Thomas Cook Regulatory News (TCG)

RNS Number : 8389E

Thomas Cook Group PLC

16 May 2013

 

16 May 2013

Thomas Cook Group plc results for the six months ended 31 March 2013 

TRANSFORMING THOMAS COOK

"Today we are pleased to report improving financial results and announce important measures to strengthen our balance sheet. Earnings before interest and tax and gross margin are well ahead of last year and our cost out and profit improvement actions are going very well, allowing us to increase our target yet again. Our progress transforming the business also enables us to undertake our capital refinancing plan. This will reduce the very significant debt that we inherited, lengthen its repayment profile and consequently help us deliver the full benefits of the strategic plan we set out in March. We look forward to continuing the rapid transformation of the Group so that we fulfil the potential of the Thomas Cook brand for our customers, suppliers and employees."

Harriet Green, Group Chief Executive

 

Capital refinancing to support the continuing transformation of Thomas Cook, announced separately today

·; £425 million proposed firm placing and rights issue, fully underwritten

·; Euro 525 million New Bond Issue maturing 2020, fully underwritten

·; £691 million New Facilities Agreement

Improving financial performance

·; First half underlying EBIT on a like for like basis improved by £58.7 million to £(197.5) million compared with the same period last year.

·; Underlying gross margin on a like for like basis improved by 110 basis points to 20.7% compared with the same period last year

·; Net Debt declined £175.4 million to £1.2 billion at 31 March 2013 compared with 31 March 2012

·; Encouraging current trading with strong bookings and gross margins

Delivering against targets and KPIs

·; We delivered £47 million of cost out and profit improvement benefits in H1 2013, taking the cumulative achievement by the end of March 2013 to £107 million, ahead of plan. This represents 74% of the target of £145 million that we had planned to achieve by the end of FY13. We have brought forward the timetable in which to realise FY13 benefits, increasing the cumulative target for FY13 from £145 million to £170 million

·; We have increased the total cost-out and profit improvement target for FY15 from £350 million to £390 million, reflecting a further £40 million of benefits that have been identified as being deliverable from existing initiatives

·; We have completed the disposal of our North American business for net cash proceeds of £3.4 million

·; We have appointed a new Global Head of Web, a new Chief Technology Officer, and announced a new partnership with Triporati as we develop our 'high touch high tech' strategy

Financial Highlights

·; Underlying EBIT on a like for like basis improved by £58.7 million due to the previously announced UK turnaround plan and Group-wide cost out initiatives and improved capacity management. UK underlying EBIT improved by £29.5 million

·; Group underlying gross margin, on a like for like basis, improved by 110 basis points and the UK underlying gross margin, on a like for like basis, improved by 110 basis points, reflecting more focussed capacity management

·; Underlying free cash flow improved by £198.1 million

·; Net debt declined by £175.4 million primarily reflecting better working capital management processes

Summary Financial Results

£ million ( unless otherwise stated)	6 months ended 31 March 2013	6 months ended 31 March 2012
Revenue	3,224.3	3,310.1
Underlying EBIT	(197.5)	(248.1)
Underlying loss before tax	(275.6)	(313.9)
Separately disclosed items	(115.3)	(270.2)
Loss before tax	(390.9)	(584.1)
Underlying gross profit margin on a like for like basis (%)	20.7	19.6
£m	31 March 2013	31 March 2012
Net debt	(1,214.5)	(1,389.9)
Liquidity headroom	512.1	323.0

 

Note

Throughout this document the term 'underlying' refers to trading results after adjusting for separately disclosed items that are significant in understanding the on-going results of the Group. The term 'like for like' reflects the comparison in the underlying results after removing identifiable non-recurring items in the prior year. A reconciliation is shown on page 15.

 

Enquiries

Analysts & Investors
Geoffrey Pelham-Lane, Thomas Cook Group	+44 (0) 20 7557 6414
Media
Jenny Peters, Thomas Cook Group	+44 (0) 7568 105144
Andrew Lorenz, FTI Consulting	+44 (0) 7775 641807

 

Presentation to equity analysts

A presentation will be held for equity analysts by invitation today at 9.00 a.m. (BST), at FTI Consulting, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB.

TO JOIN THE AUDIO CONFERENCE:

 

1. Call one of the dial-in numbers approximately 15 minutes before the start time.

·; UK Freefone: 0800 783 0906

·; UK Direct: 01296 480 100

·; International direct: +44 1296 480 100

2. Once connected, follow the instructions provided over the phone. Please provide:

·; Participant passcode: 750 063

·; Your name

3. Depending on the conference call settings, you will be entered directly into the conference, or you will hear music until the conference begins.

 

TO JOIN THE WEB PORTION OF THE PRESENTATION:

 

https://btevent.webex.com/btevent/onstage/g.php?t=a&d=843482726 

 

Unable to join the meeting? Follow these steps:

 

1. Copy this address and paste into your web browser: https://btevent.webex.com 

2. Copy and paste the required information:

·; Event Number : 843 482 726

·; Event Password : 750063

 

3. Enter any other requested information and click Join.

(You may have to accept a download to use the web conferencing application)

 

GROUP CHIEF EXECUTIVE'S REVIEW

Transforming Thomas Cook

The transformation of Thomas Cook is well underway. In the forty one weeks since my appointment, we have taken decisive and rapid action that is already delivering results.

We have announced a capital refinancing plan that will reduce the very high levels of debt that we inherited, lengthen its repayment profile and consequently help us deliver the full benefits of the strategic plan.

We have strengthened our leadership team that represents our 100 most senior managers, not only promoting talent from within but also appointing 28 new people from outside. As we progress with our transformation, it is a testament to the strength of our brand and the opportunity ahead of us that we are attracting some very talented individuals, who bring with them a level of expertise that comes from operating at the highest level in some of the largest and most respected firms in the world. In recent weeks, John Straw, an award winning digital entrepreneur who over the last 16 years has started a number of significant digital marketing companies, one of which he sold to Microsoft and one ultimately to Google, has taken up a new position as Global Head of Web to help develop our 'high touch high tech' strategy. Tomasz Smaczny has joined us as Chief Technology Officer from Cathay Pacific where he was Chief Information Officer, bringing industry leading expertise to support the acceleration of our IT transformation. In addition, Craig Stoehr, a former corporate Partner of Latham & Watkins, has joined us from Eastgate Capital Group Limited as Group General Counsel to provide top level legal advice to the executive management team and the Board as well as supporting the team in driving the transformation forward.

We have implemented a rigorous cost out and profit improvement programme and nine weeks ago we presented our detailed profitable growth strategy. This is focussed on simplification, web innovation, and flexible new products and services, enabled by rigorous execution and an integrated IT platform.

Our commitment to delivering on this transformation is total. To demonstrate this, we have published detailed and measurable targets and key performance indicators (KPIs), and we will report our progress in achieving these at regular intervals. Specifically, we plan to deliver new product revenue of more than £500 million in FY15, to increase the business we transact on the web from a current level of 34% to at least 50% by FY15, and today, based on encouraging developments from our detailed work to date, we are announcing a further £40 million increase to our existing £350 million cost out and profit improvement target taking the new target to a total of £390 million in FY15.

On our KPIs, we are aiming for our Group sales to improve by at least 3.5% on average per year from FY13 to FY15, for our underlying Group gross margin to improve by at least 1.5 percentage points from the level in FY12 by FY15, and for our underlying UK EBIT margin to be greater than 5% by FY15. In addition, we have set a cash conversion KPI of at least 60% in FY15 compared to only 11% achieved in FY12. Cash conversion is defined as net cash from operating activities less interest paid as a percentage of EBITDA.

We aim to deliver an average working capital improvement of approximately £150 million. Finally, we have estimated that we expect to realise gross proceeds from the disposal of non-core assets of between £100 million and £150 million in the medium to long term.

Improving financial performance

While it is early stages, our results for the six months ended 31 March already demonstrate progress. Underlying EBIT on a like for like basis improved by £58.7 million. UK underlying EBIT improved by £29.5 million, reflecting the encouraging impact of the initial cost out and profit improvement benefits in this business.

