Thomas Cook Regulatory News (TCG)

13 Aug 2009 07:00

13 August 

Thomas Cook Group plc

Interim Management Statement since 31 March 2009 

Financial results for the 9 months ended 30 June 2009 in line with expectations

Revenue up 10.7% to £5,854m

Loss from operations before exceptional items and swine flu reduced by 43.4% to £49.5m

Robust current trading for Summer 09

Average Group selling prices up

Average Group load factors on departed flights level with last year

Confident of achieving the Board's expectations for the current full year

Well positioned to deliver EBIT and margin growth in the 2010 financial year despite challenging conditions

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Manny Fontenla-Novoa, Group CEO, said: 

"Our strong performance in the year to date builds on our interim results and underpins our confidence that we can achieve our expectations for the full year.

"Trading for the Summer 09 season continues to be robust. In all major markets prices are flat or ahead of last year and cumulative bookings have continued to build towards our planned capacity levels. In addition, departed load factors have remained in line with last year's at 96%, and percentage-sold positions are approaching last year's levels. This has been achieved despite the later booking trends and the impact of swine flu, which has been more significant than we anticipated.

"Our performance during this tough period demonstrates the value of our flexible, asset-light model and the ability of the Group's experienced management team to read market conditions and to ensure we have the right capacity and product mix. The increasing strength and recognition of our brands has reinforced our position at a time when consumers are favouring a reliable travel provider they trust. In addition, our success in leveraging our buying power and restructuring to minimise our cost base is helping to maintain our industry-leading margins.

"Looking beyond the current year, we are preparing for continued tough market conditions. However, as a result of our flexible capacity model and the continuous streamlining of our business to achieve an efficient cost base, we have positioned ourselves to deliver further EBIT and margin growth."

Financial performance 

The loss from operations (before exceptional items and swine flu) in the 9 months to June 2009 was £49.5 million, an improvement of 43.4% on the prior year. In the 3 months to June 2009, the Group recorded a profit from operations (before exceptional items and swine flu) of £61.4 million, an improvement of 39.5% on the same period in 2008.

Management estimates that the impact of swine flu in the period ended 30 June, caused by the global governmental advice not to travel to Mexico was £12.6 million, of which the majority occurred in the UK and Airlines Germany.

Exceptional operating items in the 9 months to June 2009 amounted to £107.3 million (2008: £71.8m). The exceptional items largely relate to the costs incurred in completing the MyTravel / Thomas Cook merger integration process; the costs of integrating other businesses acquired since the merger; and the costs of other restructuring measures taken across all our major businesses to ensure we are best placed to deliver margin improvement this year and next, despite the continuing worldwide recession.

The Group's balance sheet remains robust.

  Operational review

Our asset-light business model provides significant flexibility, enabling the active management of capacity in line with changes in demand, while optimising the level of vertical integration by geography to maximise margin potential. The success of this strategy can be seen throughout our business where we continue to lead the market in margins while maintaining sufficient flexibility to adapt to sudden changes in demand. We continue to assess our in-house flying capacity to ensure we remain best placed to maximise the value of our mainstream business. Our flexibility enabled us to mitigate the worst effects of swine flu by rapidly shifting capacity out of Mexico following the outbreak.

Our focus on medium haul has proved beneficial enabling us to grow our share in these higher-margin destinations, driven by the trends to all-inclusive packages and non-euro currencies.

Our brands, including the iconic Thomas Cook brand, are one of our key strengths and differentiators. In each of our core markets we are either number one or number two and our brands give us considerable strength with consumers in both retail and tour operator markets, particularly at a time when consumers are looking for increased security from a reliable travel provider. 

Following the acquisitions of Med Hotels and Gold Medal, we have significantly increased our offering to independent travellers as we are now the largest bed-bank in the UK and have leading positions in flight consolidation in Dubai, Thailand and New York. We are the largest independent player in Canada following the acquisition of TriWest, a move which reduced our dependence on the highly competitive mainstream market.

In line with our focus on cost leadership, the steps we have taken to reduce overhead costs in all our major markets have resulted in a more efficient cost base. This has led to additional exceptional restructuring costs. 

We maintain tight controls over input costs. We have continued to leverage our considerable buying power to keep accommodation costs at no higher than last year's levels.

We continue to hedge for future seasons in line with our hedging policy. The Group's euro exposure is 100% hedged for Summer 09, 83% for Winter 09/10 and 83% hedged for Summer 10. Our dollar hedging is at 100%, 90% and 73% respectively. Fuel is 95% hedged for Summer 09; 91% for Winter 09/10; and 39% hedged for Summer 10. 

Outlook

Despite the challenging economic and trading conditions, particularly in the UK, the strength of our brand and products as well as our cost and capacity management have underpinned the Group's resilience. As a result, the Board remains confident that the business will meet its expectations for the current financial year.

In November 2007 we presented our strategy for the combined business following the merger of Thomas Cook and MyTravel. In doing so, in order to give a longer term view of what we believed the business could achieve, we identified a Group operating profit target of £480 million (originally stated as €620 million) in the 2010 financial year.  Although up to now we have continued to regard this aspirational target as relevant, the prevailing economic environment means that it is not realistic to think that market conditions could recover sufficiently to allow this target to be achieved in 2010.  However, given our flexible business model we are well placed to achieve the market's expectations.

