agreement, the Group’s performance obligations are met and overrides are earned when the
customer has booked. 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 initial impact assessment 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. The Group’s property lease commitments will be brought onto the consolidated statement of financial position using
the prospective method, as a liability with a corresponding asset. Total costs incurred remain unchanged over the life of the lease but
the timing of when those costs are recognised within the consolidated income statement will be impacted. Based on analysis of
property lease commitments held by the group at 30 September 2018, and using an estimated discount rate, the net impact on
profit is not expected to be material. There is no impact on the Group’s cash flows.
100
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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. Classic Collection Holidays Limited was acquired on 15 August 2018. The Company’s results have been consolidated from
the date of acquisition to 30 September 2018.
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.
Intercompany 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 is 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 23 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 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.
ii.
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.
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Notes to the Consolidated Financial Statements
iii.
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
accounts are 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.
For bookings made as agent, 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.
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 activity, 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 three reportable segments:
(i)
(ii)
(ii)
“Core” - activity via UK websites (www.onthebeach.co.uk, www.sunshine.co.uk and www.onthebeachtransfers.co.uk)
“B2B” - activity via the newly acquired Tour Operator, Classic Collection Holidays Limited and its subsidiary
“International” - activity via Swedish, Norwegian and Danish websites (eBeach.se, eBeach.no and eBeach.dk)
i) Revenue recognition
Revenue is recognised as follows:
As agent:
The Group acts as agent when it is not the primary party responsible for providing the components that make up the customer’s
booking. Revenue comprises the fair value of the consideration received or receivable in the form of commission. Commissions are
earned from the supplier or consumer in purchases of travel products such as flight tickets or hotel accommodation from third party
suppliers. Commission is recognised when all the significant risks and rewards of ownership is transferred to the customer, usually on
delivery of the booking confirmation.
Cancellations are estimated at the reporting date based on the historical profile of bookings.
As principal:
The Group acts as principal when it is the primary party responsible for providing the components that make up the customer’s
booking. Revenue represents amounts received or receivable for the sale of package holidays and other services supplied to the
customers. Revenue is recognised when all the significant risks and rewards of ownership are transferred to the customer, usually at
the date of departure.
Revenue is stated net of discounts, rebates, refunds and value added tax.
Override income
The Group has agreements with suppliers whereby volume-related rebates are received in connection with the travel arrangements
made with the customer. The income received from suppliers relates to an increase in commission received, and as such is considered
part of the Group’s revenue. The Group has some agreements whereby receipt of the income is conditional on the Group achieving
agreed volume targets.
For agreements not linked to volume targets, override income is recognised when earned by the Group, which occurs when all
obligations conditional for earning income have been discharged, and the income can be measured reliably based on the terms of the
contract, which is usually once the booking has been confirmed with the supplier.
For agreements where volume targets are in place, income is recognised once the target has been achieved. For volume targets which
span the year end the Group is required to make estimates in determining the amount and timing of recognition of override. In
determining the amount of volume-related allowances recognised in any period, management estimate the probability that the Group
will meet contractual target volumes, based on historical and forecast performance.
Amounts due but not yet recovered relating to override income are recognised within trade and other receivables.
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j) Dividend distribution
Final dividend distribution to the Groups 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.
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) Investment property
Properties are externally valued on the basis of fair value at the balance sheet date. Any surplus or deficit arising on revaluing investment
properties is recognised as other income in the income statement.
n) Held for sale assets
Assets are classified as held for sale if their carrying amount is expected to be recovered or settled principally through sale rather than
through continuing use. The asset must be available for immediate sale and the sale must be highly probable within one year of the
reporting date. Held for sale assets are measured at the lower of carrying value and fair value less costs to sell.
o) 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; and
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.
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Notes to the Consolidated Financial Statements
ii. Brand
Upon acquisition of the Group by OTB Topco, the On the Beach brand was identified as a separately identifiable asset. Acquisitions
of Sunshine.co.uk Limited and Classic Collection Holidays Limited has resulted in the brand of each as being identified and
recognised separately from goodwill at fair value.
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:
Agent relationships
Customer relationships
10 years
3 years
10-15 years
15 years
5 years
iv. Customer relationships
Upon the acquisition of Classic Collection Holidays Limited customer relationships have been identified as a separately identifiable
assets. Classic Collection’s revenue is driven by a very high volume of repeat customers due to its bespoke holiday packages and the
target market. Repeat customers are from two broad segments - independent travel agents and direct customers. There is a defined
margin and attrition profile differential between the two customer groups and as such two separate assets have been identified.
p) Impairment of non-financial assets
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.
q) 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.
r) 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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s) 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.
t) 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.
u) 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.
v) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a
deduction from the proceeds.
w) 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.
x) 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.
y) 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.
z) 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.
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Non statutory measures
aa)
One of the Groups KPI’s is adjusted profit before tax. When reviewing profitability, the Directors use an adjusted PBT in order to give
a meaningful year-on-year comparison. Whilst we recognise that the measure is an alternative (non-Generally Accepted Accounting
Principles (“non-GAAP”)) performance measure which is also not defined within IFRS, this measure is important and should be
considered alongside the IFRS measures.
Adjusted Profit before tax is calculated by adding back those material items of income and expenditure where because of the nature and
expected infrequency of events giving rise them, merit separate presentation to allow shareholders a better understanding of the financial
performance in the period.
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.
Critical accounting judgements
Principal vs Agent
Determining whether an entity is acting as a principal or as an agent requires judgement and has a significant effect on the timing and
amount (gross or net basis) of revenue recognised by the Group.
Management have carefully considered the agency status of each of its operational segments against the criteria set within IAS 18 and
have concluded that both the “Core” and “International” segments are agents and that “Classic” segment is a principal. As an agent
revenue is recognised at the point of booking on a net basis. As a principal revenue is recognised on a gross basis at the point when the
customer depart for their holiday.
