ANNUAL REPORT AND ACCOUNTS 2011
TARGETING OPERATIONAL
EXCELLENCE Financial and operational highlights 1
Overview and Strategy 2
– Our vision 3
– Markets 3
– Strategy 3
Chairman's statement 4
Chief Executive’s statement 6
Board of Directors 8
Directors’ report 10
Independent Auditors’ report to the members of Travelzest Plc 18
Group principal accounting policies 19
Consolidated income statement 26
Consolidated statement of comprehensive income 27
Consolidated balance sheet 28
Consolidated cash flow statement 29
Consolidated statement of changes in equity 30
Notes to the financial statements 31
Independent auditors’ report to the members of Travelzest Plc 53
Company balance sheet 54
Company reconciliation of movements of changes in shareholders’ funds 55
Company principal accounting policies 56
Notes to the Company financial statements 58
Company information 65 FINANCIAL HIGHLIGHTS
ANNUAL REPORT AND ACCOUNTS 2011 1
Financial Highlights
• Record level of total transaction value, increased
13% to £246.6 million (2010: £217.6 million) driven
by agency growth in Canada
• Revenue decreased 14% to £37.7 million (2010:
£43.8 million) due to a 49% decline in UK merchant
revenue partially offset by a 16% increase in agency
revenue
• Gross profit decreased 2% to £23.7 million (2010:
£24.2 million), however the gross profit percentage
increased to 63% (2010: 55%) due to the decline in
lower margin merchant revenue in the UK
• Underlying* operating profit decreased 32% to
£4.2 million (2010: £6.1 million) due to lower
merchant sales and gross profit combined with
higher marketing and operating lease expense,
and foreign exchange losses
• Operating profit increased £8.7 million to £0.7 million
(2010: £8.0 million loss) due to a prior year goodwill
impairment charge partially offset by higher separately
disclosed item expenses, lower merchant gross profit,
higher marketing and operating lease expense and
increased foreign exchange losses
• Renewal of the Group’s bank facility to 30 June 2013
• Cash flows generated from operations were down
59% to £2.0 million (2010: £4.9 million) primarily due
to the reduction in underlying operating profit
• Basic loss per share of 2.01p (2010: 8.80p loss per
share).The prior year was impacted by a charge of
£12.2 million in respect of goodwill impairment
* Underlying operating profit is adjusted for amortisation of intangible
assets and goodwill impairment, separately disclosed items and
excludes the profit and loss impact of options and warrants.
Operational Highlights
• Rationalisation of UK operations, de-risking our
UK supplier contracts
• Continued strong performance from the Group’s
Canadian operations
FINANCIAL HIGHLIGHTS
T otal TransactionValue increased to
£246.6 million (2010: £217.6 million)
+13%
Operating Profit increased
£8.7 million to £0.7 million
(2010: £8.0 million loss)
£8.7 m 2 ANNUAL REPORT AND ACCOUNTS 2011
OVERVIEW AND STRATEGY
DEVELOPING A UNIFIED
TRAVEL GROUP ANNUAL REPORT AND ACCOUNTS 2011 3
Travelzest is a travel group with both retail brands and
specialist tour operations to some of the most attractive
travel destinations in the world.With operations in the
UK and Canada the Group has access to counter cyclical
markets that provide balance to year round performance.
Leading market brands
The Group has two market leading brands in its core
Canadian market. Its leading brand is itravel2000, which
continues to build on its strong market position in the
retail leisure travel sector. Its luxury brand cruise agency,
The Cruise Professionals, benefits from an increasing
premium customer following in the USA as well as the
established Canadian market, and continues to win
accolades from both the major cruise lines and Conde
Naste Traveler as “T op Luxury Cruise Specialist”.
Experienced management team
Our team is comprised of travel professionals with great
depth and many years experience in creating specialist
travel products with broad distribution capabilities in
online and offline retailing.We continue to recruit the
best people as we manage the transition from traditional
to online business.
OurVision
Our vision is to be a highly profitable, sustainable,
high-growth travel group, offering travellers the best
available online and offline retail travel service
combined with a range of flexible and specialised
holiday experiences, capitalising on market trends
and opportunities.
Markets
Travelzest is a diverse group of brands that services two
markets, Canada and the UK, with Canada representing
92% (2010: 88%) of our total bookings, the majority of
which are generated through our market leading brand
itravel2000.We continue to develop our luxury brand
in North America under The Cruise Professionals,
and review new opportunities to develop a mid-market
offering in the UK.Travelzest continues to develop its
online capabilities, which currently represents 43%
(2010: 38%) of our total bookings.With consumers
in Canada and the UK increasing their shopping and
purchasing of travel through the online channels,
Travelzest is positioning its brands as an attractive
choice for consumers.
Strategy
• Strengthen retail offering with more product
choice by destination and method of travel
• Establish industry leading technology and
efficiency in all operating areas
• Expand consumer base at itravel2000 by
targeting specific demographic groups and
develop new affiliate partnerships
• Improve online presence to drive more
traffic through online sales
• Exploit lower cost UK call centre
to support growth in Canada
ITALY MOROCCO NEW ZEALAND THAILAND
SOME OF OUR DESTINATIONS... 4 ANNUAL REPORT AND ACCOUNTS 2011
CHAIRMAN’S STATEMENT
FOUNDATIONS
TO GROW UPON
A challenging UK travel market in 2011 required
the Group to rationalise UK operations.This difficult
decision has allowed our UK operations to be better
positioned to service both UK customers and also
assume support for our Canadian customers from
a state of the art call centre in Cheltenham.We also
announced in December 2011 that we will begin to
sell or wind down our non-performing UK brands.
We recently completed the sale of J.M.B.Travel
Consultants Limited and sale of assets related to
Travelzest Holidays Limited.We continue to explore
options for the remaining brands.The Canadian
operations produced another successful year with
revenue up 16% and now represent some 67% of
Group revenues.
We are also pleased to announce extension of our
Group banking facility with Barclays plc to 30 June 2013.
The Board continues to review its bank facilities to
ensure they remain appropriate for the future plans of
the business from an operational and cost perspective.
As part of both this review and as a condition of the
extension to the banking facility the Board anticipates
the Company will raise additional finance capital during
2012 which will be used primarily to significantly
reduce the indebtedness of the business to Barclays
as well as to provide the necessary working capital
for the Group to continue its operations.
N J Jenkins
Chairman
The work that has been done over the year, although difficult,
has positioned the business to better weather the continued
economic headwinds in the UK and will set us on a path for
improved profitability.We believe that the business has the right
foundations to grow and the initial key indicators are positive
in 2012.We remain cautiously optimistic for the year ahead. ANNUAL REPORT AND ACCOUNTS 2011 5
Results
A description of the performance of the Group’s
operations is given in the Chief Executive’s statement.
People
I would like to thank everyone throughout the
organisation for their hard work and dedication.
Every year brings its challenges in the travel industry
and last year was no exception.
Weak economic and market conditions in the UK
forced us to make some difficult decisions.We have
been able retain a well trained and highly efficient UK
call centre operation in Cheltenham which is now also
providing excellent service to our Canadian customers.
I would also like to thank Mark Molyneux for his service
to the board as Chairman and I am grateful that Mark
has elected to remain on the Board. I also welcome
Jamie Brooke and Adrian Cobbold as new members,
giving the Board wider expertise. I also announce that
Jack Fraser will be leaving the Group to complete his
Executive MBA and pursue other opportunities.
The Board would like to thank Jack for his considerable
and enduring contribution to the Group and its
operating subsidiaries during his seven years with the
organisation. He has made a significant contribution to
the strategic direction of the Group and has worked
hard to help establish the market leading position of
our Canadian business units.We wish him well in his
studies and for his future career. Jack’s operating
responsibilities will be assumed by other members
of the executive management team.
Outlook
The UK economic climate is likely to remain weak during
2012 however current booking activity is ahead of the
expectations we formed in late 2011.The Canadian
economy has recently suffered from some weakening
consumer confidence and in addition an unseasonably
warm winter softened travel demand during the first
half of our winter season. Bookings have however
increased significantly in recent weeks and we are
positive for the remainder of the year. Demand continues
to grow for our luxury cruise offerings through The
Cruise Professionals.As ever, the late booking market
is important and we continue to focus marketing
effort on this area.
A streamlined product offering and more cost efficient
base for servicing our customers will set us on a path
for improved profitability.
N J Jenkins
Chairman
30 March 2012
AUSTRIA INDIA MALDIVES SOUTH AFRICA
SOME OF OUR DESTINATIONS... 6 ANNUAL REPORT AND ACCOUNTS 2011
CHIEF EXECUTIVE’S STATEMENT
The past year proved to be a challenging environment
as the rapid decline in the UK travel market forced us
to rationalise our UK merchant model. Our efforts to
de-risk ourselves from certain contracts and lower our
operating costs are beginning to bear fruit, and I am
pleased with the progress in our Canadian operations
and encouraged by the initiatives we are pursuing in
2012 to drive top line growth and improved profitability.
Group performance
While producing record transaction value growth of
13% to £246.6 million we experienced a decline in
revenues of 14% to £37.7 million due to a 49% decline
in UK merchant revenue partially offset by a 16%
increase in agency revenue. Gross profit decreased 2%
to £23.7 million however gross profit percentage
increased to 63% (2010: 55%) due to the decline in
lower margin merchant revenue in the UK. Underlying*
operating profit decreased 32% to £4.2 million (2010:
£6.1 million) due to lower merchant revenue and gross
profit combined with higher marketing and operating
lease expenses, and foreign exchange losses. Cash
flows generated from operations were down 59%
to £2.0 million (2010: £4.9 million) primarily due to
a decline in UK merchant revenue, costs to de-risk
ourselves from certain contracts and non-recurring
UK severance payments.
The net debt position of the company £11.2 million
(2010: £11.7 million) fell marginally from the prior year.
Separately disclosed items
During the year the Group incurred separately disclosed
costs totalling £2.6 million (2010: £1.9 million), a 37%
increase from the prior year due to severance and asset
write-down costs in the UK, higher non cash related
share-based payments and corporate legal fees.These
have been separately disclosed to enable a better
understanding of the results of the Group.
FOCUSING ON WHAT
MAKES US SUCCESSFUL
We have had to make some difficult decisions in the period and
have focused on those brands that we believe will drive both
growth for the business and shareholder value in the longer term.
The simplification of our business, post-rationalisation, will allow
us to better focus on what makes us successful and we are already
starting to see the operational and financial benefits of a more
streamlined UK business.
J G Carroll
Chief Executive ANNUAL REPORT AND ACCOUNTS 2011 7
Separately disclosed items
2011 2010
£000s £000s
Share-based payments 588 130
Move and other new project start up costs 71 121
Corporate restructuring costs:
• Legal 144 –
• Other 153 84
Operational companies’ restructuring costs:
• Severance 671 431
• Additional contract costs and write down of receivables 475 –
• Legal 542 385
Ash cloud and other non-recoverable costs – 345
Loss on disposal of property, plant and equipment and intangible assets 4 421
T otal 2,648 1,917
Summary
We are cautiously optimistic about our opportunities
for growth, particularly at our flagship brand itravel2000.
The simplification of our business, post-rationalisation,
will allow us to better focus on what makes us successful.
We are already starting to see the operational and
financial benefits of a more streamlined UK business.
I am extremely proud and appreciative of our team’s
efforts and the resilience and commitment they have
shown through these challenging times. I thank them
for their dedication and contributions.
J G Carroll
Chief Executive
30 March 2012
CUBA BRAZIL ALASKA HONG KONG
SOME OF OUR DESTINATIONS... 8 ANNUAL REPORT AND ACCOUNTS 2011
BOARD OF DIRECTORS
THE BOARD
OF DIRECTORS’
Jonathan Carroll
Group Chief Executive Officer
Jonathan Carroll was appointed to his current position
as Group Chief Executive Officer in May 2009. Prior to
which Jonathan was President of itravel2000 which he
was also a co-founder of in 1994.With Jonathan’s vision
and leadership skills, he formed a team of dedicated
travel professionals that set the standard in the Canadian
market place. Jonathan is a strong believer in giving back
to the community. Jonathan’s charity work extends into
the community through his involvement and support of
numerous charities. He is also a founding board member
of the Lakefield College School Foundation, which also
boasts his Royal Highness, the Duke ofY ork as aTrustee.
In 2006, Jonathan Carroll was awarded the prestigious
T op 40 Under 40 Award honouring the best and most
accomplished young professionals in Canada.
Nigel Jenkins
Non-Executive Chairman
Nigel Jenkins, has been involved in the travel industry
for 35 years.A founding director of Unijet in 1981 he
joined First Choice Holidays PLC in 1998. Nigel led
the restructure and turnaround of their Canadian
division before returning to the UK in 2004 to become
Managing Director of their Activity Holiday Sector
and a member of their Group Management Board.
Nigel retired from First Choice in October 2006.
Nigel is currently non-executive director of All Leisure
Group plc.
Richard HallTD, MA, FCA
Non-executive Director & Company Secretary
With a Cambridge degree in engineering and law,
Richard qualified as a chartered accountant in 1966
and carried out the duties of Finance Director and
Company Secretary for a number of international
companies including INM OS International Plc.
He was latterly Finance Director of Information
T echnology Plc and National T elecommunications Plc,
both of which companies he took to the main market.
Since 1989, Richard has run his own consultancy with
a number of non-executive directorships, including an
AIM listed company offering corporate, commercial
and financial advice to major clients. He joined the
board ofVFB Group plc in 2003 (VFB Group name
changed to Travelzest in 2005) prior to the company
joining the OFE X market (now PLUS market).
Adrian Cobbold
Group Finance Director
Adrian Cobbold started with Travelzest in November
2010 as Group ExecutiveVice President of Finance,
and was appointed to the Travelzest board as Group
Finance Director in January 2012.
Prior to this Adrian served as Director of Finance, Chief
Financial Officer at T eranet Inc., a leading provider of
integrated land-based information systems and software
providing e-commerce services to the legal, real estate,
government and financial markets in Canada.He provided
financial support and leadership to the company as
it transitioned from a public to private entity while
contributing to the development of a new corporate
strategy and improving the operating results.
Prior to T eranet,Adrian was employed by Crown Metal
Packaging Canada Inc. (“Crown”) for thirteen years and
served on the board of Crown Metal Packing Canada
Inc. and Crown Cork & Seal Canada Inc.
Jamie Brooke
Non-Executive Director
Mr. Brooke is based in London, United Kingdom, he is
a qualified chartered accountant and has over 15 years
investment experience in private equity and quoted
fund management. He is currently a fund manager at
Henderson Group plc, an independent fund manager
with c. £70bn under management. He is also a director
on the boards of three other AIM companies: Lochard
Energy plc, Renovo Group plc and eServglobal Ltd.
