The Monarch Group Annual Report and Accounts 2012
Transcription
The Monarch Group Annual Report and Accounts 2012
The Monarch Group – Unlocking our potential » Annual Report 2012 The Monarch Group is the UK’s leading independent travel group, with core activities in scheduled airline operations, tour operations and aircraft engineering. Monarch Holdings Limited (MHL) is the holding company of The Monarch Group. Our leading aviation and travel brands are: Monarch Airlines First Aviation Monarch Aircraft Engineering Cosmos Holidays Avro somewhere2stay www.monarchholdingslimited.com Visit our corporate website for up-to-date information about The Monarch Group. You can find: • Latest news • Group strategy • Vision and values • Our community and corporate citizenship activities • Company images and videos • Group history Highlights FY12 Increase in Group turnover (net of intra-Group sales) from £757.8 million to £825.1 million. Group-wide operational like-for-like cost savings of £31.6 million, as planned. 15.7% increase in Monarch Airlines’ scheduled passenger volumes (4.6m to 5.3m). Strong profitable growth in Tour Operations sales and yields. Further profitable growth in Monarch Aircraft Engineering turnover. 20m unique visitors to Group customer online platforms (up 21% on FY11). Strengthened leadership and governance with appointments of Non-Executive and Executive Directors to holding company Board. Contents 1 2 4 6 8 10 12 16 20 24 26 28 30 32 34 36 40 41 42 43 44 45 46 67 Highlights The Monarch Group at a glance Adapting to a changing industry and markets Our network From the Executive Chairman Business model Monarch Airlines Tour Operations Monarch Aircraft Engineering Retail and Online Financial review Board of Monarch Holdings Limited Group Management Board Corporate governance The Monarch Foundation Corporate responsibility Independent auditor’s report Consolidated profit and loss account Consolidated statement of total recognised gains and losses Consolidated balance sheet Company balance sheet Consolidated cash flow statement Notes to the financial statements Officers and professional advisers Three-year financial performance Group revenue £m 2010 757.7 2011 757.8 2012 825.1 Group pre-tax and pre-exceptional operating profit/(loss) £m 2010 14.1 2011 (51.1) 2012 (14.9) FY12 financial performance represents good progress towards the target of consolidated operating profitability for all trading divisions for the year to 31 October 2013. 1 The Monarch Group ANNUAL REPORT 2012 The Monarch Group at a glance – A unified group of businesses The Monarch Group is the UK’s leading independent travel group, with core activities in scheduled airline operations, tour operations and aircraft engineering, and a turnover of £825.1 million for the 12 months ended 31 October 2012. Group profile Headquartered at London Luton Airport 50-year trading history 2,847 employees Monarch Airlines Monarch Airlines is a leading UK-based scheduled leisure airline operating flights from six bases in the UK – London Gatwick, Manchester, Birmingham, East Midlands, LeedsBradford and London Luton airports – to leisure destinations around the Mediterranean and the Canary Islands and to ski destinations in winter. Through First Aviation, the flight broking division of the Group, scheduled airline and traditional charter capacity is offered to tour operators, and this flexible model underpins demand and manages risk while supporting and de-risking development of the Monarch Airlines route network. 7.4m Sector seats in FY12 2 The Monarch Group ANNUAL REPORT 2012 Tour Operations – Cosmos Holidays, Avro and somewhere2stay The Tour Operations division of The Monarch Group, comprising Cosmos Holidays, Avro and somewhere2stay, offers a flexible and wide choice of holidays to some 72 destinations worldwide. Customers look to the Cosmos brand and its long-established reputation for expertise and reliability to help them to navigate through a changing landscape for holiday travel, and to purchase fully protected holiday products with confidence. Avro provides a broad range of charter seat availability, duration and prices to meet demand from tour operators and the growing dynamic packaging sector, selling overall in excess of one million flight sectors annually, and somewhere2stay offers low-cost hotel, villa and apartment accommodation worldwide. The Tour Operations division also operates white-label offers under the brand names Monarch Holidays and Monarch Hotels. 815,000 Passenger volumes in FY12 Avro somewhere2stay Group gross revenue mix FY12 43% 50% £683.5m AIRLINE OPERATIONS £589.0m TOUR OPERATIONS 6% 1% £10.4m OTHER £86.3m ENGINEERING SERVICES Monarch Aircraft Engineering (MAEL) Retail and Online MAEL provides important and award-winning aircraft maintenance services from its principal bases at London Gatwick, London Luton and Manchester airports to the Monarch Airlines fleet and continues to attract blue-chip third-party clients located in east and west Europe, the Middle East, Australia and North America. In 2013, MAEL will open a new state-of-the-art maintenance facility at Birmingham Airport to complement its existing UK bases. A nexus for Group e-commerce activity, the Retail and Online activity supports all of the Group’s divisions in the delivery of their online and e-commerce strategies, providing the expertise that ensures that the Group exploits new technology, online trends and continues to innovate in bringing its travel products to market. The company has expertise in maintaining legacy fleets and is also a leading Maintenance and Repair Organisation (MRO) for new technology aircraft, including the Boeing 787 Dreamliner, for which it is one of only six Boeingapproved GoldCare providers worldwide. 29% Revenues from third-party customers in FY12 20m Group unique visitors in FY12 3 The Monarch Group ANNUAL REPORT 2012 Adapting to a changing industry and markets Growth of packaged holidays to Spanish Costas INDUSTRY TRENDS 1960 » With a 50-year trading history, the Group’s leading aviation and travel brands have successfully adapted to continuously changing industries and customer markets. Proliferation of mass market packaged holidays 1970 » 1980 » MONARCH ADAPTS 1961 Launch of Cosmos 1967 Monarch Aircraft Engineering Limited launched 1968 Monarch Airlines launched 4 The Monarch Group ANNUAL REPORT 2012 1970 Monarch Airlines becomes all-jet fleet Cosmos adds flights from Manchester and Birmingham and increases range of destinations to include Greece, Portugal and Yugoslavia Monarch Aircraft Engineering expands its UK footprint Monarch Airlines carries one million passengers annually Monarch Airlines is the first charter airline worldwide to order next-generation Boeing 757 aircraft Monarch Airlines launches scheduled services, Monarch Crown Service Cosmos becomes first mainstream tour operator to introduce all-inclusive European holidays First Gulf War Consolidation of tour operators EU deregulation Ryanair launches low-cost carrier (LCC) model Decline of national flag carriers’ short-haul dominance 1990 » Cosmos Holidays acquires Avro and significantly expands destinations, including Caribbean and Indian Ocean Monarch Airlines expands its long-haul fleet bringing two-class seating to the charter market 9/11 Second Gulf War LCC expansion erodes short-haul charter market Disintermediation of distribution 2000 » Monarch Aircraft Engineering expands into Europe Monarch Airlines expands scheduled network Cosmos launches somewhere2stay, offering flexible duration holidays Rising fuel costs, higher taxation Global financial crisis Consolidation 2012 » Cosmos celebrates fiftieth anniversary Programme to modernise and reorganise the Group brings efficiency gains and focus on value Monarch Airlines offers capacity for 8.3 million passengers in 2012/13 and strengthens scheduled services MAEL announces Birmingham Airport expansion 5 The Monarch Group ANNUAL REPORT 2012 Our network Monarch Airlines operates scheduled services from six UK bases – London Gatwick, Manchester, Birmingham, Leeds-Bradford, East Midlands and London Luton airports. The Group’s Tour Operations activity offers holiday destinations worldwide. Monarch Aircraft Engineering provides maintenance and repair services from bases in the UK and line stations overseas. KITTILA SCHEDULED ROUTES CHARTER ROUTES CHARTER & SCHEDULED ROUTES OUR BASES MANCHESTER LEEDS-BRADFORD EAST MIDLANDS BIRMINGHAM LONDON LUTON LONDON GATWICK MUNICH FRIEDRICHSHAFEN GENEVA BORDEAUX VERONA GRENOBLE NICE BARCELONA IBIZA ALICANTE ALMERIA FARO GIBRALTAR FUNCHAL 6 The Monarch Group ANNUAL REPORT 2012 MALAGA SALZBURG INNSBRUCK VENICE SPLIT DUBROVNIK ROME MENORCA PALMA DE MALLORCA VOLOS CORFU PREVEZA KEFALONIA SKIATHOS MYTILENE BODRUM DALAMAN ZAKYNTHOS MALTA CHANIA ANTALYA RHODES HERAKLION LARNACA PAPHOS Monarch Airlines 2012/13 Tour Operations 2012/13 112 35 72 10m Scheduled routes Monarch Airlines total seat inventory SCHEDULED OPERATIONS 70% Holiday destinations worldwide Scheduled destinations ORLANDO TOUR OPERATORS (COSMOS HOLIDAYS AND THIRD PARTIES) TRINIDAD NORTH AMERICA & THE CARIBBEAN TRINIDAD & TOBAGO & TOBAGO ORLANDO ORLANDO TRINIDAD & TOBAGO TRINIDAD & TOBAGO TABA HASSI TABA HASSI MESSAOUD SHARM EL SHEIKH MESSAOUD SHARM EL SHEIKH HURGHADA HURGHADA AFRICA & MIDDLE EAST LUXOR LUXOR TABA SHARM EL SHEIKH TABA HURGHADA SHARM EL SHEIKH LUXOR HURGHADA HASSI BANJUL MESSAOUD BANJUL HASSI MESSAOUD 30% Holiday products across four continents ORLANDO LUXOR BANJUL Monarch Airlines Monarch Airlines today offers scheduled services to some 35 destinations across 112 routes, principally to leisure destinations around the Mediterranean and the Canary Islands and to ski destinations in winter. First Aviation, the flight broking division of the Group, offers scheduled airline and traditional charter capacity to tour operators across over 30 routes in summer and 20 routes in winter, including destinations in Europe, North America and the Indian Sub-Continent. Cosmos, Avro and somewhere2stay Tour Operations, comprising Cosmos Holidays, Avro and somewhere2stay, offers some 72 holiday destinations worldwide, with a focus on the Mediterranean, Egypt and North Africa, Goa and the Indian Ocean, Mexico, the Caribbean and Florida. Further specialist destinations include Finnish Lapland and ski destinations in winter. BANJUL ASIA Monarch Aircraft Engineering DABOLIM, DABOLIM, GOA GOA Monarch Aircraft Engineering provides maintenance from facilities at London Luton, Manchester, Birmingham and London Gatwick airports in the UK and overseas line maintenance in Dublin, Malaga, Alicante, the Canary Islands, Kiev, Warsaw, Goa and the Maldives. Principal offices DABOLIM, CANARY ISLANDS GOA DABOLIM, GOA ARRECIFE ARRECIFE The Monarch Group, London Luton Airport Monarch Airlines, London Luton Airport Cosmos, Avro and somewhere2stay, Bromley Monarch Aircraft Engineering, London Luton Airport First Aviation, London Gatwick Airport FUERTEVENTURA FUERTEVENTURA TENERIFE TENERIFE LAS PALMAS LAS PALMAS ARRECIFE ARRECIFE FUERTEVENTURA TENERIFE TENERIFE FUERTEVENTURA LAS PALMAS LAS PALMAS 7 The Monarch Group ANNUAL REPORT 2012 From the Executive Chairman – Returning to profitability “We are advancing towards our target of restoring the Group to overall profitability by November 2013.” Overview All of the Group’s main divisions performed well in the financial year 2012 in what have been challenging market conditions. Monarch Airlines achieved good yield growth in line with expectations and moved quickly to strengthen its market position following the closure of bmibaby. Tour Operations, comprising the Group’s holiday brands Cosmos Holidays, Avro and somewhere2stay, and Monarch Aircraft Engineering maintained their profitable performance of recent years and now have laid good foundations for growth. Financial progress in line with plans I am, therefore, pleased with the progress that the Group has made over the last year in delivering results in line with our business plan objectives. For the 12 months ending 31 October 2012, Group turnover net of intraGroup sales increased from £757.8 million to £825.1 million, or 8.9 per cent. On a pre-tax and pre-exceptional basis, losses were substantially reduced, from £51.1 million to £14.9 million. These overall results for the Group reflect Monarch Airlines’ good yield growth, the ongoing profitable performance in the tour operating and engineering divisions, strong discipline on cost control, which achieved a planned operational like-for-like £31.6 million reduction in operating expenses, and the delivery of an effective e-commerce strategy. This performance represents sound progress in the first year of our two-year turnaround plan, and we are advancing towards our target of restoring the Group to overall profitability by November 2013. Iain Rawlinson Executive Chairman 8 The Monarch Group ANNUAL REPORT 2012 Maintaining our momentum Monarch Airlines is now well advanced with its modernisation and cost reduction programmes at a time when other larger operators continue to face important restructuring challenges, and our proposition provides clear and real choice to consumers who value a superior travel experience at a competitive price. On 29 November 2012, we announced plans for the re-equipping of the Monarch Airlines aircraft fleet, which envisages an order for a total of 62 replacement and expansion aircraft for delivery up to 2024, facilitating improvement in service levels to the Airline’s customers, better asset utilisation and efficiency, and enabling Monarch Airlines to be benchmarked against low-cost competitors. Invitations have been issued to the world’s largest aircraft manufacturers to submit proposals through a strategy which will consider both leasing and purchasing of aircraft, and this is continuing to progress in line with our plans. The Tour Operations division of the Group now has potential to improve its growth prospects as it makes investments in a new inventory management software and in its new selling platform, increasing awareness of the Cosmos brand. Monarch Aircraft Engineering has announced its plans for expansion with a further engineering facility at Birmingham Airport and has recently confirmed an important new customer which will provide the critical mass to develop new business at both this facility and across its wider network. Strengthened governance and leadership team The governance and leadership team of Monarch have been significantly strengthened as the Group continues to modernise and lay the foundations for the next phase of its development. The Board of Monarch Holdings Limited (the holding company of the Group), of which I am Executive Chairman, was significantly strengthened during the year by the appointments of Robert Palmer as Group Finance Director, and of Sir Roy McNulty and Austin Reid as NonExecutive Directors. Further details of the Directors and the Group Management Board can be found on pages 28 to 31. The industry sectors in which we operate are evolving quickly and it is a priority for the Group to engage in the ‘flow of ideas’ that are both shaping this change and bringing new opportunities for the future. With this document, which is the Group’s first published Annual Report and Accounts, as well as a new Group corporate website, we are underlining our commitment to enhancing our stakeholders’ understanding of our capabilities and prospects as a Group, and the strong industrial logic which underpins our unique combination of businesses. The Monarch Foundation – a force for good in our communities The leadership of the Group recognises that we have a responsibility to be an effective corporate citizen in the communities in which we operate and beyond. Not only do our millions of customers expect the highest standards of service delivery, they also expect our approach to business to be, as a minimum, authentic, inclusive and transparent and in the area of philanthropic activity to be ‘doing what we can’. Our Group has a long history of charitable engagement and this is something of which it can be proud. The size and nature of The Monarch Group is such that through more effective coordination of these activities we should be able to build up our effectiveness as a good corporate citizen in the locations where we operate and, at the same time, positively reinforce the Group’s brand values to our millions of customers. In May 2013 we are launching The Monarch Foundation, an umbrella organisation within the The Monarch Group, which will organise all of the charitable activity that is carried on by the Group and in the Group’s name. Further information about this important new initiative in the life of the Group can be found on pages 34 and 35. Outlook Our business model and unique combination of businesses is resilient and the Group is now better placed to unlock its potential, although we remain cautious about the outlook and expect difficult market conditions to persist. We are pleased with our continuing progress in increasing the levels of recognition of the Monarch and Cosmos travel brands, supported by use of technology, and of consumer offerings differentiated by superior service levels and choice, as well with the growth in reputation of our engineering activity. We continue to focus on strengthening our commercial proposition and to look at how best to serve our customers, and we are laying the foundations for the Group’s future growth. We thank our shareholders for their support and all our employees for their important contribution to the good results achieved in the last few years, and in 2012. Iain Rawlinson Executive Chairman 29 April 2013 Q&A with the Executive Chairman What is the industrial logic for The Monarch Group’s businesses? Our combination of businesses and their mutual interdependency is unique in the market and provides good opportunities to yield additional margin. The airline and tour operating divisions work together to bring product to market, thereby de-risking growth, while the engineering activity is using its expertise in servicing Monarch Airlines to attract high-quality third-party customers. How is Monarch Airlines benefiting from industry change? The closure of bmibaby in 2012 was an opportunity for us to absorb key routes and flying capacity. This is contributing