Critical accounting estimates
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 separately identifiable assets,
the following valuation approach and assumptions have been used:
Intangible considered
Valuation approach
Key assumptions
Customer relationships - agents
Multi period excess earnings method
2% revenue growth, discount rate of 13.5%,
Customer relationships - individuals
Multi period excess earnings method
2% revenue growth, discount rate of
10% attrition rate
Brand
Software
Relief from royalty
Replacement cost
14% (1% premium), 20% attrition rate
13.5% (0.5% premium), 1% royalty rate
No premium for opportunity costs
The resulting calculation is sensitive to the the assumptions in respect of future cash flows, attrition rates and the royalty rate used. The
Directors believe that the assumptions made represent their best estimate of the future cash flows and royalty rate used.
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4. Segmental report
As explained in note 2h, the management team considers the reportable segments to be ‘‘Core’’, “B2B” and ‘‘International’’. All segment
revenue, operating profit, assets and liabilities are attributable to the Group from its principal activities.
Core and international recognise revenue as an agent on a net basis. Classic, included within the B2B segment recognises revenue as a
principal on a gross basis.
Sunshine.co.uk Limited is disclosed within the “Core” segment. The 2017 numbers include transactions since acquisition.
2018
2017
Core
£’m
B2B*
£’m
Int’l
£’m
Total
£’m
Core
£’m
Int’l
£’m
Total
£’m
89.3
13.2
1.6
104.1
81.9
1.7
83.6
37.9
(1.4)
(0.9)
35.6
(7.3)
28.3
(0.6)
27.7
1.1
(2.2)
-
-
1.1
(0.2)
0.9
-
0.9
-
-
(2.2)
(0.2)
(2.4)
-
(2.4)
31.6
37.3
2.5
-
8.0
11.2
2.0
0.8
-
0.1
-
-
36.8
(1.4)
(0.9)
34.5
(7.7)
26.8
(0.6)
26.2
(0.3)
0.2
26.1
36.9
48.6
4.5
0.8
33.2
(0.5)
-
32.7
(6.6)
26.1
(2.7)
23.4
(2.0)
-
-
(2.0)
(0.2)
(2.2)
-
(2.2)
31.6
40.6
1.4
-
-
0.3
-
-
31.2
(0.5)
-
30.7
(6.8)
23.9
(2.7)
21.2
(0.2)
0.1
21.1
31.6
40.9
1.4
-
Income
Revenue
Adjusted EBITDA
Share based payments
Non underlying costs
EBITDA
Depreciation and amortisation
Segment operating profit/(loss) before exceptional costs
Exceptional
Group operating profit/(loss)
Finance costs
Finance income
Profit before taxation
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment property
* Results are from the acquisition date to 30 September 2018
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5. Business combinations
Acquisition of Classic Collection Holidays Limited
On 15 August 2018 the Group acquired the entire share capital of Classic Collection Holidays Limited in exchange for cash, shares and
contingent consideration. The primary reason for the business combination was to increase market share and gain access to the Classic
Collection Group’s B2B network
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:
Recognised values
on acquisition
£’m
Net assets acquired
Intangible assets
Property plant and equipment
Investment property
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liabilities
Net identifiable assets and liabilities
Consideration paid
Cash paid
Contingent consideration
Deferred working capital
Shares issued
Total consideration
Net working capital cash adjustment
Net consideration
Goodwill
11.2
2.0
0.8
5.0
18.2
(20.0)
(1.9)
15.3
17.2
2.7
0.8
2.6
23.3
(3.3)
20.0
8.0
Under IFRS 3 Business Combinations, the Classic Collection brand, including the domain name and customer relationships have been
identified as assets separate from goodwill with a value of £11.2m. The recognition of these assets has resulted in a deferred tax liability
of £1.9m. The goodwill balance represents the value of the workforce, the realisation of the potential increase in market share through
gaining access to the existing distribution network of travel agents. 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 it will give the Group a “business to business” channel through
which the Group can gain access to the offline short haul beach holidays market. The fair value of the contingent consideration at
acquisition amounts to £2.7m which is the agreed payment amount. The contigent consideration will be reduced by any losses suffered
or incurred resulting from any material breach of the Directors’ service agreements. This is deemed to be remote, and therefore doesn’t
affect the fair value. The Directors will receive market rate remuneration for the period of the service agreement which is separate from the
consideration amount.
Acquisition related costs amounting to £0.6m 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 Classic Collection Holidays Group was
£20m plus excess working capital of £3.3m which is equal to the total consideration of £23.3m. Due to the relatively short time between
acquisition and 30 September 2018, the intangible assets recognised are deemed to be provisional. Included in the operating profit for the
period ended 30 September 2018 is £1.1m attributable to the additional business generated by Classic Collection.
Had the business combination been effected as at 1 October 2017, the revenue for the Group would have been £147.4m and the
operating profit for the period would have been £24.8m.
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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:
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 paid
Cash paid
Contingent consideration
Total consideration
Net working capital cash adjustment
Net consideration
Goodwill
Recognised values
on acquisition
£’m
1.6
0.5
25.8
3.2
(29.0)
(0.3)
1.8
13.0
3.0
16.0
(4.0)
12.0
10.2
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 £1.5m. The recognition of the brand has resulted in a deferred tax liability of £0.3m.
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 infrastructure. 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 £3.0m, 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 occurrence of this condition
is considered to be remote by management.
Acquisition related costs amounting to £0.7m 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 £12m. Excess working capital was paid upon acquisition as additional consideration.
Included in the operating profit for the period ended 30 September 2017 is £0.5m attributable to the additional business generated by
Sunshine.co.uk Limited.
Had the business combination been effected as at 1 October 2016, the revenue for the Group would have been £86.2m and the operating
profit for the period would have been £22.2m.
