Thomas Cook Group TCG Half Yearly Report
Thomas Cook Group (TCG) - Half Yearly Report
RNS Number : 4725E
Thomas Cook Group PLC
31 May 2012
31 May 2012
Thomas Cook Group plc
Unaudited results for the six months ended 31 March 2012
Six months ended 31 March Six months ended 31 March
2012 2011
£m (unless otherwise Underlying Statutory Underlying Statutory
stated)
Revenue 3,516.7 3,516.7 3,431.2 3,431.2
Loss from operations[1] (262.7) (643.1) (165.8) (197.9)
Loss before tax (328.3) (712.9) (232.9) (269.4)
Loss per share (p) (18.1) (68.2) (19.6) (23.5)
Dividend per share (p) - - 3.75 3.75
Net debt 1,389.9 1,389.9 1,094.2 1,094.2
[1] Underlying loss from operations is considered by management to give a
fairer view of the year on year comparison of trading performance and is
defined as earnings before interest and tax, excluding all separately
disclosed items. It also excludes our share of the results of associates and
joint venture and net investment income.
· The first half has been difficult, but decisive action has been taken to
improve the Group's position;
o Secured £1.4bn of longer term flexible funding with no fixed repayments
until 31 May 2015;
o Disposal of HCV hotels and aircraft sale and leaseback, approved by
shareholders on 29 May 2012, will add circa £239m of liquidity;
o Agreed disposal of Thomas Cook India, on 21 May 2012, for gross proceeds of
INR 8,174m (circa £94m) which will reduce debt;
· A sound platform has been created from which to restore confidence and
rebuild profitability;
o UK turnaround programme making good progress and underperforming businesses
being addressed;
o An improvement in bookings achieved since the earlier part of the year;
· Statutory losses of £643m include £300m of non-cash goodwill impairments
as announced on 12 May 2012;
· New management team appointed to lead the Group forward and rebuild
shareholder value. Harriet Green appointed as Group CEO, with effect from 30
July 2012, and Michael Healy appointed as Group CFO, with effect from 1 July
2012.
Sam Weihagen, Group Chief Executive, Thomas Cook Group plc said:
"This has been a period of significant change for the Group. At the beginning
of this month we were delighted to announce the agreement with our banking
group of longer term and more flexible funding. This, combined with the sale
of Thomas Cook India, the sale and leaseback of some of our aircraft and the
disposal of other non-core assets, provides the Group with a much stronger
financial platform. From this platform, we can re-energise our business and
begin to rebuild profitability, reduce debt and continue to provide a
fantastic holiday experience for our customers."
Enquiries
Thomas Cook Group plc
Louise Bryant +44 (0) 20 7557 6413
Kathryn Rhinds +44 (0) 20 7557 6414
Finsbury
Faeth Birch +44 (0) 20 7251 3801
Presentation to analysts
A presentation will be held for equity analysts and shareholders by invitation
today at 9am (BST), at Allen & Overy, One Bishops Square, London E1 6AD.
Dial-in details: +44 (0) 20 3003 2666
Password: Thomas Cook
Replay number: +44 (0) 20 8196 1998
Access number: 1435167
A live web-cast and a copy of the slides will be available on our website from
8.45am at www.thomascookgroup.com.
OPERATING REVIEW
The Group has faced a challenging six months. Since December last year, we
have put in place a number of measures to improve the Group's stability. At
the beginning of this month, we were delighted to announce that we had reached
agreement on longer term and more flexible funding with our banking group. The
disposals of India and HCV, and the sale and leaseback of aircraft will reduce
debt and provide additional liquidity and headroom. These actions place the
Group on a much firmer footing and provide a stronger financial platform from
which our new management team can rebuild profitability, re-energise our
business and continue to provide a fantastic holiday experience for our
customers.
The results reflect the continued difficult trading conditions being
experienced in most of the Group's markets and particularly the impact of MENA
on France and the poor trading in the Canadian mainstream business partly a
result of overcapacity in that market. The acquisitions of the Co-op and
Russia have also added to seasonal losses in the first half. Following a
reorganisation, Central Europe now includes our Russian and Eastern Europe
businesses.
Revenue and underlying results
Group revenue for the six months to 31 March 2012 was £3,517m (2011: £3,431m)
up 3% (3% on a constant currency basis). Revenue benefited from the inclusion
of acquisitions, specifically the Russian and Co-op joint ventures which added
£111m, and additional capacity in Airlines Germany and in Northern Europe, but
was offset by capacity reductions in other segments and weaker trading in
North America and France.
The Group seasonal underlying loss from operations was £263m, an increase of
£97m on the prior year. This reflects the inclusion of losses from our
acquired businesses in Russia (£10m seasonal loss) and the Co-op in the UK
(£15m seasonal loss). The difficult trading environment increased losses, in
particular the impact of MENA on the French result (£17m increased loss) and
the poor trading in the North American business (£25m worse than prior year).
Seasonal losses in the UK business are flat year on year excluding the
acquired Co-op seasonal losses, whilst within Central Europe, our German
business performed well with a 58% reduction in the seasonal operating loss at
constant currency.
The Group's underlying net interest charge for the period was £67m, an
increase of £2m as a result of higher average debt and increased arrangement
fees.
Separately disclosed items
Included within separately disclosed items of £385m is a £300m charge as a
result of a review of the carrying value of goodwill in our North America,
West Europe and India businesses. Further details are outlined on page 12.
Whilst clearly a substantial sum, the exceptional items are largely of a
non-cash nature. Cash exceptional costs were £39m (2011: £48m) and largely
relate to the reorganisation and restructuring of our UK, North America and
West Europe businesses and costs in relation to the Group's financing.
