Annual Report and Financial Statements

Transcription

1 Holidaybreak plc Annual Report and Financial Statements Annual Report and Financial Statements European specialist holiday group

2 Holidaybreak at a Glance Holidaybreak is a European specialist holiday group k with market leading positions in the UK and other major European markets. The three operating divisions generate substantial cash, deliver industry leading margins and have proven resilient in a rapidly changing market environment. Together they make a strong and well balanced business. Holidaybreak Group The Group has the financial strength to exploit changing market trends and will grow the portfolio of brands under the Holidaybreak umbrella organically, by investment in growing areas of the current business, and by acquisition. The Group s three operating divisions have different business models but share important strengths market leadership, multi-channel distribution and high standards of product and service quality. Hotel Breaks Division The division comprises Superbreak, based in the UK, and Bookit, based in the Netherlands, which provide primarily domestic short-break holidays to their respective markets. Superbreak bookings come through UK high street travel agents, direct by phone and via the internet. Bookit is the market leading online intermediary for short-stay leisure hotel breaks in the Netherlands m Group revenue (2005: 303.0m) 122.7m Revenue (2005: 126.7m) 34.3m Operating profit* (2005: 33.7m) 16.2m Operating profit (2005: 16.8m) * Before goodwill impairment in 2006 of nil (2005: 9.3m).

3 01 Holidaybreak plc Annual Report and Financial Statements Holidaybreak at a Glance 02 Chairman s Statement 04 Chief Executive s Business Review 08 Finance Director s Review 10 Hotel Breaks Division 14 Adventure Travel Division 18 Camping Division 22 Directors and Advisors 24 Corporate Responsibility Report 26 Corporate Governance 30 Directors Report 32 Directors Remuneration Report 37 Independent Auditors Report 38 Consolidated Income Statement 39 Balance Sheets 40 Cash Flow Statements 41 Statement of Accounting Policies 44 Notes to the Financial Statements 64 Shareholder Information Adventure Travel Division The division s principal businesses, Explore, based in the UK, and Djoser, based in the Netherlands, are market leaders in specialist small group exploratory trips in their respective markets. RegalDive, also based in the UK, is one of the leading UK diving operators. German based carpe diem Sprachreisen provides English and other language holidays, while TravelWorks offers working holidays and gap-year breaks. Bookings come direct, through specialist and overseas agents and increasingly via the internet. Camping Division The principal activity of the division is the provision of self-catering holidays in mobile-homes and tents, pre-sited on high quality European camp-sites, through the Eurocamp and Keycamp brands. The division does not own or operate camp-sites. Easycamp, Eurocamp Independent and Keyplaces are subsidiary brands selling third-party owned self-catering accommodation. Customers, predominantly families, come from the UK, the Netherlands, Germany and six other European countries. Sales are mainly direct, although Keycamp also sells through travel agents. 76.3m Revenue (2005: 62.6m) 105.5m Revenue (2005: 113.7m) 5.6m Operating profit (2005: 3.8m) 12.5m Operating profit* (2005: 13.1m)

4 02 Holidaybreak plc Annual Report and Financial Statements 2006 Chairman s Statement Robert Ayling Chairman Holidaybreak continues to stand out amongstuktouroperatorsinterms of generating margins and cash flows. In the year to 30 September 2006, headline profit before tax* increased to 32.1m and the business generated 35.1m of free cash flow**. We also madetwoacquisitionsingermany. Holidaybreak has demonstrated resilience to external shocks, with modest growth in revenues and headline profit before tax*, notwithstanding the uncertainty created by terrorist activity including the London bombings. Margins remain industry leading with excellent free cash flow generation. Holidaybreak s results reflect our core approach of putting customers (whether consumers, travel agents or partners) at the heart of what we do. Consumer loyalty is a key measure for all of our businesses and we will continue to strive to increase repeat business. This is a very tangible measure of success in an environment where traditional loyalties are reducing. The Board is determined to ensure that Holidaybreak s pedigree, as a manager of well-run specialist holiday businesses that are leaders in their respective market sectors, is maintained and enhanced. We continue to examine opportunities to make sensible acquisitions that we believe will serve our shareholders in terms of growing the business, achieving a good return on investment and generating cash. We continue to examine opportunities to make sensible acquisitions that we believe will serve our shareholders in terms of growing the business, achieving a good return on investment and generating cash. We are also allocating capital for organic development opportunities within our existing businesses, where appropriate. Finally, we shall also consider the potential of more substantial specialist tour operating opportunities, which might constitute a viable fourth division. Our strength lies with our employees and their ability to adapt to changes in consumer tastes, distribution technologies and marketing mix. I would like to thank them for their enthusiasm and hard work during the year.

5 03 Holidaybreak plc Annual Report and Financial Statements 2006 Group results For the year ended 30 September 2006, pre-tax profits* were 32.1m (2005: 29.9m) on revenue of 304.5m (2005: 303.0m). Headline earnings per share* were 46.8p (2005: 44.2p). All Holidaybreak s operations generated substantial cash. Operating cash inflow was 48.8m (2005: 52.0m). Net debt at 30 September 2006 was 3.1m (2005: 22.9m). Capital expenditure, net of disposals, was 4.6m (2005: 2.4m). Dividend In view of the financial strength of Holidaybreak and confidence in its future prospects, the Board is recommending an increase in the annual dividend of 10% for The Board intends to continue to pay ordinary dividends that are appropriate in light of the growth prospects and the underlying performance of the Group. The Board is thus recommending a final dividend of 21.2p (2005: 19.35p), payable on 24 April 2007, to shareholders on the register on 30 March 2007, making a total of 29.2p (2005: 26.6p) for the year. Acquisitions In September 2006, Holidaybreak completed two acquisitions in Germany. carpe diem Sprachreisen GmbH is a leading player in the language travel sector and TravelWorks GmbH specialises in longer work assignments overseas, such as gap-years. The combined initial consideration for the two acquisitions was 10m ( 6.8m) with an additional payment of up to 2m ( 1.3m) subject to trading in the 12 months following acquisition. The impact of these acquisitions is expected to be marginally earnings enhancing (pre-amortisation of acquired intangible assets)*** in The experienced management team will remain with the businesses. Discussions on the potential sale of camping In June 2006, the Board ended discussions regarding the possible sale of the Camping Division. The proposed indicative offers fell short of the Board s valuation of the business. The Board believes that keeping the Camping Division within the Group will deliver greater value to shareholders. Management and Board changes Steve Whitfield joined the Holidaybreak plc Board on 12 July He was appointed Managing Director of the Camping Division in March Steve, 48, has been with the business since 1984 in a variety of roles and his depth of knowledge will be instrumental in taking the division forward. He took over from Matthew Cheetham who resigned from his position as divisional Managing Director and left the Holidaybreak plc Board on 10 March Outlook Current trading is in line with our expectations and the Board believes that the trading and financial prospects of the Group are satisfactory. The Group s balance sheet strength will fund significant investment in its existing businesses in In addition, management continues to review a range of possible acquisitions, of different sizes, which meet its stringent financial criteria and will add to the existing portfolio of businesses. At the same time, the Board remains focused on the efficiency of the Group s balance sheet. If no material acquisition is made, and assuming current conditions continue, the Board retains the option of considering a return of value to shareholders in due course. Robert Ayling Chairman * Before goodwill impairment in 2006 of nil (2005: 9.3m). ** Free cash flow is operating cash flow ( 48.8m (2005: 52.0m)) after capital expenditure ( 10.2m (2005: 8.6m)) net of disposals ( 5.6m (2005: 6.2m)) and after interest and tax payments ( 9.1m (2005: 11.4m)). *** This statement should not be taken to mean that the earnings per share of Holidaybreak plc will necessarily match or exceed the historic reported earnings per share of Holidaybreak plc and no forecast is intended or implied.

6 04 Holidaybreak plc Annual Report and Financial Statements 2006 Chief Executive s Business Review Carl Michel Group Chief Executive Holidaybreak s results for 2006 reflect ourworktodateinputtingthecustomer at the heart of development efforts, especially in the online environment. All of our brands are focused on adding value for the customer and differentiation from competitors. Group trading has been resilient in the face of a number of one-off factors. Margins continue to be industry leading thanks in no small part to the strength and depthofmanagementacrossallparts of the business. Group structure Holidaybreak plc has three separate operating divisions: Hotel Breaks (representing 40% of Group revenue in 2006), Adventure Travel (25%) and Camping (35%). I believe Holidaybreak is well placed to prosper. It has demonstrated its resilience and also embarked on a number of initiatives to seek to accelerate medium-term growth while remaining focused on the specialist travel sector. Strategy A component of our strategy is to grow through acquisition. We continue to investigate opportunities that leverage the strengths of our businesses and build on our core competencies by extending market and product reach. We would also consider more sizeable transactions of specialist holiday businesses as a potential fourth operating division if they meet our strict financial criteria. A key requirement for any business is that it is already or has the clear potential to become a leader in its market segment. Our strong margins relative to industry norms reflect this focus in all our existing businesses, with Explore, Superbreak, Bookit, Djoser, Eurocamp and Keycamp all enjoying market leadership. There are a number of attractive acquisition opportunities mostly but not exclusively in the wider European market which can provide us with new platforms for growth. Examples of this are the two recent acquisitions in Germany which have increased our European presence. Management continues to review a range of possible acquisitions, of different sizes, which meet our stringent financial criteria and will add to the existing portfolio of businesses.

7 05 Holidaybreak plc Annual Report and Financial Statements 2006 The Group s balance sheet strength will fund significant investment in its existing businesses in All of the divisions are pursuing organic growth initiatives which are detailed below. I believe we are well placed to capitalise on opportunities and continue to deliver good returns to our shareholders. Financial performance and current trading For the Group overall, revenue per customer increased from 103 in 2005 to 108 in Customer retention is a key focus for all our divisions. This year 29.6% of direct bookings (excluding bookings from retail travel agents) taken for the Group as a whole were repeat bookings (2005: 28.7%). Hotel Breaks This remains the largest division in the Group, selling 2.5m holidays in 2006 (2005: 2.4m). Divisional operating profit was down 3% at 16.2m (2005: 16.8m) on revenue also 3% down at 122.7m (2005: 126.7m). Margins were constant at 13.2%. Free cash flow generated was 18.4m (2005: 14.9m). The business continues to enjoy low operational gearing, for instance room allocations are not committed, allowing a high degree of flexibility in costs. The impact of the London bombings in July 2005 and the press coverage thereafter continued to be felt in the London leisure market until spring Growth restarted around Easter but, in both the UK and the Netherlands, bookings were further impacted by the competing attractions of the FIFA World Cup in June and the unusually hot weather in July. We believe that the year ahead will see a return to growth sales intake (incorporating Bookit s intake based on total transaction value) across the division is approximately 8% up on the comparable period for 2005/06. Adventure Travel The division sold 66,400 holidays in 2006 (2005: 60,300) and has once again delivered strong growth in profits and revenue. Operating profit increased by 47% to 5.6m (2005: 3.8m) with margins up at 7.3% (2005: 6.0%). The business model remains flexible with very low levels of fixed costs. Revenue was up 22% at 76.3m (2005: 62.6m) and free cash flow was 3.1m (2005: 12.7m). During the year Explore moved to new freehold premises at a cost of 2.9m. In 2005 the division had a one-off cash flow benefit from the purchase of Djoser whereby we acquired 5.0m of payments received on account of holidays taken by Djoser customers after acquisition. Overall, 2007 sales intake for the division is currently 5% higher than in The Middle East as a destination continues to underperform management expectations. Camping A total of 515,000 holidays were sold (2005: 523,000). Operating profit* reduced 3% to 12.5m (2005: 13.1m) on revenue down 7% at 105.5m (2005: 113.7m). Operating margin* improved to 11.9% (up from 11.4% in 2005). Free cash flow generation was 22.7m (2005: 22.0m) reflecting reduced capital expenditure in 2006 as we cut capacity. The business was effectively right sized for the season, with a 16% reduction in capacity. The outcome was a pleasing increase in camp-site occupancy from 85 to 95 nights. For the 2007 season, capacity will be marginally adjusted ( 3%) to reflect more modest shifts in demand. Our plan is to hold back more capacity for sale into the spring. As a result of this expected later sales phasing we are currently approximately 6% below last year s sales intake (based on bookings received to date). Acquisitions In September 2006, the Adventure Travel Division was augmented by the addition of two German specialist holiday businesses. carpe diem Sprachreisen provides English and other language holidays and TravelWorks offers working holidays and gap-year breaks. Both businesses have experienced a number of years of double-digit growth and enjoy margins and cash flow generation similar to that of our Adventure Travel Division. The businesses are based in Münster in Nordrhein-Westfalen with a small office in Vienna, Austria. The combined consideration for the two acquisitions was 10m ( 6.8m) with an additional payment of up to 2m ( 1.3m) subject to trading in the 12 months following acquisition. The acquisitions are expected to be marginally earnings enhancing (pre-amortisation of acquired intangible assets)** for Holidaybreak in the financial year ended 30 September The experienced management team will remain with the businesses. In the course of this year, the Board was approached by several interested parties regarding the potential sale of the Camping Division. The Board first ascertained whether other parties were also interested and then considered whether any of the expressions of interest would achieve a valuation commensurate with the likely future cash flows of the division if retained. As this was not the case, the Board suspended discussions, as it did not see any outcome forthcoming that was likely to be in the best interests of shareholders. The Board looked hard at the value the Camping business brings but believes that retaining the business within the Group will deliver greater value to shareholders. Business development The Hotel Breaks Division comprises Superbreak, based in the UK, and Bookit, in the Netherlands, which provide primarily domestic short-break holidays to their respective markets. In the UK, Superbreak has continued to focus efforts on packaged breaks (including some successful new rail and newspaper relationships) to further differentiate it from other leisure break providers. Superbreak s Theatre Breaks programme led the division s recovery in the London leisure hotel market, offering breaks around new theatre shows, such as Spamalot, The Sound of Music and Wicked. While we recognise the value in rebalancing our revenue mix to be less reliant on London, by growing our European offering, we are also widely recognised by the travel trade and consumers alike as experts in London and in marketing its attractions.

8 06 Holidaybreak plc Annual Report and Financial Statements 2006 Chief Executive s Business Review Group Strategy Seek market leadership in all the sectors in which we operate Maintain industry leading margins and flexible cost structure (particularly in Hotel Breaks and Adventure Travel) Identify acquisitions in markets or products, complementary to our existing businesses Sales by market (2006) UK 73% Benelux 19% Germany, Austria, Switzerland 4% Ireland 2% Other Europe 2% Superbreak will therefore continue to look for further opportunities in this area. This year Superbreak introduced a loyalty scheme for frequent bookers and recently invited regular users to decide on which version of the new main landing page they preferred for Superbreak.com. In the Netherlands, Bookit has successfully grown its Hotelletje.nl brand, launched in late 2005, to include over 400 smaller independent guesthouses located in the Benelux countries. The brand now accounts for approximately 5% of Bookit turnover. Having exclusively contracted properties is important in attracting and retaining loyal customers. Weekendjeweg.nl and Nachtjeweg.nl remain the core brands, offering leisure consumers a great range of hotels for weekend or single night stays. The Dutch are avid holiday home users and Bookit s site Bungalows.nl remains pre-eminent. A new website, Citytripper.nl, has recently been launched allowing Bookit to sell a global range of hotels to its million plus customer base. The Adventure Travel Division s principal businesses, Explore, based in the UK, and Djoser, based in the Netherlands, are market leaders in specialist small group exploratory trips in their respective markets. RegalDive, also based in the UK, is one of the leading UK diving operators. Explore s and Djoser s specialist programmes have performed strongly, most notably the Family Adventures offering. New tours and destinations have been added to all programmes. Djoser has capitalised on Explore s specialist product-led strategy by launching, in early 2006, their own walking and trekking programme, Djoser Wandel, based on Explore s version. Both the Explore and Djoser brands will continue to benefit from each other by new product development, enlarged overseas purchasing power and joint marketing initiatives. RegalDive continues to develop away from the Red Sea and sales to other worldwide destinations, for instance Oman, the Maldives and Indonesia, accounted for 34% of total revenue. The Camping Division s principal activity is the sale of holidays into our own pre-sited accommodation through the Eurocamp and Keycamp brands. Customers, predominantly families with school-age children, come from the UK, Ireland, the Netherlands, Germany and five other European countries. The division has been successful in selling the more price-sensitive low-season holidays where the key customer groups are either couples or pre-school families. We continue to see considerable scope to broaden the appeal of camping. One such initiative has resulted in adding video clips to our websites to enable potential customers to get an up-to-date impression of camping and allow existing ones to view footage of accommodation and activities on camp-sites. The division has continued to source new destinations that are accessible using low-cost carriers and is introducing new sites for the first time in Portugal, Southern Spain and Slovenia for the 2007 season. Following a successful trial in 2006, the division will be expanding the number of chalets on offer next season. Investment As previously announced, we have increased spend on organic growth initiatives. For instance, the Adventure Travel Division is achieving organic growth by the extension of existing specialist product ranges and by the introduction of new ones, designed to satisfy the specific niche demands of customers. This year we introduced Explore Private Groups, which is aimed at parties requiring a dedicated itinerary and tour leader. We continue to invest more in the online capability of all our businesses. We recognise the value in a broad multi-channel distribution approach but it is vital that our offering on the web is compelling if consumers wish to access us in this way. The Hotel Breaks Division is therefore investing, as previously announced, up to 2m per annum on improving web content and design Carl on Explore s eclipse tour to Libya, March 2006.

