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News Release

Final Results
RNS Number : 1581S
Thomas Cook Group PLC
28 November 2012
 

28 November 2012

 

Thomas Cook Group plc

Audited results for the year ended 30 September 2012

 

NET DEBT REDUCED

BUSINESS TRANSFORMATION UNDERWAY

NEW FOCUS ON EFFICIENCIES AND RIGOROUS EXECUTION

 

 


Year ended 30/09/12

Year ended 30/09/11

£m (unless otherwise stated)

Underlying

Statutory

Underlying

Statutory


Revenue

9,491

9,491

9,809

9,809

Gross profit

2,070

2,075

2,160

2,098

Profit/(loss) from operations1

156

(319)

304

(267)

(Loss)/profit for the year

(37)

(590)

103

(518)

(Loss)/earnings per share (p)

(3.7)

(67.2)

11.7

(60.7)

Net debt

788

788

891

891

 

1 Underlying profit from operations is considered by management to give a fairer view of the year on year comparison of trading performance and is defined as earnings before interest and tax, excluding all separately disclosed items.  It also excludes our share of the results of associates and joint venture and net investment income.

 

·     Net debt reduced through asset disposals and working capital management:

Net debt reduced by £103m (from £891m to £788m);

Liquidity headroom at circa £1bn, £160m higher than prior year;

·     Gross profit of £2.1bn, with resilient gross margin despite input cost pressures; underlying profit from operations 49% lower at £156m, in line with expectations but significantly impacted by £110m in higher fuel costs;

·     Fourth quarter financial performance in line with the same period last year, reflecting a significant improvement on the first three quarters of the year;

·     Loss for the year of £590m, including previously disclosed goodwill and other write-downs of £369m and business repositioning costs of £81m;

·     Good current trading, with Summer 12 ending strongly and Winter 12/13 trading off to a good start in our major markets, with bookings ahead of committed capacity and improvements in pricing; our capacity strategy will reduce operating risk in an uncertain consumer environment as the Group implements its Business Transformation;

·     Building on a stable platform, the Business Transformation has begun and is focused on:

Changes in organisational structure and key management in order to break down historic silos, energise our people and implement cultural change;

Driving efficiency through global procurement, centralised hotel purchasing and consolidation to reduce fixed and overhead costs and improve working capital: over £100m of annual cost benefits and £50m of incremental working capital improvements already identified and significant further opportunities to come; and

Developing an online centre of excellence with powerful channels tailored to local markets by leveraging the latest technology to deliver true omni-channel distribution.

Harriet Green, Group Chief Executive, Thomas Cook Group plc said:

"In 2012 over 23 million customers enjoyed their holidays with us, 50% of whom went on an independent or flexible holiday.  Through building on our core product strengths to further improve our proposition with new and different products, we have a significant opportunity to unlock the full potential of our brands and attract more customers.  As we develop our Business Transformation plans we will continue to place our customers and employees at the very centre of our business.  Through leveraging existing best practice and by focusing on efficiency, harnessing the power of technology and delivering on our commitments we are addressing the most immediate challenges facing the Group and creating a platform for future growth.

"These results reflect the major issues that Thomas Cook faced last year, but they mask the material improvement that we made in the fourth quarter.  Our brand has demonstrated its strength by recovering all the ground lost during last year's difficulties and we have identified significant further efficiency improvements.  The year ahead is the initial stage in this recovery and as we embark upon our first year of Business Transformation, we are optimistic about the future and look forward to updating you on our full plans and additional financial benefits in the spring of 2013." 

 

Enquiries

 

Thomas Cook Group plc


Investor Relations

+44 (0) 20 7557 6413



RLM Finsbury


Faeth Birch

+44 (0) 20 7251 3801



Presentation to analysts

 

A presentation of the full year results and key business transformation themes will be held for equity analysts and shareholders by invitation, at 9am (GMT) today at the City Presentation Centre, 4 Chiswell Street, London EC1Y 4UP.

 

Dial-in details:             +44 (0) 20 3003 2666

Password:                   Thomas Cook

 

The presentation will be web-cast and a copy of the slides will be available on our website from 8.45am at www.thomascookgroup.com/results-centre.

 

The presentation will be followed by a conference call for credit analysts and investors at 11am.

 

Dial-in details:             +44 (0) 20 3003 2666

Password:                   TCG Bond Analyst Call

 

Replay number:          +44 (0) 20 8196 1998 (available for 7 days)

Access number:         5947001

 

OPERATING REVIEW

 

The fourth quarter result was back in line with the prior year, representing a major improvement in quarterly year on year financial performance.  The year end net debt position of £788m and substantial liquidity headroom of circa £1bn demonstrate the positive results of improved business performance monitoring, together with the impact of asset disposals and the additional banking facilities secured during the year.  Improvement in working capital practices combined with the development of robust cash forecasting processes has also enhanced the Group's ability to drive sustainable cash flow benefits.

 

The stabilisation plan implemented by the Group early in the year is complete and provides a solid platform to build on.  The Group is now focusing on improvements to its operations and today outlines some of the key focus areas for this.  There is a real sense of urgency and pace of change sweeping across the Group as we energise our people, develop our strategic plan and drive its execution to rebuild a stronger sustainable Group for the future.

 

Revenue and underlying results

 

Group revenue for the twelve months to 30 September 2012 was £9,491m (2011: £9,809m), down 3% (but 1% higher on a constant currency basis).  Like-for-like revenue was reduced by planned capacity management actions in the UK and West Europe whilst the inclusion of acquisitions, specifically in Russia and the Co-op in the UK, added £240m.  Underlying gross profit was £2,070m (2011: £2,160m) with the year on year reduction largely reflecting capacity reductions and higher fuel costs of £110m and the difficult trading environment.  Despite input cost pressures, the Group's overall gross margin was maintained at circa 22% through improved yield management and a reduction in unprofitable capacity, particularly in the UK. 

 

The Group's underlying profit from operations, including an £11m contribution from the Indian business which was disposed during the year, was £156m (2011: £304m).  Significant progress was made under the UK transformation plan, with benefits of £60m being recorded in the year.  However, those benefits were offset by increased fuel costs and the adverse publicity surrounding our bank refinancing such that UK underlying profit from operations was £19m below last year.  Northern Europe had a strong end to the summer season and our German airline performed better in the second half of the year, despite experiencing a difficult winter season.  The political upheaval in MENA had a major negative impact on our French business, whilst our North American business suffered from overcapacity in the market.

 

The Group's underlying net interest charge for the year was £146m, an increase of £24m as a result of higher average debt and increased margin payable under our banking facilities.

 

Separately disclosed items

 

Included within separately disclosed items of £498m is a £300m charge as a result of a previously disclosed review of the carrying value of goodwill in our North America, West Europe and India businesses which was disclosed at the time of our interim results.  Cash exceptional costs were £130m (2011: £90m) and largely relate to the reorganisation and restructuring during the year of our UK, North America and West Europe businesses and costs in relation to the Group's financing.

 

Earnings and dividends

 

As a result of the lower underlying operating profit and the separately disclosed items, the Group delivered a statutory loss before tax of £485m (2011: £398m loss).  The reported loss after tax was £590m (2011: £518m).  The underlying basic loss per share was 3.7p (2011: earnings of 11.7p) and the basic loss per share was 67.2p (2011: 60.7p).  No dividend will be paid for the year ended 30 September 2012. 

 

Net debt

 

Net debt was reduced by £103m to £788m as a result of proceeds from the sale of businesses and a substantial improvement in working capital management, which compensated for the negative cash impact of circa £100m from committed capacity reductions.  The Group's asset disposal programme contributed £196m to the reduction in net debt and £346m to the increase in liquidity, whilst the new management team began implementing improved processes to manage working capital.

 

 

Business Transformation 

 

Having completed the refinancing earlier in the year and delivered a reduction in net debt through asset disposals and a significant improvement in working capital management, the Group now has a more stable platform from which to build.

 

Thomas Cook has iconic and much loved travel brands, with a demonstrable resilience clearly evidenced by the 23 million customers who travelled with us over the last year, the same number as the previous year.  Our differentiated products, such as the family-friendly Sentido and Sunwing concepts, are very successful and by broadening our product offer and developing compelling new propositions, we have a huge opportunity to attract new customers.

 

We remain focused on returning the Group to profitable growth whilst developing our longer term strategic plan to ensure Thomas Cook remains the trusted travel partner of the future.  The past year has been challenging, but the unwavering commitment of our people to ensuring each of our customers has an excellent holiday experience, underpinned by our powerful brands provides a strong foundation on which to build. 

 

The entire organisation is now mobilised around the changes required and our top 100 managers are fully engaged with the objectives we are working to achieve.  We have a number of separate transformation initiatives, each of which is being led by our most talented business leaders.  Our business transformation plans are now underway and are supported by a project management office with clear targets, reporting and agreed timelines.

 

Our short term recovery and longer term strategy are being formed by these transformation initiatives which are focused on three essential elements:

 

Building an effective organisation

 

The first crucial element is to build a more efficient and effective organisation, structured to maximise the customer experience.  This revitalised organisation is driven by a sense of urgency and characterised by robust decision-making, clear accountability and defined performance metrics.  There is a strong focus on rigorous execution and delivering our plans.  We are energising our people to drive the cultural change needed to break down historic regional silos through better communication and collaboration.  We have already made a number of key management changes, as we build a strengthened team to take the business forward.  Some of the key appointments are new to the Group as we learn from best practice elsewhere, but many have been promoted from within the Group, retaining the detailed knowledge of our business.  The key changes include the following:

 

·     Peter Fankhauser appointed as UK CEO in addition to his existing role as CEO of Continental Europe, to leverage his business transformation experience;

·     Susan Duinhoven, who previously led our West Europe business, has been appointed to lead the Group's web transformation including the closer integration of web development into the operating businesses whilst maintaining a web centre of excellence;

·     Christoph Debus has been appointed as Group Head of Air Travel to review the Group's air travel strategy, both with regard to our airlines and our purchasing of third party capacity in the tour operator and scheduled businesses;

·     Within our new Continental Europe business segment, Reto Wilhelm has been appointed as Managing Director with responsibility for Benelux and East Europe, bringing his extensive knowledge and experience to help drive an improved performance; and

·     We have strengthened the Group finance team with the external appointments of a new Group Treasurer, Joe O'Neill, Group Head of Financial Control and Planning, Bill Scott, and a Director of Enterprise Risk and Audit, Lee Bradley.

 

There is a real passion for customer service within the organisation and a strong belief in the future of Thomas Cook.  Our people want to be a part of the transformation and having consulted with them all, over 8,000 of them have shared their views to management in the last 100 days as part of our Business Transformation initiative.

 

 

Addressing costs and cash management

 

The second element of our business improvement plan is to address the Group's cost base and cash management.  There are a number of initiatives in this area which broadly fall under two guiding principles:

 

·     An increased degree of intra-Group cohesion; and

·     Cost reduction through structural change.

 

The UK turnaround plan, first announced last year, is focused on both aspects.  Turnaround in the UK is progressing well, delivering £60m of financial benefits in the year.  These benefits arose largely through improved yield management (£19m), operational excellence initiatives (£17m) and cost synergies through the integration of the Co-operative Travel business (£15m); further detail is available on page 16 and the key actions taken in the year include:

 

·     The return of six aircraft to lessors, reducing the fleet size to 35 at 30 September 2012;

·     Removal of more than 500 underperforming hotels, with 150 new properties added to the portfolio with 35% of mainstream customers choosing differentiated products;

·     Implementation of a single commercial trading platform with a coordinated discount approach to deliver substantial improvement in yield management; and

·     The closure of 149 stores and five head office properties.

 

As a result of these actions, the gross margin for the UK business improved to 24.7%.  However, despite the gross margin improvements, the UK business only delivered £1m at the operating profit level and as a result the business is now placing a greater emphasis on accelerating the transformation and work is underway to drive a faster reduction in overhead costs through increased consolidation measures, particularly in non-customer facing business support processes.  The team is targeting rapid organisational change and Peter Fankhauser, who successfully transformed our business in Central Europe, is now leading the business and the turnaround which is critical to improving the profitability of the UK business and the overall Group. 

 

Throughout the organisation, we are implementing measures to increase intra-Group partnerships, working as a more cohesive Group and leveraging the best practice that already exists.  Eliminating duplication will enable us to leverage our global purchasing power more effectively, whilst reducing unnecessary overheads.  We will centralise where it makes sense to do so but will continue to recognise the importance of local knowledge and relationships for our customers.

