Thomas Cook Regulatory News (TCG)

16 September 2014

Pre close trading update

Continued success transforming Thomas Cook

"The successful transformation of our company continues. We are also very encouraged by the progress we are making against our most important strategic targets and KPIs. In particular, we have delivered more Wave 1 and Wave 2 cost out and profit improvement benefits, a higher rate of web bookings and importantly, given the encouraging customer demand for our exclusive Concept and Partnership hotels, more opportunities for profitable growth. We expect our operational performance in this second year of our transformation to show a material improvement on FY13, notwithstanding the impact this year of economic and geopolitical factors on our customers.

Our achievements over the last 24 months demonstrate the impact of a transformed team capable of delivering significantly greater shareholder value in the future. I look forward to sharing more progress on our targets and opportunities for sustainable profitable growth at our full year results in November, when we expect to report a ninth consecutive quarter of improved profitability."

Harriet Green, Group Chief Executive Officer

· Successful transformation of Thomas Cook continues

· FY14 operational performance expected to show material improvement on last year despite the recent downturn in consumer confidence in Germany

· FY14 underlying EBIT expected to be between £315 million and £335 million, equivalent to growth of between 39% and 48%

· Excellent progress in web performance, particularly in the UK

· Improving revenue contribution from Concept and Partnership hotels

· Strong late Summer 14 bookings in all of our major source markets, with increasing demand for our Concept hotels

· Strong Winter 14/15 bookings in the UK with 29% sold; Summer 15 bookings encouraging

Transformation update

The successful transformation of Thomas Cook continues. In the short time since we last reported, we have been encouraged by continuing progress in three key areas of our profitable growth strategy.

Our new UK website continues to deliver improved online package bookings, which have risen 10% for desktop, 60% for tablet and 216% for mobile since the website was launched at the end of May. We expect performance to continue to improve as we roll out the site to 100% of our thomascook.com customer base. Following its UK rollout, this website will be extended to our other markets which will begin to reflect the benefits from FY15. As a result, we expect that Group online penetration will accelerate from the current level of 38%, as we continue on our journey towards achieving more than 50% in FY15.

Demand for our Concept hotels remains strong, with Summer 14 bookings up 43% compared to last year. Of our major source markets, growth in Concept hotel bookings has been strongest in the UK as that business starts to benefit from our strategy of sharing access to our exclusive hotel product more widely across the Group. Partnership hotel bookings are 11% higher for the Summer season as we seek to work more closely with our larger hotel partners. Consequently, we expect to achieve our new product revenue target of more than £300 million in FY14 and more than £700 million in FY15.

Wave 1 of our cost out and profit improvement programme, is delivering ahead of schedule and this will result in us achieving benefits ahead of our target of more than £360 million in FY14. As a consequence, we expect to increase our Wave 1 target for FY15 and, with Wave 2 of our cost out and profit improvement programme already progressing well, we look forward to providing enhanced targets. We will provide a full update on the status of the transformation and progress against our other targets and KPIs at our full year results announcement on 26 November.

Current trading

Summer 14

The Summer season is currently approximately 92% sold, the same as this time last year. Booking volumes in the Summer 14 "lates" market indicate a later booking pattern compared to last year in all of our major source markets. The impact of continuing price softness, largely due to higher levels of market capacity, has been offset by the acceleration of our cost out measures.

UK summer capacity is 92% sold, the same as this time last year. Bookings and headline average selling prices for our UK business are broadly unchanged from when we previously updated the market at the end of July, being in line with last year and 4% lower respectively compared to last year. The lower average selling price in the UK is mainly due to a change in product mix and is partly influenced by a greater level of market capacity. Consistent with our strategy of improving the proportion of exclusive hotel product we offer to UK customers, average selling prices are expected to improve over the medium term. Bookings for exclusive hotel products have continued to show strong growth for the Summer 2014 and Winter 14/15 seasons. We remain encouraged by early Winter 14/15 bookings in the UK; with 29% of capacity sold and bookings and average selling prices higher than last year. The success of Wave 1 of our cost out and profit improvement programme, together with the initial benefits from our new product strategy, means that we remain confident that our UK business will achieve its EBIT margin targets of 3.5% and 5% for FY14 and FY15 respectively.

In our Continental Europe business, capacity commitments are 90% sold, similar to the same time last year. Bookings and headline average selling prices are broadly similar to those we reported at the end of July and are in line with last year. However, bookings in Germany, which had been strong, have recently moderated reflecting a less optimistic consumer climate due to geopolitical events, as well as a more subdued economic outlook as the EU considers adopting further sanctions against Russia. As a consequence, our German business has experienced weaker margins in the fourth quarter of the year due to a combination of reduced demand and excess market capacity.

Bookings in Northern Europe are 3% higher than last year with the season 97% sold, in line with planned increases in capacity. All source markets within the Nordics have performed strongly in terms of volume over the Summer season, with the exception of Norway where local economic and market factors have impacted demand and pricing. Overall, our Nordic business continues to perform well and we expect to again report consistent market-leading EBIT margins of c.9% for FY14.

In Airlines Germany bookings are 3% higher than last year with a seat load factor slightly below the same time last year. Overall average selling prices are 3% lower than last year due to an increase in market capacity to short and medium haul Summer destinations. However, long haul prices continue to show strength and are 3 % higher than last year, with an improved load factor. Success in our new products and especially the new long haul cabin, the strength of our seat only business and our ability to effectively manage capacity across our routes, means that, despite increased market capacity, we expect to report an EBIT margin for FY14 which is at least as strong as FY13.

(1) Based on cumulative bookings as at 6 September 2014

(2) Stated in local currency at constant intra-segment exchange rates

Winter 14/15 and Summer 15

While it is early in the booking cycle, we are encouraged by booking and pricing trends for the Winter 14/15 and Summer 15 seasons. In terms of winter trading, we are encouraged by bookings so far, specifically in the UK where bookings and average selling prices are higher than last year. As we previously mentioned, this demonstrates early tangible benefits of our enhanced product offering, specifically Concept and Partnership hotels and City Breaks.

Outlook

We continue to focus on our strategy of sustainable profitable growth, supported by the accelerated and increasing benefits from the first wave of our cost out and profit improvement programme, the substantial projected benefits from Wave 2, continuing digital transformation and our significant new product development.

In Q4 14, all of our businesses are expected to deliver results ahead of last year. As such, our transformation remains on track and FY14 operational performance is expected to show material improvement over last year. In the first 24 months of our transformation, we have delivered strong profit growth and look forward to reporting a ninth consecutive quarter of increased profitability in the final three months of this financial year. In FY13, we reported like-for-like EBIT growth of £102 million (82%) and we expect to deliver further growth in FY14 of between £89 million and £109 million (including the impact of foreign currency translation), to improve underlying EBIT to between £315 million and £335 million, equivalent to growth of between 39% and 48%.

Having significantly reduced net debt from £788 million at the end of FY12 to £421 million at September last year, we expect our net debt to improve further to approximately between £300 million and £350 million by the end of this financial year, as our working capital movements normalise consistent with previous guidance.

We look forward to providing a full update on our targets and KPIs, including the wave 2 cost out and profit improvement programme and opportunities for sustainable profitable growth, that build on the significantly improved profits delivered to date, at our full year results on 26 November.

Analyst and investor conference call

Management will host a conference call for analysts and investors on Tuesday 16 September at 9.30 a.m. (London time).

We recommend participants start dialling in 5-10 minutes prior to the start of the presentation. To telephone link-up to the briefing, dial one of the following numbers from 9.20 a.m. (London time):

FY12 and FY13 like-for-like EBIT is calculated as follows:

*Like-for-like