Mark Molyneux
Non-Executive Director
Mark Molyneux, was appointed to the Travelzest board
as a non-executive director in October 2006. He is a
Chartered Accountant and chairs two other companies
which are Private Equity backed. Mark was until 2006
a UK partner with Ernst andY oung LLP accountancy
firm where he held senior management roles. His initial
specialisation was audit, mainly entrepreneurial
companies, later moving into corporate finance with
a focus on M&A, due diligence and restructuring.
i am extremely proud
and appreciative of
our team’s efforts
and the resilience and
commitment they have
shown through these
challenging times.
j g carroll
chief executive ANNUAL REPORT AND ACCOUNTS 2011 9
01
03
02
04
05
01 JONATHAN CARROLL
02 NIGEL JENKINS
03 RICHARD HALL
04 ADRIAN COBBOLD
05 JAMIE BROOKE
06 MARK MOLYNEUX
06 10 ANNUAL REPORT AND ACCOUNTS 2011
DIRECTORS’ REPORT
THE DIRECTORS’
REPORT ANNUAL REPORT AND ACCOUNTS 2011 11
The directors present their report and the audited financial statements of the Group and Company for the year
ended 31 October 2011.
Principal activities and business review
The principal activity of the Company during the year was that of a parent and holding company.The principal
activity of the Group during the year was the provision of retail travel sales and tour operation.
The business is reviewed in detail in the Chairman’s and Chief Executive’s statements. Management review a number
of indicators when assessing the performance of the Group. Key amongst these indicators are total transaction
value, revenue and gross profit, which are discussed in the Chairman’s and Chief Executive’s statement.
Results and dividends
The Group’s results were a loss for the year of £2.9 million (2010: loss of £12.8 million).The directors do not
propose a dividend in respect of the year (2010: nil).
Directors and directors’ interests
The directors of the Company during the year to 31 October 2011 and up to the date of signing of the financial
statements were as follows:
• J D Brooke (appointed 10 August 2011)
• J G Carroll
• A C Cobbold (appointed 9 January 2012)
• J C Fraser (resigned 26 March 2012)
• R G Hall
• N J Jenkins
• M T J Molyneux
The directors of the Company hold the following beneficial interest in the shares of the Company:
At At
31 October 31 October
2011 2011
£000s £000s
J D Brooke – – –
J G Carroll* Ordinary 2p – –
A C Cobbold – – –
J C Fraser Ordinary 2p 9,365,887 9,365,887
R G Hall Ordinary 2p 521,100 521,100
N J Jenkins Ordinary 2p 260,000 260,000
M T J Molyneux Ordinary 2p 15,559,682 15,559,682
* As at 29 February 2012, 6615716 Canada Inc. held 3,541,000 Ordinary 2p Shares.These shares are controlled by the Ely Trust.This is a discretionary
inter vivos trust as disclosed in the shareholder circular dated 5 August 2009. During 2010, J G Carroll was removed as a beneficiary of the Ely Trust
and J G Carroll is currently disputing his removal. J G Carroll claims a 22.5% interest in the holdings of Ely Trust
FRANCE FLORIDA FIJI LAS VEGAS
SOME OF OUR DESTINATIONS... 12 ANNUAL REPORT AND ACCOUNTS 2011
DIRECTORS’ REPORT
Number held at
The following directors had interests in options to purchase shares in the Company:
Expiry Exercise 31 October 31 October
date price 2011 2010
J G Carroll 10 February 2020 8.25p 6,220,119 6,220,119
J G Carroll 30 June 2020 18.5p 6,000,000 6,000,000
J C Fraser 19 October 2016 127p 78,740 78,740
J C Fraser 10 February 2020 8.25p 6,220,119 6,220,119
J C Fraser 30 June 2020 18.5p 6,000,000 6,000,000
M T J Molyneux 10 February 2020 8.25p 4,146,746 4,146,746
Directors’ indemnities
As permitted by the Articles of Association, the directors have the benefit of an indemnity which is a qualifying
third party indemnity provision as defined by Section 234 of the Companies Act 2006.The indemnity was in force
throughout the last financial year and is currently in force.The Company also purchased and maintained throughout
the financial year directors’ and officers’ liability insurance in respect of itself and its directors.
Major shareholders
On 29 February 2012 the Company’s share register showed the following interests in 3 percent or more of the
Company’s shares:
Class of Percentage
share Number of class
Henderson Global Investors Ordinary 2p 43,207,077 29.77%
Merchant Securities Limited (held on behalf of its private clients) Ordinary 2p 19,738,474 13.60%
M T J Molyneux Ordinary 2p 15,559,682 10.72%
LDC Logistics Development Corporation Ordinary 2p 10,829,572 7.46%
A Gardner Ordinary 2p 10,751,285 7.41%
J C Fraser Ordinary 2p 9,365,887 6.45%
Novum Securities Limited
(held as principal and on behalf of its private clients) Ordinary 2p 6,314,458 4.35%
M J T ully Ordinary 2p 5,432,000 3.74%
ETX Capital Ordinary 2p 5,425,000 3.74%
Employment policy
The Group is committed to a policy of recruitment and promotion on the basis of aptitude and ability without
discrimination of any kind.The Group gives full consideration to disabled applicants for employment, having regard
to their particular aptitudes and abilities and they share in opportunities for training, career development and
promotion.The Group also gives full consideration to the continuing employment and training of employees who
have become disabled while employed by the Group. It is Management’s policy to keep its employees informed
on matters affecting them through regular briefings and consultations. ANNUAL REPORT AND ACCOUNTS 2011 13
Policy on the payment of creditors
The Group seeks to maintain good relations with all of its trading partners. In particular it is the Group’s policy
to abide by the terms of payment agreed with each of its suppliers subject to its internal cash flow requirements.
As the Company does not trade, no information has been provided about the Company’s creditor payment policy.
The Group has creditor days of 51 days (2010: 29 days).
Corporate governance
The Board is committed to high standards of corporate governance.
On 31 October 2011 the Board comprised the non-executive Chairman, three independent non-executive directors
and two executive directors.The Board structure ensures that no individual or member of the group dominates
the decision making process.The Board met formally eleven times during the year.The Board receives appropriate
and timely information, Board and committee papers are sent out before meetings take place.All directors have
access to the advice and services of the Company Secretary.The Board delegates specific responsibilities to the
Board committees detailed below.
The Company’s Articles of Association require that at the Annual General Meeting any director then in office who
has been appointed by the Board since the previous Annual General Meeting or has held office for three years or
more since he was appointed or last re-appointed by the Company in general meeting, shall retire and be eligible
for re-appointment.
The Board is content with the corporate policies and procedures for treasury, contract management, purchase
orders, expenses, human resources, payroll, and accounting.
Audit Committee
The Audit Committee, which meets up to three times a year, comprises R G Hall (Chairman), M T J Molyneux
and N J Jenkins (all of whom are independent non-executive directors).
The committee’s terms of reference include monitoring the integrity and clarity of the financial statements and
any formal announcements relating to the Group’s financial performance; reviewing any significant financial reporting
issues and judgements; reviewing the consistency of, and any changes to, accounting policies, the application of
appropriate accounting standards and the methods used to account for significant or unusual transactions;
reviewing the effectiveness of the Group’s internal controls and risk management systems; making recommendations
as to the appointment, terms of engagement and remuneration of the external auditors; assessing the external
auditors’ independence, objectivity and effectiveness; approving the annual external audit plan and reviewing
with the external auditors the nature, scope and results of their audit and any issues raised by them.
Remuneration Committee
The Remuneration Committee comprises N J Jenkins (Chairman), R G Hall and M JT Molyneux (all of whom are
independent non-executive directors) and meet as necessary.The committee is responsible for the executive
directors’ remuneration and other benefits and terms of employment, including performance related bonuses and
share options (save as to any options or bonuses granted to M T J Molyneux, when he will not participate in the
committee’s considerations).
with consumers in canada and the uk
increasing their shopping and purchasing
of travel through the online channels,
travelzest is positioning its brands as
an attractive choice for consumers 14 ANNUAL REPORT AND ACCOUNTS 2011
DIRECTORS’ REPORT
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and
position are set out in this report.The financial position of the Group, its cash flows, liquidity position and borrowing
facilities are described in the following financial statements and notes to the financial statements. In addition this
report includes the Group’s objectives, policies and processes for managing its capital; its financial risk management
objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity
risk.The current economic conditions create uncertainty particularly over the level of demand for the group’s
products, which are also sensitive to the exchange rate between sterling and operational currencies.
The Group is currently funded by a loan with Barclays plc as described in Note 17 to the financial statements which
will be repaid in six monthly instalments of £0.5m from January 2013 to June 2013 with a final payment in June 2013.
Under the terms of the loan, the Group is required to meet quarterly covenants which require the attainment
of designated ratios of total debt to EBITDA, EBITDA to interest payable and cash flow to total debt service on
a quarterly basis. During the year to 31 October 2011, management obtained a waiver in respect of compliance
with its financial covenants.At 31 January 2012, the group met its covenants.
The directors have prepared a cash flow forecast based on the Group’s approved budgets to June 2013 and have
considered the forecast covenant position at each of the quarterly testing points from April 2012.The ability to
meet these future cash flow and covenant forecasts is dependent on the Group’s ability to raise additional finance
to repay debts and provide adequate working capital to continue its operations following the signing of these
financial statements. However, there is a risk that the raising of additional finance will be unsuccessful, and this
represents a material uncertainty which may cast significant doubt about the ability of the Group to continue as
a going concern.The directors have a reasonable expectation that funding will be obtained and as a result have
adopted the going concern basis in preparing the financial statements.The financial statements do not include
the adjustments that would result if the Group were unable to continue as a going concern.
i would like to thank
everyone throughout
the organisation for
their hard work and
dedication
n j jenkins
chairman ANNUAL REPORT AND ACCOUNTS 2011 15
Liquidity risk
Due to the seasonality of the
business, the Group’s liquidity
is at a low point at April and
November each year
The Group has external bank
debt which is subject to covenants
For further information see
note 26
Difficulty in meeting financial
obligations as they fall due
Focus on cash management
Cash flow forecasting, headroom
and forecast covenants are tracked
The covenants relating to the group
bank debt have been renegotiated
post year end.As discussed above
the Group plans to raise additional
cash through an equity placing
Political, social and environmental factors
Due to the nature of the industry
that the Group operates in, the
Group faces political risks (for ex
ample social unrest or terrorism)
and environmental risks (such as
hurricanes, volcanic eruptions or
any event that causes the closure
or disruption of travel capabilities)
Cancellation of holidays
Repatriation costs
Decline in consumer demand
The Group operates in a number
of holiday destinations
Established incident management
policy and active monitoring of
political situations
Economic conditions
Decline in consumer demand
due to the global economic
environment
Reduction in volumes and pressure
on margins
The Group operates across a
number of markets in Canada
and the UK
Fall in demand for traditional package holidays
Growth of internet distributors
and ability of customers to create
their own packages online
Pressure on revenue and margins The Group offers specialist
holidays
Regulatory risk
The travel industry is highly
regulated
Inability to trade due to loss
of licence
Damage to the Group’s reputation
The Group reports regularly to
its external regulators
Principal risks and uncertainties
The Group, like all businesses, faces risks and uncertainties in conducting its operations.The principal risks are:
MALAYSIA SWITZERLAND MEXICO CANADA
SOME OF OUR DESTINATIONS...
Risk Impact Mitigation 16 ANNUAL REPORT AND ACCOUNTS 2011
DIRECTORS’ REPORT
Post balance sheet events
On 25 November 2011, the Company renewed its credit facilities with its primary bank.The new bank loan was
due to expire on 31 October 2013. On 28 March 2012, the Company updated certain terms of the credit facility
agreement with its primary bank.This update provided for a reset of covenants and shortened the duration of
the credit agreement to 30 June 2013 from 31 October 2013.
On 20 March 2012, the company completed the sale of J.M.B.Travel Consultants Limited and the assets of
Travelzest Holidays Limited to a former employee.
On 26 March 2012, the company resolved to take steps to place Tapestry Collections Limited into creditors'
voluntary liquidation. Pursuant to this, notices for a members and creditors meeting have been sent to effect
the voluntary liquidation of the Company.
There have been no other significant post balance sheets events since 31 October 2011.
Financial risk management objectives and policies
Details of the Group’s financial risk management objectives and policies are detailed in Note 26 to the Group
financial statements.
Political and charitable donations
The Group made no political donations during the year (2010: £Nil).The Group makes various donations to
charitable groups throughout the UK and Canada in the form of travel contributions.The occurrence of cash
contributions is limited with one item of significant occurrence by itravel2000 with donations made to the
One X One organisation totalling £65,000 (2010: £37,000).
Directors' responsibilities
The directors are responsible for preparing the Annual Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the
directors have prepared the group financial statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union, and the parent company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable
law). Under company law the directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the
company and group for that period. In preparing these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether IFRSs as adopted by the European Union and applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the group and parent company financial
statements respectively; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
company will continue in business. travelzest is a group with both retail
brands and specialist tour operations
to some of the most attractive travel
destinations in the world
ANNUAL REPORT AND ACCOUNTS 2011 17
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
company’s transactions and 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 2006.They are also responsible
for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the company’s website. Legislation in the
United Kingdom governing the preparation and dissemination of financial statements may differ from legislation
in other jurisdictions.
In accordance with Section 418, directors’ reports shall include a statement, in the case of each director in office
at the date the directors’ report is approved, that:
(a) so far as the director is aware, there is no relevant audit information of which the company’s auditors are
unaware; and
(b) he has taken all the steps that he ought to have taken as a director in order to make himself aware of any
relevant audit information and to establish that the company’s auditors are aware of that information.
Independent Auditors
The independent auditors, PricewaterhouseCoopers LLP , have indicated their willingness to continue in office,
and a resolution for their re-appointment will be proposed at the forthcoming Annual General Meeting.
BY ORDER OF THE BOARD
R G Hall
Director and Company Secretary
30 March 2012 18 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
We have audited the group financial statements ofTravelzest plc for the year ended 31 October 2011 which comprise the Consolidated income statement,
the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated cash flow statement, the Consolidated statement
of changes in equity, the Group principal accounting policies and the notes to the financial statements.The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland).Those standards require us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose.We do not, in giving these opinions, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or error.This includes an assessment of: whether the accounting policies are
appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates
made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the
Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Opinion on financial statements
In our opinion the group financial statements:
• give a true and fair view of the state of the group’s affairs as at 31 October 2011 and of its loss and cash flows for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Emphasis of matter
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in the Basis of
Preparation and the Directors’ report within these financial statements, concerning the Group’s ability to continue as a going concern.The Group expects
to raise additional funds following the signing of these financial statements which will allow it to partially repay its third party loan, provide adequate working
capital to continue its operations and meet its financial covenants. However, there is a risk that raising these additional funds will be unsuccessful and this
represents a material uncertainty which may cast significant doubt about the ability of the Group to continue as a going concern.The financial statements
do not include the adjustments that would result if the Group were unable to continue as a going concern.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the group financial statements are prepared is consistent
with the group financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the parent company financial statements of Travelzest plc for the year ended 31 October 2011.
John Minards (Senior Statutory Auditor)
For and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
St Albans
30 March 2012
INDEPENDENT AUDITORS’ REPORT TO
THE MEMBERS OF TRAVELZEST PLC ANNUAL REPORT AND ACCOUNTS 2011 19
General information
Travelzest plc (the ‘Company’) and its subsidiaries (together, the ‘Group’) provide retail travel sales and merchant operation services.
The Company is a public limited company, incorporated and domiciled in the UK and is listed on the AiM, a market operated by the London Stock
Exchange plc.The address of its registered office is 2
nd
Floor Delta Place, 27 Bath Road, Cheltenham, Gloucestershire, GL53 7TH, United Kingdom.