 

While the Group's current gross profit margin is 22%, our Group operating profit margin is just 1.6%, highlighting the need to improve operating efficiency.  The Group is currently in the process of identifying structural cost savings and, whilst very early in the process, has already clearly established robust plans to achieve annualised savings of circa £100m.  These are largely expected to be realised in FY14 and FY15 at a cost of circa £65m over the next three years.  These savings are in addition to the £140m of anticipated benefits from the UK turnaround plan and represents just 1% of the Group's total cost base.  Work is on-going to quantify further potential savings in other areas of the business where substantial opportunities have been identified.

 

£m

FY13

FY14

FY15

Run Rate

Integrated air travel strategy

5

30

40

40

Organisational structure

5

20

30

35

Infrastructure, technology and other

3

20

25

25

Total

13

70

95

100






Cost to achieve - income statement

65

-

-


Cost to achieve - cash flow

30

20

15


 

The Group has also identified a number of areas where cash flow can be sustainably improved by changing working capital management processes, ranging from more disciplined cash collection to transformational change in procurement strategy.  By developing a cash culture throughout the Group and by operating in a coordinated way, leveraging the Group's market position, we expect to build on the cash benefits already achieved in these results.  Although the ability to influence the absolute amount of working capital is partially driven by trading volumes, which in turn will be impacted by capacity strategy, we are already well advanced in identifying, activating and monitoring multiple work streams that will aim to deliver gross cash flow improvements in the region of £50m in the current year.

 

Creating a profitable growth strategy

       
The third element of our Business Transformation will be to create a strategy for profitable growth by unlocking the potential of the Group's brands through understanding and reacting to customer demands, both in terms of product and distribution channel.  This will see both a change of emphasis in our approach and an on-going review of all business areas to ensure more effective and efficient ways of working.

 

We will build and enhance our current core product strength by building stronger relationships and partnerships with hoteliers to deliver a differentiated proposition with the right balance of assets in our portfolio.  This will require us to look both at the hotels with which we choose to contract and the way in which we contract with them.  We are also working to strengthen our air travel proposition and have appointed Christoph Debus to lead this as Group Head of Air Travel, starting with a review of our approach to capacity management.

 

We will continue to offer our customers a wide range of distribution channels to meet their needs and we will make it easier for our customers to access our deep travel knowledge, making it available to them in whatever form they choose, from wherever they want to access it.  We recognise the increasing importance of technology and the Group already has pockets of excellence.  Web distribution varies by market and ranges from 7% to 69% across the Group.

 

Our online business is changing and will become our key distribution channel as we will continue to invest in order to harness the power of technology.  We have appointed Susan Duinhoven to lead this transformation, which will leverage our existing web talent to build a centre of excellence whilst ensuring the development of powerful channels tailored to the local markets, delivering a more integrated approach.  Our retail stores remain important for many of our customers and whilst we continue to review the scale of our retail operations in order to streamline where appropriate, we will continue to invest in our most successful stores as part of our omni-channel distribution strategy.  We will share more details around these plans in the spring. 

 

We will continue to drive the transformation process with rigour over the coming months and the outcomes of the work already underway will shape our longer-term strategy which we will share with you in the spring of 2013. 

 

 

Current trading

 

Summer 12

 

Our summer programme finished on 31 October with cumulative bookings in line with capacity reductions.  Pricing trends are in line with those reported in September and our departed load factor was 92.3%, slightly ahead of last year.

 

Year on year variation %


Average selling price

Cumulative bookings

Committed capacity

UK

-     Total

-     Specialist & Independent

-     Mainstream

 

 

 

+8

 

-2

+10

-10

 

 

 

-11

Central Europe

+2

Flat

Flat

West Europe

+4

-9

-11

Northern Europe

+8

-3

-3

Airlines Germany

+8

+7

+7

 

Note: In Central Europe and West Europe, bookings represent all bookings including cars/overland, however capacity represents airline seat capacity only.  Northern Europe summer season is April-September. 

 

 

Winter 12/13

 

Winter bookings are ahead of committed capacity in all markets and pricing trends are strong.   Committed capacity is being managed to achieve a better balance with customer demand whilst putting in place more flexible options to add capacity should consumer demand exceed current expectations.  This strategy will reduce operating risk in an uncertain consumer environment as the Group implements its Business Transformation plans.  Winter 12/13 trading figures are presented in line with the Group's new reporting structure.

 


Year on year variation %


Average selling price

Cumulative bookings

Committed capacity

Left to sell

UK

-     Total

-     Specialist & Independent

-     Mainstream

 

 

 

+13

 

+1

+6

-7

 

 

 

-18

 

 

 

-25

Continental Europe

+5

-4

-36

-38

West Europe (France)

+7

-3

-22

-39

Northern Europe

+8

-2

-5

-9

Airlines Germany

+12

Flat

-1

+1

 

Note: Figures as at 24/25 November 2012 and are presented in accordance with the Group's new reporting structure. In Continental Europe and West Europe (France), bookings represent all bookings including cars/overland, however capacity represents airline seat capacity only.  Northern Europe winter season is October-March.    

 

In the UK, the capacity reduction in mainstream is focused on both short and medium haul as unprofitable routes are discontinued and leased aircraft are returned to lessors.  Average selling prices are strong, supported by a change in mix to a higher proportion of long haul bookings.  Independent bookings are a much larger proportion in the winter season and are up 6%. 

 

Within Continental Europe, Germany is performing well, with bookings ahead of committed capacity driven by long haul and special interest products. Trading across France, Belgium and the Netherlands remains challenging and is behind prior year in all markets.  Average selling price increases across the segment largely reflect success in passing on input cost inflation. 

 

In West Europe, our French business continues to de-risk by reducing capacity and we have 39% less left to sell. Bookings are trending ahead of capacity reductions whilst average selling prices are up 7%.

 

Northern Europe is trading well. Capacity has been reduced to less popular destinations, particularly Thailand and capacity has been moved to other long haul destinations, largely in the Caribbean. Our new Sunwing property in Hurghada is proving very popular and is driving an increase in bookings to Egypt. Overall, bookings are trending ahead of capacity commitments and the programme is 71% sold, up 2% on prior year.

 

Bookings in Airlines Germany are ahead of planned capacity. Yields, up 12% are strong, driven by continental sales. Bookings to the main winter destinations of Egypt and the Canaries are good, with strong yield developments on both routes.

 

 

Board changes

 

As announced on 18 October 2012, Emre Berkin joined the board as an independent non-executive director on 1 November 2012.  Emre brings considerable skills and experience having held a number of senior positions at Microsoft and being a non-executive director of Pegasus Airlines and a number of technology companies.  As a Turkish national based in Turkey he has vital knowledge of one of our key destinations.

 

 

Outlook

 

The Group has embarked upon a transformation which will shape its future strategy and we anticipate making good progress during the current year.  As our customers are experiencing the financial realities of the weak economic environment, we are focused on delivering higher quality and better value holidays, whilst at the same time implementing measures to improve business profitability and cash flow.

 

The year ahead is the initial stage in this recovery and as we embark upon our first year of Business Transformation, we are optimistic about the future and look forward to updating you on our full plans and additional financial benefits in the spring of 2013.  

 

 

 

FINANCIAL REVIEW

 

Financial results and performance review

 

Group

 

 

 

£m (unless otherwise stated)

Year ended

30 September 2012

Year ended

30 September 2011

 

Year on year change





Revenue

9,491.2

9,808.9

-317.7

Underlying gross profit

2,069.7

2,160.0

-90.3

Underlying profit from operations3

156.1

303.6

-147.5

Share of results

of associates & joint venture

 

2.1

 

(2.3)

 

+4.4

Net investment income/(loss)

0.4

(4.8)

+5.2

Finance charges

(145.9)

(121.9)

-24.0

Underlying profit before tax

12.7

174.6

-161.9

Separately disclosed items

(498.0)

(572.8)

+74.8

Loss before tax

(485.3)

(398.2)

-87.1

Tax

(104.8)

(119.8)

+15.0

Loss for the year

(590.1)

(518.0)

-72.1





Underlying (loss)/earnings per share (p)

(3.7)

11.7

-15.4

Basic loss per share (p)

(67.2)

(60.7)

-6.5

Dividend per share (p)

-

3.75

-3.75

Net cash flow 4

245.0

(80.1)

+325.1

Net debt

788.3

890.9

+102.6

 

3 Underlying profit from operations is defined as earnings before interest and tax, and has been adjusted to exclude all separately disclosed items.  It also excludes our share of the results of associates and joint venture and net investment income.

4 Net cash flow is the net movement in cash and cash equivalents including the proceeds of sale and leaseback excluding the drawdown and repayment of borrowings, repayments under finance leases and the payment of facility fees.

 

Income statement

Revenue and underlying profit from operations

 

Group revenue for the year reduced by 3.2% to £9,491.2 (increase of 0.9% at constant currency) largely reflecting the translation impact of the weakening Euro and Swedish Krona on the Group's  foreign currency denominated sales.  The underlying increase is the result of a number of offsetting movements: acquisitions, including Co-operative Travel in the UK and the full year impact of our Russian business and Sears Travel in Central Europe and North America, respectively, added circa £240m.  Our operations in Central Europe, Northern Europe and Airlines Germany all increased capacity and added circa £250m to revenue, while the UK, West Europe and North American segments reduced capacity and their revenue reduced by circa £400m.   Group revenue was derived 72% from mainstream travel, 27% from independent travel and 1% from financial services.  54% of passengers bought mainstream travel products and 46% of passengers bought independent travel products.

 

Group underlying profit from operations was £156.1m, a decrease of £147.5m on the prior year.   We saw positive impacts from prudent capacity management in our major markets with a reduction of low or negative margin volumes in the UK and higher average selling prices in most markets.  In addition, we saw the first financial benefits of the transformation programme underway in the UK with improved yield management, increased central control of discounting and retail synergies delivering benefits of around £60m.  However, these have been more than offset by a combination of higher input costs, principally aviation fuel, together with the impact of negative publicity following our announcement of discussions with our banking group in November 2011.

 

We saw a continuation of the previously announced poor trading in our French and North American businesses and we are taking steps to minimise cash requirements and considering the best long term options for these businesses. 

 

The main drivers of the year on year fall in underlying profit from operations were:

 


£m

2011 Group underlying profit from operations

304

Acquisitions and disposals

(18)

Volume and mix

(54)

Price and margin

68

Fuel and hotel accommodation cost increases

(157)

Overhead cost savings

35

Exchange translation

(22)

2012 Group underlying profit from operations

156

 

The Group's costs by type, before separately disclosed items, can be broken down as follows:

 

 

 

 

Year ended

30 September 2012

Year ended

30 September 2011

 

Year on year change





Accommodation

34%

35%

-1%

Aviation (excl. Fuel)

29%

30%

-1%

Fuel

9%

9%

-

Commission and other

8%

7%

+1%

Personnel

12%

11%

+1%

Other operating expenses

8%

8%

-

 

 

Separately disclosed items

Separately disclosed items consist of exceptional operating and finance items, IAS 39 fair value re-measurement, profit or loss on disposal of associates, impairment of goodwill and the amortisation of business combination intangibles.  These are costs or profits that have arisen in the year which management believes are not the result of normal operating performance.  They are therefore disclosed separately to give a more comparable view of the year on year underlying trading performance.

 

The table below summarises the separately disclosed items, which have been included in the full year accounts.

 

£m

Year ended

30 September 2012

Year ended

30 September 2011

 

 

Year on year change





Affecting profit from operations




Reorganisation and restructuring

(80.7)

(73.7)

(7.0)

Refinancing costs

(30.1)

-

(30.1)

Impairment of goodwill and other intangible assets and amortisation of business combination intangibles

(368.7)

(396.9)

28.2

IAS 39 fair value re-measurement

9.1

(5.9)

15.0

Other

(5.0)

(93.7)

88.7


(475.4)

(570.2)

94.8





Affecting income from associates and JVs




(Loss)/ profit on disposal of associates

(0.9)

10.3

(11.2)

 




 




Affecting net finance costs




Write off of unamortised bank facility fees

(23.1)

(0.9)

(22.2)

Other exceptional finance charges

(0.9)

(2.9)

2.0

IAS 39 fair value re-measurement

2.3

(9.1)

11.4


(21.7)

(12.9)

(8.8)





Total

(498.0)

(572.8)

74.8

 

Reorganisation and restructuring costs of £80.7m principally relate to the projects underway to transform the UK business (£35.6m), and turn around the underperforming businesses in West Europe (£26.9m) and North America (£15.8m).  Refinancing costs of £30.1m relate to costs incurred in relation to the renegotiation of the Group's banking facilities.