to the growth of Monarch Airlines in 2013. Much of the catalyst for current change in the airline industry arose in 2011 with the increase in fuel cost. By being able to move quickly to reorganise the business, we have been able to significantly reduce the risks of high fuel price volatility. In what ways is Cosmos able to compete in the evolving holiday marketplace? The implementation of the new TravelBox inventory management software ‘flattens’ the technology landscape between Cosmos and its competitors. It enables Cosmos to compete head-on with products for direct customers to purchase, and to mingle these with a wider range of travel products. Demand is increasing for traditional package products underpinned by ATOL protection, and this plays to the strengths of the Cosmos brand. What is the potential for the aircraft engineering division? Monarch Aircraft Engineering is in many ways the ‘hidden gem’ in the Group. We have set ourselves the task of breaking out of the traditional perimeters for this business, and with the increase in MRO capabilities and a new state-of-the-art facility at Birmingham Airport the prospects for further growth in its third-party business are significantly enhanced. For a full video interview with Iain Rawlinson, visit The Monarch Group website www.monarchholdingslimited.com 9 The Monarch Group ANNUAL REPORT 2012 Business model – Unlocking value The four unified activities within the Group – Monarch Airlines, Tour Operations, Monarch Aircraft Engineering and Retail and Online – form a secure and sustainable business model. DIFFERENTIATED, HIGH-QUALITY CUSTOMER PROPOSITION LEISURE-FOCUSED TRAVEL PRODUCTS AND SUPPORTING INFRASTRUCTURE STABLE FINANCIAL PLATFORM A unified group of businesses INTRA-GROUP COOPERATION OPTIMISES MARGIN MUTUALLY SUPPORTIVE BUSINESSES DRIVE SYNERGIES 10 The Monarch Group ANNUAL REPORT 2012 BALANCED MIX OF DIRECT AND THIRD-PARTY DISTRIBUTION FLEXIBLE PRODUCTS AND INNOVATIVE THINKING DIFFERENTIATED, HIGH-QUALITY CUSTOMER PROPOSITION LEISURE-FOCUSED TRAVEL PRODUCTS AND SUPPORTING INFRASTRUCTURE BUILDING A STABLE FINANCIAL PLATFORM The delivery of ‘superior service at equivalent price’ is the principle underpinning the Group’s businesses. Our Group is highly focused on strengthening its leading positions and the quality of its product offerings in its principal market of leisure travel, underpinned by the strategically important supporting activities of aircraft engineering and retail and online. By maximising the value of the Group’s travel brands and supporting businesses, while capitalising on intra-Group trading opportunities, we are building a stable financial platform enabling us to also lay the foundations for future growth. This is underpinned by a sound and appropriate framework for corporate governance. FLEXIBLE PRODUCTS AND INNOVATIVE THINKING INTRA-GROUP COOPERATION OPTIMISES MARGIN MUTUALLY SUPPORTIVE BUSINESSES DRIVE SYNERGIES The Group’s travel brands offer unique levels of choice and flexibility for our customers and we continue to provide innovative, convenient and simplified solutions to enhance their experience, including: • Monarch Airlines’ ‘Airpacks’ enable customers to build their own booking. • Tour Operations provides the flexibility of ‘dynamic packages’ with the service and security of traditional holiday packages. • Monarch Aircraft Engineering’s innovative mobile App provides customers with real-time status updates. The sale of products and services between the Group’s mutually compatible divisions is a source of revenue and profit generation, and de-risks development activity. • Monarch Airlines provides the security of good quality, reliable flying to support the Tour Operations proposition. • Tour Operations provides structural underpinning of demand for the Airline’s scheduled flying programme. • Monarch Aircraft Engineering allows for a high operational performance within the Airline, supporting both the Monarch and Cosmos travel brands. Intra-Group allocation of resources transfers important knowledge and skills across divisions and drives both the implementation of strategy and value maximisation. Across all divisions there is a focus on continuing to deliver a high-quality product proposition, including superior customer experience at a competitive price, and on reinforcing these core strengths by maintaining product differentiation and improving ancillary revenue generation. BALANCED MIX OF DIRECT AND THIRD-PARTY DISTRIBUTION Our travel brands distribute product through direct-to-consumer and third-party trade channels, and this combination optimises margin performance and minimises risk. 11 The Monarch Group ANNUAL REPORT 2012 Monarch Airlines – A unique market position 12 The Monarch Group ANNUAL REPORT 2012 Established in 1968 Our distinct model is as a scheduled leisure airline, flying principally to short-haul destinations around the Mediterranean, the Canary Islands and destinations for winter ski. We operate from six UK bases – London Gatwick, Manchester, Birmingham, East Midlands, London Luton and Leeds-Bradford airports – and offer capacity in 2012/13 of some eight million sector seats. Our scheduled leisure network today operates across some 35 destinations and 112 routes. We provide across our network a clear and real choice to consumers who value superior customer experience at a competitive price. As a strategic priority, we offer airline capacity to tour operators both through scheduled operations and traditional charter activities. We are re-equipping and expanding our aircraft fleet to enhance our customer offering. Alysha Smith, Cabin crew 39 8.3 m Aircraft in 2013 Sector seats for 2013 » Monarch Airlines has a long and rich heritage and its founding family values are proudly reflected through the delivery of choice, quality and superior customer service. 9.0% Growth in revenue per seat in FY12 13 The Monarch Group ANNUAL REPORT 2012 Monarch Airlines continued For the 12 months ending 31 October 2012, Monarch Airlines achieved growth in total revenues of 10.2 per cent to £683.5 million (2011: £620.2 million), driven by increased passenger volumes and yields and the successful expansion of routes and airport bases. Losses before tax were reduced by 47 per cent to £37.2 million (2011: £70.1 million), reflecting the improved trading as well as the achievement of £31.6 million of planned Group operational like-for-like cost savings, the majority of which related to the Airline. #Ff FastFacts NO.1 Growth in capacity, routes and bases Monarch Airlines’ total capacity during the year increased by 1.8 per cent to 7.2 million sector seats, as 32 new routes were added to provide 88 routes in total. This increase was in large part driven by the decision in May 2012 to absorb key short-haul leisure routes from UK Midlands airports following the closure of bmibaby, and to further consolidate the Airline’s position in this region. Monarch Airlines launched its first winter ski programme in 2012/13, serving key resorts across the Alps and Dolomites. Key operational statistics FY12 Total capacity (‘000) Scheduled capacity (‘000) Total passengers (‘000) Scheduled passengers Scheduled load factor (%) Total revenue per seat (£) Total turnover (£m) Routes 14 The Monarch Group ANNUAL REPORT 2012 FY12 FY11 Change 7,400 6,035 6,400 5,356 88.8 91.43 673.7 88 7,103 5,304 6,300 4,631 87.3 83.88 608.5 56 +4.2% +13.8% +1.6% +15.7% +1.4pts +9.0% +10.8% +57% The absorption of new capacity enabled the Airline to introduce a new base at East Midlands Airport in summer 2012 and to launch new flights to key destinations across the Mediterranean. Already a leading scheduled carrier at Birmingham Airport, operations were expanded through the introduction of additional frequencies on existing flights, plus the addition of new routes including Barcelona, Grenoble, Madeira and Sharm El Sheikh. 15.7% Consolidation of the Airline’s position in the Midlands underpins the plans for the Airline to grow from a capacity of 7.4 million seats in FY12 to 10 million seats over the medium term. Growth in scheduled passengers in FY12 Airline operations from the North of England were also strengthened with the launch of a sixth UK base at Leeds-Bradford airport, where two A320 aircraft will be based from summer 2013, to provide a new choice to key leisure destinations across the Mediterranean and for winter ski. For 2013, the Airline plans to operate 112 routes to 35 destinations from six UK bases. Increasing passenger volumes, customer awareness and yields Scheduled passenger volumes during the year increased by 15.7 per cent, reflecting both network expansion as well as a strong improvement in customers’ awareness and understanding of the proposition. The Airline successfully delivered its first national television advertising campaign in summer 2012, and this was supported by promotional activities across a variety of media channels. Since the year end, a new national advertising campaign has been launched with the aim of further increasing awareness and bookings for summer 2013. Proportion of Group gross revenues 43% 50% £683.5m AIRLINE OPERATIONS £589.0m TOUR OPERATIONS 6% 1% £10.4m OTHER £86.3m ENGINEERING SERVICES A focus on enhancing our product offer to customers, which included the reaggregation of extra legroom seats, baggage options and meals into a choice of three optional ‘Airpacks’, helped to drive a strong yield performance and revenue per seat increased by 9.0 per cent. This remains an ongoing theme for development. Market share strengthened The Airline strengthened market share on its key scheduled routes and from key bases. During summer 2012 Monarch Airlines was either the number one or number two carrier on 70 per cent of its routes and, for the full-year period, it had the leading market share of all UK carriers on its routes from Birmingham (36 per cent market share) and Manchester airports (27 per cent market share) and the secondlargest share on its routes from London Gatwick (17 per cent market share). This performance reflects the Airline’s differentiated customer proposition of choice, value and superior customer service, and its market positioning as a strong alternative to low-cost carriers in many scheduled leisure markets. Underpinned by tour operator volumes Wholesale seat allocations delivered to the Airline by the Group’s flight broking division, First Aviation, and sales made to the trade by Avro, the flight-only specialist within the Group’s Tour Operations division, increased in line with the Airline’s total volume growth for the period. These distribution channels to third parties, which during the year included 123,000 sector seats supplied to Thomas Cook, continue to provide a strategically important underpinning of sales across the flying network. Growth in online Unique visitors to the Monarch Airlines website during the year increased by 41 per cent to 11 million, while bookings for scheduled flights increased by 11 per cent to 1.1 million. The overall online proposition was enhanced through the launch of a mobile website designed specifically for use with iPhones, as well as local-language websites in key European markets to drive in-bound customer traffic. Monarch.co.uk, the Airline’s customer website, was also named by the UK travel industry as the top airline website for 2012. Re-equipping the fleet The Group has embarked on plans for the re-equipping of Monarch Airlines’ aircraft fleet. This envisages an order for a total of 45 replacement and expansion aircraft for delivery up to 2021, enabling improvement in service levels to Monarch Airlines’ customers, better asset utilisation and efficiency, and cost savings. Invitations have been issued to the world’s largest aircraft manufacturers to submit proposals through a strategy which will consider both leasing and purchasing of aircraft. In advance of the fleet renewal programme, Monarch is taking delivery of two new Airbus 320 aircraft in March and April 2013, and a further two new A321 aircraft in May 2013 to replace older aircraft which are being retired from the fleet. 15 The Monarch Group ANNUAL REPORT 2012 Tour Operations – Flexible, asset-light model 16 The Monarch Group ANNUAL REPORT 2012 Largest UK independent tour operator, comprising Cosmos Holidays, Avro and somewhere2stay. Flexible and secure customer choice, from mainstream to specialist holidays. Secure supply of high-quality flight capacity from Monarch Airlines. 815,000 Passenger volumes in FY12 #Ff Tour Operations division at a glance Cosmos Holidays – Founded in 1961. Provides a fully secure and protected package holiday offer across 72 holiday destinations on four continents. Avro – Award-winning flight-only supplier, providing a broad range of seat availability, duration and prices to tour operators, and sells over one million flight sectors annually. somewhere2stay – Offers low-cost hotel, villa and apartment accommodation worldwide. FastFacts NO.2 Our top five package holiday destinations by annual passenger volume are the Canary Islands, Greece, the Balearic Islands, Mainland Spain and Goa. Proportion of Group gross revenues 43% £589.0m TOUR OPERATIONS 50% 1% 6% Antonia Frampton, Overseas resort representative £683.5m AIRLINE OPERATIONS £10.4m OTHER £86.3m ENGINEERING SERVICES » The Cosmos team is on hand at our destinations to help our customers with anything they need during their stay, which is one of the ways we can be sure every one of our customers enjoys a ‘100% holiday.’ 17 The Monarch Group ANNUAL REPORT 2012 Tour Operations continued Tour Operations For the 12 months ending 31 October 2012, the Tour Operations division, comprising Cosmos Holidays, Avro and somewhere2stay, achieved growth in total revenues by 3.2 per cent to £589.0 million (2011: £570.7 million) and profit before tax was £5.6 million (2011: £5.8 million). Outperforming the market on key destinations Against the backdrop of a difficult consumer environment, a strong margin performance during the year was driven by high-quality product offerings for winter 2011/12 and summer 2012, particularly package holidays to Goa, Greece and Florida. For summer 2012, sales of holidays to Greece, Cosmos Holidays’ leading package holiday destination, increased by 10 per cent in a total market which declined by 10 per cent, increasing Cosmos Holidays’ share of this key package holiday destination. An increased focus on product to Goa for winter 2011/12 and to Florida for summer 2012 achieved growth in sales of package holidays to these destinations by 75 per cent and 83 per cent respectively. 18 The Monarch Group ANNUAL REPORT 2012 Offers flexibility of dynamic packages, with the service levels, safety and security of traditional package holidays. Mainly sells into Monarch Airlines’ scheduled air capacity as opposed to traditional, higher-risk charter allocations. Unrivalled choice of departure and duration options through Monarch Airlines’ scheduled inventory. Strong brand positioning and market position Customers look to the Cosmos brand and its long-established reputation for expertise and reliability to help them to navigate through a changing landscape for holiday travel and to purchase holiday products with confidence. The Cosmos proposition is focused on offering the flexibility of dynamic packages to match customers’ demands, combined with simple-to-use search and booking, destination-based customer support, fully secure and ATOL-protected holidays and value for money. Cosmos continues to achieve high ratings against these brand priorities in customer research, with 95 per cent rating their holiday overall as good or excellent, and 92 per cent good or excellent value for money in January 2013. A strong business performance during the tough trading conditions of the last 12 months has consolidated the division’s market position as the UK’s largest independent tour operator and the third-largest ATOL operator in the UK overall, with total ATOLlicensed passengers of 700,000 and market share of 3.3 per cent in 2012. Product and distribution model FY12/13 Package Accom only Flight only Total 20 %0 Direct Third-party retail 40 60 80 100 Meeting the evolving needs of customers The Tour Operations division has across all brands and products a balanced mix of direct and third-party retail distribution channels. Over the next five years, this mix will evolve, most notably in direct sales to consumers of Cosmos Holidays’ package product, arising from the implementation of the new TravelBox flexible reservations platform and trade web portal which has been completed in early 2013. This new platform is transforming the breadth of travel product across all brands, meeting the evolving needs both of our customers and suppliers and significantly increasing the speed to market of the Tour Operations business. The implementation of new technology is a core feature of a broader business transformation programme, which is intended to modernise and bring further efficiencies into the division and to improve the technology which underpins buying, inventory management and the online customer booking path. Among the benefits to the division over the next five years are that Cosmos will become a scale travel marketplace, selling an increased proportion of own and third-party stock direct to consumers, and in businessto-business markets its share is expected to increase through strong distribution agreements and broader inventory. 95% of customers rated their Cosmos holiday overall as good or excellent (Cosmos Customer Research: January 2013) 19 The Monarch Group ANNUAL REPORT 2012 Monarch Aircraft Engineering – Strong strategic partnerships Jonathan Bell, Apprentice engineer For 42 years MAEL has been producing high-calibre aircraft engineers through its highly regarded apprenticeship scheme and during 2012 enrolled its 700th apprentice. 