Earnings and dividends
As a result of the greater underlying operating loss and the separately
disclosed items, the Group delivered a statutory loss before tax of £713m
compared with £269m for the same period last year. The reported loss after tax
was £605m (2011: £201m).
The underlying basic loss per share was 18.1p (2011: 19.6p loss per share) and
the basic loss per share was 68.2p (2011: 23.5p).
As previously, announced the Group will not pay any further dividend this
year.
Cash flow and balance sheet
The free cash outflow for the period was £522m, an increase of £267m on the
comparable period last year. This was driven by the £97m higher seasonal
operating loss and a £215m increase in working capital outflow. The Group's
working capital profile has changed this year, largely as a result of capacity
reductions and we would expect much of the first half working capital variance
to reverse by the year end. The resulting net debt at 31 March 2012 was
£1,390m (2011: £1,094m) which also reflects the £87m higher opening net debt
position.
Reducing debt and increasing liquidity remains a key objective for the Group
and the agreement of longer term, more flexible banking arrangements and the
recently announced asset disposals are a major step forward in achieving this
objective.
Strategic Review
As previously announced on 5 May 2012, the Board has completed its strategic
review of the Group, the primary purpose of which is to provide a stable
platform for recovery and consider further actions to reduce debt. The outcome
of the strategic review is a stabilisation plan which brings together a range
of existing actions and new initiatives:
· Continuing to drive the turnaround of our UK business;
· Build on the solid performance in our Northern Europe and German
businesses;
· Address our under-performing businesses, particularly in North America,
France and Russia;
· Reducing debt and improving the resilience of our financing and capital
structure through asset disposals, the sale and leaseback of aircraft and
minimising our financial commitments;
· Stabilising our capital structure through the agreement of longer dated
more flexible facilities.
Significant progress has been made since the beginning of the year and an
update on the key highlights is outlined below:
Turnaround of our UK business
Implementation of the UK turnaround plan is well underway. Good progress
across the initiatives has resulted in increased confidence in the scale of
the benefits. We now expect over three years to deliver a fully annualised
improvement in profitability of £140m (up from £110m as previously announced),
for a total estimated cost of circa £70m (up from £60m previously).
Although in the current financial year we expect to deliver benefits of £60m,
these will help to mitigate the difficult trading environment and the weaker
consumer sentiment towards the Group which we experienced earlier in the year.
As a result of the adverse publicity the Group received in the UK, we suffered
a weakening in brand sentiment. However, looking forward, we believe we are
taking the right actions to stabilise the business and provide a more
competitive cost base, which with a steady improvement in brand sentiment will
better position the business for future growth.
The annual improvement in profitability and the outlay in costs are
anticipated to be phased as follows:
£m FY 12 FY 13 FY 14 Annualised run rate
Cumulative improvements 60 120 130 140
Costs to achieve 40 20 10
The initial focus of the UK turnaround plan has been on optimising yield,
reducing retail and tour operator discounts, improving the operational
efficiency of the organisation and facilitating faster, more focused decision
making. The following are the key actions taken to date:
1. Optimise the UK airline (£10m improvement)
We reduced the UK fleet by six aircraft during Winter 11/12 as part of
right-sizing the UK tour operator programme, particularly in long-haul, to
reduce the risk to the business. As previously announced, around 300 employees
will have left the business by the end of the financial year.
2. Refocus the product strategy in mainstream package holidays (£15m
improvement)
Over 500 under-performing hotels have been removed from the Summer 12
programme (around 22% of properties), whilst we have introduced around 150 new
properties, focused on differentiation and exclusivity. For Summer 12,
customers choosing differentiated product are up 9%, making up 31% of overall
passengers for the season to date. Further new properties are being added for
Summer 13 as we continue to evaluate our product offering.
3. Improve yield management (£40m improvement, up £5m)
A single commercial trading approach across the mainstream business has been
implemented with a coordinated discounting approach to ensure that
distribution channels are not competing against each other. The improved yield
tools are allowing us to better manage fast selling stock and delivering
better management information. Our revised discount policy has led to a
substantial reduction in discount levels with retail shops now averaging
around 3% compared to 5% previously. There remain opportunities to align our
product portfolio so that they complement rather than compete against each
other.
4. Rationalise Distribution (£30m improvement in the JV, up £5m)
The integration within the retail JV continues to make good progress. Nearly
100 stores have closed since October 2011 with a further 15 to be closed or
sold during the remainder of the current financial year, resulting in a
headcount reduction as previously announced, of around 850 employees.
Leverage of Thomas Cook's foreign exchange expertise across the combined
retail estate, alongside improved contractual and commercial terms are driving
substantial commercial benefits which largely account for the £5m increase in
expected benefits.
5. Operational excellence (£45m improvement, up £20m)
We are currently implementing the majority of projects identified within the
"operational excellence" category. This process has allowed us to identify
further opportunities, resulting in an increase in the expected benefits. As
we outlined previously, operational excellence is about reducing and
eliminating operational inefficiencies driven by a siloed structure and
overlapping, manual processes.
Since we announced the programme, we have implemented a new IT system to
better manage yield on seat-only sales whilst automating processes and
focusing on ancillary sales. Paperless ticketing has been launched during
Summer 12 and we have reduced brochures by 20% for the current financial year
with further efficiencies expected in FY13. We have also announced that we are
working with software provider Anite to implement a new reservation platform
in the UK to drive improved processes and increase the functionality for our
on-line customers. The first phase of this is expected to be implemented in
the first half of FY13 for departures in FY14.
Building on the solid performances in our Northern Europe and German
businesses
Our businesses in Northern Europe and Germany have performed well over the
last few years, despite difficult market conditions, and provide a stable base
for the Group. We believe that there is scope for further improvement through
strong leadership and building on market positions, increasing online
distribution and differentiated hotel products whilst continuing to focus on
cost control.