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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 (including share based payments)
IT hosting, licences & support
Rent
Credit / debit card charges
Other
Administative expenses before exceptional costs & amortisation of intangible assets
Exceptional costs (see note 6b)
Amortisation of intangible assets
Exceptional costs and amortisation of intangible assets
Administrative expenses
2018
£’m
2017
£’m
40.4
40.3
0.5
0.4
10.9
6.9
1.4
1.1
1.0
0.7
2.7
2.2
1.7
1.7
58.6
53.3
0.6
2.7
7.2
6.4
7.8
9.1
66.4
62.4
b) Exceptional items
Exceptional costs in the current year relate to £0.6m of costs incurred during the acquisition of Classic Collection Holidays Limited.
Exceptional items in the prior period include £0.7m of costs incurred in relation to the purchase of Sunshine.co.uk Limited and a £2.0m
provision following the failure of the Monarch Travel Group on 2nd October 2017. The £2.0m charge is the net of a £5.0m asset relating to
the amounts reclaimed from chargeback and a provision of £7.0m relating to our obligations under ATOL regulations.
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
2018
£’m
0.1
0.1
-
-
0.2
2017
£’m
0.1
-
-
-
0.1
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d) Adjusted PBT
Management measures the overall performance of the Group by reference to Adjusted PBT, a non-GAAP measure as it gives a
meaningful year on year comparison of the Group’s performance:
Profit before taxation
Exceptional acquisition costs
Non underlying litigation costs
Non underlying property costs
Monarch charge
Amortisation of acquired intangibles (brand, website technology and customer relationships)
Share based payments charge*
Adjusted PBT
2018
£’m
2017
£’m
26.1
0.6
0.4
0.5
-
4.6
1.4
33.6
21.0
0.7
-
-
2.0
4.3
0.5
28.5
*The first LTIP was granted in 2016. As the scheme reaches maturity (3 year cycle) there will be a material change to the charge
each year. Therefore the charges have been added back to the adjusted profit measure in order to better reflect management’s
view of the underlying performance of the business.
e) Group operating profit before amortisation and exceptional costs
Management consider this measure to be relevant in understanding the trading performance of the Group as it excluded
amortisation of intangible assets and items that are not expected to recur.
7. Employees and Directors
a) Payroll costs
The aggregate payroll costs of these persons was as follows:
Wages and salaries
Defined contribution pension cost
Social security costs
Share-based payment charges
Staff costs above include £3.8m (2017: £2.6m) employee costs capitalised as part of software development.
b) Employee numbers
Average monthly number of people (including Executive Directors) employed:
By reportable segment:
Core
International
B2B
2018
£’m
12.0
0.1
1.2
1.4
14.7
2017
£’m
10.1
0.1
1.0
0.5
11.7
2018
2017
384
18
102
504
322
15
-
337
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Notes to the Consolidated Financial Statements
c) Directors’ emoluments
The remuneration of Directors of the group was as follows:
Aggregate emoluments
Defined contribution pension
Share-based payment charges
2018
£’m
2017
£’m
0.8
0.1
0.7
1.6
0.8
-
0.1
0.9
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
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
Share-based payment charges
2018
£’m
0.3
0.4
0.7
2017
£’m
0.3
0.1
0.4
2018
£’m
1.1
0.1
0.9
2.1
2017
£’m
1.2
0.0
0.3
1.5
e) Retirement benefits
Included in pension contributions payable by the Group of £0.1m (2017: £0.1m) is £42,000 (2017: £22,000) of contributions that the
Group made to a personal pension scheme in relation to one Executive Director.
8. Finance income and finance costs
a) Finance costs
Rolling credit facility interest
Finance costs
b) Finance income
Bank interest receivable
Finance income
2018
£’m
0.3
0.3
2017
£’m
0.2
0.2
2018
£’m
0.2
0.2
2017
£’m
0.1
0.1
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
9. Taxation
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
Total deferred tax
Total tax charge
2018
£’m
6.1
(0.4)
5.7
2017
£’m
5.0
(1.1)
3.9
(1.1)
(0.8)
(1.1)
4.6
(0.8)
3.1
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 for the year ended 30 September 2017 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% (2017: 19.5%)
Effects of:
Adjustments in respect of prior years
Total taxation charge
2018
£’m
2017
£’m
26.1
21.1
5.0
4.2
(0.4)
4.6
(1.1)
3.1
The tax charge for the year is based on the effective rate of UK Corporation tax for the period of 19% (2017: 19.5%). A reduction in
the UK corporation tax rate from 20% to 19% (effective from 1 April 2017) was substantially enacted on 26 October 2015. Further
reductions 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 Group’s future current tax charge
accordingly.
The deferred tax liability at 30 September 2018 has been calculated based on these rates.
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Notes to the Consolidated Financial Statements
10. Earnings per share
Basic 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.
Diluted earnings per share is 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 period plus the weighted avaerage number of ordinary shares that would be issued
on the conversion of all dilutive potential ordinary shares into ordinary shares.
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 2018
Basic EPS
Diluted EPS
Adjusted EPS
Year ended 30 September 2017
Basic and diluted EPS
Adjusted EPS
Adjusted earnings after tax is calculated as follows:
Profit for the year after taxation
Adjustments (Net of Tax at 19%):
Exceptional acquisition costs
Non underlying Litigation costs
Non underlying property costs
Monarch net charge
Amortisation of acquired intangibles
Share based payment charges *
ATCA adjustment
Adjusted earnings after tax
Basic weighted
average number
of Ordinary Shares
(m)
130.5
130.7
130.5
130.4
130.4
Total
Pence
earnings per share
£’m
21.5
21.5
27.7
16.5p
16.5p
21.2p
18.0
22.9
13.8p
17.6p
2018
£’m
21.5
2017
£’m
18.0
0.4
-
0.5
0.3
0.4 -
- 1.6
3.6
0.4
(1.1)
3.8
1.2
-
27.7
22.9
* The share based payment charges are in relation to options which are not yet exercisable.