Primarily driven by our decision at the beginning of the financial year to reduce capacity and strengthen our yield management process, the Group underlying gross profit margin on a like for like basis improved by 110 basis points and the UK underlying gross margin on a like for like basis improved by 110 basis points.

The other notable improvement was the reduction in our net debt compared with the previous year. This declined by £175.4 million primarily due to better working capital management processes.

Encouraging current trading

Current trading is encouraging and continues to reflect our strategy of optimising returns by more closely managing our committed capacity to demand, giving increased flexibility as the season develops.

For the Summer 2013 season bookings in our mainstream businesses are slightly ahead of last year despite planned capacity reductions of 7%. The reduction in capacity continues to allow us to focus on achieving quality business, reflected in increased average selling prices and gross margin on these bookings. UK planned capacity has been reduced by 4% but our bookings to date have reduced by less than 2%. Average selling prices are up by over 4% and the gross margin percentage achieved on bookings so far is up by over 1%. With committed capacity left to sell 7% lower, compared with the same time last year, our ability to preserve this quality of business is increased.

Bookings in Continental Europe are up just under 1% from last year despite implemented capacity reductions of 12%. Average selling prices are up by over 1% with the gross margin percentage also up slightly on last year. Our French business is now being managed as part of our Continental European segment and will be included in this for reporting purposes. Our turnaround plans for France are in place and consultation over restructuring has commenced. While our structural changes are being implemented, our new management in France is focussed on aligning capacity with demand and increasing the quality of business transacted. Capacity has been reduced significantly but average selling prices and gross margin are both strongly up.

Our Northern European business continues to perform well with bookings up by 9% and average selling prices and gross margins also higher than last year. This business has increased capacity slightly. However, the strength of bookings to date leaves the capacity left to sell 7% lower compared with the same time last year.

Our airline business in Germany is benefitting from increased alignment with our group airline resource management. Bookings are up over 2% on last year, capacity is 2% higher, and average selling prices have increased by over 3.5%.

Outlook

Bookings for the Summer 2013 season are developing well with c.60% of planned capacity sold, 2% higher than at the same time last year. As a consequence of this, together with planned reductions in committed capacity of c.6%, the Group has 10% less "left to sell" compared to last year. We anticipate that the current booking position should support prices and margins during the remainder of the season, recognising that the "lates" market last year was particularly strong due to inclement weather throughout much of Europe.

In view of encouraging trading for the Summer 2013 season, continued progress with our transformation, including the increased delivery of Cost Out initiatives announced today, and the improved financial performance in the six months ended 31 March 2013, the Board is confident of a satisfactory result for the full year.

Delivering against targets and KPIs

In total, we achieved £47 million of cost out and profit improvement benefits in the six months ended 31 March 2013, which contributed towards the £58.7 million improvement in underlying EBIT on a like for like basis over the same period. This takes the cumulative achievement by the end of March 2013 to £107 million, which represents 74% of the target of £145 million that we had planned to achieve by the end of FY13.

Of the total cost out and profit improvement target of £350 million, £140 million was targeted to come from the UK turnaround and £210 million from Group-wide initiatives. Following our announcement today, the total cost out and profit improvement target has now increased from £350 million to £390 million and the target from Group-wide initiatives has risen from £210 million to £250 million.

In FY12 we delivered the first £60 million of benefits from the UK turnaround. Of the additional £80 million, which we targeted under the UK turnaround, we delivered £30 million as planned in the six months ended 31 March 2013. Improved yield management accounted for half of this benefit, with the other half coming from reduced personnel costs. We remain firmly on track to deliver the remaining £50 million, of which we expect approximately £30 million to be realised in the second half of this financial year and the remainder in FY14.

Of the newly increased Group-wide target of £250 million, we delivered £17 million in the six months ended 31 March 2013, ahead of plan. Of this, £5 million came from airline maintenance efficiencies, £9 million from organisational structure savings and £3 million from marketing savings. Having delivered these benefits earlier than planned, we are bringing forward the timetable of expected benefits and now expect to achieve £50 million by the end of FY13 instead of our earlier estimate of £25 million. By the end of FY13, we expect about £19 million of benefits to have come from our integrated air travel strategy, £13 million to have come from organisational structure and £18 million to have come from product, infrastructure, technology and other areas.

The additional £40 million of targeted benefits by FY15 is primarily due to changes in risk weighting of a number of existing initiatives, mainly in organisational structure from the execution of the UK turnaround and the initiation of the France turnaround. There is further progress from our airlines synergies, hotel negotiations and marketing savings as benefits have become more quantifiable as they have progressed through our validation process. We expect an additional cash flow cost of £15m to achieve this higher target, due to increased airline configurations and the turnaround in France.

Targets and KPIs

				FY 12	H1 13	FY 15
Targets			New Product Revenue	N/A	Good progress (e.g. concept hotels increased from 66 in FY11/12 to 93)	> £500m
			Web Penetration	34%	35% (i)	> 50%
			Cost out/ Profit Improvement (run-rate)	£60m	£107m	> £390m
KPIs			Sales CAGR(ii)	N/A	N/A	> 3.5%
			Underlying Gross Margin Improvement(iii)	N/A	1.1%(v)	> 1.5%
			UK EBIT Margin (vi)	0.1%	1.1%(i)	> 5%
			Cash Conversion(iv)	11%	47%(i)	> 60%
Notes	(i) (ii) (iii)   (iv)   (v)   (vi)		Measured on a last 12 months basis (“LTM”) Compound annual growth rate from FY13 to FY15 including new product revenue Delivery of FY 15 target will be measured on a full year basis, adjusted for disposals, against an FY 12 underlying gross margin of 21.3% Cash conversion defined as net cash from operating activities less interest paid as a percentage of underlying EBITDA Gross margin improvement of 1.1% for H1 13 compared with H1 12 on a like for like basis. KPI is based on a full year measure Underlying profit from operations of the Group’s UK operating segment (excluding Thomas Cook India) as a percentage of its revenue

 

Cost-out savings and profit improvement programme

£m				FY 12	H1 13	FY 13	FY 14	FY 15
UK Turnaround				60	90	120	140	140
Group-wide cost-out				-	17	50	175	250
̵ Integrated air travel strategy				-	5	19	55	70
̵ Organisational structure				-	9	13	60	80
̵ Product, infrastructure, technology, and other				-	3	18	60	100
Total targeted benefits(i)				60	107	170	315	390
Expected costs to achieve(ii)
̵ Income statement				36	38	68	15	7
̵ Cash flow			̵ Operating expenditure	30	6	41	30	10
			̵ Capital expenditure	-	2	18	38	11
Notes	(i)	Run-rate
	(ii)	One-off costs

 

In total, there are 959 individual cost out and profit improvement initiatives operating under 11 work streams behind the Group FY15 target of £390 million. Our approach to identifying, implementing and realising the net benefit of the initiatives in the income statement is highly disciplined and granular. The process involves six levels of validation from identification through to implementation and realisation in the income statement and cash flow statement. At each stage, we apply a risk weighting which is then amended as the initiative becomes closer to realisation. Our increases to the published cost out and profit improvement targets over recent months are the consequence of more initiatives successfully moving through the process with the corresponding risk weighting changing as the certainty of them delivering the forecast results becomes greater.

The cost out and profit improvement programmes are governed by a Transformation Office which I lead with Michael Healy, the Group Chief Financial Officer and Peter Fankhauser, Chief Executive Officer of UK and Continental Europe. We have embedded in each strategic programme its contribution to our overall targets and KPIs, and have integrated clear reporting of output and leading measures and milestones into our fortnightly and monthly review cycles. Initiatives are implemented on a vertical basis, where accountability is driven within a business segment, and on a horizontal basis, where the accountability is driven across multiple segments. Each initiative has a dedicated team that tracks and monitors delivery. The anticipated financial benefits are then risk weighted according to how close the initiative is to realisation.