9 07 Holidaybreak plc Annual Report and Financial Statements 2006 and expects to see the return from this investment come through in the following years. Furthermore, Explore, part of the Adventure Travel Division, is currently re-developing its website to improve customer retention rates. This year 68.0% (2005: 64.3%) of total Group bookings taken from consumers (excluding bookings taken from retail travel agents) were made online. The hotel contracting team has been expanded to broaden significantly the range of Superbreak s European hotels on offer and the results of this should become noticeable in The Camping Division is to invest 9.5m (net of disposal proceeds) in the current year to replace older mobile-homes with more contemporary models. We are also improving accommodation with the addition of wooden decking and air conditioning to some units. Principal risks facing the Group s businesses Our priority will always be the safety of our customers, staff and suppliers. Holidaybreak has been successful at managing the risks associated with running very diverse holiday businesses. Geopolitical events Our businesses, particularly within the Adventure Travel Division, are exposed to geopolitical events. In addition, climatic events, such as hurricanes and earthquakes require us to rearrange itinerary timings and/or routings. This year the division faced the threat of avian flu, bombings in the Sinai and, most notably, the war in Lebanon which had a depressing but not material effect in the financial year. The Middle East accounts for approximately 16% of the Adventure Travel Division s turnover. By continuing to expand the number of destinations to which it offers tours (currently 140 countries worldwide) the division seeks to mitigate the geopolitical risks. For example, Explore and Djoser were able to grow despite the Middle East downturn and experienced strong performances particularly in Africa and Asia. The financial performance of the Hotel Breaks Division was affected by the July 2005 bombings in London, and growth only returned to its London market in spring As mentioned earlier, the division is expanding its European and overseas range of hotels. Exposure to the economy The majority of the Group s customers are based in the UK and as a result our revenues are linked to the strength of the UK economy. Further European acquisitions will reduce this dependence but will in turn expose the Group to the fortunes of other European economies. The Dutch market currently represents about 24% of the Group s total transaction values. Ability to grow the business Our ability to grow the business is partially dependent on our capability to successfully complete value enhancing acquisitions. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of time and attention of management and our financial and other resources. We use both in-house expertise and professional advisors when undertaking such acquisitions. Recruitment and retention of talent As a service-led group, our people, including call centre and administration staff, tour leaders and couriers, are our most important assets. A core aspect of our competitiveness is the ability to attract, retain and motivate these key employees and management personnel, and if we lose or fail to attract these key employees we may be put at a competitive risk. We believe our training programmes and incentive arrangements provide the necessary tools to attract and retain key staff. We encourage our staff to save for their future through pension schemes set up by Group companies and currently 43.3% (2005: 42.7%) of permanent staff are members of those schemes. An indication of the high levels of motivation in our call centre staff are evident in the number of calls answered within 20 seconds (55%) and the low level of unanswered calls (5%). No comparative figures are available for Absenteeism amongst Group permanent staff is at 2.4% (2005: 2.6%), below UK national averages for call centre based businesses of 4.1% (source: CIPD annual absence management survey report 2006). Interest rate and foreign exchange risk The Group is exposed to interest rate and foreign exchange risk. Details of how the Group manages these risks are set out in the Finance Director s Review. Summary I believe Holidaybreak is well placed to prosper. It has demonstrated its resilience and also embarked on a number of initiatives to seek to accelerate medium-term growth while remaining focused on the specialist travel sector. Given the strength of its balance sheet, Holidaybreak remains well positioned to grow, both organically and by acquisition. Management continues to pursue several European acquisition opportunities in the specialist tour operating sector, with good margin and cash generation characteristics. Carl Michel Group Chief Executive * Before goodwill impairment in 2006 of nil (2005: 9.3m). ** This statement should not be taken to mean that the earnings per share of Holidaybreak plc will necessarily match or exceed the historic reported earnings per share of Holidaybreak plc and no forecast is intended or implied.

10 08 Holidaybreak plc Annual Report and Financial Statements 2006 Finance Director s Review Bob Baddeley Group Finance Director In the year to 30 September 2006 Holidaybreak plc increased headline profits before tax* to 32.1m and invested 4.0m(netofcashacquired) in purchasing carpe diem Sprachreisen and TravelWorks. Despite this expenditure, net debt reduced by 19.8mto 3.1maswecontinuedto benefit from substantial cash generation in all businesses. We are targeting anotheryearofgoodoperatingcash flow performance in 2007 but we expect tospendc. 16moncapitalinvestment. Operating profit and profit before tax Group revenue in 2006 was up 0.5% on 2005 at 304.5m (2005: 303.0m). Operating profit* was 1.8% higher than 2005 at 34.3m (2005: 33.7m). Operating margin* improved to 11.3% (2005: 11.1%). Hotel Breaks operating margin was the same as 2005 at 13.2% and Camping, benefiting from improved occupancy, achieved a margin of 11.9% (2005: 11.4%). Adventure Travel s margin improved from 6.0% to 7.3%. The comparative margin for 2005 was adversely affected by the IAS 38 treatment of advertising and promotional activities whereby, in the nine months following the acquisition of Djoser, the Company bore a full annual marketing charge. We increased headline profit before tax* to 32.1m and reduced net debt by 19.8m to 3.1m as all our businesses continue to generate cash. The Group incurred costs of 0.3m in relation to the curtailed sale of the Camping Division and two substantial potential acquisitions. Finance costs (net of investment income) reduced from 4.4m in 2005 to 2.2m. Interest cover* improved from 7.7 times in 2005 to 15.7 times in Interest was 23.8 times covered by operating cash flow, a level we regard as prudent. Cash flow and bank facilities The Group s net borrowings at 30 September 2006 were 3.1m, compared to 22.9m in Cash flow from our operating activities was 48.8m, another strong performance. This position reflected the acquisitions of carpe diem Sprachreisen and TravelWorks for an initial purchase consideration (net of cash acquired) of 4.0m.

11 09 Holidaybreak plc Annual Report and Financial Statements 2006 Available bank facilities ( 140m as at 30 September 2006) are sufficient to meet the working capital, investment and bonding requirements of the Group. Due to the highly seasonal nature of Camping s cash flow, headroom under these facilities was 56.0m at the end of April 2006 when borrowings were at their maximum. In addition to these facilities we have hire purchase agreements with various UK financial institutions to finance the purchase of mobile-homes. Just over half of annual expenditure on mobile-homes is financed from this source. Taxation The tax charge, including full provision for deferred tax, was 9.7m and the tax rate of 30.2% was lower than 2005 (36.9%) when goodwill impairment of 9.3m was substantially non-deductible. The underlying rate going forward is expected be in the region of 30%. Earnings per share and dividends Headline basic earnings per share* was 46.8p (2005: 44.2p) an increase of 5.9%. The Board is recommending a final dividend of 21.2p per ordinary share representing an increase of 10% over This gives a total dividend for the year of 29.2p per ordinary share (2005: 26.6p). This is covered 1.6 times by post tax earnings. Balance sheet Net assets of the Group increased to 59.1m (2005: 48.0m). Net debt gearing** at 30 September 2006 was 5.2% compared to 47.7% at the previous year end. Intangible assets acquired on acquisitions during the year were 2.1m (2005: 9.7m) and the annual amortisation charge will be c. 1.0m. Capital expenditure Capital expenditure (net of receipts from disposals) in the year to 30 September 2006 was 4.6m (2005: 2.4m). The majority of this, 2.9m, was again accounted for by Camping. Mobile-homes ( 4.3m before disposals) accounted for the bulk of this expenditure. Sales of mobile-homes generated 4.2m. Accommodation capacity will again be reduced by a further 3% in 2006/07. The Group s depreciation policy is to write down the cost of mobile-homes to an estimated residual value over their projected economic life. Disposal proceeds in respect of mobile-homes sold at the end of their useful life achieved net book value. Foreign currency and interest rate risk management The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group is a party to a variety of foreign currency forward contracts in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the currencies of the Group s principal markets. At the balance sheet date, the total notional amount of outstanding forward foreign exchange contracts that the Group has committed are as set out below: m m Forward foreign currency contracts Changes in the fair value of non-hedging currency derivatives amounting to 0.2m have been charged to income in the year. At the balance sheet date 45.5m (2005: 22.8m) of foreign currency denominated debt was designated as a hedging instrument for the purpose of hedging the translation of its investment in foreign operations. At the balance sheet date the Group had no interest rate derivative contracts. Changes in accounting policies and theadoptionofinternationalfinancial Reporting Standards (IFRS) During the year the Group adopted IFRS for the first time. The main changes affecting the Group s reporting are that: purchased goodwill is no longer amortised but is subject to an annual impairment review. Purchased intangible assets are subject to an annual amortisation charge; the income statement includes an annual charge based on the fair value of equity-based awards made to employees; open forward foreign exchange contracts and interest rate swaps are valued at year end market rates, with any gains or losses charged to the income statement; and expenditure on advertising and promotional activities is expensed as incurred. The impact of the adoption of IFRS on prior year reporting has been to increase the reported profit before tax for the year ended 30 September 2005 from 19.4m under UK GAAP to 20.6m primarily due to the amortisation of intangible assets through the acquisitions of Bookit BV and Djoser BV in December 2004 and January 2005 respectively ( 1.4m), the add-back of amortisation of goodwill ( 3.4m), a charge in respect of prepaid advertising and brochure distribution costs ( 0.6m), and a charge of 0.3m in respect of the fair value of equity-based payments to employees. In addition, reported net assets at 1 October 2004 (the date of transition) were increased from 36.5m under UK GAAP to 43.7m, and from 38.4m to 48.0m at 30 September Bob Baddeley Group Finance Director * Headline profits, operating margin, earnings per share and interest cover are stated before goodwill impairment in 2006 of nil (2005: 9.3m). ** Net debt gearing is net debt expressed as a percentage of year end net assets.

12 10 Holidaybreak plc Annual Report and Financial Statements 2006 Hotel Breaks Division

13 11 Holidaybreak plc Annual Report and Financial Statements 2006 Superbreak Weekendjeweg.nl

14 12 Holidaybreak plc Annual Report and Financial Statements 2006 Hotel Breaks Division Key Messages Increased packaged breaks offering Expansion of international hotel offering Internet growth and website development Superbreak packaged breaks (2006) Theatre 42% Rail 35% Theme park/ attractions 12% Other breaks (e.g. spa, golf etc.) 11% Hotel Breaks Division revenue fell by 3%to 122.7m(2005: 126.7m).The impactofthelondonbombingsinjuly 2005continuedtobefeltintheLondon leisure market until spring Growth restarted around Easter but in both the UK and the Netherlands bookingswerefurtherimpactedbythe competing attractions of the unusually hot July weather and the FIFA World Cup. Operating profit was down 3% at 16.2m (2005: 16.8m). Operating marginswereconstantat13.2%. Free cash flow generated was 18.4m (2005: 14.9m). The results include a full twelve month contribution from Bookit which was acquired in December Business portfolio The Hotel Breaks Division comprises Superbreak, based in the UK, and Bookit, based in the Netherlands, which provide primarily domestic short-break holidays to their respective markets. The division sold 2.5m holidays in Market and consumers The UK and Dutch businesses represent 73% and 27% of the divisional total transaction values respectively. Within the UK, the London destination share has increased to 36% by value, on the back of more packaged breaks, while the overseas (primarily European) short-breaks business represents 14% of revenue. Superbreak, as UK market leader through retail travel agents, is able to command both attractive rates and best availability. Brand and product development In the UK, the division operates through three brands, Superbreak, for the main hotel-only market and value added products, Hotelbreaks, with a range of budget products, and The Luxury Hotel Collection for more upmarket breaks. Superbreak was awarded Best Operator, UK Short-breaks at the Travel Weekly Globe Awards Superbreak also received several awards, including Best UK Short-breaks Operator, at the British Travel Awards. In the UK programme, the number of hotels offered by Superbreak has grown modestly with opportunities taken to enhance the portfolio when appropriate. The total UK portfolio is now 1,600 hotels (up 5% on 2005). Superbreak s Europe and Beyond programme, which is aimed at customers seeking short-break trips overseas, continues to be driven forward by the expansion of low-cost flying, broadening its range of cities and number of hotels in each city. The programme has been supplemented by the introduction of additional long-haul locations Dubai, South Africa and USA. There are now over 2,400 hotels in this programme, up 48% on Superbreak has further developed its range of packaged breaks that incorporate specific add-ons and differentiate its product from other online and leisure break providers. These represent about 30% of Superbreak s business. The Theatre Breaks programme has led the division s recovery in the London leisure market, offering shows such as Mary

15 13 Holidaybreak plc Annual Report and Financial Statements 2006 Poppins, The Sound of Music and Wicked. Meeting the increased demand for travelling by train, the Hotel and Rail Breaks packages have been expanded to include a new direct relationship with the Virgin Rail network. A new programme, Theme Park and Attraction Breaks, was introduced in January 2006 bringing together leading UK leisure attractions and conveniently located hotels. Superbreak s ability to source entry or travel tickets and rooms at attractive prices, allows customers to take advantage of competitive deals. In the Netherlands, Bookit operates with four main brands, Weekendjeweg.nl, the core brand, offering accommodation for two night weekend stays, Nachtjeweg.nl, providing overnight accommodation, Bungalows.nl, for self-catering accommodation on holiday parks and Hotelletje.nl offering small independent hotels. There is a growing trend for Dutch hoteliers to prefer two-night leisure stays over single nights. Accordingly Bookit has grown Weekendjeweg.nl which is its core proposition and seen some decline in Nachtjeweg.nl. The Hotelletje.nl brand, launched in late 2005, has grown impressively to include over 400 small hotels (with a maximum of 30 rooms), located in the Benelux countries. The brand now accounts for 5% of Bookit 2006 sales. A new brand, Citytripper.nl, has recently been launched to offer worldwide hotels outside the Benelux. Distribution and internet developments Sales by Superbreak through retail travel agencies represent 45% of the business and brand brochures are in 90% of agency outlets. Direct bookings to the call centre and online sales (both direct and through commissionable affiliate websites) account for the remainder of sales. Additional resources have been deployed in the continuing development of Superbreak s online capabilities. This development aims to improve the web design, content and functionality and thereby maximise conversion of visitor traffic to bookings. Bookit s operation is 85% online with the balance of the business handled by the call centre. Bookit s database of customers has increased from 0.9m at acquisition, in December 2004, to a current level of 1.8m. Strategy The Hotel Breaks Division will continue to develop brands and products organically and by appropriate acquisitions in specialist markets. Superbreak will develop further marketing relationships with partners to promote brand awareness and to build on the success already achieved with The Daily Telegraph and others. The UK business, by enhancing its hotel portfolio will increase the choice and type of accommodation offered to its customers. Superbreak will expand its packaged breaks to capitalise on its core competence of sourcing events, tickets and rooms at prices attractive to its customers. The business is committed to supporting the high street travel agents and operates a policy that does not favour any channel in terms of price or service, thereby allowing customers to decide how they wish to access the product. The growing importance of the online channel has resulted in the decision to invest up to 2m in the development of systems that meet the expectations of customers. This includes setting up new teams to develop content and enhance the website as well as expanding the contracting resource. The division expects to see the return come through over the following years. Bookit will pursue a multi-brand strategy adding to its portfolio as product demands dictate and extending product choice through its existing brands. In addition to the recent launch of Citytripper.nl, a new brand, Meetingz.nl, to serve the corporate conference bookings market, was introduced in late Management team The management team of the Hotel Breaks Division comprises Joint Managing Directors Nick Cust and Mark Wray; from Superbreak, Ray Jones (Brand Development), Ian Mounser (Sales) and Frank Regan (Operations); and from Bookit, Karel Vos (Managing Director). 243,000 bungalow breaks taken by Bookit customers 37m unique visitors to websites 160,000 European breaks taken by Superbreak customers

16 14 Holidaybreak plc Annual Report and Financial Statements 2006 Adventure Travel Division Explore

17 15 Holidaybreak plc Annual Report and Financial Statements 2006 Djoser

18 16 Holidaybreak plc Annual Report and Financial Statements 2006 Adventure Travel Division Key Messages Acquisition of carpe diem Sprachreisen and TravelWorks New product development continues to drive growth RegalDive develops away from Red Sea Explore & Djoser: Customers by destination (2006) Asia 26% Europe 22% Africa 21% Americas 16% Middle East 13% Australasia 2% and other The Adventure Travel Division has enjoyedaveryencouragingyear. Revenuewasup22%to 76.3m (2005: 62.6m) and operating profit increasedby47%to 5.6m(2005: 3.8m). Free cash flow of 3.1m was generated (2005: 12.7m). The results include a full twelvemonthcontributionfromdjoser, acquired in January Business portfolio The Adventure Travel Division comprises Explore and RegalDive both based in the UK, Djoser based in the Netherlands, and two German businesses, carpe diem Sprachreisen and TravelWorks, which were acquired at the end of the financial year in September The division sold 66,400 holidays in Market and consumers The Adventure Travel Division principally sells active and discovery holidays to small groups, most of which are led by specially trained tour leaders. These holidays are aimed at consumers looking for a special experience. The division s customers tend to seek interaction with local cultures and communities at a greater level than is achieved on traditional package holidays, helped by itineraries that steer away from the obvious tourist locations. The division s customers tend to have a high awareness about, and interest in, responsible tourism, which the division actively promotes and regards as a core part of its business practice. In recognition of this, Explore received Best Responsible Tourism Website at the 2006 Travelmole awards. Recent developments have seen a significant growth in family adventure travel. Attracted by the division s family friendly itineraries, parents are now able to let their children experience different cultures and visit remote destinations. In addition, a new customer segment that seeks activity based breaks based on shorter haul travel has emerged as a growth opportunity. The division now offers tours to 140 countries worldwide, the largest specialist range in the UK and Dutch markets. The breadth of the division s activities and destinations offers customers an ever widening choice of tour. This year the business has faced a number of global challenges: the threat of avian flu, bombings in the Sinai and Sri Lanka, political instability in Nepal and, most notably, war in Lebanon. Overall, the impact of these events on the division s profit performance has not been material, although short-term consumer demand to these regions has reduced. Brand and product development The range of products under the Explore brand includes the core programme, Explore Worldwide, and subsidiary specialist programmes: Family Adventures, Walking and Trekking, Short Breaks, Cycle and Beyond. The Explore Worldwide programme continued to evolve. The increase in tours to Antarctica and rail journeys was particularly noteworthy and these offerings will be extended in the coming year. The 140 countries offered by Explore 600 tour leaders 65 family adventure tours offered

19 17 Holidaybreak plc Annual Report and Financial Statements 2006 specialist programmes also performed well with Family Adventures and Cycle both recording growth of 30% each. A special interest product, designed to meet the demand for event specific trips such as the total eclipse tours to Libya was successfully launched and will be expanded in Djoser also operates a worldwide programme and is developing a more specialist range. Djoser Junior, aimed at families, continues to expand, doubling in size to offer 23 tours. Development of this product-driven specialist strategy continued with the launch in early 2006 of a dedicated walking and trekking programme Djoser Wandel based on Explore s version. RegalDive, a specialist provider of scuba diving holidays, continues to develop away from the Red Sea. Sales to other worldwide destinations, for instance Oman, the Maldives and Indonesia, now account for 34% of total revenue (up from 25% in 2005). Offering customers an enlarged choice of worldwide destinations remains a key business objective. Distribution and internet developments The businesses are primarily direct selling operations. Outside of their home markets, general sales agents are used to support and distribute the product. The main secondary markets are the US, Canada, Ireland, Australia and New Zealand for Explore, and Belgium for Djoser. Explore and Djoser both have full online booking capabilities. However, due to the complexity of the products, many customers prefer to have direct telephone contact with a country/product expert in the call centres. Nevertheless Djoser leads the way in online bookings with more than 70% of bookings from this source. Explore introduced online bookings in early 2005 and this method now accounts for 23% of total bookings. The Explore website is currently being re-developed to include new features that will optimise search engine listings and improve customer retention rates. New businesses At the end of September 2006, Holidaybreak acquired two German specialist tour operators. carpe diem Sprachreisen provides English and other language holidays and TravelWorks offers working holidays and gap-year breaks. There is no trading result for these businesses included in the Group accounts. Strategy Opportunities to grow by acquisition and thereby gain expertise and strong market positions in specialist sub-sectors or in a new geography are constantly being reviewed. Organic growth will be sought by the extension of existing specialist product ranges and by the introduction of new ones, designed to satisfy the specific niche demands of customers. This year the division introduced Explore Private Groups, which is aimed at parties requiring a dedicated itinerary and tour leader. Both the Explore and Djoser brands will continue to gain benefit from each other by new product development, enlarged overseas purchasing power and joint marketing initiatives. In 2006 this process began with the introduction of the Djoser Wandel programme. carpe diem Sprachreisen and TravelWorks increase the Group s presence in Germany, the largest travel market in Europe Language holidays and gap-year experience breaks offered by these businesses provide the division with the opportunity to address the emerging niche market in educational breaks. In parallel, Explore s new complementary school adventure holidays have been introduced for the 2007 season. Management team The Adventure Travel Division s management team comprises Simon Tobin (Divisional Managing Director), Mike Tyler (Group Finance Director), Ashley Toft (Managing Director Explore), Sander van Opstal (General Manager Djoser), Andreas Elia (Managing Director RegalDive) and Derek Moore (Director). Herman van der Velde (founder of Djoser) retains a strategic advisory role. Thomas Meier is Managing Director of carpe diem Sprachreisen and TravelWorks.