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Brand
Goodwill
£’m
£’m
Website &
development
costs
£’m
Website
technology
Customer
relationships
Total
£’m
£’m
£’m
11. Intangible assets
Cost
At 1 October 2016
Assets acquired on acquisition
Additions
At 30 September 2017
Assets acquired on acquisition
Additions
Disposals
30.1
1.4
-
31.5
4.4
-
-
21.5
10.1
-
31.6
8.0
-
-
At 30 September 2018
35.9
39.6
Accumulated amortisation
At 1 October 2016
Charge for the year
At 1 October 2017
Charge for the year
Disposals
At 30 September 2018
Net book amount
At 30 September 2018
At 30 September 2017
6.0
2.1
8.1
2.2
-
10.3
-
-
-
-
-
-
25.6
39.6
23.5
31.6
3.8
0.1
2.6
6.5
-
3.8
(3.8)
6.5
0.5
2.1
2.6
2.6
(3.7)
1.5
5.0
3.9
22.5
-
-
22.5
0.3
-
-
22.8
6.8
2.2
9.0
2.2
-
11.2
11.6
13.5
-
-
-
-
6.5
-
-
77.9
11.6
2.6
92.1
19.2
3.8
(3.8)
6.5
111.3
-
-
-
0.2
-
0.2
13.3
6.4
19.7
7.2
(3.7)
23.2
6.3
88.1
-
72.5
Assets acquired on acquisition
These assets were recognised upon acquisition of Classic Collection Holidays Limited (2017: Sunshine.co.uk Limited). The amounts
recognised are at fair value at acquisition date.
CGU
Core
Core
B2B
Acquisitions
On the Beach Travel Limited
Sunshine.co.uk Limited
Classic Collection Holidays Limited
As at 30
Setptember
2018
£’m
As at 30
Setptember
2017
£’m
21.5
10.1
8.0
39.6
21.5
10.1
-
31.6
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Impairment of goodwill
Goodwill acquired through Sunshine.co.uk has been allocated to the “core” cash generating units it operates from the same internal
infrastructure as the core segement. Core and Sunshine are internally reported and managed as one entity. Goodwill acquired through
the Classic Collection acquisition has been allocated to the “Classic” cash generating unit.
“Core” CGU
The Group performed its annual impairment test as at 30 September 2018 on the “core” 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 10 percent (2017: 20 percent) over the period, years’
four and five are extrapolated at a growth rate of 5 percent (2017: 5 percent); the forecasts are then extrapolated in perpetuity based
on an estimated growth rate of 2 percent (2017: 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 13.5 percent (2017: 11 percent).
“B2B” CGU
The Group performed its annual impairment test as at 30 September 2018 on the “B2B” 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 five years grow 2 percent over the period, the forecasts are then
extrapolated in perpetuity based on an flat growth rate. 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 13.5 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.
The “International” CGU has been internally developed and as such, has no goodwill.
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.
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. 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.
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12. Property, plant and equipment
Freehold
property
Buildings
leasehold
Cost
At 1 October 2016
On Acquisition
Additions
At 1 October 2017
On Acquisition
Additions
Disposals
Assets held for sale
At 30 September 2018
Accumulated deprecation
At 1 October 2016
Charge for the year
At 1 October 2017
Charge for the year
Disposals
At 30 September 2018
Net book amount
At 30 September 2018
At 30 September 2017
£’m
-
0.3
-
0.3
2.0
-
-
(0.3)
2.0
-
-
-
-
-
-
2.0
0.3
£’m
-
0.3
-
0.3
-
-
-
(0.3)
-
-
-
-
-
-
-
-
0.3
Fixtures,
fittings and
equipment
£’m
Assets under
construction
Total
£’m
£’m
1.3
0.0
0.5
1.8
-
1.1
(1.4)
1.5
0.6
0.4
1.0
0.5
(1.4)
0.1
1.4
0.8
-
-
-
-
-
1.1
-
-
1.1
-
-
-
-
-
-
1.3
0.6
0.5
2.4
2.0
2.2
(1.4)
(0.6)
4.6
0.6
0.4
1.0
0.5
(1.4)
0.1
1.1
4.5
-
1.4
Assets acquired on acquisition
£2.0m of these assets were recognised upon acquisition of Classic Collection Holidays Limited on 15 August 2018. The amounts
recognised are at fair value at acquisition date which equates to the net book value of these assets.
£0.6m 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 assets have been subsequently been reclassified as
held for sale. The depreciation expense of £0.5m for the year ended 30 September 2018 and the depreciation expense of £0.4m for the
year ended 30 September 2017 have been recognised within administrative expenses.
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13. Investment property
Cost
At 1 October 2017
On Acquisition
At 30 September 2018
Total
£’m
-
0.8
0.8
Assets acquired on acquisition
Investment property relates to a freehold property acquired as part of the acquisition of Classic Collection Holidays. A portion of the
building earns rental income and has been classified as an Investment property. Rental income of £0.1m (2017: £nil) was recorded in the
income statement in the current period.
The fair value of investment property was determined by external, independent property valuers, having appropriate recognised
professional qualifications and recent experience in the location and category of the property being valued. The independent valuers
provide the fair value of the Group’s investment property annually. All of the investment properties have been categorised as a Level 3
fair value based on the inputs to the valuation technique used.
14. 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 5 Adair Street, Manchester, M1 2NQ.