Improving under-performing businesses
As we have previously stated, the performance of our businesses in North
America, Russia and France are disappointing and we believe that there is
substantial scope to improve the results of these businesses.
The North American mainstream business had a poor year in 2011 and a very weak
Winter 11/12 season. We have taken action to reduce our flying commitments and
manage our fixed costs and over-capacity. We have exited our flying
arrangements with a third party supplier for the Winter 12/13 season onwards.
Going forward we have an agreement with WestJet to provide our flying on a
flexible basis, which not only reduces our costs, but also provides our
customers with a greater choice of departure airports. Further restructuring
is ongoing as the new management reposition the business for the future.
Our Russian business, which was acquired on 12 July 2011, has been impacted by
MENA as Egypt is an important destination. We have implemented management
change and put the business under the Central Europe management team. A
comprehensive restructuring programme focused on costs and better capacity
management is underway and benefits are already being seen.
In 2011 we changed the management team in our French business, which has
suffered considerably from the impact of MENA and the weak consumer
environment. We are working on plans to improve the performance and are
continuing to evaluate our options.
Disposals
On 11 May the Group announced that it has agreed the sale and leaseback of 17
aircraft with agreements in principle for a further two aircraft. In total we
will receive proceeds of USD 294m (circa £183m) for the 19 aircraft. On 29 May
2012 we received shareholder approval for the sale and leaseback of 19
aircraft. The proceeds are to be retained by the Group to provide significant
additional liquidity.
Following shareholder approval for the sale of HCV hotels, we will complete
the disposal of non-core assets expected to reduce net debt by €94m (circa
£75m). On 21 May we announced the disposal of Thomas Cook India for gross
proceeds of INR 8,174m (circa £94m), the net proceeds of which will be used to
reduce net debt.
Stabilise our capital structure
On the 5 May 2012 we announced a new financing package extending the maturity
of the Group's financing until 31 May 2015 with no fixed repayments. Under the
agreement the Group retains the proceeds of the sale of HCV hotels and the
aircraft sale and leaseback which has increased liquidity and along with
revised financial covenants ensure greater financial flexibility.
Current trading
Summer 12
We have been pleased with the recent booking patterns, particularly given the
uncertain economic environment.
Year on year variation %
Average selling Cumulative Planned capacity
price bookings
UK
- Total - -1 -
- Specialist & - +10 -
Independent
+4 -8 -12
- Mainstream
Central Europe +1 +1 Flat
West Europe +4 -10 -13
Northern Europe +4 -6 -3
Airlines Germany +5 +4 +7
Note: Figures as at 26/27 May 2012. In Central Europe and West Europe,
bookings represent all bookings including cars/overland, however capacity
represents airline seat capacity only. Northern Europe summer season is April
- September. The statistics reflect the transfer of the East Europe businesses
into Central Europe.
Overall, UK bookings are only slightly lower than prior year. Mainstream
bookings are down 8%, well ahead of capacity reductions of 12% and we have 22%
less left to sell compared to prior year. Mainstream average selling price is
stable at +4% but would need to strengthen further to fully cover cost
inflation. Our independent and specialist businesses continue to perform well,
with bookings up 10%, but whilst consumer demand for the Olympics packages
remains strong, corporate demand has been much weaker than expected which has
impacted margins.
In Central Europe, our German business is performing strongly and bookings
(+2%) are ahead of planned capacity (flat), with sustained improvement in the
last four weeks (+4%). Pricing is up 1% and margins remain stable despite the
competition in the market.
Trading in West Europe remains challenging, particularly in France. Bookings
are ahead of capacity reductions, resulting in less left to sell and in recent
weeks have begun to improve as we have seen uplift in bookings to Tunisia.
Pricing remains stable at +4%.
In Northern Europe, bookings are down 6% after a slow start to the year, but
have continued to improve with bookings in the last four weeks up 5% and are
trending towards capacity. Pricing is showing an improvement from the Winter
season, and is up 4%.
Bookings are up 4% in Airlines Germany and continue to improve. Yields are up
5%, partly driven by a higher share of intercontinental routes and the
introduction of a fuel surcharge which partly mitigates the increase in fuel
prices.
Board and management changes
Following the successful completion of longer term financing, Paul
Hollingworth has decided to step down from the Board and his role as Group CFO
at the end of June 2012. Paul will be replaced by Michael Healy, who will
become Group CFO and join the Board on 1 July 2012. Michael joined the Group
on 14 May 2012 and has been working closely with Paul to ensure an orderly
handover.
As announced on 24 May 2012, Harriet Green will succeed Sam Weihagen as Group
CEO. Harriet will join the Group and the Board on 30 July 2012 at which time
Sam Weihagen will step down from the Board. Sam will remain with the Group
until 30 September 2012 to ensure an orderly handover.
Outlook
We continue to expect this year to be challenging given the economic backdrop,
difficult trading environment with particularly poor performances in our North
American and French businesses. Whilst our booking position for the second
half has improved trading will be dependent on how well the Group performs
during the important lates market.
