STRONG PROGRESS UNDERPINS STRATEGY OF SUSTAINED PROFITABLE GROWTH

Transcription

1 15 May 2014 Results for the six months ended 31 March 2014 STRONG PROGRESS UNDERPINS STRATEGY OF SUSTAINED PROFITABLE GROWTH Firstly, I m delighted to report that we have delivered 39% underlying EBIT growth to 274 million and a 120 basis point improvement in underlying gross margin to 22.5% on a last 12 months like for like basis, despite around a quarter of a million fewer customers travelling to Egypt which reduced revenues and profits by 131 million and 14 million respectively. Secondly, concept hotel summer bookings are up 44% and UK 2014/15 winter bookings 11% higher, reflecting strong customer demand for our new products. Thirdly, 2014 Wave 1 cost out and profit improvements are 20 million ahead of plan, resulting in yet another increase in our 2015 Wave 1 target, from 440 million to more than 460 million. Finally, Standard & Poor s recently recognised our transformation progress by raising their outlook to positive from stable. In respect of our 2018 Wave 2 target of over 400 million, we have so far identified an initial proportion of benefits, which we have fully risk weighted, of 150 million, with substantially more to come. We believe that these, in addition to over 1.2 billion in targeted incremental new product revenue in 2017, will transform our profitability and generate superior returns for our shareholders. Harriet Green, Group Chief Executive Key highlights Underlying EBIT up 39%, a rise of 77 million to 274 million on a last 12 months like for like basis (LTM ended 31 March 2013: 197 million); for the six months ended 31 March 2014 underlying EBIT improved by 30 million to (187) million on a like for like basis (six months ended 31 March 3013: (217) million) Wave 1 FY15 cost out and profit improvement target up 20 million to 460 million. Wave 2 FY18 target of over 400 million; initial risk weighted benefits identified so far of 150 million Online bookings increased to almost 39% over the last six months. Annual web booked revenues now represent approximately 3 billion; mobile and tablet bookings almost 0.5 billion Strong new product demand: Summer concept hotel bookings up 44%, UK Winter 14/15 bookings up 11%. Around a third of Group revenue is from more flexible rather than traditionally packaged products Summer 2014 booking performance is developing well with solid volumes in our main markets (unless otherwise stated) 6 months ended months ended Underlying Statutory Underlying Statutory Revenue 3,011 3,011 3,224 3,224 EBIT (187) (283) (198) (314) EBIT margin (%) (6.2)% (9.4)% (6.1)% (9.7)% EBIT on a like for like basis (187) (283) (217) (332) Free cash flow excl. disposed business contribution (460) (460) (407) (407) Net debt (811) (811) (1,215) (1,215) (unless otherwise stated) LTM ended LTM ended Underlying Statutory Underlying Statutory Revenue 9,101 9,101 9,109 9,109 EBIT EBIT margin (%) 3.0% 0.5% 2.5% 0.3% EBIT on a like for like basis Free cash flow excl. disposed business contribution Net debt (811) (811) (1,215) (1,215)