Our commitment, the results of extensive quantitative and qualitative analyses, and the opportunities that exist in our Group give us confidence that these targets and KPIs will be achieved.

Progress on disposals of non-strategic assets

In March we announced the sale of our North American business for net cash proceeds of £3.4 million, which completed earlier this month. In FY12 our North American business recorded an operating loss of £41.1 million. We have also made progress simplifying other smaller parts of our business by disposing of our 50% share in Thomas Cook Personal Finance to our joint venture partner Barclays Bank plc and our three standalone foreign exchange bureaux in London to International Currency Exchange plc on 1 May 2013.

Hotel concepts, new products and online innovation

Our cost reductions, organisational efficiencies and disposals are not the only plans that we have in place to transform our business.

In March we set out a new strategy for profitable growth that includes expanding our successful hotel concepts, building a portfolio of new products and services, creating a single customer gateway, and supporting execution through our strong brand and technology.

We expect that approximately two thirds of our plan to grow sales by 3.5% per annum on average between FY13 and FY15 will come from product related initiatives.

At Thomas Cook, the concept hotel provides customers with a controlled and consistent experience based on a defined list of features that meets their needs. In the future, we expect all of our concept hotels to be exclusive, meaning that we will have access to 100% of the hotel's capacity.

While we are in the early stages of deploying concept hotels across the Group, we expect this to gather momentum. In March we announced that we had 66 concept hotels in FY11/12. These now total 93 as we have rolled out our Smartline concept and opened newly converted Sunprime hotels in Spain and Greece. Our existing concept hotels on average earn higher gross margins than our other hotels and attract more early and repeat bookings. We feel that this product development offers a significant opportunity for future profitable growth as we plan on an indicative basis to extend it to more than 250 hotels serving about two million customers across the Group by FY17.

We are also developing our winter sun and city break offers. Specifically, we found that 77% of our Sun & Beach customers who took city breaks last year booked with another provider. In response to this we are launching marketing campaigns to increase awareness and have introduced targeted promotions for customers returning from other types of holidays. We also plan to introduce city concept hotels, as part of the overall concept hotel growth programme.

One of the most important growth areas for our business is the web.

We announced in March that 34% of our business is transacted on the web. I am therefore pleased to report that this has already increased and we are seeing a very encouraging rise in the number of passengers booking online with Thomas Cook.

 

In addition, we are receiving increasing industry recognition of our innovation in digital. For example, our Neckermann brand recently received the award for Best in Travel in the Netherlands as well as the Best Travel Web in Belgium's Webshop Awards. In Sweden, our Ving brand won the prestigious Silver Egg Award for its advertisement. In the UK we have been shortlisted for Best Online Advertisement/Campaign in the Travel Marketing Awards and also shortlisted in the Affiliate Marketing Category for the Revolution Awards. In addition, our new mobile site was recognised in Paul Richer's blog for World Travel Market as a model of good design.

 

Building on these strong digital credentials, we have launched a new Thomas Cook Listening Lab with a specially trained social media listening team to learn from customers' social sentiment, improve marketing strategies, and build stronger customer relations.

 

Following the announcement of our new Digital Advisory Board on 1 March with the mandate to develop strategic digital innovations across the Group, we are launching a partnership deal with Silicon Valley based Triporati. Triporati is a travel site providing expert advice that will offer our customers personalised recommendations for their holiday destinations based on their individual travel profile.

In March we presented the results of one of the most comprehensive surveys of travellers, with an in-depth analysis of the attitudes of almost 18,000 people across all our key source markets, giving us independent insight into travellers' needs. One of the important conclusions from the review was that half feel overwhelmed by the amount of information and choice when booking and two thirds want help in choosing a holiday. We believe Triporati will provide our customers with an online answer to these needs that is easy to use and will help them select their ideal holiday from a range of specifically targeted options.

With our growing team of entrepreneurial digital talent, further strengthened by the appointment of John Straw as Global Head of Web, Tomasz Smaczny in a new role as Chief Technology Officer and our new Digital Advisory Board, we have every confidence of realising our vision of having the highest share of bookings online for a major tour operator over the next five years.

FINANCIAL REVIEW

Financial results and performance review

Group

£m unless otherwise stated	6 months to 31/03/13	6 months to 31/03/12 (as restated*)	Year on year change
Revenue	3,224.3	3,310.1	(85.8)
Gross profit	668.5	689.5	(21.0)
Overheads	(866.0)	(937.6)	71.6
Underlying loss from operations	(197.5)	(248.1)	50.6
Net finance charges	(78.7)	(67.1)	(11.6)
Underlying loss before tax	(275.6)	(313.9)	38.3
Separately disclosed items	(115.3)	(270.2)	154.9
Loss before tax	(390.9)	(584.1)	193.2
Underlying gross profit margin on a like for like basis (%)	20.7	19.6	1.1
£m	31 March 2013	31 March 2012	Year on year change
Net debt	(1,214.5)	(1,389.9)	(175.4)
Liquidity headroom	512.1	323.0	189.1

 

Basis of preparation

 

On 20 March 2013 the Group announced agreement to dispose of its North American business. The sale completed on 1 May. In accordance with IFRS5 the North American business has been classified as 'Discontinued Operations'. The HY12 results are restated on a consistent basis. 

Underlying EBIT

 

The continuing operations of the Group generated an underlying operating result for the first half of FY13 which was £50.6 million better than the corresponding period last year. This year on year improvement is influenced by a number of factors that impact on visibility of the 'like for like' trading performance. The most significant factors are:

 

£m
	Reported EBIT improvement	50.6
Add:	FY12 India EBIT (sold H2 FY12)(i)	2.9
	FY12 provision releases(ii)	26.0
Deduct:	Estimated impact of timing of Easter(iii)	(10.0)
	Other discontinued operations(iv)	(7.8)
	Impact of currency movement	(3.0)
	Like for Like EBIT improvement	58.7

 

(i)	Underlying profit from operations attributable to Thomas Cook India which was disposed of in H2 FY12.
(ii)	Impact of provision releases in Northern Europe and Airlines Germany in the six months ended 31 March. 2012 where the underlying liability for aircraft related and other costs no longer exists
(iii)	Adjustment for the timing of the Easter holidays. In FY2013, part of the Easter holiday season fell in the first half of that financial year. In FY 2012, Easter predominantly fell in the second half of that financial year. The adjustment made to reflect the impact of timing of the Easter holidays has been undertaken by the management team in each of the Groups operating segments based on increased passenger volumes and margins experienced during the Easter holiday season.
(iv)	Net impact of the disposal/closure of individual businesses comprising Explorers Hotel, HCV, FX Bureaux and FY12 store closures.

 

The delivery of this comparable trading improvement has been achieved despite the £42 million impact of fuel price increases and has been driven by the combination of continued focus on capacity management to achieve a better balance with customer demand giving improved prices and margins and the previously announced UK turnaround plan and Group wide cost out initiatives.

 

The main drivers of the year on year improvement in underlying seasonal loss from operations were:

 

£m
H1 2012 Group underlying loss from operations	(248.1)
'Like for Like' adjustments (per table p11)	(8.1)
Increased fuel costs	(42.0)
Net impact of acquisitions and disposals	0.1
Cost out and profit improvement initiatives	47.0
Trading	48.0
Inflation, depreciation, exchange translation and other	5.6
H1 2013 Group underlying loss from operations	(197.5)

 

Revenue

 

As anticipated, focus on optimising returns by more closely managing our committed capacity to demand has resulted in reduced revenue in our tour operator businesses. Revenues for the six months to 31 March 2013 were £3,224.3 million (2012: £3,310.1 million), a reduction of 2.6% (1.6% at constant exchange rates) . Adjusting for the net effect of the exclusion of FY12 India revenue and the estimated increased H1 FY13 revenue arising from the inclusion of an element of the Easter period the adjusted revenue reduction is approximately 2.3% (1.9% at constant exchange rates).