20 The Monarch Group ANNUAL REPORT 2012 » Established in 1967, MAEL provides important aircraft MRO services to the Monarch Airlines fleet, contributing to the Airline’s efficiency and reliability. MAEL continues to grow its global blue-chip third-party customer base. Principal bases are at London Gatwick, London Luton and Manchester airports. Further line stations are at Birmingham, East Midlands, LeedsBradford, Edinburgh, Dublin, Malaga, Alicante, Goa, the Maldives, Canary Islands, Kiev and Warsaw. Superior knowledge in maintaining legacy fleets and new technology aircraft, including Boeing 787. One of only six Boeing-approved GoldCare providers worldwide. #Ff FastFacts NO.3 Opening in late 2013, MAEL’s new 110,000 sq. ft. state-of-the-art facility at Birmingham Airport will have capacity for three wide-body or 10 narrow-body aircraft. Engineers from MAEL flew with customer LOT Polish Airlines’ first Boeing 787 Dreamliner on its ferry flight from Seattle to Warsaw in November 2012. A growing market in which to increase third-party revenues Current third-party engineering customers include: Global market for aircraft maintenance forecast to grow from $49bn in 2012 to $65bn by 2022 (Source: Airline Economics & Aviation News Global Survey 2012). Plan in place to deliver 50% of MAEL business via third parties by 2015. American Airlines, Air Arabia, Air Berlin, Alitalia, Cyprus Airways, easyJet, Emirates, LOT Polish Airlines, Aer Lingus, British Airways City Flyer, DHL, Flybe, Jet2.com, Thomson Airways, Titan Airways and Wizz. 21 The Monarch Group ANNUAL REPORT 2012 Monarch Aircraft Engineering continued Aircraft hangar maintenance Line maintenance Global response teams Design and installation ‘True engineering’ skills Skills training and apprenticeship FY12 revenue mix Proportion of Group gross revenues 43% MAEL core skills and capabilities £589.0m TOUR OPERATIONS SPARES TRADING BASE MAINTENANCE CMC* 3 2 36% PART M 10% 16% LINE 50% £683.5m AIRLINE OPERATIONS 22 The Monarch Group ANNUAL REPORT 2012 6% 1% 33% £10.4m OTHER £86.3m ENGINEERING SERVICES MATERIAL SUPPORT SERVICES * Component Maintenance Centre 29% Increase in operating profit in FY12 For the 12 months ending 31 October 2012, Monarch Aircraft Engineering achieved growth in total revenues by 8.9 per cent to £86.3 million (2011: £79.2 million), of which 29 per cent was derived from third-party customers, reflecting the continued focus of the business on building maintenance and repair and consultancy services to blue-chip customers globally. Profit before tax increased by 83 per cent to £5.3 million (2011: £2.9 million). Strong industry credentials Synonymous with the Monarch brand, MAEL has a long-standing global reputation for quality and high standards of service and this reputation is the cornerstone of its relationships with customers, regulatory bodies and Original Equipment Manufacturers (OEMs), including Boeing, Airbus and Embraer. MAEL has secured approval for Boeing 737NG maintenance, strengthening its capabilities in Boeing narrow body-type aircraft, and adding to its existing credentials as one of only six worldwide Boeing GoldCare partners. Following a further new agreement in 2012, MAEL now also provides line maintenance in Malaga, Spain to a fleet of Embraer 170 and 190 aircraft operated by Flybe, Europe’s largest regional airline. In 2012 MAEL was awarded an important contract by LOT Polish Airlines to provide technical support from a line maintenance facility in Warsaw for the first Boeing 787 Dreamliner aircraft to be operated from Europe. This aircraft entered into service on 15 November 2012 and technical acceptance was undertaken by MAEL at Boeing in Seattle. New hangar at Birmingham Airport Some 60 per cent of the world’s airline carriers outsource their heavy maintenance and the value of this global market is forecast to increase by over 30 per cent to $65bn over the next 10 years (Source: Airline Economics & Aviation News Global Survey 2012). As operators increasingly seek to minimise the costs of positioning their fleets for maintenance, MAEL is able to consider new opportunities for hangar capacity at international gateway airports. In November 2012 MAEL announced the construction of a new 110,000 sq. ft. state-of-the-art maintenance facility at Forecast customer revenue progression 2012-15 70% MONARCH AIRLINES 50% 2012 2015 30% 50% THIRD-PARTY CUSTOMERS MONARCH AIRLINES Birmingham Airport to be completed in late 2013, complementing its existing facilities. The new hangar, creating up to 300 new jobs, will enable MAEL to service a greater share of the growing UK market for aircraft maintenance services (including international long-haul carriers) and to help achieve its target of 50 per cent of revenues being derived from third-party customers by 2015. This additional capacity enables MAEL to secure new business and to enter into new sectors for aircraft technology and, in May 2013, MAEL entered into an important commercial agreement with Flybe to be a key entry customer for the new Birmingham facility. With this agreement, MAEL will provide year-round maintenance support to Flybe, including entry into new aircraft and OEM types, and will employ a large number of highly skilled and qualified engineers across the Birmingham, Manchester, London Gatwick and East Midlands airport bases. MRO of the Year 2013 MAEL received an endorsement of the progress and reputation it continues to forge as a global leader in aircraft maintenance services when, in January 2013, it was awarded MRO of the Year 2013 by aviation industry customers at the Aviation 100 Awards. The highly prestigious award followed an 11-month customer satisfaction survey in which MAEL achieved a clean sheet rating of excellence from its customers across the globe. MAEL has also been listed in the top 10 MROs for Europe, the Middle East and North Africa and, in May 2012, was elected MRO of Choice among its peer group and suppliers. High-quality training to meet future requirements MAEL produces through its highly regarded apprenticeship scheme a strong pipeline of skilled engineers for both its own operations and the wider aviation industry. In January 2013 the new Monarch Aircraft Engineering Training Academy (MAETA) at London Luton Airport was opened, providing new classrooms and state-of-the-art learning facilities to support several aircraft types, as well as the capacity to double the intake of apprentices for 2013 to 24. THIRD-PARTY CUSTOMERS 23 The Monarch Group ANNUAL REPORT 2012 Retail and Online – A nexus for Group e-commerce activity Supports delivery and management of e-commerce strategies across all Group platforms. Focused on technology innovation and exploiting online trends. Driving customer engagement through Twitter, Facebook and other social media channels. #Ff FastFacts NO.4 Across the Group’s brands, customer engagement with social media continues to advance, with a 300% increase in Facebook ‘likes’ and a 189% increase in Twitter followers in 2012. 24 The Monarch Group ANNUAL REPORT 2012 Group Retail and Online key performance metrics FY12 Search unique visitors (millions) Booked revenue (£m) Average revenue per booking (£) The Retail and Online activity supports the Group’s divisions in delivering their online and e-commerce strategies, and provides e-commerce expertise to ensure that the Group exploits new technology, online trends and continues to innovate in the travel market. Where appropriate, the Group’s divisions share common themes to ensure efficiency in delivery and management of online and e-commerce solutions, although this is balanced by the bespoke requirements driven by operating in very different areas of the online travel market. Strong and rapidly growing online market positions The Group continues to make significant advances in e-commerce capabilities, including mobile, with 20 million unique visitors to the Group’s customer online platforms for the 12 months ended 31 October 2012, up 21 per cent on the prior year, including an increase in unique visitors to the Monarch Airlines website of 30 per cent. Some 1.1 million customer bookings were made through the Group’s websites during the year, generating £478.4 million of Group revenue (2011: £404.2 million), an increase of 18.4 per cent on the prior year. In September 2012, Monarch.co.uk was named as the top airline website at the UK Travelmole Web Awards and was commended for its excellent graphic communication, superb online copy and salesmanship as well as its strategies and techniques for enhanced site conversion. New local-language websites and booking processes for Monarch Airlines have also been launched for Germany, Italy, Spain and France to support new routes and increase the share of in-bound customer bookings. Total Change (YOY) 20 478.4 412 +21% +18% +10% 20m Group unique visitors in FY12 A priority focus within the Tour Operations division has been the roll-out of new TravelBoxpowered booking processes to support the business transformation programme and to optimise conversion rates across a broader range of package, accommodationonly and flight-only products. Mobile innovation and future development Within the fast-moving mobile Internet marketplace, an online booking service was launched for Monarch Airlines, commencing with a website optimised for iPhone devices. Through this service, which can be accessed by iPhone users visiting the Monarch.co.uk website or linking from a comparison website, customers can search and book all scheduled flights, select seating and baggage options and pay for their booking using a card or PayPal’s mobile-optimised checkout. A new Smartphone App was launched in April 2013 containing a variety of useful features designed to make customers’ journeys more enjoyable, including the ability to find, book and check the status of flights, find directions and traffic reports for journeys to airports, as well as a function for locating a parked car on return to the airport of departure. The future strategy for Retail and Online includes a continuing focus on mobile and further innovation for the Group’s consumerfacing websites in the areas of personalisation, loyalty, social media and rich content. 25 The Monarch Group ANNUAL REPORT 2012 Financial review – Trading ahead of expectations “Trading ahead of expectations of the turnaround plan, loss before tax on an adjusted basis fell by 71 per cent.” Robert Palmer Group Finance Director In the first year of its two-year turnaround, the Group has delivered an improved financial performance for the 12 months ending 31 October 2012, trading ahead of the expectations of the turnaround plan, which envisages a return to profitability in the 2013 financial year. Loss before tax on an adjusted basis fell by 71 per cent from £51.1m to £14.9m as a result of cost control, network and revenue management improvements in Monarch Airlines, and strong contributions by Tour Operations and Monarch Aircraft Engineering. Adjustments made to loss before tax are set out in more detail in note 2 to the financial statements and relate to impairment and losses on sale relating to the refinancing of A321 aircraft in 2012 and the early exit from service of legacy A320 aircraft in 2013. Loss before tax before adjustments also fell sharply by 52 per cent from £70.2m to £33.4m. Cash flows and financial position Following the completion of a shareholder refinancing in November 2011, the Group now has a solid financial footing which facilitates the return to profitability and allows the Group to plan for the future. The net cash inflow from operating activities of £32.6m (2011: £nil) was delivered through careful management of cash and the positive effects of growth on working capital. Substantial capital investment continued during the year with a £11.2m cash outflow to acquire tangible fixed assets, principally aircraft-related. Whilst restricted deposits increased by £34.9m, after shareholder financing inflows of £20.0m, cash increased by £9.3m during the year with unrestricted cash reserves of £49.9m held at 31 October 2012 in addition to £51.6m of restricted cash. Reflecting banking industry trends, restricted cash deposits are now required by a number of parties, most notably credit card providers. During the year, the Group made good progress in increasing the range of card-processing arrangements that are available, as well as in reducing both the cost of these and the related collateral required. On 15 November 2011 the Group’s shareholders provided an additional £77.0m of funding as part of a refinancing exercise undertaken in the autumn of 2011. The £77.0m additional funding comprised of £20.0m of equity preference share capital, a £20.0m loan, a £10.0m increase in unutilised standby facilities to £25.0m, and up to £27.0m of aircraft lease deferrals during the 15-month period to December 2012. 26 The Monarch Group ANNUAL REPORT 2012 Principal risks and uncertainties The Group uses approximately 400,000 tonnes of jet fuel a year. Volatility in the price of oil and petroleum products can have a material impact on operating results. This price risk is partly hedged through the purchase of jet fuel in forward markets, which can generate a profit or a loss, and through setting budget fuel price assumptions above market price. The Airline operation faces competition from other airlines on its routes and from other modes of transport. Tour Operations competes against larger rivals and online travel agents, and MAEL tenders for business against competitors based in lower cost economies. The Group’s revenue is highly sensitive to economic conditions and, in particular, UK consumer confidence. The airline industry is currently heavily regulated, with expected increased regulator intervention; this includes environmental, security and airport regulation in which changes are levied by regulator decision rather than by commercial negotiation. This could have an adverse impact to the Group’s reputation, cost base and market share. The Group is subject to regulation across its network, including the Civil Aviation Authority (CAA) which issues an ATOL licence to certain Group companies which is required in order for the Group to operate. This licence is renewed annually in September subject to assessments of fitness and financial criteria, the broad framework for which is available via the CAA website (www.caa.co.uk). The Group’s business can also be affected by macro-economic uncertainty outside of its control such as weakening consumer confidence, inflationary pressure or currency volatility. This could give rise to adverse pressure on revenue, load factors and residual values of aircraft, which the Group mitigates through regular monitoring of markets and route performance. Other issues that can adversely impact performance include pandemics, environmental factors, safety and security incidents, and industrial disputes. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the above section. As highlighted in the Principal Risks and Uncertainties section above, the Group is required to maintain an ATOL licence in order to operate. The Group has held discussions with the CAA about the ATOL renewal. Based on these discussions, the Group’s forecasts, taking into account reasonably possible changes in trading performance, show that the Group is forecasting to meet the financial terms expected to be required by the CAA. Accordingly, the Group has no reason to believe that the renewal will not be granted on acceptable terms using an equivalent basis to previous years. Liquidity risk In order to maintain liquidity to ensure that sufficient funds are available for ongoing operations and future developments, the Group uses a mixture of long-term and shortterm debt finance (including operating leases) for the purposes of capital expenditure and also actively manages the level of working capital. Most aircraft are now financed with third-party operating lessors, with all debt being provided from the shareholders. The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the financial statements. Further details of the going concern basis can be found in note 1 to the financial statements, accounting policies. Having produced detailed forecasts and budgets for the Group, the Directors believe that the Group will be able to continue trading through effective use of operating cash flows, sale and leaseback arrangements and shareholder facilities. Financial risk management objectives and policies The Group’s activities expose it to a number of financial risks including cash flow risk, credit risk, liquidity risk and price risk. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide principles on the use of financial derivatives to manage these risks. The Group does not use derivative financial instruments for speculative purposes. Cash flow risk The Group’s activities expose it to the financial risks of changes in foreign currency exchange rates. The Group uses foreign exchange forward contracts to hedge these exposures. Cash reserves are invested on a commercial basis to achieve returns of interest both in the short and medium term. Loans on aircraft are negotiated with a fixed margin over Sterling LIBOR. Credit risk The Group’s principal financial assets are bank balances and cash, trade and other debtors. The majority of Airlines’ and Tour Operations’ receipts are in advance of departure date and so the credit risk of customers defaulting on payment is small. Relationships are maintained with customers and reviews of credit are undertaken on a regular basis. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers. Within the engineering division, credit insurance is maintained against the insolvency of its third-party customers. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies. Price risk The Group is exposed to commodity price risk. The main commodity purchased by the Group is jet fuel and the Group uses fuel hedging contracts to try and reduce its exposure to short-term fuel price changes. The Group, however, remains exposed to longer-term changes in the fuel price. Market risk The Group is dependent on credit and trading lines being made available by various banking and financial institutions to allow operating leases of aircraft, credit card processing, banking facilities and hedging lines. Over the last few years, the availability of financial credit and trading lines has become less certain. The Group has sufficient lines for its present needs and is managing the risk through expanding the range of arrangements to a larger number of counterparties. Dividends The Directors have not proposed a dividend for the year (2011: £nil). Policy and practice on payment of creditors Monarch has partnership arrangements with many of its biggest suppliers and aims to pay all suppliers on time in accordance with contractual and legal obligations. At 31 October 2012, the number of creditor days outstanding was 40 days (2011: 38 days). Robert Palmer Group Finance Director 29 April 2013 27 The Monarch Group ANNUAL REPORT 2012 Board of Monarch Holdings Limited 1 2 3 4 28 The Monarch Group ANNUAL REPORT 2012 1. Iain Rawlinson Executive Chairman Iain Rawlinson joined Monarch as Executive Chairman in 2009, bringing some 25 years’ experience in banking and investment, gained with Lazard Brothers, Robert Fleming and Fleming Family and Partners. 