FINANCIAL REVIEW
Financial results and performance review
Group
Six months ended Six months ended
31 March 2012 31 March 2011 Year on year
change
£m (unless otherwise stated)
Revenue 3,516.7 3,431.2 +85.5
Underlying loss from (262.7) (165.8) -96.9
operations[3]
Share of results
1.0 (1.4) +2.4
of associates & joint venture
Net investment income/(loss) 0.3 (1.2) +1.5
Finance charges (66.9) (64.5) -2.4
Underlying loss before tax (328.3) (232.9) -95.4
Separately disclosed items (384.6) (36.5) -348.1
Loss before tax (712.9) (269.4) -443.5
Underlying loss per share (p) (18.1) (19.6) +1.5
Basic loss per share (p) (68.2) (23.5) -44.7
Dividend per share (p) - 3.75 -3.75
Free cash flow[4] (522.1) (255.2) -266.9
Net debt 1,389.9 1,094.2 -295.7
[3] Underlying loss from operations is defined as earnings before interest and
tax, and has been adjusted to exclude all separately disclosed items. It also
excludes our share of the results of associates and joint venture and net
investment income.
[4] Free cash flow includes cash from operating activities, purchase and
proceeds of disposal of tangible and intangible fixed assets and interest
paid.
Income statement
Revenue and underlying profit from operations
Group revenue for the period increased by 2.5% to £3,516.7m, (3.1% at constant
currency). The increase reflects the impact of acquisitions, particularly
Intourist, our Russian business and the Co-op in the UK, in addition to volume
growth in the Northern Europe and Airlines Germany segments, partially offset
by the impact of capacity reductions in the other segments.
The seasonal underlying loss from operations was £262.7m, an increase of
£96.9m on the prior year. This result includes £29.4m of first time seasonal
losses from operations of the acquired businesses, mainly the Co-operative
businesses in the UK and Intourist. In addition, we have seen deteriorating
trading in some of our businesses, particularly in France and North America
where results are worse by £41.7m.
Following the previously announced changes in management structure to transfer
our East Europe businesses into the Central Europe segment, we have revised
our segmental presentation and restated prior year segmental information to
reflect the new structure. The Central Europe segment now includes the
businesses in Poland, Hungary, the Czech Republic and Russia.
The main drivers of the year on year increase in underlying loss from
operations were:
£m
H1 2011 Group underlying loss from operations (165.8)
Trading (11.2)
Increased fuel and accommodation costs (71.3)
Net impact of acquisitions and disposals (26.9)
Cost savings 21.7
Inflation, depreciation, exchange translation and other (9.2)
H1 2012 Group underlying loss from operations (262.7)
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
arisen 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.
Six months ended Six months Year on year
31 March 2012 ended 31 March reduction /
£m 2011 (increase)
Affecting profit from operations
Exceptional operating items (67.3) (37.9) (29.4)
Gain on pension curtailment - 24.5 (24.5)
IAS 39 fair value re-measurement 1.4 (2.2) 3.6
Amortisation of business (14.9) (16.5) 1.6
combination intangibles
(80.8) (32.1) (48.7)
Impairment of goodwill (299.6) - (299.6)
(380.4) (32.1) (348.3)
Affecting net finance costs
Exceptional finance charges (1.0) - (1.0)
IAS 39 fair value re-measurement (3.2) (4.4) 1.2
(4.2) (4.4) 0.2
Total (384.6) (36.5) (348.1)
Exceptional operating items
Exceptional operating items were £67.3m (2011: £37.9m excluding gain on
pension curtailment). The principal elements of this charge were
reorganisation and restructuring costs of £37.6m relating to our UK, North
American and West Europe businesses (£27.3m, £5.5m and £4.8m, respectively), a
revised forecast of the cost to settle a dispute with HM Revenue & Customs
over place of business, £11.8m, and professional and other fees of £14.0m
incurred in relation to the Group's financing.
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 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 gain of £1.4m in the operating result (2011: loss of £2.2m) and a
loss of £3.2m in net finance costs (2011: loss of £4.4m).
Impairment of goodwill and amortisation of business combination intangibles
As announced on 21 May 2012, we have reached agreement to sell Thomas Cook
India. There was a formal process for disposal of this business underway at
31 March 2012 so it has been disclosed as held for sale at that date and
recorded at a carrying value no greater than its fair value less costs to
sell. This resulted in an impairment of goodwill previously recognised in
respect of the business of £96.0m.
Poor trading and subsequent reviews undertaken by new management in Canada and
France have indicated that the goodwill carried in the North America and West
Europe segments may be impaired. As a consequence, we have tested the
goodwill in these segments for impairment and have recognised charges of
£109.2m in respect of North America and £94.4m in respect of West Europe.
During the period we incurred non-cash costs of £14.9m (2011: £16.5m) in
relation to the amortisation of business combination intangibles. £9.5m of
the amortisation relates to the merger of Thomas Cook and MyTravel and
represents the amortisation of brand names, customer relationships and
computer software. The remaining £5.4m relates to other acquisitions made
post-merger.
Income from associates and joint ventures
Our share of the results of associates and joint ventures was a profit of
£1.0m (2011: loss of £1.4m). This mainly reflects the disposal of a loss
making business.
Net investment income
The net investment income in the period was £0.3m (2010: loss of £1.2m). The
prior year result reflected the sale of legacy investments in our German
business.
Net finance costs
Net finance costs (excluding separately disclosed items) for the six month
period were £66.9m (2011: £64.5m) up £2.4m mainly as a result of higher
average borrowing levels and increased arrangement fees.
Tax
The tax credit for the period was £107.9m (2011: £68.0m). Excluding the
effect of separately disclosed items, changes in tax rates and the
derecognition of a deferred tax asset, this represents an effective tax rate
of 49% (2011: 28%) on the underlying loss for the period. Deferred tax assets
of £33.3m relating to the UK have been derecognised following a revised
assessment of the entities in which the forecast taxable profits are expected
to arise and deferred tax assets of £11.7m relating to France have been
derecognised following the deterioration in trading in that business and
review by new management. In each case the derecognition reflects the reduced
likelihood of utilising the related taxable losses within an acceptable time
period.