20 18 Holidaybreak plc Annual Report and Financial Statements 2006 Camping Division Keycamp

21 19 Holidaybreak plc Annual Report and Financial Statements 2006 Eurocamp

22 20 Holidaybreak plc Annual Report and Financial Statements 2006 Camping Division Key Messages Mobile-home occupancy increased by 11% Chalets successfully introduced Continued high levels of customer satisfaction Sales revenue by market (2006) UK and Ireland 66% Netherlands 20% Germany, Austria, Switzerland 11% Others 3% Camping Division revenue fell by 7% on 2005 to 105.5m (2005: 113.7m). Operating profit* reduced to 12.5m (2005: 13.1m) and operating profit margin* improved to 11.9% (2005: 11.4%). The improvements are evidence of the success of the strategies to improve occupancy, optimise yields and thereby increase margins in the division. Capacity continues to be well aligned withmarketdemandandcustomer satisfaction levels remain high. After mobile-home sale proceeds, net capital expenditure for the Camping Division totalled 2.9m and the division generated free cash flow of 22.7m (2005: 22.0m). Over the last two years, the cost base and capacity of the division have been significantly reduced and consequently, capital expenditure requirements have been low. Net capital expenditure in the coming year will be materially higher than in 2005 and 2006 as there is investment in new mobile-homes to replace older ones reaching the end of their useful lives. The division is expected to be cash generative and deliver good margins in 2006/07. Business portfolio The principal activity in the Camping Division is the sale of holidays into pre-sited accommodation through the Eurocamp and Keycamp brands. The division does not own or operate camp-sites. In 2006, the division sold over 458,000 holidays through these brands. The Camping Division also operates three subsidiary brands: Easycamp, Eurocamp Independent and Keyplaces. The subsidiary brands collectively sold almost 57,000 holidays this year. Market and consumers Customers, predominantly families with school-age children, come from the UK and Ireland, the Netherlands, Germany and other European countries. The division is increasingly attracting couples and pre-school families. An increasing proportion of UK and Irish based customers are now flying, as opposed to travelling by ferry, to their holiday destination using low-cost carriers as the trend towards Southern European locations has continued. The division has introduced taxi transfers to camp-sites and demand for the linen hire service has increased. The division has sought new destinations that are accessible by plane and in the 2007 season is introducing new sites in Portugal, Southern Spain and Slovenia. France remains the most popular destination with 65% of customers choosing it as their holiday destination, while Italy accounts for 20%. Overall accommodation capacity (tents and mobile-homes) for the 2006 season was reduced by 16% and occupancy levels increased by 11%. A further capacity decrease of 3% is planned for the 2007 season to reflect some modest changes in forecast demand. Brand and product development Eurocamp and Keycamp are the market leading brands in the European camping market. Pitches are reserved for the division s tents and mobile-homes on specially selected premium sites. Consumers continue to demand

23 21 Holidaybreak plc Annual Report and Financial Statements 2006 improved facilities and more luxurious mobile-home accommodation. Wooden decking has been progressively phased in and air conditioning has been added to selected units. For 2007 capital investment of over 12m is being made to replace older mobile-homes with more contemporary models. Following a successful trial in 2006, the division will also be substantially increasing the number of third-party owned chalets on offer next year. During the summer months the division provides its family customers with free children s clubs on about a quarter of its sites. These range from the Mini Fun Station for toddlers to Base for teenagers. In recognition of the division s commitment to providing high-quality family holidays, Eurocamp was acknowledged as one of the UK s strongest children s brands in the 2006 Kids Superbrands publication. In addition, Keycamp received the Parents Choice Award for Best Family Holiday Provider in Ireland and received two further awards for Best Tour Operator to France and Best Camping and Mobile-Home Operator at the British Travel Awards. While Eurocamp and Keycamp are the main brands, subsidiary brands address smaller, individual markets. Perfect Places, offering holidays in self-catering apartments, has been re-branded for the 2007 season as Keyplaces and will be marketed more closely with Keycamp. Distribution and internet developments The division is predominantly a direct sell business, although Keycamp also sells through travel agents. In 2006, Keycamp tested product distribution through Eurocamp Germany and Poland; this proved successful and will be extended in the coming year. Eurocamp and Keycamp will also start selling holidays in Sweden and Switzerland respectively. Customers are increasingly using the 20 websites that serve the division s European markets as a facility for researching, requesting brochures, checking availability, obtaining quotes, confirming bookings and making payments. The division has introduced a facility for customer feedback and has created streaming video clips that allow accommodation, camp-sites and broader destination information to be viewed online. The division has experienced strong growth in online booking, which was launched in In 2006, 30% of Eurocamp and Keycamp bookings were made through this channel, up from 21% last year. A new reservation system will benefit Eurocamp Independent and Keyplaces in 2007 and will be introduced in Eurocamp and Keycamp progressively. The new system brings increased flexibility and efficiency and will allow the division to react promptly to market trends and facilitate revenue-generating initiatives, such as pre-bookable pitches. Strategy The division will retain a firm control of costs in line with capacity and will continue to focus on maximising yields. The division continues to research changing customer requirements and to maintain its product offerings to ensure a high level of customer satisfaction and thus generate strong repeat bookings and recommendations. In the medium- to long-term the division plans to develop its accommodation types by increasing the proportion of larger and more profitable mobile-homes, by expanding the number of third-party owned chalets on offer and by gradually reducing tent capacity. The division continues to investigate new country destinations and identify camp-sites that meet the high standards for location, service and facilities associated with the Eurocamp and Keycamp brands. The development of the new reservations system will be managed to ensure that the system remains innovative and positively contributes to the retention of customers and improvement in yield. Management team The Camping Division team comprises Steve Whitfield (Divisional Managing Director), Wendy Parry (Finance and Commercial), Deborah Beckett (Managing Director Eurocamp), Robin Parry (Managing Director Keycamp), and Graham Sadler (IT). * Before goodwill impairment in 2006 of nil (2005: 9.3m). 30% of bookings online 9 European sales markets 80% of business is in mobile-homes

24 22 Holidaybreak plc Annual Report and Financial Statements 2006 Directors and Advisors 1. Robert (Bob) Ayling (60) Chairman of the Board and Chairman of the Nomination Committee Bob was the Group Managing Director and Chief Executive of British Airways plc from 1992 to Before that he held line management responsibilities as well as having been the airline s legal advisor. He is a solicitor by profession and practised for almost 20 years in the City (of London) as a senior government legal advisor. He is currently the Chairman of Sanctuary Group PLC, the Vice Chairman of Dyson Ltd and Chairman of the International Dispute Resolution Centre, London. Bob was appointed a Non-executive Director of Holidaybreak plc in February 2003 and became Chairman in June James Wallace (63) Non-executive Director, Senior Independent Director and Chairman of the Audit Committee James is a chartered accountant who joined Pifco Holdings plc in 1971, becoming Group Finance Director in 1976 and subsequently Deputy Chairman. He left Pifco in 2001 following an agreed take over. He was appointed non-executive Chairman of Bodycote International plc in 2002 having served on the Board as a non-executive director since In May 2005, he was appointed a non-executive director of NCC Group plc and in April 2006 was appointed a non-executive director of the Sanctuary Group PLC. James is a Trustee and former Chairman of the Lowry Theatres and galleries. James was appointed as a Non-executive Director of Holidaybreak plc in May Sally Martin (47) Non-executive Director and Chair of the Remuneration Committee Sally was General Manager UK/Ireland, Middle East and Africa of Qantas Airways Ltd and a Board Member of Qantas Holidays plc from 1999 to 2004, based in London. From 1996 to 1999, she held senior corporate commercial and strategic roles with worldwide responsibilities in Qantas Head Office, Sydney, Australia. Prior to joining Qantas, Sally spent 16 years with Air New Zealand. She is currently a board member of Australia Business in Europe and a committee member of The Cook Society. Sally joined the Board of Holidaybreak plc in July 2004 and became Chair of the Remuneration Committee in January James Greenbury (45) Non-executive Director James has spent the last 17 years developing, acquiring, growing and successfully exiting a series of private equity-backed support services companies. He is currently Chief Executive of DX Services/Secure Mail Services, a competitor to Royal Mail in the UK mail market, as well as Chairman of Go Plant Ltd, a municipal services business. James joined the Board on 1 January Carl Michel (43) Group Chief Executive Carl joined the Company in September He has an MBA from Harvard Business School and has extensive experience in the travel industry having worked for British Airways and Opodo. Immediately prior to joining Holidaybreak, he had held a number of consultancy roles including with a private equity firm and a business raising funds for an airline-related start-up venture. He also spent five years working in Germany as CEO of Deutsche BA and Energis-Ision. In May 2006, Carl joined the supervisory board of Austrian Airlines Österreichische Luftverkehrs AG as a non-executive director. 6.BobBaddeley(53) Group Finance Director Bob is a chartered accountant who joined the Company in February 1995 from Swan Steel Group Ltd where he was Group Finance Director. His career has included senior financial positions at The Albert Fisher Group plc and Unigate plc (now Uniq plc)

25 23 Holidaybreak plc Annual Report and Financial Statements Nick Cust (49) Joint Managing Director, Hotel Breaks Division Nick has worked in the leisure industry since He joined Superbreak in 1985 and was a leading member of the MBO team. Current responsibilities include sales, internet, marketing and product development and key hotel and agent contracts. He became a member of the England Marketing Advisory Board (formerly the English Tourism Council) in September Nick was appointed to the Holidaybreak plc Board in September Mark Wray (50) Joint Managing Director, Hotel Breaks Division Mark is a chartered accountant who joined Superbreak in 1984 as Group Finance Director and was a leading member of the MBO team. He holds special responsibility for finance and administration. Mark was appointed to the Holidaybreak plc Board in September Simon Tobin (51) Managing Director, Adventure Travel Division Simon joined Keycamp Holidays in 1990 from Contiki Travel, the European coach holiday operator where he was Director and General Manager. He was appointed Sales Director of Keycamp in 1995 and Managing Director in 1998, soon after the acquisition by Holidaybreak. Simon was appointed Managing Director of Explore Worldwide and the Adventure Travel Division in January 2001, he also became a member of the Board. 10. Steve Whitfield (48) Managing Director, Camping Division Steve qualified as a solicitor and has been with the business since 1984 in a variety of roles. In 1998 he became Operations Director for the Camping Division, a position that he held until his appointment as Managing Director of the Division in March Steve was appointed to the Holidaybreak plc Board in July Alex Williamson (36) Company Secretary Alex is a qualified solicitor who joined the Group as Company Secretary in September Previously she was at Eversheds solicitors. Additional information on the Directors and the Company Secretary can be found on our website at Auditors Deloitte & Touche LLP 2 Hardman Street, Manchester M60 2AT Solicitors Eversheds LLP Eversheds House, 70 Great Bridgewater Street, Manchester M1 5ES Principal Bankers Barclays Bank plc 1 Marsden Street, Manchester M2 1HW Royal Bank of Scotland plc 1 Spinningfields Square, Manchester M3 3AP Stockbrockers Dresdner Kleinwort PO Box 52715, 30 Gresham Street, London EC2P 2XY Teather & Greenwood Limited Beaufort House, 15 St Botolph Street, London EC3A 7QR Registrars Capita IRG Plc Northern House, Woodsome Park, Fenay Bridge, Huddersfield HD8 OLA

26 24 Holidaybreak plc Annual Report and Financial Statements 2006 Corporate Responsibility Report The Board believes that it is in the Company s interest to recognise environmental and social issues arising from the growth in travel and its responsibilities to the communities in which the Group operates. In recognition of its commitment, this year Holidaybreak has again met the FTSE4Good criteria and continues to be a member of the FTSE4Good Index Series. We are also included in the holdings of several ethical investment funds. The section below summarises the Group s main achievements in 2005/06 and targets for 2006/07 in relation to key areas of Corporate Responsibility. Environment We believe it is in the Group s best interest to be aware of, and seek to minimise, the risks arising from the social and environmental impact of our activities. We therefore commit to the following environmental policy: Provide responsible tourist advice to customers. Support the AITO policy on responsible tourism through those subsidiaries (Adventure Travel and Camping) that are members of that association. Ensure employees are made aware of environmental issues through guides, manuals and training and that they act with these in mind when making decisions, investigating alternatives and planning various aspects of the product and service. Ensure that employees are appropriately trained and motivated to apply this policy in their daily work. Promote awareness of environmental issues with suppliers. Review and update the approach to the environment on an annual basis. We are committed to the disposal and management of waste in a responsible manner. We have water and energy saving systems in our office sites. All our offices utilise licensed waste removers who provide appropriate documentation for the transfer of waste. Highlights for 2005/06 Explore, which operates under the strapline Small Groups Leave Fewer Footprints, regards responsible tourism as a core part of its business practice and is a driving force in the field. In recognition of this, Explore was highly commended by Responsibletravel.com at the Responsible Travel Awards 2005 and was awarded the title of Best Responsible Tourism Website at the Travelmole awards in June In addition, Explore received accreditation from the Forest Stewardship Council in acknowledgment that its brochures have been produced from controlled forestry sources. Following in Explore s path, the Camping Division set up an Eco-Team and appointed a dedicated responsible tourism co-ordinator to raise awareness across the business. The team kicked off some internal environmental initiatives, such as encouraging staff to turn off lights when not in use and printing double sided. These initiatives are communicated and reinforced to staff through regular Green Watch s. The Group is now monitoring its use of gas and electricity in all of its offices and produced 1,290 tonnes (2005: 1,150 tonnes) of carbon emissions. The increase is largely due to the extended use of air conditioning during the hot summer and the introduction of air conditioning at Explore s new offices. Keycamp, like Explore, launched a scheme in conjunction with Climate Care to enable customers, at the time of booking, to offset carbon emissions generated by their holiday. The Group is also reviewing the total weight of brochures it produces each year (2006: 2.02kg per booking and 2005: 2.31kg per booking) and continues to look into environmentally friendly alternatives. The Camping Division is currently trialling biodegradable polybags to distribute its brochures. Targets for 2006/07 1 Energy saving: Holidaybreak Group office is working with Carbon Trust to identify energy saving initiatives. 2 Responsible tourism policy: Superbreak and Camping are introducing a separate responsible tourism policy which will be communicated to staff, customers and suppliers. The policy will be communicated to customers through their brochures and websites. 3 Communication: Djoser is committed to operating in a responsible way and is introducing responsible tourism tips, in conjunction with its environmental policy, on its website. 4 Audit: Explore is currently undertaking a full responsible tourism audit of all tours offered. Appropriate targets will be set once the audit has been completed. The Camping Division received an award for 'Excellence in Developing Management Capability' at the DWF Employer Awards. Explore continues to support the building of an orphanage in the Mufindi Highlands, Tanzania. This year Explore donated 5,000. Explore received the title of Best Responsible Tourism Website at the Travelmole Awards.