3. Sir Roy McNulty Non-Executive Director Sir Roy McNulty was appointed to the Board of Gatwick Airport as a Non-Executive Director in March 2011 and became Chairman on 1 April 2013. He is currently Deputy Chairman of the Olympic Delivery Authority. Iain read law at Cambridge and was called to the Bar in 1981. After joining Lazard Brothers in 1986, from 1995 to 2000 he was responsible for building and managing Flemings’ investment banking presence in Southern Africa. He was Executive Chairman of National Air Traffic Services Ltd (NATS) from 1999 to 2001 and subsequently Chairman of the Civil Aviation Authority, the UK’s aviation regulator, from 2001 to 2009. In 2000 he became Chief Operating Officer of Fleming Family and Partners, the Fleming family investment business, and until 2005 held various senior executive and advisory positions in this group. Since 2005 he has focused on independent commercial and charitable interests, many with a leadership role in business building or transformation. He is responsible for the overall leadership of The Monarch Group. He is Chairman of Tusk, the UK charity focused on conservation, communities and education in Africa, and other philanthropic activities. 2. Robert Palmer Group Finance Director Robert Palmer was appointed as Group Finance Director in April 2012. Robert, who has previously served as Group Financial Controller of easyJet, Chief Financial Officer at British Midland International and also with Air Malta, brings a wealth of airline industry expertise to the Group, which he joined in a consulting capacity in September 2011 in a role focusing on the delivery of the turnaround plan. Previously Sir Roy was Chief Executive and latterly Chairman of Short Brothers plc, the Belfast-based aerospace company now part of Bombardier Aerospace, and was Chair of Advantage West Midlands from 2009 to 2012. 4. Austin Reid Non-Executive Director Austin Reid was one of the architects of British Midland International (bmi) and served from 1985 as Finance Director and was Managing Director and Chief Executive from 1995 to 2005. As Chief Executive of bmi, he drove the strategic direction of the airline in route expansion, helping to transform bmi into a major European carrier. He began his career with KPMG in New York. In 1975, he joined Hertz Corporation, where he rose to become Vice President of Finance for Europe, the Middle East and Africa. He is currently a Non-Executive Director of SR Technics and brings a wealth of airline and regulatory experience to the Board. In January 2013 he was appointed to the Board of Air Berlin as a Non-Executive Director. His senior FTSE 250 and IPO experience underpins a demonstrated track record leading change in businesses, driving efficiency and productivity through technical expertise and commercial acumen, as well as financial management and reporting disciplines. 29 The Monarch Group ANNUAL REPORT 2012 Group Management Board 1 2 3 4 5 6 7 8 9 10 11 12 13 30 The Monarch Group ANNUAL REPORT 2012 1. Iain Rawlinson Executive Chairman Joined Monarch as Executive Chairman in 2009, bringing some 25 years’ experience in banking and investment, gained with Lazard Brothers, Robert Fleming and Fleming Family and Partners. 2. Robert Palmer Group Finance Director Appointed as Group Finance Director in April 2012. Previously served as Group Financial Controller of easyJet, Chief Financial Officer at British Midland International and also with Air Malta. 3. Kevin George Managing Director, Monarch Airlines Joined Monarch Airlines in January 2007 as Director of Customer Services. Became Operations Director in October 2008, before being promoted to Managing Director, Airline Operations in July 2010. Prior to joining Monarch, Kevin spent 11 years with British Airways in a range of senior commercial management roles. 4. Hugh Morgan Managing Director, Cosmos Holidays, Avro and somewhere2stay Appointed Managing Director of Cosmos Holidays, Avro and somewhere2stay in July 2010. Brings over 40 years’ experience in European inclusive tour travel to his role. Member of the Board of ABTA, the UK’s leading travel association. 5. Mick Adams Managing Director, Monarch Aircraft Engineering Formerly Maintenance and Operations Director, with long experience of all aspects of MRO activity. Appointed Managing Director of MAEL in 2010. 6. John Romo Managing Director, First Aviation Joined the Company in 2004 as General Manager of First Aviation. Over 20 years’ experience in aviation, of which over 10 years were in sales and management. 7. Alan MacLean Managing Director, Cosmos Tours and Cruises Joined Cosmos in January 2009 as Managing Director for Cosmos Tours and Cruises and Specialist products. Prior experience includes the UK operation of sister cruising company Avalon Waterways, Shearings, Sunworld, Thomas Cook and Saga Holidays. 8. Stuart Jackson Group Business Development and Distribution Director Responsible for the development and deployment of Group strategy in relation to the optimisation of all distribution channels across all Group product and brand streams. Over 25 years’ experience in the travel industry. 11. John Marray General Counsel and Company Secretary Appointed in September 2011. Responsibility across all legal, governance and company secretarial matters. 12. Chris Dare Group Information Services Director Joined Monarch in October 2011 as Group Information Services Director, and is responsible for managing all IT requirements across the Group. 13. Paul Barker Group Head of Corporate Communications and IR Joined The Monarch Group in June 2012. Over 15 years’ director-level corporate communications and investor relations experience including publicly listed, highprofile consumer-facing businesses. 9. Pauline Prow Group HR Director Joined Monarch in June 2009 initially as HR Director for the Airline and Engineering businesses, before moving to the expanded Group HR Director role in May 2010. Prior to joining Monarch, Pauline spent 30 years in the automotive sector with General Motors, where she held a range of senior HR management roles. Pauline is Chairman of The Monarch Foundation. 10. Richard Roth Group Performance and Turnaround Director Appointed in June 2012. 25 plus years’ senior management experience in financial, commercial and operational areas, the last 13 of which have been within the airline industry. 31 The Monarch Group ANNUAL REPORT 2012 Corporate governance Corporate structure The holding company of The Monarch Group is Monarch Holdings Limited, the principal subsidiaries of which are Monarch Airlines, First Aviation Limited and Monarch 2011 Limited. Monarch 2011 is the parent company of both Monarch Aircraft Engineering and the Monarch Travel Group (comprising the tour operating activities of the Group). Monarch Holdings Limited Board As the ultimate parent company of The Monarch Group, the Board of Monarch Holdings Limited comprises the Executive Chairman and Finance Director of the Group and two Non-Executive Directors. Monarch Holdings Limited has delegated governance of the day-to-day management of The Monarch Group to a Management Board comprising senior executives from the operating companies of Monarch Airlines, First Aviation Limited, The Monarch Travel Group (the tour operating division of the Group), Monarch Aircraft Engineering and other senior Group executives representing Group-wide functions, which is chaired by the Executive Chairman of The Monarch Group. The Management Board is empowered by Monarch Holdings to manage all matters relating to the day-to-day operation of The Monarch Group, and certain matters affecting the management of The Monarch Group are reserved for consideration by the Monarch Holdings Limited Board. Each of the Group’s operating companies holds regular Board meetings attended by the Group’s General Counsel in the capacity of Company Secretary of each of these companies. Matters which have a Group dimension are escalated to the Management Board of the Group or the Board of Monarch Holdings for consideration. Iain Rawlinson Executive Chairman Governance Significant contracts All significant contracts entered into by any of the Group’s operating companies are formally reviewed by a Contracts Review Board (CRB) comprising senior executives of the Group and the relevant operating company. A focus of the CRB is on the identification and mitigation of commercial and legal risk to The Monarch Group. Risk management Each of the Group’s operating companies has a register of Principal Risks and Uncertainties, which is continually updated and is subject to a formal monthly review by the operating company Board. These risks are also documented in a Group risk register which is formally reviewed at the monthly meeting of the Group Management Board. 32 The Monarch Group ANNUAL REPORT 2012 Corporate structure Management Board Group Finance Director Monarch Holdings Limited Group Management Board Monarch Airlines First Aviation Tour Operations Executive Chairman Monarch Aircraft Engineering Retail and Online Avro somewhere2stay Cosmos Holidays Group Business Development and Distribition Director Managing Director Monarch Airlines Group Director of Performance and Turnaround Managing Director First Aviation Group HR Director Managing Director Tour Operations Group Head of Corporate Communications and IR Head of Retail and Online Group IT Director Managing Director Engineering General Counsel and Company Secretary Conflicts of interest Directors are required at each Board meeting to declare any conflicts of interest, whether between the operating companies of The Monarch Group or with third parties outside the Group. Such conflicts are considered on a monthly basis by the Boards of each of the Group’s operating companies and are formally documented in Board minutes produced by the Company Secretary. Additionally, a senior Director of the Group is tasked with identifying and documenting within a Conflict of Interests Register any conflicts of interest within the Group, which are then reported to and formally considered by the Group Management Board. In exceptional circumstances, these may be escalated to the Board of Monarch Holdings for consideration. Committees Management Board The Group’s Management Board is responsible for day-to-day activities of the Group, and is described in the chart above. Remuneration Committee The Remuneration Committee of the Board of Monarch Holdings Limited comprises the Group Executive Chairman and two Non-Executive Directors of the Board. The Committee is chaired by a Non-Executive Director. The Remuneration Committee is authorised on behalf of the Main Board to determine and agree the framework or broad policy for the remuneration, including expenses and pension arrangements, of the Group’s Executive Chairman, the Executive Directors, the Company Secretary and such other members of the executive management team as it is designated to consider. The remuneration of Non-Executive Directors is a matter for the Chairman and the executive members of the Main Board. No Director or manager is involved in any decisions as to their own remuneration. Remuneration policy takes into account all factors which the Committee deems appropriate, including relevant legal and regulatory requirements, the provisions and recommendations of the UK Corporate Governance Code and associated guidance. The Committee has full authority to appoint remuneration consultants and to commission or purchase any reports, surveys or information which it deems necessary, within budgetary parameters determined by the Main Board. The objective of remuneration policy is to ensure that members of the executive management of the Group are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Group. terms of reference, to seek any information that it requires from any employee of the Company and to obtain outside legal or independent professional advice and such advisers may attend meetings as necessary. The responsibilities of the Committee are, in respect of the external auditor, to oversee the process for its selection, assess its independence, recommend the audit fee to the Main Board and pre-approve fees in respect of non-audit services provided by the external auditor and to review its management letter and management’s response. The Committee reviews the Company’s procedures for handling allegations from whistleblowers, management’s reports on the effectiveness of systems for internal financial control, financial reporting and risk management. The Committee also provides review and challenge, where necessary, for the actions and judgements of management in relation to the Company’s financial statements and financial reporting. Audit Committee The Audit Committee of the Board of Monarch Holdings Limited comprises the independent Non-Executive Directors of the Company. The Group Finance Director and a representative of the external auditors attend meetings at the invitation of the Committee. The Committee is authorised by the Main Board to investigate any activity within its 33 The Monarch Group ANNUAL REPORT 2012 The Monarch Foundation – A force for good Charity partners 2013 Macmillan Cancer Support www.macmillan.org.uk When You Wish Upon A Star www.whenyouwishuponastar.org.uk Children in Need www.bbc.co.uk/programmes/b008dk4b Home-Start UK www.home-start.org.uk Toe in the Water www.toeinthewater.org The Homeless World Cup www.homelessworldcup.org Dick Camplin Education Trust www.facebook.com/DickCamplinEducationTrust Group generosity A wide range of generous activity takes place each year across The Monarch Group. Over the last two years some £500,000 has been raised in money and donations in-kind from a variety of activities. This includes customer donations made on board Monarch Airlines flights and through Cosmos Holidays’ online booking path, and fundraising activities initiated by the Group’s employees. This charitable engagement has delivered excellent results for The Monarch Group and our charity partners and is something that the Group can be proud of. A stronger commitment The Group recognises that industry more widely has the capacity, and the responsibility, to make a variety of important social responsibility impacts externally and, therefore, has a responsibility to be an effective corporate citizen in the communities where it operates and beyond. The size and nature of the Group is such that, through better coordination of its charitable activity, it should be in a position to make an even more effective commitment to a wider range of charities. At the same time, the Group’s brand values can be positively reinforced to its millions of customers. 34 The Monarch Group ANNUAL REPORT 2012 The Monarch Foundation was launched in spring 2013 as an internal entity to organise all of the charitable activity that is carried on by the Group and in the Group’s name. It is intended that The Monarch Foundation will ultimately become a defining positive aspect of the Group’s businesses and brands. Our causes In consultation with the Charities Group, comprising representatives from across the Group, The Monarch Foundation has given consideration to the charitable areas that are most relevant to the business activities of The Monarch Group and its brands, and which the Group should support for the immediate term from both its own resources and, where employees are involved, through activities carried out in the name of the Group. During the initial establishment phase of The Monarch Foundation in 2012/13, the Charities Group has identified five main causes on which The Monarch Foundation will focus its efforts and be the defining areas of all charitable engagement carried out in the Group’s name: • disadvantaged families; • children and young people; • education; • environment and sustainability; and • injured military service people and their families. Monarch Airlines has proudly supported Macmillan Cancer Support for 24 years, raising a total £3.8 million, principally through the collection of passengers’ on-board donations and supporting Macmillan’s annual fundraising event, the World’s Biggest Coffee Morning. www.pennies.org.uk Monarch Airlines and Cosmos are partnering with Pennies, the electronic charity box which collects charitable donations from our customers when they purchase flights and holidays online. These generous donations benefit the charities supported by The Monarch Foundation. In April 2013, Monarch Airlines Captain Peter Clark undertook an 80km trek across a section of the Great Wall of China to raise funds for Help for Heroes, a charity for injured service people and their families, one of the five important causes supported by The Monarch Foundation. The Foundation donated £1,000 to this challenge, helping Peter Clark to raise a total of approximately £4,000 for Help for Heroes. 