Profile: Bob Baddeley, FD of Holidaybreak

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.’