 

Our decision to sell our Indian business and the deterioration in profitability of our French and Canadian businesses led to a reassessment of the carrying values of goodwill in those segments and certain other assets.  In total, the write-down is £368.7m and is of a non-cash nature.   £299.6m is impairment of goodwill, of which £96.0m relates to the write down of the carrying value of our Indian business, to fair value less costs to sell, upon its classification as held for sale.  The sale of the Indian business was subsequently completed in August 2012.

 

The remaining goodwill impairment relates to the French (£94.4m) and Canadian (£109.2m) businesses and reflects a decrease in management's estimates of the likely future profitability and cash flows of those businesses.  £40.6m relates to the impairment of intangible fixed and current assets, principally in respect of prepaid contracts for marketing and licencing and capitalised computer software costs for which management consider the carrying value to be in excess of the recoverable amount.  The software was considered to be impaired as part of the Group's review of its ecommerce offering.  The marketing and licencing costs were sunk costs in relation to agreements to sell ticket and accommodation packages for the 2012 Olympic and Paralympic games, which management consider to have become onerous during the year.  The sale of packages themselves generated a trading profit of £9.6m, which has been included within other separately disclosed items, with an overall net loss of £17.2m recognised.  During the year we incurred non-cash costs of £28.5m in relation to the amortisation of business combination intangibles.

 

IAS 39 fair value re-measurement

IAS 39 (as amended) requires the time value element of options used for hedging the Group's fuel and foreign currency exposure to be written off to the income statement as incurred.  As this is purely a timing issue but can give rise to significant, unpredictable gains and losses in the income statement, management has decided to separately disclose the impact in the income statement to assist readers of the accounts in better understanding the underlying business development.  For consistency, we also separately disclose the timing effect within net finance charges of marking to market the forward points on our foreign currency hedging.  We have therefore separately disclosed a profit of £9.1m in the operating result (2011: loss of £5.9m) and a profit of £2.3m in net finance costs (2011: loss of £9.1m). 

 

Income from associates and joint ventures

Our share of the results of associates and joint ventures, which comprises mainly hotel participations, was a profit of £2.1m (2011: loss of £2.3m).  The prior year result reflected deteriorating trading in a business that was subsequently sold. 

 

Net investment income

The net investment income in the year was £0.4m (2011: loss of £4.8m).  The prior year loss mainly comprised a £3.8m impairment of an investment in a German tour operator, Aldiana.

 

Net finance costs

Net finance costs (excluding separately disclosed items) amounted to £145.9m, an increase of £24.0m on the prior year.  The increase reflects higher levels of average borrowings and an increase in margin payable following amendments to the Group's banking facilities in May 2012. 

 

Tax

The tax charge for the year was £104.8m (2011: £119.8m).  Excluding the effect of separately disclosed items, change in tax rates and the impairment of a deferred tax asset, this represents an effective tax rate of 389.0% (2011: 41.0%) on the underlying profit for the year.  This percentage rate is heavily impacted by the low level of underlying profit and is not expected to be representative of the ongoing effective tax rate.  Deferred tax assets of £44.8m in the UK have been derecognised following a revised assessment of the entities in which the forecast taxable profits are expected to arise and deferred tax assets of £22.3m in France have been derecognised following the deterioration in trading in that business and review by new management.  In each case the derecognition reflects the reduced likelihood of utilising the related taxable losses within an acceptable time period.

 

Total taxable losses available to carry forward in the Group at 30 September 2012 were £2.5bn and as at 30 September 2012 deferred tax assets were recognised with respect to £0.5bn of this amount.

 

Earnings per share and dividends

The underlying basic loss per share was 3.7 pence (2011: earnings of 11.7 pence).  The basic loss per share was 67.2 pence (2011: 60.7 pence).

 

No dividends were paid in the year and, as previously announced, the Board has decided not to declare any further dividend payments whilst the Group rebuilds the balance sheet.  The total dividend per share for the prior year was 3.75p.

 

Cash and liquidity

 

£m

Year ended

30 September 2012

Year ended

30 September 2011

 

 

Year on year change









Net cash from operating activities

151.9

288.6

(136.7)




Exceptional items

129.9

90.1

39.8

Capital expenditure

(138.3)

(186.5)

48.2

Interest paid

(116.5)

(98.3)

(18.2)



Free cash flow before exceptional items

27.0

93.9

(66.9)





Acquisition of businesses

32.4

(19.2)

51.6

Disposal of businesses

122.7

3.2

119.5

Disposal of fixed assets

34.0

14.1

19.9

Dividends received

-

5.9

(5.9)

Dividends paid

(33.3)

(92.0)

58.7

Proceeds of sale and leaseback

189.4

-

189.4

Other items (net)

2.7

4.1

(1.4)

Exceptional items

(129.9)

(90.1)

(39.8)





Net cash inflow/(outflow)

245.0

(80.1)

325.1

 

As a result of the decline in underlying profitability, the Group saw a reduction of £136.7m in cash inflow from operating activities and an £66.9m reduction in free cash flow before exceptional items during the year.  The reduction in free cash flow was mitigated by significantly lower capital expenditure mainly as a result of a reduction in non-essential IT spend.  The increase in interest paid of £18.2m reflects the higher levels of average borrowings across the year and increases in interest rates arising from the amendments to the Group's banking facilities.

 

Acquisition of businesses inflow of £32.4m reflects cash received on the joint venture with The Co-operative Group and the Midlands Co-operative, partially offset by cash paid for the acquisition of Tour Vital and Panameo, two specialist tour operators based in Germany.  In addition, acquisition of businesses includes adjustments to the consideration for Algarve Tours, an incoming agency based in Portugal that was acquired at the end of the prior year and payment of deferred consideration on other historical acquisitions, Gold Medal, Essential Travel and Hotels4U.  Disposal of businesses inflow of £122.7m includes £61.0m of net proceeds from the disposal of the Group's Indian business in August 2012 and £54.8m of net proceeds from the disposal of the Group's interest in Hoteles Y Clubs Vacaciones in July 2012 as well as proceeds from the disposal of Explorers Hotel and the Dutch retail business totalling £6.9m.  In addition, the Group's asset disposal programme generated £34.0m during the year through the disposal of surplus office buildings in the Netherlands and Belgium and a vacant hotel in Mexico, with the sale and leaseback of aircraft in Airlines Germany and the UK adding a further £189.4m.

 

Dividends paid includes £32.7m for payment of the interim dividend for 2011 of 3.75p per share.  Since the declaration of the 2011 interim dividend the Group has announced a suspension of dividend payments until it has rebuilt the balance sheet.

 

Net debt (being cash less borrowings, overdrafts and finance leases) at the year end was £788.3m (2011: £890.9m).  £50m was repaid under the term loan agreement during October 2011, reducing the term loan from £200m to £150m.  Headroom under the banking facilities and cash freely available to repay those facilities as at 30 September 2012 was £981m compared to £821m as at 30 September 2011.

 

Hedging

We are hedged for both Winter 12/13 and Summer 13 seasons in line with our hedging policies.

 


Winter 12/13

Summer 13

Euro

92%

71%

US Dollar

89%

67%

Jet Fuel

78%

69%

As at 26 November 2012

 

 

Segmental performance review

Segmental performance presented here is based on underlying financial performance before separately disclosed items and the segmental narrative is provided on this underlying basis.

 

UK

 


Year ended

30 September 2012

Year ended

30 September 2011

Change

Financial (£m unless otherwise stated)




External revenue

3,109.4

3,255.0

-4.4%

Internal revenue

43.1

26.8

+60.8%

Segment revenue

3,152.5

3,281.8

-3.9%





Underlying gross profit

814.3

769.5

+5.8%

Underlying gross profit %

25.8%

23.4%

+10.3%

Personnel costs

427.4

402.6


Depreciation & amortisation

55.0

62.3


Other operating expenses

319.2

270.5


Underlying profit from operations *

12.7

34.1

-62.8%

Underlying operating profit margin % **

0.4%

1.0%

-60.0%




Non-financial




Mass market risk




Passengers †



-10.2%

Capacity ††



-10.5%

Average selling price #



+4.9%

Load factor †††



+0.2%

Brochure mix ##



-0.3%





Controlled distribution ‡‡

86.3%

73.8%

+16.9%

Internet distribution ‡‡

34.7%

30.1%

+15.3%





See Appendix 2 for key.

 

Our UK business is undergoing a fundamental transformation and this year saw the first significant delivery of financial benefits from the series of initiatives to turnaround the UK business from a trading and operational perspective.  A full update on the progress under the plan is given below but the impact on operating profit performance for the year was principally through improved yield management processes and increased central control of discounts, which together delivered significant benefits of around £45m.  In addition, synergies from the Co-op transaction of approximately £15m were realised during the year and are expected to increase to around £25m annually in 2012/13.

 

The positive impact of the turnaround actions was offset by trading pressures from the uncertain economic back drop, increased input prices and the negative publicity surrounding the company in November 2011.  Underlying profit from operations reduced to £12.7m (2011: £34.1m) and the underlying operating profit margin reduced to 0.4% (2011: 1.0%).  The underlying profit from operations does not include any impact from the sale of ticket and accommodation packages for the 2012 Olympic and Paralympic Games; this has been included within separately disclosed items.

 


Year ended

30 September 2012

Year ended

30 September 2011


 

Underlying profit from operations *

£m

£m


UK & Ireland

0.8

19.5


India

10.8

13.3


Egypt

1.1

1.3



12.7

34.1






 

Management of our UK Mainstream capacity to remove low or negative margin business resulted in a revenue reduction of around £240m but was broadly neutral at the EBIT level and allowed significant fixed operating costs to be removed from the business.  The bookings intake pattern was distorted with a higher proportion of capacity being sold in the less profitable 'lates' market, closer to departure,  as a result of negative publicity during the peak selling period of January - February 2012.  However, the actions we had taken to improve our yield management process and manage capacity, together with the poor late summer weather in the UK, ensured that we finished the year with strong sales and margins.

 


£m

2011 UK underlying profit from operations

20

Transformation benefits

60

Fuel and hotel accommodation cost increases

(62)

Management's estimate of the impact of negative publicity

(30)

Volume and mix

(15)

Price and margin

(6)

Overhead cost savings

34

2012 UK underlying profit from operations

1

 

Controlled distribution of our mass market holidays rose to 86.3% (2011: 73.8%), primarily due to the impact of the Co-op transaction which completed at the start of the year and has now been fully integrated and is on track to deliver the planned synergies.  Internet distribution of mass market products has also increased despite temporary issues with our main website at the start of the 2012 calendar year which adversely impacted our growth in this area.

 

Our Independent businesses in the UK faced strong competitive pressure which reduced margins in Hotels4U and passenger volumes in our Scheduled businesses.  Sales of ancillary travel products and insurance also suffered volume decline which was directly linked to the reductions in footfall seen in our stores and our insurance business saw a rise in claims.

 

In light of the continued difficult trading conditions, cost control has been given much focus this year.  Structural cost reductions included a reduction in our UK aircraft fleet, which was reduced by six aircraft in Winter 11/12 and the closure of 149 retail stores.  In addition, management took a number of additional actions to manage our cost base and reduce marketing spend and we benefited from the full year effect of closing the defined benefit pension scheme during the previous year.

 

Since the financial year end, we have taken further action to ensure the size of our airline is appropriate for our business and have announced our intention to reduce the UK fleet by a further five aircraft during Winter 12/13.  The fleet reduction will require fewer operational crew and fewer engineering and support staff and we are in a consultation period with the affected members of our business.

 

Also included in the UK segment for reporting purposes, are the Group's Indian and Egyptian businesses which reported underlying profit from operations broadly in line with the prior year.  As part of the Group's actions to stabilise its financial position, Thomas Cook India was sold in August 2012, reducing the net debt of the Group by £80m.  Our Egyptian operation has broadly maintained its operating profit performance, despite continuing political uncertainty.