2013 Charity Partners The Monarch Foundation continues to work with the Group’s existing charity partners, Macmillan and the children’s charity When You Wish Upon A Star, and has selected five new charities which it will partner with from 2013. The Monarch Foundation’s 2013 Charity Partners are: • Macmillan Cancer Support – improving the lives of people affected by cancer. • When You Wish Upon A Star – specialising in making dreams come true for children with life-threatening illnesses. • Children in Need – providing grants to over 2,500 projects in the UK which focus on children and young people who are disadvantaged . • Home Start UK – helping families with young children deal with whatever life throws at them. • Toe in the Water – inspiring service men and women who have sustained often traumatic injuries to move beyond their disability and to become reinspired by life. • Dick Camplin Education Trust – providing scholarships for financially disadvantaged students, who have gained places at university having attended Salford City College or Loreto College in Manchester. • The Homeless World Cup – using the power of football to energise homeless people so they can change their own lives. Currencies for engagement The Monarch Foundation is supporting these charities by using a range of resources at the disposal of The Monarch Group: • Money and financial support • Skills transfer • Benefits in kind • Volunteering • Ambassadorship • Networking through a Charities Forum. Employee engagement The Group’s employees are encouraged to continue their engagement with the wider charitable sector and in 2013 a limited number of ‘Matching Grants’ of up to £1,000 are available where there is a direct and relevant association with the five charitable causes mandated by The Monarch Foundation. These activities additionally benefit from promotion across the Group’s internal communications channels. Long-term potential Over the longer term, The Monarch Foundation has the potential to become an important positive aspect of the Group’s businesses and brands, acting as a force for good in the communities where The Monarch Group operates, and engendering among its employees and millions of customers a strong sense of loyalty and achievement in the association with effective and responsible charitable activities. The Monarch Foundation enables the Group to do what it should be doing in the charitable sector, which is everything it can. 35 The Monarch Group ANNUAL REPORT 2012 Corporate responsibility Our industry Safety is our priority As a leading provider of airline capacity and aircraft engineering, the Group’s primary objective is the maintenance of the highest possible levels of operational safety. It is essential that the Group’s customers have absolute confidence in their safety when they choose to fly with Monarch Airlines. Safety considerations will always take precedence over other aspects of Monarch Airlines’ business. Awareness and diligence by every member of staff is encouraged to ensure maintenance of the required standards. Monarch is committed to a process of continuous review and improvement of its methods of management, aircraft maintenance and operation. In this way, it ensures that the highest standards of safety and regulatory compliance are consistently achieved. Monarch affords the highest priority to the safety of its passengers. It is regulated by the UK Civil Aviation Authority (CAA) which issues the company’s Air Operator’s Certificate (AOC). 36 The Monarch Group ANNUAL REPORT 2012 The UK airline industry has moved in recent years to the European Joint Aviation Regulations standards (JAR-OPS). Monarch was one of the first airlines to be issued with a JAR-OPS Air Operator’s Certificate in November 1997. As part of JAR-OPS, Monarch was one of the first airlines to introduce a Flight Operations Quality System, which ensures the maintenance of the highest operational safety standards. Key memberships and affiliations Through membership and affiliation to key industry organisations, the Group aims to promote an environment that is beneficial to the safety and efficiency of civil aviation and responsible tour operations. The Group is a member of the International Air Carrier Association (IACA), British Air Transport Association (BATA), ABTA and ATOL. Monarch Aircraft Engineering is an approved maintenance, design authority and training organisation which is certified by a number of worldwide airworthiness authorities. The Monarch Group is fully committed to a programme of working collaboratively with its communities, people and industry to make a positive difference and be a force for good. The Group’s goal is to maintain the highest possible levels of operational safety, and at every level it has a responsibility to ensure that the trust customers place in it is justified. The Group takes its environmental impacts seriously, and it takes care of its business by managing the resources it uses effectively. In 2013, Monarch Airlines became the first UK airline to operate aircraft fitted with Airbus Sharklets, designed to save fuel and reduce carbon emissions. Environment Commitments The Group strives to improve its environmental performance with the objective of ensuring that its activities contribute to the sustainable development of the communities where it operates. Five-year-old flight enthusiast Joshua Anderson enjoyed a ‘day in the life of Monarch’ in December 2012. The Group has a commitment to: • comply with and wherever possible exceed all relevant environment legislation; • set environmental objectives, monitor environmental performance and aim for continuous improvement; • seek to minimise emissions, reduce waste and recycle as much as possible; • actively engage and communicate with its employees on the means of achieving these commitments; • endeavour to purchase from suppliers who share a concern for the environment and whenever possible purchase and use recyclable products or products from sustainable sources; and • maintain a quality waste management system to reduce the costs of waste disposal and protect the environment for the future. Sustainable aviation The Group has been involved in the Carbon Trust’s Action Energy initiative to reduce carbon emission, and has participated in energy-saving surveys carried out by a Carbon Trust-nominated consultant and provided the data and platform on which to build a programme for continuous improvement. The Group joined the EU Emissions Trading Scheme in January 2012. Initial emissions allowances allocated will be 97 per cent of total emissions in 2010. Operators who exceed this allowance will be required to purchase extra allowances in the carbon market. 85 per cent of allowances will be issued free. Between 1990 and 2005, the Group improved its fuel efficiency by 20.9 per cent, which was achieved by the addition of new fuel-efficient aircraft within its fleet and through a series of modifications to ground and flying procedures. By the end of 2015 the Group’s target is to improve by a further 6.8 per cent, which will equal a cumulative total of 27.6 per cent. This will be achieved through fuel efficiency through a programme of fleet modernisation and further operating efficiencies. 37 The Monarch Group ANNUAL REPORT 2012 Corporate responsibility continued Monarch Airlines is also a participant in the UK initiative Sustainable Aviation, which is a grouping of airlines, airports, manufacturers and air traffic control with the aim of responding to the challenge of building a sustainable environmental future for the industry. Sustainable tourism The Group believes that it should promote responsible travel to help the tourism industry to reduce its impact on the environment and local culture, while helping to generate income and employment for local people. The Group’s Tour Operation division aims to provide a tourism experience which benefits its guests, suppliers and the destinations in which it operates. In pursuit of the above, the Group’s commitment is to: • promote and communicate local traditions, lifestyles and heritage to guests and employees; • support communities by abiding by local, national and international laws, discouraging illegal, abusive or exploitative forms of tourism; and • care for the environment by conserving landscapes, plants, animals and protected areas and by encouraging guests and employees to take a responsible approach in their use of natural resources. The Group aims to make lives better for its teams and communities through learning and development programmes and community initiatives. The Group recognises that its customers care, and that it too should strive to make a positive difference by offering trusted products and informed decisions. ‘Lead to Succeed’ is at the heart of the Group’s people strategy. 132 Participants in ‘Lead to Succeed’ management programme in 2012 38 The Monarch Group ANNUAL REPORT 2012 Monarch Aircraft Engineering opened its new, state-of-the-art training academy in January 2013. People Unified vision and values The Monarch Group’s vision is to be the customer’s choice for outstanding service and value, and this vision is at the heart of everything it does and it is what drives people across the Group’s businesses. The Group and its people operate to five core values, which are: passionate, meticulous, brave, responsive and candid. The Monarch Group strives to attract the right people with the right skills and the drive to make its vision a reality and to bring its values to life. The Group employs some 2,900 talented people across a diverse range of roles located in a number of bases and locations across the UK and beyond, all focused on providing highquality travel products and supporting services combined with superior customer service. People strategy The Group’s recruitment processes aim to identify the people who possess the potential to add the most value to its businesses. A comprehensive candidate selection and recruitment process is complemented by an in-depth induction for all new joiners, making each new member of the Group’s teams fully aware of The Monarch Group’s work ethos, vision, mission and values. Learning and development The Group operates in a changing environment, and is focused on creating a culture which equips its leaders with the skills to drive business transformation. During 2012, 132 leaders across the Group embarked on the first phase of ‘Lead to Succeed,’ a management development programme tailored to the needs of the Group and its change priorities. This initiative is part of a wider learning and development framework which focuses on key aspects of the people strategy, including the retention of talented employees, the maintenance of professional standards, the development of a pipeline of new talent, increasing internal mobility and creating an engaged workforce. Engagement and communication The Monarch Group’s employees work across a number of locations and countries and consistent communication and engagement is a priority. During 2012, all of the Group’s bases and head office locations participated in focus group research to find out more about what employees want to hear from the Group’s businesses and how and when. The purpose of this is to shape a new internal communications strategy for the Group, which is being implemented during 2013. A Group-wide Intranet serves as a onestop shop for news and information from all the Group’s businesses, and provides essential forms and policies to employees. Complementing this is a bi-weekly e-newsletter focusing on the achievements and dedication of the Group’s people and keeping the entire company up to date with new products, services and supporting initiatives. The Group’s people enjoy a range of attractive benefits, including pension plans and a variety of travel-related discounts and offers. As part of the Group’s overall commitment to stakeholder engagement, close working relationships are maintained with union representatives, pension trustees and charitable partners. 39 The Monarch Group ANNUAL REPORT 2012 Independent auditor’s report to the members of Monarch Holdings Limited We have examined the summary financial statement for the year ended 31 October 2012 which comprises the Consolidated Profit and Loss Account, Consolidated Statement of Total Recognised Gains and Losses, Consolidated Balance Sheet, Consolidated Cash Flow Statement and the related notes 1 to 28. This report is made solely to the company’s members, as a body, in accordance with section 427 of the Companies Act 2006. Our work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, for our audit report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors are responsible for preparing the annual report in accordance with applicable United Kingdom law. Our responsibility is to report to you our opinion on the consistency of the summary financial statement within the annual report with the full annual financial statements and the Directors’ Report, and its compliance with the relevant requirements of section 427 of the Companies Act 2006 and the regulations made thereunder. We also read the other information contained in the annual report as described in the contents section, and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the summary financial statement. We conducted our work in accordance with Bulletin 2008/3 issued by the Auditing Practices Board. Our report on the company’s full annual financial statements describes the basis of our opinion on those financial statements and on the Directors’ Report. 40 The Monarch Group ANNUAL REPORT 2012 Opinion In our opinion, the summary financial statement is consistent with the full annual financial statements and the Directors’ Report of Monarch Holdings Limited for the year ended 31 October 2012 and complies with the applicable requirements of section 427 of the Companies Act 2006, and the regulations made thereunder. We have not considered the effects of any events between the date on which we signed our report on the full annual financial statements (29 April 2013) and the date of this statement. Deloitte LLP Chartered Accountants and Statutory Auditors St Albans, United Kingdom 28 May 2013 Consolidated profit and loss account For the year ended 31 October 2012 Note Turnover Cost of sales 1, 2 Gross profit Administrative expenses (including £11.5m (2011: £nil) relating to impairment of A320 aircraft and £nil (2011: £11.6m) relating to impairment of A321 aircraft) Other operating income 2012 £’000 825,148 (767,525) 2011 £’000 757,765 (720,632) 57,623 37,133 (83,392) 435 (92,161) 927 (54,101) – (7,460) (8,666) Operating loss Profit on sale of tangible fixed assets Loss on disposal of fixed asset investment Net finance charges 4 5 (25,334) 202 – (8,270) Loss on ordinary activities before taxation Tax credit on profit on ordinary activities 2 6 (33,402) 7,259 (70,227) 20,887 (26,143) (49,340) Loss for the financial year All amounts relate to continuing activities. 41 The Monarch Group ANNUAL REPORT 2012 Consolidated statement of total recognised gains and losses For the year ended 31 October 2012 Note Loss for the financial year Actuarial loss relating to the pension scheme Deferred tax charge in relation to the pension scheme due to rate change Deferred tax credit in relation to the pension scheme due to movement in year Deferred tax in relation to the rate of tax change Deferred tax adjustments in respect of estimates made in prior years Deferred tax origination and reversal of timing differences Other reserves Total recognised gains and losses relating to the financial year 42 The Monarch Group ANNUAL REPORT 2012 20 2012 £’000 2011 £’000 (26,143) (42,564) (3,642) 10,633 (169) – – (11) (49,340) (174) (2,743) 59 (169) (1,911) (2,037) – (61,896) (56,315) Consolidated balance sheet 31 October 2012 Fixed assets Intangible assets Tangible assets Note 2012 £’000 2011 £’000 8 9 4,296 156,492 5,043 179,190 160,788 184,233 4,336 152,191 13,067 51,578 49,858 4,300 147,176 9,330 16,645 40,584 271,030 (147,220) 218,035 (103,553) 123,810 114,482 284,598 (5,544) (40,336) (240,215) 298,715 (20,690) (55,057) (219,910) 20 (1,497) (140,211) 3,058 (102,870) 2 (141,708) (99,812) 17, 21 21 21 20,050 4,963 (166,721) 50 4,963 (104,825) 21 (141,708) (99,812) Current assets Stocks Debtors – due within one year Debtors – due after one year Investments Cash at bank and in hand 11 12 12 13 Creditors: amounts falling due within one year 14 Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities Accruals and deferred income Net liabilities/assets excluding pension liability Net pension liability Net liabilities including pension liability Capital and reserves Called up share capital Merger reserve Profit and loss deficit Total shareholders’ deficit 15 16 The financial statements of Monarch Holdings Limited, registered number 01165001, were approved by the Board of Directors and authorised for issue on 29 April 2013. They were signed on its behalf by D I Rawlinson Director R Palmer Director 43 The Monarch Group ANNUAL REPORT 2012 Company balance sheet 31 October 2012 Fixed assets Investments Intangible assets Note 2012 £’000 2011 £’000 10 8 33,398 35,000 61,537 35,000 68,398 96,537 Current assets Debtors – due within one year – due after more than one year Investments 12 12 13 151 2,000 10,000 277 2,000 – Creditors: amounts falling due within one year 14 12,151 (41,353) 2,277 (61,199) (29,202) (58,922) 39,196 (10,925) 37,615 (10,925) 28,271 26,690 17, 21 21 50 28,221 50 26,640 21 28,271 26,690 Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year 15 Net assets Capital and reserves Called up share capital Profit and loss account Total shareholders’ funds The financial statements of Monarch Holdings Limited, registered number 01165001, were approved by the Board of Directors and authorised for issue on 29 April 2013. They were signed on its behalf by D I Rawlinson Director 44 The Monarch Group ANNUAL REPORT 2012 R Palmer Director Consolidated cash flow statement Year ended 31 October 2012 Net cash inflow from operating activities Returns on investments and servicing of finance Interest received Interest paid Finance lease and hire purchase interest Note 2012 £’000 2011 £’000 23 32,611 18 5 597 (2,363) (146) 332 (4,425) (128) (1,912) (4,221) 1,791 (328) Net cash outflow from returns on investments and servicing of finance Taxation UK corporation tax received/(paid) Capital expenditure and financial investments Payments to acquire tangible fixed assets Receipts from sales of tangible fixed assets (11,227) 7,612 Net cash (outflow)/inflow from capital expenditure and financial investments (3,615) Net cash inflow before management of liquid resources and financing Management of liquid resources (Increase)/decrease in restricted deposits Net cash (outflow)/inflow from management of liquid resources Financing New finance leases Capital element of finance lease payments Shareholder loans received Bank loan repayments Issue of preference shares Net cash inflow/(outflow) from financing Increase in cash in the year 24, 25 (44,867) 84,644 39,777 28,875 35,246 (34,933) 22,138 (34,933) 22,138 – (684) – (3,984) 20,000 4,954 (5,670) 20,000 (57,021) – 15,332 (37,737) 9,274 19,647 45 