  Current trading

Summer 09 

We remain confident about our summer trading with bookings continuing to trend towards planned capacity. The shift towards later bookings has persisted but departed load factors have been at last year's levels, averaging 96%.

Note: Figures as at 8/9 August 2009. In Continental Europe, bookings represent all bookings including cars/overland. However capacity represents airline capacity only. In Northern Europe, for comparability with peers, we now use April-September to define the summer season. On our previously reported May-October season cumulative bookings would have been -7% on capacity reductions of -5% with ASP at a similar level.

UK

Cumulative bookings for the summer season in the UK segment are down in line with capacity. Despite the continued trend towards later bookings we have an 86% load factor with 9% less left to sell than at this point last year. We have maintained strong average selling prices, up 8% versus last year. We have more left to sell in long haul than at the same time last year as a result of the shift in demand from Cancun, following the outbreak of swine flu, but overall we have less left to sell than prior year.

  Our shift towards higher-margin product has been successful as all-inclusive product now accounts for 41% of summer capacity (30% S08) and 4* and 5* packages for 42% (40% S08). Our strategy to focus on medium haul destinations has ensured that we are well placed to take advantage of the strong demand we continue to see for those destinations.

The underlying performance of the UK segment has been robust in the context of weaker sterling and tough economic conditions, particularly in Ireland where trading has been extremely challenging. We have taken measures to reduce our cost base in Ireland and across the segment to support margins.

Continental Europe 

We are pleased with current trading in our Continental European markets with bookings now ahead of planned capacity cuts, down 12% year on year. Average selling prices are flat despite the later booking profile and heightened competition caused by the fragmentation in the German market.

In our Western Europe markets, following a slow start to the season, our performance has improved as we have taken advantage of strong lates demand. As a result we have seen continued improvement in booking levels, with bookings over the last four weeks 13% ahead of last year. This is a particularly strong performance as we have also achieved higher average selling prices. We are benefiting from the ability of our businesses to anticipate and react rapidly in these challenging conditions with the right offerings and approach to the market.

Central Europe, including Germany, our largest market in Continental Europe, has benefitted from improved trends with bookings now down 13% against a capacity reduction of 16% and flat average selling prices. The German market remains highly competitive with aggressive pricing. We have seen some caution with respect to swine flu, particularly in relation to Mallorca which has also impacted our German Airline business. Despite this, we maintain sufficient flexibility to protect margins, aided by successful price negotiations with suppliers.

  Airlines Germany 

Our German airline, Condor, continues to see a strong late booking trend, especially in the continental business. Overall booked load factors are below last year but continue to improve despite the significant impact of swine flu on our intercontinental business.  The German market remains competitive, but despite this we have been able to maintain higher yields versus the previous year, currently up 4% cumulatively. Departed load factors are slightly behind last year, but we remain in a strong position having mitigated the impact of lower overall bookings by reducing capacity by 8% and improving yields.

Northern Europe

Cumulative bookings in Northern Europe have continued to build towards our planned capacity, standing at -5% versus capacity reductions of -3%. This is a strong performance which demonstrates how our success in managing capacity has allowed us to take advantage of the late demand we have seen. Average selling prices are up 4% and departed load factors have been at 99%, ahead of last year's level. Sweden, our largest Northern European market, has had a very strong season, as has Norway despite a slower start. Denmark and Finland remain weaker, but as we anticipated this trend we were able to manage our capacity accordingly.

North America

Following the acquisition of TriWest, our market-leading independent business, we are less dependent on the highly competitive Canadian mainstream market.   

In the mainstream business, which now represents only 15% of total passengers in the low-season summer period, booked load factors are ahead of the previous year for the remainder of the season and departed load factors have remained strong, ahead of last year's levels. Despite swine flu and significant overcapacity in the mainstream market, our North American business has preformed well reflecting the predominance of our independent business. 

  Winter 09/10 

Note: Figures as at 8/9 August 2009 

As we anticipated, later booking patterns have continued into the winter season. In those markets on sale, the UK and Northern Europe, bookings are down year on year. We remain confident that our planned capacity reductions are broadly in line with expected demand, as supported by our performance in the summer season where, despite a slow start, we are trending closely in line with capacity cuts. This is further underpinned by the booked load factors for the first month of the winter season, down only 3% and 4% year on year for the UK and Nordics respectively. 

Nevertheless, we retain considerable flexibility at this relatively early stage of the season to adjust capacity further should we need to, and believe we are well placed to manage a potentially challenging season. 

Summer 10

It is very early in the booking season for Summer 10, with only the UK currently on sale. However, despite the later brochure launch we are already 6% sold with average selling prices ahead of the previous year.   Enquiries

Conference call for investors and analysts

A conference call will take place today at 9.00am (UK time)

Dial in number 0845 140 3010

Password Thomas Cook Group 

Replay until 19 February (after that, it will be available on our website)

International dial in +44(0)1452 550 000  UK free call dial in 0800 953 1533  Access Number 85383848# 

  Appendix

Group Income Statement 

All revenue and results arose from continuing operations.

Notes to financial information

Basis of preparation

The information has been prepared using the accounting policies stated in the Company's report and accounts for the period ended 30 September 2008.

A copy of the statutory accounts for the period ended 30 September 2008 has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain a statement under Section 237(2) or (3) of the Companies Act 1985.