27 25 Holidaybreak plc Annual Report and Financial Statements 2006 Employees The Holidaybreak Group is committed to an equal opportunities policy. We are committed to the principle of equal opportunity in employment and customer service regardless of a person s sex, marital status, race, colour, disability, sexual orientation, age, nationality, ethnic origin, religion or belief. We will therefore apply policies which are fair, equitable and consistent. In employment terms, our policy will ensure that all employees are accorded equal opportunity for career, training, promotion and access to benefits. Highlights of 2005/06 Employee consultation Explore and Camping both have a staff forum and circulate an annual staff opinion survey. This year, Camping s staff forum raised concerns relating to the office environment and staff benefits; changes to accommodate these issues were made, where appropriate. The staff opinion survey conducted by Explore identified inter-departmental and company-wide communication as an area for improvement and, as a result, management are currently conducting a communication review. Staff benefits Camping and Explore use an external provider for its Employee Assistance Programme. The programme provides employees, and their immediate family members, with professional counselling in relation to their personal life or work issues. The Camping Division extended the programme to all UK based staff. Career development Camping s Management Development Programme received accreditation from the Institute of Leadership and Management for the Introductory Diploma in Management qualification. The programme has also received an award for Excellence in Developing Management Capability at the DWF Employer Awards in May Bookit introduced a job rotation programme to allow staff to develop an understanding of different roles within the business. Sharesave Scheme The Company continues to run a Sharesave Scheme that allows UK employees of Holidaybreak Group to save regularly for a period of three to five years. This year saw a similar uptake in participants as last year. Health and Safety Holidaybreak has a Health and Safety policy which is communicated to all staff through a Health and Safety manual and displayed on notice boards at each office. Each office has an appointed Health and Safety officer, who regularly reviews the Health and Safety policy to ensure it meets best practice guidelines. This year, the Camping Division introduced an online Health and Safety management tool which holds all the policies and procedures for campsite incident reporting. Targets for 2006/07 1 Human resources policy: The formulation, launch and dissemination to all employees within the Group of an overriding Group-wide human resources policy that will incorporate statements on culture, equal opportunities, training, remuneration and communication. 2 Staff consultation: The introduction by Superbreak of a staff forum and staff suggestion scheme. 3 Absence rates: The Company is now monitoring, on a Group-wide basis, absenteeism rates. The Group aims to ensure its absenteeism rates remain below the current market norm for businesses operating call centres at 4.1% (source: CIPD annual absence management survey report 2006). Customers To maintain high levels of customer satisfaction, we are constantly assessing the views of our customers. Comments from customers are obtained via frontline employees (agency sales representatives, tour leaders and couriers), customer insight teams and customer feedback questionnaires. Highlights of 2005/06 Superbreak held two travel agent focus group meetings to find out how to improve the functionality of its agent website. As a result of these sessions, Superbreak introduced a new promotional banner on its homepage to link agents to special offers. Camping introduced a customer insight team in 2005 to gain a deeper understanding of what customers value now and anticipate what they might value in the future. As a result of the work of the customer insight team and the enhancement of the post-holiday questionnaire, Camping is improving the crèche service Mini Fun Station offered to toddler families for season Explore re-designed its post-holiday questionnaire. The customer feedback received is reviewed by the customer relations and operations departments and changes are implemented promptly where necessary. Suppliers Holidaybreak encourages long-term relationships with small and large suppliers. Highlights of 2005/06 Explore continued to work with a number of organisations that promote better practice in tourism. Last year, we reported that Explore was working with Tourism Concern, a registered charity that campaigns for ethical and fairly traded tourism, to develop the first Working Conditions Code of Practice and Labour Standards Audit for the travel industry. Although the Labour Standards Audit was aborted as regulation was deemed unenforceable, the Working Conditions Code of Practice has been incorporated into Explore s responsible tourism policy which is sent to all suppliers. Explore co-operated with the Born Free Foundation to improve their guidelines for interacting with wildlife on tour. The guidelines are incorporated into Explore s responsible tourism policy. Tour leaders are thus able to promote the improved guidelines to customers and local crew. Targets for 2006/07 1 Suppliers charter: Superbreak and Camping propose to introduce their own environmental policies with responsible tourism guidelines aimed at encouraging suppliers to be more eco-friendly. 2 Local employment: Explore will continue to increase its number of local, rather than UK based, tour leaders. In 2006, they doubled the number of local tour leaders. Communities and charities We recognise that we have a responsibility to support the development of the communities in areas where we have a local impact. We encourage our divisions to become active in these local communities. The Group as a whole donated 81,000 to charitable causes. Highlights for 2005/06 Explore continued to support numerous charitable projects at many local communities that their tours visit. Notable projects include: A school in the fishing village of Pudupattinam near Mahabalipuram, Southern India was set up by Hope Worldwide in Explore s donation of 5,000 supported a teacher for the year. The building of an orphanage in the Mufindi Highlands, Tanzania, to care for children affected by HIV/AIDS in a family environment, a project started by Explore s suppliers. Explore travellers to Mufindi are able to witness the work in progress. This year Explore donated 5,000 to the project. Djoser offers its customers the opportunity to donate to Unicef through their holiday booking and then matches this amount. This year Djoser continued to be a big supporter of Unicef and, in recognition of its contribution, received the social category award from the Dutch publication Sponsor Magazine. Targets for 2006/07 1 Schools: Eurocamp will be working with over 4,000 primary schools across the UK in January 2007 to challenge children to design mobile-home models with eco-friendly features. Schools will be provided with an entry pack and teachers notes on environmental resources.

28 26 Holidaybreak plc Annual Report and Financial Statements 2006 Corporate Governance The Board is committed to high standards of corporate governanceinitsmanagementoftheaffairsofthe CompanyandtheGroup.Thisreport,togetherwith the Directors Remuneration Report on pages 32 to 36, describeshowtheprinciplessetoutinsection1ofthe Combined Code on Corporate Governance (published in July 2003) ( the Code ) are being applied. The Board of Directors The Board of Directors is currently made up of six Executive Directors, three Non-executive Directors and a Chairman. The positions of Chairman and Group Chief Executive are not combined ensuring a clear division of responsibility at the head of the Company. James Wallace, a Non-executive Director and Chairman of the Audit Committee, has been designated as Senior Independent Director. Collectively, the Non-executive Directors provide broadly based knowledge and experience to the Board s deliberations. The complementary range of financial, operational and entrepreneurial experience ensures that no one Director or viewpoint is dominant in the decision-making process. Whilst the Company remains a FTSE SmallCap company, it is only required to have two independent Non-executive Directors on the Board. The Board continues to consider its Non-executive Directors and its Chairman as independent from management and each other and provide a strong independent element on the Board, being free from any business or other relationship which could materially interfere with the exercise of their judgement. To safeguard their independence, Directors are not entitled to vote on any matter in which they have a material personal interest unless the Directors unanimously decide otherwise and, where necessary, Directors are required to absent themselves from a meeting of the Board when such a matter is being discussed. To strengthen the independence of the Non-executive Directors and to enable them to more freely discuss the performance of the Group s management, the Chairman meets with the Non-executive Directors at least once a year without the Executive Directors present. The independence of the Directors is further supported by the work of the Company Secretary whose appointment and removal is the responsibility of the Board as a whole. The Company Secretary is responsible for good information flow, ensures that Board procedures are complied with and provides advice on corporate governance and regulatory compliance. All Directors have unfettered access to the advice and services of the Company Secretary. Directors can, where necessary for the discharge of their duties, obtain independent professional advice at the Company s expense. In considering the independence of James Wallace, the Board noted that the Chairman and James Wallace were appointed to the Board of Holidaybreak in 2003 and 2002 respectively and had not previously held any cross directorships. The Board further noted that the Chairman and James Wallace were appointed Chairman and a non-executive director respectively of Sanctuary Group PLC, a FTSE SmallCap company, in April There are no material business relationships between Sanctuary Group PLC and the Company. The Board has thus concluded that the Chairman and James Wallace remain independent. The Board considers that the Chairman continues to have sufficient time to devote to the Company notwithstanding his Chairmanship of Sanctuary Group PLC and his other commitments listed in his biography on page 22. Biographical notes on all the Directors are given on pages 22 and 23 of the annual report and financial statements. Fuller biographies together with biographies of the Company Secretary and divisional directors are available on the Company s website at Appointments to the Board are made after receiving recommendations from the Nomination Committee. The practice is to appoint Non-executive Directors for specified terms of three years, subject to three months notice within that period and also subject to re-election and to Companies Act provisions relating to the removal of a Director. Re-appointment is not automatic. In May 2005, James Wallace was appointed for a second three-year fixed term and in June 2006, Bob Ayling was appointed for a second three-year fixed term. New Directors appointed by the Board must submit themselves for re-election by shareholders at the Annual General Meeting following their appointment. Thereafter the Company s Articles of Association require that all Directors stand for re-election at intervals of not more than three years. The Chairman will confirm to shareholders when proposing re-election that, following formal evaluation, the individual s performance continues to be effective and they continue to demonstrate commitment to the role. Any term beyond six years for a Non-executive Director will be subject to rigorous review and will take into account the need for progressive refreshing of the Board. Performance evaluation This year the Board undertook a formal evaluation of the performance of the Board and of the principal Board Committees using an external independent facilitator. One-to-one sessions with each of the Directors and the Company Secretary took place followed by a facilitated discussion which all Directors and the Company Secretary attended. Last year s evaluation identified a number of actions some of which are under continuous development including: the scope and detail of the financial information reported to the Board should be reviewed regularly; and the divisional and Group self-assessment of internal controls and risk management processes should be reviewed more regularly with the Board being appraised of any changes in the risk profile. This year s evaluation identified the following actions: to increase the focus of the Board on longer-term strategic challenges and opportunities; and to hold more informal dinners, allowing discussion outside of the more formal board room environment. Executive Directors are appraised annually by the Group Chief Executive. Appraisal reports are reviewed by the Remuneration Committee. The Chairman carries out annual appraisals of the Group Chief Executive and the Non-executive Directors. The Chairman s appraisal is carried out by the Non-executive Directors, led by the Senior Independent Director. Additional feedback was received by the Chairman as part of the Board performance evaluation. Continuing training is provided as and when necessary. This year the Board received training on the requirements of the enhanced business review and potential changes under the new Companies Bill. Training requirements are also identified as part of the annual appraisal process. Board Committees The Board has three principal committees, all with written terms of reference which are published on the Company s website and which are available in hard copy form on application to the Company Secretary. The Audit Committee The Audit Committee reviews the half-year and annual financial statements and matters related to internal controls, including the external audit function. The Committee also keeps under review non-audit work carried out by the Company s auditors. The Committee reviews the cost effectiveness, independence and objectivity of the external auditors.

29 27 Holidaybreak plc Annual Report and Financial Statements 2006 The Directors who served on the Audit Committee during the year were as follows: James Wallace (Chairman) James Greenbury Sally Martin The Audit Committee Report is set out on pages 28 and 29. The Nomination Committee The Nomination Committee is responsible for recommending candidates for Board appointment. The Directors who served on the Nomination Committee during the year were as follows: Robert Ayling (Chairman) James Greenbury Sally Martin James Wallace The Nomination Committee Report is set out on page 29. The Remuneration Committee The Remuneration Committee is responsible for ensuring that remuneration policy facilitates the attraction, retention and motivation of senior executives of appropriate calibre, whilst avoiding unnecessary costs. Details of membership of the Committee and its current remuneration policies are given in the Directors Remuneration Report on pages 32 to 36. B2.1 of the Combined Code states that the Remuneration Committee should consist of independent Non-executive Directors. The Chairman is currently a member and his continued membership is considered appropriate given his experience of the sector and the valuable independent and objective views he offers. This approach is consistent with the revised Combined Code which takes effect for financial years commencing on or after 1 November Dialogue with shareholders The Directors seek to build on a mutual understanding of objectives between the Company and its institutional shareholders and communicate with investors and analysts on a regular basis throughout the year as required. Results presentations are made on a bi-annual basis to market analysts and cover the historic results, current trading and immediate future prospects. A series of one-to-one and group meetings are then held with institutional shareholders and potential institutional investors covering the same material. The primary responsibility for this process lies with the Group Chief Executive and the Group Finance Director. However, the Chairman and other Executive Directors also participate as appropriate. The Company s advisors provide regular feedback from investors and analysts which is communicated to the whole Board. The Code recommends that the Senior Independent Director meets with a range of major shareholders to gain an understanding of their views. In practice, as a result of the regular feedback provided, the Senior Independent Director and the other Non-executive Directors believe that they are aware of such issues and that, unless requested by major shareholders, such meetings are not required. All shareholders have the opportunity to put questions to the Board at the Annual General Meeting (AGM) and, at all other times, by ing or writing to the Company. They may also contact the Chairman, the Group Chief Executive or, if more appropriate, the Senior Independent Director to raise any issue with one or all of the Non-executive Directors of the Company. Notice of the AGM and related papers are distributed to shareholders at least 20 working days before the meeting. The Company prepares separate resolutions on each substantially separate issue. At the AGM, the Chairman reports, after the vote on a show of hands, details of all proxy votes lodged for and against each resolution and the number of votes withheld. Directors responsibilities Company law relating to the United Kingdom requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of the Group for that year. In addition, these financial statements comply with International Financial Reporting Standards (IFRS) as adopted by the European Union. In preparing the 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; and state whether applicable accounting standards have been followed. The Directors confirm that appropriate accounting policies have been used and applied consistently and reasonable and prudent judgements and estimates have been made in the preparation of the financial statements. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for the system of internal control, safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Going concern After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis. Board responsibilities and planning All members of the Board take collective responsibility for the Group s performance. A formal schedule of matters reserved for the Board covers key areas of the Group s affairs including the formulation of the Group s corporate strategy, treasury policy and risk management policy, approval of acquisitions and disposals, annual Group budget and major capital expenditure. Control of operational matters is delegated through the Group Chief Executive, the Group Finance Director, the respective divisional and subsidiary managing directors and local directors as appropriate. This structure ensures a strong link between corporate strategy and its effective implementation. The Board meets regularly to review the affairs and trading progress of the various businesses within Holidaybreak plc and the Group as a whole. If and when required, meetings in addition to the scheduled meetings are held either in person or by telephone conference. Each of the Executive Directors reports to the Board on relevant matters relating to their areas of responsibility, having previously circulated written or electronic reports to all Board members. The attendance records of individual Directors at scheduled meetings of the Board and its Committees for the year ended 30 September 2006 can be found in the table below: Scheduled Remun- Board Audit eration Nomination meetings AGM Committee Committee Committee Robert Ayling 12(12) 1(1) N/A 6(6) 2(2) Bob Baddeley 12(12) 1(1) N/A N/A N/A Matthew Cheetham 4(5) N/A N/A N/A N/A Nick Cust 12(12) 1(1) N/A N/A N/A James Greenbury 12(12) 1(1) 3(3) 6(6) 2(2) Sally Martin 12(12) 0(1) 3(3) 6(6) 2(2) Carl Michel 12(12) 1(1) N/A N/A N/A Simon Tobin 12(12) 1(1) N/A N/A N/A James Wallace 12(12) 1(1) 3(3) 6(6) 2(2) Steve Whitfield 3(3) N/A N/A N/A N/A Mark Wray 12(12) 1(1) N/A N/A N/A

30 28 Holidaybreak plc Annual Report and Financial Statements 2006 Corporate Governance continued Figures in brackets indicate the maximum number of meetings in the period in which the individual was a member of the Board or the relevant Committee. Matthew Cheetham was unable to attend the November Board meeting due to a prior commitment. Sally Martin was unable to attend the AGM due to a family bereavement. The Chairman and the Non-executive Directors have met without the Executive Directors being present. The Non-executive Directors have also met separately without the Chairman present. The three trading divisions of the Group, Hotel Breaks, Adventure Travel and Camping also hold monthly board meetings to report on and review trading progress and discuss future plans. The Group Chief Executive and the Group Finance Director sit on the divisional boards and attend meetings. The planning and budgeting cycle enables management at all levels to identify and address all significant business risks and to control the strategic and financial objectives of the Group. The Board is responsible for the formulation of medium-term corporate strategy. This in turn provides a basis for the formulation and review of divisional strategy by the divisional boards. All strategic plans are subject to annual review. Divisional strategic plans and annual reviews are presented to and reviewed by the Board and, once approved, form the basis of annual budgets. Detailed reviews of the trading divisions are included within these financial statements. The Board uses these, together with the Chairman s Statement, Chief Executive s Business Review and Finance Director s Review, to present a balanced and understandable assessment of the Group s position and prospects. Internal control The Board of Directors has overall responsibility for ensuring that the Company maintains a system of internal financial control to provide them with reasonable assurance regarding the reliability of financial information used within the business and for publication, and that assets are safeguarded. Subsidiary businesses produce monthly management accounts information which is used to compare actual performance with budget and medium-term plans. These accounts include updated forecasts and other information to enable the Board to assess the prospects of all businesses in the Group. The Group Chief Executive also reports significant changes in the external environment to the Board. The Group has an established internal organisation structure with clearly defined lines of responsibility and accountability. This is supported by well established and documented accounting controls and procedures common to all individual businesses. There are specific guidelines for the appraisal and authorisation of all capital expenditure and disposal proposals. Certain of the Group s key functions including the company secretariat, treasury, legal, taxation (compliance and planning) and business risk insurance are undertaken centrally under the direct control of the Group Chief Executive and the Group Finance Director. The Board is updated regularly on specific matters including taxation, treasury management, interest and foreign exchange exposures. There are inherent limitations in any system of internal financial control and accordingly even the most effective system can provide only reasonable, and not absolute, assurance with respect to the preparation of financial information and safeguarding of assets. The Board regularly reviews the effectiveness of the systems, control and reporting procedures and will continue to do so, making any changes required as a result of the review and the development of the Group. Risk management The Board is responsible for the Group s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. It is necessary to take commercial risks in the course of the management of the Group s operations but those risks are fully evaluated as part of the decision making process. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks that the Group faces. The Board regularly reviews the process, which has been in place for the whole of the 2005/06 financial year and has continued to the date of approval of this report. The processes are in accordance with the Turnbull Guidance. The Board continuously reviews the effectiveness of the Group s system of internal control. The Board s monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing monthly reports from executive management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The Audit Committee assists the Board in discharging its review responsibilities and considers reports from the Group s auditors on the effectiveness of the operation of internal control procedures. The Board has considered the need to establish an internal audit resource and has concluded that the current control mechanisms are sufficient for the size of the Group. The Board will continue to review this decision. The Board also conducts an annual self-assessment process designed to review the effectiveness of all internal controls and risk management processes at both subsidiary and Group level. This process is designed to highlight key risks to the business and to consider what action should reasonably and cost effectively be taken to manage them. Compliance with the Combined Code The Directors consider that throughout the accounting period ended 30 September 2006, the Company has complied with the Code except as follows: D1.1 The Senior Independent Director should meet with a range of major shareholders to listen to their views in order to help develop a balanced understanding of the issues and concerns of major shareholders. B2.1 The Remuneration Committee should consist of independent Non-executive Directors. Explanations for non-compliance are set out above. Audit Committee report The Audit Committee presents a separate report in relation to the financial year ended 30 September Composition of the Audit Committee The Committee comprises the three Non-executive Directors, all of whom are considered by the Board to be independent. Details of those who served on the Committee during the year are set out on page 27. The Chairman of the Committee, James Wallace, is a qualified chartered accountant and formerly a finance director of another company listed on the London Stock Exchange. As a whole, the Committee has recent and relevant financial expertise and is appropriately qualified to undertake its duties in an effective manner.