Basis of preparation
The consolidated financial statements of Travelzest plc have been prepared in accordance with IFRS as adopted by the European Union, IFRIC
Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.The consolidated financial statements have been prepared
under the historical cost convention as modified by financial assets and financial liabilities (including derivative instruments) at fair value.The financial
statements have been prepared on a going concern basis.
Going concern
The Group is currently funded by a loan with Barclays plc as described in Note 17 to the financial statements which will be repaid in six monthly instalments
of £0.5m from January 2013 to June 2013 with a final payment in June 2013. Under the terms of the loan, the Group is required to meet quarterly covenants
which require the attainment of designated ratios of total debt to EBITDA, EBITDA to interest payable and cash flow to total debt service on a quarterly
basis. During the year to 31 October 2011, management obtained a waiver in respect of compliance with its financial covenants.At 31 January 2012, the
group met its covenants.
The directors have prepared a cash flow forecast based on the Group’s approved budgets to June 2013 and have considered the forecast covenant position
at each of the quarterly testing points from April 2012.The ability to meet these future cash flow and covenant forecasts is dependent on the Group’s
ability to raise additional finance to repay debts and provide adequate working capital to continue its operations following the signing of these financial
statements. However, there is a risk that the raising of additional finance will be unsuccessful, and this represents a material uncertainty which may cast
significant doubt about the ability of the Group to continue as a going concern.The directors have a reasonable expectation that funding will be obtained
and as a result have adopted the going concern basis in preparing the financial statements.The financial statements do not include the adjustments that
would result if the Group were unable to continue as a going concern.
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.These policies have been
consistently applied to all the years presented, unless otherwise stated.
Judgements and estimates
The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income and expenses.Actual results may differ from these estimates.
The following are critical judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements:
Revenue
Management make critical judgements in determining when to recognise income.The recognition is based on whether companies within the Group
are an agent or merchant. Merchant operations revenue is primarily when the Group becomes principal on the transaction and defines the terms of the
transaction with the consumer.Agency operations revenue is primarily when the Group passes on to the consumer the majority of the terms of sale
from the ultimate supplier and earns a commission for completing the transaction. Revenue is recognised when it can be measured reliably. Revenue and
direct expenses relating to tours arranged by the Group’s merchant operators are taken to the income statement on the date of holiday departure.
Revenue relating to agency commission receivable on third party leisure travel products is recognised when earned, which is on receipt of the full
payment from the customer; and for business travel products is recognised when earned, which is upon booking from the customer as bookings are
ticketed immediately and are non-refundable. In all cases recognition occurs when it is probable that the economic benefits associated with the
transaction will flow into the Group, and the costs incurred or to be incurred can be measured reliably.
Impairment
An impairment loss is recognised for the amount by which the cash-generating unit’s carrying amount exceeds its recoverable amount. Determining
whether goodwill is impaired requires an estimate of value in use of the cash-generating units to which goodwill has been allocated.The value in use
calculation requires the Group to estimate future cash flows from the cash-generating units and a suitable discount rate in order to calculate a fair value.
In the process of measuring expected future cash flows, management makes assumptions about future gross profits.These assumptions relate to future
events and circumstances. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the
appropriate adjustment to asset-specific risk factors.The goodwill balance and further disclosures around the impairment assessment has been set out
in Note 8.
Share-based payments
Management uses valuation techniques in determining the fair values of share-based payments at the date of grant; it adopts the Black-Scholes pricing
model approved and unapproved options schemes, and it adopts the Monte-Carlo Simulation pricing model for management incentive options. Significant
inputs into the calculation include the market price at the date of grant and exercise prices. Furthermore, the calculation takes into account the future
dividend yield, the share price volatility rate and risk-free interest rate. Share-based payments have been set out in Note 16.
GROUP PRINCIPAL
ACCOUNTING POLICIES 20 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
Fair value of financial instruments
Management make critical judgements both as to whether hedge accounting can be applied and to measure the fair value of the derivative financial instrument
hedges. Management uses active market quotes to measure the fair value of derivative financial instrument hedges.The effectiveness of financial instrument
hedges is assessed by considering the underlying liability to which the hedge relates. If the conditions for hedge accounting are no longer met and the
previously designated hedged item is measured by means of the effective interest method, the necessary adjustment of the carrying amount of the
underlying transaction has to be effected over its remaining term.The carrying value of derivative assets and liabilities is set out in Note 19.
Deferred tax
The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group’s latest approved budget
which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of
taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually
recognised in full.The carrying value of deferred tax assets and liabilities is set out in Note 14.
Litigation
Where the Group has an outstanding legal claim against it and it is probable that an outflow will be required in settlement, an appropriate accrual or
provision is recognised in respect of the expected settlement.
Business combinations
Business combinations are accounted for using the purchase method.The purchase method involves the recognition of the acquiree’s identifiable assets
and liabilities, including contingent liabilities, regardless of whether they were recorded in the financial statements prior to acquisition. On initial recognition,
the assets and liabilities of the acquired subsidiary are included in the consolidated financial statements at their fair values, which are also used as the
basis for subsequent measurement in accordance with the Group’s accounting policies.Any deferred consideration in respect of the acquisition is held
as a liability until payment is due and reflected in the initial carrying value of the subsidiary.Any subsequent changes to the amount of deferred consideration
are recognised against the liability and through the income statement. Goodwill is stated after separating out identifiable assets where applicable.
Goodwill and other intangible assets
Goodwill arising on acquisition represents any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities
acquired less any provision for impairment. Under IFRS, goodwill is not amortised. Goodwill is recognised as an asset, and is reviewed for impairment at
least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.Any impairment is recognised
immediately in the Group’s income statement and is not subsequently reversed.The recoverable amount is the higher of an asset’s fair value less costs
to sell and value in use.
Impairment tests for goodwill were conducted on the basis of cash-generating units (“CGUs”).According to the IFRS rules, a CGU is the smallest identifiable
group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets.
CGUs were established for the individual merchant operators, and for the agency businesses, in specific countries.The expected cash flows generated are
discounted using rates that represent estimated weighted average cost of capital for the respective business.The approach, assumptions and results of
the impairment test are set out in Note 8.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at previous UK GAAP amounts subject to being tested for
impairment at that date. Goodwill written off to reserves under UK GAAP prior to 2006 has not been reinstated and is not included in determining
any subsequent profit or loss on disposal.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Customer relationships acquired in a business combination are recognised at fair value at the acquisition date.The relationships have a finite useful life
and are carried at cost less accumulated amortisation.Amortisation is calculated using the straight-line method over the expected life of the relationship.
These have been classified as other intangible assets.
Costs that are directly associated with the purchase and implementation of websites and unique software by the Group are recognised as intangible
assets and are classed as website development and computer software. Expenditures that enhance and extend the benefits of these items and lives are
recognised as a capital improvement and added to the original cost of the website and software.These assets are carried at cost less accumulated
amortisation and impairment.
Other intangible assets are accounted for at cost whereby capitalised costs are amortised over their respective lives.Acquired computer software and
website development are capitalised on the basis of costs incurred to acquire and install.The estimated useful economic life of these assets are as follows:
Other intangible assets – 1 to 6 years
Website development – 3 to 5 years
Computer software – 3 to 5 years ANNUAL REPORT AND ACCOUNTS 2011 21
Property, plant and equipment
Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment.
Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.
Property improvements – 5 years
Office equipment and computer equipment – 3 to 5 years
Motor vehicles – 3 to 5 years
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within administrative expenses
in the income statement.
Financial assets
i) Classification
The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale.
The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets
at initial recognition.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading.A financial asset is classified in this category if acquired principally
for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges.Assets in this
category are classified as current assets.Any derivatives expected to be settled in greater than twelve months are classified as non-current assets.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.They are included
in current assets, except for maturities greater than 12 months after the balance sheet date.These are classified as non-current assets.The Group’s loans
and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.They are
included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.
ii) Recognition and measurement
The Group measures its financial assets initially at fair value.The subsequent measure depends on classification for example trade and other receivables
which are fixed price are carried at amortised cost (if applicable) using an effective interest method if the time value of money is significant. Due to the
nature of the businesses, credit risk is deemed low, therefore amortisation or impairment is unlikely. Gains or losses arising from changes in the fair value
of the financial assets at fair value through profit or loss category are presented in the income statement within finance income or finance costs in the
period in which they arise.
Financial liabilities
The Group’s financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are classified as
financial liabilities measured at amortised cost or derivatives designated as hedging instruments.
The Group determines the classification at initial recognition and measures initially at fair value.The subsequent measurement depends on classification,
for example financial liabilities measured at amortised cost having been initially recognised at fair value (in case of borrowing, fair value of proceeds net of
issue costs), are subsequently measured at amortised cost (if applicable) using an effective interest method taking into account discounts and issue costs.
This category of financial liability includes borrowings and trade and other payables.
Derivatives designated as hedging instruments are accounted for in accordance with the policy set out below.
Derivative financial instruments and hedging
Derivative financial instruments are initially measured at the fair value attributable to them on the day of the conclusion of the agreement.The follow-up
measurement is also effected at the fair value applicable at the respective balance sheet date.The method applied in recording profits and losses depends
on whether the derivative financial instrument is classified as a hedge, and on the type of hedged item.As a matter of principle, the Group classifies
derivative financial instruments either as fair value hedges to hedge exposure to changes in the fair value of assets or liabilities or as cash flow hedges
to hedge exposure to risks of varying cash flows from highly probable future transactions.
Upon inception of the transaction, the Group documents the hedging relationship between the hedge and the underlying item, the risk management goal
and the strategy pursued in entering into the hedges. In addition, an assessment is made both at the beginning of the hedge relationship and on a continual
basis as to whether the derivatives used for the hedge compensate for the changes in the fair values or cash flows of the underlying transactions in a highly
effective manner.The Group currently has no fair value hedges in place. Changes in the fair values of derivative financial instruments not achieving the
criteria for hedge accounting are directly recognised in the income statement. 22 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
Where a derivative financial instrument is designated as a hedge of the variability in cash flows arising from a recognised asset or liability, or a highly
probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve.
Any ineffective portion of the hedge is recognised immediately in the income statement.
When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or
loss is removed from the hedging reserve and is included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of
a forecast transaction subsequently results in the recognition of financial asset or financial liability, the associated gains and losses that were recognised
directly in equity are reclassified into the income statement in the same period or periods during which the asset acquired or liability assumed affects
profit or loss.
For cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or
periods during which the hedged forecast transaction affects in the income statement.
Prospective hedge effectiveness is performed at the commencement of hedge accounting, and subsequently at each balance sheet date, through comparison
of the critical terms of the hedged forecast transaction and the hedging instrument. Critical terms are the maturity, amount and currency of the cash
flows relating to the hedging instrument and the forecast hedged transaction. Retrospective hedge effectiveness is performed at each reporting date
principally using a dollar offset analysis, comparing the cumulative changes in the fair values of the forecast hedged transaction and the hedging instrument.
When a hedging instrument no longer meets the criteria for the hedge accounting, expires or is sold, terminated or exercised, or the entity revokes
designation of the hedge relationship, hedge accounting is discontinued prospectively. If the hedged forecast transaction is still expected to occur, the
cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged
transaction is no longer expected to take place, the cumulative unrealised gain or loss is recognised in equity or recognised in the income statement
immediately.
T otal transaction value and revenue recognition
T otal transaction value, which is stated net of value added tax, does not represent the Company’s statutory revenue.Where companies within the Group
act as agent or cash collector, total transaction value represents the price at which goods or services have been sold to the consumer and is recognised
on the same time basis as statutory turnover.
Revenue represents the fair value of consideration receivable from inclusive tours, agency commissions receivable and other services supplied to customers
in the ordinary course of business. Revenue and direct expenses relating to the inclusive tours arranged by the Group’s merchant leisure travel providers
are taken to the income statement on holiday departure. Revenue relating to agency commission receivable on third party leisure travel products is
recognised when earned, which is on receipt of the full payment from the customer. Revenue relating to agency receivable on third party business travel
products is recognised when earned on date of booking, which by the terms of contracts is the date the invoice is raised and the customer becomes
liable for payment under the terms of their contract. In all cases recognition occurs when it is probable that the economic benefits associated with the
transaction will flow into the Group, the costs incurred or to be incurred can be measured reliably. Other revenue and associated expenses are taken
to the income statement as earned or incurred. Revenue and expenses exclude intra-Group transactions.
Income statement presentation and separately disclosed items
Profit or loss from operations includes the results from operating activities of the Group.
Separately disclosed items are those that are unusual because of their size, nature or incidence which the Group’s management consider should be
disclosed separately to enable a full understanding of the Group’s results. Separately disclosed items include share-based payment charges.
T ax
The tax expense for the period comprises current and deferred tax.Tax is recognised in the income statement, except to the extent that it relates to
items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly
in equity, respectively.The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis
of amounts expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition
of goodwill. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither. accounting nor taxable profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future
taxable profit will be available against which the temporary differences can be utilised. ANNUAL REPORT AND ACCOUNTS 2011 23
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and
when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle the balances on a net basis.
Pensions
The Group pays contributions to publicly or privately administered pension plans on a mandatory, contractual or voluntary basis.The group has no
further payment obligations once the contributions have been paid.The contributions are recognised as employee benefit expense when they are due.
Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Foreign currency
(a) Functional and presentation currency
In the Group’s financial statements, all assets, liabilities and transactions of the Group’s entities are translated into sterling, the functional currency of the
parent company.Average exchange rates are used to translate the income and expenses of all subsidiaries that have a functional currency other than sterling
where there has been no significant fluctuation in the rate.The balance sheets of such entities are translated at period end exchange rates.All resulting
exchange differences are recognised as a separate component of equity. 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. On consolidation, exchange differences arising from the translation
of the net investment in foreign operations, and of borrowings designated as hedges of such investments, are recognised in equity.
The principal exchange rates used in currency translation between subsidiaries and the group's presentational currency are disclosed in Note 26.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation
where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in
other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to cash
and cash equivalents are presented in the income statement within ‘finance income or cost’.All other foreign exchange gains and losses are presented
in the income statement within ‘administrative expenses’.
Non-monetary items measured at historical cost are translated using the exchange rates at the date of transaction (not retranslated). Non-monetary
items are measured at fair value and are translated using the exchange rates at the date when the fair value was determined.Translation differences on
non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair
value gain or loss.Translation differences on non-monetary financial assets are included in other comprehensive income.
Share-based payments
The Group issues share-based instruments to certain employees as part of their total remuneration:
Share options
Share options are recorded as equity settled share-based compensation.The fair values of these instruments are calculated at the date of grant, using the
Black-Scholes or Monte-Carlo Simulation pricing models. Non-market vesting conditions are included in assumptions about the number of options that
are expected to vest.The total expense is recognised in the income statement over the vesting period, which is the period over which all of the specified
vesting conditions are to be satisfied with a corresponding increase in equity reserves.At the end of each reporting period, the Group revises its estimates
of the number of options that are expected to vest based on the non-market vesting conditions.The Group recognises the impact of the revision to original
estimates, if any, in the income statement, with a corresponding adjustment to equity.Any waivers to share-based payments are treated as cancellations
by the Group.When the options are exercised, the Company issues new shares.The proceeds received net of any directly attributable transaction costs
are credited to share capital (nominal value) and share premium when the options are exercised.