 

Turnaround of our UK business

 

For the financial year 2011/12 we delivered benefits of £60m at a cost of £36m, which helped to mitigate the difficult trading environment and the negative publicity which we experienced earlier in the year.  We still expect over three years to deliver a fully annualised improvement in profitability of £140m, for a total estimated cost of circa £70m.

 

The initial focus of the UK turnaround plan has been on optimising yield, reducing retail and tour operator discounts, improving the operational efficiency of the organisation and facilitating faster, more focused decision making.  The following is a summary of the key actions taken to date and the financial benefits delivered to date against target:

 

Annual improvement

Targeted by

30 September 2014

£m

Delivered at

30 September 2012

£m

Optimise the UK airline

10

5

Refocus the product strategy

in mainstream package holidays

 

15

 

4

Improve yield management

40

19

Rationalise distribution

30

15

Operational excellence

45

17

Total

140

60

 

 

1. Optimise the UK airline

We reduced the UK fleet by six aircraft during Winter 11/12 as part of right-sizing the UK tour operator programme, particularly in long-haul, to reduce the risk to the business; as previously announced, around 350 employees left the business during the year.  Through our constant review of customer requirements, including the additional flexibility of third party flying arrangements, we will continue to offer our customers greater flexibility and choice.  To this end we are currently consulting with our employees about our proposal to reduce the UK aircraft fleet by a further five aircraft at the end of their lease term during Winter 12/13.

 

2. Refocus the product strategy in mainstream package holidays

For the Summer 12 programme, over 500 under-performing hotels were removed from the portfolio (around 22% of properties), whilst we introduced around 150 new properties, focused on differentiation and exclusivity.  Customers choosing differentiated product were up 17%, making up 35% of package passengers for the Summer 12 season.  Looking forward, a further 220 underperforming properties have been removed for Summer 13 as we continue to rationalise our product portfolio and pursue a narrower and deeper hotel strategy.

 

3. Improve yield management

The implementation of a single commercial trading approach allowed us to better manage fast selling stock, whilst a coordinated discounting approach to ensure that distribution channels are not competing against each other led to a substantial reduction in discount levels in retail shops.  We are now focused on rolling out the yield tools to our Independent and Specialist businesses.

 

4. Rationalise distribution

Since October 2011 we have closed 149 stores and 5 head office properties, resulting in a headcount reduction of around 1,200 employees.  Productivity improvements have been identified through a review and negotiation of commercial terms, reduced discounting and alignment of terms and fees which will drive substantial commercial benefits. 

 

5. Operational excellence

As outlined previously, operational excellence is about reducing and eliminating operational inefficiencies driven by organisational silos and overlapping, manual processes.  In line with this, we reviewed our contact centre operating model and location strategy.  In June 2012 we proposed that the work currently undertaken in our Bradford office would transfer to other Thomas Cook locations, be outsourced to external specialists or be discontinued.  Plans are now underway to close Bradford and by March 2013 there will be an overall reduction of around 250 roles.  Paperless tickets and E payslips have been launched during Summer 12 and we have reduced brochures by 20% for the current financial year with further efficiencies expected in 2012/13.

 

Central Europe

 

 

 

Year ended

30 September 2012

 

Year ended

30 September 2011

As restated

Change

Financial (£m unless otherwise stated)



External revenue

2,586.5

2,546.4

+1.6%

Internal revenue

51.1

53.8

-5.0%

Segment revenue

2,637.6

2,600.2

+1.4%





Underlying gross profit

335.3

341.5

-1.8%

Underlying gross profit %

12.7%

13.1%

-3.1%

Personnel costs

158.0

154.6


Depreciation & amortisation

9.4

12.0


Other operating expenses

117.8

102.6


Underlying profit from operations *

50.1

72.3

-30.7%

Underlying operating profit margin % **

1.9%

2.8%

-32.1%





Non-financial




Mass market




Passengers †


+6.2%


Flight inclusive



+7.3%


Non-flight inclusive



+3.6%

Average selling price #



+2.5%





Controlled distribution ‡‡

23.4%

24.0%

-2.5%

Internet distribution ‡‡

6.8%

7.0%

-2.9%





See Appendix 2 for key.

From 1 October 2011, the segment includes the East Europe and Russian businesses and the comparatives have been restated to reflect this.  Non-financial data only includes Russia in the year ended 30 September 2012.  Excluding Russia from 2012 results in like for like comparators of passengers +0.5%, thereof flight inclusive -1.0%, non-flight inclusive +3.6%; average selling price +2.7%, controlled distribution 24.4% vs. 24.0%, change +1.7%; internet distribution 7.2% vs. 7.0%, change +2.9%.

 

Our Central Europe segment now includes the East Europe businesses in Poland, Hungary and the Czech Republic together with our Russian business which was acquired in July 2011.

 

The segment delivered underlying profit from operations of £50.1m (2011: £72.3m) and an underlying operating margin of 1.9%, adversely affected by deteriorating margins in Eastern Europe and the inclusion of a full year result from Russia.  Revenue growth after adjusting for the impact of currency rates was 8.0%, again principally reflecting the first full year of the Russian business.  Excluding Russia, currency-adjusted revenue growth was 2.7%

 


Year ended

30 September 2012

Year ended

30 September 2011


 

Underlying profit from operations *

£m

£m


Germany

60.6

69.6


East Europe

(1.9)

0.7


Russia

(8.6)

2.0



50.1

72.3






 

In a highly competitive German market, we achieved higher volumes and average selling prices, with dynamically packaged products developing well and contributing to an improved gross profit on a currency adjusted basis.  The economic crisis in Greece led to an 18% reduction in volume in that destination, while we saw some recovery in demand for MENA destinations which had been impacted in 2010/11.  Öger, our specialist tour operator to Turkey, successfully expanded its product into Tunisia and Egypt, contributing to passengers for Tunisia increasing by more than 35%.  We also saw increased market share following the expansion of our Sentido brand to Tunisia.  Combined with the results of Airlines Germany, we generated an operating profit margin of 3.0% in the German market.

 

Our Eastern markets experienced difficult market conditions with general economic uncertainty and some industry specific issues of overcapacity.  These pressures reduced revenue and margins resulting in lower gross profit.  Winter sales of the newly integrated Russian business were affected by issues in their important destinations of Egypt and Thailand.  Overall, Russia made a positive contribution to gross profit but the year on year comparison is adversely impacted due to the inclusion of summer trading only in the prior year.

 

In Russia we commenced a rigorous restructuring project to radically reduce the cost base and improve margins.  Cost reductions are targeted through leaner back office functions and the closure of regional airport offices and non-profitable shops.  Margin improvement initiatives include the reduction of hotel and flight commitments, more efficient capacity management together with hotel contracting rate benefits derived from the Group's purchasing power.

 

Controlled and internet distribution percentages show small declines following the inclusion of the Russian business which is mainly distributed through third party retail agents.  Excluding Russia, the remaining Central Europe businesses have seen growth in controlled and internet distribution.

 

The Central Europe management team, led by Peter Fankhauser, has undertaken a thorough review of the German business and is focused on delivering our customers need for exclusive tailor-made products in some circumstances and price competitive, simple hotel accommodation in others.  In addition, they continue to streamline processes in all central and support functions.  From 1 October 2012, our operations in Belgium and the Netherlands also became the responsibility of the Central Europe team and consequently, the segment will be renamed Continental Europe.

 

As part of the actions to improve its financial position, the Group sold its interests in Hoteles Y Clubs De Vacaciones (HCV) on 27 July 2012.  HCV indirectly owns five hotels and a golf club and prior to sale, it contributed an underlying profit from operations of £3.3m (2011: £3.4m) to the results of the Central Europe segment.  The sale reduced the Group's net debt by circa £80m.

 

Airlines Germany

 

 

 

Year ended

30 September 2012

Year ended

30 September 2011

Change

Financial (£m unless otherwise stated)



External revenue

864.6

801.6

+7.9%

Internal revenue

300.0

318.7

-5.9%

Segment revenue

1,164.6

1,120.3

+4.0%




Underlying gross profit

320.1

374.5

-14.5%

Underlying gross profit %

27.5%

33.4%

-17.7%

Personnel costs

176.5

177.7


Depreciation & amortisation

61.9

57.1


Other operating expenses

46.0

70.4


Underlying profit from operations *

35.7

69.3

-48.5%

Underlying operating profit margin % **

3.1%

6.2%

-50.0%





Non-financial




Sold seats ‡‡‡





Thomas Cook tour operators



-3.3%


3rd party tour operators



-1.5%


External seat only



+32.3%

Total sold seats



+9.6%





Sold seats ‡‡‡





Short & medium haul



+8.4%


Long haul



+14.6%

Total sold seats



+9.6%





Capacity ††



+12.8%

Yield ###



+3.9%

Seat load factor †††



-0.8%





See Appendix 2 for key.

 

Our Airlines Germany segment reported underlying profit from operations of £35.7m (2011: £69.3m), in a very competitive German airline market and against a very strong prior year comparator.  Operating margin reduced to 3.1% (2011: 6.2%) but remains market leading in Germany.  Results of the long haul business were slightly better than the prior year but short and medium haul margins were under pressure, particularly in the first 9 months of the year, as a result of yield pressures from the significant market overcapacity in the winter season, combined with German air passenger taxes and the impact of a considerable increase in fuel prices.

 

Total revenue was 4.0% higher at £1,164.6m, with currency-adjusted total revenue 10.4% ahead following the expansion of long haul capacity with the addition of two aircraft from Winter 11/12.  The profitable growth to long haul destinations drove the 32.3% increase in seat only sales and saw yield growth of 4.1%, while yields to short and medium haul destinations could only be increased by 1.4%.

 

The impact on the underlying profit from operations was mitigated by reductions in operating expenses as a result of the business' ongoing efficiency programme and the Group-wide airline synergies project.  On-time performance improved by 6.4 percentage points to 84.1% with consequent improvements in customer satisfaction.

 

West Europe

 

 

 

Year ended

30 September 2012

 

Year ended

30 September 2011

As restated

Change

 

Financial (£m unless otherwise stated)



External revenue

1,467.4

1,704.0

-13.9%

Internal revenue

4.6

7.2

-36.1%

Segment revenue

1,472.0

1,711.2

-14.0%





Underlying gross profit

241.1

295.3

-18.4%

Underlying gross profit %

16.4%

17.3%

-5.2%

Personnel costs

119.2

128.0


Depreciation & amortisation

7.5

10.0


Other operating expenses

112.4

119.4


Underlying profit from operations *

2.0

37.9

-94.7%

Underlying operating profit margin % **

0.1%

2.2%

-95.5%





Non-financial




Mass market




Passengers †



-10.2%


Flight inclusive



-9.2%


Non-flight inclusive



-11.7%

Average selling price #



+3.8%





Controlled distribution ‡‡

60.2%

60.9%

-1.1%

Internet distribution ‡‡

27.1%

25.1%

+8.0%





See Appendix 2 for key.

From 1 October 2011, the East Europe and Russian businesses are reported within Central Europe and the comparatives have been restated to reflect this.

 

Our West Europe segment comprises our operation in France, Belgium and the Netherlands.  The underlying profit from operations was £2.0m (2011: £37.9m).  Within this result, France recorded an underlying loss from operations of £20.7m (2011: £10.9m) on turnover of £435.4m (2011: £523.9m) but operating profits were also reduced in Belgium and the Netherlands.  The underlying operating profit margin for the segment fell to 0.1% (2011: 2.2%).

 


Year ended

30 September 2012

Year ended

30 September 2011


 

Underlying profit from operations *

£m

£m


France

(20.7)

(10.9)


Belgium & the Netherlands

22.7

48.8



2.0

37.9






 

 

The West Europe segment has continued to be affected by the ongoing political unrest in the MENA region and the economic uncertainty caused by the European debt crisis.  In the MENA region, we have seen some recovery in demand for Tunisia but less than anticipated for Morocco and the important market of Egypt has deteriorated further.  External revenue in West Europe decreased by 13.9% on the prior year (7.4% on a currency adjusted basis) following capacity reductions in all markets but particularly in France.  Due to carefully managed capacities the average selling price was increased by 3.8% but gross profit dropped by £54.2m (£34.9m on a currency adjusted basis) to a 16.4% gross profit margin.

