Thomas Cook Regulatory News (TCG)

8 February 2012

Thomas Cook Group plc

Interim Management Statement for the quarter ended 31 December 2011

·; Revenue at £1,861m in the first quarter was up 3% on prior year mainly as a result of increased activity in Northern Europe and Airlines Germany and a maiden contribution from the Co-operative and the Russian joint ventures (£68m);

·; As expected, the seasonal underlying loss from operations of £91m was higher than the prior year (loss of £37m) as a result of tougher trading conditions and rising fuel costs which have impacted margins. In particular, the West & East Europe segment reported significantly increased losses in part because of ongoing disruption in MENA;

·; We continue to focus hard on implementing our UK turnaround strategy and we are on track to deliver the planned £35m benefit in the current financial year;

·; We have taken action to adjust capacities where appropriate and, for both the winter and summer seasons, in many markets, we have less left to sell than for the comparable period.

Sam Weihagen, Group Chief Executive, said:

"I have been encouraged by how our bookings have developed, particularly in the UK where our market share for both the winter and summer seasons remains broadly stable. As expected, the first quarter has been adversely impacted by the uncertain economic environment across Europe, input cost inflation and the ongoing disruption in MENA.

"We continue to work hard on restructuring the UK business and a full strategic review of the Group is progressing well. As part of this review, the Board has agreed that the Group will look to sell its majority stake in its publically quoted Indian subsidiary. This is in addition to the previously announced non-core asset disposal programme where we have made good progress."

Group financial performance

In the three months ended 31 December 2011, revenue was up 3% (2% at constant currency) to £1,861m, reflecting increased activity in Northern Europe and Airlines Germany and a maiden contribution from the Co-operative and Russian joint ventures. The seasonal underlying loss from operations at £91m (2011: £37m loss) was higher due to capacity reductions in some markets, expected seasonal losses from our Russian and Co-operative acquisitions (combined operating losses of £11m) and the ongoing impact of MENA. In addition, increased fuel costs for the Group of £34m in the quarter affected margins particularly in Airlines Germany.

Operating expenses of £482m were 10% higher than prior year largely due to the inclusion of new businesses, namely the Co-operative and Russian joint ventures, as well as the Sears retail operation in Canada. Excluding the impact of these new operations, the increase in overheads reduces to 2%, mainly reflecting increased activity in Northern Europe and Condor.

Net finance charges were lower, at £30.5m (2011: £32.8m). The decrease year on year reflects a reduction in other finance charges and the generally lower interest rate environment.

The Group incurred £24.9m of exceptional operating items in the three month period (2011: £16.9m). Of the significant contributors, £14.8m relates to the previously announced UK restructuring, £5.9m to fees associated with the recent refinancing and a further £3.2m on restructuring projects. The gain on IAS 39 hedging re-measurement in the period amounted to £2.4m (2011: losses of £4.0m) and amortisation of business combination intangibles was £7.3m (2011: £7.9m).

In the three months to 31 December 2011, the free cash outflow was £739.6m (2011: £639.1m) which is higher than the prior year and reflects the lower booking intake as a result of planned capacity reductions and increased winter losses. December typically represents the seasonal cash low point for the Group and, since the end of December, net cash flow has been positive as would be expected for this time of the year. As at 7 February 2012, available cash and headroom on our committed banking facilities amounted to around £300m. As we have separately announced today, the Group is exploring opportunities to reduce debt and as such has put its Indian business up for sale.

UK Business Segment

Overall bookings for our UK business are broadly flat for the summer benefitting from a much better performance from our specialist and independent businesses. In Mainstream, we have actively managed capacity down as we focus on margins and summer bookings are currently ahead of capacity reductions resulting in less left to sell. We continue to take costs out to help offset the reduction in capacity and our UK turnaround plan is key to that.

Implementation of the UK turnaround plan is underway and progressing well. We remain on track to deliver the planned £35m benefit in the current financial year, which will help offset the headwinds faced from a weaker consumer environment. Key developments in the first quarter have been:

Optimise the UK airline: Consultation with the airline staff has successfully concluded and for Summer 12 the UK fleet will reduce by 6 aircraft. This will result in an improved programme as well as reducing fixed lease, maintenance and associated staff costs.

Refocus the product strategy in mainstream package holidays: Our strategy is to reduce the number of our hotels and increase unique and differentiated product.  Differentiated product bookings are up 7% and we are on track to reach our target of 25% of differentiated product bookings for mainstream for Summer 12.

Improve yield management: System and process improvements were delivered ahead of our peaks trading, together with a more integrated pricing approach across our distribution channels. This has resulted in a more stable pricing environment, with reduced discounting and improved selling prices.

Rationalise distribution:  Distribution rationalisation is on track with staff in 115 of our retail joint venture stores currently under consultation which is expected to conclude during March, with a further 22 stores having already closed.

Operational excellence: Good progress is being made across all 20 projects to improve operational effectiveness.