31 29 Holidaybreak plc Annual Report and Financial Statements 2006 Operation of the Audit Committee The Committee met three times during the year. The Group Chief Executive, the Group Finance Director and the Chairman, together with representatives from the external auditors, attend meetings at the invitation of the Committee. The Committee has also met the external auditors without executive management present. The external auditors may also request a meeting if they consider it necessary. The Committee s duties included: reviewing the Company s financial statements and the material financial reporting judgements contained in them; reviewing the Company s financial risk management and internal control processes; reviewing the external auditors terms of engagement and plan for the audit of the accounts; considering the requirement for an internal audit function; and monitoring the work being undertaken by the Company in preparation for the introduction of IFRS and reviewed the statement issued by the Company on the restatement of financial statements in accordance with IFRS. Review of the external auditors The Committee has been delegated responsibility for making recommendations to the Board on the appointment and removal of the external auditors. Subject to the annual appointment of the auditors by shareholders, the Committee conducts a continuous review of the relationship between the Group and the auditors. This review includes: the consideration of audit fees and advance approval of any fees for non-audit related work in excess of 10,000 for an individual assignment; the consideration of the auditors independence and objectivity; and the nature and scope of the external audit. The Committee, having considered the external auditors performance during their period in office, recommends their re-appointment. A full breakdown of the audit and non-audit related fees is set out in note 3 to the financial statements on page 46. The Committee discussed the level of fees and considered them appropriate given the current size of the Group and the level of corporate activity undertaken during the year. The Committee believes the level and scope of non-audit services does not impair the objectivity of the auditors and in respect of due diligence reports there is a clear benefit from using professional advisors who have a good understanding of the Group s operations. Other accounting firms have been used where the Group recognises them as having particular areas of expertise or where there is an independence issue. Open Door policy The Committee reviews the Group s Open Door policy which provides a process for employees, in confidence, to raise concerns about possible improprieties in matters of financial reporting or other matters. Nomination Committee report The Nomination Committee presents a separate report in relation to the financial year ended 30 September Composition of the Nomination Committee The Committee is responsible for evaluating the balance of skills, knowledge and experience of the Board and, where appropriate, recommending candidates for appointment. During the year, the Committee considered the appointment of a successor to Matthew Cheetham, formerly Managing Director of the Camping Division. Whilst in the past the Committee has engaged psychologists to assist in assessing candidates, it did not consider it appropriate for this appointment. The Committee identified and proposed its candidate for the appointment, with the full Board making the final decision. For Non-executive Directors, their individual letter of appointment sets out the expected time commitment. Induction procedure The Company Secretary supports the Chairman in ensuring new Directors receive appropriate induction and training. On joining the Board, a Director undergoes a structured induction programme, including the receipt of a comprehensive induction pack which includes various governance related issues. The Director meets with each of the Executive Directors and senior management. If appropriate, the Director also attends external training courses following his or her appointment which is tailored to his or her requirements. Succession planning The Board and the Nomination Committee recognise the importance of succession planning to ensure that the Group continues to prosper in the longer term. Operational matters are delegated through the Group Chief Executive and the Group Finance Director to the divisional directors with clearly defined lines of responsibility and accountability. This provides the opportunity for senior management to develop in some of the smaller business units before progressing to wider and more responsible roles. The Committee is mindful of the need to ensure appropriate succession arrangements are in place for the Directors. The Committee seeks to identify new Directors and senior managers to ensure succession of Directors is conducted in a managed way, without significant disruption to the ongoing business of the Group. Robert Ayling Chairman of the Nomination Committee 30 November 2006 James Wallace Chairman of the Audit Committee 30 November 2006

32 30 Holidaybreak plc Annual Report and Financial Statements 2006 Directors Report The Directors present their annual report on the affairs ofthegroup,togetherwiththefinancialstatements and independent auditors report for the year ended 30 September Principal activities and business review The principal activities of the Group are the provision of hotel short-breaks in the UK and continental Europe, worldwide adventure and activity holidays and mobile-home and camping holidays on sites throughout continental Europe. Details of the Group s performance during the year, expected future developments and the principal risks and uncertainties facing the Group are contained in the Chief Executive s Business Review on pages 4 to 7 and in the Finance Director s Review on pages 8 and 9. Information relating to the environment and employees is set out in the Corporate Responsibility Report on pages 24 and 25. A review of activities by each of the divisions is contained on pages 10 to 21. This information has been prepared solely to assist the shareholders to assess the Board s strategies and their potential to succeed. It should not be relied on by any other party, for other purposes. Forward-looking statements have been made by the Directors in good faith using information available up to the date of this report. Forward-looking statements should be regarded with caution because of the inherent uncertainties in economic trends and business risks. As at the date of this report, there have been no important events affecting the business of the Company or of any of its subsidiaries, which have occurred since the end of the financial year. Results and dividends The profit after taxation for the year ended 30 September 2006 amounted to 22.4m (year ended 30 September 2005: 13.0m). The Directors recommend a final dividend of 21.2p (2005: 19.35p) per ordinary share which, together with the interim dividend of 8.00p (2004: 7.25p), represents a total of 29.2p per ordinary share (2005: 26.6p). Directors The Directors of the Company who served during the year were as follows: Non-executive Directors Executive Directors Robert Ayling Bob Baddeley James Greenbury Matthew Cheetham Sally Martin (resigned 10 March 2006) James Wallace Nick Cust Carl Michel Simon Tobin Steve Whitfield (appointed 12 July 2006) Mark Wray The Directors beneficial and non-beneficial interests in the shares of the Company as at 30 September 2006 are disclosed on page 31. In accordance with the Articles of Association of the Company, Bob Baddeley, Nick Cust and Sally Martin retire by rotation at the 2007 Annual General Meeting and, being eligible, offer themselves for re-election. Bob Baddeley entered into a service agreement with the Company on 18 January 1996 for an initial period of twelve months with a notice period of twelve months thereafter. Nick Cust entered into a service agreement with the Company on 26 July 1995 for an initial period of three years with a notice period of twelve months thereafter. Sally Martin entered into a letter of appointment on 14 July 2004 for a fixed three year period which will expire on 16 July The letter also provides for resignation within the fixed term subject to three months notice. In addition, Steve Whitfield, who was appointed a Director on 12 July 2006, also retires in accordance with the Articles of Association and stands for re-election. Steve Whitfield entered into a service agreement with the Company on 19 October 2006 which provides for a notice period of twelve months. Biographical details of the Directors are given on pages 22 and 23. Details of Directors emoluments, share options and share awards are given in the Directors Remuneration Report on pages 32 to 36. During the year, the Company maintained liability insurance for its Directors and officers. Following a change to the Company s Articles of Association approved at the 2006 Annual General Meeting, the Company provided indemnities to each of its Directors. Neither the insurance nor the indemnity provides cover where the Director has acted fraudulently or dishonestly. Substantial shareholdings Details of interests in the ordinary share capital of the Company which, as at 30 November 2006, had been notified to the Company in accordance with sections 198 to 208 of the Companies Act 1985 are disclosed on page 64 of the annual report and financial statements. Acquisitions by the Company of its own shares Shareholders authority for the purchase by the Company of 4,837,200 of its own shares existed at the end of the year. The Directors will seek to renew this authority at the 2007 Annual General Meeting. Policy on disabled employees Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. Policy on employee involvement The Group places considerable value on the involvement of its employees and keeps them informed on matters affecting them as employees and on the various factors affecting the performance of the Group. This is achieved through formal and informal meetings, regular briefings, the Company newsletter and circulation of results announcements and important public statements. Employees are consulted regularly on a wide range of matters affecting their current and future interests. Within the Adventure Travel and Camping Divisions, this is achieved through the election of employee representatives who are members of a staff council or forum and meet regularly with management. In the case of the Hotel Breaks Division, consultation takes place via Heads of Department. Permanent employees are, in the majority of cases, entitled to receive bonuses related to individual or team performance. All permanent UK employees of the Group are given the opportunity to join the Savings Related Share Option Scheme. Creditor payment policy and number of days The Group s policy is to pay suppliers on terms agreed with each supplier. The Company had no trade creditors outstanding as at 30 September 2006 (2005: same). Charitable and political donations During the year the Group contributed a total of 81,000 (2005: 86,000) to charities. Further details of the Group s involvement in charities is contained on page 25 of the annual report and financial statements. The Company did not make any political donations. Information to auditors In the case of each of the persons who are Directors of the Company at the date when this report was approved: so far as each of the Directors is aware, there is no relevant audit information (as defined in the Companies Act 1985) of which the Company s auditors are unaware; and each of the Directors has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information (as defined) and to establish that the Company s auditors are aware of that information.

33 31 Holidaybreak plc Annual Report and Financial Statements 2006 Directors interests As at 30 September 2006 the Directors beneficial interests in the share capital of the Company were as follows: 30 September September 2005 or date of appointment if later Number of Number of conditional shares in shares in conditional Number of allocation Number of allocation ordinary 5p Number of under 2006 ordinary 5p Number of under 2006 shares options LTIP shares options LTIP Robert Ayling 5,000 5,000 Bob Baddeley 32, ,330 12,614 30, ,910 Nick Cust 3, ,372 13,761 3, ,668 James Greenbury 4,000 4,000 Sally Martin Carl Michel 5,000 1,623 26,376 1,000 Simon Tobin 97,979 12, ,271 James Wallace 4,000 4,000 Steve Whitfield 5,850 52,809 11,467 5,850 52,809 11,467 Mark Wray 6, ,330 13,761 12, ,450 In addition to the above beneficial interests, the Executive Directors held a non-beneficial interest in shares held by Holidaybreak Trustee Ltd as trustee of the Holidaybreak plc Employee Share Trust and Mourant ECS Trustees (Jersey) Ltd as trustee of the Holidaybreak plc Employee Benefit Trust (the Trustees ). Shares are held by the Trustees to satisfy options and share awards made under the Company s share option schemes and Long Term Incentive Plan. As at 30 September 2006, the Trustees held an aggregate total of 579,496 shares (2005: 743,587). On 4 October 2006, Nick Cust exercised an option over 2,951 shares in Holidaybreak plc under the 2001 Savings Related Share Option Scheme. Following this, Nick Cust s interest in the ordinary share capital of the Company was 6,795 shares, 109,421 options and 13,761 conditional allocation under the 2006 LTIP. None of the Directors has any other interests requiring disclosure under Schedule 7 to the Companies Act Annual General Meeting The 2007 Annual General Meeting will be held at The Lowry, Pier 8, Salford Quays, Manchester M50 3AZ on Thursday 15 February 2007 at 2.30pm. A resolution to re-appoint Deloitte & Touche LLP as auditors of the Company will be proposed at the meeting. A detailed explanation of the special business to be transacted at the meeting is contained in the explanatory notes to the Notice of Annual General Meeting which accompanies the annual report and financial statements. By order of the Board Alexandra Williamson Company Secretary 30 November 2006 Registered Office: Hartford Manor, Greenbank Lane, Northwich, Cheshire CW8 1HW Registered in England No:

34 32 Holidaybreak plc Annual Report and Financial Statements 2006 Directors Remuneration Report This report has been prepared in accordance with Section 234B Companies Act 1985 (as amended). It also contains additional information required by the Listing Rules of the Financial Services Authority and other relevant information relating to our Group pay and benefits policy. Membership Throughout the year, the Remuneration Committee has comprised solely of Non-executive Directors of the Company (including the Chairman of the Company, Robert Ayling), namely: Sally Martin (Chair) Robert Ayling James Greenbury James Wallace Robert Ayling s continued membership of the Committee is considered appropriate given his experience of the sector and the valuable independent and objective views he offers. The Committee consults the Group Chief Executive about its proposals relating to the remuneration of Executive Directors and has access to professional advice from inside and outside the Group. The Committee has retained New Bridge Street Consultants LLP, who are independent remuneration consultants appointed by the Committee, as its principal advisor and has taken advice from them in relation to executive remuneration matters and, in particular, in relation to the new Long Term Incentive Plan which was approved at the Company s Annual General Meeting (AGM) in March New Bridge Street has no other relationship with the Group. The Committee s terms of reference are published on the Company s website and are available in hard copy form on application to the Company Secretary. Remuneration policy Executive Director remuneration packages consist of various components: Base salary Performance linked bonus Pension contributions Long Term Incentive Plan Company car or allowance Private healthcare insurance Life assurance Permanent health insurance A review of the remuneration policy is set out below. Scope and objectives Attracting, retaining and motivating directors and senior management of appropriate calibre and experience is essential to the Company s future success. The Committee s primary objective is to ensure that remuneration policy supports this objective whilst avoiding unwarranted cost. The Committee recognises the importance of an appropriate balance between the fixed elements of remuneration (i.e. base salary, benefits and pension) and performance related remuneration (i.e. bonus and longer-term incentives) of each Director s remuneration package. As a result, a significant proportion of each Director s total remuneration is comprised of performance related elements. At the on-target level of Group performance, the proportion of base salary made up of performance-related pay accounts for approximately 35% of the total package reflecting the Board s commitment to linking pay to performance, and the alignment of Executive Directors interests with those of shareholders. The Committee, as defined by its terms of reference, is responsible for determining the remuneration packages of the Company s Executive Directors and monitoring the level and structure of remuneration for the first level of senior management below the Board. The Committee also sets the fee level of the Chairman of the Company (with the Chairman absent from such discussions). In addition, it has a broader remit that includes Executive Director performance, career development and training requirements together with stewardship of the Company s Long Term Incentive Plan. Base salary Base salaries are reviewed annually in November and the Committee take into account the performance of the individuals and any changes in their responsibilities, along with the expected general increase levels for other employees. The Committee takes advice from its independent remuneration consultants and also has regard to salaries for similar roles in comparable companies. Where appropriate, base salaries have been increased to reflect increased levels of responsibility and to ensure that they remain market competitive but the policy adopted by the Committee is that base salaries should not exceed the relevant market median. Performance linked bonus The Committee has during the year reviewed the bonus arrangements for Executive Directors and it has concluded that one year bonuses, based on the achievement of a combination of demanding Group, individual and, where applicable, divisional targets continue to be the most appropriate for the Group with longer term performance rewarded through the regular grant of long term incentives pursuant to the 2006 Long Term Incentive Plan. For the 2005/06 financial year, 70% of bonus was linked to financial performance and 30% linked to non-financial performance. The financial element of the bonuses for the Group Chief Executive and Group Finance Director depended primarily on earnings per share (EPS) and Group operating profit. The financial element of the bonuses for the other Executive Directors responsible for the divisions were linked both to EPS and to divisional operating profit, with an approximate 35% weighting to the former and 65% to the latter. A sliding scale applies to the element of bonus potential linked to financial performance for all Executive Directors. Hence, where 70% of bonus potential is linked to financial performance, a bonus of 28% of salary will be payable on achievement of budget performance, with between 7% and 28% of salary payable on achievement of 95% and 100% of budget. No bonus is payable below 95% of budget. The maximum bonus of 70% of salary is payable if budget targets are exceeded by 15%. The balance of bonus potential (30%) for the 2005/06 financial year was determined by a range of strategic objectives set by the Committee. In addition, Directors may, at the discretion of the Committee, be eligible for additional bonus payments following successful completion and integration of acquisitions but the maximum payable in relation to all bonus elements in any given financial year is capped at 100% of salary. Bonuses of 394,000 were awarded for the year under review. Bonus levels ranged between 30% and 55% of base salary and are set out in the table on page 34. The Committee has reviewed the operation of the annual bonus in the 2005/06 financial year and is proposing to make some minor changes for 2006/07. The annual bonus potential will remain unchanged at 100% of base salary, but the Committee has increased the proportionate amount of bonus dependent upon financial performance from 70% to 90% for the Group Chief Executive and Group Finance Director and from 70% to 80% for the remaining Executive Directors. Part of this financial element will now depend upon the Group budget to be presented and approved by the Board for the following financial year and a sliding scale continues to apply to the financial elements as described above. Bonuses are not pensionable.

35 33 Holidaybreak plc Annual Report and Financial Statements 2006 Pension contributions The Company operates contributory money purchase pension schemes for the benefit of its executives and UK based employees. In all cases, base salary only is pensionable. Executives are able to increase pension contributions through salary sacrifice and benefit from a portion of the savings in national insurance charges. Pension contributions on behalf of Executive Directors are 15% of base salary, before any salary sacrifice element. Service agreements The Company s policy is that Executive Director service agreements should have a maximum notice period of one year. The Committee regards the stipulated notice periods for its Executive Directors to be of mutual benefit. All current Executive Director contracts are on a rolling basis and subject to a twelve month notice period. In cases of early termination of contracts, subject to legal constraints, the level of compensation will be determined in accordance with three principles: dealing fairly with the individual according to the particular circumstances; taking full account of the departing executive s obligations to mitigate loss; and the value of compensation on termination should not exceed the value of one year s remuneration package. Details of the service agreements of those Executive Directors who retire by rotation at the 2006 AGM are given on page 30. The service agreements of Carl Michel, Mark Wray, Simon Tobin and Steve Whitfield are dated 3 September 2005, 26 July 1995, 1 January 2001 and 19 October 2006 respectively. Executive Directors are permitted to accept outside appointments on external boards or committees so long as these are not deemed to interfere with the business of the Group. In the year ended 30 September 2006, Nick Cust received 8,923 as a member of the England Marketing Advisory Board and Carl Michel received 2,000 as a non-executive director on the supervisory board of Austrian Airlines Group Long Term Incentive Plan The Long Term Incentive Plan (2006 LTIP) was approved by shareholders at the 2006 AGM. At the discretion of the Committee individuals may be granted an award of conditional free shares with a face value at grant of up to 100% of salary in any financial year. The award vests after three years, subject to the achievement of performance conditions and continued employment (Conditional Awards). In addition, again at the discretion of the Remuneration Committee, the 2006 LTIP have the flexibility to allow additional awards (Matching Awards) normally made pro-rata to the investment of annual bonus, which will be subject to a maximum annual limit of 50% of salary in any financial year. The aggregate value of Conditional and Matching Awards will normally be limited to 125% of base salary in any financial year. Matching Awards vest after three years subject to continued employment, the retention of deferred shares and the achievement of a performance condition. In 2006 Conditional Awards were made over shares worth between 15% and (for the most senior executives) 50% of salary. For 2007, following a review of remuneration during which the Committee reviewed the level of grant for long term incentives, the Committee considers it appropriate to increase the level of the awards to be made to Executive Directors to 80% of base salary. In recommending the level of the increase, the Committee is aware that the base salary levels (from which the grant will be referenced) are not excessive by market standards and the performance conditions attached to the awards are felt to be very stretching, the achievement of which will lead to a significant improvement in financial performance. For the initial Conditional Awards granted in June 2006 two separate performance conditions, each applying to a proportion of an award, were adopted: The performance condition attached to 70% of the awards required average annual EPS growth of between RPI plus 3% to RPI plus 8% per annum over a single three year period for between 30% and 100% of this part of the award to vest (i.e. between 21% and 70% of the total award). The performance condition attached to 30% of the awards was based on Total Shareholder Return (TSR) performance measured against the constituents of the FTSE 250 (excluding investment trusts) over a single three year period for between 30% for median performance increasing on a straight-line basis to 100% for upper quartile performance of this award to vest (ie between 9% (for median) and 30% (for upper quartile performance) of the total award). Awards will vest on a straight-line basis between minimum and maximum thresholds. On a change of control, deferred shares would vest on a pro-rata basis taking account of the vesting period that had expired and the EPS and TSR performance conditions. As noted above, the Committee considers it appropriate to increase the future level of the awards to be made to Executive Directors to 80% of base salary (from 50%). The additional award equivalent to 30% will be linked to a performance condition requiring improvement in average annual gross margin of between RPI plus 3% to RPI plus 8% per annum over a single three year period for between 30% and 100% of this part of the award to vest. The Committee considers that this additional element to the long term incentive will provide an appropriate focus on margin, which is a key financial metric for the business. The Committee considers that EPS, margin and TSR continue to be the most appropriate measures of performance for forthcoming awards to Executive Directors for the following reasons: The blend of EPS and margin targets will reward significant and sustained increases in value that would be expected to flow through into shareholder value. This will also deliver strong line of sight for the executive as it will be straightforward to evaluate and communicate. The TSR performance condition will provide a balance to the financial performance condition by rewarding relative stock market performance and ensure that a share price-based discipline in the package (in the absence of options) is retained. The lack of a suitable comparator group is the principal reason for the weighting in favour of the financial performance metrics, namely EPS and margin, although the Committee also considers that the emphasis of the incentive should, currently, be a significant improvement to the Company s profitability. The Committee will keep under review the appropriate mix between TSR margin and EPS. The Committee determines performance conditions prior to each Award, with performance measured over a single period of at least three years with no provision to re-test. Normally, the Committee will provide that participants will receive a payment (in cash and/or shares) on or shortly following the vesting of their Awards, of an amount equivalent to the dividends that would have been granted on the vested shares between the time when the Awards were granted and the time when they vest. Executive Directors are expected to retain no fewer than 50% of any shares delivered under the 2006 LTIP (net of taxes) until such time as a shareholding equivalent to base salary has been achieved.