 

The French market is acutely impacted by both domestic economic uncertainty and the political unrest in the MENA region, as the French-speaking destinations of Tunisia and Morocco are very popular with our French customers.  The French business has undertaken several initiatives to reduce the risk it carries and to strengthen its appeal in the current trading environment.  In addition to focussing closely on capacity management, we introduced a new dynamic packaging engine to offer more flexibility to customers in terms of length of stay, improved the value proposition of our differentiated "club" products to interest more budget-orientated customers and have also shifted passenger volumes from MENA affected countries to Greece, Spain and other new destinations.  These improvements resulted in an increase in gross profit margin for the French business, but this has been more than offset by the volume decrease. 

 

The Dutch market continues to be very price competitive and we have experienced strong margin pressure.  We further developed our differentiated and exclusive products and saw their share of revenue in the Netherlands rise to more than 35%.  The Belgian market was characterised by flight overcapacities and aggressive price competition.  Strict capacity management in our tour operator to support margins led to revenue decreases.  In our Belgian airline, load factors improved by 4.8 percentage points to 88.7%.

 

Overhead costs were reduced by £5.7m on a currency adjusted basis.  The sale of the Dutch retail shops in the prior year reduced the cost base by around £12m but it has been adversely affected by general inflationary pressures, together with particular increases seen in IT costs and in the property costs of the French retail network.  In Belgium and the Netherlands this was partly mitigated by reductions in personnel and marketing costs, with Belgium reducing full time staff by 60 and cutting its expenditure on temporary personnel.

 

From 1 October 2012, responsibility for our operations in Belgium and the Netherlands was moved under the management of the current Central Europe segment team and restructuring plans have been established and initiated for these countries.  Closer integration of all our Continental Europe businesses will provide the opportunity for cost efficiency and the sharing of best practice particularly by sharing common IT systems and back office processes.  Combined hotel contracting will further increase the purchasing power of these businesses.

 

Responsibility for the French business will be assigned to our Group Strategy Director, Zubin Randeria, from 1 December 2012.  The French management team, supported by Aforge Finance, is reviewing various options to help the business reach its full potential, either through a restructuring, a disposal of certain assets or a corporate transaction such as a merger or a sale.

 

Northern Europe

 

 

 

Year ended

30 September 2012

Year ended

30 September 2011

Change

Financial (£m unless otherwise stated)



External revenue

1,167.1

1,152.7

+1.2%

Internal revenue

6.5

6.5

0.0%

Segment revenue

1,173.6

1,159.2

+1.2%





Underlying gross profit

315.9

315.7

0.1%

Underlying gross profit %

26.9%

27.2%

-1.1%

Personnel costs

152.0

146.7


Depreciation & amortisation

17.1

16.7


Other operating expenses

45.9

46.0


Underlying profit from operations *

100.9

106.3

-5.1%

Underlying operating profit margin % **

8.6%

9.2%

-6.5%




Non-financial




Mass market risk




Passengers †



+1.9%

Capacity ††



+1.9%

Average selling price #



+2.3%

Load factor †††



0.0%

Brochure mix ##



-6.7%





Controlled distribution ‡‡

87.1%

85.7%

+1.6%

Internet distribution ‡‡

69.4%

65.6%

+5.8%





See Appendix 2 for key.

 

Our Northern Europe segment delivered another very strong result with underlying profit from operations for the year of £100.9m (2011: £106.3m).  This represents an improved performance in the second half of the year following a difficult winter, affected by strong competition and weaker demand following floods in the key winter destination of Thailand.  In the second half, although the market remained competitive and input costs rose, we were able to recover some ground on the record prior year performance to deliver an operating profit 5% behind the prior year.

 

Following winter capacity increases to maintain our position in a competitive market, we took a prudent approach to summer capacity with a reduction of around 3% in light of the weak economic indicators.  This put us in a strong position to increase prices in both the brochure and late sales markets whilst improving our summer load factors.  As with the winter, we saw a move towards later sales but this was much smaller and at significantly higher prices than the prior year.  Currency-adjusted revenue for the year was up 4.1% on the prior year, driven by the higher average selling prices in the summer.

 

The continuing success of our Northern European business is built on the strong focus on exclusive and differentiated products and on operational efficiency and cost control.  During the year we opened a further seven of our popular Sunwing Resorts and Sunwing Prime properties.  These hotels consistently book early and generate premium margins and in 2011/12 almost one in four of our customers stayed in one of these truly differentiated hotels.  In addition, the distributional efficiency is enhanced by the high proportion of its bookings taken through controlled and internet distribution and we have again experienced strong growth in this area.  Controlled distribution through owned websites, shops and call centres accounted for 87.1% (2011: 85.7%) of departed passengers and, within that amount, internet sales grew to 69.4% in the year.

 
North America

 


Year ended

30 September 2012

Year ended

30 September 2011

Change

 

Financial (£m unless otherwise stated)



External revenue

296.2

349.2

-15.2%

Internal revenue

-

-

0.0%

Segment revenue

296.2

349.2

-15.2%





Underlying gross profit

43.0

64.8

-33.6%

Underlying gross profit %

14.5%

18.6%

-22.0%

Personnel costs

41.0

36.5


Depreciation & amortisation

4.0

3.9


Other operating expenses

20.3

13.9


Underlying (loss)/profit from operations *

(22.3)

10.5

n/a

Underlying operating margin % **

(7.5)%

3.0%

n/a





Non-financial




Mass market risk




Passengers †



-16.1%

Capacity ††



-14.3%

Average selling price #



-4.4%

Load factor †††



-2.1%

Brochure mix ##



+21.5%

Controlled distribution ‡‡

14.1%

16.9%

-16.6%

Internet distribution ‡‡

35.7%

36.4%

-1.9%





See Appendix 2 for key.

Note: Internet distribution % includes independent travel bookings.

 

As reported in our results for the first six months, we made changes to the senior management of our North American segment during the first half of the year and the new team has taken action to stabilise the business and implement a turnaround programme for the Mainstream operations.  This action includes changing our flying partner to deliver more flexibility and reduce our exposure to risk.  Our new arrangements for the forthcoming winter programme will provide smaller seat allocations across a wider range of departure airports, offering our customers greater choice and convenience.  It also removes the risk to the business of having to fill dedicated aircraft from a smaller number of airports.  We have also reviewed our hotel portfolio and are focusing on a core group of profitable hotels to improve our margins and enhance the experience for our customers.

 

Our North American segment had a very difficult year and reports an underlying operating loss of £22.3m (2011: profit of £10.5m).  This was caused primarily by continued market overcapacity which drove down average selling prices across our Mainstream programme and the loss of an important premium hotel contract which adversely affected our Mainstream product mix.  In addition, demand was reduced by a very mild Canadian winter which impacted the performance of our Mainstream, Independent and Retail businesses.

 

Revenue in North America fell, on a currency-adjusted basis, by 14.8% driven by reduced passenger volumes and average selling prices in Mainstream and lower average selling prices across all businesses.  Gross profit was adversely affected in Mainstream by the lower prices and increased input costs.  In our Independent operation, which accounts for 75% of passenger volumes, the impact on gross profit was principally from the lower average selling prices achieved. 

 

Overhead costs increased partly because of marketing support from hotel partners in the prior year and because of the full year impact of operating the Sears Travel agencies, within Sears retail stores.  The full integration of this licencing agreement was completed this year and we are beginning to see the benefits as the market share of our Mainstream business through Sears has increased threefold for Winter 12/13.  Mainstream controlled distribution decreased, however, we were able to increase sales of our Independent products through Sears by 70%.  Within the overall overhead increase, cost efficiencies of approximately £2m were delivered during the year and management continue to target further cost reductions principally through the adoption of simplified processes and technology based solutions.

 

The turnaround plans initiated by the new management team in 2012 are delivering significant trading improvements, particularly in the Mainstream business where we are exposed to significantly less risk in Winter 12/13 than in Winter 11/12.  The management team continue to develop plans to de-risk the business, leverage its market-leading independent travel business and simplify operations to better align the cost base with revenues.

 

Corporate

 

 

Financial (£m)

Year ended

30 September 2012

Year ended

30 September 2011

Change





Underlying loss from operations *

(23.0)

(26.8)

+14.2%





See Appendix 2 for key. 

 

The costs associated with running the corporate headquarters and central functions relating to the Group OTA, Destination Management and central IT functions reduced by £3.8m to £23.0m.  This movement reflects lower personnel costs offsetting increased costs in the OTA. 

 

 

TREASURY ACTIVITIES

 

The Group's Treasury Department has primary responsibility for treasury activities and these are reported regularly to the Board. The Group Treasury function is subject to periodic independent reviews and audits, which are then presented to the Audit Committee.

 

Treasury policies

The Group is subject to financial risks in respect of changes in fuel prices, foreign exchange rates and interest rates. It is also exposed to counterparty credit risk and availability of credit facilities within its business operations. To manage these risks, the Board has approved clearly defined treasury policies covering hedging activities, responsibilities and controls. The policies are reviewed regularly to ensure that they remain appropriate for the underlying commercial risks. The policies also define which financial instruments can be used by the Group to hedge these risks. The use of derivative financial instruments for speculative purposes is strictly prohibited.

 

Management of liquidity risk and financing

Group Treasury's primary objective is to ensure that the Group is able to meet its financial commitments as they fall due. This involves preparing a medium-term cash flow forecast using the annual budget and three-year plan and ensuring that the Group has sufficient available cash and headroom under its committed facilities. In addition, a rolling 26-week cash flow forecast is used to manage the Group's short-term cash and borrowing positions.

 

Borrowing facilities

The Group's funding arrangements include a €400m bond maturing in June 2015 and a £300m bond maturing in June 2017, both issued in April 2010. In addition, the Group has committed bank credit facilities totalling £1.1bn provided by a syndicate of banks. These comprise a £150m term loan, a revolving credit facility of £850m and an additional revolving credit facility of £200m, £89m of which was mandatorily prepaid and cancelled due to the sale of our Indian business and is now £111m.  All of these facilities are committed and mature on 31 May 2015.  As at 30 September 2012, the average remaining term of the bonds and committed bank credit facilities was 3.0 years (2011: 3.2 years).

 

 

Guarantee facilities

In addition to debt facilities, the Group has a requirement for bonding and guarantee facilities, principally for consumer protection guarantees.  The Group has £200m of committed bonding and guarantee facilities provided by seven of the syndicate banks.  During the year, these guarantee facilities were extended and now mature in May 2015.

 

Counterparty credit risk

The Group enters into fuel, foreign exchange and interest rate derivative contracts and deposits surplus cash with approved banks and financial institutions with strong credit ratings. Each counterparty has a credit limit authorised by the Board and credit risk is reduced by spreading the deposits and derivative contracts across a number of counterparties.

 

Appendix 1 - Audited statutory information with comparatives

 

Group Income Statement







Audited

Audited



Year ended 30 September 2012

Year ended 30 September 2011



Underlying results

Separately disclosed items* (note 4)

Total

Underlying results

Separately disclosed items * (note 4)

Totaltal


notes

£m

£m

£m

£m

£m

£m

Revenue

3

9,491.2

-

9,491.2

9,808.9

 -

9,808.9

Cost of providing tourism services


(7,421.5)

5.6

(7,415.9)

(7,648.9)

(62.3)

(7,711.2)

Gross profit


2,069.7

5.6

2,075.3

2,160.0

(62.3)

2,097.7









Personnel expenses


(1,108.6)

(42.6)

(1,151.2)

(1,068.2)

(55.1)

(1,123.3)

Depreciation and amortisation


(159.6)

(12.3)

(171.9)

(167.1)

-

(167.1)

Net operating expenses


(645.4)

(115.9)

(761.3)

(621.1)

(135.2)

(756.3)

Profit/(loss) on disposal of assets

4

-

17.9

17.9

 -

(4.6)

(4.6)

Impairment of goodwill and amortisation of business combination intangibles

4

-

(328.1)

(328.1)

 -

(313.0)

(313.0)









Profit/(loss) from operations

3

156.1

(475.4)

(319.3)

303.6

(570.2)

(266.6)









Share of results of associates and joint venture


2.1

-

2.1

(2.3)

 -

(2.3)

(Loss)/profit on disposal of associates


-

(0.9)

(0.9)

 -

10.3

10.3

Net investment income/(loss)


0.4

-

0.4

(4.8)

 -

(4.8)

Finance income

5

48.6

-

48.6

47.9

 -

47.9

Finance costs

5

(194.5)

(21.7)

(216.2)

(169.8)

(12.9)

(182.7)









Profit/(loss) before tax

6

12.7

(498.0)

(485.3)

174.6

(572.8)

(398.2)









Tax

7



(104.8)



(119.8)









Loss for the year




(590.1)



(518.0)









Attributable to:








Equity holders of the parent




(585.9)



 

(520.7)

Non-controlling interests




(4.2)



2.7





(590.1)



(518.0)









Loss per share (pence)

9







Basic




(67.2)



(60.7)

Diluted




(67.2)



(60.7)

 

* Separately disclosed items consist of exceptional operating items (2012: £(156.4)m; 2011: £(251.3)m); IAS 39 fair value re-measurement (2012: £11.4m; 2011: £(15.0)m); impairment of goodwill and amortisation of business combination intangibles (2012: £(328.1)m; 2011: £(313.0)m); loss on disposal of associates (2012: £(0.9)m; 2011: profit of £10.3m); and exceptional finance costs (2012: £(24.0)m; 2011: £(3.8)m).