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements Year ended 31 October 2012 1. Accounting policies The principal accounting policies adopted are described below. They have all been applied consistently throughout the current and preceding financial year. Basis of accounting The financial statements are prepared under the historical cost convention, with exception of the revaluation of other fixed asset investments, and in accordance with appropriate United Kingdom accounting standards. Basis of preparation The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Financial Review. The Financial Review also describes the financial position of the Group; its cash flows, liquidity position and borrowing facilities; 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 exposure to credit risk and liquidity risk. The Group meets its day-to-day working capital requirements through a combination of operating cash flows, sale and leaseback arrangements and shareholder facilities. The shareholder facilities were extended during the year for the period from 1 May 2012 to 31 October 2014. The Directors have considered the uncertainties presented by current economic conditions in relation to demand and pricing, inflation, foreign exchange rates and the ability to raise finance in the foreseeable future. The Group’s forecasts and projects, taking into account reasonably possible changes in trading performance, show that the Group should be able to trade using operating cash flows for at least 12 months from the signing date of these accounts. This forecast is based on budget and experience of prior years, adjusting for known changes, although the nature of the industry and the market make it difficult to be precise about possible outcomes. The Board has completed a sensitised review of the budget and believes that there is sufficient headroom using its available resources. The Directors have a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. As highlighted in the Financial Review, the Group is required to maintain an ATOL licence in order to operate. The Group has held discussions with the CAA about the ATOL renewal. Based on these discussions, the Group’s forecasts, taking into account reasonably possible changes in trading performance, show that the Group is forecasting to meet the financial terms expected to be required by the CAA. Accordingly, the Group has no reason to believe that the renewal will not be granted on acceptable terms using an equivalent basis to previous years. Principal risks and uncertainties are discussed in more detail in the Financial Review. The Annual Report and Accounts is a summary of information derived form the annual accounts of the Company, contains additional information derived form the Directors’ Report, and does not contain the full text of that report. The full copy of the annual accounts and the Directors’ Report is available from Companies House. Turnover Airline Division turnover represents the invoiced value of airline traffic revenue and related income exclusive of intra-Group trading, value added tax and other taxation. Airline traffic revenue is recognised from the date of customer departure. Other related revenue, such as bar sales, is recognised as revenue at the date that the right to receive consideration occurs. Services invoiced prior to the year end, in respect of customer departures in future accounting periods, are carried forward as deferred income in the balance sheet. Engineering Division turnover represents amounts receivable in the normal course of business from engineering services and incidental revenue, exclusive of value added tax. Travel Division turnover represents amounts derived from the provision of goods and services which fall within the Group’s ordinary activities after deduction of trade discounts and value added tax. Turnover is recognised from the date of customer departure. Deferred income and related expenditure Services invoiced prior to the year end, in respect of customer departures in future accounting periods, are carried forward as deferred income in the balance sheet. Costs incurred prior to the year end in respect of those services are also deferred until the date of customer departure. Brochure and promotional costs are charged to the profit and loss account over the season to which they relate where recovery of the costs is reasonably assured. 46 The Monarch Group ANNUAL REPORT 2012 1. Accounting policies continued Intangible assets – intellectual property rights Intellectual property assets are stated at cost, and are amortised over a period of 10 years. Provision is made for any impairment. Intangible assets – goodwill Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired, is capitalised and written off on a straight line basis over its useful economic life, which is 20 years. Provision is made for any impairment. Intangible assets arising on the purchase of brands are carried at historical cost and are deemed to have an indefinite useful economic life, subject to an annual impairment review, and are therefore not amortised. Intangible assets – carbon allowances Carbon allowances received free of charge under the EU Emissions Trading Scheme, which became effective for the aviation industry on 1 January 2012, are recognised as intangible assets at market value on the date of receipt. Purchased allowances are also recognised initially at cost (purchase price) within intangible assets. Consistent with Statement of Standard Accounting Practice 4 ‘Accounting for Government Grants’, the value of allowances received is deferred and recognised in income on a systematic basis over the period to which the grant relates. The estimated gross cost of settling the liability for CO2 emitted in the period is recognised in the profit and loss account as incurred. Tangible fixed assets Tangible fixed assets are stated at cost, less accumulated depreciation and any provision for impairment. Fixed assets are depreciated from the date when available for use at rates estimated to reduce them to their residual values over their estimated useful lives or the periods of applicable leases. The principal bases used are as follows: Long leasehold property Straight line over 50 years Short leasehold property Straight line over term of lease Aircraft and engines Straight line over 22 years to the relevant residual value Rotables Net expenditure is written off over a period of up to 22 years to a residual value of 20% of cost on a straight line basis Aircraft modifications and special work Straight line over periods of up to 22 years. A residual value of 20% of cost is applied in respect of owned aircraft Plant and equipment Straight line over 3 to 10 years Engine overhaul and maintenance costs Amortised on a straight line basis over the period until the next scheduled overhaul An element of the cost of a new aircraft is attributed on acquisition to prepaid maintenance of its engines and airframe and is amortised over the period until the next scheduled major overhaul. Subsequent costs incurred which extend the useful life to future periods, such as long-term maintenance and major overhaul of aircraft and engines, are capitalised as incurred. Leased aircraft maintenance costs The Group incurs liabilities for maintenance costs in respect of aircraft leased under operating leases. These arise from the legal and constructive contractual obligations relating to the condition of the aircraft when it is returned to the lessor. To discharge these obligations, the Group may need to carry out maintenance work prior to the return of the aircraft to the lessor. The provisions recorded and charged to the profit and loss account are dependent on the life of the component or maintenance interval used and the individual terms of the lease. Once the component or maintenance interval has passed the point such that the Group is contractually obliged to carry out the required maintenance work, a full provision for the related cost is recorded, and a corresponding maintenance asset is recognised within fixed assets. The asset is depreciated over the expected period to the next contractual obligation. Maintenance deposits paid to lessors, which may be offset against the eventual cost of maintenance, are recognised as other debtors within the Group financial statements until such time as the maintenance work is undertaken. 47 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 1. Accounting policies continued Estimates are required for the likely utilisation and condition of the aircraft and the expected cost of the maintenance check at the time it is expected to occur. The bases of all estimates are reviewed once each year and, in addition, when there is an indication of a material change to an estimate arising from a specific event, such as renegotiation of the end of lease return conditions, increased or decreased utilisation, or unanticipated changes in the cost of heavy maintenance services. Stock Stock, including aircraft consumables, and work in progress is valued at the lower of cost and net realisable value. Cost is the original purchase cost. Provision is made for obsolete or defective items. Foreign currency Foreign currency transactions are translated at the rates ruling when they occurred or, if explicitly hedged with a foreign currency forward contract, and not separately hedged against the cost of an aircraft as described below, at the forward contract rate. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date or, if appropriate, the forward contract rate. Any differences are taken to the profit and loss account. Investments The Company’s investments in subsidiary undertakings are held at cost less any provision for impairment. Current asset investments are shown at the lower of cost and net realisable value. Cash on deposit is classified as a current asset investment if it is not available, without penalty, within 24 hours. Taxation Current UK corporation tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred taxation is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Leases Assets held under finance leases and hire purchase contracts are capitalised and are depreciated over their estimated useful lives. Finance costs are charged to the profit and loss account over the period of the lease or hire purchase contract so as to produce a constant periodic rate of charge on the remaining balance of the obligation for each accounting period. Amounts payable under operating leases are charged to the profit and loss account as incurred. Crew training and aircraft introductory costs in respect of aircraft under operating leases are written off as incurred. Pension costs Contributions to defined contribution pension schemes are charged to the profit and loss account when payable. Any differences between the amounts payable and paid are recorded as either accruals or prepayments on the balance sheet. The Group operates two defined benefit schemes, both of which are closed to new entrants. Past service costs are recognised immediately in the profit and loss account if the benefits have vested. If the benefits have not vested immediately, the costs are recognised over the period until the vesting occurs. The interest cost and the expected return on assets are shown as a net pension funding cost in interest receivable and payable. Actuarial gains and losses are recognised in the consolidated statement of total recognised gains and losses. The defined benefit schemes are funded, with the assets of the scheme held separately from those of the Group, in separate trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on high quality corporate bonds of equivalent currency and term to the scheme liabilities. The actuarial valuations are obtained at least triennially and are updated at each balance sheet date. The resulting defined benefit schemes’ assets or liabilities, net of the related deferred tax, are represented separately after other net assets on the face of the consolidated balance sheet. 48 The Monarch Group ANNUAL REPORT 2012 1. Accounting policies continued Financial liabilities and equity The Group has not adopted FRS 26 Financial Instruments; Recognition and Measurement. This would require the recognition of financial instruments such as open currency and jet fuel hedges on the balance sheet and revaluation to fair value. Instead, commitments relating to unrecognised gains and losses on derivative transactions are disclosed in note 19 under other finance commitments. 2. Turnover, loss before tax and net liabilities Group gross and net turnover, loss before tax and net liabilities are analysed as follows: Gross turnover 2012 £’000 Description of class of business: Airline operations Engineering services Tour operations Group Eliminations 2012 £’000 Net turnover 2012 £’000 Gross turnover 2011 £’000 Eliminations 2011 £’000 Net turnover 2011 £’000 683,531 86,317 589,016 10,395 (174,189) (61,952) (297,575) (10,395) 509,342 24,365 291,441 – 620,241 79,286 570,775 5,804 (162,407) (58,166) (291,964) (5,804) 457,834 21,120 278,811 – 1,369,259 (544,111) 825,148 1,276,106 (518,341) 757,765 (Loss)/profit before tax 2012 £’000 Description of class of business: Airline operations Engineering services Tour operations Group Net interest FRS 17 adjustment 2011 £’000 Net (liabilities)/assets 2012 £’000 2011 £’000 (37,234) 5,306 5,581 1,215 (4,870) (3,400) (70,128) 2,898 5,823 (810) (4,531) (3,479) (18,122) 18,859 (3,196) 962 – (140,211) 7,290 16,348 (3,490) (17,090) – (102,870) (33,402) (70,227) (141,708) (99,812) The £37.2m Airline operations loss before tax includes an impairment adjustment of £11.5m on two A320 aircraft and a £6.9m write down of unrecoverable amounts due to the termination of a maintenance contract for B757 engines on 31 March 2013 which has been reflected in these financial statements. In the year ended 31 October 2011 there was an impairment adjustment of £11.6m on two A321 aircraft. The Group operates two defined benefit pension schemes for staff in the airline operations, engineering services and tour operations divisions. The assets and liabilities of these schemes cannot be split between these divisions. Consequently in the analysis above each division has accounted for these schemes as defined contribution schemes, and only recognised their contributions payable to the schemes. Turnover by origin is analysed by geographical market below: United Kingdom Europe North America Africa Asia 2012 £’000 2011 £’000 812,474 6,785 5,478 77 334 743,478 8,967 4,784 271 265 825,148 757,765 The principal revenue-earning assets of the Group are its aircraft fleet. Since the Group’s aircraft fleet is employed flexibly across its route network, there is no suitable basis of allocating such assets and related liabilities to geographical segments. 49 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 2. Turnover, loss before tax and net liabilities continued The operating loss and loss on ordinary activities before taxation can be analysed as follows: 2012 Operating loss £’000 Reported result Impairment of aircraft Termination of B757 maintenance contract Loss on sale of aircraft Reported result before impairment of aircraft, termination of maintenance contract and loss of sale of aircraft tangible fixed assets 2011 Loss before tax £’000 Operating loss £’000 Loss before tax £’000 (25,334) 11,521 6,948 – (33,402) 11,521 6,948 – (54,101) 11,600 – 7,497 (70,227) 11,600 – 7,497 (6,865) (14,933) (35,004) (51,130) 3. Information regarding Directors and employees Directors’ remuneration: Emoluments The emoluments of the highest paid Director were: 2012 £’000 2011 £’000 1,417 702 646 358 The accrued pension of the highest paid Director from the defined benefit scheme at 31 October 2012 was £nil (2011: £nil) per annum. The number of Directors in a defined benefit pension scheme Average number of employees of the Group during the year, including Directors, was as follows: Airline operations Engineering services Tour operations Administrative 2012 £’000 Staff costs during the year (including Directors): Wages and salaries Social security costs Pension costs: – FRS 17 service charge – Amounts included as other finance costs – Contributions to money purchase scheme – Amounts recognised in statement of total recognised gains and losses 50 The Monarch Group ANNUAL REPORT 2012 2012 £’000 2012 Number 2011 Number – – 1,593 389 302 563 1,744 353 196 539 2,847 2,832 2011 £’000 2011 £’000 104,128 12,256 20 3,379 6,445 42,564 99,444 11,410 81 4,135 5,031 174 52,408 9,421 168,792 120,275 4. Profit on ordinary activities before taxation Operating loss is after charging: Loss on sale of tangible fixed assets Depreciation of tangible fixed assets – owned – held under finance leases and hire purchase contracts Amortisation of intangible assets Operating lease rentals – plant and machinery – other The analysis of auditor’s remuneration is as follows: 2012 £’000 2011 £’000 – 7,460 31,832 844 747 55,851 2,260 36,356 563 747 57,191 2,125 2012 £’000 2011 £’000 Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Fees payable to the Company’s auditor and their associates for other services to the Group: The audit of the Company’s subsidiaries pursuant to legislation 26 26 254 244 Total audit fees 280 270 2012 £’000 2011 £’000 90 59 97 51 149 148 12 25 2012 £’000 2011 £’000 5,307 146 4,715 128 5,453 4,843 Non-audit fees – Tax services – Other assurance services Total non-audit fees Fees payable to the Company’s auditor and their associates in respect of associated pension schemes: Audit 5. Finance charges (net) Interest payable and similar charges Bank loans and overdrafts Finance leases and hire purchase contracts Investment income Interest receivable and similar income Other finance charges Net finance charges on pension scheme 3,379 4,135 Total net finance charges 8,270 8,666 (562) (313) 51 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 6. Tax charge on profit on ordinary activities (a) Tax charge on profit on ordinary activities 2012 £’000 2011 £’000 Deferred tax Origination and reversal of timing differences Adjustment in respect of prior years Change in effective tax rate FRS 17 charge (6,543) (353) 237 (600) (18,986) (410) (552) – Movement on deferred tax liability – note 16 Movement on pension deferred tax asset taken to profit and loss account (7,259) – (19,948) (939) Total deferred tax charge/(credit) (7,259) (20,887) Tax charge/(credit) on profit on ordinary activities (7,259) (20,887) (b) Factors affecting current tax credit for the year The tax assessed for the period is lower (2011: lower) than the standard rate of corporation tax in the UK of 24.8% (2011: 26.8%). The differences are explained below: Standard rate of corporation tax Effects of: Expenses not deductible for tax purposes Capital allowances in excess of depreciation Movement in short-term timing differences Total prior period adjustments Tax losses carried forward FRS 17 movement Consol adjustments with no tax effect Taxable foreign exchange in reserves Current tax credit for the year 2012 % 2011 % 24.8 26.8 (4.4) (9.1) (0.1) – (9.9) (1.8) 0.5 – (2.3) (10.6) (0.1) – (4.6) (1.4) – (7.8) – – (c) Factors affecting current tax credit for the year The Finance Act 2012, which provides for a reduction in the main rate of corporation tax from 24% to 23% effective from 1 April 2013, was substantively enacted on 3 July 2012. This rate reduction has been reflected in the calculation of deferred tax at the balance sheet date. The Government intends to enact a future reduction in the main tax rate down to 21% by 1 April 2014. As this tax rate was not substantively enacted at the balance sheet date, the rate reduction is not yet reflected in these financial statements in accordance with FRS 21, as it is a non-adjusting event occurring after the reporting period. 