 

Gross Margin

 

Gross profit of £668.5 million (2012: £689.5 million) represents a reported gross margin of 20.7% (2012: 20.8%). The year on year progression of gross margin on a like for like basis is 110 basis points which is influenced by a number of non-recurring trading items:

	%
H1 2011/12 Group gross profit % - reported	20.8
Impact of disposals (Explorers Hotel, FX Bureaux, FY12 stores, HCV)(iv)	(0.7)
Net impact of provision releases(ii)	(0.3)
Contribution of India(i)	(0.5)
Other (estimated impact of timing of Easter)(iii)	0.3
H1 2011/12 Group gross profit % - adjusted for disposals and closures	19.6
Net improvement in gross profit % on like-for-like basis	1.1
H1 2012/13 Group gross profit %	20.7

 

(i)	Underlying profit from operations attributable to Thomas Cook India which was disposed of in H2 FY12.
(ii)	Impact of provision releases in Northern Europe and Airlines Germany in the six months ended 31 March. 2012 where the underlying liability for aircraft related and other costs no longer exists
(iii)	Adjustment for the timing of the Easter holidays. In FY2013, part of the Easter holiday season fell in the first half of that financial year. In FY 2012, Easter predominantly fell in the second half of that financial year. The adjustment made to reflect the impact of timing of the Easter holidays has been undertaken by the management team in each of the Groups operating segments based on increased passenger volumes and margins experienced during the Easter holiday season.
(iv)	Net impact of the disposal/closure of individual businesses comprising Explorers Hotel, HCV, FX Bureaux and FY12 store closures.

 

The increase in comparable trading gross margin is achieved after absorbing the impact of fuel price increases - which have reduced the improvement in gross margin percentage by a further 130 basis points.

 

Operating Expenses

 

Reported operating expenses were £866.0 million (2012: £937.6 million). Excluding the overhead reduction arising from the disposal of the India business the year on year reduction in overheads is £53.2 million representing a 5.7% reduction (5.3% at constant exchange rates).

 

The reduction in comparable operating expenses represents continued progress in the realisation of cost savings from the targets previously announced.

 

Separately disclosed items

 

Separately disclosed items consist of exceptional operating and finance items, IAS 39 fair value re-measurement, impairment of goodwill and the amortisation of business combination intangibles. These are costs or profits that have been recognised in the period 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 interim accounts. Further details are provided in note 5 to the financial information in Appendix 1.

 

£m	Six months ended 31 March 2013	Six months ended 31 March 2012
Affecting profit from operations
Exceptional operating items	(98.0)	(62.1)
Impairment of operating intangibles	(3.5)	-
IAS 39 fair value re-measurement	(6.8)	1.4
Amortisation of business combination intangibles	(7.6)	(14.5)
	(115.9)	(75.2)
Impairment of goodwill	-	(190.4)
	(115.9)	(265.6)
Affecting net finance costs
Exceptional finance charges	(0.1)	(1.0)
IAS 39 fair value re-measurement	0.7	(3.6)
	0.6	(4.6)
Total	(115.3)	(270.2)

 

Of these separately disclosed items £70.8 million will impact cash.

 

Exceptional operating items

 

Exceptional operating items were £98.0 million (2012: £62.1 million). The principal element of this charge was business reorganisation and restructuring costs of £79.7 million (principally in relation to the UK turnaround plan (£39.4 million), the UK airline restructuring plan (£5.1 million), group-wide restructuring costs (£19.0 million) and £10.9 million in relation to the termination of certain business process outsourcing contracts). The other elements of the charge comprised a £13.4 million provision resulting from an adverse third party sales tax judgement (under appeal) and a provision in respect of recent EC legislation.

 

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 charge of £6.8 million in the operating result (2012: gain of £1.4 million) and a gain of £0.7 million in net finance costs (2012: loss of £3.6 million).

 

Impairment of goodwill and amortisation of business combination intangibles

 

During the period we incurred non-cash costs in respect of continuing operations of £7.6 million (2012: £14.5 million) in relation to the amortisation of business combination intangibles in relation to prior acquisitions. In the prior year goodwill in respect of the then West Europe segment totalling £94.4 million was impaired arising from poor trading results. Also in the prior year an impairment of £96.0 million was made in respect of India prior to its disposal. Due to improved business performance no impairments are made in the current year.

 

 

Net finance costs

 

Net finance costs (excluding separately disclosed items) for the six month period were £78.7 million (2012: £67.1 million) up £11.6 million mainly as a result of costs arising from the sale and leaseback of aircraft in 2012, increased bank borrowing costs and amortised arrangement fees from facilities put in place in May 2012.

 

Tax

 

Income tax on continuing operations is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial period, excluding the effect of adjustments to tax provisions made in respect of exceptional items, impairment of goodwill and amortisation of business combination intangibles. The estimated average tax rate used for the six months to 31 March 2013 is 49.1% (2012:51.0%). The effective tax rate is higher than the underlying rates in our major markets due to non-recognition of deferred tax assets in certain markets where the group has significant tax losses.

 

Loss per share

 

The underlying basic loss per share was 15.3 pence (2012: 16.4 pence). The basic loss per share was 31.9 pence (2012: 68.2 pence).

 

Borrowings and liquidity

 

Significant progress has been made in changing working capital management processes, from more disciplined cash collection processes to a transformational change in the management of procurement strategies. Process changes will deliver the identified £50 million of cash flow benefits in the current year and create a platform for further enhancements in the future leading to our targeted £150 million improvement in working capital by 2013.

 

Discontinued Operations

 

On 20 March 2013 the Group announced the disposal of its businesses comprising Thomas Cook North America ('TCNA') to Red Label Vacations Inc for 5.3 million Canadian Dollars. The sale completed on 1 May 2013. In accordance with IFRS 5 TCNA is treated as a Discontinued Operation Held for Sale in the Interim Accounts to 31 March 2013. The detailed trading results on TCNA are excluded from the Profit and Loss account with the post-tax impact result of TCNA reflected under 'Discontinued Operations'. The disposal of TCNA will generate a small profit in the full year accounts after taking into account the recycling of foreign exchange reserves in respect of TCNA amounting to £40 million. In accordance with IFRS we are not permitted to recognise the foreign exchange gain until completion. In the first half results we are writing the value of TCNA assets down to their recoverable amount (excluding foreign exchange reserves) within discontinued operations. The value of this write down will be recovered in the second half.

 

Cash Flow

£m	Six months ended 31 March 2013	Six months ended 31 March 2012	Year on year reduction / (increase)
Net cash outflow from underlying operating activities	(211.8)	(421.3)	209.5
Capital expenditure	(64.2)	(66.8)	2.6
Interest paid	(40.2)	(26.2)	(14.0)
Free cash flow (underlying)	(316.2)	(514.3)	198.1
Acquisitions/ disposals	(3.4)	56.6	(60.0)
Dividends paid	-	(32.7)	32.7
Exceptional items/ discontinued operations	(93.9)	(24.3)	(69.6)
Net cash outflow	(413.5)	(514.7)1	101.2

 

1 Excludes £4 million debt reduction arising from repayment of loan notes in FY12

The seasonal underlying free cash outflow from underlying operating activities has reduced by £198.1 million to £316.2 million. This reflects the improved operating performance for the first six months together with the benefit of improved working capital management initiatives and processes.

 

Within Exceptional items/ discontinued operations are exceptional cash items of £73.1 million comprising restructuring costs principally associated with the UK turnaround plan and costs associated with refinancing.

 

Net Debt

 

Net debt as at 31 March 2013 was £1,214.5 million (2012: £1,389.9 million), a reported year on year improvement of £175.4 million. The last business day of H1 FY13 was an Easter public holiday within many of our business segments. It is estimated that this resulted in the delay of outgoing payments of approximately £7.6 million into April. At constant exchange rates the improvement in reported net debt would be decreased by £11.8 million.