 

 

All revenue and results arose from continuing operations.

 

Group Statement of Comprehensive Income







Audited

Audited



Year ended

Year ended



30/09/12

30/09/11



£m

£m





Loss for the year


(590.1)

(518.0)





Other comprehensive income and expense




Foreign exchange translation losses


(30.7)

(39.1)

Actuarial (losses)/gains on defined benefit pension schemes


(35.7)

41.0

Tax on actuarial (losses)/gains


12.3

(17.0)





Fair value gains and losses




(Losses)/gains deferred for the year


(31.9)

112.5

Tax on (losses)/gains deferred for the year


7.7

(31.5)

Gains transferred to the income statement


(48.4)

(34.2)

Tax on gains transferred to the income statement


12.1

9.7





Total comprehensive expense for the year


(704.7)

(476.6)









Attributable to:




Equity holders of the parent


(700.5)

(479.3)

Non-controlling interests


(4.2)

2.7

Total comprehensive expense for the year


(704.7)

(476.6)

 

Group Cash Flow Statement



Audited

Audited



Year ended

Year ended



30/09/12

30/09/11


notes

£m

£m

Cash flows from operating activities




Cash generated by operations


181.0

320.9

Income taxes paid


(29.1)

(32.3)

Net cash from operating activities

11

151.9

288.6





Investing activities




Proceeds on disposal of subsidiaries

10

122.7

-

Dividends received from associates


-

5.9

Proceeds on disposal of associates


-

3.2

Proceeds on disposal of property, plant and equipment


34.0

14.1

Purchase of subsidiaries (net of cash acquired)

10

32.4

(19.2)

Purchase of tangible assets


(96.9)

(118.5)

Purchase of intangible assets


(41.4)

(68.0)

Movement on non-current financial assets


2.4

4.7

Additional loan investment


(0.3)

(0.6)

Movement on short-term securities


(0.2)

 -

Net cash from/(used in) investing activities


52.7

(178.4)





Financing activities




Interest paid


(116.5)

(98.3)

Dividends paid

8

(32.7)

(91.8)

Dividends paid to non-controlling interests


(0.6)

(0.2)

Draw down of borrowings


869.2

485.0

Repayment of borrowings


(930.5)

(356.0)

Payment of facility set-up fees


(29.3)

(4.4)

Repayment of finance lease obligations


(23.5)

(16.7)

Proceeds from sale and finance leaseback


189.4

-

Proceeds from issue of ordinary shares


0.8

-

Net cash used in financing activities


(73.7)

(82.4)





Net increase in cash and cash equivalents


130.9

27.8





Cash and cash equivalents at beginning of year


341.7

316.8

Effect of foreign exchange rate changes


(19.1)

(2.9)

Cash and cash equivalents at end of year


453.5

341.7





Liquid assets


460.3

359.3

Bank overdrafts


(6.8)

(17.6)

Cash and cash equivalents at end of year


453.5

341.7

 

Group Balance Sheet

 



Audited

Audited



as at

as at



30/09/12

30/09/11


notes

£m

£m

Non-current assets




Intangible assets


3,158.9

3,550.0

Property, plant & equipment





Aircraft and aircraft spares


599.6

638.6


Investment property


-

18.0


Other


241.2

280.3

Investment in associates and joint venture


14.2

22.1

Other investments


11.4

13.4

Deferred tax assets


204.7

281.3

Tax assets


5.6

4.2

Trade and other receivables


146.8

153.0

Derivative financial instruments


0.2

12.6



4,382.6

4,973.5

Current assets




Inventories


30.5

38.7

Tax assets


50.1

40.2

Trade and other receivables


944.1

1,090.5

Derivative financial instruments


39.2

117.2

Cash and cash equivalents

12

460.3

359.3



1,524.2

1,645.9

Non-current assets held for sale


-

70.4

Total assets


5,906.8

6,689.8





Current liabilities




Retirement benefit obligations


(6.8)

(6.8)

Trade and other payables


(2,008.5)

(2,008.2)

Borrowings

12

(37.8)

(179.5)

Obligations under finance leases

12

(32.6)

(18.6)

Tax liabilities


(90.4)

(92.7)

Revenue received in advance


(1,094.1)

(1,167.2)

Short-term provisions


(201.5)

(187.6)

Derivative financial instruments


(68.4)

(88.2)



(3,540.1)

(3,748.8)

Liabilities related to assets held for sale


-

(35.0)





Non-current liabilities




Retirement benefit obligations


(324.0)

(324.2)

Trade and other payables


(95.4)

(42.4)

Long-term borrowings

12

(977.6)

(967.8)

Obligations under finance leases

12

(200.6)

(62.1)

Non-current tax liabilities


(1.0)

(0.6)

Revenue received in advance


(2.5)

(1.9)

Deferred tax liabilities


(89.7)

(120.9)

Long-term provisions


(214.3)

(193.5)

Derivative financial instruments


(3.7)

(9.4)



(1,908.8)

(1,722.8)

Total liabilities


(5,448.9)

(5,506.6)

Net assets


457.9

1,183.2





Equity




Called-up share capital


60.0

59.2

Share premium account


29.2

29.2

Merger reserve


1,546.5

1,617.8

Hedging and translation reserves


225.7

316.9

Capital redemption reserve


8.5

8.5

Retained earnings deficit


(1,450.0)

(871.4)

Investment in own shares


(13.4)

(13.3)

Equity attributable to equity holders of the parent


406.5

1,146.9

Non-controlling interests


51.4

36.3

Total equity


457.9

1,183.2

 

Group Statement of Changes in Equity

 The movements in equity for the year ended 30 September 2012 were as follows:

 

Opening balance at

1 October 2010

66.6

1,979.4

299.5

 (626.9)

1,718.6

24.1

1,742.7









(Loss)/profit for the year

-

-

-

 (520.7)

 (520.7)

2.7

 (518.0)

Other comprehensive income/(expense):


-

-

 (39.1)

-

 (39.1)

-

 (39.1)

-

-

-

24.0

24.0

-

24.0


-

-

81.0

-

81.0

-

81.0

-

-

 (24.5)

-

 (24.5)

-

 (24.5)

Total comprehensive income/

(expense) for the year

-

-

17.4

 (496.7)

 (479.3)

2.7

 (476.6)

-

-

-

 (3.2)

 (3.2)

-

 (3.2)

-

-

-

 (20.6)

 (20.6)

 (8.2)

 (28.8)

21.8

-

-

-

21.8

19.1

40.9

-

(366.4)

-

366.4

-

-

-

-

-

-

2.1

2.1

 (2.6)

 (0.5)

-

-

-

-

-

1.4

1.4

-

-

-

 (92.5)

 (92.5)

(0.2)

 (92.7)

At 30 September 2011

88.4

1,613.0

316.9

 (871.4)

1,146.9

36.3

1,183.2









 

 

Loss for the year

-

-

-

(585.9)

(585.9)

(4.2)

(590.1)

Other comprehensive expense:








-

-

(30.7)

-

(30.7)

-

(30.7)








-

-

-

(23.4)

(23.4)

-

(23.4)















-

-

(24.2)

-

(24.2)

-

(24.2)








-

-

(36.3)

-

(36.3)

-

(36.3)

Total comprehensive

expense for the year

-

-

(91.2)

(609.3)

(700.5)

(4.2)

(704.7)

-

-

-

2.0

2.0

-

2.0

-

(0.1)

-

-

(0.1)

-

(0.1)

0.8

-

-

-

0.8

-

0.8

-

(71.3)

-

71.3

-

-

-

-

-

-

18.8

18.8

-

18.8

-

-

-

(61.4)

(61.4)

36.7

(24.7)

-

-

-

-

-

(2.9)

(2.9)

-

-

-

-

-

(11.4)

(11.4)

-

-

-

-

-

(2.5)

(2.5)

-

-

-

-

-

(0.6)

(0.6)

At 30 September 2012

89.2

1,541.6

225.7

(1,450.0)

406.5

51.4

457.9









 

 

Notes to the Financial Information

 

1.     General information and basis of preparation

 

The financial information contained in this preliminary announcement, which comprises the Group income statement, Group statement of comprehensive income, Group cash flow statement, Group balance sheet, Group statement of changes in equity and related notes,has been prepared on a going concern basis under the historical cost convention using the accounting policies set out in the 2011 Annual Report unless otherwise stated.  The basis of preparation is consistent with the year ended 30 September 2011, unless otherwise stated. 

 

The financial information contained herein does not constitute the statutory accounts of the Group within the meaning of section 435 of the Companies Act 2006.  The statutory accounts for the year ended 30 September 2012, on which the auditors have given an unqualified opinion are expected to be posted to shareholders in January 2013.  Further copies will be available for members of the public on our website at www.thomascookgroup.com, or on application to the Group Company Secretary, Thomas Cook Group plc, 6th Floor South, Brettenham House, Lancaster Place, London WC2E 7EN.

 

 

2.      Accounting policies

 

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 30 September 2011, as described in those annual financial statements, except for the policy with respect to the presentation of impairment of goodwill and the new or amended standards and interpretations adopted in the current period.  Impairment of goodwill is now presented with amortisation of business combination intangibles as a separate category on the face of the income statement.

 

Adoption of new or amended standards and interpretations in the current year

 

In the current year, the following new or amended standards have been adopted.  Their adoption has not had a significant impact on the amounts reported or the disclosure and presentation in these financial statements, but may impact the accounting or the disclosure and presentation for future transactions and arrangements.

 

IAS 24 amendment

"Related parties" is effective for annual reporting periods commencing on or after 1 January 2011.  The amendment clarifies the definition of related parties.

IFRIC 14

amendment

"Prepayments of a minimum funding requirement" is effective for annual reporting periods commencing on or after 1 January 2011.  The amendment remedies one of the consequences of IFRIC 14, whereby an entity under certain circumstances was not allowed to recognise an asset for the prepayment of a minimum funding requirement.

 

In addition, the Group has adopted the various amendments to International Financial Reporting Standards and the related Bases for Conclusions and guidance made in the International Accounting Board's annual improvement process.  The relevant IFRSs subject to Annual Improvements 2010 and applicable to the Group include:

 

IFRS 3                    Business Combinations

IFRS 7                    Financial Instruments: Disclosure

IAS 1                       Presentation of Financial Statements

IAS 27                    Consolidated and Separate Financial Statements

IAS 34                    Interim Financial Reporting

 

New or amended standards and interpretations in issue but not yet effective

 

The following new standards, amendments to standards and interpretations that are expected to impact the Group, which have not been applied in these financial statements, were in issue, but are not yet effective:

 

IFRS 9

"Financial Instruments" is effective for annual reporting periods commencing on or after 1 January 2015.  The standard will eventually replace IAS 39 but currently only details the requirements for recognition and measurement of financial assets and financial liabilities.

 

Management does not anticipate that the adoption of these new or amended standards and interpretations will have a material impact on the Group.

 

 

3.    Segmental information

For management purposes, the Group is currently organised into six geographic operating divisions: UK, Central Europe, West Europe, Northern Europe, North America and Airlines Germany.  These divisions are the basis on which the Group reports its primary segment information.  Certain residual businesses and corporate functions are not allocated to these divisions and are shown separately as Corporate.  The primary business of all these operating divisions is the provision of leisure travel services and, accordingly, no separate secondary segmental information is provided.

 

Segmental information for these activities is presented below.