36 34 Holidaybreak plc Annual Report and Financial Statements 2006 Directors Remuneration Report continued 2001 Savings related share option scheme The Company operates a HM Revenue & Customs approved scheme whereby UK employees are able to enter into a three or five year savings contract with a maximum monthly savings amount of 250 and a minimum of 5. On maturity of the savings contract, which is linked to an option to purchase Holidaybreak shares, the employee is able to exercise the options. There are no performance criteria relating to this scheme. All UK based permanent employees are offered the opportunity to participate in this scheme at least once each year with the option price, which is 20% below the prevailing market rate, set at the commencement of the savings contract. Currently, 254 employees holding a total of 285,286 options are participating in this Scheme. Non-executive Directors remuneration For Non-executive Directors other than the Chairman, fees which had been fixed for three years until 30 September 2006 have been reviewed and have now been fixed for twelve months. An additional fixed fee is also paid for the Chairmanship of the Audit or Remuneration Committee. Proposals are made to the Board at the end of the fixed period following consultation between the Group Chief Executive and Chairman which reflects time, commitment and responsibilities of the roles. During the year, the Chairman s service agreement dated 26 September 2002 was renewed for an additional three year period to expire on 1 June 2009 and his fee has been fixed for the remainder of his tenure with effect from 30 September 2006, subject to an annual review in line with the change in RPI. The service agreements for the other Non-executive Directors, James Greenbury, Sally Martin and James Wallace (dated 16 December 2004, 14 July 2004 and 17 May 2005 respectively), are also for fixed terms, expiring on 31 December 2007, 16 July 2007 and 30 April 2008 respectively. There is a three month notice period stipulated in the case of a Non-executive Director s resignation and there are no provisions for compensation for loss of office for any Non-executive Director. Performance graphs The graphs below show the Total Shareholder Return attributable to Holidaybreak plc shares over the past five financial years compared with what the Committee believes to be the most appropriate benchmarks, the FTSE Travel & Leisure index and the FTSE 250 index (excluding investment trusts) Holidaybreak FTSE Travel & Leisure This graph shows the value, by 30 September 2006, of 100 invested in Holidaybreak plc on 30 September 2001 compared with the value of 100 invested in the FTSE Travel & Leisure Index. The other points plotted are the values at the intervening financial year ends Holidaybreak FTSE 250 (excl.investmenttrusts) This graph shows the value, by 30 September 2006, of 100 invested in Holidaybreak plc on 30 September 2001 compared with the value of 100 invested in the FTSE 250 Index (excluding investment trusts). The other points plotted are the values at the intervening financial year ends.

37 35 Holidaybreak plc Annual Report and Financial Statements 2006 Audited information 2006 remuneration Remuneration in respect for the year to 30 September 2006 was as follows: Performance Gain on Performance related bonus Compensation exercise Salaries/ Taxable related bonus (pension for loss of of share Pension Total Total fees benefits (cash) contribution) office options contributions Executive: Richard Atkinson (resigned 16 September 2005) 824 Bob Baddeley Matthew Cheetham (resigned 10 March 2006) Nick Cust Carl Michel Simon Tobin Steve Whitfield Mark Wray Non-executive: Robert Ayling Clive McLintock (resigned 31 December 2004) 13 James Greenbury Sally Martin James Wallace Total emoluments 1, ,453 2,591 Total , ,591 There have been no changes in Directors since the year end. Pension contributions for seven Directors (2005: seven Directors) were paid to money purchase schemes. Nick Cust, Mark Wray and Steve Whitfield waived 54,167, 59,167 and 1,975 respectively by way of salary sacrifice (2005: 44,000, 49,000 and nil) and the Company has made additional contributions to the pension scheme in respect of those individuals including a proportion of the national insurance saving. During the year the highest paid Director received emoluments, excluding pension contributions, of 398,000 (2005: 722,000). Simon Tobin and Steve Whitfield have each been paid a bonus in relation to divisional performance against budget amounting to 8.5% and 23% of their salaries respectively. Carl Michel and Bob Baddeley both received 16.5% of their salary by way of bonus in respect of the Group profit before tax performance against budget. Carl Michel received a one-off bonus of 30,000 linked to specific non-financial performance targets which included a comprehensive strategy review and development of IT strategy. The balance of the bonus amounts for all Executive Directors relates to the earnings per share performance against budget and non-financial performance. The gain on exercise of share options is stated before transaction costs and taxes. Matthew Cheetham s employment terminated on, and he resigned as a Director on, 10 March He received compensation for loss of office in accordance with his contractual entitlements which included the equivalent of twelve months salary, benefits and pension, subject to mitigation. Additional phased payments up to a maximum of 90,000 may become payable during the year ended 30 September 2007, subject to Matthew Cheetham s obligation to mitigate his loss and subject to offset from earnings received from third parties. All his options over 65,410 shares have lapsed. Directors share options Summary of options granted and exercised during the year (all options had an option price below market value as at 30 September 2006) Weighted average option Options Granted Exercised Options price of held at during during held at options held at 30 Sept 05* the year the year 30 Sept Sept 06 Bob Baddeley 143,300 40, , p Nick Cust 145,668 33, , p Carl Michel 1,623 1, p Simon Tobin 136,271 38,292 97, p Steve Whitfield 52,809 52, p Mark Wray 144,450 15, , p * Steve Whitfield s options are stated as at 12 July 2006, the date of his appointment as a Director of the Company.

38 36 Holidaybreak plc Annual Report and Financial Statements 2006 Directors Remuneration Report continued Exercised during the year Options held at (market price on Options held at Exercisable 30 Sept 05* date of exercise) 30 Sept 06 From To Bob Baddeley 2001 Company Share Option Plan 5,194 5,194 1 Oct Dec Unapproved Scheme B Options 131,480 38,292 93,188 1 Oct Jun 2015 (673.0p) 1991 Sharesave Scheme 2,678 2,678 (713.5p) 2001 Sharesave Scheme 3,948 3,948 1 Oct Mar 2011 Total 143, ,330 Nick Cust 2001 Company Share Option Plan 6,615 6,615 1 Oct Jan Unapproved Scheme B Options 134,530 33, ,234 1 Oct Jun 2015 (690.0p) 2001 Sharesave Scheme 4,523 4,523 1 Oct Feb 2008 Total 145, ,372 Carl Michel 2001 Sharesave Scheme** 1,623 1 Sept Mar 2010 Total 1,623 Simon Tobin 2001 Company Share Option Plan 6,615 6,615 1 Oct Jan Unapproved Scheme B Options 129,656 38,292 91,364 1 Oct Jun 2015 (675.0p) Total 136,271 97,979 Steve Whitfield 2001 Company Share Option Plan 5,462 5,462 1 Oct Jan Unapproved Scheme B Options 44,979 44,979 1 Oct Jan Sharesave Scheme 2,368 2,368 1 Sept Mar 2010 Total 52,809 52,809 Mark Wray 2001 Company Share Option Plan 5,194 5,194 1 Oct Dec Unapproved Scheme B Options 135,951 15, ,831 1 Oct Jun 2015 (690.0p) 2001 Sharesave Scheme 3,305 3,305 1 Sept Mar 2011 Total 144, ,330 * Steve Whitfield s options are stated as at 12 July 2006, the date of his appointment as a Director of the Company. ** Options over 1,623 shares were granted to Carl Michel under the 2001 Sharesave Scheme at 576p each. (i) The performance condition for unapproved share options granted in December 2000 was satisfied. (ii) No further grants will be made under the 1996 Unapproved Share Option Scheme but there are outstanding options granted in previous years. Such B options will normally be exercisable between the fifth and tenth anniversary of the date of grant, subject to a performance condition. All outstanding B options and options granted under the 2001 Company Share Option Plan which are listed above may be exercised provided growth in EPS over a fixed five-year period beginning from the commencement of the financial year in which the grant took place is at least 15% above growth in RPI over that period. (iii) The Company s Register of Directors Interests, which is open to inspection, contains full details of the Directors shareholdings and options. (iv) Aggregate gains made by the Directors on the exercise of options in the year were 481,000 (2005: 622,000). (v) The market price on 29 September 2006 was p per share and the range during the year was p to p per share. Directors interests in the 2006 Long Term Incentive Plan Conditional shares Awards granted Market price Conditional shares at 30 Sept 05* during the year at award at 30 Sept 06 Vesting date Bob Baddeley 12, p 12,614 June 2009 Nick Cust 13, p 13,761 June 2009 Carl Michel 26, p 26,376 June 2009 Simon Tobin 12, p 12,614 June 2009 Steve Whitfield 11, p 11,467 June 2009 Mark Wray 13, p 13,761 June 2009 * Steve Whitfield s interests are stated as at 12 July 2006, the date of his appointment as a Director of the Company. None of the awards have lapsed or vested during the period. Performance criteria are set out on page 33. On behalf of the Board Sally Martin Chair of Remuneration Committee 30 November 2006

39 37 Holidaybreak plc Annual Report and Financial Statements 2006 Independent Auditors Report We have audited the Group and parent company financial statements (the financial statements ) of Holidaybreak plc for the year ended 30 September 2006 which comprise the consolidated income statement, the consolidated and parent company statements of recognised income and expense, the consolidated and parent company balance sheets, the consolidated and parent company cash flow statements and the related notes 1 to 31. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors Remuneration Report that is described as having been audited. This report is made solely to the Company s members, as a body, in accordance with section 235 of the Companies Act 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 auditors 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. Respective responsibilities of Directors and auditors The Directors responsibilities for preparing the annual report, the Directors Remuneration Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union are set out in the Statement of Directors Responsibilities. Our responsibility is to audit the financial statements and the part of the Directors Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors Report is consistent with the financial statements. The information given in the Directors Report includes that specific information presented in the Chief Executive s Business Review and in the Finance Director s Review that is cross referred from the Business Review section of the Directors Report. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors remuneration and other transactions is not disclosed. We review whether the Corporate Governance Statement reflects the Company s compliance with the nine provisions of the 2003 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report as described in the contents section and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any further information outside the annual report. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group s and Company s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors Remuneration Report to be audited. Opinion In our opinion: the Group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state of the Group s affairs as at 30 September 2006 and of its profit for the year then ended; the parent company financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company s affairs as at 30 September 2006; the financial statements and the part of the Directors Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation; and the information given in the Directors Report is consistent with the financial statements. SeparateopinioninrelationtoIFRS As explained in the Basis of accounting within the Statement of Accounting Policies, the Group in addition to complying with its legal obligation to comply with IFRS as adopted by the European Union, has also complied with the IFRS as issued by the International Accounting Standards Board. In our opinion the Group financial statements give a true and fair view, in accordance with IFRS, of the state of the Group s affairs as at 30 September 2006 and of its profit for the year then ended. Deloitte & Touche LLP Chartered Accountants and Registered Auditors Manchester 30 November 2006

40 38 Holidaybreak plc Annual Report and Financial Statements 2006 Consolidated Income Statement Year ended 30 September Note m m Group revenue continuing operations Net operating costs (270.2) (278.6) Operating profit 2, Profit on disposal of property 0.6 Investment income Finance costs 6 (3.6) (5.6) Profit before tax Tax 7 (9.7) (7.6) Profit for the year from continuing operations Attributable to: Equity holders of the parent Earnings per share Basic p 27.6p Diluted p 27.4p Headline earnings per share Basic p 44.2p Diluted p 43.9p Statements of Recognised Income and Expense Year ended 30 September 2006 Group Company m m m m Exchange differences on translation of foreign operations 0.3 Net income recognised directly in equity 0.3 Profit for the year Total recognised income and expense for the year Attributable to: Equity holders of the parent

41 39 Holidaybreak plc Annual Report and Financial Statements 2006 Balance Sheets 30 September 2006 Group Company Note m m m m Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments Current assets Inventories Trade and other receivables Cash and cash equivalents Non-current assets classified as held for sale Total assets Current liabilities Trade and other payables 20 (77.4) (73.3) (110.1) (101.2) Current tax liabilities (4.8) (2.7) Obligations under finance leases 19 (5.0) (5.9) Bank overdrafts and loans 16 (45.9) (55.8) (63.0) (74.9) (133.1) (137.7) (173.1) (176.1) Net current liabilities (57.4) (65.4) (165.3) (165.9) Non-current liabilities Deferred tax liabilities 18 (5.7) (5.5) (0.6) (0.7) Obligations under finance leases 19 (6.6) (11.6) (12.3) (17.1) (0.6) (0.7) Total liabilities (145.4) (154.8) (173.7) (176.8) Net assets Equity Share capital Share premium account Own shares 23 (3.2) (3.9) Other reserves Retained earnings Total equity The financial statements were approved by the Board of Directors and authorised for issue on 30 November They were signed on its behalf by: Carl Michel Director

42 40 Holidaybreak plc Annual Report and Financial Statements 2006 Cash Flow Statements Year ended 30 September 2006 Group Company Note m m m m Reconciliation of operating profit (loss) to cash generated from operating activities Cash flow from operating activities Operating profit (loss) (3.4) (2.4) Adjustments for: Amortisation of other intangible assets Depreciation of property, plant and equipment Impairment of goodwill 9.3 Share-based payment charge (Increase) decrease in receivables (0.4) (2.4) Increase in payables Cash inflow from operating activities Tax paid (7.6) (7.0) Net cash from operating activities Investing activities Acquisitions of subsidiaries net of cash acquired 24 (4.0) (39.0) (6.8) (39.6) Dividends received from subsidiaries Purchase of intangible assets (0.3) Purchases of property, plant and equipment (10.2) (8.6) Proceeds on disposal of property, plant and equipment Netcashusedininvestingactivities (8.9) (41.4) (3.3) (36.9) Financing activities Finance costs paid (2.9) (5.8) (1.5) (4.0) Interest received Proceeds on issue of ordinary shares Proceeds on sale of own shares Purchase of own shares to be held in trust (0.7) New bank loans raised Repayment of borrowings (6.3) (12.5) (8.6) Payments under finance leases (5.9) (7.2) Dividends paid (13.1) (11.8) (13.1) (11.8) Net cash from financing activities (25.1) 11.2 (22.2) (9.9) Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year (2.7) Cash and cash equivalents at end of year (0.7) (2.7)

43 41 Holidaybreak plc Annual Report and Financial Statements 2006 Statement of Accounting Policies Basis of accounting The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the EU. Holidaybreak plc s consolidated financial statements were prepared in accordance with United Kingdom Generally Accepted Accounting Principles (UK GAAP) until 1 October UK GAAP differs in some areas from IFRS. In preparing this financial information, management has amended certain accounting and valuation methods applied in the UK GAAP financial statements to comply with the recognition and measurement criteria of IFRS. The comparative figures in respect of 2005 were restated to reflect these adjustments. The Group has adopted Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee of the IASB. Individual standards and interpretations have to be adopted by the European Commission (EC) and the process leads to a delay between the issue and adoption of new standards and in some cases amendment by the EC. IFRS are subject to ongoing amendment by the IASB and subsequent endorsement by the EC and are therefore subject to change. In addition to complying with its legal obligation to comply with IFRS as adopted for use in the European Union, the Group has also complied with IFRS as issued by the IASB. The financial statements have been prepared on the historic cost convention, with the exception of accounting for share-based payments. The principal accounting policies adopted are set out below. Adoption of new and revised IFRS In these first financial statements, the Group has adopted all of the new and revised Standards and Interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 October At the date of authorisation of these financial statements, the following standards and interpretations were in issue but not yet effective: IFRS 6: IFRS 7: Exploration for and Evaluation of Mineral Resources Financial instruments: Disclosures; and the related amendment to IAS 1 on capital disclosures IFRIC 6: Liabilities arising from Participating in a specific market Waste Electrical and Electronic Equipment IFRIC 7: Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies IFRIC 8: Scope of IFRS 2 IFRIC 9: Reassessment of Embedded Derivatives IFRIC 10: Interim Financial Reporting and Impairment IFRIC 11: IFRS 2: Group and Treasury Share Transactions The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. Adoption of IFRS This is the first set of consolidated financial statements prepared in accordance with IFRS adopted for use in the European Union. The Group has adopted IFRS from 1 October 2004 ( the date of transition ). This requires the Group to set out its accounting policies as at 30 September 2006 and in general apply them retrospectively in determining the IFRS opening balance sheet at the date of transition. In accordance with IFRS 1 ( First time adoption of International Financial Reporting Standards ) the Group is entitled to a variety of voluntary and mandatory exemptions from full restatement, the most significant of which are as follows: IFRS 2 Share-based payments IFRS 2 has been applied to all options granted after 7 November 2002 and which have not fully vested as at 1 January IFRS 3 Business combinations The Group has opted to apply IFRS 3 prospectively from 1 October Accordingly acquisitions prior to this date have not been restated for the effects of IFRS 3. In addition, goodwill previously written off to reserves under UK GAAP will be deemed to be zero and therefore will not be used in the calculation of any gain or loss on disposal of the acquired entity. IAS 32 Financial instruments: Disclosure and presentation and IAS 39 Financial instruments: Recognition and measurement The Group will not present comparative information that complies with IAS 32 and IAS 39. This will be presented under UK GAAP. IAS 16 Property, plant and equipment The Group has taken advantage of the IFRS 1 exemption to elect to measure the value of property, plant and equipment at 1 October 2004, at historic cost. Reconciliations and a description of the effect of transition from UK GAAP to IFRS on the Group s equity and net income are provided in note 31. Other than presentational differences, there are no changes in the Group s cash flows. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 30 September each year. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. No income statement has been presented by Holidaybreak plc as permitted by Section 230 of the Companies Act The Company s profit after tax for the year was 20.7m (2005: 12.8m). Business combinations The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquired entity, plus any costs directly attributable to the business combination.