7. Profit attributable to the Company The profit for the financial year dealt with in the financial statements of the parent company was £1,581,000 (2011: £11,000 loss). As permitted by Section 408 of the Companies Act 2006, no separate profit and loss account is presented in respect of the parent company. 52 The Monarch Group ANNUAL REPORT 2012 8. Intangible fixed assets Group Goodwill £’000 Patents/ trademarks £’000 Total £’000 Cost At 1 November 2011 and at 31 October 2012 15,854 500 16,354 Amortisation At 1 November 2011 Charge for the financial year 10,811 747 500 – 11,311 747 At 31 October 2012 11,558 500 12,058 Net book value At 31 October 2012 4,296 – 4,296 5,043 – 5,043 At 31 October 2011 Brand £’000 Company Cost At 1 November 2011 and 31 October 2012 35,000 Amortisation At 1 November 2011 and 31 October 2012 – Net book value At 31 October 2012 35,000 During the year ended 31 October 2011, the Company acquired the Monarch brand from Monarch Airlines Limited for a total consideration of £35m, supported by an independent valuation. From 1 November 2011 the Company now receives an annual royalty payment from Monarch Airlines of 0.5% of revenue and from Monarch Aircraft Engineering Limited based on 0.25% of third party revenue. 9. Tangible fixed assets Long leasehold property £’000 Short leasehold property £’000 Aircraft and engines £’000 Rotables £’000 Aircraft modifications and special work £’000 Plant and equipment £’000 Engine overhaul and maintenance costs £’000 Total £’000 Cost At 1 November 2011 Additions Transfers Disposals 14,194 1 2,802 – 7,824 – (3,097) – 103,971 7,868 (41) – 45,339 1,852 – (1,098) 25,258 1,681 41 (21) 45,453 5,868 295 (631) 162,346 11,842 – (16,840) 404,385 29,112 – (18,590) At 31 October 2012 16,997 4,727 111,798 46,093 26,959 50,985 157,348 414,907 Accumulated depreciation At 1 November 2011 Charge for the year Transfers Impairment Disposals 6,241 336 1,061 – – 4,153 239 (1,097) – – 63,279 890 (14) 9,829 – 25,341 3,642 – – (875) 18,854 3,070 12 358 (131) 36,054 2,932 38 – (592) 71,273 21,568 – 1,334 (9,380) 225,195 32,677 – 11,521 (10,978) At 31 October 2012 7,638 3,295 73,984 28,108 22,163 38,432 84,795 258,415 9,359 1,432 37,814 17,985 4,796 12,553 72,553 156,492 7,953 3,671 40,692 19,998 6,404 9,399 91,073 179,190 Net book value At 31 October 2012 At 31 October 2011 53 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 9. Tangible fixed assets continued During the year ended 31 October 2012, the Group did not sell and lease back any aircraft. In the year ended 31 October 2011, five A321 aircraft with a net book value of £83,728,000 were sold and leased back. Sale proceeds for the five aircraft totalled £76,230,000. At 31 October 2012 an impairment review was performed. This resulted in the write down of £11,521,000 (2011: £11,625,000) in the income statement of two A320 aircraft (2011: A321 aircraft). The plant and equipment cost of the Group and Company includes £6,581,000 (2011: £6,665,000) in respect of assets which are subject to hire purchase and finance lease contracts. The accumulated depreciation of these assets is £2,763,000 (2011: £1,918,000). The related depreciation charge for the year was £844,000 (2011: £77,000). The cost of the long leasehold property includes £68,000 (2011: £68,000) of capitalised interest. Commitments for capital expenditure Group 2012 £’000 Group 2011 £’000 Company 2012 £’000 Company 2011 £’000 – – – – Shares in subsidiary undertakings £’000 Loans to subsidiaries £’000 Total £’000 Contracted for but not provided in the financial statements 10. Fixed asset investments Company Cost or valuation At 1 November 2011 Additions Disposals 48,537 – (28,139) 13,000 – – 61,537 – (28,139) At 31 October 2012 20,398 13,000 33,398 – – – 20,398 13,000 33,398 48,537 13,000 61,537 Provisions for impairment At 1 November 2011 and at 31 October 2012 Net book value At 31 October 2012 At 31 October 2011 Principal Group investments The Company and the Group have investments in the following subsidiary undertakings and investments, which principally affected the profits or net assets of the Group. The principal investments include the following: Subsidiary undertakings Country of incorporation and operation Principal activity Holding Avro Limited England and Wales Sale of airline seats 16,100,000 ordinary £1 shares 100 Cosmos Holidays Limited England and Wales Tour operator 25,200,000 ordinary £1 shares 100 Monarch Aircraft Engineering Limited England and Wales Aircraft engineering and maintenance 100,000 ordinary £1 shares 100 Monarch Airlines Limited* England and Wales Airline operator 20,100,000 ordinary £1 shares 100 Monarch Airlines Leasing Limited England and Wales Leasing of equipment 2 ordinary £1 shares 100 Monarch Technical Support Limited England and Wales Engineering and technical services 2 ordinary £1 shares 100 Monarch Travel Group Limited England and Wales Holding company 20,000 ordinary £1 shares 100 First Aviation Limited* England and Wales Charter aircraft broker 25,000 ordinary £1 shares 100 Monarch 2011 Limited* England and Wales Financing 1 ordinary £1 share 100 Monarch Group Management Limited* England and Wales Group recharging 2 ordinary £1 shares 100 * Held directly by Monarch Holdings Limited. 54 The Monarch Group ANNUAL REPORT 2012 % 11. Stocks Engineering stock Cabin consumables Goods held for resale Group 2012 £’000 Group 2011 £’000 4,035 301 – 4,147 153 – 4,336 4,300 In the opinion of the Directors, the replacement cost of stocks is not materially different to the above amounts for both accounting period ends. 12. Debtors Amounts falling due within one year: Trade debtors Amounts owed by Group undertakings Corporation tax recoverable Other debtors Prepayments and accrued income Amounts falling due after more than one year: Amounts owed by Group undertaking Deposits held by lessors Total debtors 13. Current asset investments Restricted cash Group 2012 £’000 Group 2011 £’000 Company 2012 £’000 Company 2011 £’000 25,050 – – 20,040 107,101 45,875 – 183 6,064 95,054 – 151 – – – – 108 – 169 – 152,191 147,176 151 277 – 13,067 – 9,330 2,000 – 2,000 – 13,067 9,330 2,000 2,000 165,258 156,506 2,151 2,277 Group 2012 £’000 Group 2011 £’000 Company 2012 £’000 Company 2011 £’000 51,578 16,645 10,000 – 51,578 16,645 41,578 16,645 Restricted cash provides security on facilities made available by banks in respect of advanced bookings, security for certain hedging arrangements and guarantee arrangements. 14. Creditors: amounts falling due within one year Bank loans and overdraft (secured) Shareholder loans (secured; see note 25) Obligations under hire purchase contracts and finance leases Trade creditors Amounts owed to Group undertakings Other taxation and social security costs Other creditors Group 2012 £’000 Group 2011 £’000 Company 2012 £’000 Company 2011 £’000 14,381 83,858 765 32,752 – 11,227 4,237 3,988 60,000 684 28,245 – 7,089 3,547 – – – – 40,707 646 – – – – – 60,047 – 1,152 147,220 103,553 41,353 61,199 Further details regarding loans, finance leases and hire purchase contracts are shown in note 17. The ‘other loan’ is secured against certain aircraft owned by the Group. 55 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 15. Creditors: amounts falling due after more than one year Bank loans (secured against certain aircraft) Obligations under hire purchase contracts and finance leases Amounts owed to Group undertakings Other loan Other creditors Borrowings repayable in more than five years Obligations under hire purchase contracts and finance leases On demand or within one year (note 14) Between one and two years Between two and five years After five years Amounts owing to Group undertakings After five years Other loan After five years (see note 25) Group 2012 £’000 Group 2011 £’000 Company 2012 £’000 Company 2011 £’000 – 3,114 – 1,150 1,280 14,381 3,879 – 1,150 1,280 – – 9,775 1,150 – – – 9,775 1,150 – 5,544 20,690 10,925 10,925 – – – – 765 3,114 – – 684 765 2,460 654 – – – – – – – – 3,879 4,563 – – – – 9,775 9,775 1,150 1,150 1,150 1,150 The obligations under finance leases and hire purchase contracts are effectively secured on the assets held under those leases. The amount owed by the Company to a Group undertaking of £9,775,000 was not interest-bearing during the year (2011: £9,775,000). This amount is repayable after more than five years; there are no other terms for repayment. The other loan is interest free and is repayable after more than five years. There are no other terms for repayment. 16. Provisions for liabilities Group Un-utilised leasehold £’000 Emission reserves £’000 Maintenance reserves £’000 Deferred tax £’000 At 1 November 2011 Credit to profit and loss account Provisions made in year Utilised in the year Charge to the statement of total recognised gains and losses 1,336 (210) – – – – – 4,820 – – 50,462 – 1,530 (14,371) – 3,258 (6,658) – – 169 At 31 October 2012 1,126 4,820 37,621 (3,231) 56 The Monarch Group ANNUAL REPORT 2012 Total £’000 55,056 (6,868) 6,350 (14,371) 169 40,336 16. Provisions for liabilities continued Deferred taxation The total potential amount of deferred tax on timing differences and the amount for which recognition at 23% (2011: 25%) has been made is: Group recognised 2012 £ Tax losses Accelerated capital allowances Other timing differences Foreign exchange Group provided 2011 £ (9,420) 5,447 (592) 1,334 (8,481) 10,853 (563) 1,450 (3,231) 3,259 Un-utilised leasehold The provision relates to part of a property lease which is currently being marketed for tenants. Emission reserves Emission reserves represent a commitment to purchase emissions allowances to meet the requirements of the EU Emissions Trading Scheme, which became effective for the aviation industry on 1 January 2012. The provision is made for the CO2 emitted in the period based on emission allowance utilised. The provision will be utilised at the end of the period when the initial allowance was granted for. Maintenance reserves Where the Group has a commitment to maintain aircraft held under operating leases, provision is made during the lease term for the rectification obligations contained within lease agreements, when the condition of a specific component falls below that specified in the lease. The provisions are based on estimated future costs of major airframe, certain engine maintenance checks and one-off costs to be incurred at the end of the lease. 17. Called up share capital Authorised, called up, allotted and fully paid 50,000 ordinary shares of £1 each 20,000,000 redeemable preference shares of £1 each 2012 £’000 2011 £’000 50 50 20,000 – Under the terms of the 2011 Refinancing, on 15 November 2011, Amerald Investments NV (ultimate and immediate parent and controlling party) provided £40m of funds to Monarch 2011 Limited, a newly incorporated subsidiary of the Group, as additional working capital. The £40m comprised £20m of preference share capital and a £20m loan. 18. Contingent liabilities Bank guarantees have been made to various suppliers of the Group, including airports, fuel suppliers, ground handling agents, customs agencies and lessors, totalling £9,547,586 (2011: £13,469,000). These guarantees are in addition to the restricted cash disclosed in note 15 and financial commitments disclosed in note 21. During the year ended 31 October 2009 the Group sold its equity shares and loan stock in Airline Group Limited to the Monarch Airlines Limited Retirement Benefits Plan for £37,000,000. As part of the transaction, the Group agreed to reimburse the pension scheme for any loss incurred if the equity shares and loan stock are sold for less than the acquisition price. The Directors consider it unlikely that any liability will arise in relation to this agreement. During the financial year the Group paid contributions at 50% of the due rates in line with the Schedule of Contributions into the Monarch Airlines Limited Retirement Benefits Plan. The Group are due to pay the balance of contributions when the ‘Pension Contribution Payback Trigger’ has been met. The amount due has been estimated at approximately £633,600. The Group is involved in various disputes or litigation in the normal course of business. Whilst the result of such disputes cannot be predicted with certainty, the Company believes that the ultimate resolution of these disputes will not have a material effect on the Group’s financial position or results. 57 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 19. Commitments Operating leases At 31 October 2012, the Group had annual commitments under non-cancellable operating leases as set out below: Operating leases which expire: Within one year In the second to fifth year inclusive After five years Aircraft and engines £’000 Land and buildings £’000 Other £’000 Total £’000 4,509 42,425 5,186 129 490 1,359 – 169 1,251 4,638 43,084 7,796 52,120 1,978 1,420 55,518 At 31 October 2011, the Group had annual commitments under non-cancellable operating leases as set out below: Operating leases which expire: Within one year In the second to fifth year inclusive After five years Aircraft and engines £’000 Land and buildings £’000 Other £’000 Total £’000 7,627 31,846 12,066 272 500 1,257 36 – 741 7,935 32,346 14,064 51,539 2,029 777 54,345 Other finance commitments At 31 October 2012, the Group had commitments under fixed forward exchange contracts entered into in the ordinary course of business amounting to £431.4m (2011: £278.6m). At 31 October 2012, the Group had jet fuel swaps entered into in the ordinary course of business amounting to £173.8m (2011: £177.4m). At 31 October 2012, the Group and Company had carbon credit swaps entered into in the ordinary course of business to hedge an amount of £5.8m (2011: nil) of their future carbon credit purchases. The fair value of derivative transactions entered into to hedge future operating costs is not recognised in the accounts. At 31 October 2012, the Group had an unrecognised loss on its forward exchange contracts of £5.2m (2011: profit of £0.6m), an unrecognised profit on its jet fuel swaps of £1.8m (2011: profit of £0.6m) and an unrecognised profit on carbon credit swap was £0.4m (2011: £nil). 20. Pension arrangements For the year ended 31 October 2012, the Group has applied FRS 17 as outlined by the Accounting Standards Board. Defined contribution schemes The Group made contributions to the defined contribution scheme of £6.3m (2011: £5.0m). There were outstanding contributions at the year end of £0.6m (2011: £0.5m). Defined benefit schemes Monarch Airlines Limited Retirement Benefits Plan Certain subsidiaries operate a jointly funded defined benefit pension scheme for UK employees. The assets of the scheme are administered by trustees and are held in separate funds. The scheme has been closed to new entrants since 2002 and ceased future benefit accruals from 30 April 2010. The benefits of certain employees retain a link to salaries in line with a pre-agreed formula. On 1 March 2011, the remaining Permanent Health Insurance members became members of a new defined contribution scheme. 