Loss per share and dividends
The underlying basic loss per share was 18.1 pence (2011: 19.6 pence). The
basic loss per share was 68.2 pence (2011: 23.5 pence).
As previously announced, the Group has decided not to declare any further
dividend payments this year.
Borrowings and liquidity
Six months ended Six months ended Year on year
31 March 2012 31 March 2011 reduction /
£m (increase)
Net cash outflow from operating (449.1) (142.2) (306.9)
activities
Capital expenditure (net of (42.3) (86.8) 44.5
disposals)
Interest paid (30.7) (26.2) (4.5)
Free cash flow (522.1) (255.2) (266.9)
Acquisition of businesses 32.8 2.8 30.0
Disposal of businesses 6.9 - 6.9
Dividends paid (33.0) (32.0) (1.0)
Other items (net) 0.7 1.8 (1.1)
Net cash outflow (514.7) (282.6) (232.1)
The seasonal net cash outflow from operating activities has increased by
£306.9m to £449.1m. This reflects the increased operating losses for the
first six months together with an increased working capital outflow resulting
from reduced revenue in advance following capacity reductions and a later
booking pattern. The lower capacity will also result in lower payments for
accommodation and flying costs and as a result, we would expect to see some
claw back in the working capital position by the year end.
Net capital expenditure for the period was £42.3m (2011: £86.8m). The
reduction of £44.5m reflects reduced expenditure and the benefit of proceeds
from the disposal of non-core assets including a surplus office building in
the Netherlands and Moranda, a vacant hotel in Mexico.
The cash inflow from acquisition of businesses reflects cash acquired,
principally with the Co-operative transaction.
The interim dividend for 2011 was paid on 7 October 2011. The Group
subsequently announced the suspension of dividend payments until the balance
sheet has been rebuilt.
Net debt at 31 March 2012 was £1,389.9m (2011: £1,094.2m) which comprised
£517.7m of cash, £1,835.6m of borrowings and overdrafts and £72.0m of
obligations under finance leases. Available cash and headroom under the
Group's committed borrowing facilities at 31 March 2012 was £323m.
Hedging
Summer 12 Winter 12/13
Euro 95% 73%
US Dollar 87% 64%
Jet Fuel 86% 37%
As at 25 May 2012
PRINCIPAL RISKS & UNCERTAINTIES
The principal risks and uncertainties affecting the business activities of the
Group and mitigating actions being taken by management were set out on pages
28 to 30, and more fully described throughout the Directors' Report, of the
Annual Report & Accounts for the year ended 30 September 2011, a copy of which
is available on the Group's corporate website, www.thomascookgroup.com. The
key Group risks were summarised under the headings of:
Operational and strategic risks
· downturn in the global economy and in the economies of our source
markets leading to a reduction in demand for our products and services;
· fall in demand for traditional package tours and competition from
internet distributors and low-cost airlines;
· failure to implement the UK turnaround plan;
· significant damage to the Group's reputation or brands;
· environmental concerns;
· a major health and safety incident;
· loss of, or difficulty in replacing, senior talent;
· natural catastrophe including closure of airspace;
· disruption to information technology systems or infrastructure, premises
or business processes;
· performance failure by outsourced partners.
Financial risks
· liquidity and counterparty credit risks;
· extent of borrowings;
· commodity risk: fuel, foreign currency, and interest rate risks;
· breakdown in internal controls;
· tax risk;
· pension liabilities.
Other risks
· security, political or terrorist risks in key tourist destination
markets;
· legal and regulatory risks, (in particular relating to licences and
regulations for airlines, package holidays and consumer protection);
· competition law and anti-trust.
In the context of the risks arising from a downturn in the global economy,
foreign currency risk and political risks in key tourist destination markets,
the Group continues to monitor the recent sovereign debt crises in Greece,
Spain and other European countries. In the view of the Board, the key risks
and uncertainties for the remaining six months of the financial year continue
to be those set out in the above section of the Annual Report & Accounts 2011.
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 Six months ended 31 Change
March 2012 March 2011
Financial (£m unless otherwise
stated)
Revenue * 993.1 1,022.5 -2.9%
Underlying loss from operations (173.6) (158.7) -9.4%
**
Underlying operating margin % (17.5)% (15.5)% -12.9%
***
Non-financial
Mass market risk
Passengers † -7.9%
Capacity †† -8.0%
Average selling price # +0.6%
Load factor ††† -
Brochure mix ## -5.4%
Controlled distribution ‡‡ 82.6% 71.5% +15.5%
Internet distribution ‡‡ 35.3% 35.6% -0.8%
See Appendix 2 for key.
Revenue in our UK segment was down £29.4m at £993.1m, reflecting reduced
capacity in our UK mainstream tour operators and airline, partially offset by
growth in dynamic packages, particularly through our Flexible Trips business.
The Co-op contributed £38.8m of revenue in the first half.
The seasonal underlying loss from operations grew by £14.9m to £173.6m due to
the additional seasonal losses from the Co-op of £14.9m. Although we achieved
benefits from cost savings and efficiencies, these were offset by the impact
of lower revenues, fuel price rises and higher accommodation costs.
Controlled distribution increased to 82.6% following the merger with the high
street travel agency businesses of The Co-operative Group and the Midlands
Co-operative. The transaction completed on 4 October 2011 and the additional
stores are being integrated with our existing retail network. As previously
announced, a rationalisation programme is underway to maximise the efficiency
of the combined store portfolio with the main benefit of the merger expected
to be seen in the second half of the year
Central Europe
Restated
Change
Six months ended 31 six months ended 31
March 2012 March 2011
Financial (£m unless otherwise
stated)
Revenue * 881.9 774.5 +13.9%
Underlying loss from operations (20.8) (17.5) -18.9%
**
Underlying operating profit (2.4)% (2.3)% -4.3%
margin % ***
Non-financial
Mass market
Passengers † +7.8%
Flight inclusive +7.7%
Non-flight inclusive +7.9%
Average selling price # +3.2%
Controlled distribution ‡‡ 23.6% 24.0% -1.7%
Internet distribution ‡‡ 7.2% 7.6% -5.3%
See Appendix 2 for key.