 

The Group's net debt at 31 March 2013 comprised £348.5 million of cash, of which £53.0 million was within assets held for sale, £1,332.8 million of borrowings and overdrafts and £230.2 million of obligations under finance leases. Available cash and headroom under the Group's committed borrowing facilities at 31 March 2013 was £512.1 million (2012: £323 million).

 

Hedging

The Group hedges its principal market risks - which are exposures to fluctuations in the sterling / euro and sterling / US dollar exchange rates and fuel price movements. The proportion of forthcoming requirements hedged are as noted below

	Summer 13	Winter 13/14
Euro	90%	68%
US Dollar	88%	73%
Jet Fuel	96%	62%

 

Reconciliation of underlying EBIT on a like for like basis and underlying gross margin on a like for like basis with statutory results

			EBIT			Gross margin %
			6 months ended			6 months ended
			31.3.13	31.3.12	Change	31.3.13	31.3.12	Change
			£m	£m	£m	%	%	%
Reported			(313.0)	(513.7)	200.7	20.0	20.8	(0.8)
	Separately disclosed items(v)		115.5	265.6	(150.1)	0.7
Underlying			(197.5)	(248.1)	50.6	20.7	20.8	(0.1)
	FY12 provision releases(ii)			(26.0)	26.0		(0.3)	0.3
	India FY12 disposal(i)			(2.9)	2.9		(0.5)	0.5
	Other discontinued operations(iv)			7.8	(7.8)		(0.7)	0.7
	Other(iii)			10.0	(10.0)		0.3	(0.3)
	Currency impact			3.0	(3.0)
			_____	_____	_____	_____	_____	_____
Like for like			(197.5)	(256.2)	58.7	20.7	19.6	1.1

(i)	Underlying profit from operations attributable to Thomas Cook India which was disposed of in H2 FY12.
(ii)	Impact of provision releases in Northern Europe and Airlines Germany in the six months ended 31 March. 2012 where the underlying liability for aircraft related and other costs no longer exists
(iii)	Adjustment for the timing of the Easter holidays. In FY2013, part of the Easter holiday season fell in the first half of that financial year. In FY 2012, Easter predominantly fell in the second half of that financial year. The adjustment made to reflect the impact of timing of the Easter holidays has been undertaken by the management team in each of the Groups operating segments based on increased passenger volumes and margins experienced during the Easter holiday season.
(iv)	Net impact of the disposal/closure of individual businesses comprising Explorers Hotel, HCV, FX Bureaux and FY12 store closures.
(v)	Items that are disclosed separately in order to reflect the underlying operating performance of the business in the current year. See Financial Report for details

 

SEGMENTAL SUMMARY

Segmental analysis for the three months to 31 March 2013 and the six months to 31 March 2013 with prior year comparators.

Unaudited three months to 31 March 2013
	UK	Cont-inental Europe (excl. France)	France	Cont-inental Europe (total)	Airlines Germany	Northern Europe	Corp -orate	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Revenue
Segment total	410.9	540.4	79.1	619.5	272.7	325.2	-	1,628.3
Internal sales	(15.4)	(2.8)	(0.4)	(3.2)	(55.0)	(1.2)	-	(74.8)
External revenue	395.5	537.6	78.7	616.3	217.7	324.0	-	1,553.5
Underlying gross profit	94.9	67.3	16.6	83.9	62.0	64.6	(2.1)	303.3
Gross profit %	23.1%	12.5%	21.0%	13.5%	22.7%	19.9%	n/a	19.5%
Operating expenses	(174.5)	(99.8)	(24.8)	(124.6)	(75.7)	(57.6)	(2.6)	(435.0)
Underlying profit/(loss) from operations	(79.6)	(32.5)	(8.2)	(40.7)	(13.7)	7.0	(4.7)	(131.7)

 

 

Unaudited three months to 31 March 2012
	UK (excl. India)	Cont-inental Europe (excl. France)	France	Cont-inental Europe (total)	Airlines Germany	Northern Europe	Corp -orate	Total (excl. India)	India	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue
Segment total	449.3	510.3	77.0	587.3	236.1	306.8	-	1,579.5	10.8	1,590.3
Internal sales	(13.9)	(3.7)	(0.4)	(4.1)	(46.3)	(1.5)	-	(65.8)	-	(65.8)
External revenue	435.4	506.6	76.6	583.2	189.8	305.3	-	1,513.7	10.8	1,524.5
Underlying gross profit	102.9	68.4	16.2	84.6	53.5	61.2	0.7	302.9	10.8	313.7
Gross profit %	22.9%	13.4%	21.0%	14.4%	22.7%	19.9%	n/a	20.0%	100.0%	20.6%
Operating expenses	(200.9)	(105.2)	(26.9)	(132.1)	(69.3)	(54.1)	(5.9)	(462.3)	(9.8)	(472.1)
Underlying profit/(loss) from operations	(98.0)	(36.8)	(10.7)	(47.5)	(15.8)	7.1	(5.2)	(159.4)	1.0	(158.4)

 

 

Unaudited six months to 31 March 2013
	UK	Cont-inental Europe (excl. France)	France	Cont-inental Europe (total)	Airlines Germany	Northern Europe	Corp -orate	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Revenue
Segment total	906.7	1,154.2	151.3	1,305.5	571.6	602.3	-	3,386.1
Internal sales	(27.6)	(6.0)	(0.8)	(6.8)	(124.9)	(2.5)	-	(161.8)
External revenue	879.1	1,148.2	150.5	1,298.7	446.7	599.8	-	3,224.3
Underlying gross profit	208.3	147.4	31.8	179.2	150.8	134.5	(4.3)	668.5
Gross profit %	23.0%	12.8%	21.0%	13.7%	26.4%	22.3%	n/a	20.7%
Operating expenses	(355.3)	(192.2)	(49.3)	(241.5)	(154.0)	(108.2)	(7.0)	(866.0)
Underlying profit/(loss) from operations	(147.0)	(44.8)	(17.5)	(62.3)	(3.2)	26.3	(11.3)	(197.5)

 

Unaudited six months to 31 March 2012
	UK (excl. India)	Cont-inental Europe (excl. France)	France	Cont-inental Europe (total)	Airlines Germany	Northern Europe	Corp -orate	Total (excl. India)	India	Total
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Revenue
Segment total	995.6	1,188.4	161.0	1,349.4	506.4	589.4	-	3,440.8	21.3	3,462.1
Internal sales	(23.8)	(8.5)	(1.0)	(9.5)	(115.8)	(2.9)	-	(152.0)	-	(152.0)
External revenue	971.8	1,179.9	160.0	1,339.9	390.6	586.5	-	3,288.8	21.3	3,310.1
Underlying gross profit	226.1	147.0	31.3	178.3	133.1	129.8	0.9	668.2	21.3	689.5
Gross profit %	22.7%	12.4%	19.4%	13.2%	26.3%	22.0%	n/a	20.3%	100.0%	20.8%
Operating expenses	(402.6)	(211.4)	(53.3)	(264.7)	(136.1)	(104.8)	(11.0)	(919.2)	(18.4)	(937.6)
Underlying profit/(loss) from operations	(176.5)	(64.4)	(22.0)	(86.4)	(3.0)	25.0	(10.1)	(251.0)	2.9	(248.1)

 

 

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

	Six months ended 31 March 2013	Six months ended 31 March 2012 (excl. India)	Change
Financial (£million unless otherwise stated)
External revenue	879.1	971.8	-9.5%
Internal revenue	27.6	23.8
Segment revenue	906.7	995.6	-8.9%
Underlying gross profit	208.3	226.1	-7.9%
Underlying gross profit %	23.0%	22.7%	+1.3%
Operating expenses	355.3	402.6
Underlying loss from operations *	(147.0)	(176.5)	+16.7%
Underlying operating profit margin % **	(16.7)%	(18.2)%	+8.2%
Non-financial
Mass market risk
Passengers †			-14.3%
Capacity ††			-16.0%
Average selling price #			+11.2%
Load factor †††			+1.9%
Brochure mix ##			+2.4%
Controlled distribution ‡‡	85.9%	82.6%	+4.0%

See Appendix 2 for key.