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 Bid Co Limited
On the Beach Travel Limited
On the Beach Trustees Limited
On the Beach Holidays Limited
Sunshine.co.uk Limited
Sunshine Abroad Limited
Classic Collection Holidays Limited
Classic Collection Aviation Limited
Classic Collection Holiday, Travel & Leisure Limited
Saxon House Properties Limited
Classic Package Holidays Limited
Nature
of business
Proportion of
ordinary shares
held by the Group
Holding company
Internet travel agent
Internet travel agent
Holding company
Internet travel agent
Employee trust
Dormant
Internet travel agent
Dormant
Tour Operator
Transport Broker
Dormant
Property Management
Travel Agent
100%
100%
100%
100%
100%
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.
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15. Trade and other receivables
Amounts falling due within one year:
Trade receivables – net
Other receivables
Prepayments
2018 2017
£’m £’m
58.0 47.4
8.8 8.3
4.3 0.8
71.1 56.5
In the prior year Other receivables includes £5m receivable in respect of a Scheduled Airline Failure Insurance claim following the failure of
the Monarch Group on 2 October 2017. The asset was fully recovered in the year.
16. Assets held for sale
Assets held for sale
2018
£’m
2017
£’m
0.5 -
0.5
-
The Group is actively attempting to sell the two properties acquired through the purchase of Sunshine.co.uk. The Group expects to sell
both properties within the next financial year.
17. Cash and cash equivalents
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
18. Trade, other payables and provisions
Current
Trade payables
Accruals
Contingent consideration
Provision
2018
£’m
2017
£’m
47.3
33.0
38.4
38.6
85.7
71.6
2018
£’m
2017
£’m
15.6
6.9
108.1
79.6
2.7
3.0
-
7.0
126.4
96.5
The £7m provision in the prior year in respect of the Monarch airline failure has been fully utilised in the current year. The provision
represented the cost the Group incurred to fulfil its obligations to customers under ATOL regulations to arrange refunds or alternative
flights.
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Notes to the Consolidated Financial Statements
19. Borrowings
Bank Facility
During the year the Group extended its Revolving Credit Facility with Lloyds Bank plc (the Facility) to 31 December 2019.
The borrowing limits under the Facility will vary monthly to reflect the seasonal borrowing requirements of the Group, ranging from
£2.0m in one month to £30.0m in another month. No early prepayment fees are payable.
The margin contained within 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 Group financial covenants:
(i)
(ii)
that the ratio of total debt to EBITDA in respect of any relevant period shall not exceed 2:1 and
that the ratio of EBITDA to finance charges in respect of any relevant period shall not be less than 5:1
The Group operated within these covenants during the period.
20. Deferred tax
2018
Assets
Liabilities
Total
2017
Assets
Liabilities
Total
30 September 2016
Acquired on acquisition
Recognised in income
30 September 2017
Acquired on acquisition
Recognised in income
30 September 2018
Property,
plants and
equipment
£’m
Fixtures,
fittings and
equipment
£’m
Tax
assets/
(liabilities)
£’m
Intangible
assets
£’m
-
(7.6)
(7.6)
-
(6.5)
(6.5)
-
0.1
0.1
0.1
-
0.1
0.3
-
0.3
-
-
-
Intangible
assets
revaluation
Property,
plants and
equipment
Share based
payments
£’m
(7.2)
(0.2)
0.9
(6.5)
(1.9)
0.8
(7.6)
£’m
-
-
0.1
0.1
-
-
0.1
£’m
-
-
-
-
-
0.3
0.3
0.3
(7.5)
(7.2)
0.1
(6.5)
(6.4)
Total
£’m
(7.2)
(0.2)
1.0
(6.4)
(1.9)
1.1
(7.2)
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21. Share capital
Allotted, called up and fully paid
131,042,510 Ordinary shares @ £0.01 each (2017:130,434,763 @ £0.01 each)
2018
£’m
2017
£’m
1.3
1.3
On 15th August 2018 the Group issued 607,747 shares as part of the acquisition of Classic Collection Holidays. 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.
22. 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.
During the year the Group issued 607,747 shares with a nominal value of £0.01 each to form part of the acquisition of Classic
Collection Holidays. The consideration value of the shares issed was £2.6m. The excess above the nominal value of the shares has
been credited to the merger reserve.
The capital redemption reserve arose as a result of the redemption of preference shares in the year ended 30 September 2015.
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Notes to the Consolidated Financial Statements
23. 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
Deriviative financial assets
Forward exchange contracts used for hedging
Loans and receivables
Cash and cash equivalents
Trade and other receivables (note 15)
Total financial assets
Financial liabilities
Trade and other payables (note 18)
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
2018
£’m
2017
£’m
0.1
-
85.7
66.8
152.6
71.6
55.7
127.3
(108.1)
(2.7)
-
(110.8)
(79.6)
(3.0)
(0.1)
(82.7)
FV Level
2
3
2018
£’m
0.1
-
2017
£’m
(0.1)
(3.0)
There is no difference between the carrying value and fair value of cash and cash equivalents, trade and other receivables, trade and
other payables and deferred consideration.
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 Contract
As at 30 September 2018
As at 30 September 2017
Contingent consideration
As at 30 September 2018
As at 30 September 2017
Level 1
£’m
Level 2
£’m
Level 3
£’m
-
-
0.1
-
(0.1)
-
(2.7)
-
- (3.0)
The forward contracts have been fair valued at 30 September 2018 with reference to forward exchange rates that are quoted in an
active market, with the resulting value discounted back to present value.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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 change 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 is 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.
Interest rate risk
d)
The Group only has a revolving credit facility which is subject to fluctuations in LIBOR.