Results for the six months ended 31 March 2011 have been restated to reflect
the transfer of the East Europe businesses from the former West & East Europe
segment to the Central Europe segment.
Our Central Europe segment now includes the East Europe businesses in Poland,
Hungary, and the Czech Republic as well as the Russian business, which was
acquired in July 2011. Revenue has increased by £16.2m on a like-for-like
basis (2.9% at constant currency), driven by increased average selling
prices. The impact of the Russian acquisition added a further £72.0m to
revenue and the specialist German tour operator, Tour Vital acquired in
October 2011 added £19.2m to revenues.
The underlying loss from operations increased by £3.3m but this included the
initial recognition of seasonal operating losses of £10.4m from the Russian
business, partly offset by £0.6m profit from operations within Tour Vital. On
a like-for-like basis, the seasonal underlying loss from operations reduced by
£6.5m (35.4% at constant currency), reflecting a strong performance from our
German operations which also benefitted from improved margins.
The Central Europe business, as historically reported (Germany, Austria &
Switzerland), including the acquisition of Tour Vital, reported revenue of
£786.2m, an increase of 6.1% at constant currency. The seasonal underlying
loss from operations was £5.8m, a reduction of £8.9m (58.0% reduction at
constant currency) on the prior year.
Controlled and internet distribution have remained broadly stable despite the
growth in passengers through acquisition. This reflects the increased
conversion of customers through our in-house distribution channels.
West Europe
Restated
Change
Six months ended six months ended 31
31 March 2012 March 2011
Financial (£m unless otherwise
stated)
Revenue * 458.0 517.7 -11.5%
Underlying loss from operations (65.6) (34.1) -92.4%
**
Underlying operating margin % (14.3)% (6.6%) -116.7%
***
Non-financial
Mass market
Passengers † -12.6%
Flight inclusive -12.2%
Non-flight inclusive -13.2%
Average selling price # +2.0%
Controlled distribution ‡‡ 55.7% 58.0% -4.0%
Internet distribution ‡‡ 25.0% 22.7% +10.1%
See Appendix 2 for key.
Results for the six months ended 31 March 2011 have been restated to reflect
the transfer of the East Europe businesses from the former West & East Europe
segment to the Central Europe segment.
Revenue in our West Europe segment, which includes our businesses in France,
Belgium and The Netherlands, fell by £59.7m (10.6% at constant currency).
This reduction reflects the capacity changes implemented as consumer
confidence remains weak and the impact of unrest in the MENA region persists,
particularly in the French market for which North Africa is an important
winter destination. Losses in our French operation increased by £16.9m
compared to prior year.
Cost reduction programmes have been initiated in all these markets and whilst
they are showing benefits in the period, further cost improvements are
targeted for the second half of the year.
The reduction in controlled distribution of mass market products is a result
of the disposal of the retail operation in The Netherlands during the period,
which reported an operating loss of £2.5m in the comparable prior year
period. This disposal reduces overhead costs by approximately £7.0m for the
period.
Northern Europe
Six months ended 31 Six months ended 31
March 2012 March 2011 Change
Financial (£m unless otherwise
stated)
Revenue * 586.5 539.9 +8.6%
Underlying profit from 25.0 34.0 -26.5%
operations **
Underlying operating margin % 4.3% 6.3% -31.7%
***
Non-financial
Mass market risk
Passengers † +9.5%
Capacity †† +9.9%
Average selling price # -4.7%
Load factor ††† -0.2%
Brochure mix ## -8.3%
Controlled distribution ‡‡ 85.9% 84.0% +2.3%
Internet distribution ‡‡ 63.1% 58.0% +8.8%
See Appendix 2 for key.
Revenue in Northern Europe grew to £586.5m reflecting constant currency growth
of 9.2% as the business increased capacity to maintain market share in a
competitive marketplace. Consumer confidence has declined in these source
markets but load factors were maintained albeit at a lower average selling
price as we saw a reduction in the proportion of full price brochure sales and
a consequent increase in lower margin, late sales. Results were also affected
by weaker demand for Thailand following flooding during the winter.
Personnel costs rose as a result of increased staff in the airline following
the capacity increase and although other costs were well controlled, the
underlying profit from operations reduced by £9.0m to £25.0m (down 26.2% at
constant currency).
Controlled distribution and internet distribution continue to increase, the
latter reflecting actions taken to make online booking for our Independent
businesses more customer friendly.
North America
Six months ended 31 Six months ended 31 Change
March 2012 March 2011
Financial (£m unless otherwise
stated)
Revenue * 206.6 241.4 -14.4%
Underlying (loss)/profit from (15.5) 9.3 n/a
operations **
Underlying operating margin % (7.5)% 3.9% n/a
***
Non-financial
Mass market risk
Passengers † -16.6%
Capacity †† -14.7%
Average selling price # -3.0%
Load factor ††† -2.2%
Brochure mix ## +24.1%
Controlled distribution ‡‡ 16.5% 12.9% +27.9%
Internet distribution ‡‡ 31.6% 31.5% +0.3%
See Appendix 2 for key.
Note: Internet distribution % includes independent travel bookings.
Our North America business has underperformed during the period in the face of
difficult market and economic conditions. Revenue reduced by £34.8m to
£206.6m (down 14.2% in constant currency), reflecting reduced capacity and
lower average selling prices in a very competitive market place.