Cash bonus award
The Group also issued a cash bonus award which is recorded as cash settled share-based compensation.The fair value of the cash bonus award is
calculated using the Monte-Carlo Simulation pricing model at each reporting date.The fair value is charged to the income statement with a
corresponding entry to non-current liabilities.
Basis of consolidation
Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies
generally accompanying a shareholding of more than one half of the voting rights.The existence and effect of potential voting rights that are currently
exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date
on which control is transferred to the Group.They are de-consolidated from the date that control ceases.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated
but considered to be an impairment indicator of the asset transferred.Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group. 24 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
Equity and reserves
Share capital presents the nominal value of shares that have been issued. Ordinary shares are classified as equity. Incremental costs directly attributable
to the issue of shares and share awards are recognised as a deduction from equity, net of any tax effects.
Share premium includes any premiums received on the issue of share capital.Any transaction costs associated with the issuing of shares are deducted
from the share premium, net of any related income tax benefits.
The translation and hedge reserve includes the effects of foreign currency translation differences arising on the translation of the Group’s foreign entities
and the gains and loss on financial instruments designated as effective hedges are also included.
The Company was entitled to the merger relief offered by section 131 of the Companies Act 1985 in respect of the consideration received in excess
of the nominal value of the equity shares issued in connection with the acquisition of Peng Travel Limited, Fair’s Fare Limited and the settlement of
outstanding consideration on the acquisition of Holiday Express Group Limited.
On acquisition, the investments in the Company’s immediate subsidiary companies were recorded in the Company’s balance sheet at the fair value of
the assets acquired, with the difference between this and the nominal value of the shares issued being credited to a merger reserve.
Brochure and advertising costs
The costs of brochure publication and advertising including web based advertising are charged to the income statement as incurred.
Operating lease agreements
In accordance with IAS 17 Leases, rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the
lessor are charged against profits on a straight line basis over the period of the lease.
Finance lease agreements
The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and the
rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased
property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and the finance charges so as to achieve a constant rate on the finance balance outstanding.The interest
element of the finance cost is charged to the income statement over the period of the lease so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.The property, plant and equipment acquired under finance leases are depreciated over the shorter of
the useful life of the asset and the lease term.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.The chief operating
decision-maker is the executive management, who are responsible for allocating resources and assessing performance of the operating segments.
Cash and cash equivalents
For the purpose of the cash flow statement, cash comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand.
Capital management policies and procedures
The Group’s capital management objectives are:
• to ensure the Group’s ability to continue as a going concern; and
• to provide an adequate return to shareholders
by pricing holidays effectively and considering the level of risk.The Group monitors capital on the basis of the carrying value of equity plus its facility loan,
less cash and cash equivalents as presented in the face of the financial statements.The Group’s goal in capital management is to comply with its covenants
arising under the Group’s current borrowing facility. ANNUAL REPORT AND ACCOUNTS 2011 25
Impact of new International Financial Reporting Standards adopted in the year by the Group
New International Financial Reporting Standards adopted in the year
The following amendments to existing International Financial Reporting Standards and new International Financial Reporting Standards have been adopted
by the group during the year with no impact:
• Annual improvements 2009
• Amendments to IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions
• Amendments to IFRS 1 for additional exemptions
• Amendments IAS 32 Financial instruments: Presentation on classification of rights issues
• Amendment to IFRS 1, First time adoption on financial instrument disclosures
• IFRIC 15 Arrangements for construction of real estates
• IFRIC 19 Extinguishing financial liabilities with equity instruments
New and Amended Standards adopted by the European Union but not yet adopted by the Group
The following new and amended standards and interpretations are required to be implemented for the financial years ended from
31 October 2012 onwards:
• Amendments to IFRS 7 Financial instruments: disclosure on derecognition
• IAS 24 (revised) Related party disclosures
• Annual improvements 2010
• Amendment to IFRIC 14 Pre-payments of a Minimum Funding Requirement
• IFRS 9 Financial Instruments
• IFRS 10 Consolidated financial statements
• IFRS 12 Disclosures of interests in other entities
• IFRS 13 Fair value measurement
Management is currently reviewing these new and amended standards and the impact on the Group’s financial statements. 26 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
CONSOLIDATED INCOME STATEMENT
Re-presented*
Year to Year to
31 October 31 October
2011 2010
Notes £000s £000s
T otal transaction value 1 246,576 217,645
Revenue 1 37,684 43,805
Cost of sales 2 (13,988) (19,646)
Gross profit 23,696 24,159
Administrative expenses 2 (23,005) (32,158)
Operating profit/(loss) 691 (7,999)
Analysed as:
Underlying operating profit 4,167 6,099
Separately disclosed items 2 (2,648) (1,917)
Amortisation of intangible assets and goodwill impairment 2 (828) (12,181)
691 (7,999)
Finance income 5 471 315
Finance costs 5 (2,767) (2,225)
Loss on ordinary activities before taxation (1,605) (9,909)
Income tax expense 6 (1,307) (2,860)
Loss for the year (2,912) (12,769)
Basic loss per share 7 (2.01)p (8.80)p
Fully diluted loss per share 7 (2.01)p (8.80)p
* Refer to note 24 ANNUAL REPORT AND ACCOUNTS 2011 27
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Year to Year to
31 October 31 October
2011 2010
£000s £000s
Loss for the year (2,912) (12,769)
Other comprehensive income:
Currency translation differences (400) (578)
Movement in cash flow hedge 581 292
Other comprehensive income, net of tax 181 (286)
T otal comprehensive loss for the year (2,731) (13,055) 28 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
CONSOLIDATED BALANCE SHEET
Re-presented*
31 October 31 October
2011 2010
Notes £000s £000s
ASSETS
Non-current assets
Goodwill 8 29,809 29,809
Intangible assets 9 2,145 2,619
Property, plant and equipment 10 1,196 1,262
33,150 33,690
Current assets
Inventories – 18
Trade and other receivables 11 7,551 7,560
Derivative financial instruments 13 416 190
Restricted cash 12 996 2,926
Cash and cash equivalents 1,617 2,924
10,580 13,618
T otal assets 43,730 47,308
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent Company
Share capital 15 2,903 2,903
Share premium account 31,456 31,456
Merger reserve 2,320 2,320
Translation and hedge reserve (4,949) (5,130)
Retained earnings (15,125) (12,749)
T otal equity 16,605 18,800
Non-current liabilities
Trade and other payables 18 2,003 622
Borrowings 17 – 9,733
Obligations under finance leases 17 247 273
Deferred tax 14 221 484
2,471 11,112
Current liabilities
Trade and other payables 18 9,131 10,031
Borrowings 17 12,423 4,503
Obligations under finance leases 17 123 107
Derivative financial instruments 19 932 1,247
Current tax liabilities 18 2,045 1,508
24,654 17,396
T otal liabilities 27,125 28,508
T otal equity and liabilities 43,730 47,308
* Refer to note 24
The financial statements were approved by the Board of directors on 30 March 2012 and signed on its behalf by
J G Carroll A C Cobbold
Director Director ANNUAL REPORT AND ACCOUNTS 2011 29
CONSOLIDATED CASH
FLOW STATEMENT
Re-presented*
Year to Year to
31 October 31 October
2011 2010
Notes £000s £000s
Cash flows from operating activities
Cash generated from operations 23 2,042 4,936
Interest paid (1,765) (1,748)
Income taxes paid (882) (754)
Net cash flow from operating activities (605) 2,434
Cash flow from investing activities
Purchases of property, plant and equipment and intangible assets (556) (707)
Interest received – 9
Net cash used in investing activities (556) (698)
Cash flow used in financing activities
Repayment of borrowings (2,290) (1,729)
Decrease/(increase) in restricted cash 1,930 (62)
Finance lease 93 –
Costs on issue of shares – (68)
Net cash used in financing activities (267) (1,859)
Net decrease in cash and cash equivalents (1,428) (123)
Cash and cash equivalents
Cash and cash equivalents at beginning of year 2,924 2,721
Effect of foreign exchange rate changes 121 326
Net movement in cash and cash equivalents (1,428) (123)
Cash and cash equivalents at end of year 1,617 2,924
* Refer to note 24 30 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
Translation Share
Share and hedge premium Merger Retained T otal
capital reserve account reserve earnings equity
£000s £000s £000s £000s £000s £000s
At 1 November 2009 2,903 (4,844) 31,524 2,320 (129) 31,774
Comprehensive income:
Loss for the year –– – – (12,769) (12,769)
Other comprehensive income:
Movement in cash flow hedge – 292 ––– 292
Foreign exchange movements – (578) ––– (578)
T otal comprehensive income – (286) –– (12,769) (13,055)
Transactions with owners:
Costs on issue of shares –– (68) –– (68)
Share-based payments –– – – 149 149
Transactions with owners: –– (68) – 149 81
At 1 November 2010 2,903 (5,130) 31,456 2,320 (12,749) 18,800
Comprehensive income:
Loss for the year –– – – (2,912) (2,912)
Other comprehensive income:
Movement in cash flow hedge – 581 ––– 581
Foreign exchange movements – (400) ––– (400)
T otal comprehensive income – 181 –– (2,912) (2,731)
Transactions with owners:
Share-based payments –– – – 536 536
Transactions with owners: –– – – 536 536
At 31 October 2011 2,903 (4,949) 31,456 2,320 (15,125) 16,605 ANNUAL REPORT AND ACCOUNTS 2011 31
NOTES TO THE
FINANCIAL STATEMENTS
1 Segment reporting
Management has determined the reportable operating segments based on the information which is reviewed by the executive management, which is considered
to be the chief operating decision maker.The executive management considers the business from an operating division perspective. For management purposes,
the Group is currently organised into two operating divisions: merchant operations and agency operations. Merchant operations revenue is primarily when
the Group becomes principal on the transaction and defines the terms of the transaction with the consumer.Agency operations revenue is primarily when
the Group passes on to the consumer the majority of the terms of sale from the ultimate supplier and earns a commission for completing the transaction.
The segment information provided to the executive management for the year ended 31 October 2011 is as follows:
All revenues in 2011 and 2010 are in respect of external customers. The group is not reliant on any one major customer (2010: none).
Represented Represented Represented
2011 2010 2011 2010 2011 2010
£000s £000s £000s £000s £000s £000s
Revenue 10,286 20,111 27,398 23,694 37,684 43,805
Results
Profit from operations before depreciation (973) 232 6,439 7,029 5,466 7,261
Depreciation (5) (37) (314) (282) (319) (319)
Amortisation of intangible assets – (210) (821) (648) (821) (858)
Goodwill impairment – (5,702) – (5,618) – (11,320)
(978) (6,128) 5,304 481 4,326 (5,647)
Separately disclosed items (927) (621) (1,411) (451) (2,338) (1,072)
Unallocated separately disclosed items (310) (424)
T otal separately disclosed items (2,652) (1,496)
Central costs* (983) (856)
Operating profit/(loss) 691 (7,999)
Finance income 471 315
Finance costs (2,767) (2,225)
Loss before tax (1,605) (9,909)
Income tax expense (1,307) (2,860)
Loss for the year (2,912) (12,769)
* Included within central costs is £8,000 of depreciation, £7,000 of amortisation and £nil of loss on disposal of property, plant and equipment and intangible assets (2010: £6,000, £3,000 and £10,000 respectively).
During the year merchant operations spent £2,000 on capital expenditure, agency operations spent £552,000, and central operations spent £2,000
(2010: £11,000, £672,000 and £24,000 respectively).
2011 2010
£000s £000s
T otal transaction value
Merchant operations 10,286 20,111
Agency operations 236,290 197,534
246,576 217,645
Merchant operations
Year to 31 October
Business segments Agency operations
Year to 31 October
T otal
Year to 31 October 32 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
1 Segment reporting (continued)
2011 2010 2011 2010 2011 2010
£000s £000s £000s £000s £000s £000s
Segment assets 1,422 2,105 42,308 40,773 43,730 42,878
Unallocated corporate assets – 4,430
Consolidated assets 1,422 2,105 42,308 40,773 43,730 47,308
Segment liabilities (4,823) (3,619) (8,409) (8,391) (13,232) (12,010)
Unallocated corporate liabilities (13,893) (16,498)
Consolidated liabilities (4,823) (3,619) (8,409) (8,391) (27,125) (28,508)
Net assets 16,605 18,800
Group wide disclosures
The UK is the Company’s country of domicile. Revenues from external customers and non-current assets are split geographically as follows:
Year to Year to
31 October 31 October
2011 2010
£000s £000s
Location
United Kingdom 12,295 21,994
Canada 25,389 21,811
Group 37,684 43,805
Year to Year to
31 October 31 October
2011 2010
£000s £000s
Location
United Kingdom 264 332
Canada 32,886 33,358
Group 33,150 33,690
Non-current assets include intangible assets and property, plant and equipment. During the year £111,000 was spent on the purchase of intangible assets
and property, plant and equipment in the UK and £445,000 in Canada (2010: £337,000 and £370,000 respectively).
Merchant operations
31 October
Agency operations
31 October
T otal
31 October
Revenue
Non-current assets ANNUAL REPORT AND ACCOUNTS 2011 33
2 Operating profit/(loss)
Operating profit/(loss) stated after charging/(crediting):
2011 2010
£000s £000s
Commissions paid 3,800 2,791
Merchant cost 8,699 15,782
Other cost of sales 1,489 1,073
Cost of sales 13,988 19,646
Salaries and benefits 9,021 8,933
Marketing and advertising 4,685 4,261
Other expenses 3,396 3,162
Separately disclosed items 2,648 1,917
Net loss/(gain) on foreign currency translation 243 (205)
Depreciation of owned property, plant and equipment 220 215
Depreciation of financed property, plant and equipment 107 110
Amortisation of intangible assets 828 861
Goodwill impairment – 11,320
Auditors’ remuneration:
Audit of the financial statements 43 52
Other services relating to audit of group subsidiaries 128 151
Other services relating to taxation 78 53
Other services provided pursuant to legislation 15 22
Operating lease costs:
Office equipment 579 240
Property 1,014 1,066
Administrative expenses 23,005 32,158
Separately disclosed items:
Share-based payments (see note 16) 588 130
Move and other IT transition costs 71 121
Corporate restructuring costs:
Legal 144 –
Other 153 84
Operational companies’ restructuring costs:
Severance 671 431
Additional contract costs and write down of receivables 475 –
Legal 542 385
Ash cloud and other non-recoverable costs – 345
Loss on disposal of property, plant and equipment and intangible assets 4 421
2,648 1,917 34 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
3 Personnel costs
The aggregate payroll costs were:
2011 2010
£000s £000s
Salaries 12,326 11,143
Social security costs 1,166 1,009
Share-based payments 588 130
Value of company pension contributions to money purchase schemes – 3
14,080 12,285
Reconciliation to note 2:
2011 2010
£000s £000s
Commissions paid 3,800 2,791
Salaries and benefits 9,021 8,933
Severance 671 431
Share-based payments 588 130
14,080 12,285
The average monthly headcount employed by the Group during the year including directors on a service contract was:
2011 2010
Administrative staff 132 176
Sales staff 185 147
317 323
4 Directors’ remuneration
Year to Year to
Salaries Annual 31 October 31 October
and fees
1
bonus Benefits 2011 2010
£000s £000s £000s £000s £000s
Executive Directors
J G Carroll 321 – 24 345 491
J C Fraser 266 – 18 284 363
N Robb – ––– 110
Non-Executive Directors
3
J D Brooke – ––– –
R G Hall 24 –– 24 31
N J Jenkins
2
50 –– 50 26
M T J Molyneux 60 –– 60 60
P Thomson – ––– 9
T otal 721 – 42 763 1,090
1. Payments made during the year converted to sterling.
2. In the prior year N J Jenkins was appointed as a director as of 12 April 2010.
3. Non-Executive directors are reimbursed for their travel expenses incurred related to corporate matters.
In accordance with IFRS 2 Share-based payments, a share-based charge relating to directors of £517,000 (2010: £237,000) has been charged to the income
statement in addition to the remuneration set out in the table above. During the year no directors exercised their share options (2010: nil). No directors
(2010: nil) participated in money purchase pension schemes. ANNUAL REPORT AND ACCOUNTS 2011 35
5 Finance income and costs
Represented
2011 2010
£000s £000s
Bank interest income – 9
471 306
Finance income 471 315
Bank interest expense (1,968) (1,870)
Expense from interest rate hedges (212) (355)
Other financing costs (587) –
Finance costs (2,767) (2,225)
T otal (2,296) (1,910)
The expenses arising from interest rate hedges relates to the ineffective element of a basis points swap. Income arising from interest rate hedges reflects
the overall credit from effective Canadian dollar and sterling interest rate swaps. Other financing costs were incurred in the renewal of the Company’s
banking facility as described in note 25.
