Thomas Cook Regulatory News (TCG)

Alice Marsden

Group General Counsel and Company Secretary

020 7557 6400

Matthew Magee

Head of Corporate Communications

020 7294 7059

Principal risks

Mitigation

Strategic initiatives

Fully implementing our strategy for profitable growth remains our focus, however, there is a risk that we cannot fully achieve the change required due to scale of change to our business and operations and the complexity of our underlying processes and systems.*

· Supported by the creation of a new hotel platform, we continue to expand our own brand hotel offering, to streamline our core product portfolio and to implement the operational change to fully benefit from our strategic partnership with Expedia

· We continue to develop our TC Money business, ancillary offering, service levels and our digital channels to ensure we meet the demands of our customers

· We have embedded a standalone project management office, reporting to the Executive Committee, to oversee a significant efficiency programme, which forms the operational efficiency objective that underpins our strategy. The programme involves simplifying processes and systems, which support our margin improvement initiatives

· Bi weekly Executive Committee meetings attended by senior management during which progress and issues are discussed and addressed

· Operational initiatives are linked to financial benefits and KPIs incorporated in our business plan. Delivery of operational change and the benefits achieved are tracked as part of the business review process

Customer satisfaction

Providing a great customer experience remains at the heart of our strategy and we believe that this is one of the key factors that differentiates us from our competitors in increasingly competitive markets. There is a risk that we are unable to meet the expectations of our customers and thus attract new or retain existing customers, which may have an adverse impact on our market share and profitability.*

· Senior management continue to focus on ways to improve the experience that our customers have with us, to encourage our people to focus on customer excellence and to develop products that will attract and retain customers 

· We proactively monitor our Net Promoter Score (NPS), both at a hotel and airline level, to identify and address areas for improvement at each stage of the customer journey (factors affecting Airline NPS are further discussed on page 60)

· We have implemented our InMoment tool, which provides all our people with customer feedback at the individual hotel level. Feedback is incorporated into action plans to promote positive behaviours and to investigate areas of customer concern

· Our organisational values are aligned with our Customer Promises of Quality, Service, and Reliability and all employees are required to include customer related objectives in their annual objectives 

· The 24-Hour Hotel Satisfaction Promise has been extended to all of our differentiated properties and has been re-launched on our websites to highlight this key value add to our customers

· In FY19, we plan to launch 'Express Check In' to our range of innovative holiday features. In FY18, we launched 'Choose Your Room', 'Choose Your Favourite Sunbed' and 'Late Check-Out' in selected properties; all of which were well received by our customers

· Our CRM tool, CView was launched in FY18. This tool allows us to better understand our customers. We will use this information to enhance the experience our customers have with us

Quality of our productsand services

We strive to offer a choice of quality products and services that appeal to customers. There is a risk that our products and services do not meet the expectations or demands of new or existing customers.*

· We have allocated significant extra resources to our own-brand hotel portfolio and have recruited additional highly experienced people in order to grow the business

· We have launched a new hotel brand, 'Cook's Club', aimed at younger discerning travellers, to sit alongside our premium Casa Cook brand. We use customer insight and analysis of future trends as the basis for the design of our own brand hotels and to shape the customer experience

· We continue to work closely with our strategic partner, LMEY Investments, to source and develop high quality hotels through our new hotel platform

· We continue to refine the hotels within our differentiated portfolio. This allows us to focus our resources on quality hotels that will deliver a better experience for our customers 

· We now provide our customers with a choice of over 150,000 hotels in global city and European domestic locations as well as sun and beach locations not in our core portfolio. This has been achieved by implementing the operational changes under our strategic partnerships with Expedia and Webjet

· We continue to provide innovative ways for customers to personalise their experiences

· We will drive growth and uptake of our financial services products in digital and offline. These products provide our customers with lower fees on foreign currency transactions and greater benefits

Digital strategy

We aim to make our expanded product offering and services available and easily accessible to our customers in their preferred digital channels. There is a risk that our market share, profitability and future growth will be adversely affected by the inability to develop our digital channels fast enough to meet changes in consumer behaviour.*

· We continue to invest in our websites and in technology to allow us to service customers seamlessly across all channels. Through 2018, we have experienced stronger growth in web bookings across our major markets

· We regularly undertake customer research to better understand what our customers want and how they interact with our digital channels. The results of our research are incorporated into our development roadmap

· Our web platforms in the UK, Northern Europe, Belgium and The Netherlands continues to deliver strong bookings growth and with the continuous development of 'MyAccount' customers have access to a far greater range of products and services to personalise their holidays

· We will invest further in our mobile channels to enhance search functionality and to become more 'digital in destination'. Our Companion App enables our customers to personalise their experience with us 

· We have implemented a central content hub that will distribute hotel images and content to all our markets at a consistent standard and at a more efficient cost base. We will invest further in this in the coming year

Talent

We are reliant on being able to attract the right talent in order to deliver our transformation agenda. There is a risk that the inability to attract and retain talent at all levels of the organisation will lead to a lack of capability or capacity to enable us to the deliver the change required by our business strategy.