2 Note: Throughout this document the abbreviation LTM refers to the last 12 months to 31 March. The term underlying refers to trading results after adjusting results on a statutory basis for separately disclosed items that are significant in understanding the on-going results of the Group. Separately disclosed items are included on the face of the income statement and are detailed on p19. The term like-for-like reflects the underlying results after removing identifiable non-recurring items in the prior year, including the timing of Easter, and adjusting for exchange rate movements. Like-for-like adjustments are shown on pages 15 to 19. Full details of our financial performance are set out on pages On 13 March 2013 we published specific and measurable targets and key performance indicators ( KPIs ), committing to report our progress towards achieving these at regular intervals, which at H is as follows: Further new product growth Incremental new product revenue rose by a further 46 million to 140 million on a cumulative basis to 31 March 2014 (FY13: 94 million), on track to achieving our FY14 target of more than 300 million Summer bookings at our Concept hotels have increased by 44% to 460,211 compared with the same period last year Summer bookings at our Partnership hotels have increased by 11% to 593,925 compared with the same period last year Our concept and partnership hotel portfolio continues to grow rapidly. Since the end of FY13, we have secured a further 166 new exclusive hotels, taking the total to 475, an increase of 54%, well on track to achieve our targeted 640 by FY15 and 800 by FY17. The pipeline remains strong with over 300 potential hotels identified for conversion against a requirement of 165 to achieve the FY15 target. Capitalising on this strong growth momentum, we are currently considering a number of strategic and financing options that could enable us to accelerate their development Our mix of business continues to extend beyond pure packaged to more flexible products that provide customers with greater optionality when choosing destinations, durations and departure dates for their holidays as well as access to an attractive range of ancillary offers. The proportion of business coming from these more flexible products now represents approximately 3 billion, equating to around a third of total Group revenue Web penetration Significant progress is being made to transform Thomas Cook from a detached and disjointed web legacy to a fully integrated digital business. This includes consolidating 304 websites to around four per segment and reducing 17 web platforms to one We have now achieved approximately 3 billion in web generated annual revenues, supported by online bookings over the last six months, which have risen to 38.8%, as we continue to make encouraging progress towards our FY14 target of over 40%. Over the last 12 months and on the basis that bookings are only recognised once the customer departs on holiday, the online penetration rate is 36.4%. Backed by our encouraging progress over the last six months and supported by our recently enhanced customer website, we expect to generate further momentum in the second half of this year as we move towards a tipping point when we expect web penetration to accelerate Tour Operator bookings via tablets and mobile devices are up 72% compared with the same time last year, desktop conversion rates are up 17% and UK branded traffic on thomascook.com has increased by double digit percentage points since the launch of marketing campaigns in June 2013 Our web penetration in mobile and tablet is especially promising, with mobile and tablet bookings delivering a run rate of almost 0.5 billion in annual revenue Further enhancing our growing team of digital talent, we are pleased to announce the appointment of Jo Hickson, Kathryn Parsons and Nicola Millard to our industry leading Digital Advisory Board. Jo Hickson is Group Head of Innovation at Home Retail Group plc, Kathryn Parsons is co-founder and co-ceo of the business, De-coded, which has been nominated as one of - 2 -

3 the top 5 most innovative businesses in the UK, and Nicola Millard is a senior member of BT Global Services where she specialises in analysing future trends for customers and organisations Of our 40 person senior digital team, over half are new hires, many joining from leading digital companies such as Expedia, ebay, booking.com, Orange and lastminute.com We are launching a new fully responsive web site with a substantially improved user interface. Initially introducing it in the UK, we plan to roll this out to other markets over the coming months We won the Chartered Institute of Marketing (CIM) award for Excellence in Digital Marketing and our new Holidays to go! (@TCOffers) was named one of the top social media campaigns for March 2014 by Econsultancy. In addition, our Swedish brand, Ving, recently won The Service Award for the best service in the holiday travel business Continuing cost out and profit improvements Sales growth In the six months to 31 March 2014, we delivered a further 83 million of Wave 1 cost out and profit improvement benefits, taking the cumulative total to 277 million, enabling us to absorb trading challenges such as the impact of the market disruption in Egypt Risk weighting adjustments to maturing initiatives whose realisable benefits are expected to be greater than those we had originally assumed have led our FY14 and FY15 cumulative Wave 1 targets to increase to 360 million and 460 million respectively, representing a further 20 million of benefits that have been identified in FY14 at minimal extra cost Through The Thomas Cook Business System we continue to identify significant opportunities to further professionalise the Group around our customers needs, developing products, digitising the business and consolidating diffuse operations, overlaid by relentless performance management In the context of our FY18 Wave 2 target of over 400 million, we have so far identified an initial proportion of benefits, which we have fully risk weighted, of 150 million, with substantially more to come The estimated incremental one-off costs to deliver the target of more than 400 million in annual benefits by FY18 are cash costs of 145 million. Identified initiatives include significant enhancements to our hotel and yield management systems, optimised channels and contact centres and increased digitisation, all enabled by a leaner and more focused functional support structure These benefits are anticipated not only to support further improvements in EBIT but also enable continuing investment in new product development that will ensure sustainable profitable growth over the long term The 131 million revenue reduction due to market disruption in Egypt more than offset sales growth elsewhere in the Group and resulted in sales falling by 0.7% on an LTM and like for like basis at H1 2014, a decrease of 60 million to 9,101 million (LTM ended 31 March 2013: 9,161 million). For the same reason, revenue for the six months ended 31 March 2014 fell by 213 million to 3,011 million (six months ended 31 March 2013: 3,224 million). Excluding this, year on year sales growth was up 0.8% on an LTM basis. While the impact of Egypt makes the achievement of our FY14 milestone more challenging, we remain confident that, supported by our encouraging new product momentum, we will achieve our sales growth target of more than 3.5% in FY15 Underlying gross margin improvement Underlying gross margin on an LTM and like for like basis improved by 120 basis points to 22.5% (LTM ended 31 March 2013: 21.3%), reflecting yield management enhancement as part of the continuing operating improvements under The Thomas Cook Business System. Underlying gross - 3 -

