Profile: Bob Baddeley, FD of Holidaybreak

These may be tough times for the travel industry - but Holidaybreak's Bob Baddeley is confident that the company's specialised travel operation can weather the storm

Some would argue that the current economic cycle does not lend itself to the public spending their hard-earned pennies on leisurely holidays, or anything enjoyable, for that matter.

So how does that affect a holiday company, dependent on a consumer-driven market that is becoming increasingly aware of the need to tighten their spending habits?
Bob Baddeley, the finance director of Holidaybreak, is not overly concerned about the business’s ability to cope.

‘It’s difficult to know how consumers will behave if things get more difficult, but I believe we’re fairly resilient as a business because even when consumer sentiment changes, it doesn’t stop people from going on holiday.

‘The core product offering is good, with a value product. We’re likely to be more resilient than other leisure options, which might be more fashion-orientated,’ says Baddeley.

Certainly the global holiday market has grown in the last few years, with international travellers numbering 898 million last year ­ a figure which according to the World Tourism Organisation is projected to skyrocket to 1.6 billion in 2020.

Holidaybreak specialises in camping parks, educational packages, hotel breaks and adventure tourism in the European market. What started in 1973 as Eurocamp Travel Limited ­ a family run business, based in Cheshire offering camping holidays in Brittany, was subject to a management buy-out in 1988.

It floated on the London Stock Exchange in 1991 and in 1998 changed its name from Eurocamp to Holidaybreak to better reflect its aspirations and range of activities. In 2007 the group reported £357.9m in revenues, compared to £304.5m a year earlier, and an operating profit of £43.8m.

Despite his optimism for the business going forward, Baddeley is sober-minded on the realities of the current climate. FDs are under pressure to play their cards carefully in an environment where cash is king.

‘Few of us in this generation of FDs have had real experience of downturns, perhaps catching a little of the tail-end of issues in the late 80s to early 90s. I would like to think that on the education tour side, things are more immune to fashion. Our tours for 2008 are sold out and we’re now looking at sales for 2009/10,’ he says.

Buy now, pay later

But the timing of acquisitions over the last 12 months could set the accounts in a less glowing light than the previous year.

Some £150m in deals deal saw Holidaybreak acquire West End Theatre Bookings, a London ticket agent, PGL, a UK outdoor education and adventure holiday provider, and NST, a UK educational travel tours provider.

‘Where we have been impacted by the credit crunch is the timing of our acquisitions. Since 12 months ago we had no borrowings for our 2006 balance sheet. For 2007, debt was £150m due to acquisitions ­ and then interest rates began to go up again,’ says Baddeley.

Some may argue that it is probably time to claw back, but Baddeley is insistent that he runs a strict operation anyway.

‘We’ve always run a tight ship ­ clearly there are things one has to do when things get more difficult. Certainly, discretionary investment may be cut back unless we can get extremely good payback. At the moment, debt is very expensive. We’ll constantly look for ways to be better at managing our cash resources with a view to being more rigorous.

‘In terms of business growth, the outlook is conservative. In a difficult debt market, the implications are that it is more difficult for further acquisitions to be made ­ and yet again, there could be more opportunities as acquisitions could in some instances get cheaper as some businesses emerge from the private equity market,’ he says.

Reflecting on how business has changed since he qualified in 1978 while at Manchester-based Whinney Murray (later Ernst & Young), Baddeley recalls how there was no corporate governance regime that would have necessitated the rigorous checks and systems that must now be in place.

‘Audit work formed the basis of testing around a system then,’ he says.

Baddeley gained a wealth of experience with a number of Blue Chip clients, including Burmah Oil where he moved in 1982. Working for the oil company meant getting to grips with a business searching for new oil while developing and extracting more from existing oil fields.

'At the time, the business was focused on North Sea operations but was looking into expansion in the Irish Sea and west Africa. Interestingly, oil calculations in those days were do to with a formula ­ things are a lot more debatable now but similar techniques used to value oil fields and spread the revenues, as well as discounted cash flows based on the estimated life of a field, are also used now,’ he says.

He left to join Intel Corporation in 1985, which he admits was a bad move: ‘I made the mistake of joining Intel at a time when the explosion of PCs came to a halt. Just two weeks into the job, my colleagues had to take unpaid leave. It soon became apparent to me that it was not the best place to be.’

Fortunately, things got better before they got worse, as clients he knew from his days at WM offered him the position of group financial controller at the Albert Fisher Corporation.

‘During the summer of ‘85, the FD asked if I’d like to join as financial controller ­ all of which really emphasised to me personally the need to build networks and relationships.’
His next three years were ‘fantastic’.

‘Albert Fisher had one of the fastest growing shares in the ‘80s. The strength of the business increased when supermarkets first introduced fresh produce into their stores ­ so it became important to source from Africa, South America, and places throughout Europe. It was a big difference to developing gas fields in the North Sea.

‘It was a small company that ended up being very close to being a FTSE,’ he says.

When Baddeley departed to take up an offer at Unigate (now Uniq), Albert Fisher was turning over £1.2bn, and had also bought into fruit distribution businesses in North America and continental Europe.
He joined Unigate in 1989 as group controller and gained further experience in the European fresh food industry

The two-hour commute to west London from his home in the north west meant that Baddeley sought other avenues, however ­ soon provided in 1991 by Swan Steel, the UK’s biggest independent steel stockholder.
He was instrumental in reversing the declining fortunes of the group through the deep recession of the early 1990s.

Following a number of closures and disposals, the now profitable group was sold to management in 1995, when he joined Eurocamp (now Holidaybreak) as group FD.

‘Ultimately I managed to sell a lot of the different constituent parts of the business and realised money ­ and I worked myself out of a job,’ he jokes.

So far, the Holidaybreak job has ticked all the right boxes for Baddeley. The business has growth potential, is a public company, is close to his home and has European interests.

The cherry on the cake has been the recent award of Best Investor Communication at the PLC Awards.
‘We were surprised ­ but pleasantly so ­ especially as we’ve now won this twice, which nobody has done before,’ he says.

The adventure travel specialists look set to take Baddeley, who has seen most things in business, on another eventful journey.

AUDIT CHOICE

When Holidaybreak looked for a firm to conduct a due diligence assessment on PGL before the acquisition, all the Big Four firms were potentially conflicted out for one reason or another.

But the company still didn’t look beyond the Big Four for their non-audit services.

‘We didn’t feel any firms, apart from the top four, had the depth of resources we needed. The only criticisms we’ve had have been retrospectively from shareholders.

I would be very surprised if we as a company were to look at smaller firms to do our audit or tax

work, because of the depth of resource Deloitte has.There are some firms that are competent but we’re quite comfortable using one of the Big Four.’

FAIR VALUE

‘There have been issues with the company changing over to

principles-based accounting required by regulation, especially showing the value of the business in different ways.

The old standards were driven around historical costs.

Nowadays there is a lot more subjectivity. As long as people focus on business fundamentals, which are more readily apparent from the financials than before, there shouldn’t be any issues.

‘With mark-to-mark accounting in the area of derivatives, assumptions and movement in future years does lead to extreme volatility.

But as far as shareholders and users of the financials are concerned, these are clear as long as they’re highlighted properly and are given a proper interpretation.’