123
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Notes to the Consolidated Financial Statements
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, Swedish Krona, Norwegian Krona and Moroccan Dirham). 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
Forward exchange contracts
Balance sheet exposure
Moroccan Dirham
Cash
Trade payables
Forward exchange contracts
Balance sheet exposure
2018
€’m
2017
€’m
8.0
8.4
(70.1)
(63.3)
56.6
50.8
(5.5)
(4.1)
2018
$’m
2017
$’m
0.3
0.2
(1.4)
(1.0)
1.3
0.7
0.2
(0.1)
2018
Kr‘m
2017
Kr‘m
0.1
0.1
-
(0.1)
0.2
0.1
(0.1)
(0.1)
0.3
-
2018
Kr‘m
2017
Kr‘m
0.2
-
-
-
(0.1)
-
0.1
-
2018
MAD‘m
2017
MAD‘m
0.1
-
-
-
(0.1)
-
-
-
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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%
MAD
Weakening -10%
Strengthening - 10%
2018
2017
£’m
(0.9)
0.9
£’m
(0.2)
0.2
-
-
-
-
-
-
0.1
(0.1)
-
-
-
-
-
-
-
-
-
-
-
-
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
2018
Notional
value
Foreign
currency
Fair
value
Foreign
currency
2017
Notional
value
Fair
value
39.4
7.8
16.0
0.3
63.5
35.0
7.0
14.4
0.2
(0.1)
-
-
-
(56.6)
(0.1)
36.8
9.8
4.3
-
50.9
32.4
8.7
3.8
-
-
(0.1)
-
-
44.9
(0.1)
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Notes to the Consolidated Financial Statements
USD
30 September
Less than 3 months
3 to 6 months
6 to 12 months
Total
SEK
30 September
Less than 3 months
3 to 6 months
Total
NOK
30 September
Less than 3 months
3 to 6 months
Total
MAD
30 September
Less than 3 months
Total
Foreign
currency
2018
Notional
value
Fair
value
Foreign
currency
2017
Notional
value
Fair
value
1.0
0.4
0.3
1.7
0.7
0.3
0.2
1.2
-
-
-
0.5
0.2
-
0.7
0.4
0.1
-
0.5
-
-
-
-
2018
Notional
value
Foreign
currency
Fair
value
Foreign
currency
2017
Notional
value
Fair
value
0.6
0.2
0.8
0.1
-
0.1
-
-
-
2.5
0.2
2.7
0.2
-
0.2
-
-
-
Foreign
currency
2018
Notional
value
Fair
value
Foreign
currency
2017
Notional
value
Fair
value
0.9
0.5
1.4
0.1
-
0.1
-
-
-
(2)
-
(2)
(0.2)
-
(0.2)
-
-
Foreign
currency
2018
Notional
value
Fair
value
Foreign
currency
2017
Notional
value
Fair
value
0.1
0.1
0.1
0.1
-
-
-
-
-
-
-
-
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 2018
At 30 September 2017
Not past
due
£’m
57.6
47.3
Past due
0-30 days
£’m
Past due
>30 days
£’m
0.3
0.1
0.1
-
Total
£’m
58.0
47.4
The maximum exposure to credit risk at each reporting date is the fair value of financial assets and trade receivables.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
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-18
Trade payables
Other payables
Contigent consideration
Sept-17
Trade payables
Other payables
Contingent consideration
h) Capital management
Carrying
amount
Contractual
cash flows
Within 1
year
£’m
108.1
15.7
2.7
126.5
79.6
6.9
3.0
89.5
£’m
108.1
15.7
2.7
126.5
79.6
6.9
3.0
89.5
£’m
108.1
15.7
2.7
126.5
79.6
6.9
3.0
89.5
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 19) and equity of the Group as disclosed in note
22.
The Group is not subject to any externally imposed capital requirements.
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Notes to the Consolidated Financial Statements
24. Share based payments
The following table illustrates the number of, and movements in, share options granted by the group
2016 LTIP
2017 LTIP
2018 LTIP
No of share
options
(thousands)
No of share
options
(thousands)
No of share
options
(thousands)
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Outstanding at the year end
536
-
-
536
807
-
(204)
603
-
424
(81)
343
2018
CSOP
&
RSA
-
325
(11)
314
Total
No of share
options
(thousands)
1,343
749
(296)
1,796
2016 LTIP Award
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 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-
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
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
2017 LTIP Award
On the 26th May 2017, the Group awarded 602,425 nil cost options to key management. On the 31 May 2017, the Group awarded
204,668 nil cost options 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-
rate
yield vesting
Fair value
at grant
2017 LTIP
26 May 2017 (TSR)
26 May 2017 (EPS)
31 May 2017 (TSR)
31 May 2017 (EPS)
(£)
4.1
4.1
3.9
3.9
(£)
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.
2018 LTIP Award
On the 20th December 2017, the Group awarded 423,709 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 on 1 October 2017. The vesting 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-
rate
yield vesting
Fair value
at grant
2018 LTIP
20 December 2017 (TSR)
20 December 2017 (EPS)
(£)
4.5
4.5
(£)
Nil
Nil
(%)
(years)
(%)
conditions date
(£)
(%)
(%)
30%
-
3.0
3.0
0.54%
0.54%
0.62%
0.62%
0.0
0.0
1.880
4.420
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Notes to the Consolidated Financial Statements
2018 Restricted Share Award (nil-cost option) and CSOP
On 27 October 2017, the Group awarded 185,888 nil cost options to key employees excluding executive directors. The awards will vest
on 27 October 2020 subject to continued employment, but with no other performance conditions.
The number of shares subject to the CSOP Awards has been determined by reference to the mid-market price of a share on date of
award (£4.27 pence per share). In order to optimize the post-tax value of the LTIP for participants, the Company has granted market
value options as defined under UK tax legislation (“CSOP Options”) to the participants, over 138,924 Shares. The exercise price of each
CSOP Option is £4.27 pence per share. The maximum number of awards that can be issued is 185,888.