4 margin for the six months ended 31 March 2014 increased by 150 basis points to 21.7% (six months ended 31 March 2013: 20.2%) UK EBIT margin improvement Underlying UK EBIT margin on an LTM like for like basis improved by 150 basis points to 2.1% (LTM ended 31 March 2013: 0.6%). This was achieved despite the adverse impact of Egypt and reflects the successful delivery of our cost out and profit improvements, which have compensated for its weaker gross margin in H We remain confident that our transformational actions, including the acceleration of Wave 1 cost out and profit improvement benefits in FY14, will enable us to achieve the UK underlying EBIT margin target of more than 3.5% by FY14 and more than 5% by FY15 Cash conversion The cash conversion ratio on an LTM basis of 41% (LTM ended 31 March 2013: 61%) is better than the guidance of 35% provided at our Q Interim Management Statement. Cash conversion has been impacted by changes to supplier payment terms and the incidence of aircraft maintenance events. The short term impact of these items is expected to reverse with a positive impact during the final quarter of this financial year We therefore remain on track to achieve our cash conversion targets of more than 55% in FY14 and of more than 70% in FY15 Disposals target completed ahead of plan 125 million of gross disposal proceeds completed ( 119 million in the six months ended 31 March 2014), achieving our 100 million to 150 million FY15 target eighteen months early. Net consideration amounted to 107 million ( 106 million in H1 14), after reflecting completion adjustments and transaction costs The FY13 revenue and EBIT contribution of those businesses disposed of at the beginning of 2014, which consequently will not make a full contribution to FY14, were 271 million and 13 million respectively Outlook Our Summer 2014 booking performance is developing well with solid volumes in our main markets and cost out measures are offsetting some Summer season pricing softness in the UK Going forward, we expect the momentum that we are generating in new product development to have an increasingly positive impact on the Group s financial results. In the UK, for example, early Winter 2014/2015 bookings are over 11% higher and average selling prices are up 2%, reflecting the benefits of our enhanced product range including a significantly wider choice of Winter Sun destinations Since setting out on the transformation of Thomas Cook in the latter half of 2012, we have achieved significant results very quickly. We have turned around the business, announced a strategy for sustainable profitable growth, set out clear targets and KPIs, strengthened the balance sheet and delivered on everything we said we would do, plus promising more Directed through the Thomas Cook Business System, developing products that delight our customers, digitising the Group, consolidating diffuse operations and implementing a lean culture of efficiency, all designed with our customer at its heart, we look forward setting new parameters for profitability and generating superior shareholder returns Continuing delivery remains an overriding objective. So too, is our relentless realisation of further value within the business. Highly encouraged by the results of our new product development, such as the 11% rise in UK bookings for our new 14/15 Winter Sun vacations and the strong exclusive hotel pipeline which we are looking to accelerate, we are confident of delivering further momentum - 4 -