 

The focus on capacity management to drive improved gross margins has continued in the UK business with capacity reduced by 16.0% compared to the prior year. Passenger reductions were less than the planned cut in capacity which resulted in improved load factors. Average selling prices increased as a result of improved yield management, recovery of increased input costs and due to a higher proportion of the programme being long haul destinations. The success of these actions and the effect of cost reduction measures such as store closures, retail synergies and fleet reduction drove an improvement in the seasonal underlying loss from operations of £29.5 million.

Underlying gross profit reduced by £17.8 million as a result of the reduction in volume but the like for like gross profit percentage increased to 23.0%, despite an adverse impact from higher fuel prices of approximately £20 million. The reported gross profit percentage shows a small improvement but when the impact of business disposals and loss making retail store closures (which benefit underlying profit from operations through reduced overheads) are taken into account, the UK underlying gross profit percentage has increased by 110 basis points compared to the prior year, on a like for like basis.

	%
H1 FY12 UK gross profit % - reported	22.7
Impact of disposal of Explorers Hotel and airport foreign exchange bureaux	(0.4)
Impact of loss making store closures	(0.4)
H1 FY12 UK gross profit % - adjusted for disposals and closures	21.9
Net improvement in gross profit % on like-for-like basis	1.1
H1 FY13 UK gross profit %	23.0

 

The Group transformation programme is particularly well established in the UK following the commencement of their turnaround plan in 2011. Following the delivery of £60m of benefits in FY12, the UK remains on track to deliver an additional £60 million of further benefits during the current year. As part of this, the UK overheads were reduced by £47.3 million compared to the prior year as a result of the restructuring actions already undertaken.

Also included in the UK segment for reporting purposes is the Group's Egyptian business, which reported underlying profit from operations in line with the prior period. The Group's Indian business was also included in this segment in the prior period. Thomas Cook India was sold in August 2012, reducing the net debt of the Group by £80 million.

 

	Six months ended 31 March 2013	Six months ended 31 March 2012
Underlying loss from operations *	£million	£million
UK & Ireland	(147.4)	(176.9)
Egypt	0.4	0.4
UK segment (excl. India)	(147.0)	(176.5)
India	-	2.9
	(147.0)	(173.6)

 

Continental Europe

		Six months ended 31 March 2013	Six months ended 31 March 2012 (restated)	Change
Financial (£million unless otherwise stated)
External revenue		1,298.7	1,339.9	-3.1%
Internal revenue		6.8	9.5
Segment revenue		1,305.5	1,349.4	-3.3%
Underlying gross profit		179.2	178.3	+0.5%
Underlying gross profit %		13.7%	13.2%	+3.8%
Operating expenses		241.5	264.7
Underlying loss from operations *		(62.3)	(86.4)	+27.9%
Underlying operating profit margin % **		(4.8)%	(6.4)%	+25.0%
Non-financial
Mass market
Passengers †				-4.1%
	Flight inclusive			-4.9%
	Non-flight inclusive			-2.9%
Average selling price #				+4.1%
Controlled distribution ‡‡		33.8%	34.7%	-2.6%

See Appendix 2 for key.

At 31 March 2013, the segment includes the West Europe businesses in Belgium, the Netherlands and France and the comparatives have been restated to reflect this.

Actions to improve capacity management by reducing committed capacity for the winter season whilst maintaining flexibility to add capacity in response to identified demand have continued successfully across the Continental Europe businesses. Despite the consequent reduction in revenue of 1.1% in constant currency, gross profit has been maintained in sterling terms and increased 2.7% in constant currency, with the gross profit percentage improving by 50 basis points, despite the disposal of HCV, a relatively high gross margin business. The seasonal underlying loss from operations has reduced by £24.1 million, or 26.9% in constant currency.

The improvement on the prior year has been driven by strong performances in the Belgian, German and French businesses but improved operating results have been delivered across the segment. In Russia, actions continue to improve the performance of that business through increased efficiency and a strategy to encourage earlier bookings. Operating expenses for the period were reduced by more than £10m, excluding the impact of disposal of HCV in the prior year.

	Six months ended 31 March 2013	Six months ended 31 March 2012
Underlying loss from operations *	£million	£million
Germany	(2.4)	(4.6)
Belgium	(25.0)	(36.2)
Netherlands	(5.9)	(9.3)
France	(17.5)	(22.0)
East Europe	(2.9)	(4.8)
Russia	(8.6)	(9.5)
	(62.3)	(86.4)

 

As previously announced, following a review of the options for our French operations we have decided to retain the business within the Group and implement a specific transformation programme for France to improve performance. The business will now come under the direct responsibility of our Continental European segment with Reto Wilhelm, Managing Director West and East, taking overall responsibility for the business.

Airlines Germany

 

		Six months ended 31 March 2013	Six months ended 31 March 2012	Change
Financial (£million unless otherwise stated)
External revenue		446.7	390.6	+14.4%
Internal revenue		124.9	115.8	+7.9%
Segment revenue		571.6	506.4	+12.9%
Underlying gross profit		150.8	133.1	+13.3%
Underlying gross profit %		26.4%	26.3%	+0.4%
Operating expenses		154.0	136.1
Underlying loss from operations *		(3.2)	(3.0)	-6.7%
Underlying operating profit margin % **		(0.6)%	(0.6)%	-
Non-financial
Sold seats ‡‡‡
	Thomas Cook tour operators			+6.0%
	3rd party tour operators			-5.1%
	External seat only			+6.1%
Total sold seats				+2.8%
Sold seats ‡‡‡
	Short & medium haul			-1.7%
	Long haul			+14.5%
Total sold seats				+2.8%
Capacity ††				+6.4%
Yield ###				+12.9%
Seat load factor †††				+0.6%

See Appendix 2 for key.

Following an expansion of the airline's long haul programme and increased utilisation of the fleet over the winter period, revenue grew to £571.6 million, a 15.4% increase at constant currency. Underlying gross profit increased to £150.8 million, representing a gross profit percentage of 26.4%, slightly higher than the prior year, despite an adverse fuel price impact of approximately £13 million and an adverse FX impact of approximately £7 million.

Overhead costs rose by £17.9 million, 15.6% on a constant currency basis, against a comparator that benefited from around £20 million of cost accrual and provision releases that were no longer required. Underlying operating result was in line with the prior year at (0.6)% of segment revenue, an underlying loss from operations of £3.2 million.

 Northern Europe

	Six months ended 31 March 2013	Six months ended 31 March 2012	Change
Financial (£million unless otherwise stated)
External revenue	599.8	586.5	+2.3%
Internal revenue	2.5	2.9
Segment revenue	602.3	589.4	+2.2%
Underlying gross profit	134.5	129.8	+3.6%
Underlying gross profit %	22.3%	22.0%	+1.4%
Operating expenses	108.2	104.8
Underlying profit from operations *	26.3	25.0	+5.2%
Underlying operating profit margin % **	4.4%	4.3%	+2.3%
Non-financial
Mass market risk
Passengers †			-5.2%
Capacity ††			-5.1%
Average selling price #			+7.2%
Load factor †††			-0.1%
Brochure mix ##			+6.6%
Controlled distribution ‡‡	87.4%	85.9%	+1.7%

See Appendix 2 for key.

Our Northern European businesses delivered another very strong performance with underlying gross profit percentage increasing to 22.3%, 170 basis points ahead of the prior year after taking into account the 140 point impact of the release of provisions where the underlying liability for aircraft related and other costs no longer exists. On a similar basis underlying operating margin improved to 4.4%, 160 basis points ahead of the prior year.

To maintain margins and match supply with consumer demand, capacity for the period was reduced by 5.1%. Following strong trading in Summer 2012, demand was maintained into the winter period and selling prices were increased by 7.2% delivering revenue for the six months of £599.8 million, 0.5% below the prior period on a constant currency basis. Gross profit improved to £134.5 million, 1.0% higher on a constant currency basis.