Share price
at grant date
Exercise Expected Option
volatility
price
Life
Risk free Dividend
Non-
rate
yield vesting
Fair value
at grant
RSA and CSOP
(£)
4.27
(£)
Nil
(%)
(years)
(%)
conditions date
(£)
(%)
(%)
N/A
3
0.55%
0.73%
Nil
4.2
The following has been recognised in the income statement during the year:
2016 LTIP
2017 LTIP
2018 LTIP
RSA and CSOP
Total share scheme charge
2018
£’m
2017
£’m
0.1
0.3
0.7
0.2
0.4
-
0.2
-
1.4
0.5
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
25. Commitments and contingencies
a) Capital commitments
The company has committed to a further £1.5m costs relating to the new company headquarters.
b) Operating lease commitments
One year
Two to Five years
Over Five years
2018
Land
& Buildings
£000
2017
Land
& Buildings
£000
0.5
2.4
2.9
5.8
0.3
1.4
1.0
2.7
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.
25. Related party transactions
No related party transactions have been entered into during the year.
Transactions with key management personnel have been disclosed in note 7(d).
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
Company balance sheet
At ended 30 September 2018
Fixed assets
Investments
Current assets
Debtors
Cash at bank
Current liabilities
Creditors: amounts falling due within one year
Net assets
Equity
Share capital
Merger reserve
Capital contribution reserve
Retained earnings
Total equity
The financial statements were approved by the Board of Directors and authorised for issue.
Paul Meehan
Chief Financial Officer
28 November 2018
On the Beach Group plc. Reg no 09736592
Note
2018
£’m
2017
£’m
4
5
132.6
132.6
73.9
74.0
-
0.1
73.9
74.1
6
(2.5)
(3.0)
(2.5)
(3.0)
204.0
203.7
7
1.3
1.3
2.6
-
0.5
0.5
199.6
201.9
204.0
203.7
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Company statement of changes in equity
At ended 30 September 2018
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
Shares issued during the year
Share based payment charges
Dividends paid during the year
Total comprehensive profit for the year
Balance at 30 September 2018
Share
capital
£’m
1.3
-
-
-
1.3
-
-
-
-
Merger
reserve
£’m
Capital
contribution
£’m
Retained
earnings
£’m
Total
£’m
-
-
-
-
-
2.6
-
-
-
0.5
205.5
207.3
-
-
-
0.5
(4.0)
(0.1)
0.5
(4.0)
(0.1)
0.5
201.9
203.7
-
-
-
-
-
1.2
(3.9)
0.4
2.6
1.2
(3.9)
0.4
1.3
2.6
0.5
199.6
204.0
On 15th August 2018 the Group issued 607,747 shares as part of the acquisiton of Classic Collection Holidays. 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.
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Notes to the Company financial statements
At ended 30 September 2018
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 £1,000,000.
The financial information presented is at and for the years ended 30 September 2018 and 30 September 2017
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 profit for the year ended 30 September 2018 dealt with in the financial
statements of the parent company is £0.4m (2017: loss £0.1m).
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.
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
Directors’ Remuneration Report on pages 61 to 84.
3. Shared based payments
The Company recognised total expenses of £1.4m (2017: £0.5m) in the year in relation to the Long Term Incentive Plan. Details of this
scheme is described in note 24 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 in 2015.
There has been no movement in the current year.
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Notes to the Company financial statements
At ended 30 September 2018
5. Debtors
Amounts falling due within one year:
Amounts owed by group undertakings
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
131,042,510 Ordinary shares @ £0.01 each (2017:130,434,763 @ £0.01 each)
2018
£’m
73.9
73.9
2017
£’m
74.0
74.0
2018
£’m
-
2.1
0.1
0.3
2.5
2017
£’m
2.7
-
-
0.3
3.0
2018
£’m
2017
£’m
1.3
1.3
1.3
1.3
8. Contingent liabilities and guarantees
The company is a guarantor to a borrowing facility relating to a revolving credit facility provided to the Group. The amount borrowed
under this agreement at 30 September 2018 was £nil (2017: £nil).
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group,
the company considers these to be insurance arrangements and accounts for them as such. In this respect, the company treats
the guarantee contract as a contingent liability until such time as it becomes probable that the company will be required to make a
payment under the guarantee.
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Glossary of alternative performance measures
(APMs)
APM
Definition
Reconciliation to closest GAAP measure
Adjusted
Core EBIT
Adjusted
Core
EBITDA
Adjusted Core EBIT is based on Core operating profit
before the impact of certain costs / income that derive
from events or transactions that fall outside of the
normal activities of the Group. This also includes the
non-cash cost of the share based payment schemes.
These costs / income are excluded by virtue of their
size and in order to reflect management’s view of the
performance of the segment.
Share based payments: The first annual LTIP was
granted in 2016. As the scheme reaches maturity
(3 year cycle) there will be a material change to the
charge each year. Therefore these have been added
back to adjusted profit measures in order to reflect
managments view of underlying performance of the
business.
Adjusted Core EBITDA is based on Core operating
profit before depreciation, amortisation and the
impact of certain costs / income that derive from
events or transactions that fall outside of the normal
activities of the Group. This also includes the non-
cash cost of the share based payment schemes.
These costs / income are excluded by virtue of their
size and in order to reflect management’s view of the
performance of the Segment.
International
EBITDA
International EBITDA is based on International
operating profit before depreciation and amortisation.
Classic
EBITDA
Classic EBITDA is based on Classic operating profit
before depreciation and amortisation.
Adjusted
Profit before
Tax
Adjusted Profit before Tax is based on Profit before
Tax adjusted for amortisation of acquired intangibles,
and the impact of certain costs / income that derive
from events or transactions that fall outside of the
normal activities of the Group. This also includes the
non-cash cost of the share based payment schemes.
These costs / income are excluded by virtue of their
size and in order to reflect management’s view of the
performance of the Group.