The underlying result from operations reduced by £24.8m. The deterioration in
the like-for-like result was principally margin driven through a combination
of fuel cost increases and higher accommodation costs.
During the period we changed the management of the business and the new
management team has reviewed the operational approach and taken action to
reduce costs and restructure the operations. The decision was taken in April
to change our flying partner in this market in order to achieve a more
flexible and less risky flying programme. The business will take smaller seat
allocations across a wider number of departure airports rather than the
previous operation of dedicated aircraft from a few airports and will increase
the frequency of flights on certain key routes and departure days offering the
customer greater choice and flexibility.
The impact of operating Sears Travel for the full period has increased the
proportion of controlled distribution to 16.5%.
Airlines Germany
Six months ended Six months ended
31 March 2012 31 March 2011 Change
Financial (£m unless otherwise
stated)
Revenue - external * 390.6 335.2 +16.5%
Revenue - internal * 115.8 119.8 -3.3%
Total revenue * 506.4 455.0 +11.3%
Underlying (loss)/profit from (3.0) 12.3 n/a
operations **
Underlying operating margin % *** (0.6)% 2.7% n/a
Non-financial
Sold seats ‡‡‡
Thomas Cook tour operators +1.3%
3rd party tour operators +10.1%
External seat only +35.2%
Total sold seats +15.3%
Sold seats ‡‡‡
Europe (excl. Cities) +17.4%
Long haul +10.2%
Total sold seats +15.3%
Capacity †† +14.2%
Yield ### -2.9%
Seat load factor ††† +0.6%
See Appendix 2 for key.
Revenue has increased £55.4m to £390.6m for the period (17.7% at constant
currency) following the addition of two long-haul aircraft to the fleet.
The underlying seasonal operating result was reduced by £15.3m to a loss from
operations of £3.0m. This reflects the reduced margins arising from increased
fuel costs which have not been fully passed on to customers. For the summer
season we have to been more successful in raising yields to partly mitigate
much of the increase in fuel prices.
Personnel costs and depreciation have increased as a result of the increased
fleet size but this has been largely offset by operating cost efficiencies.
Corporate
Six months ended 31 Six months ended 31
March 2012 March 2011 Change
Financial (£m)
Underlying loss from operations (9.2) (11.1) +17.1%
**
See Appendix 2 for key.
Costs in the Corporate segment have reduced in the period principally as a
result of lower IT related and other expenses.
Appendix 1 - Condensed consolidated interim financial information
Group Income Statement
Unaudited Unaudited
Six months ended 31 March 2012 Six months ended 31 March 2011
Underlying Separately Total Underlying Separately Totaltal
results disclosed results disclosed
items* items *
(note 5) (note 5)
notes £m £m £m £m £m £m
Revenue 4 3,516.7 - 3,516.7 3,431.2 - 3,431.2
Cost of
providing
tourism (2,807.8) 0.7 (2,807.1) (2,714.2) (3.2) (2,717.4)
services
Gross profit 708.9 0.7 709.6 717.0 (3.2) 713.8
Personnel
expenses (542.1) (24.6) (566.7) (491.2) 5.5 (485.7)
Depreciation
and
amortisation (86.2) (0.1) (86.3) (80.3) - (80.3)
Net operating
expenses (343.3) (37.1) (380.4) (311.3) (19.3) (330.6)
(Loss)/profit
on disposal of
assets 5 - (4.8) (4.8) - 1.4 1.4
Impairment of
goodwill and
amortisation of
business
combination
intangibles
5 - (314.5) (314.5) - (16.5) (16.5)
Loss from 4 (262.7) (380.4) (643.1) (165.8) (32.1) (197.9)
operations
Share of
results of
associates and
joint venture
1.0 - 1.0 (1.4) - (1.4)
Net investment
income/(loss) 0.3 - 0.3 (1.2) - (1.2)
Finance income 6 24.2 - 24.2 22.8 - 22.8
Finance costs 6 (91.1) (4.2) (95.3) (87.3) (4.4) (91.7)
Loss before tax (328.3) (384.6) (712.9) (232.9) (36.5) (269.4)
Tax 7 107.9 68.0
Loss for the
period (605.0) (201.4)
Attributable
to:
Equity holders (594.3) (200.8)
of the parent
Non-controlling (10.7) (0.6)
interests
(605.0) (201.4)
Loss per share
(pence)
Basic and
diluted 8 (68.2) (23.5)
All revenue and results arose from continuing operations
The notes on pages 27 to 43 form an integral part of the condensed
consolidated interim financial information.
* Separately disclosed items consist of exceptional operating items, IAS 39
fair value re-measurement, impairment of goodwill and amortisation of business
combination intangibles.
Group Statement of Comprehensive Income
Unaudited Unaudited
Six months ended Six months
ended
31/03/12 31/03/11
notes £m £m
Loss for the period (605.0) (201.4)
Other comprehensive income and expense
Foreign exchange translation (losses)/gains (24.0) 42.0
Actuarial (loss)/gain on defined benefit
pension schemes 18 (46.7) 118.7
Tax recognised on actuarial movements 9.4 (32.9)
Fair value gains and losses
(Losses)/gains deferred for the period (57.8) 74.7
Tax on (losses)/gains deferred for the
period 17.0 (20.3)
Losses transferred to the income statement 50.2 44.9
Tax on losses transferred to the income
statement (14.0) (12.6)
Total comprehensive (expense)/income for the
period (670.9) 13.1
Attributable to:
Equity holders of the parent (660.2) 13.7
Non-controlling interests (10.7) (0.6)
Total comprehensive (expense)/income for the
period (670.9) 13.1
The notes on pages 27 to 43 form an integral part of the condensed
consolidated interim financial information.