6 Income tax expense
T ax expense comprises:
2011 2010
£000s £000s
Current income taxes:
UK corporation tax – –
Overseas taxation 1,581 1,927
T otal current income tax 1,581 1,927
Origination and reversal of temporary differences (213) (418)
Adjustments in respect of prior years (61) 1,351
T otal deferred tax (274) 933
Income tax expense 1,307 2,860 36 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
6 Income tax expense (continued)
The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the standard rate of taxation in the UK of 26.83%
(2010: 28.0%) as follows:
2011 2010
£000s £000s
Loss on ordinary activities before taxation (1,605) (9,909)
Expected income tax at 26.83% (2010: 28.0%) (431) (2,775)
Amortisation and impairment 222 3,529
Brought forward tax losses no longer recognised – 1,351
Tax losses for which no deferred income tax was recognised 1,254 672
Unutilised foreign tax credits 101 –
Overseas rate differences 176 77
Expenses not deductible for tax purposes 63 6
Share options (60) –
Effective tax expenses and income relating to other periods (18) –
Income tax expense 1,307 2,860
No current or deferred tax has been charged or credited to other comprehensive income in 2011 (2010: £nil). Deferred tax of £nil has been credited
to equity (2010: £34,000).
A number of changes to the UK Corporation tax system were announced in the June 2010 Budget Statement.The Finance (No 2) Act 2010, which was
substantively enacted on 20 July 2010, includes legislation reducing the main rate of corporation tax from 28 per cent to 27 per cent from 1 April 2011.
In the March 2012 Budget Statement, a further reduction of 2 per cent to 25 per cent from 1 April 2012 was announced with further reductions to the
main rate proposed to reduce the rate by 1 per cent per annum thereafter to 22% from 1 April 2014. These further changes had not been substantively
enacted at the balance sheet date and, therefore, are not included in these financial statements. The overall impact is not expected to be material to
these financial statements.
7 Earnings per share
The basic loss per share of 2.01p (2010: 8.80p loss per share) is based on a loss of £2,912,000 (2010: loss of £12,769,000) and
145,136,110 (2010: 145,136,110) shares of 2p, being the average number of shares in issue during the year.
The number of potentially dilutive instruments outstanding are set out in the following table:
2011 2010
Employee option scheme #1 104,040 104,040
Employee option scheme #2 4,500,004 –
Management incentive plan 28,586,984 28,586,984
33,191,028 28,691,024
Warrants 5,247,000 5,247,000
As the Group made a loss during the current and prior year, the impact of potential ordinary shares is anti-dilutive and therefore the dilutive loss per
share is the same as the basic loss per share at 2.01p (2010: 8.80p loss per share). ANNUAL REPORT AND ACCOUNTS 2011 37
8 Goodwill
£000s
At 1 November 2009 43,229
Additions –
Disposals –
At 31 October 2010 43,229
Additions –
Disposals –
At 31 October 2011 43,229
Accumulated impairment loss
At 1 November 2009 (2,100)
Impairment loss (11,320)
At 31 October 2010 (13,420)
Impairment loss –
At 31 October 2011 (13,420)
Carrying amount at 31 October 2011 29,809
Carrying amount at 31 October 2010 29,809
Annually or more frequently if events or a change in the economic environment indicate a risk of impairment, the Group assesses the recoverable amount
of goodwill allocated to the businesses listed below (determined by reference to the value in use of the continuing operations of the related businesses) as
required by IAS 36 Impairment of assets. IAS 36 requires that impairment tests are carried at the level where independent cash flows arose at which the
Group’s management measures returns on operations.
Goodwill is allocated to the following CGUs:
2011 2010
£000s £000s
4358376 Canada Inc. (trading as itravel2000) 23,834 23,834
The Cruise Professionals Limited 5,975 5,975
29,809 29,809
For the year ended 31 October 2011 management has undertaken a detailed review of the carrying value of these investments both at a consolidated
and company level and have determined that no impairment charge is required.
In making estimates of future profit and cash flows, the growth rate assumptions that have been applied to each businesses’ current year profits are
deemed to be appropriate by management. 38 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
8 Goodwill (continued)
Growth rate estimates by their nature will include assumptions which have been considered in detail by management. In making assumptions, management
has taken into account the following factors:
• Cash flow projections based on the Group’s latest approved four year plan which are sensitised to consider the impact of current trends in
consumer demand;
• Historic results;
• Cash flows are discounted using the Group’s weighted average cost of capital, adjusted as appropriate for business specific factors of sector risk,
business size and other macro-economic factors relevant to the specific businesses;
• Customer base to which the businesses sell;
• The Group’s pre tax weighted average cost of capital is 16.5% (2010: 16.5%);
• An average passenger growth rate of 11.0% over the next four years in Canada has been used for the CGUs (2010: 10%); and
• A terminal value multiple of 6 times cash flow has been applied to all segments (2010: 6 times).
If the estimated cost of capital used in determining the discount rate for the CGU’s above had been 1.0% higher than Management’s estimates (for example
17.5% instead of 16.5%) no additional impairment would have been recorded. Using an average passenger growth rate of 6.0% instead of 11.0% in Canada
results in an indicative impairment charge of £2,000,000 inThe Cruise Professionals Limited and an indicative impairment charge of £1,400,000 in 4358376
Canada Inc..A reduction in the terminal value multiple of 5 times leads to an indicative impairment charge of £500,000 inThe Cruise Professionals Limited
and a £nil impairment charge in 4358376 Canada Inc..
9 Intangible assets
Other
intangible Website Computer
assets development software T otal
£000s £000s £000s £000s
At 1 November 2009
Opening net book amount 1,782 2,502 2,088 6,372
Additions – 274 329 603
Disposals – (739) – (739)
Foreign exchange adjustments – 42 162 204
At 1 November 2010 1,782 2,079 2,579 6,440
Additions – 287 28 315
Disposals – (423) (143) (566)
Foreign exchange adjustments – 11 60 71
At 31 October 2011 1,782 1,954 2,524 6,260
Accumulated amortisation
At 1 November 2009 524 1,263 1,383 3,170
Charge for year 269 357 235 861
Disposals – (365) – (365)
Foreign exchange adjustments – 65 90 155
At 1 November 2010 793 1,320 1,708 3,821
Charge for year 269 278 281 828
Disposals – (423) (143) (566)
Foreign exchange adjustments –– 32 32
At 31 October 2011 1,062 1,175 1,878 4,115
Carrying amount at 31 October 2011 720 779 646 2,145
Carrying amount at 31 October 2010 989 759 871 2,619 ANNUAL REPORT AND ACCOUNTS 2011 39
Other intangible assets comprises the separately identifiable assets determined from the acquisition ofThe Cruise Professionals Limited and relates to customer
relations (£1,500,000), order backlog (£206,000) and contractual agreements (£76,000) with residual lives of between one and six years.The carrying amount
of other intangible assets are as follows: customer relations £706,000 and order backlog £14,000 (2010: £957,000 and £32,000) with a remaining amortisation
period of 34 months and 10 months respectively.Amortisation of intangible assets is recognised within administrative expenses in the income statement.
10 Property, plant and equipment
Property Computer Office Motor
improvements equipment equipment vehicles T otal
£000s £000s £000s £000s £000s
At 1 November 2009 756 893 1,148 27 2,824
Additions 7 50 44 3 104
Disposals – (248) (129) – (377)
Foreign exchange adjustments 59 39 67 – 165
At 1 November 2010 822 734 1,130 30 2,716
Additions 21 30 190 – 241
Disposals (20) (161) (210) (19) (410)
Foreign exchange adjustments 16 14 19 – 49
At 31 October 2011 839 617 1,129 11 2,596
Accumulated depreciation
At 1 November 2009 94 674 594 27 1,389
Charge for year 87 85 153 – 325
Disposals – (194) (136) – (330)
Foreign exchange adjustments 7 40 23 – 70
At 1 November 2010 188 605 634 27 1,454
Charge for year 82 71 173 1 327
Disposals (20) (161) (206) (19) (406)
Foreign exchange adjustments 3 13 9 – 25
At 31 October 2011 253 528 610 9 1,400
Net book value
At 31 October 2011 586 89 519 2 1,196
At 31 October 2010 634 129 496 3 1,262
The net book value of assets held under finance leases is £370,000 (2010: £355,000).These are included within office equipment. Depreciation has been
charged to administrative expenses.
11 Trade and other receivables
2011 2010
£000s £000s
Trade accounts receivable 4,724 4,948
Other receivables 2,027 1,852
Prepayments and accrued income 800 760
7,551 7,560
Trade accounts receivable represents amounts due from passengers and is typically paid prior to departure. Other receivables primarily relate to commissions
due from tour operators.There are no material overdue amounts included in the values above and no amounts are considered to be impaired (2010: £nil). 40 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
12 Restricted cash
2011 2010
£000s £000s
Trust accounts 996 926
Loan pledge amount – 2,000
996 2,926
13 Derivative financial instruments
2011 2010
£000s £000s
Receivables from derivative financial instruments 416 190
Derivative financial instruments, all with a remaining term of less than year, primarily serve to hedge future operative business; all instruments are outlined
in note 26.The fair value of the financial derivatives has been determined by relevant valuations obtained from Group bankers based on observable market
data and comprises a total gain on forward contracts of £nil (2010: £19,000) recognised to the consolidated income statement and relates to cash flows
from November 2010 to October 2011. £416,000 (2010: £171,000) relates to the fair value of a derivative associated with the “Let It Snow” campaign in
Canada.The derivative entered into is to fully mitigate the cash flow risk associated with a specific weather event occurring on 1 January 2012 and the
resulting rebate that would be due to qualifying customers of itravel2000.The table in note 19 indicates when the cash flows are expected to occur.
14 Deferred tax
The analysis of deferred tax assets and deferred tax liabilities is as follows:
2011 2010
£000s £000s
Deferred tax assets:
T o be recovered after more than 12 months – –
T o be recovered within 12 months – –
Deferred tax liabilities:
T o be recovered after more than 12 months (279) (173)
T o be recovered within 12 months 58 (311)
Net deferred tax liability (221) (484)
The movement in the deferred taxation (liability)/asset during the year was:
2011 2010
£000s £000s
Deferred tax brought forward (484) 480
Income statement credit /(charge) 274 (933)
Tax credit directly to equity – 34
Exchange differences (11) (65)
Net deferred tax liability (221) (484) ANNUAL REPORT AND ACCOUNTS 2011 41
The movement in deferred income tax assets and liabilities during the year without taking into account offsetting of balances within the same jurisdiction
is as follows:
Deferred tax liabilities Accelerated Recognised in
tax business Share-based
depreciation combinations payment T otal
£000s £000s £000s £000s
At 1 November 2009 (217) (499) (155) (871)
Credited to the income statement 117 240 61 418
Credited to equity –– 34 34
Exchange differences (20) (45) – (65)
At 31 October 2010 (120) (304) (60) (484)
Credited to the income statement 113 101 60 274
Exchange differences (10) (1) – (11)
At 31 October 2011 (17) (204) – (221)
Deferred tax assets T ax losses T otal
£000s £000s
At 1 November 2009 1,351 1,351
Charged to the income statement (1,351) (1,351)
At 31 October 2010 ––
Charged to the income statement ––
At 31 October 2011 ––
Deferred income tax assets are recognised for loss carry-forwards to the extent that the realisation of the related tax benefit through taxable profits
is probable.The Group has unrecognised deferred income tax assets of £2,841,000 (2010: £1,587,000).There is no expiry date in respect of these losses.
15 Share capital
Authorised share capital:
2011 2010
£000s £000s
259,550,000 ordinary shares of £0.02 each 5,191 5,191
Issued, called up and fully paid:
Number £000s Number £000s
Ordinary shares of £0.02 each 145,136,110 2,903 145,136,110 2,903
2011 2010 42 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
15 Share capital (continued)
In 2009 and in accordance with the Exchange Rights Agreement dated 13 October 2006,Travelzest Holdings Inc., a wholly-owned indirect subsidiary of
Travelzest plc, purchased the 10,572,614 Class A shares in 0763756 B.C. Ltd from 6615716 Canada Inc..The shares are issued at 120p.The exchangeable
shares were originally issued as part consideration of the acquisition of itravel2000 in October 2006.
In September 2009, the Company issued 114,170,000 new ordinary shares of 2p each at a premium of 3p raising £5,710,000.The placing fees associated
were £924,000.
All shares are equally entitled to receive dividends and the repayment of capital and represent one vote at shareholders’ meeting.
16 Share-based payments
Share options Employee Option Employee Option Management
Scheme #2 Scheme #1 Incentive Plan
Vesting requirements 3.0 years in plan 3.0 and 4.0 years in plan Sale of company sold in
excess of 15p per share
Maximum term 10 years 10 years 10 years
Exercise Price 15p £1.005 to £1.27 7.5p to 18p
Weighted average term to maturity at the end of the year 4.50 years 5.14 years 8.43 years
Number of Weighted Number of Weighted Number of Weighted
share average share average share average
options exercise options exercise options exercise
£000s price £000s price £000s price
2010
Outstanding at the beginning of the year –– 271 129.0p ––
T erminated in the year –– (167) 97.0p ––
Granted during the year –– – – 28,587 12.1p
Outstanding at the end of the year –– 104 125.0p 28,587 12.1p
Exercisable at the end of year –– 104 125.0p ––
2011
Outstanding at the beginning of the year –– 104 125.0p 28,587 12.1p
T erminated in the year (1,333) 15.0p – –––
Granted during the year 5,833 15.0p – –––
Outstanding at the end of the year 4,500 15.0p 104 125.0p 28,587 12.1p
Exercisable at the end of the year –– 104 125.0p ––
Employee Option Schemes
The Company issues long term incentive stock options to certain employees under an approved and unapproved option scheme. Both schemes have
similar terms that include a minimum vesting period of 3 years from the date of grant and active employment in the Group.