 

Year ended 30 September 2012









 

Central

 

West

 

Northern

 

North

 

Airlines




UK

Europe

Europe

Europe

America

Germany

Corporate

Total


£m

£m

£m

£m

£m

£m

£m

£m










Revenue









Segment sales

3,152.5

2,637.6

1,472.0

1,173.6

296.2

1,164.6

-

9,896.5

Inter-segment sales

(43.1)

(51.1)

(4.6)

(6.5)

-

(300.0)

-

(405.3)

Total revenue

3,109.4

2,586.5

1,467.4

1,167.1

296.2

864.6

-

9,491.2










Result









Underlying profit/(loss) from operations

12.7

50.1

2.0

100.9

(22.3)

35.7

(23.0)

156.1

Exceptional operating items

(87.9)

24.2

(35.0)

(5.5)

(18.8)

(1.0)

(32.4)

(156.4)

IAS 39 fair value

re-measurement

1.1

0.3

(0.2)

2.8

-

5.1

-

9.1

Impairment of goodwill and amortisation of business combination intangibles

(108.3)

(2.7)

(94.4)

(13.2)

(109.5)

-

-

(328.1)

Segment result

(182.4)

71.9

(127.6)

85.0

(150.6)

39.8

(55.4)

(319.3)










Share of results of associates and joint venture 






2.1

Loss on disposal of associates 






(0.9)

Net investment income








0.4

Finance income








48.6

Finance costs








(216.2)

Loss before tax








(485.3)

Tax








(104.8)

Loss for the year








(590.1)

 

 

3.    Segmental information (continued)

 

Year ended 30 September 2011



 

Restated

 

Restated

 

 

 

 

 

 




 

UK

Central

Europe

West

Europe

   Northern

    Europe

North

America

Airlines

Germany

 

Corporate

 

Total


£m

£m

£m

£m

£m

£m

£m

£m










Revenue









Segment sales

3,281.8

2,600.2

1,711.2

1,159.2

349.2

1,120.3

-

10,221.9

Inter-segment sales

(26.8)

(53.8)

(7.2)

(6.5)

-

(318.7)

-

(413.0)

Total revenue

3,255.0

2,546.4

1,704.0

1,152.7

349.2

801.6

-

9,808.9










Result









Underlying profit/(loss) from operations

34.1

72.3

37.9

106.3

10.5

69.3

(26.8)

303.6

Exceptional operating items

(110.7)

(9.0)

(31.9)

-

(8.3)

(3.3)

(88.1)

(251.3)

IAS 39 fair value

re-measurement

1.6

(0.4)

2.3

(2.8)

-

(6.6)

-

(5.9)

Impairment of goodwill and amortisation of business combination intangibles

(219.6)

(1.2)

(2.2)

(20.9)

(69.1)

-

-

(313.0)

Segment result

(294.6)

61.7

6.1

82.6

(66.9)

59.4

(114.9)

(266.6)










Share of results of associates and joint venture 






(2.3)

Profit on disposal of associates 






10.3

Net investment loss








(4.8)

Finance income








47.9

Finance costs








(182.7)

Loss before tax








(398.2)

Tax








(119.8)

Loss for the year








(518.0)

 

Inter-segment sales are charged at prevailing market prices.  The results of the Central Europe segment for the prior year have been restated to include the results of the East Europe and Russian businesses, previously reported in the former West & East Europe segment.

 

4.   Separately disclosed items

 


2012

2011


£m

£m

Affecting profit from operations



Reorganisation and restructuring costs

(80.7)

(73.7)

Costs associated with refinancing

(30.1)

-

Impairment of goodwill and other intangible assets and amortisation of business combination intangibles

(368.7)

(396.9)

IAS 39 fair value re-measurement - time value component of option contracts

9.1

(5.9)

Other

(5.0)

(93.7)


(475.4)

(570.2)




Affecting income from associates and JV



(Loss)/profit on disposal of associates

(0.9)

10.3


(0.9)

10.3




Affecting net finance costs



Write off of unamortised bank facility set-up and related costs

(23.1)

(0.9)

Other exceptional finance charges

(0.9)

(2.9)

  IAS 39 fair value re-measurement - forward points on foreign exchange cash    flow hedging contracts

2.3

(9.1)


(21.7)

(12.9)




Total separately disclosed items

(498.0)

(572.8)

 

 

Reorganisation and restructuring costs of £80.7m principally relate to the projects underway to transform the UK business (£35.8m), and turn around our underperforming businesses in West Europe (£26.9m) and North America (£15.8m).

 

Other items affecting profit from operations of £5.0m include further provision for the settlement of a dispute with HMRC (£12.2m), profit on disposal of assets of £17.9m (2011: loss of £4.6m) together with legal costs and gains and losses resulting from other exceptional operating events.  The prior year charge includes the initial provision for the dispute with HMRC (£37.6m) and the impact of balance sheet reviews in the UK and France (£63.1m), partially offset by a net gain on pension plan curtailment (£24.5m).

 

Following poor trading and reviews by new management in Canada and France during the first half of the year and the decision to sell the Group's Indian business, goodwill impairment losses totalling £299.6m were recognised in the West Europe (£94.4m), North American (£109.2m) and UK segments (£96.0m).  The Group also wrote down the carrying value of purchased and internally generated computer software, prepaid marketing and licencing costs which were assessed as generating no future economic benefit for the Group, giving rise to a total impairment loss of £40.6m.  The software was considered to be impaired as part of the Group's review of its ecommerce offering.  The marketing and licencing costs were sunk costs in relation to agreements to sell ticket and accommodation packages for the 2012 Olympic and Paralympic games, which management consider to have become onerous during the year.  The sale of packages themselves generated a trading profit of £9.6m, which has been included within other separately disclosed items, with an overall net loss of £17.2m recognised.

 

Amortisation of business combination intangibles in the year was £28.5m (2011: £34.3m).

 

The £0.9m loss on disposal of associates relates to the disposal by Central Europe of a minority stake in one Egyptian hotel company.

 

 

5.     Finance income and costs

 


2012

2011


£m

£m

Underlying finance income



Income from loans included in financial assets

0.4

0.2

Other interest and similar income

6.8

5.3

Expected return on pension plan assets

41.4

42.1

Fair value gains on derivative financial instruments

-

0.3


48.6

47.9




Underlying finance costs



Interest payable

(124.7)

(97.5)

Finance costs in respect of finance leases

(5.4)

(6.4)

Interest cost on pension plan liabilities

(54.6)

(54.7)

Discounting of provisions and other non-current liabilities

(9.8)

(11.2)


(194.5)

(169.8)




Exceptional finance costs



Write off of unamortised bank facility set-up and related costs

(23.1)

(0.9)

Other exceptional finance charges

(0.9)

(2.9)


(24.0)

(3.8)




IAS 39 fair value re-measurement



Forward points on foreign exchange cash flow hedging contracts

2.3

(9.1)

 

 

6.     Loss before tax

 

Loss before tax for the year has been arrived at after charging/(crediting):

 


2012

2011


£m

£m

Separately disclosed items affecting profit from operations (see note 4)

475.4

570.2

Including:

Impairment of goodwill

299.6

278.7


Impairment of other non-current intangible assets

22.6

83.9


Amortisation of business combination intangibles

28.5

34.3

Depreciation of property, plant and equipment - owned assets

100.0

103.8

Depreciation of property, plant and equipment - held under finance leases

26.3

23.0

Amortisation of intangible assets

45.6

40.3

Cost of inventories recognised as expense

70.4

42.5

Loss/(profit) on disposal of associates

0.9

(10.3)

Operating lease rentals payable - hire of aircraft and aircraft spares

103.1

128.5

Operating lease rentals payable - other

121.5

112.2

Net foreign exchange (gains)/losses

(19.9)

4.4

Personnel expenses

1,151.2

1,123.3

Auditors' remuneration

6.0

5.2

 

 

7.     Tax

 




 

Analysis of tax charge

2012

2011

 


£m

£m

 

Current tax



 


corporation tax charge for the year

33.8

35.1

 


adjustments in respect of prior periods

(6.9)

(6.5)

 



26.9

28.6

 

Deferred tax





tax charge for the year

51.9

73.8

 


adjustments in respect of prior periods

26.0

17.4

 



77.9

91.2

 




 

Total tax charge

104.8

119.8

 

 

In addition to the amount charged to the income statement, deferred tax relating to actuarial losses on pension schemes and the fair value of derivative financial instruments of £32.1m has been credited directly to equity (2011: charge of £38.8m).  UK corporation tax is calculated at 25% (2011: 27%) of the estimated assessable loss for the year.  Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. 

 

Surplus losses not recognised in deferred tax of £1,933.9m (2011: £1,427.3m) are available in the UK, France and Germany for offset against future profits.

 

 

8.     Dividends

 

On 29 September 2011 the Directors announced that they would not propose any further dividend payments whilst the Group rebuilds its balance sheet.

 

The following dividends were deducted from equity in the prior year:

 


2011


£m



Final dividend paid for 2010 of 7p per share

59.8

Interim dividend for 2011 of 3.75p per share

32.7


92.5

 

9.     Earnings per share

 

The calculations for earnings per share, based on the weighted average number of shares, are shown in the table below.  The weighted average number of shares shown excludes 3.7m shares held by the employee share ownership trusts (2011: 3.8m).

 

 





2012

2011




Basic and diluted loss per share

£m

£m

Net loss attributable to equity holders of the parent

(585.9)

(520.7)





millions

millions

Weighted average number of shares for basic loss per share

871.9

858.2

Weighted average number of shares for diluted loss per share

871.9

858.2





pence

pence

Basic loss per share

(67.2)

(60.7)

Diluted loss per share

(67.2)

(60.7)








2012

2011




Underlying basic and diluted earnings per share

£m

£m

Underlying net (loss)/profit attributable to equity holders of the parent **

(32.5)

100.3





millions

millions

Weighted average number of shares for basic earnings per share

871.9

858.2

Effect of dilutive potential ordinary shares - share options *

-

1.9

Weighted average number of shares for diluted earnings per share

871.9

860.1





pence

pence

Underlying basic (loss)/earnings per share

(3.7)

11.7

Underlying diluted (loss)/earnings per share

(3.7)

11.7

 

* Awards of shares under the Thomas Cook Performance Share Plan, Buy As You Earn Scheme, Restricted Share Plan and Co-Investment Plan will be satisfied by shares held in trust and therefore are potentially dilutive.  The remainder of the share schemes will be satisfied by the purchase of existing shares in the market and will therefore not result in any dilution of earnings per share.

 

**Underlying net profit attributable to equity holders of the parent is derived from the pre exceptional profit before tax for the year ended 30 September 2012 of £12.7m (2011: £174.6m) and deducting a notional tax charge of £49.4m (2011: £71.6m).

 

 

10.  Acquisitions and disposals

 

Retail travel joint venture between Thomas Cook Group, The Co-operative Group and Midlands Co-operative

 

On 4 October 2011 the Group concluded the merger of its high street travel agency and foreign exchange business with those of The Co-operative Group and Midlands Co-operative with the aim of combining two of the industry's strongest brands to reach more customers and unlock synergy benefits.  The Group acquired 66.5% of the new joint venture company with The Co-operative Group holding 30% and Midlands Co-operative Society holding 3.5%.

 

Details of the net assets acquired are set out in the table below:

 

 




Fair value


as at acquisition


date


£m

Net assets acquired


Intangible assets

23.4

Property, plant and equipment

10.7

Trade and other receivables

26.2

Cash and cash equivalents

39.4

Trade and other payables

(136.4)

Deferred tax liability

(1.1)

Provisions

(4.9)


(42.7)

Less: non-controlling Interest

13.3


(29.4)

Goodwill

80.5

Total consideration

51.1



Satisfied by:


Non-controlling interest in the joint venture

50.0

Contingent consideration

1.1


51.1

 

 

 

The purchase price of each asset component of the acquisition represents its fair value, based on management's best estimates.  The amount indicated above for trade and other receivables represents the fair value of the acquired receivables and is equal to the gross contractual cash flows, all of which are expected to be recoverable.

 

The contingent consideration represents the fair value of the Group's right and obligation to acquire the remaining shareholding at a value determined by profitability in 2016 or beyond and its obligation to ensure that the joint venture partners receive a minimum aggregate amount of dividend over the first five years of the joint venture's operation.

 

The acquired business contributed revenue of £110.5m and a net loss of £6.0m to the Group for the period from acquisition to 30 September 2012.

 

The goodwill of £80.5m reflects anticipated benefits and synergies expected by creating the UK's largest high street travel network and increased in-house distribution of Thomas Cook Group's own travel products.