Independent business: Our growing independent business has seen improvements across most of our business areas with volumes well up in our bed banks, Hotels4U and Medhotels. Neilson is benefitting from a better ski season and Gold Medal is recovering under new management.

Current trading

Winter 11/12

The Winter season remains subdued, as economic concerns weigh on consumers' minds.

Note: Figures as at 4/5 February 2012. In Central Europe and West & East Europe, bookings represent all bookings including cars/overland, however capacity represents airline seat capacity only. Northern Europe winter season is October-March.

The UK programme is currently 76% booked overall which is broadly in line with last year. As we have previously announced, capacity cuts have been focused in long haul, where we are now 93% booked, with 51% less left to sell than last year. Average selling price, although impacted by the planned reduction in higher price long haul bookings, is up in all haul lengths.

Bookings in Central Europe are trending in line with expected capacity and pricing is ahead of prior year. We are seeing stronger demand for long haul and dynamic packages offsetting pressure in the short haul business.

Capacity cuts in the West & East segment reflect lower bookings to the MENA region, particularly in France which has been slow to recover with cumulative bookings down 28% and where we have significantly reduced capacity. Pricing is up reflecting a greater proportion of long haul bookings.

Capacity increases in Northern European markets largely reflect growth in a competitive marketplace. Bookings are up 8% but margins are weaker due to lower average selling prices and higher costs, especially fuel which has a more significant impact on the longer haul winter destinations.

In our German airline, capacity growth reflects greater short haul aircraft productivity and growth in our long-haul business. Bookings are up 20%, ahead of planned capacity increases. Yields are down in the short and medium haul business as a result of competitive pressure. While we are seeing yield increases on intercontinental routes, they are not however sufficient to fully recover fuel cost increases.

North America's key mainstream booking season is winter, when we operate a flying programme using aircraft from the UK. This year yields have been poor as a result of overcapacity in the market and the mild weather. The independent business continues to perform satisfactorily.

Summer 12

Bookings are ahead of our planned capacity in the UK and Central Europe, despite the difficult market backdrop, but are slower than expected in Northern Europe and West & East Europe where we retain the flexibility to reduce capacity should demand not pick up.

Note: Figures as at 4/5 February 2012. In Central Europe and West & East Europe, bookings represent all bookings including cars/overland, however capacity represents airline seat capacity only. Northern Europe summer season is April - September.

Overall, UK bookings are 1% lower than prior year. Mainstream bookings are down 9% but ahead of capacity reductions of 11%. Average selling price is +4% and discounts through our retail chain have been reduced, in part by the introduction of improved yield management processes. We are focusing more on our differentiated product and our independent and specialist businesses are performing particularly well, with bookings up 18%.

Central Europe bookings are ahead of capacity, with last four week's trading 5% ahead of prior year. Pricing has held up despite the competition in the market and margins are stable.

Trading in West & East Europe is challenging, in particular in France where cumulative bookings are down 22%. This is largely driven by lower consumer demand. Actions are being taken to de-risk the business and turnaround the performance in these markets.

Whilst bookings are slower in Northern Europe, prices are up 8% as we manage more for margin. We expect bookings to start trending closer to capacity for the balance of the season.

Bookings are up 3% in Airlines Germany with capacity increasing 7%, predominantly on long haul destinations. Yields are up 3%, partly driven by a higher share of intercontinental routes. The introduction of a fuel surcharge will help to mitigate the impact of higher fuel costs for the summer season.

Board Changes

As announced on 4 January 2012, non-executive directors David Allvey, Bo Lerenius and Peter Middleton will retire at the conclusion of the Company's AGM today. An international search and selection firm has been appointed to assist the Chairman and the Nominations Committee to identify and appoint additional non-executive Directors with recent operating experience.

The Board is progressing its search for a replacement Group CEO. Sam Weihagen, who took up the position in August 2011 has agreed to remain in his position until the appropriate

candidate is found.

Outlook

As we stated in the preliminary announcement, we expect 2011/12 to be a challenging year given the economic backdrop and difficult trading environment, particularly for Winter. The trends which we have seen in the first quarter are expected to continue for the rest of the first half, but summer trading is more encouraging.

Enquiries

Thomas Cook Group plc +44 (0) 20 7557 6413

Investor Relations

RLM Finsbury +44 (0) 20 7251 3801

Faeth Birch

Conference call

A conference call for investors and analysts will take place today at 8am (GMT).

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Group Income Statement

All revenue and results arose from continuing operations.

Notes to financial information

1. Basis of preparation

The information has been prepared using the accounting policies stated in the Company's report and accounts for the year ended 30 September 2011.

A copy of the statutory accounts for the year ended 30 September 2011 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.

2. Impact of exchange

At constant exchange rates, revenue increased by 2% and gross profit reduced by 3%. The impact of exchange on the underlying loss from operations was a benefit of £0.5m.  

3. Hedging

We are almost fully hedged for Winter 2011/12 and continue to build our positions for Summer 2012 broadly in line with our hedging policy.

As at 3 February 2012