Thomas Cook Regulatory News (TCG)

Alice Marsden

Group General Counsel and Company Secretary

020 7294 7007

Robin Tozer

Group Head of Corporate Communications

020 7294 7031

Principal risks

Mitigation

Opportunities

1

Our New Operating Model ("NUMO") initiatives fail to deliver our strategic and operational targets.

· NUMO programme delivery is receiving significant management attention:

· Monthly Group Management Committee meetings attended by senior management including CEO and CFO, during which progress and issues are discussed and addressed; and

· Financial benefits and KPIs are incorporated in the FY17 FY19 business plan and delivery is tracked as part of the business review process.

To deliver a best in class operating model which will provide a competitive advantage in our market.

2

Inability to consistently meet customer expectations may have an adverse impact to Thomas Cook market share*.

· Our Customer Experience Roadmap, which we will continue to implement over the next four years, has strengthened our focus on customer excellence and will improve our ability to respond to shifts in consumer behaviours.

· As part of the Customer Experience Roadmap we have already implemented the following key initiatives:

· The "24-hour hotel satisfaction promise" currently applicable within 1,500 differentiated hotels has had positive customer feedback;

· The training curriculum provided to our overseas destination representatives has been extended and now includes additional focus on customer service and health and safety; and

· We have enhanced our customer satisfaction measures:

· Net Promoter Score (NPS) is implemented and fully embedded into management bonus objectives; and

· Customer Survey Questionnaires ("CSQs") have been improved to enable in‑destination performance monitoring.

Deliver the best possible customer experience today offering value, flexibility and choice while innovating to meet the changing future needs of our customers.

3

Failure to develop a diverse product portfolio may have an adverse impact on our ability to improve the customers' experience of Thomas Cook holidays*.

· There has been significant investment into our hotel portfolio in order to achieve a differentiation, which delivers the customers a unique holiday experience and allows the tour operator to earn a higher margin with branded hotels including:

· Refurbishment of Hi Hotels;

· Launch of our new-brand hotel Casa Cook in May 2016; and

· Opening Sunwing Ocean Beach Club hotel in Gran Canaria in December 2015.

· We have signed a strategic hotel sourcing partnership with Webjet Limited which will outsource our "complementary" portfolio allowing a greater focus on our "differentiated" products.

Diverse product portfolio enabling us to match product offerings to change in customer preferences and demand.

4

Failure to achieve growth in our digital distribution channel may have an adverse impact on our market share, profitability and future growth*.

· In recognising changes to consumer behaviours, we are moving from a brochure/retail focus to a digital mobile first approach to selling holidays.

· Our successful migration to a responsive web platform (OneWeb) in the UK has led to double digit growth in our online channels. We are now rolling out OneWeb in Belgium and The Netherlands, where we expect a similar conversion uplift.

· In Continental Europe, we have upgraded our current platform (Golden Gate) and rolled it out in Germany, Switzerland and Austria. Eastern countries will follow between now and next year. The web sales uplift has been extremely encouraging. In the Nordic countries where 80% of our sales are online, we are now redesigning our website with a focus on mobile expecting further benefits in markets where mobile has overtaken desktop.

· Our web sales channel allows us to scale our distribution which reduces our cost base and is aligned to the way our customers research and purchase their holidays.

Flexible distribution mode which reduces our cost base and is aligned to the way our customers research and purchase their holidays.

5

Failure to recruit or to retain the right people at the right time will lead to a lack of capability or capacity to enable the implementation of our business strategy.

· Our annual engagement survey allows us to assess employee motivation and commitment and identify actions we need to enable talent retention.

· Our high potential talent have been identified by using a matrix of performance and potential. Those identified have targeted development plans based on their career aspiration.

· Graduate programmes have been introduced in 2016 in the UK and Group Airline businesses to further strengthen future succession. Further programmes will commence in 2017 to specifically targeted areas.

· A Group Leadership Development programme for direct reports to Senior Leaders has been developed to commence in 2017, targeting those identified as having potential for senior leadership roles.

Employing the best people to continuously develop and evolve strategy and ensure ongoing efficiency and operation of the business.

6

IT architecture is unable to support the needs of the business.

· Our service delivery process ensures demands from the business are addressed in a timely manner.

· There are weekly reviews between business unit IT Heads to discuss service issues and ensure preventative measures are implemented.