5 Enquiries Analysts & Investors Geoffrey Pelham-Lane, Thomas Cook Group +44 (0) Mav Wynn, Thomas Cook Group +44 (0) Media Jenny Peters, Thomas Cook Group +44 (0) Andrew Lorenz, FTI Consulting +44 (0) Upcoming events Q Interim Management Statement will be announced on Thursday 31 July 2014 FY14 results will be announced on Wednesday 26 November 2014 Presentation to equity analysts A presentation will be held for equity analysts by invitation today at a.m. (BST), at FTI Consulting, 9 th floor, North Building, 200 Aldersgate, London EC1A 4HD A webcast of the presentation is available via the following link and dial in: United Kingdom (Local) All other locations

6 GROUP CHIEF EXECUTIVE S REVIEW These results mark a significant milestone in the successful delivery of our strategy for sustainable profitable growth, the progress on which Standard & Poor s recently recognised by raising their outlook to positive from stable. Firstly, despite around a quarter of a million fewer customers travelling to Egypt, which reduced revenues and profits by 131 million and 14 million respectively, Thomas Cook still delivered 39% like for like EBIT growth over the last 12 months ( LTM ). This demonstrates not only the benefits of the Group s increased financial strength that enables it to withstand such external events, but also, importantly, of its gathering earnings momentum. Secondly, half way through our clear three year performance targets and KPIs, it is encouraging to see such strong progress. This is most notable in the critical area of cost out and profit improvement which has substantially over delivered. In just fourteen months since the target was presented at our strategy presentation, the FY15 target has almost doubled from the original target given in November 2012 to 460 million now. Thirdly, looking further forward, we can deliver even more. In particular, we see significant opportunities as we increasingly professionalise the Group around our customers needs, developing products, digitising the business and consolidating diffuse operations, all through relentless performance management. In the context of our FY18 ambition to deliver further cost out and profit improvements of a similar magnitude to Wave 1, I am pleased to announce that we have already identified internally risk weighted benefits of 150 million for Wave 2, with substantially more to come. Further financial improvement The further financial improvements continue to reflect the ongoing benefits of our implementation of The Thomas Cook Business System, increasingly professionalising the Group in the sustained interests of our customers, our employees and our owners. The 39% increase in like for like LTM EBIT from 197 million to 274 million and the net EBIT margin improvement on the same basis of 90 basis points, from 2.1% to 3.0%, were primarily driven by cost out and profit improvements and initial contributions from new product developments that more than offset the reduced customer demand for holidays to Egypt. Full details of our financial results are set out from page 14. Targets and KPIs Delivery of our targets and key performance indicators ( KPIs ) remains our top priority. As you can see from the following table, the clear targets and KPIs that we set in March 2013 remain consistent as does, based on our strong progress to date, our commitment to deliver them. What has changed is the quantum of some of the targets, specifically FY15 new product revenue, cost out and profit improvement and cash conversion, all of which have been increased since then. At our 2013 full year results announcement we increased our FY15 new product revenue target from 500 million to more than 700 million, our FY15 cost out and profit improvement target from 400 million to more than 440 million and FY15 cash conversion from 60% to more than 70%. Today at our 2014 half year results announcement, just six months later, I am delighted to announce yet another increase; this time taking our FY15 cost out and profit improvement target up from 440 million to more than 460 million