44 42 Holidaybreak plc Annual Report and Financial Statements 2006 Statement of Accounting Policies continued The acquired entity s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. Any excess of the fair value of the cost of acquisition over the fair value of the net assets acquired is recognised as goodwill. Where the fair value of the cost of acquisition is less than the fair value of the net assets acquired, the deficiency is credited to the income statement in the period of acquisition. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of the Group s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amount subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Revenue recognition Revenue represents the aggregated amount of gross revenue receivable, excluding VAT and similar taxes, from the sale of holidays, tours and other travel services supplied to customers in the ordinary course of business. Revenue and expenses relating directly to holidays are taken to the income statement on holiday departure. Revenue arising from the sale of insurance policies provided by third parties is taken to the income statement on holiday departure. Expenses relating to marketing and promotional activities are taken to the income statement as incurred. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are capitalised at the lease s inception at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income over the lease period. The assets acquired are depreciated over the shorter of the asset s useful life and the lease term. Rentals payable under operating leases (net of any incentives received from the lessor) are charged to income on a straight-line basis over the period of the lease. Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. On consolidation, the assets and liabilities of the Group s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the Group s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Retirement benefit costs The Group provides pensions to Directors and senior employees through defined contribution pension schemes. The assets of the schemes are held independently of the Group by insurance companies. Contributions are charged to the income statement of the accounting year to which the contributions relate. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted by the balance sheet date.

45 43 Holidaybreak plc Annual Report and Financial Statements 2006 Other intangible assets Other intangible assets are shown at cost/valuation, net of amortisation and any provision for impairment. Amortisation is charged so as to write off the cost/valuation over their estimated useful lives using the straight-line method as follows: Order backlog Software Customer lists Brand Period to departure 3 5 years 5 years years Assets that meet the definition of an intangible asset (i.e. assets that are identifiable non-monetary assets without physical substance ) are identified, recognised separately from goodwill and amortised over the period to which benefits from such assets relate. Property, plant and equipment Property, plant and equipment is shown at cost, net of depreciation and any provision for impairment. Depreciation is charged so as to write off the cost of assets, less estimated residual value, over their estimated useful lives using the straight-line method as follows: Freehold land and buildings 50 years Short leasehold improvements Term of lease Camping equipment 2 5 years Mobile-homes 7 10 years Office equipment and motor vehicles 3 5 years No depreciation is charged on camping equipment and mobile-homes in the first half of the financial year, a full year s depreciation being charged in the second half of the year. Non-current assets classified as held for sale Non-current assets held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Impairment of tangible and intangible assets excluding goodwill Assets that are subject to amortisation are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement based on the amount by which the carrying amount exceeds the recovering amount. The recoverable amount is the higher of fair value less costs to sell and value in use. Inventories Inventories are stated at the lower of cost and net realisable value. Financial instruments Financial assets and financial liabilities are recognised on the Group s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Trade receivables Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in the income statement using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables Trade payables are not interest-bearing and are stated at their nominal value. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Derivative financial instruments and hedge accounting The Group s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The Group uses foreign exchange forward contracts and foreign currency debt to hedge these exposures. Foreign currency debt is used to hedge its exposure to changes in the underlying net assets of overseas operations arising from exchange rate movements. The Group does not use derivative financial instruments for speculative purposes. Derivatives are initially recorded at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The Group s foreign exchange forward contracts do not qualify for hedge accounting. These derivatives are classified as at fair value through profit or loss, and any changes in their fair value are recognised immediately in the income statement. Certain amounts of the Group s foreign currency debt qualifies for hedge accounting. Gains and losses arising from the retranslation of foreign currency debt that is designated and effective as a hedge of the Group s investment in overseas operations are recognised directly in equity and the ineffective portion is recognised immediately in the income statement. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. The Group uses a variety of methods to calculate the fair value of financial instruments at the balance sheet date. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance sheet date. Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January The Group issues equity settled share-based payments to certain employees as part of their total remuneration. The fair value of the share options and share awards are calculated at the date of grant using the Black-Scholes option pricing model. These fair values are charged to the income statement on a straight-line basis over the expected vesting period of the options or awards, with a corresponding increase in equity reserves, based on the Group s best estimate of shares that will actually vest.

46 44 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements 1 Revenue m m Revenue continuing operations Investment income Business and geographical segments Business segments For management purposes, the Group is currently organised into three operating divisions Hotel Breaks, Adventure Travel and Camping. These divisions are the basis on which the Group reports its primary segment information. Segment information about these businesses is presented below. Adventure Hotel Breaks Travel Camping Consolidated 2006 m m m m Revenue Total revenue Result Operating profit Investment income 1.4 Finance costs (3.6) Profit before tax 32.1 Tax (9.7) Profit after tax 22.4 Other information Capital additions Depreciation and amortisation Non-current assets held for sale * Balance sheet Assets Segment assets Unallocated corporate assets 49.6 Consolidated total assets Liabilities Segment liabilities (30.3) (20.7) (3.4) (54.4) Unallocated corporate liabilities (91.0) Consolidated total liabilities (145.4) * Non-current assets held for sale are mobile-homes held within the Camping Division.

47 45 Holidaybreak plc Annual Report and Financial Statements Business and geographical segments continued Adventure Hotel Breaks Travel Camping Consolidated 2005 m m m m Revenue Total revenue Result Segment result prior to impairment of goodwill Impairment losses recognised in income (9.3) (9.3) Operating profit Profit on disposal of property 0.6 Investment income 1.2 Finance costs (5.6) Profit before tax 20.6 Tax (7.6) Profit after tax 13.0 Other information Capital additions Depreciation and amortisation Non-current assets held for sale * Balance sheet Assets Segment assets Unallocated corporate assets 43.8 Consolidated total assets Liabilities Segment liabilities (27.5) (25.5) (24.5) (77.5) Unallocated corporate liabilities (77.3) Consolidated total liabilities (154.8) * Non-current assets held for sale are mobile-homes held within the Camping Division. Geographical segments The following table provides an analysis of the Group s revenue by geographical market: m m United Kingdom Netherlands and Belgium Germany, Austria and Switzerland Ireland Other

48 46 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 2 Business and geographical segments continued The following is an analysis of the carrying amount of segment assets and additions to property, plant and equipment and intangible assets, analysed by the geographical area in which the assets are located: Carrying Additions to property, amount of plant and equipment segment assets and other intangible assets m m m m United Kingdom France Netherlands and Belgium Germany, Austria and Switzerland Italy Spain Ireland Other Profit after tax Profit after tax has been arrived at after charging (crediting): Net foreign exchange gains m m (0.1) (0.3) Depreciation of property, plant and equipment Amortisation of acquired intangible assets Impairment of goodwill 9.3 Loss (profit) on sale of property, plant and equipment 0.2 (0.6) Staff costs (see note 4) Auditors remuneration for audit services (see below) Auditors remuneration for non-audit services (see below) A more detailed analysis of auditors remuneration on a worldwide basis is provided below m % m % Audit services: statutory audit Further assurance services due diligence* Tax services: compliance services advisory services * The costs incurred for due diligence services have been capitalised within cost of investment. A description of the work of the Audit Committee is set out in the Audit Committee report on pages 28 and 29 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors. 4 Staff costs The average monthly number of employees (including Executive Directors) was: Number Number Management and administration Couriers ,635 1,722 Their aggregate remuneration comprised: m m Wages and salaries Social security costs Other pension costs (see note 28)

49 47 Holidaybreak plc Annual Report and Financial Statements Investment income m m Interest on bank deposits Finance costs m m Interest on bank overdrafts and loans Refinancing costs for acquisitions 0.5 Interest on obligations under finance leases Fair value of forward exchange contracts Tax m m UK Corporation tax charge for the year adjustment in respect of prior years (0.5) Foreign taxation charge for the year adjustment in respect of prior years (0.1) 0.3 Deferred tax (note 18) 0.2 Tax expense for the year UK Corporation tax is calculated at 30% (2005: 30%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per the income statement as follows: m m Profit before tax Tax at the UK corporation tax rate of 30% (2005: 30%) Tax effect of expenses that are not deductible in determining taxable profit Effect of different tax rates of subsidiaries operating in other jurisdictions 0.2 Adjustments in respect of prior years (0.6) 0.3 Release of deferred tax provision (0.3) (0.5) Overseas dividends eliminated on consolidation Tax expense for the year Dividends m m Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 30 September 2005 of 19.35p (2004: 17.6p) per share Interim dividend for the year ended 30 September 2006 of 8.0p (2005: 7.25p) per share Proposed final dividend for the year ended 30 September 2006 of 21.2p (2005: 19.35p) per share The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

50 48 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 9 Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: m m Earnings Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent Number Number Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 47,769,249 47,186,130 Effect of dilutive potential ordinary shares: Share options 208, ,197 Weighted average number of ordinary shares for the purposes of diluted earnings per share 47,977,739 47,487, Pence Pence Earnings per share Basic Diluted m m Headline earnings Net profit attributable to equity holders of the parent Add back: Impairment of goodwill 9.3 Tax effect of the above (1.5) Headline earnings Pence Pence Headline earnings per share Basic Diluted The Directors consider that headline earnings per share provides a better understanding of the Group s earnings following the impairment of goodwill in Goodwill Group m Cost At 1 October Recognised on acquisition of a subsidiary 29.0 At 1 October Exchange differences (0.4) Recognised on acquisition of a subsidiary (see note 24) 5.9 At 30 September Accumulated impairment losses At 1 October 2004 Impairment losses for the year 9.3 At 1 October 2005 and 30 September Carrying amount At 30 September At 30 September

51 49 Holidaybreak plc Annual Report and Financial Statements Goodwill continued Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that business combination. The carrying value of goodwill has been allocated as follows: m m Hotel Breaks Adventure Travel The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next five years and extrapolates cash flows for the following five years based on an estimated growth rate of the various businesses of 5 15%. This rate does not exceed the average long term growth rate for the relevant markets. The rate used to discount the forecast cash flows from all business units is 8%. 11 Other intangible assets Order Customer backlog Software lists Brands Total Group m m m m m Cost At 1 October Additions Acquired on acquisition of subsidiaries At 1 October Acquired on acquisition of subsidiaries Additions Disposals (0.1) (0.1) At 30 September Accumulated amortisation At 1 October Charge for the year At 1 October Charge for the year Disposals (0.1) (0.1) At 30 September Carrying amount At 30 September At 30 September

52 50 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 12 Property, plant and equipment Office Freehold Short equipment land and leasehold Camping Mobile- and motor buildings improvements equipment homes vehicles Total Group m m m m m m Cost At 1 October Additions Reclassified as held for sale (9.8) (9.8) Disposals (2.6) (0.7) (6.7) (1.2) (1.9) (13.1) At 1 October Additions Acquisition of subsidiaries Reclassified as held for sale (6.8) (6.8) Disposals (3.8) (0.9) (0.8) (5.5) At 30 September Accumulated depreciation At 1 October Charge for the year Reclassified as held for sale (6.6) (6.6) Disposals (0.4) (0.5) (6.8) (0.5) (1.6) (9.8) At 1 October Charge for the year Reclassified as held for sale (4.4) (4.4) Disposals (3.8) (0.8) (4.6) At 30 September Carrying amount At 30 September At 30 September The carrying amount of the Group s mobile-homes includes an amount of 20.1m (2005: 23.1m) in respect of assets held under finance leases. 13 Fixed asset investments Shares in Loans to subsidiary subsidiary undertakings undertakings Total Company m m m Cost and carrying amount At 1 October Acquisition of subsidiary undertakings Transfer of investments to subsidiary undertakings (23.2) (23.2) At 1 October Acquisition of subsidiary undertakings (note 24) Additional investment in subsidiary undertaking Exchange differences (0.2) (0.2) At 30 September

53 51 Holidaybreak plc Annual Report and Financial Statements Fixed asset investments continued The principal subsidiary undertakings of Holidaybreak plc are as follows: Proportion of share capital Proportion of held by Country of share capital subsidiaries of incorporation held by the the Company and operation Company (%) (%) Hotel Breaks operators: Superbreak Mini-Holidays Limited England 100 Business Reservations Centre Holland BV Netherlands 100 Bookit BV Netherlands 100 BV Weekendjeweg.nl Netherlands 100 Camping operators: Greenbank Holidays Limited England 100 Eurocamp Travel GmbH Germany 100 Eurocamp Travel (Schweiz) AG Switzerland 100 Camping in Comfort BV Netherlands 100 Greenbank Packages Limited England 100 Easycamp BV Netherlands 100 Adventure Travel operators: Explore Worldwide Limited England 100 Explore Aviation Limited England 100 Regal Diving & Tours Limited England 100 Djoser BV Netherlands 100 carpe diem Sprachreisen GmbH Germany 100 TravelWorks GmbH Germany Holding and other companies: Business Reservations Centre Holland Holding BV Netherlands 100 Keycamp Holidays Netherlands BV Netherlands 100 Keycamp Holidays (Ireland) Limited Ireland 100 Eurosites A/S Denmark 100 Superbreak Mini Holidays Group Limited England 100 Eurocamp Travel BV Netherlands 100 Camping Division Limited England 100 Holidaybreak Trustee Limited England 100 Holidaybreak Holding Company Limited Isle of Man 100 Holidaybreak Insurance Company Limited Isle of Man 100 Sites Services SARL France 100 Greenbank Services Limited England Inventories Group m m Consumables Other financial assets Trade and other receivables Group Company m m m m Trade receivables Amounts owed by subsidiary undertakings Other receivables and prepayments The average credit period taken on sales of goods is 10 days (2005: 8 days). An allowance has been made for estimated irrecoverable amounts from the sale of goods and services of 0.4m (2005: 0.3m). This allowance has been determined by reference to past default experience. The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

54 52 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 15 Other financial assets continued Credit risk The Group s principal financial assets are bank balances and cash, trade and other receivables. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Bank balances and cash Bank balances and cash comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. A breakdown of significant bank and cash balances by currency is as follows: Group Company m m m m Sterling Euros US dollars Bank overdrafts and loans Group Company m m m m Bank overdrafts Bank loans The borrowings are repayable as follows: On demand or within one year Less: Amount due for settlement within 12 months (shown under current liabilities) (45.9) (55.8) (63.0) (74.9) Amount due for settlement after 12 months Sterling Euros Total Group m m m Analysis of borrowings by currency: At 30 September 2006 Bank overdrafts Bank loans At 30 September 2005 Bank overdrafts Bank loans Sterling Euros Total Company m m m Analysis of borrowings by currency: At 30 September 2006 Bank overdrafts Bank loans At 30 September 2005 Bank overdrafts Bank loans

55 53 Holidaybreak plc Annual Report and Financial Statements Bank overdrafts and loans continued % % The weighted average interest rates paid were as follows: Bank overdrafts Bank loans Borrowings are arranged at floating rates, thus exposing the Group to cash flow interest rate risk. The Directors estimate the fair value of the Group s borrowings as follows: Group Company m m m m Bank overdrafts Bank loans The other principal features of the Group s borrowings are as follows: Bank overdrafts are repayable on demand. The bank loans and overdrafts are secured by a fixed and floating charge over the Group s assets. The average effective interest rate on bank overdrafts approximates 5.54% (2005: 5.71%) per annum and is based on the relevant national inter-bank rate. At 30 September 2006, the Group had available 75.7m (2005: 65.3m) of undrawn committed borrowing facilities. 17 Derivative financial instruments Currency derivatives The Group utilises currency derivatives to hedge significant future transactions and cash flows. The Group is a party to a variety of foreign currency forward contracts in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the currencies of the Group s principal markets. At the balance sheet date, total notional amount of outstanding forward foreign exchange contracts that the Group has committed are as below m m Forward foreign currency contracts Changes in the fair value of non-hedging currency derivatives amounting to 0.2m have been charged to income in the year. At the balance sheet date 45.5m (2005: 22.8m) of foreign currency denominated debt was designated as a hedging instrument for the purpose of hedging the translation of its investments in foreign operations. Interest rate swaps At the balance sheet date the Group had no interest rate derivative contracts. 18 Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and the Company and movements thereon during the current and prior year. Accelerated Short-term tax timing Share-based depreciation differences payments Other Total Group m m m m m At 1 October (0.6) Charge (credit) to income 0.1 (0.1) (0.1) 0.1 Credit to equity (0.1) (0.1) At 30 September (0.7) (0.2) Charge to income At 30 September (0.5) (0.2) Other Total Company m m At 1 October 2004 and 30 September (Credit) to income (0.1) (0.1) At 30 September

56 54 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 18 Deferred tax continued Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: Group Company m m m m Deferred tax liabilities Deferred tax assets (0.7) (0.9) At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised was 90.3m (2005: 74.3m). No liability has been recognised in respect of these differences because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. 19 Obligations under finance leases Minimum lease Present value of payments lease payments Group m m m m Amounts payable under finance leases: Within one year In the second to fifth years inclusive Less: future finance charges (0.9) (1.7) Present value of lease obligations Analysed as: Amount due for settlement after 12 months Amount due for settlement within 12 months (shown as current liabilities) It is the Group s policy to lease certain of mobile-homes under finance leases. The average lease term is six years. For the year ended 30 September 2006, the average effective borrowing rate was 5.38% (2005: 5.55%). Interest is charged between bank base rate plus 0.78% and bank base rate plus 0.9%. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. All lease obligations are denominated in sterling. The fair value of the Group s lease obligations approximates their carrying amount. The Group s obligations under finance leases are secured by the lessors rights over the leased assets. 20 Other financial liabilities Trade and other payables Group Company m m m m Trade payables Other taxes and social security Other payables Amounts owed to subsidiary undertakings Accruals and deferred income Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 61 days (2005: 59 days). The Directors consider that the carrying amount of trade payables approximates to their fair value. In addition, accruals and deferred income include currency derivative liabilities with a fair value of 0.2m (see note 17).