The fair value of options granted were determined using the Black-Scholes pricing model. Employee Option Scheme #2 is a new scheme which was
granted in 2011.The significant inputs into the calculation of the fair value were the share price at the date of grant of 14.5 pence, the exercise price
of 15 pence, the expected volatility of 69.0% which equates to the actual volatility over the 3 years of the Company trading to the date of grant, the
option life of 5 years, the expected dividend yield of nil, and the risk-free interest rate of 2.78%.
An amount of £70,000 (2010: nil) has been charged to the income statement.The Employee Option Schemes are equity settled and therefore
the movement of £70,000 (2010: nil) has been included within the Share-based payment reserve.
In addition, an amount of £nil (2010: £105,000) relating to share options not vested held by employees who left in the year has been credited
to the income statement. ANNUAL REPORT AND ACCOUNTS 2011 43
Management Incentive Plan
The Company detailed in the Shareholder Circular issued 5 August 2009 the creation of a Management Incentive Plan which was agreed by shareholders
at the General Meeting of 28 August 2009. In 2010, 28,587,000 options were granted. No options were granted in 2011.The incentive options have a market
exercise price and vest in the event of a sale of the entire issued share capital of the Company for an amount valuing the Company at least 15 pence per
Ordinary Share.The options have good leaver and bad leaver terms, and all share options must be exercised within 10 years of the date of grant.
The fair value of options granted has been determined using the Monte-Carlo Simulation which is a generally accepted statistical technique used, in this
instance, to simulate a range of possible future stock prices for the Company. The method uses geometric Brownian motion based upon a risk-neutral
framework.The model projects stock prices on a daily basis assuming 250 trading days per year.The significant inputs into the calculation for share options
granted during the year were the weighted average share price factored into the model of 12.1 pence, the exercise price ranges between 7.5 pence and
18.5 pence, the expected volatility of approximately 85.0% the option life of 5 years, the expected dividend yield of nil, and the risk-free interest rate
between 2.06% and 2.91%.
An amount of £465,000 (2010: £218,000) has been charged to the income statement in connection with share-based payment.The Management Incentive
Plan is equity settled and the movement of £466,000 (2010: £149,000) has been included within the Share-based payment reserve.
Warrants
Details of the share warrants outstanding during the year are as follows:
Number of Weighted Number of Weighted
share warrants average share warrants average
000’s exercise price 000’s exercise price
Outstanding at the beginning of the year 5,247 130p 5,247 130p
Granted during the year –– ––
Outstanding at the end of the year 5,247 130p 5,247 130p
Exercisable at the end of the year 5,247 130p 5,247 130p
The warrants outstanding at 31 October 2011 had a weighted average exercise price of £1.30 and a weighted average contractual life of 5 years.
The subscription rights attached to each warrant in issue must be exercised within 10 years of the date of grant.
The fair value of warrants granted were determined using the Black-Scholes pricing model. Significant inputs into the calculation include the market price
at the date of grant and exercise prices. Furthermore, the calculation takes into account the future dividend yield, the share price volatility rate and risk-free
interest rate.The underlying expected share price volatility was determined by reference to historical data.The Company expects the volatility of its share
price to reduce as it matures.The risk-free interest rate was determined by the implied yield available on a zero-coupon government bond.
Cash Bonus Award
In 2010, the Independent Board members approved a cash bonus award to J G Carroll, J C Fraser and M T J Molyneux.The bonus is not payable until a sale
of the entire issued share capital of the Company at the time of grant, for an amount valuing the Company at least 15 pence per Ordinary Share.The bonus
has good leaver and bad leaver terms similar to the Management Incentive Plan and has a graduated payout between 15 pence and 18.5 pence per Ordinary
Share.The fair value of the cash bonus award was determined using the Monte-Carlo Simulation.
One of the provisions of the cash bonus award is around the performance of the Company’s stock price which is a market condition (i.e. trading above 15
pence).The expense recognised is based upon the fair value determined above the 15 pence value regardless of the stock price at the time of the change of
control.The other significant inputs into the calculation for the cash bonus award granted during the year were the share price as at 31 October 2011 of
9.38p, the expected volatility which equals the actual volatility over the 5 years of the Company trading ended 31 October 2011 of 89.10%, the cash bonus
award life of 5 years, the expected dividend yield of nil, and the risk-free interest rate of 1.26% which is estimated to equal the yield as at 31 October 2011
of 5 year – 4.00% UK government bonds.
An amount of £52,000 (2010: £17,000) has been charged to the income statement in connection with the cash bonus award.The carrying value of the
liability for the cash bonus award as at 31 October 2011 was £69,000 (2010: £17,000).
2011 2010 44 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
17 Financial liabilities
< 1 year 1 – 5 years T otal < 1 year 1 – 5 years T otal
£000s £000s £000s £000s £000s £000s
Liabilities to banks 12,423 – 12,423 4,503 9,733 14,236
Obligations under finance leases 123 247 370 107 273 380
12,546 247 12,793 4,610 10,006 14,616
The loan at 31 October 2011 consists of £9,161,000 (2010: £10,603,000) denominated in Canadian dollars and £3,414,000 (2010: £4,034,000) denominated
in GBP .At the balance sheet date, this loan was due to be repaid in May 2012 and therefore has been presented as a current liability.The loan has been
presented net of the arrangement fee of £152,000 (2010: £401,000).
In 2011, interest on the bank loan was payable at variable rates of 4.50% to 6.50% above LIBOR plus a margin (2010: 4.50%) on both the Canadian dollar
and GBP components of the loan of which 100% has been fixed by means of an interest rate swap agreement at 4.0% (2010: 4.0%) on the GBP element.
In November 2010, the fixed rate swap on the Canadian dollar denominated element of the loan increased to 8.48% (2010: 4.0%).The bank loan is secured
on the assets of Travelzest plc.
In May 2011 a scheduled repayment of £2,349,000 was not made, nor was a further repayment of £2,251,000 scheduled for November 2011.
As noted in note 26, in March 2012, a further amendment to the loan has been approved.The loan is now due to be repaid over the period from January 2013
to June 2013 in six monthly instalments of £500,000 with a final repayment in June 2013.The new amendment also included a reset of the loan covenants.
Finance lease liabilities primarily relate to office equipment in Canada. Group obligations under finance leases are payable as follows:
Minimum
lease
Principal Interest payments
£000s £000s £000s
One year 123 24 147
One to five years 247 17 264
T otal 370 41 411
18 Trade and other payables
< 1 year 1 – 5 years T otal < 1 year 1 – 5 years T otal
£000s £000s £000s £000s £000s £000s
Trade payables 1,957 291 2,248 1,525 – 1,525
Liabilities relating to social security and other taxes 77 – 77 72 – 72
Accrued liabilities 4,621 69 4,690 3,506 17 3,523
Other liabilities 1,409 1,515 2,924 3,392 605 3,997
Deferred revenue 1,067 128 1,195 1,536 – 1,536
9,131 2,003 11,134 10,301 622 10,653
Deferred tax – 221 221 – 484 484
Current tax liabilities 2,045 – 2,045 1,508 – 1,508
11,176 2,224 13,400 11,539 1,106 12,645
31 October 2011 31 October 2010
31 October 2011
Represented
31 October 2010 ANNUAL REPORT AND ACCOUNTS 2011 45
19 Derivative financial instruments
2011 2010
£000s £000s
Liabilities from derivative financial instruments 932 1,247
Derivative financial instruments, all with a remaining term of less than one year, primarily serve to hedge future operative business.All instruments are
outlined in note 26.The fair value of the financial derivatives has been determined by relevant active market valuations.
During 2009, interest swaps denominated in sterling and Canadian dollar that were aligned to the restated facility in June 2009 were terminated and new
interest swaps matching the amounts of the loan denominated in Canadian dollar and sterling were placed.An element of the future cash flows relating
to the former sterling interest swaps no longer exists and has been released from the cash flow hedge reserve to the income statement to the value of
£197,000 (2010: £262,000).
All financial instruments have been designated as hedging instruments as cash flow hedges in accordance with IAS 39, except for the Canadian dollar
denominated interest rate swap which is not highly effective and therefore has not been designated as a hedging instrument.The following table indicates
the periods in which the cash flows associated with the derivatives which as a cash flow hedge are expected to occur.
Fair value of
instrument < 1 year 1 – 2 years 2 – 5 years > 5 years
£000s £000s £000s £000s £000s
31 October 2011
Derivative financial assets
Weather derivative 416 416 –––
Derivative financial liabilities
Weather derivative (416) (416) –––
Interest rate swaps (516) (516) –––
Income statement
Finance income 471 – –––
Finance costs (212) – –––
Fair value of
instrument < 1 year 1 – 2 years 2 – 5 years > 5 years
£000s £000s £000s £000s £000s
31 October 2010
Derivative financial assets
Weather derivative 171 171 –––
Foreign exchange forward contracts 19 19
Derivative financial liabilities
Weather derivative (171) (171) –––
Interest rate swaps (1,076) (1,076) –––
Income statement
Finance income 306 – –––
Finance costs (355) – –––
During the year ineffectiveness relating to the cash flow hedges has been recognised in the income statement amounting to £259,000 (2010: £49,000).
Projected cash inflows/(outflows)
Projected cash inflows/(outflows) 46 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
20 Contingent liabilities
Group companies have provided bonds to a number of regulators which are formal undertakings from an approved bank or insurance company to pay
a sum to the relevant regulator in the event of financial failure, primarily for the purpose of reimbursing customers who would otherwise lose money
which they had paid.
VFB Holidays Limited has provided a bond to IATA £195,000 (2010: £195,000) and ABTOT for £593,000 (2010: £540,000), J.M.B.Travel Consultants Limited
to ABTOT for £42,000 (2010: £21,000), Fair’s Fare Limited provide a bond to IATA for £410,000 (2010: £390,000), Peng Travel Limited to ABTA £112,000
(2010: £117,000), and 4358376 Canada Inc. provided a bond in favour of the Office of the Protection of Consumers for CAD $225,000 (2010: CAD $150,000),
IATA CAD $35,000 (2010: CAD $nil) and Regie des Alcools des Courses et des Jeux CAD $4,000 (2010: CAD $nil).
Barclays plc holds an unlimited debenture over the assets of the Company, including the shares in subsidiary companies in respect of loans made to
the holding company. Barclays plc holds an unlimited debenture over the assets of the Company and UK subsidiaries in respect of ancillary facilities.
21 Commitments under operating leases
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Land and Land and
buildings Other items buildings Other items
£000s £000s £000s £000s
Within 1 year 695 260 828 219
Within 2 to 5 years 2,861 487 3,019 298
After more than 5 years 1,227 – 2,380 –
4,783 747 6,227 517
22 Related party transactions
Key management is considered to be the Board of directors. Refer to note 4 for directors remuneration.
J G Carroll is a shareholder through Coote Street Capital LP and J C Fraser is a direct shareholder and director, in 2149201 Ontario Inc.. S Carroll and
E Carroll, brother and father respectively of J G Carroll, are also shareholders in 2149201 Ontario Inc. through Coote Street Capital LP and S Carroll is
also a director in 2149201 Ontario Inc.. In 2008, this company entered into a property lease agreement (as landlord) with 4358376 Canada Inc., carrying
on business as itravel2000 (as tenant).The property is located at 2350 Matheson Boulevard East, Mississauga, Ontario, Canada, and the lease is for the
entire building (approximately 40,000 square feet) and lands (approximately 140 parking spaces).The term of the lease is 10 years from 1 October 2008
to 30 September 2018 with market competitive net rate of CAD $18.50 per square foot in years 1 to 5, and CAD $23.50 per square foot in years 6 to 10.
All operating and maintenance costs are to the tenant’s account.A leasehold improvement allowance of up to CAD $800,000 was included as part of the
lease inducement by the landlord.
2011 2010 ANNUAL REPORT AND ACCOUNTS 2011 47
23 Notes to the cash flow statement
The cash flow statement shows the flow of cash and cash equivalents on the basis of a separate presentation of cash inflows and outflows from operating,
investing and financing activities.
Reconciliation of operating profit/(loss) to net cash inflow from operating activities
2011 2010
£000s £000s
Operating profit/(loss) 691 (7,999)
Amortisation 828 861
Depreciation 327 325
Change in inventories 18 46
Change in operating receivables (205) (149)
Share-based payments 588 130
Derivative 40 –
Change in operating payables (249) (19)
Goodwill impairment – 11,320
Loss on disposal of property, plant and equipment and intangible assets 4 421
2,042 4,936
24 Re-presentation of the 2010 consolidated income statement and the 2010 consolidated cash flow statement
The 2010 consolidated balance sheet has been re-presented to disclose restricted cash of £2,926,000 separately from cash and cash equivalents.
The 2010 income statement has been re-presented to reclassify £304,000 costs in respect of agents’ commission from administrative expenses to cost
of sales.The 2010 income statement has been re-presented to increase finance income by £306,000 and increase finance cost by £306,000.
The 2010 consolidated cash flow statement has been re-presented to reclassify interest paid of £1,748,000 from a financing activity to an operating activity.
The 2010 consolidated cash flow statement has been re-presented to reclassify movement in restricted cash of £62,000 from net movement in cash and
cash equivalents to a financing activity.
25 Post balance sheet events
On 25 November 2011, the Company renewed its credit facilities with its primary bank.The new bank loan was due to expire on 31 October 2013.
On 28 March 2012, the Company updated certain terms of the credit facility agreement with its primary bank.This update provided for a reset of
covenants and shortened the duration of the credit agreement to 30 June 2013 from 31 October 2013.
On 20 March 2012, the company completed the sale of J.M.B.Travel Consultants Limited and the assets ofTravelzest Holidays Limited to a former employee.
On 26 March 2012, the company resolved to take steps to place Tapestry Collections Limited into creditors' voluntary liquidation. Pursuant to this, notices
for a members and creditors meeting have been sent to effect the voluntary liquidation of the Company.
There have been no other significant post balance sheets events since 31 October 2011. 48 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
26 Financial risk management objectives and policies
Financial instruments by category
Assets at fair
value through Derivatives
Loans and the profit used for
31 October 2011 receivables and loss hedging T otal
Assets as per balance sheet £000s £000s £000s £000s
Derivative financial instruments – 416 – 416
Trade and other receivables exc. corporation tax, prepayments and accrued income 6,751 –– 6,751
Cash and cash equivalents 2,613 –– 2,613
T otal 9,364 416 9,780
Liabilities at Other financial
fair value Derivatives liabilities at
through the used for amortised
31 October 2011 profit and loss hedging cost T otal
Liabilities as per balance sheet £000s £000s £000s £000s
Borrowings –– 12,423 12,423
Trade and other payables exc. statutory liabilities, accrued expenses and deferred income –– 2,248 2,248
Obligations under finance leases –– 370 370
Derivative financial instruments 516 416 – 932
T otal 516 416 15,041 15,973
Assets at fair
value through Derivatives
Loans and the profit used for
31 October 2010 receivables and loss hedging T otal
Assets as per balance sheet £000s £000s £000s £000s
Derivative financial instruments – 190 – 190
Trade and other receivables exc. corporation tax, prepayments and accrued income 6,800 –– 6,800
Cash and cash equivalents 5,850 –– 5,850
T otal 12,650 190 – 12,840
Liabilities at Other financial
fair value Derivatives liabilities at
through the used for amortised
31 October 2010 profit and loss hedging cost T otal
Liabilities as per balance sheet £000s £000s £000s £000s
Borrowings –– 14,236 14,236
Trade and other payables exc. statutory liabilities, accrued expenses and deferred income –– 1,525 1,525
Obligations under finance leases –– 380 380
Derivative financial instruments 1,072 175 – 1,247
T otal 1,072 175 16,141 17,388
The Board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework and to ensure that the
Group has adequate policies, procedures and controls to successfully manage the financial risks that it faces.These form part of the Group’s overall Risk
Management Framework.