Overhead costs were controlled, rising 0.5% in constant currency terms. Underlying operating profit improved to £26.3 million, 3.2% up on a constant currency basis.

Controlled distribution grew to 87.4% of departed passengers for the period and within that, internet distribution grew to 66.3%, demonstrating the strength of Northern Europe's online distribution channels.

Corporate

 

Financial (£million)	Six months ended 31 March 2013	Six months ended 31 March 2012	Change
Underlying loss from operations *	(11.3)	(10.1)	-11.9%

See Appendix 2 for key.

 

The Corporate segment principally contains central personnel costs and saw an increase of £1.2 million in these costs as central functions were strengthened to drive the changes required in the Group.

PRINCIPAL RISKS & UNCERTAINTIES

Management have undertaken a broader review of the principal risks and uncertainties affecting the business activities of the Group. The outcome of this review has not identified new risks for the Group or changes to the Group's control environment but has presented management with an opportunity to enhance its existing reporting of risks and uncertainties from that previously set out on pages 18 - 19, and more fully described throughout the Directors' Report, of the Annual Report & Accounts for the year ended 30 September 2012, a copy of which is available on the Group's corporate website, www.thomascookgroup.com.

The principal risks are listed below:

·; Threat of downturn in demand due to adverse economic factors

·; Failure to implement strategic initiatives resulting in projected cost savings and growth opportunities not being realised

·; Recruitment, development or retention of talented people

·; Political instability leading to security concerns in key destinations

·; Liquidity to meet operational needs of the business

·; Volatility of jet fuel prices impacting the Group's operating costs

·; Failure to introduce and expand mix of products and services that meet customer demand

·; Decline in demand for core products and services due to increased competition or changes in consumer behaviour

·; Disruption in availability of critical IT systems or failure to successfully implement IT development work

·; Damage to the Group's reputation and brands leading to a loss in consumer confidence

·; Performance failure by outsource partners or third party suppliers leading to disruption of critical business operations

 

IMPORTANT NOTICE

This announcement is not an offer of securities for sale in the United States or any other jurisdiction. No securities will be offered or sold in the United States absent registration or an exemption from registration, and any public offering of securities to be made in the United States would be made only by means of a prospectus, which would contain detailed information about the Company and its management as well as the Company's financial statements. However, Thomas Cook Group plc has no intention to register any securities for purposes of a public offering in the United States.

 

Forward-Looking Statements

This announcement contains ''forward-looking statements'' that are based on estimates and assumptions and are subject to risks and uncertainties. Forward-looking statements are all statements other than statements of historical fact or statements in the present tense, and can be identified by words such as "targets", "aims", "aspires", "assumes" ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'', "hopes", ''may'', ''would'', ''should'', "could", ''will'', ''plans'', ''predicts'' and ''potential'', as well as the negatives of these terms and other words of similar meaning. The forward-looking statements in this announcement are made based upon the Company's estimates, expectations and beliefs concerning future events affecting the Group and subject to a number of known and unknown risks and uncertainties. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which it will operate, which may prove not to be accurate. The Company cautions that these forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in these forward-looking statements. Undue reliance should, therefore, not be placed on such forward-looking statements. Any forward-looking statements contained in this announcement apply only as at the date of this announcement and are not intended to give any assurance as to future results. The Company will update this announcement as required by applicable law, including the Prospectus Rules, the Listing Rules, the Disclosure and Transparency Rules, London Stock Exchange and any other applicable law or regulations, but otherwise expressly disclaims any obligation or undertaking to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

Appendix 1 - Condensed consolidated interim financial statements Group Income Statement

		Unaudited			Unaudited
		Six months ended 31 March 2013			Six months ended 31 March 2012 (restated)
		Underlying results	Separately disclosed items  (note 5)	Total	Underlying results	Separately disclosed items  (note 5)	Total
	notes	£m	£m	£m	£m	£m	£m
Continuing Operations
Revenue	4	3,224.3	-	3,224.3	3,310.1	-	3,310.1
Cost of providing tourism services		(2,555.8)	(22.8)	(2,578.6)	(2,620.6)	0.7	(2,619.9)
Gross profit		668.5	(22.8)	645.7	689.5	0.7	690.2
Personnel expenses		(481.3)	(29.6)	(510.9)	(521.8)	(22.5)	(544.3)
Depreciation and amortisation		(78.7)	(2.2)	(80.9)	(83.7)	(0.1)	(83.8)
Net operating expenses		(306.0)	(48.9)	(354.9)	(332.1)	(33.5)	(365.6)
Loss on disposal of assets		-	(4.4)	(4.4)	-	(5.3)	(5.3)
Impairment of goodwill and amortisation of business combination intangibles	5	-	(7.6)	(7.6)	-	(204.9)	(204.9)
Loss from operations	4	(197.5)	(115.5)	(313.0)	(248.1)	(265.6)	(513.7)
Share of results of associates and joint venture		0.6	-	0.6	1.0	-	1.0
Loss on disposal of joint venture	5, 12	-	(0.4)	(0.4)	-	-	-
Net investment income		-	-	-	0.3	-	0.3
Finance income	6	22.5	-	22.5	23.9	-	23.9
Finance costs	6	(101.2)	0.6	(100.6)	(91.0)	(4.6)	(95.6)
Loss before tax		(275.6)	(115.3)	(390.9)	(313.9)	(270.2)	(584.1)
Tax	7			123.6			107.9
Loss for the period from continuing operations				(267.3)			(476.2)
Discontinued Operations
Loss for the period from discontinued operations	11			(41.4)			(128.8)
Loss for the period				(308.7)			(605.0)
Attributable to:
Equity holders of the parent				(285.6)			(594.3)
Non-controlling interests				(23.1)			(10.7)
				(308.7)			(605.0)
Basic and diluted loss per share (pence)	8
Continuing operations				(27.3)			(53.4)
Discontinued operations				(4.6)			(14.8)
Total				(31.9)			(68.2)

 

The notes on pages 31 to 47 form an integral part of the condensed consolidated interim financial information.

 

 

Group Statement of Comprehensive Income

		Unaudited	Unaudited
		Six months ended	Six months ended
		31/03/13	31/03/12
	notes	£m	£m
Loss for the period		(308.7)	(605.0)
Other comprehensive income and expense
Items that will not be reclassified to profit or loss
Actuarial gains/(losses) on defined benefit pension schemes	18	24.4	(46.7)
Tax on actuarial gains/(losses)		(4.7)	9.4
		19.7	(37.3)
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation gains/(losses)		60.7	(24.0)
Fair value gains and losses
Gains/(losses) deferred for the period		34.1	(57.8)
Tax on gains/(losses) deferred for the period		(4.3)	17.0
Losses transferred to the income statement		10.5	50.2
Tax on losses transferred to the income statement		(1.3)	(14.0)
Total comprehensive expense for the period		(189.3)	(670.9)
Attributable to:
Equity holders of the parent		(166.2)	(660.2)
Non-controlling interests		(23.1)	(10.7)
Total comprehensive expense for the period		(189.3)	(670.9)

 

The notes on pages 31 to 47 form an integral part of the condensed consolidated interim financial information.