· We have a robust governance process that enables IT to align with and meet the needs of the business.

To develop a flexible, future proof IT Operating Model.

7

Information security and cyber threats are currently a priority across all industries and remain a key Government agenda item. The Group recognises that we have high risk exposure in this area.

· Our Information Security Steering Group continues to provide oversight of the cyber risk framework and ensures appropriate mitigations are in place.

· Following completion of the risk assessment of our business critical systems, we have developed a comprehensive security improvement programme. Implementation of this programme is well progressed to ensure protection from cyber-based attacks and compliance with appropriate legislation.

To become thought leaders in developing a strategy to combat emerging cyber threats.

8

A decision or a course of action is perceived negatively by the media, investors and/or general public, which in turn impacts the corporate reputation of the Group and its share price*.

· In the past year, we have strengthened our Group communications function, putting in place an experienced in-house team across corporate communications, internal communications and public affairs.

· The team has implemented new systems and processes to manage, both reactively and proactively, potential issues of reputational impact on the business. This includes a new out-of-hours function and improved monitoring of social media, print and broadcast, and political developments.

· The communications team has clear protocols in place in the event of a crisis, working closely with all relevant areas of the business, including investor relations, customer relations, legal and operational teams to prepare timely responses across all necessary channels.

· The Group Communications Director also sits on the Group Management Committee, ensuring that reputational risk and opportunity is considered in all important decision making.

Promotion of the business and enhancement of brand value through positive media attention.

9

Cash generation is insufficient to strategically manage debt repayment and/or dividend payment*.

· We proactively monitor our short, medium and long-term cash requirements and liquidity headroom.

· Our cost-out and profit-improvement initiatives are successfully contributing to cash availability.

· We continue to monitor all opportunities to manage liquidity requirements and maintain an adequate level of contingency as well as seeking to lower the average cost of debt over the medium term.

Generate cash to finance the Company's strategic objectives.

10

Due to the nature of its business, the Group will always be exposed to a risk of a health and safety incident that may impact our customers or colleagues together with associated reputational damage.

· We operate a robust safety management system ("SMS") to ensure the implementation of our Health and Safety Policies and procedures.

· The Group Health, Safety, and Security team implement the SMS, which is further supported by a reputable external specialist ("SGS").

· The Group regularly reviews and updates its safety and security training programmes to ensure they continue to reflect best practice.

· Our Health and Safety Audit programme, which is delivered by external specialists, measures standards and includes a clear escalation and decision process. The programme also includes a robust follow up process. We have increased the frequency of auditing of our differentiated hotels and the scope of the audits.

· The assessment of Health and Safety risks is inbuilt into daily management routines and is monitored by a structure of health and safety committees that are in turn overseen by a corporate Health, Safety & Environmental Committee with Board level oversight. The report of the Health, Safety & Environmental Committee can be found on page 64.

To provide class- leading health and safety programmes for the benefit of our customers and employees.

11

A significant decline in customer demand due to the growing threat of terrorist attacks in our key tourist destinations, may lead to decrease revenue*.

· Our flexible business model allows us to align our committed capacity to fluctuating demand. We continue to rebalance our destination mix and add new destinations to our portfolio (e.g. Croatia and Italy) thereby mitigating the impact of geopolitical events.

· We continue to follow the guidance of the appropriate state departments relevant to our source market.

To deliver proactive capability to pre-emptively manage emerging geopolitical uncertainties.

12

The decision for the UK to exit the EU has a detrimental impact on the Group's operations.

· The Brexit Working Group has been established to ensure all potential implications have been sufficiently considered and that we maintain on-going dialogue with the UK Government as exit plans gain clarity.

To positively leverage the outcome of Brexit to enable future growth.

13

Failure to comply with regulatory and legislative requirements in the legal jurisdictions where Thomas Cook operates.

· We have a dedicated Legal Team that endeavours to ensure full compliance with mandatory regulatory requirements and which monitors all applicable current and emerging regulatory developments in our source markets. The team receives regular training to provide awareness of critical changes in relevant legislation or case law.

· Our Code of Conduct is backed by a comprehensive training programme to ensure that it is fully embedded across the Group.

· Our Legal Risk Database enables communication and timely analysis of all risks related to regulatory and legislative requirements.

Instilling values and positively influencing and supporting all of our key stakeholders.