Incorporated within the framework’s terms of reference are the determination of all treasury policies and the monitoring of the effectiveness of those
polices. Group Treasury implements and agrees policies on a day-to-day basis.The procedures also stipulate the levels of authority applied to dealing and
to approving the types of hedging financial instrument used to manage these exposures.Transactions are only undertaken to hedge underlying exposures.
Financial instruments are not traded, nor are speculative positions taken.
The Treasury position of the Group, including liquidity and foreign exchange hedging exposure, is managed centrally in accordance with polices appropriate
to cover specific risks faced by each business unit, and is the responsibility of the Financial Director. Management conducts regular reviews of financial risks
with business unit management teams. Reports and forecasts are submitted monthly to the Board.
In line with its established policy, the Group has monitored throughout the year its counterparty exposure with individual financial institutions.
Such counterparty risk can arise by way of cash deposited or derivative instruments traded. ANNUAL REPORT AND ACCOUNTS 2011 49
The Group uses various financial instruments.These include loans and cash together with various items, such as trade receivables and trade payables that
arise directly from its operations.The main purpose of these financial instruments is to raise finance for the Group's operations and group acquisitions.
As a matter of principle, all hedging transactions of the Group were based on appropriately recognised or future underlying items.The hedging transactions
by the Group companies were based on the risk profile and hedge schedule of the respective company.The existence of these financial instruments exposes
the Group to a number of financial risks, market risk (in respect of foreign currency rate risk and interest rate risk), liquidity risk (in respect of the Group’s
ability to meet its liabilities) and credit risk (in respect of recovery amounts owing to the Group).The directors review and agree policies for managing
each of these risks and they are summarised below.These policies have remained unchanged from previous years.
Currency risk
The Group publishes its consolidated financial statements in sterling and as a result, it is subject to foreign currency exchange translation risk in respect
of the translation of the results and underlying assets of its foreign operations into sterling. In relation to translation risk, as far as possible the assets held
in the foreign currency are matched to an appropriate level of borrowings in the same currency.Transaction exposures, including those associated with
forecast transactions, are hedged when known, principally using forward currency contracts.Transaction exposures primarily comprise accommodation
and other costs of overseas holidays payable in currencies other than sterling.
The Group hedges its foreign currency exposures generally on a seasonal basis, i.e. winter and summer seasons.At the start of the season the Group will
have hedged some of its foreign currency exposure for that season, using predominantly forward exchange contracts, most with a maturity of less than
one year from the reporting date.
At 31 October the Group had the following forward exchange contracts:
Fair value Fair value
of forward of forward
T otal sterling element of T otal sterling element of
commitment contract commitment contract
2011 2011 2010 2010
£000s £000s £000s £000s
Euro –– 700 19
The table below shows the extent to which the Group had financial assets and liabilities at 31 October end in currencies other than sterling:
Represented
2011 2010
£000s £000s
Unrestricted cash at bank and in hand
– Canadian dollars 700 740
– Euros 13 14
– US dollars 235 816
– Other currencies 51 5
Bank loans
– Canadian dollars 9,161 10,602
Trade and other receivables
– Canadian dollars 4,832 4,657
– Euros 5 –
– US dollars 1,010 1,067
– Other currencies 19 –
Trade and other payables
– Canadian dollars 6,562 4,649
– Euros 980 –
– US dollars 505 55 50 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
26 Financial risk management objectives and policies (continued)
The following significant exchange rates to the Group’s Sterling presentation currency are illustrative of the rates applied during the current year and
prior year:
2011 2011 2010 2010
Average rate Spot rate Average rate Spot rate
Euro 1.1530 1.1571 1.1558 1.1507
Canadian dollars 1.5837 1.6025 1.6169 1.6363
US dollars 1.6043 1.6141 1.5566 1.5988
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group.Trade and other receivables
exposures are managed locally in the operating businesses where they arise; there is no concentration of credit risk with respect to trade and other
receivables due to a majority of holidays being paid for in advance.The maximum exposure to credit risk is £4,724,000 (2010: £4,948,000) as outlined in
note 11.
In addition, the Group makes prepayments for hotel accommodation.Whilst such prepayments do not meet the definition of a financial asset under IAS39,
such prepayments give rise to a risk similar to credit risk due to the inherent risk of the Group not recovering the prepayment through full delivery of the
related goods and services.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.The Group’s approach is to ensure that it will have
sufficient liquidity to meets it liabilities when due, under both normal and stressed circumstances.
The Group’s liquidity peaks in July and August during the European summer holiday season and December through February during the North American
holiday season, with the liquidity low points in April and November.
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.
The Group’s financial assets are highlighted below:
2011 2010
£000s £000s
Trade accounts receivable 4,724 4,948
Other receivables 2,027 1,852
6,751 6,800
Derivatives designated as cash flow hedges:
Derivative financial instruments 416 190
Cash 2,613 2,924 ANNUAL REPORT AND ACCOUNTS 2011 51
The Board remains satisfied with the Group’s funding and liquidity position. Further information on the borrowings of the Group is given in note 17
to the financial statements.The table below provides details of the Group’s undiscounted financial liabilities at 31 October:
< 1 year 1 – 5 years T otal < 1 year 1 – 5 years T otal
£000s £000s £000s £000s £000s £000s
Financial liabilities measured at amortised cost:
Liabilities to banks 12,423 – 12,423 4,503 9,733 14,236
Obligations under finance leases 123 247 370 107 273 380
Trade payables 1,957 291 2,248 1,525 – 1,525
Liabilities relating to social security and other taxes 77 – 77 72 – 72
Accrued liabilities 4,621 69 4,690 3,506 17 3,523
Other liabilities 1,409 1,515 2,924 3,392 605 3,997
Deferred revenue 1,067 128 1,195 1,536 – 1,536
21,677 2,250 23,927 14,641 10,628 25,269
Derivatives designated as cash flow hedges:
Derivative financial instruments 932 – 932 1,039 208 1,247
Interest rate risk
The Group finances its operations through retained profits.Acquisitions are financed through a combination of share capital, loan notes and bank borrowings.
The Group exposure to interest rate fluctuations on its borrowings is managed by the use of interest rate swaps. Details of interest rates on borrowings
are given in note 17 to the financial statements.
Sensitivity analysis
The sensitivity analysis is for illustrative purposes only and should be considered a projection of likely future events and gains or losses.The sensitivity
analysis includes the following assumptions:
• Change in market interest rates only affect interest income or expense of variable financial instruments;
• Change in market interest rates only affect interest income or expense in relation to financial instruments with fixed interest rates are recognised
at fair value;
• Change in market interest rates affect the fair value of derivative financial instruments designated as hedging instruments; and
• All foreign currency hedges are expected to be highly effective.
Currency risk
Under these assumptions, with a 10.0% strengthening of sterling against all other currencies, profit after tax would be decreased by £0.2m (2010: decrease
by £0.3m) and equity would be decreased by £3.0m (2010: decreased by £3.3m).A 10.0% weakening of Sterling against all other currencies would result in
a gain after tax of £0.4m (2010: gain of £0.4m) and an increase in equity of £3.8m (2010: increase of £4.1m).
Interest rate risk
Under these assumptions, with a 1.0% (100 basis point) difference in market interest rates, loss after tax would have reduced or increased by £0.1m
(2010: £0.1m).
Fair value estimation
Effective 1 January 2009, the group has adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value.
This requires the disclosure of fair value measurements by level of the following fair value measurement hierarchy.
• Quoted prices (unadjusted) in active markets for identical assets and liabilities (level 1);
• Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly
(derived from prices) (level 2); and
• Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3).
31 October 2011
Represented
31 October 2010 52 ANNUAL REPORT AND ACCOUNTS 2011
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
26 Financial risk management objectives and policies (continued)
Fair value estimation
The following table presents the group’s assets and liabilities that are measured at fair value at 31 October 2011:
Level 1 Level 2 Level 3 T otal
£000s £000s £000s £000s
Financial assets at fair value through profit and loss – 416 – 416
T otal assets – 416 – 416
Financial liabilities at fair value through profit and loss – 516 – 516
Derivatives – cash flow hedges – 416 – 416
T otal liabilities – 932 – 932
The following table presents the group’s assets and liabilities that are measured at fair value at 31 October 2010:
Level 1 Level 2 Level 3 T otal
£000s £000s £000s £000s
Financial assets at fair value through profit and loss – 190 – 190
T otal assets – 190 – 190
Financial liabilities at fair value through profit and loss – 1,072 – 1,072
Derivatives – cash flow hedges – 175 – 175
T otal liabilities – 1,247 – 1,247
The fair value of interest rate swaps and forward foreign currency contracts is calculated as the present value of the estimated future cash flows based
on observable yield curves. COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
ANNUAL REPORT AND ACCOUNTS 2011 53
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF TRAVELZEST PLC
We have audited the parent company financial statements ofTravelzest plc for the year ended 31 October 2011 which comprise the Company balance sheet,
the Company reconciliation of movements of changes in shareholders’ funds, the Company principal accounting policies and the related notes.The financial
reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice).
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being
satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland).Those standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose.We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other
person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or error.This includes an assessment of: whether the accounting policies are
appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information
in the annual report and financial statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the implications for our report
Opinion on financial statements
In our opinion the parent company financial statements:
• give a true and fair view of the state of the company’s affairs as at 31 October 2011;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Emphasis of matter
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in the Basis of Preparation
and the Directors’ report within these financial statements, concerning the Group’s ability to continue as a going concern.The Group expects to raise
additional funds following the signing of these financial statements which will allow it to partially repay its third party loan, provide adequate working capital
to continue its operations and meet its financial covenants. However, there is a risk that raising these additional funds will be unsuccessful and this represents
a material uncertainty which may cast significant doubt about the ability of the Group to continue as a going concern.The financial statements do not include
the adjustments that would result if the Group were unable to continue as a going concern.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the parent company financial statements are prepared
is consistent with the parent company financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches
not visited by us; or
• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the Group financial statements of Travelzest plc for the year ended 31 October 2011.
John Minards (Senior Statutory Auditor)
For and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
St Albans
30 March 2012 COMPANY BALANCE SHEET
Represented*
31 October 31 October
2011 2010
Notes £000s £000s
Fixed assets
Tangible assets A 4 17
Investments B 23,810 23,810
23,814 23,827
Current assets
Debtors C 13,107 26,339
Cash at bank and in hand 5 2,702
13,112 29,041
Creditors: amounts falling due within one year D (19,642) (11,758)
Net current (liabilities)/assets (6,530) 17,283
T otal assets less current liabilities 17,284 41,110
Creditors: amounts falling due after more than one year E (20) (9,811)
Net assets 17,264 31,299
Capital and reserves
Called-up share capital I 2,903 2,903
Share premium account J 31,456 31,456
Merger reserve J 3,357 3,357
Profit and loss account J (20,452) (6,417)
T otal shareholders’ funds 17,264 31,299
* Refer to note 0
These financial statements were approved by the directors on 30 March 2012 and are signed on their behalf by:
J G Carroll A C Cobbold
Director Director
Company registered number: 04520457
COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
54 ANNUAL REPORT AND ACCOUNTS 2011 COMPANY RECONCILIATION OF MOVEMENTS
OF CHANGES IN SHAREHOLDERS’ FUNDS
2011 2010
£000s £000s
Loss for the financial year (14,075) (3,021)
Issue of shares (net of expenses) – (68)
Share-based payments 40 149
Net reduction to shareholders' funds (14,035) (2,940)
Opening shareholders' funds 31,299 34,239
Closing shareholders' funds 17,264 31,299
ANNUAL REPORT AND ACCOUNTS 2011 55 COMPANY PRINCIPAL
ACCOUNTING POLICIES
Basis of preparation
The financial statements of the Company have been prepared under the historical cost convention, and in accordance with UK GAAP and the accounting
policies have been applied consistently.The financial statements are prepared in accordance with the Companies Act 2006.
Accounting convention
The financial statements are prepared on a going concern basis, which assumes that the Company will continue in operational existence for the
foreseeable future.
As a consolidated income statement is published, a separate profit and loss account for the parent company is omitted from the Group financial statements
by virtue of section 408 of the Companies Act 2006.The loss dealt with in the financial statements of the parent company under UK GAAP is £14,075,000
(2010: loss of £3,021,000).
Under Financial Reporting Standard No 1 (revised 1996), the Company is exempt from the requirement to prepare a cash flow statement as its cash
flows are included within the published consolidated cash flow statement of Travelzest plc.
The Company has taken advantage of the exemption contained within Financial Reporting Standard No 8 and has not therefore disclosed transactions
or balances with wholly owned entities that form part of the Group.
The Company has taken advantage of the exemption contained within Financial Reporting Standard No 29 and has not provided the required financial
instruments disclosure on the basis that the Group’s consolidated financial statements include consolidated IFRS 7 disclosures which are compliant with
the requirements of FRS 29.
Merger relief
The Company was entitled to the merger relief offered by section 131 of the Companies Act 1985 in respect of the consideration received in excess
of the nominal value of the equity shares issued in connection with the acquisition of Peng Travel Limited, Fair’s Fare Limited and the settlement of
outstanding consideration on the acquisition of Holiday Express Group Limited.
On acquisition, the investments in the Company’s immediate subsidiary companies were recorded in the Company’s balance sheet at the fair value
of the assets acquired, with the difference between this and the nominal value of the shares issued being credited to a merger reserve.
Investments
Investments held as fixed assets are stated at cost less provision for any permanent diminution in value. Such provisions are charged to the profit and
loss account.The directors will carry out an impairment review if there are events or circumstances which indicate that the carrying value of the
investment may not be recoverable.Where loans made to Group undertakings are not expected by the director’s to be repaid in the foreseeable
future these are treated as equity in nature and are classified within fixed asset investments.
T angible fixed assets and depreciation
Tangible fixed assets are stated at cost less depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the
asset to its working condition for its intended use. Depreciation is provided at rates calculated to write off the cost of tangible assets, less their estimated
residual value, over their expected useful lives on a straight line basis: Office equipment and computer equipment are depreciated over 3 to 5 years.
Operating lease agreements
Rentals applicable to land and building operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged
against profits on a straight line basis over the period of the lease.
Pension costs
The Group pays contributions to publicly or privately administered pension plans on a mandatory, contractual or voluntary basis.The group has no
further payment obligations once the contributions have been paid.The contributions are recognised when they are due. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
56 ANNUAL REPORT AND ACCOUNTS 2011 ANNUAL REPORT AND ACCOUNTS 2011 57
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events
that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.A net deferred tax
asset is recognised as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that
there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying timing differences
can be deducted. Deferred tax is measured 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 or substantively enacted by the balance sheet date. Deferred tax is measured on an
undiscounted basis.