Group Cash Flow Statement

		Unaudited	Unaudited
		Six months ended	Six months ended
		31/03/13	31/03/12
	notes	£m	£m
Cash flows from operating activities
Cash generated by operations		(281.1)	(428.1)
Income taxes paid		(19.7)	(21.0)
Net cash outflow from operating activities	15	(300.8)	(449.1)
Investing activities
Proceeds on disposal of subsidiaries		-	6.9
Proceeds on disposal of joint venture	12	0.2	-
Proceeds on disposal of property, plant and equipment		1.9	27.1
Purchase of subsidiaries (net of cash acquired)	12	(5.5)	32.8
Purchase of tangible assets		(47.1)	(50.1)
Purchase of intangible assets		(19.5)	(19.3)
Movement on non-current financial assets		(1.0)	0.4
Additional loan investment		(0.1)	-
Movement on short-term securities		0.1	0.3
Net cash used in investing activities		(71.0)	(1.9)
Financing activities
Interest paid		(43.7)	(30.7)
Dividends paid	9	-	(32.7)
Dividends paid to non-controlling interests		-	(0.3)
Draw down of borrowings		732.1	817.4
Repayment of borrowings		(447.6)	(122.8)
Payment of facility set-up fees		(0.6)	(14.9)
Proceeds on the issue of ordinary shares		2.0	-
Repayment of finance lease obligations	16	(18.0)	(6.3)
Net cash from financing activities		224.2	609.7
Net (decrease)/increase in cash and cash equivalents		(147.6)	158.7
Cash and cash equivalents at beginning of the period		453.5	341.7
Effect of foreign exchange rate changes		31.3	(5.4)
Cash and cash equivalents at end of the period		337.2	495.0
Liquid assets	16	348.5	517.7
Bank overdrafts	16	(11.3)	(22.7)
Cash and cash equivalents at end of the period		337.2	495.0
Cash and cash equivalents are presented in the balance sheet as follows:
Cash and cash equivalents		295.5	476.8
Assets held for sale	11	53.0	40.9
Short term borrowings		(11.3)	(16.7)
Liabilities classified as held for sale		-	(6.0)
		337.2	495.0

 

The notes on pages 31 to 47 form an integral part of the condensed consolidated interim financial information.

Group Balance Sheet

			Unaudited	Unaudited	Audited
			as at	as at	as at
			31/03/13	31/03/12	30/09/12
		notes	£m	£m	£m
Non-current assets
Intangible assets		10	3,231.6	3,233.6	3,158.9
Property, plant & equipment
	Aircraft and aircraft spares	10	604.2	614.2	599.6
	Other	10	219.8	251.2	241.2
Investment in associates and joint venture			14.3	22.3	14.2
Other investments			12.4	13.3	11.4
Deferred tax assets			322.9	404.0	204.7
Tax assets			17.6	4.9	5.6
Trade and other receivables			152.5	129.6	146.8
Derivative financial instruments			1.5	-	0.2
			4,576.8	4,673.1	4,382.6
Current assets
Inventories			33.9	36.7	30.5
Tax assets			7.3	69.4	50.1
Trade and other receivables			1,092.2	1,414.4	944.1
Derivative financial instruments			54.9	79.2	39.2
Cash and cash equivalents		16	295.5	476.8	460.3
			1,483.8	2,076.5	1,524.2
Assets classified as held for sale		11	126.5	233.6	-
Total assets			6,187.1	6,983.2	5,906.8
Current liabilities
Retirement benefit obligations		18	(3.2)	(6.4)	(6.8)
Trade and other payables			(1,509.7)	(1,653.1)	(2,008.5)
Borrowings		13/16	(58.7)	(95.6)	(37.8)
Obligations under finance leases		16	(36.4)	(17.9)	(32.6)
Tax liabilities			(43.9)	(103.6)	(90.4)
Revenue received in advance			(1,721.9)	(1,751.6)	(1,094.1)
Short-term provisions		14	(240.5)	(163.1)	(201.5)
Derivative financial instruments			(35.2)	(54.9)	(68.4)
			(3,649.5)	(3,846.2)	(3,540.1)
Liabilities classified as held for sale		11	(123.1)	(107.8)	-
Non-current liabilities
Retirement benefit obligations		18	(311.4)	(359.9)	(324.0)
Trade and other payables			(93.0)	(104.5)	(95.4)
Long-term borrowings		13/16	(1,274.1)	(1,695.7)	(977.6)
Obligations under finance leases		16	(193.8)	(53.7)	(200.6)
Non-current tax liabilities			(1.0)	(0.6)	(1.0)
Revenue received in advance			-	(2.3)	(2.5)
Deferred tax liabilities			(80.5)	(119.1)	(89.7)
Long-term provisions		14	(180.9)	(197.2)	(214.3)
Derivative financial instruments			(3.9)	(3.6)	(3.7)
			(2,138.6)	(2,536.6)	(1,908.8)
Total liabilities			(5,911.2)	(6,490.6)	(5,448.9)
Net assets			275.9	492.6	457.9
Equity
Called-up share capital			62.0	59.2	60.0
Share premium account			29.2	29.2	29.2
Merger reserve			1,546.5	1,617.8	1,546.5
Hedging and translation reserves			325.4	288.3	225.7
Capital redemption reserve			8.5	8.5	8.5
Retained earnings deficit			(1,712.0)	(1,558.8)	(1,450.0)
Investment in own shares			(13.4)	(13.4)	(13.4)
Equity attributable to equity holders of the parent			246.2	430.8	406.5
Non-controlling interests			29.7	61.8	51.4
Total equity			275.9	492.6	457.9

The notes on pages 31 to 47 form an integral part of the condensed consolidated interim financial information.

Group Statement of Changes in Equity

The unaudited movements in equity for the six months ended 31 March 2013 were as follows:

 

	Share				Attributable
	capital		Translation	Retained	to equity	Non-
	& share	Other	& Hedging	earnings/	holders of	controlling
	premium	reserves	reserve	(deficit)	the parent	interests	Total
	£m	£m	£m	£m	£m	£m	£m
Opening balance at
1 October 2012	89.2	1,541.6	225.7	(1,450.0)	406.5	51.4	457.9
Loss for the period	-	-	-	(285.6)	(285.6)	(23.1)	(308.7)
Other comprehensive income/(expense):
Foreign exchange translation gains	-	-	60.7	-	60.7	-	60.7
Actuarial gain on defined benefit pension schemes (net of tax)	-	-	-	19.7	19.7	-	19.7
Fair value gains and losses:
Gains deferred for the period (net of tax)	-	-	29.8	-	29.8	-	29.8
Losses transferred to the income statement (net of tax)	-	-	9.2	-	9.2	-	9.2
Total comprehensive income/ (expense) for the period	-	-	99.7	(265.9)	(166.2)	(23.1)	(189.3)
Equity credit in respect of share- based payments	-	-	-	3.9	3.9	-	3.9
Issue of shares	2.0	-	-	-	2.0	-	2.0
Exchange difference on non-controlling interests	-	-	-	-	-	1.4	1.4
At 31 March 2013	91.2	1,541.6	325.4	(1,712.0)	246.2	29.7	275.9

 

The unaudited movements in equity for the six months ended 31 March 2012 were as follows:

 

	Share				Attributable
	capital		Hedging &	Retained	to equity	Non-
	& share	Other	Translation	earnings/	holders of	controlling
	premium	reserves	reserve	(deficit)	the parent	interests	Total
	£m	£m	£m	£m	£m	£m	£m
Opening balance at
1 October 2011	88.4	1,613.0	316.9	(871.4)	1,146.9	36.3	1,183.2
Loss for the period	-	-	-	(594.3)	(594.3)	(10.7)	(605.0)
Other comprehensive income/(expense):
Foreign exchange translation losses	-	-	(24.0)	-	(24.0)	-	(24.0)
Actuarial loss on defined benefit pension schemes (net of tax)	-	-	-	(37.3)	(37.3)	-	(37.3)
Fair value gains and losses:
Losses deferred for the period (net of tax)	-	-	(40.8)	-	(40.8)	-	(40.8)
Losses transferred to the income statement (net of tax)	-	-	36.2	-	36.2	-	36.2
Total comprehensive expense for the period	-	-	(28.6)	(631.6)	(660.2)	(10.7)	(670.9)
Equity credit in respect of share-based payments	-	-	-	1.1	1.1	-	1.1
Purchase of own shares	-	(0.1)	-	-	(0.1)	-	(0.1)
Acquisition of Co-op	-	-	-	(56.9)	(56.9)	36.8	(20.1)
Exchange difference on non-controlling interests	-	-	-	-	-	(0.6)	(0.6)
At 31 March 2012	88.4	1,612.9	288.3	(1,558.8)	430.8	61.8	492.6