 

The non-controlling interest represents their proportionate share of the identifiable net liabilities of the acquired business.

 

 

10.  Acquisitions and disposals (continued)

 

 

Tour Vital GmbH and Panameo GmbH

 

On 1 October 2011 the Group acquired 100% of the share capital of Tour Vital GmbH and Panameo GmbH, two Germany based tour operators specialising in holidays with an accompanying doctor and activity experience orientated holidays, respectively.  These acquisitions will allow the Group to expand into new product sectors.  The consideration was £5.1m of which £2.3m has been paid in cash and £2.8m has been recognised in relation to an earn out to be settled by 1 April 2016.

 

Details of the net assets acquired are set out in the table below:


 

Fair value


as at acquisition date


£m

Net assets acquired


Intangible assets

5.2

Trade and other receivables

5.3

Cash and cash equivalents

1.6

Trade and other payables

(7.9)

Provisions

(0.1)

Deferred tax liability

(1.5)


2.6

Goodwill

2.5

Total consideration

5.1



Satisfied by:


Cash paid

2.3

Contingent consideration

2.8


5.1

 

The purchase price of each asset component of the acquisition represents its fair value, based on management's best estimates.  The amount indicated above for trade and other receivables represents the fair value of the acquired receivables and is equal to the gross contractual cash flows, all of which are expected to be recoverable.

 

The acquired businesses contributed revenue of £30.2m and net loss of £1.0m to the Group for the period from acquisition to 30 September 2012.

 

The goodwill of £2.5m reflects the anticipated benefits arising from the acquisition of two specialist tour operators.

 

10.  Acquisitions and disposals (continued)

 

Adjustments to acquisitions made in the prior year

 

Algarve Tours - Agencia de Viagens e Turismo, Lda

On 20 September 2011, the Group acquired 100% of Algarve Tours, an incoming agency based in Portugal for a cash consideration of £1.6m, of which £0.4m was paid in the current year.  The fair value of net assets acquired was £1.0m, including £1.4m of cash and cash equivalents, and goodwill of £0.6m has been recognised, including the current year reassessment impact of £(0.5)m.  The Directors do not consider the fair value adjustments to be material to the Group. Consequently the prior year comparatives have not been restated as required by IFRS3 (revised).

 

ITC Travel Investments SL

During the year the fair value adjustments related to the ITC Travel Investments SL acquisition were finalised.  The Directors do not consider the fair value adjustments to be material to the Group.  Consequently the prior year comparatives have not been restated as required by IFRS3 (revised).

 

The restatements would have had the following impact as at the date of acquisition (12 July 2011) and as at 30 September 2011:


 At date of

As at


acquisition

30/09/11


£m

£m

Balance sheet



Intangible assets



                 Increase in goodwill

8.0

8.2

Decrease in trade and other receivables

(7.7)

(7.9)

Increase in trade and other payables

(0.3)

(0.3)


-

-

 

 

 

Net cash inflow from acquisitions


Current

year

acquisitions

£m

 

Gold

Medal

£m

 

Algarve

Tours

£m

 

Think W3

Ltd

£m

 

 

Hotels4U

£m

 

 

Total

£m

 







Cash consideration for shares

(2.3)

-

(0.4)

-

-

(2.7)

Payment of contingent and deferred consideration

 

-

 

(4.0)

 

-

 

(2.5)

 

(0.8)

 

(7.3)

Cash and cash equivalents acquired (net of overdraft)

 

41.0

 

-

 

1.4

 

-

 

-

 

42.4


38.7

(4.0)

1.0

(2.5)

(0.8)

32.4

 

 

10.  Acquisitions and disposals (continued)

 

Disposal of businesses during the year

 

HCV

On 27 July 2012, the Group completed the sale of its interest in Hoteles Y Clubs Vacaciones S.A. (HCV) to IBEROSTAR Hoteles y Apartamentos S.L., the hotel division of GRUPO IBEROSTAR.  HCV indirectly owns five hotels and one golf club and operates a second golf club in Spain.

 

The Group received gross cash proceeds of €71.7m (£57.3m) for its shareholding.

 

The assets and liabilities related to HCV form a disposal group, however, HCV is not a discontinued operation at 30 September 2012, as it does not represent a major line of business.

 

Financial information related to the disposal is set out below:

 

 


£m

Consideration received, net of costs

57.0

Less carrying amount of net assets disposed of

(30.9)

Less options over minority interest derecognised

10.9

Less share of translation reserve

(0.2)

Less non-controlling interests disposed of

2.9

Profit on disposal

39.7



  Net cash inflow on disposal:

Consideration received, net of costs

57.0

Less cash and cash equivalents balance disposed of (net of overdraft)

(2.2)

Net cash inflow from disposal

54.8

 

Thomas Cook India

On 21 May 2012, the Group announced that it had agreed to sell its 77% interest in Thomas Cook (India) Limited ("TCIL") to Fairbridge Capital (Mauritius) Limited, a subsidiary of Fairfax Financial Holdings Limited.

 

The disposal was completed on 14 August 2012.  The Group received gross cash proceeds of INR 8,174m for its shareholding; equivalent to INR 50 per share.  Under the terms of the sale agreement the Group granted Fairbridge a licence over the Thomas Cook brand for 12.5 years in the countries in which TCIL currently operates.

 

The assets and liabilities related to TCIL form a disposal group, however, TCIL is not a discontinued operation at 30 September 2012, as it does not represent a major line of business.

 

During the current year the assets and liabilities of the disposal group were tested for impairment and remeasured to the lower of carrying amount and fair value less cost to sell.  This resulted in goodwill being written down by £96.0m.

 

Financial information relating to the disposal is set out below:

 


£m

Consideration received, net of costs

85.0

Less carrying amount of net assets disposed of

(92.4)

Less share of translation reserve

(11.6)

Less non-controlling interests disposed of

11.4

Loss on disposal

(7.6)

 



  Net cash inflow on disposal:

Consideration received, net of costs

85.0

Less cash and cash equivalents balance disposed of (net of overdraft)

(24.0)

Net cash inflow from disposal

61.0

 

 

Reisbureau Neckermann Nederland

On 1 October 2011, the Group completed the sale of its retail stores business in the Netherlands.  The net cash proceeds on disposal of the business were £4.6m.

 

Explorers

On 30 March 2012, the Group disposed of the Explorers Hotel in France.  The net cash proceeds on disposal were £2.3m.

 

 

11.  Note to the cash flow statement

 


2012

2011


£m

£m

Loss before tax

(485.3)

(398.2)

Adjustments for:




Finance income

(48.6)

(47.9)


Finance costs

216.2

182.7


Net investment (income)/loss

(0.4)

4.8


Loss/(profit) on disposal of associates

0.9

(10.3)


Share of results of associates and joint venture

(2.1)

2.3


Depreciation of property, plant and equipment

126.3

126.8


Amortisation of intangible assets

45.6

40.3


Amortisation of business combination intangibles

28.5

34.3


Impairment of assets

323.4

372.5


Write up in value of investment property

-

(1.0)


(Profit)/loss on disposal of assets

(17.9)

4.6


Share-based payments

2.0

(3.2)


Other non-cash items

-

(24.5)


Increase/(decrease) in provisions

23.1

(26.2)


Income received from other non-current investments

0.4

0.5


Additional pension contributions

(22.6)

(21.0)


Interest received

5.8

5.6

Operating cash flows before movement in working capital

195.3

242.1




Movement in working capital

(14.3)

78.8




Cash generated by operations

181.0

320.9

Income taxes paid

(29.1)

(32.3)




Net cash from operating activities

151.9

288.6

 

Cash and cash equivalents, which are presented as a single class of assets on the face of the balance sheet, comprise cash at bank and other short-term highly liquid investments with maturity of three months or less.

 

12.  Net debt

 










 

 

 

 









Other non-



 

At 1/10/11

Cash

flow

 

Disposals

Exchange

movements

cash

changes

 

At 30/09/12


£m

£m

£m

£m

£m

£m

Liquidity







Cash and cash equivalents

359.3

120.9

-

(19.9)

-

460.3


359.3

120.9

-

(19.9)

-

460.3



 

 

 

 


Current debt


 

 

 

 


Bank overdrafts

(17.6)

10.0

-

0.8

-

(6.8)

Short-term borrowings

(89.1)

65.6

18.3

4.6

-

(0.6)

Loan note

(4.0)

4.0

-

-

-

-

Current portion of long-term borrowings

(68.8)

73.9

-

1.9

(37.4)

(30.4)

Borrowings classified as held for sale

(22.1)

(0.7)

21.1

1.7

-

-

Obligations under finance leases classified as held for sale

(0.1)

0.1

-

-

-

-

Obligations under finance leases

(18.6)

22.5

0.1

1.6

(38.2)

(32.6)


(220.3)

175.4

39.5

10.6

(75.6)

(70.4)

Non-current debt


 

 

 

 


Long-term borrowings

(967.8)

(48.1)

-

37.0

1.3

(977.6)

Obligations under finance leases

(62.1)

0.9

0.3

11.5

(151.2)

(200.6)


(1,029.9)

(47.2)

0.3

48.5

(149.9)

(1,178.2)

Total debt

(1,250.2)

128.2

39.8

59.1

(225.5)

(1,248.6)

Net debt

(890.9)

249.1

39.8

39.2

(225.5)

(788.3)

 

 

13.  Subsequent events

 

There were no events between the balance sheet date and the date of approval of this financial information that required disclosure.

 

Appendix 2 - Key performance indicators definitions

 

* Underlying profit from operations is defined as earnings before interest and tax, and has been adjusted to exclude all separately disclosed items.  It also excludes our share of the results of associates and joint venture and net investment income. 

 

** Underlying operating profit margin is underlying profit from operations (as defined above) divided by external revenue, except in the case of the Airlines Germany segmental key performance analysis where total revenue has been used as the denominator to more accurately reflect the trading performance. 

 

† Passengers in the case of UK, Northern Europe and North America represents the total number of passengers (in thousands) that departed on a Thomas Cook Group plc holiday in the year.  It excludes customers who booked third-party tour operator products through Thomas Cook retail channels and customers who booked transfers only.  For Central and West Europe, passengers represents all tour operator passengers departed in the year, excluding those on which only commission is earned.

 

Mass Market Risk passengers in UK, Northern Europe and North America represent those holidays sold where the business has financial commitment to the product (flights and accommodation) before the customer books.  The analysis excludes accommodation only passengers.

 

†† Capacity for UK, Northern Europe and North America represents the total number of holidays available to sell.  This is calculated by reference to committed airline seats (both in-house and third-party).

 

In the case of Airlines Germany, capacity represents the total number of available seat kilometres (ASK).  ASK is a measure of an airline's passenger carrying capacity and is calculated as available seats multiplied by distance flown.

 

††† For UK, Northern Europe and North America, load factor is a measure of how successful the tour operator was at selling the committed capacity.  Load factor is calculated by dividing the departed mass market passengers in the year (excluding accommodation only passengers) by the capacity in the year.

 

For Airlines Germany, seat load factor is a measure of how successful the airline was at selling the available capacity. This is calculated by dividing the revenue passenger kilometres (RPK) by the available seat kilometres (ASK - see capacity definition above) and is the recognised IATA definition of load factor used for airlines.  RPK is a measure of the volume of passengers carried by an airline.  One RPK is flown when a passenger is carried one kilometre.

 

# Average selling price for UK, Northern Europe and North America represents the average selling price (after discounts) achieved per mass market passenger departed in the year (excluding accommodation only passengers).  For Central and West Europe, average selling price represents the average selling price (after discounts) achieved per passenger departed in the year.

 

## Brochure mix is defined as the number of mass market holidays (excluding seat and accommodation only) sold at brochure prices divided by the total number of holidays sold (excluding seat and accommodation only) and is a measure of how successful a business was at selling holidays early.  Holidays are generally discounted closer to departure.

 

‡‡ Controlled distribution is defined as the proportion of passengers booking through our in-house retail shops, call centres and websites.  Internet distribution is a sub-set of controlled distribution and is defined as the proportion of passengers booking through in-house websites.  Both performance indicators are calculated on departed passengers in the year.

 

‡‡‡ Sold seats in Airlines Germany represents the total number of one-way seats sold on aircraft (in thousands) that departed in the year.

 

### Yield in Airlines Germany represents the average price per seat departed in the year.

 

 


 

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