Foreign currencies
Monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date.Transactions in
foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account
in arriving at the operating profit.
Financial instruments
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 entity after deducting all of its financial liabilities.
Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments
are classified as financial liabilities. Financial liabilities are presented as such in the balance sheet. Finance costs and gains or losses relating to financial
liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability.
Share-based payments
The company operates a number of equity-settled, share-based compensation plans.The fair value of the employee services received in exchange for the
grant of the options is recognised as an expense.The total amount to be expensed over the vesting period is determined by reference to the fair value of
the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting
conditions are included in assumptions about the number of options that are expected to vest.At each balance sheet date, the entity revises its estimates
of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the profit and loss account,
with a corresponding adjustment to reserves.The proceeds received net of any directly attributable transaction costs are credited to share capital
(nominal value) and share premium when the options are exercised.
The Group also issued a cash bonus award which is recorded as cash settled share-based compensation.The fair value of the cash bonus award is calculated
using the Monte-Carlo Simulation pricing model at each reporting date.The fair value is charged to the income statement with a corresponding entry
to non-current liabilities.
Directors
Details of directors’ remuneration, share-based payments and pension entitlements in the current period and prior period are contained in note 4
to the consolidated financial statements. Details of share-based payments are also contained in note 16 to the consolidated financial statements. NOTES TO THE COMPANY
FINANCIAL STATEMENTS
A T angible assets
Office Computer
equipment equipment T otal
£000s £000s £000s
Cost
At 1 November 2010 8 61 69
Additions –22
At 31 October 2011 8 63 71
Accumulated depreciation
At 1 November 2010 8 44 52
Charge for the year – 15 15
At 31 October 2011 8 59 67
Net book value
At 31 October 2011 –44
At 31 October 2010 – 17 17
B Fixed asset investments
Fixed asset
investments
£000s
Cost
At 1 November 2010 23,810
At 31 October 2011 23,810
Net book value
At 31 October 2011 23,810
At 31 October 2010 23,810
The directors believe that the carrying value of the investments is supported by their underlying net assets or future discounted cash flows.
COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
58 ANNUAL REPORT AND ACCOUNTS 2011 ANNUAL REPORT AND ACCOUNTS 2011 59
At 31 October 2011, the Company held more than 20% of the allotted share capital of the following trading and holding companies:
Country of Class of share Proportion held Nature of
registration capital held by Company business
Holiday Express (UK) Limited England & Wales Ordinary 100% Agents
Travelzest Canco Limited England & Wales Ordinary 100% Holding company
Travelzest Holidays Limited England & Wales Ordinary 100% Agents
Travelzest Holdings (UK) Limited England & Wales Ordinary 100% Holding company
The shareholdings above also represent the proportion of voting rights held.All subsidiaries have been included in the consolidated financial statements.
The Company also indirectly owns the following companies:
Country of Class of share Proportion held Nature of
registration capital held by Group business
VFB Holidays Limited England & Wales Ordinary 100% Merchant
Vacances Franco-Britanniques Limited England & Wales Ordinary 100% Merchant
4358376 Canada Inc. (trading as itravel2000) Canada Common 100% Agents
The Cruise Professionals Limited Canada Common 100% Agents
7500106 Canada Inc. (trading as Travelcash) Canada Common 100% Payment Programs
The Best of Morocco Limited England & Wales Ordinary 100% Merchant
Peng Travel Limited England & Wales Ordinary 100% Merchant
The Montpelier Collection Limited England & Wales Ordinary 100% Holding company
Fair’s Fare Limited England & Wales Ordinary 100% Agents
Tapestry Collection Limited England & Wales Ordinary 100% Merchant
Captivating Cuba Limited England & Wales Ordinary 100% Merchant
J.M.B.Travel Consultants Limited England & Wales Ordinary 100% Merchant
C Debtors
Represented
2011 2010
£000s £000s
Amounts owed by Group companies 13,031 26,268
Other debtors 41 55
Prepayments and accrued income 35 16
13,107 26,339
Included within amounts owed by Group companies are amounts due from Travelzest plc’s overseas subsidiaries which bear interest of 8.48%, all other
amounts are interest free.Voluntary repayments can be made at any time.
D Creditors: amounts falling due within one year
Represented
2011 2010
£000s £000s
Bank loans (note F) 12,423 4,503
Amounts owed to Group companies 6,242 6,092
Interest owed to Bank 263 –
Trade creditors 31 249
Social security and other taxes 3 10
Accruals and deferred income 680 904
19,642 11,758 COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
60 ANNUAL REPORT AND ACCOUNTS 2011
E Creditors: amounts falling due after more than one year
2011 2010
£000s £000s
Bank loans (note F) – 9,733
Deferred tax (note G) – 61
Other creditors 20 17
20 9,811
F Creditors – capital instruments
Bank loans are repayable:
2011 2010
£000s £000s
In one year or less or on demand 12,423 4,503
Between one and two years – 9,733
12,423 14,236
Interest is payable on bank loans:
2011 2010
£000s £000s
Variable interest rate 12,423 14,236
The loan at 31 October 2011 consists of £9,161,000 (2010: £10,603,000) denominated in Canadian dollars and £3,414,000 (2010: £4,034,000) denominated
in GBP .At the balance sheet date, this loan was due to be repaid in May 2012 and therefore has been presented as a current liability.The loan has been
presented net of the arrangement fee of £152,000 (2010: £401,000).
In 2011, interest on the bank loan was payable at variable rates of 4.50% to 6.50% above LIBOR plus a margin (2010: 4.50%) on both the Canadian dollar
and GBP components of the loan of which 100% has been fixed by means of an interest rate swap agreement at 4.0% (2010: 4.0%) on the GBP element.
In November 2010, the fixed rate swap on the Canadian dollar denominated element of the loan increased to 8.48% (2010: 4.0%).The bank loan is secured
on the assets of Travelzest plc.
In May 2011 a scheduled repayment of £2,349,000 was not made, nor was a further repayment of £2,251,000 scheduled for November 2011.
As noted in note P , in March 2012, a further amendment to the loan has been approved.The loan is now due to be repaid over the period from January 2013
to June 2013 in six monthly instalments of £500,000 with a final repayment in June 2013.The new amendment also included a reset of the loan covenants.
G Deferred taxation
The movement in the deferred taxation provision/(asset) during the year was:
2011 2010
£000s £000s
Deferred tax liability/(asset) brought forward 61 (743)
(Credited)/charged to the profit and loss account (61) 838
Credited to equity – (34)
Deferred tax liability carried forward – 61
The provision for deferred taxation consists of the tax effect of timing differences in respect of share-based payments. ANNUAL REPORT AND ACCOUNTS 2011 61
H Commitments under operating leases
At 31 October 2011, the Company had no annual commitments under non-cancellable operating leases.
I Share capital
Authorised share capital:
2011 2010
£000s £000s
259,550,000 ordinary shares of £0.02 each 5,191 5,191
Issued, called up and fully paid:
Number £000s Number £000s
Ordinary shares of £0.02 each 145,136,110 2,903 145,136,110 2,903
J Reserves
Share Profit
premium Merger and loss
account reserve account
£000s £000s £000s
At 1 November 2010 31,456 3,357 (6,417)
Loss for the year –– (14,075)
Share-based payments –– 40
At 31 October 2011 31,456 3,357 (20,452)
K Loss attributable to the shareholders of the parent company
The loss dealt with in the financial statements of the parent company was £14,075,000 (2010: loss of £3,021,000).
L Contingent liabilities
Barclays plc holds an unlimited debenture over the assets of the holding company, including the shares in subsidiary companies in respect of loans made
to the holding company. Barclays plc holds an unlimited debenture over the assets of the Company and UK subsidiaries in respect of ancillary facilities.
2011 2010 M Share based payments
Share options Employee Option Management
Scheme #1 Incentive Plan
Vesting requirements 3.0 and 4.0 years in plan Sale of company sold in
excess of 15p per share
Maximum term 10 years 10 years
Exercise Price £1.005 to £1.27 7.5p to 18p
Weighted average term to maturity at the end of the year 5.14 years 8.43 years
Number of Weighted Number of Weighted
share average share average
options exercise options exercise
£000s price £000s price
2010
Outstanding at the beginning of the year 271 129.0p ––
T erminated in the year (167) 97.0p ––
Granted during the year –– 28,587 12.1p
Outstanding at the end of the year 104 125.0p 28,587 12.1p
Exercisable at the end of year 104 125.0p ––
2011
Outstanding at the beginning of the year 104 125.0p 28,587 12.1p
T erminated in the year – –––
Granted during the year – –––
Outstanding at the end of the year 104 125.0p 28,587 12.1p
Exercisable at the end of year 104 125.0p ––
Employee Option Scheme
The Company issues long term incentive stock options to certain employees under an approved option scheme.The scheme’s terms includes a minimum
vesting period of 3 years from the date of grant and active employment in the Group.
The fair value of options granted were determined using the Black-Scholes pricing model.
Management Incentive Plan
The Company detailed in the Shareholder Circular issued 5 August 2009 the creation of a Management Incentive Plan which was agreed by shareholders
at the General Meeting of 28 August 2009. In 2010, 4,146,746 options were granted. No options were granted in 2011.The incentive options have a market
exercise price and vest in the event of a sale of the entire issued share capital of the Company for an amount valuing the Company at least 15 pence per
Ordinary Share.The options have good leaver and bad leaver terms, and all share options must be exercised within 10 years of the date of grant.
The fair value of options granted has been determined using the Monte-Carlo Simulation which is a generally accepted statistical technique used, in this
instance, to simulate a range of possible future stock prices for the Company.The method uses geometric Brownian motion based upon a risk-neutral
framework.The model projects stock prices on a daily basis assuming 250 trading days per year.The significant inputs into the calculation for share options
granted during the year were the weighted average share price factored into the model of 12.1 pence, the exercise price ranges between 7.5 pence and
18.5 pence, the expected volatility of approximately 85.0% the option life of 5 years, the expected dividend yield of nil, and the risk-free interest rate
between 2.06% and 2.91%.
An amount of £43,000 (2010: £218,000) has been charged to the income statement in connection with the Management Incentive Plan.The Management
Incentive plan is equity settled and the movement of £40,000 (2010: £149,000) has been included within the share-based payment reserve.
62 ANNUAL REPORT AND ACCOUNTS 2011
COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011 ANNUAL REPORT AND ACCOUNTS 2011 63
Warrants
Details of the share warrants outstanding during the year are as follows:
Number of Weighted Number of Weighted
share warrants average share warrants average
000’s exercise price 000’s exercise price
Outstanding at the beginning of the year 5,247 130p 5,247 130p
Granted during the year –– ––
Outstanding at the end of the year 5,247 130p 5,247 130p
Exercisable at the end of the year 5,247 130p 5,247 130p
The warrants outstanding at 31 October 2011 had a weighted average exercise price of £1.30 and a weighted average contractual life of 5 years.
The subscription rights attached to each warrant in issue must be exercised within 10 years of the date of grant.
The fair value of warrants granted were determined using the Black-Scholes pricing model. Significant inputs into the calculation include the market price
at the date of grant and exercise prices. Furthermore, the calculation takes into account the future dividend yield, the share price volatility rate and risk-free
interest rate.The underlying expected share price volatility was determined by reference to historical data.The Company expects the volatility of its share
price to reduce as it matures.The risk-free interest rate was determined by the implied yield available on a zero-coupon government bond.
Cash Bonus Award
In 2010, the Independent Board members approved a cash bonus award to M T J Molyneux.The bonus is not payable until a sale of the entire issued share
capital of the Company at the time of grant, for an amount valuing the Company at least at 15 pence per Ordinary Share.The bonus has good leaver and
bad leaver terms similar to the Management Incentive Plan and has a graduated payout between 15 pence and 18.5 pence per Ordinary Share.
The fair value of the cash bonus award was determined using the Monte-Carlo Simulation. One of the provisions of the cash bonus award is around the
performance of the Company’s stock price which is a market condition (i.e. trading above 15 pence).The expense recognised is based upon the fair value
determined above the 15 pence value regardless of the stock price at the time of the change of control.The other significant inputs into the calculation
for the cash bonus award granted during the year were the share price as at 31 October 2011 of 9.38p, the expected volatility which equals the actual
volatility over the 5 years of the Company trading ended 31 October 2011 of 89.10%, the cash bonus award life of 5 years, the expected dividend yield
of nil, and the risk-free interest rate of 1.26% which is estimated to equal the yield as at 31 October 2011 of 5 year – 4.00% UK government bonds.
An amount of £3,000 (2010: £17,000) has been charged to the income statement in connection with the cash bonus award.The carrying value of the
liability for the cash bonus award as at 31 October 2011 was £20,000 (2010: £17,000).
N Financial instruments
The fair value of the company’s financial instruments are set out below:
2011 2010
£000s £000s
Derivative financial assets – forward foreign currency contracts – 19
Derivative financial liabilities – interest rate swaps (516) (1,076)
(516) (1,057)
Further information on the forward contracts and the interest rate swaps has been given in note 26 to the consolidated financial statements.
2011 2010 O Re-presentation of the 2010 balance sheet
The 2010 balance sheet has been re-presented to increase debtors by £6,092,000 and to increase creditors by £6,092,000.
P Post balance sheet events
On 25 November 2011, the Company renewed its credit facilities with its primary bank.The new bank loan was due to expire on 31 October 2013.
On 28 March 2012, the Company updated certain terms of the credit facility agreement with its primary bank.This update provided for a reset of
covenants and shortened the duration of the credit agreement to 30 June 2013 from 31 October 2013.
On 20 March 2012, the company completed the sale of J.M.B.Travel Consultants Limited and the assets ofTravelzest Holidays Limited to a former employee.
On 26 March 2012, the company resolved to take steps to place Tapestry Collections Limited into creditors' voluntary liquidation. Pursuant to this,
notices for a members and creditors meeting have been sent to effect the voluntary liquidation of the Company.
There have been no other significant post balance sheets events since 31 October 2011.
COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2011
64 ANNUAL REPORT AND ACCOUNTS 2011 DESIGNED AND PRODUCED BY RARE BREED
Company registration number
04520457
Registered office
2
nd
Floor, Delta Place
27 Bath Road
Cheltenham, Gloucestershire
United Kingdom
GL53 7TH
Principal place of business
2350 Matheson Boulevard East
Mississauga, Ontario
Canada
L4W 5G9
0844 335 6623
Executive Directors
J G Carroll
A C Cobbold
Non-Executive Directors
R G Hall
N J Jenkins (Chairman)
J D Brooke
M T J Molyneux
Company Secretary
R G Hall
Bankers
Barclays plc
Pall Mall Corporate Group
80 Pall Mall
London, United Kingdom
SW1A 1QA
Solicitors
Charles Russell LLP
Compass House
Lypiatt Road
Cheltenham, United Kingdom
GL50 2QJ
Nominated Advisor
Merchant Securities Limited
51–55 Gresham Street
London, United Kingdom
EC2V 7HQ
Broker
Merchant Securities Limited
51–55 Gresham Street
London, United Kingdom
EC2V 7HQ
Independent Auditor
PricewaterhouseCoopers LLP
10 Bricket Road
St Albans, Hertfordshire
United Kingdom
AL1 3JX
COMPANY INFORMATION WWW.TRAVELZESTPLC.COM