· We have strengthened our Executive Committee in the past year with the appointment of an experienced Chief Hotels Officer 

· Our Group Leadership Development programme for direct reports to Senior Leaders commenced in 2017, targeting those identified as having potential for senior leadership roles

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

· We use our annual engagement survey to assess employee commitment and to identify actions to retain talent and develop our customer focused culture

· Our Graduate programmes continue to attract a high volume of applications since their introduction in the UK and Group Airline businesses in 2016 

· We have invested in our in house Learning and Development resources in order to give our people greater access to learning opportunities

· We have a pay for performance culture that is designed to drive performance and provide meaningful reward for delivery of our objectives

Technology

We are increasingly dependent on technology to reduce costs and to enhance customer service through development of new functionality and applications. There is a risk that operations would be adversely affected if our IT infrastructure is unable to support the needs of the business.

· We have a robust process in place to assess proposed development projects and to prioritise resources to projects that will both support our strategic agenda and provide high return on investment

· We have strengthened our oversight of development projects through the roll out of dedicated project management software

· We continue to enhance our IT operations and service delivery processes to ensure that we can support new technology required by the business 

· We have begun the implementation of a programme to consolidate our technology estate and simplify processes within our tour operator business, which will lead to a reduction in operational expenditure and facilitate more focused capital expenditure

· We have developed IT programs that address the functional aspects of technology required to support and enhance our customer service and an infrastructure program that addresses our network, data centre and end user compute capabilities that underpin this functionality

Cyber security

There is high level of awareness across industries of the threat posed by cyber criminals and of the reputational damage caused by the loss of personal data. Due to the nature of its business, Thomas Cook necessarily processes a high volume of personal data and there is a risk of significant brand and reputation damage and financial loss should information security be compromised. 

· We continue to build upon on our robust Cyber Security Strategy based on five objectives: Protect, Detect, Deter, Respond, and Recover 

· We have successfully implemented a range of people, process and technical controls in line with our Cyber Security Strategy

· All employees are required to complete annual training in data protection in order to raise awareness of good cyber security practice

· Our Cyber Security Steering Group continues to meet monthly to monitor the progress of the Cyber Security Strategy implementation and to make recommendations for any additional mitigations to the Executive Committee. The Audit Committee also receives regular updates regarding progress on cyber risk mitigation

· We have implemented the changes required by the General Data Protection Regulation. This included a project to identify and map all the personal data processing systems used across the group and to create a central record of our data processing activities. We have also implemented a remediation programme to improve controls in our highest risk systems and to educate our people on the importance of data protection 

Disruption to airline operations

The success of our Group Airline business depends on our ability to effectively manage our fleet by ensuring we maintain the right number and types of aircrafts and by operating those aircrafts to deliver a high-quality, on-time and cost-efficient service for our customers. 

Inability to operate the required number and types of aircraft in our fleet may lead to missed revenue or reduced margins. Inability to operate the fleet effectively may lead to customer dissatisfaction, cost increases and reduced profitability. 

· Mitigations were implemented in FY18 to respond to disruption related to our increased flight capacity and increased pressure on our operational resilience: establishment of dedicated response teams, closer collaboration with key suppliers, proactive use of sub-charters and more efficient use of aircraft reserves

· We will implement additional mitigations in FY19 to further improve our operations, customer experience and NPS: more proactive and earlier planning, increase aircraft reserve capacity, long-term maintenance planning, interface optimization between the individual airlines and the maintenance function, less reliance on third party sub-charters 

· We are continuing the implementation of a programme aimed at achieving efficiencies in the maintenance, flight operations, ground operations, operation control and flight dispatch departments through the adoption of a more streamlined organisational structure, which will have a positive effect on our ability to prevent operational disruptions and to allocate resources more effectively and efficiently

· The fleet Management Team continuously assesses the status of our fleet; forecasting potential needs and managing dismissal and intake of aircraft. Our fleet strategy also involves the structuring of our lease plans over a long period of time. This approach allows us to refinance the lease/purchase of aircraft on a staggered schedule 

· The Long Haul fleet renewal campaign is to be launched in FY19. The acquisition of new aircraft is subject to a number of qualitative criteria that guarantee consistency with our product offering