57 55 Holidaybreak plc Annual Report and Financial Statements Share capital Ordinary shares of 5p each Number Nominal value Group and Company m Authorised: At beginning of year and end of year 90,000, Allotted, called up and fully paid At 1 October ,617, Allotments in the year 702,013 At 1 October ,319, Allotments in the year 282,210 At 30 September ,601, The Company has one class of ordinary shares which carry no right to fixed income. Shareholders authority for the purchase of up to 4,837,200 of the Company s ordinary shares of 5p each was still valid at the end of the year. During the year 282,210 (2005: 702,013) ordinary 5p shares were issued, with a nominal value of 14,111 (2005: 35,101) in respect of options exercised under the Company s share option schemes. 22 Reserves Share premium Other Retained account reserves earnings Group m m m At 1 October Profit for the year 13.0 Items taken directly to equity 0.3 Dividends paid (11.8) New share issue subscribed 2.5 Credit to equity for share-based payments 0.3 At 1 October Profit for the year 22.4 Dividends paid (13.1) New share issue subscribed 1.0 Credit to equity for share-based payments 0.1 At 30 September Share premium Other Retained account reserves earnings Company m m m At 1 October Profit for the financial year 12.8 Dividends paid (11.8) New share issue subscribed 2.5 Credit to equity for share-based payments 0.1 At 30 September Profit for the financial year 20.7 Dividends paid (13.1) New share issue subscribed 1.0 Credit to equity for share-based payments 0.2 At 30 September

58 56 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 22 Reserves continued Other reserves Following the approval of shareholders at an extraordinary general meeting on 24 July 1995 and the subsequent confirmation by an order of the High Court granted 25 October 1995, an amount of 40.8m was cancelled from share premium and transferred to a non-distributable reserve. In addition other reserves includes credits to equity for share-based payments. 23 Own shares Group m Costandnetbookvalue At 1 October Acquired in the year 0.7 Disposed of on exercise of options (0.6) At 1 October Disposed of on exercise of options (0.7) At 30 September Own shares represent the cost of shares in Holidaybreak plc purchased in the market and held by the Holidaybreak plc Employee Benefit Trust to satisfy options under the Group s share options schemes and Long Term Incentive Plan. 24 Acquisition of subsidiaries On 29 September 2006, the Group acquired 100% of the issued share capital of carpe diem Sprachreisen GmbH and TravelWorks GmbH for cash consideration of 8.1m. carpe diem Sprachreisen GmbH is involved in the provision of English and other language holidays, and TravelWorks GmbH provides working holidays and gap-year breaks. Provisional Book and fair value provisional Book value adjustments fair value m m m Net assets acquired Property, plant and equipment Other intangible assets Trade and other receivables Cash and cash equivalents Trade and other payables (3.2) (3.2) Goodwill 5.9 Total consideration 8.2 Satisfied by: Cash consideration 6.8 Deferred consideration accrued Directly attributable costs accrued Net cash outflow arising on acquisition Cash consideration (6.8) Cash and cash equivalents acquired 2.8 (4.0) The fair values shown above are considered to be provisional by the Directors as they are finalising their determination. No profit has been recognised in the income statement for the year ended 30 September 2006 in respect of these acquisitions. The two businesses had a combined turnover of 9.3m in the year ended 31 October 2005, and a profit attributable to equity holders of 0.6m. It has not been practicable to obtain the results for the period from 1 November 2005 to 30 September 2006.

59 57 Holidaybreak plc Annual Report and Financial Statements Analysis of cash and cash equivalents and reconciliation to net debt 1 October Cash Foreign Non-cash 30 September 2005 flow exchange movements 2006 Group m m m m m Cash at bank and in hand Overdrafts (4.3) 3.2 (1.1) Cash and cash equivalents Debt due within one year (51.5) (44.8) Finance leases less than one year (5.9) 5.9 (5.0) (5.0) Finance leases more than one year (11.6) 5.0 (6.6) (22.9) (3.1) 26 Operating lease arrangements The Group as lessee m m Minimum lease payments under operating leases recognised in income for the year At the balance sheet date the Group has outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: m m Within one year In the second to fifth years inclusive After five years Share-based payments equity-settled schemes Share option and award schemes The Company operates three principal forms of share option scheme. They are an Employee Sharesave Scheme, an Unapproved Executive Share Option Scheme and two HMRC Approved Executive Share Option Plans. Options are exercisable under the Sharesave scheme on completion of a three or five year SAYE contract. The exercise price of options represents 80% of the quoted middle market price of the Company s shares on the date preceding the date of grant. The Executive Schemes apply to senior executives, including Executive Directors. Options are exercisable under the Executive Schemes at a price equal to the quoted middle market price of the Company s shares on the date preceding the date of grant. The options are generally exercisable from the third or fifth anniversary up until the tenth anniversary of the date of grant if the relevant performance target is achieved. Options are subject to achievement of performance targets related to earnings per share growth. If the options remain unexercised after a period of ten years from the date of grant, the options expire. Usually, options are forfeited if the employee leaves the Group before the options vest. In March 2006, the Company s shareholders approved the Long Term Incentive Plan (LTIP). Awards were made in June 2006 to Executive Directors and senior executives and are conditional upon earnings per share growth and the Group s Total Shareholder Return over a three-year period. During the year a conditional award was made under the LTIP over 226,496 ordinary 5p shares. At 30 September 2006 the number of conditional awards of ordinary share equivalents outstanding under the LTIP was 222,289 of which nil were exercisable.

60 58 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 27 Share-based payments equity-settled schemes continued As at 30 September 2006, options outstanding under the Executive and Sharesave Option Schemes were as follows: Exercise Number of shares price range Dates of under option Scheme (pence) exercise Executive (Performance Related) Share Option Scheme ,654 30, Unapproved Share Option Scheme (A Options) , , Unapproved Share Option Scheme (B Options) ,081 1,344, Company Share Option Plan (A Options) , , Company Share Option Plan (B Options) ,289 93, Sharesave Scheme , Sharesave Scheme , ,142 Options granted, exercised and lapsed under the share option schemes during the year ended 30 September 2006 are shown below: Weighted Weighted average average Number exercise Number exercise of share price of share price options (pence) options (pence) Outstanding at beginning of year 2,332, ,802, Granted during the year 48, , Lapsed/expired during the year (309,556) (173,810) Exercised during the year (446,301) (914,314) Outstanding at the end of the year 1,625, ,332, Exercisable at the end of the year 193, , The weighted average share price at the date of exercise for share options exercised during the period was 351.1p. The options outstanding at 30 September 2006 had a weighted average exercise price of 520.5p, and a weighted average remaining contractual life of 4.91 years. The inputs into the Black-Scholes model are as follows: Weighted average share price pence Weighted average exercise price pence Expected volatility % Expected life years Risk-free rate % Expected dividend yield % Expected volatility was determined by calculating the historical volatility of the Group s share price over the previous three years. The expected life used in the model has been adjusted, based on management s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. The Group recognised total expenses of 0.2m (2005: 0.3m) related to equity-settled share-based payment transactions. 28 Retirement benefit schemes Defined contribution schemes The Group operates several defined contribution retirement benefit schemes for qualifying employees. The assets of the schemes are held separately from those of the Group in funds under the control of trustees. The total cost charged to income of 0.9m (2005: 1.0m) represents contributions payable to these schemes by the Group at rates specified in the rules of the schemes. As at 30 September 2006, contributions of nil (2005: nil) due in respect of the current reporting period had not been paid over to the schemes.

61 59 Holidaybreak plc Annual Report and Financial Statements Contingent liabilities The Group s bankers have provided guarantees of approximately 18.0m (2005: 17.8m) in respect of the Group s trading activities. 30 Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Key management compensation The remuneration of Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in pages 32 to m m Short-term employee benefits Post employment benefits Termination benefits The charge to income in the year in respect of share-based payments for key management personnel was 0.1m (2005: 0.1m). 31ExplanationoftransitiontoIFRS This is the first year that the Company has presented its financial statements under IFRS. The following disclosures are required in the year of transition. The last financial statements under UK GAAP were for the year ended 30 September 2005 and the date of transition to IFRS was therefore 1 October Differences between IFRS and UK GAAP Dividends IAS 10 Post Balance Sheet Events Under IAS 10 the declaration of a dividend is only recognised as a liability at the date it is approved. Additionally dividends no longer appear on the face of the income statement but are instead shown within the Statement of Changes in Shareholder Equity. Accordingly the 2005 proposed dividend under UK GAAP is removed from the 2005 IFRS accounts. IAS 38 Intangible Assets Under IAS 38 the policy on intangible assets is to capitalise all such assets where they meet the criteria specified within IAS 38. The standard requires that all expenditure on advertising and promotional activities should be written off as incurred. Under UK GAAP, the Group s policy has been to charge brochure, other marketing costs and other sales related costs to the profit and loss account in the season to which they relate. Under IAS 38, Intangible Assets, computer software that is not an integral part of the related hardware should be separated out from other computer software and classed as an intangible asset. This is a change from the approach under UK GAAP where all computer software is classed as a tangible fixed asset. In the income statement, amortisation is now charged on computer software under IFRS as opposed to depreciation under UK GAAP. This has no impact on profit before tax for the Group. IFRS 2 Share-based Payments IFRS 2 requires an expense to be recorded in the income statement for all forms of share-based payments. The expense is based on the fair value of the share award at the date the award is made. The expense is recorded over the period for which the employee provides services in respect of the share scheme. The fair value of the options has been calculated using the Black-Scholes option-pricing model. This only applies to options awarded after 7 November 2002 that had not vested at 1 January Goodwill IFRS 3 Business Combinations Under IFRS 3, goodwill is not amortised. Instead it is subject to an annual impairment review. An adjustment has been made to remove the goodwill amortisation charge under UK GAAP. IFRS 3 requires that consideration paid in excess of the value of assets acquired be held in the balance sheet. Whereby under UK GAAP, this balance was all deemed to be goodwill, intangible assets acquired that meet the definition of an intangible asset (i.e. assets that are identifiable non-monetary assets without physical substance ) must be identified, recognised separately from goodwill and amortised over the period to which benefits from such assets relate.

62 60 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 31ExplanationoftransitiontoIFRScontinued Reconciliation of equity at 1 October 2004 (date of transition to IFRS) UK GAAP IAS 10 IAS 38 IFRS 2 IFRS Group m m m m m Non-current assets Goodwill Other intangible assets Property, plant and equipment 70.6 (0.8) Current assets Inventories Trade and other receivables 20.8 (1.8) 19.0 Cash and cash equivalents (1.3) 50.9 Non-current assets classified as held for sale Total assets (1.3) Current liabilities Trade and other payables (74.1) 8.4 (0.3) (66.0) Tax liabilities (1.9) (1.9) Obligations under finance leases (7.2) (7.2) Bank overdrafts and loans (7.6) (7.6) (90.8) 8.4 (0.3) (82.7) Net current assets (38.6) 8.4 (1.6) (31.8) Non-current liabilities Bank loans (11.7) (11.7) Deferred tax liabilities (6.1) 0.4 (5.7) Obligations under finance leases (17.4) (17.4) (35.2) 0.4 (34.8) Total liabilities (126.0) (117.5) Net assets (1.2) 43.7 Equity Share capital Share premium account Own shares (3.8) (3.8) Other reserves Retained earnings (1.2) (0.2) 10.4 Total equity (1.2) 43.7 Reconciliation of profit for the year ended 30 September 2005 UK GAAP IAS 38* IFRS 2 IFRS 3 IFRS Group m m m m m Group revenue continuing operations Net operating costs (279.8) (1.9) (0.3) 3.4 (278.6) Operating profit 23.2 (1.9) (0.3) Profit on sale of property Investment income Finance costs (5.6) (5.6) Profit before tax 19.4 (1.9) (0.3) Tax (7.6) 0.1 (0.1) (7.6) Profit after tax 11.8 (1.9) (0.2) * IAS 38 adjustment increased by 0.5m since publication of the Group s IFRS restatement.

63 61 Holidaybreak plc Annual Report and Financial Statements ExplanationoftransitiontoIFRScontinued Reconciliation of equity at 30 September 2005 UK GAAP IAS 10 IAS 38* IFRS 2 IFRS 3 IFRS Group m m m m m m Non-current assets Goodwill 62.3 (9.7) Other intangible assets Property, plant and equipment 62.9 (1.2) (1.4) Current assets Inventories Trade and other receivables 23.7 (2.3) 21.4 Cash and cash equivalents (1.8) 72.3 Non-current assets classified as held for sale Total assets (3.2) Current liabilities Trade and other payables (82.1) 9.2 (0.4) (73.3) Tax liabilities (2.7) (2.7) Obligations under finance leases (5.9) (5.9) Bank overdrafts and loans (55.8) (55.8) (146.5) 9.2 (0.4) (137.7) Net current liabilities (72.4) 9.2 (2.2) (65.4) Non-current liabilities Deferred tax liabilities (6.1) (0.1) (5.5) Obligations under finance leases (11.6) (11.6) (17.7) (0.1) (17.1) Total liabilities (164.2) (0.1) (154.8) Net assets (3.1) Equity Share capital Share premium account Own shares (3.9) (3.9) Other reserves Retained earnings brought forward (1.2) (0.1) 10.7 current year (0.7) 0.8 (1.9) (0.2) Total equity (3.1) * IAS 38 adjustment increased by 0.5m since publication of the Group s IFRS restatement.

64 62 Holidaybreak plc Annual Report and Financial Statements 2006 Notes to the Financial Statements continued 31ExplanationoftransitiontoIFRScontinued Reconciliation of equity at 1 October 2004 (date of transition to IFRS) UK GAAP IAS 10 IFRS 2 Own shares IFRS Company m m m m m Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Totalassets Current liabilities Trade and other payables (146.3) (134.1) Bank overdrafts and loans (55.5) (55.5) (201.8) 8.4 (189.6) Net current liabilities (153.6) (141.4) Non-current liabilities Bank loans (11.7) (11.7) Deferred tax liabilities (0.7) (0.7) (12.4) (12.4) Total liabilities (214.2) 8.4 (202.0) Net assets Equity Share capital Share premium account Own shares (3.8) 3.8 Other reserves Retained earnings (0.2) 17.0 Total equity

65 63 Holidaybreak plc Annual Report and Financial Statements ExplanationoftransitiontoIFRScontinued Reconciliation of equity at 30 September 2005 UK GAAP IAS 10 IFRS 2 Own shares IFRS Company m m m m m Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Totalassets Current liabilities Trade and other payables (114.3) (101.2) Bank overdrafts and loans (74.9) (74.9) (189.2) (176.1) Net current liabilities (179.0) (165.9) Non-current liabilities Deferred tax liabilities (0.7) (0.7) (0.7) (0.7) Total liabilities (189.9) (176.8) Netassets Equity Share capital Share premium account Own shares (3.9) 3.9 Other reserves Retained earnings brought forward (0.2) 17.0 current year (0.2) 1.0 Totalequity

66 64 Holidaybreak plc Annual Report and Financial Statements 2006 Shareholder Information Communication with shareholders Holidaybreak is committed to excellence in investor relations. We aim to provide large and small shareholders, market analysts and the financial media access to up-to-date information about our business and current progress. Principal sources of information are our award winning corporate website, the annual report and accounts, interim report and the alert service. Four statements are released during the financial year. Two are combined with the Chairman s statements, issued at the time of the annual and half-year results announcements, and the others are on the day of our Annual General Meeting (AGM) and in September of each year. We aim to inform investors of any additional developments during the year. There is an opportunity for shareholders to question the Chairman and other Directors at the AGM. Progress of the Investor Relations programme, which is primarily carried out by the Group Chief Executive and Group Finance Director, is reviewed by the Directors at monthly Board meetings. Institutional investors One-to-one meetings and group workshops are offered to analysts and institutional investors, usually following results or trading announcements. These presentations are posted on our website to allow all shareholders access to the material contemporaneously. We endeavour to satisfy any additional requests for meetings or information, subject always to our obligation to ensure that information of a potentially price sensitive nature is released first by way of a stock exchange announcement. Private investors Company announcements are posted on our website and alerts are sent out simultaneously to those who have registered on our distribution list. We also mail our shareholders individually. For this purpose we use our database of shareholders, which includes those individuals whose shares are held in nominee accounts. Sharesbycategoryofshareholding Number of fund managers % of total Active investment and unit trusts (75) Pension (28) Index funds (10) 5.07 Insurance companies (7) 8.02 Others including managed, private clients and ISAs 6.99 Directors, employees and trustees of Holidaybreak plc share schemes 1.32 Holdings not analysed 3.73 Corporate website Our corporate website, is an indispensable information resource for anyone interested in Holidaybreak plc. This year the website has been re-developed to refine the site content and enhance the navigation. Accessibility to our corporate website has also been improved to follow the guidelines of the World Wide Web Consortium (W3C). Enquiring about your shareholding If you want to ask, or need any information about your shareholding, please contact the Company s registrar, Capita Registrars, Northern House, Woodsome Park, Fenay Bridge, Huddersfield HD8 0LA (telephone: ) or visit Share dealing service A share dealing service is available to existing shareholders to buy or sell the Company s shares via Capita Share Dealing Services. Online and telephone dealing facilities provide an easy to access and simple to use service. For further information on this service, please contact online dealing or telephone dealing. Please note that the Directors of the Company are not seeking to encourage shareholders to either buy or sell shares. Shareholders in any doubt about what action to take are recommended to seek financial advice from an independent financial advisor authorised by the Financial Services and Markets Act Share price listing The current Holidaybreak share price is listed in the following national and regional newspapers: Financial Times The Independent The Guardian The Daily Express The Scotsman The Times The Daily Telegraph The Daily Mail Manchester Evening News The share price may also be viewed on our website at and on various teletext and internet financial sites. The Holidaybreak website includes interactive comparative share price graphing against relevant indices, and a record of volumes traded. Substantial shareholdings As at 30 November 2006, the Directors were aware of the following interests of over 3% of the Company s issued share capital (these include both material and non-material holdings and are not all disclosable in accordance with sections of the Companies Act 1985). % of issued No. of shares share capital Aberforth Investment Managers 6,903,361* Fidelity Investments 4,815,389* 9.90 Legal & General Investment Management 2,530, Scottish Widows Investment Partnership 2,432, AXA Framlington Investment Management 1,895, Rathbone Unit Trust Management 1,786, Artemis Investment Managers 1,716, Morley Fund Management 1,617, Insight Investment Management 1,568, * Includes interests disclosed under sections of the Companies Act Some substantial shareholdings are split into more than one registered holding. Sharesbysizeofregisteredholding (as at 30 November 2006) Number Number % of of holders of shares total Up to 1,000 1, , ,000 9, ,007, ,000 49, ,584, ,000 99, ,861, , , ,865, ,000 and over 23 27,795, ,885 48,637, Shareholder discounts The Directors of Holidaybreak plc would be delighted if as many shareholders as possible were to benefit from the Company s shareholder discount scheme and enjoy the variety of quality holidays that we offer. Shareholders with more than 200 shares are able to benefit from the scheme, which allows a 10% reduction on the full brochure price of any holiday booked direct with a UK based member of the Group. Full details of the scheme can be sent out on request and are also available on the Company s website at Financial calendar (Year end 30 September 2007) Results Annual General Meeting 15 February 2007 Interim results May 2007 Preliminary results December 2007 Dividend Final dividend ex dividend 28 March 2007 payable 24 April 2007 Interim dividend payable August 2007

67 Holidaybreak Group (0) Hotel Breaks Division (0) Adventure Travel Division (0) (0) (0) Camping Division (0) (0) (0) (0) (0)