Group Cash Flow Statement
Unaudited Unaudited
Six months ended Six months
ended
31/03/12 31/03/11
notes £m £m
Cash flows from operating activities
Cash generated by operations (428.1) (123.2)
Income taxes paid (21.0) (19.0)
Net cash outflow from operating activities 15 (449.1) (142.2)
Investing activities
Proceeds on disposal of subsidiaries 6.9 -
Proceeds on disposal of property, plant and
equipment 27.1 10.3
Purchase of subsidiaries (net of cash
acquired) 12 32.8 2.8
Purchase of tangible and financial assets (50.1) (62.5)
Purchase of intangible assets (19.3) (34.6)
Sale of non-current financial assets 0.4 2.3
Additional loan investment - (0.6)
Proceeds on disposal of short-term
securities 0.3 0.1
Net cash used in investing activities (1.9) (82.2)
Financing activities
Interest paid (30.7) (26.2)
Dividends paid 9 (32.7) (32.0)
Dividends paid to non-controlling interests (0.3) -
Draw down of borrowings 817.4 251.3
Repayment of borrowings (122.8) (22.2)
Payment of facility set-up fees (14.9) -
Repayment of finance lease obligations (6.3) (8.1)
Net cash from financing activities 609.7 162.8
Net increase/(decrease) in cash and cash
equivalents 158.7 (61.6)
Cash and cash equivalents at beginning of
the period 341.7 316.8
Effect of foreign exchange rate changes (5.4) 5.0
Cash and cash equivalents at end of the
period 495.0 260.2
Liquid assets 16 517.7 304.5
Bank overdrafts 16 (22.7) (44.3)
Cash and cash equivalents at end of the
period 495.0 260.2
Cash and cash equivalents are presented in
the balance sheet as follows:
Cash and cash equivalents 476.8 304.5
Assets held for sale 40.9 -
Short term borrowings (16.7) (44.3)
Liabilities related to assets held for sale (6.0) -
495.0 260.2
The notes on pages 27 to 43 form an integral part of the condensed
consolidated interim financial information.
Group Balance Sheet
Unaudited Unaudited Audited
as at as at as at
31/03/12 31/03/11 30/09/11
notes £m £m £m
Non-current assets
Intangible assets 10 3,233.6 3,963.0 3,550.0
Property, plant & equipment
Aircraft and aircraft spares 10 614.2 654.5 638.6
Investment property 10 - 17.4 18.0
Other 10 251.2 340.4 280.3
Investment in associates and joint venture 22.3 37.8 22.1
Other investments 13.3 19.3 13.4
Deferred tax assets 404.0 441.1 281.3
Tax assets 4.9 4.8 4.2
Trade and other receivables 129.6 119.8 153.0
Derivative financial instruments - 3.4 12.6
4,673.1 5,601.5 4,973.5
Current assets
Inventories 36.7 38.7 38.7
Tax assets 69.4 44.4 40.2
Trade and other receivables 1,414.4 1,301.1 1,090.5
Derivative financial instruments 79.2 191.1 117.2
Cash and cash equivalents 16 476.8 304.5 359.3
2,076.5 1,879.8 1,645.9
Assets held for sale 11 233.6 10.9 70.4
Total assets 6,983.2 7,492.2 6,689.8
Current liabilities
Retirement benefit obligations 18 (6.4) (6.9) (6.8)
Trade and other payables (1,653.1) (1,611.5) (2,008.2)
Borrowings 13/16 (95.6) (422.0) (179.5)
Obligations under finance leases 16 (17.9) (14.5) (18.6)
Tax liabilities (103.6) (89.9) (92.7)
Revenue received in advance (1,751.6) (1,773.6) (1,167.2)
Short-term provisions 14 (163.1) (155.8) (187.6)
Derivative financial instruments (54.9) (116.9) (88.2)
(3,846.2) (4,191.1) (3,748.8)
Liabilities related to assets held for 11
sale (107.8) - (35.0)
Non-current liabilities
Retirement benefit obligations 18 (359.9) (266.7) (324.2)
Trade and other payables (104.5) (18.9) (42.4)
Long-term borrowings 13/16 (1,695.7) (905.3) (967.8)
Obligations under finance leases 16 (53.7) (56.9) (62.1)
Non-current tax liabilities (0.6) - (0.6)
Revenue received in advance (2.3) (1.0) (1.9)
Deferred tax liabilities (119.1) (141.9) (120.9)
Long-term provisions 14 (197.2) (204.5) (193.5)
Derivative financial instruments (3.6) (9.4) (9.4)
(2,536.6) (1,604.6) (1,722.8)
Total liabilities (6,490.6) (5,795.7) (5,506.6)
Net assets 492.6 1,696.5 1,183.2
Equity
Called-up share capital 59.2 57.7 59.2
Share premium account 29.2 8.9 29.2
Merger reserve 1,617.8 1,984.2 1,617.8
Hedging and translation reserves 288.3 428.2 316.9
Capital redemption reserve 8.5 8.5 8.5
Retained earnings deficit (1,558.8) (800.0) (871.4)
Investment in own shares (13.4) (13.3) (13.3)
Equity attributable to equity holders of
the parent 430.8 1,674.2 1,146.9
Non-controlling interests 61.8 22.3 36.3
Total equity 492.6 1,696.5 1,183.2
The notes on pages 27 to 43 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 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 (BAYE) - (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
The unaudited movements in equity for the six months ended 31 March 2011 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 2010 66.6 1,979.4 299.5 (626.9) 1,718.6 24.1 1,742.7
Loss for the
period - - - (200.8) (200.8) (0.6) (201.4)
Other
comprehensive
income/(expense):
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