58 The Monarch Group ANNUAL REPORT 2012 20. Pension arrangements continued The scheme is subject to a triennial valuation by independent actuaries. A full actuarial valuation was last carried out at 30 June 2010; a summary of the following position as at 30 June 2010, produced in accordance with the Pensions Act 2004, showed a shortfall in the scheme relative to the Statutory Funding Objective of £234.8m. Cosmosair Pension and Life Assurance Scheme Certain subsidiaries operate a funded defined benefit scheme for qualifying employees. The assets of the scheme are held in separate funds. The scheme is subject to a triennial valuation by independent actuaries with the last full actuarial valuation carried out at 1 June 2009. The employers’ contribution rate over the average remaining service lives of the members of the scheme takes account of the surplus disclosed by the valuation. The financial assumptions under FRS 17 used by the actuaries were: 2012 2011 Cosmosair Pension and Life Assurance Scheme Monarch Airlines Limited Retirement Benefits Plan Cosmosair Pension and Life Assurance Scheme Monarch Airlines Limited Retirement Benefits Plan 2.60% 2.30% 4.00% 2.60% 2.00% 2.90% 2.83% 4.25% 2.65% 2.00% 2.80% 2.50% 5.00% 2.80% 2.00% 3.30% 2.88% 5.00% 2.80% 2.00% PMA92 Medium Cohort (Y.O.B.) 84% S1PA CMI 2010 1% Per Annum PMA92 Medium Cohort (Y.O.B.) PMA92 Medium Cohort (Y.O.B.) PFA92 Medium Cohort (Y.O.B.) 95% S1PA CMI 2010 1% Per Annum PFA92 Medium Cohort (Y.O.B.) PFA92 Medium Cohort (Y.O.B.) PMA92 Medium Cohort (Y.O.B.) 84% S1PA CMI 2010 1% Per Annum PMA92 Medium Cohort (Y.O.B.) PMA92 Medium Cohort (Y.O.B.) PFA92 Medium Cohort (Y.O.B.) 95% S1PA CMI 2010 1% Per Annum PFA92 Medium Cohort (Y.O.B.) PFA92 Medium Cohort (Y.O.B.) Weighted average life expectancy to determine benefit obligations: Member age 65 (current life expectancy): Males Females 22.2 25.1 23.2 24.4 22.2 25.0 22.6 25.7 Member age 45 (life expectancy at 65): Males Females 23.2 26.0 24.6 25.9 23.2 26.0 24.4 27.8 Rate of increase in salaries Rate of increase for pensions in payment Discount rate Inflation assumption Increase in deferred pension Mortality before retirement Males Females Mortality before retirement Males Females Assumptions and sensitivities The Directors have chosen assumptions as at 31 October 2012 which reflect a consistent approach with previous years. Key sensitivities within those assumptions are as follows: • The discount rate is determined with reference to AA-rated corporate bond yields of appropriate term and currency to the liabilities of the Plan. This year’s determination of a 4.25% discount rate used the Markit iBoxx AA 15 year index rate and adjusted it relative to the Bank of England gilt spot rate for a plan with liabilities of an 18 year duration. • A 0.25% movement in the discount rate would impact liabilities by approximately £20m. • A 0.25% movement in inflation would impact liabilities by approximately £13m. 59 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 20. Pension arrangements continued Expected return on fund assets The return on bonds and cash has been determined by taking the market values and/or yields on AA corporate bonds and government bonds applicable at the reporting date. The expected return on equities was set by adding an equity risk premium to the yield available on fixed interest government bonds with a 15 year term as at the balance sheet date. Reconciliation to balance sheet The fair value of the assets and the present value of the liabilities in the schemes and the expected rate of return at each balance sheet date were: Monarch Airlines Limited Retirement Benefits Plan Equities Bonds Other – cash Monarch Airlines Limited Retirement Benefits Plan Monarch Airlines Limited Retirement Benefits Plan 2012 % 2012 £’000 2011 % 2011 £’000 2010 % 2010 £’000 7.00 4.25 2.80 207,031 56,481 1,346 7.00 5.00 3.10 194,966 56,677 2,018 6.95 4.65 0.50 204,682 54,956 816 Total market value of assets Present value of scheme liabilities 264,858 (447,134) 253,661 (391,069) 260,454 (394,243) Deficit in the scheme Related deferred tax asset (182,276) 41,924 (137,408) 34,352 (133,789) 36,123 Net pension liability on an FRS 17 basis (140,352) (103,056) (97,666) Cosmosair Pension and Life Assurance Scheme Equities Fixed interest and cash Property Purchased annuities Total market value of assets Present value of scheme liabilities Surplus in the scheme Unrecoverable surplus Related deferred tax liability Net pension asset on an FRS 17 basis Cosmosair Pension and Life Assurance Scheme Cosmos Pension and Life Assurance Scheme 2012 % 2012 £’000 2011 % 2011 £’000 2010 % 2010 £’000 6.0 2.8 6.0 4.0 994 1,890 319 1,171 7.0 3.1 7.0 5.0 1,225 1,746 348 1,180 6.7 3.7 6.7 3.7 1,194 1,715 467 798 4,374 (3,814) 4,499 (3,844) 4,174 (3,433) 560 (376) (43) 655 (407) (62) 741 (413) (89) 141 186 239 2012 £’000 2011 £’000 2010 £’000 Net pension liability: Net pension liability of Monarch Airlines Limited Retirement Benefits Plan Pension asset of Cosmosair Pension and Life Assurance Scheme (140,352) 141 (103,056) 186 (97,666) 239 Total net pension liability included in consolidated balance sheet (140,211) (102,870) (97,427) Analysis of the amount charged to operating profit Current service cost 60 The Monarch Group ANNUAL REPORT 2012 2012 £’000 2011 £’000 20 81 20. Pension arrangements continued Expected return on pension scheme assets Interest on pension liabilities Net charge (note 5) Actual return on plan assets Analysis of the amount recognised in the statement of total recognised gains and losses (‘STRGL’) Actuarial loss recognised in the STRGL Change in restriction on unrecoverable surplus Cumulative loss recognised in the STRGL Movement in net deficit during the year 2012 £’000 2011 £’000 16,051 (19,430) 16,594 (20,729) (3,379) (4,135) 22,862 5,902 2012 £’000 2011 £’000 (42,595) 31 (180) 6 (42,564) (174) 90,427 47,817 2012 £’000 2011 £’000 Changes in benefit obligations Benefit obligations at beginning of year Current service costs Interest cost Plan participants’ contributions Curtailment benefit Actuarial losses Benefits paid 394,913 20 19,430 4 – 49,375 (12,794) 397,676 81 20,729 8 – (10,466) (13,115) Benefits obligations at end of year for plans that are wholly or partly funded 450,948 394,913 Change in plan assets Fair value of assets at beginning of year Expected return on plan assets Actuarial gains Employer contributions Member contributions Benefits paid 258,160 16,051 6,811 1,000 4 (12,794) 264,628 16,594 (10,692) 737 8 (13,115) Fair value of plan assets at year end 269,232 258,160 (376) (407) Net amount recognised (182,092) (137,160) Represented by: Monarch Airlines Limited Retirement Benefits Plan Cosmosair Pension and Life Assurance Scheme (182,276) 184 (137,408) 248 Net pension deficit (182,092) (137,160) Restrictions due to unrecoverable surplus 61 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 20. Pension arrangements continued Five year history 2012 £’000 Benefit obligation at end of year Fair value of assets at end of year Unrecoverable surplus Difference between actual and expected return of scheme assets: Amount (£’000) Percentage of scheme’s assets (%) 2010 £’000 2009 £’000 2008 £’000 (450,948) 269,232 (376) (394,913) 258,160 (407) (397,676) 264,628 (413) (382,386) 246,448 (345) (253,838) 193,907 (1,248) (182,092) (137,160) (133,461) (136,283) (61,179) (10,692) (4.1%) 14,524 5.5% 32,842 13.3% (89,752) (46.3%) 6,811 2.5% Experience gains and losses on scheme liabilities: Amount (£’000) Percentage of scheme’s liabilities (%) 2011 £’000 (49,375) 10.9% (9,484) 2.4% 21. Reserves (1,352) 0.3% Profit and loss account (deficit) £’000 (1,837) 0.5% 2,834 (1.1%) Total 2012 £’000 Total 2011 £’000 Called up share capital £’000 Preference share capital £’000 Merger reserve £’000 At the beginning of the year Issue of preference shares Realisation of revaluation surplus Loss for the financial year Actuarial loss relating to the pension scheme (note 20) Deferred tax charge in relation to the pension scheme due to rate change Deferred tax credit in relation to the pension scheme due to movement in year Deferred tax in relation to rate of change of tax Deferred tax adjustments in respect of estimates made in prior years Deferred tax origination and reversal of timing differences Other reserves 50 – – – – – 20,000 – – – 4,963 – – – – (104,825) – – (26,143) (42,564) (99,812) 20,000 – (26,143) (42,564) (43,497) – – (49,340) (174) – – – (3,642) (3,642) (2,743) – – – – – – 10,633 (169) 10,633 (169) 59 (169) – – – – – – – – – – – (11) – – (11) (1,911) (2,037) – At the end of the financial year 50 20,000 4,963 (166,721) (141,708) (99,812) Group Called up share capital £’000 Profit and loss account £’000 Total 2012 £’000 At the beginning of the financial year Profit/(loss) for the financial year (note 7) 50 – 26,640 1,581 26,690 1,581 At the end of the financial year 50 28,221 28,271 Company 62 The Monarch Group ANNUAL REPORT 2012 Total 2011 £’000 26,701 (11) 26,690 22. Reconciliation of movements in Group shareholders’ funds 2012 £’000 2011 £’000 Loss for the financial year Other recognised gains and losses relating to the year (26,143) (35,753) (49,340) (6,975) Preference shares issued (61,896) 20,000 (56,315) – Net additions to shareholders’ funds (41,896) (56,315) Opening shareholders’ funds (99,812) (43,497) Closing shareholders’ funds (141,708) (99,812) 23. Reconciliation of operating profit/(loss) to net cash inflow from operating activities 2012 £’000 (25,334) 202 747 32,677 11,521 (36) (22,415) 35,249 Operating loss Profit on sale of fixed assets Amortisation – intangible fixed assets Depreciation – tangible fixed assets Impairment – tangible fixed assets (Increase)/decrease in stocks Increase in debtors Increase in creditors, pensions and other items Net cash inflow from operating activities 24. Reconciliation of net cash flow to movement in net debt 2011 £’000 (54,101) – 747 36,919 – 5,574 (50,020) 60,899 32,611 18 2012 £’000 2011 £’000 Increase in cash in the year Cash used to repay debt Cash inflow from financing activities Increase/(decrease) in liquid resources 9,274 814 (20,000) 34,933 19,647 57,733 (20,000) (22,138) Change in net debt resulting from cash flows Opening net debt 25,021 (26,853) 35,242 (62,095) (1,832) (26,853) Closing net debt 25. Analysis of net debt At 1 November 2011 £’000 Cash flows £’000 Non-cash changes £’000 At 31 October 2012 £’000 40,584 9,274 – 49,858 Bank loans due after one year Bank loans due within one year Shareholder loans due within one year Finance leases and hire purchase obligations Other loan (14,381) (3,988) (60,000) (4,563) (1,150) – 3,988 (23,858) 684 – Current asset investments (84,082) 16,645 (19,186) 34,933 – – (103,268) 51,578 Total (26,853) 25,021 – (1,832) Cash at bank and in hand 14,381 (14,381) – – – – (14,381) (83,858) (3,879) (1,150) 63 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 26. Related party transactions Set out below is a summary of related party transactions between: • the Company or subsidiary undertakings of the Company; and • companies or individuals who are related parties of the Company or Group where the transaction or balance is not specifically exempted from disclosure by FRS 8 ‘Related Party Disclosures’. All such transactions have been executed on an arm’s length basis. A) Arrangements with companies and individuals related to the ultimate controlling parties The following transactions and arrangements are with companies or individuals which the Directors believe are owned or controlled by the ultimate controlling parties as set out in note 26 below in the same or similar proportions as to those holdings in the Group. Transaction Related party 1 Loan to Monarch Holdings Limited on interest free terms and with no fixed terms for repayment. The amount due to the related party at 31 October 2012 was £1.15m (2011: £1.15m) Amerald Investments NV as lender. 2 Operating leases to Monarch Airlines Limited of aircraft, engines and rotable components at a cost of £12.3m (2011: £27.3m) in the period. These leases are for periods of between 1 and 12 years at rentals ranging from £0.5m to £3.8m per annum (2011: £0.5m to £5.9m). The amount due to the lessors at 31 October 2012 was £0.3m (2011: £1.5m) Various lessors. 3 From 14 October 2011, shareholder-owned aircraft lessors suspended lease payments on eight aircraft leased by Monarch Airlines. Deferred payments totalled £22m at 31 October 2012. Various lessors. 4 Provision of insurance and insurance services to the Group in respect of the aircraft fleet, property, and motor vehicles amounting to £4.9m (2011: £6.2m) in the year. The amount due to the related party at 31 October 2012 was £3.3m (2011: £3.9m). There were also amounts due from Voyager to Monarch Airlines Limited to the value of £0.4m (2011: £2.0m) in relation to insurance claims agreed and awaiting settlement. Voyager Insurance Company Limited as provider of insurance and insurance services. 5 Under a Rebate Assignment dated 15 April 1988, and supplemental agreements dated 15 July 1991 and 29 June 1992, the Company is providing security for the obligations of Andrair Limited, to the head lessor (an unrelated third party) of an aircraft which is subleased by Andrair Limited to Monarch Airlines Limited. The annual lease rental was £1.0m. However, a liability will only arise if Andrair Limited defaults in its lease payment obligations. The quantum of any such liability would be based on the net proceeds of sale of the aircraft which cannot be determined at the present time. Andrair Limited as lessee of an aircraft and beneficiary of security agreements. 6 During the year, Monarch Airlines Limited incurred costs of £47,000 (2011: £131,000) in respect of guarantee fees payable in connection with the acquisition of aircraft. SMG Asset Management Limited as guarantor. 7 Sale of seats to the related party by subsidiary undertakings of the Company amounting to £281,000 (2011: £183,000). At 31 October 2012 £nil (2011: £nil) was due from the related party. Cosmos Transport Services Limited as seat broker. 8 The sum of £nil (2011: £265,000) was due to the related party at 31 October 2012 in respect of scheduled airline seats paid for by the related party on behalf of a subsidiary undertaking. Cosmos Coach Tours Limited. 9 Fee for provision of resort and administrative services and liability insurance £1,079,000 (2011: £1,137,000). Tourama Limited as provider. 10 The balance due to Tourama Limited at 31 October 2012 was £11,097,227 (2011: £12,784,000). This covers transaction 10 and payments made by Tourama Limited to unrelated third parties as paying agent of a subsidiary undertaking. Tourama Limited as creditor. 11 Cosmosguide Holding International NV as provider. Fee for provision of management services to a subsidiary undertaking of £nil (2011: £50,000). 12 Licence fee for use of the ‘Cosmos’ name £138,000 (2011: £130,000). The balance due at 31 October 2012 was £138,000 (2011: £130,000). 64 The Monarch Group ANNUAL REPORT 2012 Cosmos European Travels Aktiengesellschaft as proprietor. 26. Related party transactions continued Transaction Related party 13 Administration fees, contribution to central overheads and supply of UK airport departure point services charged to the related parties amounted to £1,988,000 (2011: £2,501,000) in the year, and purchases of scheduled service seats from the related parties of £2,624,000 (2011: £3,371,000). The balance due from these related parties at 31 October 2012 was £257,000 (2011: £120,000) and includes holiday booking monies received on behalf of Cosmos Coach Tours Limited. Cosmos Coach Tours Limited, Archers Tours Limited, and Cosmos Transport Services Limited as users and providers of services. 14 In October 2009, Monarch Airlines Leasing Limited borrowed £15m from Transcontinental Aviation Limited. Interest on the loan of £1,793,000 (2011: £1,733,000) was incurred during the year ended 31 October 2012. Transcontinental Aviation Limited as lender. 15 In December 2009, Monarch Airlines Limited borrowed £25m from Transcontinental Aviation Limited. Interest on the loan of £1,917,000 (2011: £1,493,000) was incurred during the year ended 31 October 2012. Transcontinental Aviation Limited as lender. 16 On 23 March 2011, Transcontinental Aviation Limited provided a £2m guarantee to Morgan Stanley on behalf of Monarch Airlines Limited to enable Monarch Airlines Limited to hedge fuel. Transcontinental Aviation Limited as guarantor. 17 On 25 August 2011, Transcontinental Aviation Limited provided a £10m guarantee to Barclays Bank PLC on behalf of Monarch Airlines to provide guarantees to suppliers. Transcontinental Aviation Limited as guarantor. 18 On 31 October 2011, Amerald Investments NV loaned Monarch 2011 Limited £20m as an advance on the £40m of refinancing provided in November 2011. Amerald Investments NV as lender. 19 During the year, Transcontinental Aviation Limited provided short-term loans totalling £6,027,000 to Monarch Airlines to cover third party rent payments on aircraft initially covered by the shareholder lease suspension facility but sold by shareholders and leased back by Monarch Airlines during the year. By 31 October 2012, these loans and subsequent payments to third parties had been rolled in to the lease suspension facility disclosed above. Transcontinental Aviation Limited as lender. 20 On 11 May 2012, Transcontinental Aviation Limited loaned Monarch Airlines Limited £10m to cover FX hedging margin requirements. The loan was repaid on 17 July 2012. Transcontinental Aviation Limited as guarantor. 21 Mr F Mantegazza, one of the ultimate controlling parties of the Group, was paid £104,000 for services to the Group in the year. At 30 October 2012 the amount due to Mr F Mantegazza was £nil. Fabio Mantegazza as ultimate controlling party. 22 On 24 April 2013, Monarch Airlines entered into an agreement with Transcontinental Aviation Limited to transfer the benefit of a US$100m hedge transaction undertaken in early May 2012. Transcontinental Aviation Limited as hedging counterparty. B) Arrangements with other related parties 1 Transaction Related party Rawlinson Partners Limited invoiced Monarch Airlines £172,000 (2011: £461,000) for its consulting services during the year. As at the year end there were no outstanding amounts for invoices owed to Rawlinson Partners Limited. D I Rawlinson as a Director of Rawlinson Partners Limited and Monarch Holdings Limited. 65 The Monarch Group ANNUAL REPORT 2012 Notes to the financial statements continued Year ended 31 October 2012 27. Ultimate parent company and controlling party The Directors consider that the Company’s ultimate and immediate parent company and its controlling party is Amerald Investments NV, a company incorporated in the Netherlands Antilles, the accounts of which are neither consolidated nor publicly available. The Directors consider that Mr F Mantegazza, Mr G Mantegazza and Mr M Albek are together the ultimate controlling parties of the Company. 28. Post balance sheet events On 7 November 2012 the Group completed the sale and leaseback of two Airbus A321 aircraft, the proceeds from which were used to pay down the outstanding debt. Sale proceeds for the two aircraft totalled £31,677,000. On 27 February 2013 the Group sold and leasebacked two Airbus A320 aircraft. At 31 October 2012 an impairment review of these assets was carried out, resulting in write down of net book value of £11,521,000 in the income statement. Sale proceeds for the two aircraft totalled £3,372,000. 66 The Monarch Group ANNUAL REPORT 2012 Officers and professional advisers Directors D I Rawlinson R M Palmer Non-Executive Directors R McNulty A Reid Secretary J Marray Registered office Prospect House Prospect Way London Luton Airport Luton Bedfordshire LU2 9NU Independent auditor Deloitte LLP Chartered Accountants St Albans 67 The Monarch Group ANNUAL REPORT 2012 Notes 68 The Monarch Group ANNUAL REPORT 2012 » The Monarch Group Prospect House Prospect Way London Luton Airport Luton Bedfordshire LU2 9NU UK T: 0871 225 0250 F: 0871 225 0252 www.monarchholdingslimited.com