Cash and working capital

Cash generation from trading activities is essential if we are to invest in the business in order to deliver value over the long term and to meet scheduled payments under the terms of our debt facilities as they fall due. There is a risk of a decrease in operational performance caused by a range of factors (including economic, financial, regulatory and market factors), of which many are outside our control.*

· Cash flow forecasting is performed centrally and we proactively monitor our short, medium and long-term cash requirements and liquidity headroom 

· During FY18, we refinanced our £400million bond at lower cost while extending the debt maturity profile

· The issuance of a new bank facility in FY18 for the Group Airlines has increased headroom

· We have implemented a robust efficiency programme in order to achieve operational savings from consolidating technology systems and harmonising processes 

· 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

Health and safety

Due to the nature of our business and industry, the Group will always be exposed to the risk of a health and safety incident en route to a destination, in the accommodation or during an excursion. There is a risk that an incident that results in the injury or death of a customer would have a direct negative impact on our reputation and indirect impact on our future financial performance.

· We monitor developments in health and safety regulations in all the markets in which we operate and incorporate changes into our common Group policies, standards and procedures. The policies address all major risk areas including accommodation, swimming pools, balconies, transport, excursions, fire and hygiene

· We operate an annual Health and Safety Audit Programme for all our differentiated properties. The programme is delivered by reputable external specialists (SGS and Cristal), verifies compliance with Federation of Tour Operators and industry standards and includes a robust follow-up process. We have enhanced our audit programme for FY19 to incorporate additional hygiene assessments in properties which experience higher than average or increased levels of reported illness 

· The Group Health, Safety, and Security Team regularly reviews and updates its safety and security training programmes to ensure they continue to reflect best practice 

· We have a group wide Customer Protection Policy to ensure that customers are not put at risk in hotels that have undergone construction works or refurbishment

· We actively monitor health and safety incidents reported to us to ensure that we address the causes. We have seen a marked reduction in illness claims after we put in place prevention and detection measures in an effort to address this issue that was specific to the UK market 

Geopolitical uncertainties

In recent years numerous countries that rely on tourism as a vital export have experienced geopolitical disruption through political instability or terrorist activity. There is a risk of a significant decline in customer demand should there be an incident or increased threat of a terrorist attack in any of our key tourist destinations.*

· We have a proven ability to shift committed capacity to alternative destinations in the event of fluctuating demand in a given destination 

· We continue to rebalance our destination mix and add new destinations to our portfolio, thereby mitigating the impact of geopolitical events

· We have developed a Hotel Security Framework, which defines a set of minimum security standards that should be operational in our hotels. Implementation of the Framework will follow a risk-based approach

· We proactively monitor the geopolitical landscape by partnering with the Risk Advisory Group, a leading independent global risk management consultancy that provides intelligence, investigations and security services

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

· We have a robust crisis management framework which we can activate in the event of an incident. Crisis management test exercises are conducted on a regular basis

Brexit

A disorderly exit from the EU by the UK would result in significant disruption to many businesses. A disorderly exit could present the following risks to Thomas Cook:

· Loss of access to the European Single Aviation Market would have a significant impact on the ability of our UK Airline to operate in the EU and the US.

· Loss of access to EU employment markets, including the ability for businesses to place temporary workers in EU Member States without additional barriers may cause a skill shortage in the UK and in destination.*

· Our Public Affairs teams has proactively met with Government officials from both the UK and the EU to ensure our concerns are appropriately understood

· A Brexit Working Group, which included representatives from Finance, Tax, HR, Communications, Legal, Risk, the Group Airline and the Tour Operating Segments, was convened to consider and assess the impact of all risks related to the UK's upcoming exit from the EU

· We are putting in place contingency plans, with a particular focus on ensuring that our customers' holiday experience is not impacted

· We are in advanced discussions with local aviation regulators in Germany, Spain and Denmark as well as the European Commission and we are confident that our contingency plans will enable our Group Airlines to continue to access EU airspace in the event of a disorderly Brexit

Compliance with regulatory and legislative requirements 

There is a risk that we do not comply with regulatory, legislative and corporate social responsibility requirements in the legal jurisdictions where Thomas Cook operates.

· We have a dedicated legal team, which works to ensure that we comply fully with regulatory requirements and which monitors all 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

· A cross functional project team was set up to implement the change required by the General Data Protection Regulation. The team included representatives from the Legal, Risk, Human Resources, IT, Cyber and Customer Experience departments 

· We continue to engage with the European Union Competition Commission in their investigation into the travel industry regarding hotel accommodation agreements 

· 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, legislative and corporate social responsibility requirements

· In regards to the EU Competition Commission investigation, Thomas Cook is committed to fair and open competition and will cooperate fully with the Commission through the process