Adjusted Core operating profit (£m)
Core operating profit
Non-underlying costs
Share Based Payments
Amortisation of acquired intangibles
Adjusted Core EBIT
2018
27.7
2017
23.4
1.5
1.4
4.3
2.7
0.5
4.3
34.9
30.8
Adjusted Core EBITDA (£m)
Core Operating Profit
Non-underlying costs
Share Based Payments
Depreciation and amortisation
Amortisation of acquired intangibles
2018
27.7
2017
23.4
1.5
1.4
3.0
4.3
2.7
0.5
2.4
4.3
Adjusted Core EBITDA
37.9
33.2
International EBITDA (£m)
International Operating Profit
Depreciation and amortisation
International EBITDA
Classic EBITDA (£m)
Classic Operating Profit
Depreciation and amortisation
Classic EBITDA
Adjusted Profit before Tax (£m)
Profit before Tax
Amortisation of acquired intangibles
Share Based Payments
Non-underlying costs
2018
(2.4)
0.2
2017
(2.2)
0.2
(2.2)
(2.0)
2018
2017
0.9
0.2
1.1
2018
26.1
2017
21.1
4.6
1.4
1.5
4.3
0.5
2.7
Adjusted Profit before Tax
33.6
28.5
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ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
APM
Definition
Reconciliation to closest GAAP measure
Adjusted Profit
after Tax
Adjusted Profit after Tax is based on
Profit after Tax adjusted for amortisation
of acquired intangibles, and the impact
of certain costs / income that derive from
events or transactions that fall outside of
the normal activities of the Group. This also
includes the non-cash cost of the share
based payment schemes. These costs /
income are excluded by virtue of their size
and in order to reflect management’s view
of the performance of the Group.
Adjusted Profit after Tax
Profit for the year
Share based payments (net of tax)
Non-underlying costs (net of tax)
Amortisation of acquired intangibles
Adjustment in respect of ATCA
Adjusted Profit after Tax
2018
21.5
1.2
1.2
3.8
-
27.7
2017
18.0
0.4
2.2
3.4
(1.1)
22.9
Non-underlying
costs
Operating cash
conversion
Non-underlying costs are certain costs
/ income that derive from events or
transactions that fall outside of the
normal activities of the Group. These
costs / income are excluded from various
performance measures by virtue of
their size and in order to better reflect
management’s view of the performance of
the Group.
Non-underlying costs
One-off property costs
One-off litigation costs
Acquisition costs
Monarch failure
Non-underlying costs
Operating cash conversion is adjusted
EBITDA (see above) divided by operating
cash flows excluding cash flows that
derive from events of transactions that
fall outside the normal activities of the
Group. These cash flows are excluded from
various performance measures by virtue
of their size and in order to better reflect
management’s view of the performance of
the Group.
Operating cash conversion (£m)
Operating profit
Depreciation
Amortisation
Non-underlying costs
Share based payments
Adjusted operating profit
Capitalised development spend
Movement in working capital
Capital expenditure
Adjusted operating cash flow
Operating cash conversion
Acquired working capital adjustment
Assets under construction (New HQ)
Adjusted operating cash
Adjusted operating cash conversion
2018
2017
0.5
0.4
0.6
-
1.5
-
-
0.7
2.0
2.7
2018
26.2
2017
21.2
0.5
7.2
1.5
1.4
36.8
(3.8)
(1.9)
(2.2)
28.9
79%
2.2
1.1
32.2
90%
0.4
6.4
2.7
0.5
31.2
(2.7)
(3.3)
(0.6)
24.6
79%
3.5
-
28.1
88%
Core revenue
after marketing
cost
Core revenue after marketing cost is
revenue after “core” online and offline
marketing costs.
Core revenue after marketing costs
Core revenue
Core online marketing costs
Core off-line marketing costs
Total core marketing
Core revenue after marketing costs
2018
2017
89.3
81.9
(33.2)
(33.5)
(4.1)
(3.5)
(37.3)
(37.0)
52.0
44.9
137
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE Glossary of alternative performance measures
(APMs)
APM
Definition
Reconciliation to closest GAAP measure
Adjusted
EPS
Adjusted EPS is calculated on the weighted
average number of Ordinary share in issue,
using the adjusted profit after tax.
Adjusted EPS
Core operating profit
Basic weighted average number of
Ordinary Shares (m)
Adjusted EPS (p)
2018
2017
27.7
22.9
130.5
130.4
21.2
17.5
Operating
profit before
amortisation
and
exceptional
costs
Operating profit before amortisation
and exceptional costs is based on Group
operating profit, adjusting for amortisation
of acquired intangibles and the impact of
certain costs that derive from events or
transactions that fall outside of the normal
activities of the Group.
Operating profit before amortisation and
2018
2017
exceptional costs (£m)
Operating profit
Exceptional costs
Amortisation of intangibles
26.2
21.2
0.6
7.2
2.7
6.4
Operating profit before amortisation
34.0
30.3
and exceptional costs (£m)
Core
EBITDA as a
percentage
of revenue
Core EBITDA as a percentage of revenue
is based on the adjusted core EBITDA
divided by the revenue generated in the core
business.
Core EBITDA as percentage of revenue
Revenue
Adjusted core EBITDA
Core EBITDA as a percentage of
revenue
2018
2017
89.3
37.9
81.9
33.2
42.4%
40.5%
International
revenue
after
marketing
costs
International revenue after marketing costs
is based on International revenue after all
marketing costs.
International revenue after marketing costs
2018
2017
Revenue
Marketing costs
International revenue after marketing
costs
1.6
(3.0)
(1.4)
1.7
(3.3)
(1.6)
138
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018
Shareholder Information
Registered Office
5 Adair Street,
Manchester
M1 2NQ
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)
Web: www.classic-collection.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.
Company Secretary
Kirsteen Vickerstaff
5 Adair Street,
Manchester
M1 2NQ
United Kingdom
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
139
ON THE BEACH GROUP PLC | ANNUAL REPORT & ACCOUNTS 2018STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE