NATS Holdings Limited Annual Report and Accounts 2010 Company Number: 04138218 Contents Page Directors, officers and advisers 1 Chairman’s statement 2 Business and financial review: Chief Executive’s review 4 Financial review 19 Corporate governance 27 Remuneration Committee report 36 Directors of NATS Holdings Limited 44 Report of the directors 49 Report of the independent auditors 53 Consolidated accounts for the year ended 31 March 2010: Consolidated income statement 55 Consolidated statement of comprehensive income 55 Consolidated balance sheet 56 Consolidated statement of changes in equity 57 Consolidated cash flow statement 58 Notes forming part of the consolidated accounts 59 Company accounts for the year ended 31 March 2010: Company balance sheet 88 Company statement of changes in equity 89 Notes forming part of the company accounts 90 Directors, officers and advisers Directors* of NATS Holdings Limited: Name Other companies within the group for which they are also directors John Devaney NATS Limited, NATS (En Route) plc, NATS (Services) Limited, NATSNav Limited. Richard Deakin NATS Limited, NATS (En Route) plc, NATS (Services) Limited, NATSNav Limited, National Air Traffic Services Limited. Nigel Fotherby NATS Limited, NATS (En Route) plc, NATS (Services) Limited, NATSNav Limited, National Air Traffic Services Limited. Ian Hall NATS Limited, NATS (En Route) plc. Ian Mills NATS Limited, NATS (En Route) plc, NATSNav Limited. Giovanni Bisignani Roger Cato Baroness Dean of Thornton-le- NATS Employee Sharetrust Limited. Fylde Barry Humphreys Andy Lord Peter Read Sigurd Reinton Nigel Turner Andrew White *A brief biography is provided for each director on pages 44-48. General Counsel and Company Secretary Auditors Richard Churchill-Coleman Deloitte LLP Registered office 5th Floor, Brettenham House South, Lancaster Place, London WC2E 7EN Registered in England and Wales Company No. 04138218 1 Chairman’s statement NATS Holdings Limited Chairman’s statement We also continued to implement our cost The unprecedented disruption from the reduction programmes to mitigate against volcanic ash cloud since the start of this the effects of lower traffic volumes and year has served to highlight the higher pension costs. Overall the group importance of decisions taken to ensure reported a pre-tax profit of £78.3m, safe air travel. I am satisfied that the £57.2m lower than the result last year, restrictions implemented on flights in which included a £43.5m gain from a controlled airspace were timely, property disposal. In May 2010, the proportionate and in keeping with the Board approved the payment of an legal duties and safety responsibilities interim dividend for 2011 of £20m which entrusted to the Civil Aviation Authority was paid to shareholders in June. (CAA), the aviation safety regulator, and us. A key highlight was the January opening of the new Prestwick air traffic control The impact of the eruption was centre, on time and within budget. This challenging for NATS operationally and marked the end of 35 years of en route financially yet its focus remained air traffic control provision from resolutely on providing a safe service to Manchester and was the culmination of a customers. ten-year strategy to manage the UK’s Even without ash clouds, the operating controlled airspace from two centres, at environment over the last financial year Swanwick and Prestwick, instead of four. was even tougher than the one before, as the aviation industry continued to suffer In 2009, NATS (En Route) plc’s (NERL) from the weak economic environment, economic regulator, the CAA, agreed with resulting in an 8% reduction in the our suggestion that Customer volume of air traffic handled by NATS. Consultation should form the first stage of its review of charges for the next control Mindful of the difficulties our customers period from 2011 (Control Period 3). For were facing, we provided a strong the first time, NERL was able to talk operational service with air traffic-related directly to customers as part of this delays reduced to an all time low, helped formal process to understand better their in part by lower traffic volumes, requirements and to enable them to discounted our charges to them, influence key aspects of NERL’s plans, as maintained our excellent safety record an input into the remainder of the CAA’s and delivered on our critical investment review. This review is now reaching its projects. I would like to congratulate and final stages with the economic regulator thank our staff for these outcomes. 2 Chairman’s statement NATS Holdings Limited having published its proposals in May in future. On behalf of the Board, I wish 2010 for consultation. Paul well for the future and thank him for bringing NATS this far. NATS (Services) Ltd (NATS Services) continues to perform well in the Lawrence Hoskins retired in April 2010. commercial marketplace, as it seeks to During his tenure he was able to grow the extend its service offering both at home NATS Services business and to develop its and abroad across its product lines of air strategy, ensuring it is well positioned to traffic control services, data management, take advantage of future opportunities. I engineering and consultancy. would like to thank Lawrence for his significant contribution. Both NERL and NATS Services have made good progress with their cost saving At this time last year, I said the Board programmes this year. While difficult for was seeking a successor to Paul. I am our staff, these economies are vital and very pleased that we have appointed management continued to ensure that Richard Deakin to lead the group into a Trade Unions were fully involved. I would future which will bring further like to acknowledge the support of Trade opportunities and challenges at home, in Unions in this process and to recognise Europe and in our alliances across the their continuing and evolving partnership world. with the business in our Working Together principles. John Devaney The story of 2010 has been one of change Chairman and challenge in equal measure but a final chapter was the departure of Paul Barron as Chief Executive, on completion of his contract. Since his appointment in 2004, Paul’s strong managerial and leadership qualities were a force for change and continuous improvements in safety standards, service performance, financial performance and project delivery. The delivery of the two-centre strategy is the pinnacle of these accomplishments and should enable NATS to realise cost efficiencies and benefits in rolling-out new technology and air traffic control systems 3 Business and financial review NATS Holdings Limited Chief Executive’s review I am grateful for the efforts of everyone in NATS who contributed to this Overview of the business demanding process to limit what is – and Few Chief Executives can have factored remains - an unpredictable risk to the into their first 100 days the emergence of company operationally and financially. a crisis unprecedented in the history of the company they have joined. Just two The airspace restrictions meant a 21% weeks into my new role I saw at first reduction in flights for April 2010 alone hand the capability of NATS and its people (compared with 2009 figures) and the to rise to a challenge which created industry has suffered intermittent headlines around the globe and grounded disruptions since then. This will have an aircraft in the UK for six days. impact on our results for 2011, with the cash shortfall estimated at around £12m, The eruption of the Eyjafjallajökull though the revenue loss will be c. £5m volcano in Iceland in April 2010, coupled reflecting protections provided by the with unseasonal winds, created an ash economic regulatory formula. cloud which rose to 35,000 feet and covered much of the UK’s controlled The results for the 2010 financial year airspace. Through this period, we worked were affected by the continuing difficult hard with others to ensure flights could economic environment, higher pension resume safely and swiftly. costs and the costs of restructuring our cost base. These factors outweighed the The urgency behind this imperative meant benefit of cost savings achieved in the working around the clock with our safety year of £20m, most of which are regulator, the Civil Aviation Authority, the sustainable. Overall, the group reported Met. Office, the airlines, the government a pre-tax profit of £78.3m, £57.2m lower and the rest of Europe to learn more than the result for 2009, which included a about the cloud which had covered much £43.5m profit from the sale of the old of the continent’s airspace. In doing so, a Heathrow control tower. A more detailed new understanding of how to deal with review of the results is provided on page this risk was developed, both technically, 14 and in the Financial Review on page and operationally, to minimise the impact 19. on our customers. Throughout this period of uncertainty all parties remained The volume of air traffic was 8.4% lower focused on the industry’s priority: to than the year before and although the resume operations whilst at all times rate of decline reduced towards the end of ensuring safety. the year, there are no indications that volumes will recover to previous levels in 4 Business and financial review NATS Holdings Limited the short term and probably not to the A further major achievement was the peak experienced in 2007 until 2013. completion of NATS’ two-centre strategy when the doors opened to the Prestwick 2010 2009 % change Centre in January. Delivered on time and ('000s) ('000s) in year Chargeable Service Units 9,564 10,601 (9.8%) to budget, this project required the effort, Chargeable Distance (km) 693,702 771,270 (10.1%) professionalism and dedication of Total UK traffic (flights): Domestic 429 470 (8.7%) hundreds of people from across our Transatla ntic 307 336 (8.6%) Other 1,436 1,566 (8.3%) business.