7 These targets and KPIs are not just a set of disciplined metrics by which to measure the near term value of the transformation, they are also the embodiment of our approach to delivering sustained business excellence, encapsulated by The Thomas Cook Business System and further manifested by our longer term new product revenue targets and the new Wave 2 of cost out and profit improvement measures. Embedded within our employees performance criteria, integrated into our financial reporting processes and instilled through a lean business culture, we look forward to delivering on these and more. FY 12 FY 13 H1 14 FY 14 FY 15 Targets New Product Revenue (i) - 94m 140m > 300m > 700m Web Penetration (i) 34% 36% 36% > 40% > 50% Cost out/ profit improvement (run-rate) 60m 194m 277m > 360m > 460m KPIs Sales CAGR (i),(ii) - - (0.7)% > 2.5% > 3.5% Underlying Gross Margin - 0.8% 1.4% > 1.2% > 1.5% Improvement (iii) Underlying UK EBIT 0.1% 2.2% 2.1% > 3.5% > 5% Margin (i) Cash Conversion (i),(iv) 11% 48% 41% > 55% > 70% Notes (i) (ii) (iii) (iv) Measured on an LTM basis Compound annual growth rate from FY13 including new product revenue. H1 14 includes adverse impact of Egypt Underlying gross margins, adjusted for disposals and shop closures on a like-for-like basis from baseline FY12 Cash conversion defined as net cash from operating activities less interest paid as a percentage of underlying EBITDA New product revenue At our full year results announcement six months ago, we not only raised our target for incremental new product revenue growth by FY15 but also said that we expected this to increase to more than 1.2 billion by FY17, reflecting our encouraging new product development. I am pleased to report that we have made further rapid progress towards these goals. At our half year, incremental new product revenue had risen by a further 46 million to 140 million, on track to achieve our targets of more than 300 million by FY14, 700 million by FY15 and 1.2 billion by FY17. Customer purchase of new products is proving particularly promising. Summer bookings for our exclusive own brand Concept hotels are up an impressive 44% to 460,211 compared with the same period last year. Summer bookings at our Partnership hotels are also developing well, up 11% to 593,925 compared with the same period last year. We have ambitious growth plans in place to welcome more customers to our exclusive, quality assured, higher margin hotels. We are targeting 800 concept and partnership hotels by FY17 and currently have 475 open, adding 166 in just the first six months of this year. Our FY15 target is for 640 hotels, which is double the number we had at FY13. With as many as 309 meeting our exacting requirements already in the pipeline compared with the 165 we need to meet our goal, we are confident of delivery. Capitalising on this strong growth momentum, we are currently considering a number of strategic and financing options that could enable us to accelerate their development. Our relentless drive to enrich the product range doesn t stop there. At the launch of our strategy for sustained profitable growth fourteen months ago, we identified in one of the largest traveller surveys ever undertaken in our industry that 77% of our loyal Sun & Beach customers booked their City Breaks - 7 -

8 elsewhere, given our lack of product in this area. Rapidly responding to this opportunity, we immediately rolled out an extensive range of attractive City destinations, which we expect will represent an important new and growing source of incremental product revenue. Winter Sun is another area of potential growth for Thomas Cook. The expansion of exclusive Winter Sun hotels continues apace, with 122 on offer currently and a further 50 in the pipeline for the coming Winter season, all in attractive locations such as Cape Verde, Barbados and Jamaica. We are also growing the proportion of business coming from our more flexible products, rather than just the traditional packaged holidays. Broadening and adapting our product mix have been key priorities, and I am pleased to report that these more flexible products now represent approximately 3 billion in annual Group revenues, almost a third of our total business. Growing numbers of customers are seeking increased optionality in their choice of destination, duration and departure date, while also enjoying the assured protection and ease of booking provided by a trusted provider like Thomas Cook. Our offers in this area allow us to appeal to a broader pool of customers at a lower production cost, reducing our reliance on contracted capacity. We expect this development to continue, contributing to incremental new product revenue as well as representing a further facet to our strategy for sustained profitable growth. Web penetration Significant progress continues to be made transforming the Group from a detached and disjointed web legacy to a fully integrated digital business; delivering our web target in the context an overall IT transformation of Thomas Cook. This includes consolidating a dysfunctional collection of 304 websites to around four focused sites per segment, reducing 17 web platforms to one, reducing our past over reliance on external contractors and consolidating IT locations from eight to just four. We have now achieved approximately 3 billion in web generated annual revenues supported by online bookings over the last six months, which have encouragingly risen to 38.8%, as we continue to make encouraging progress towards our FY14 target of over 40%. Over the last 12 months and on the basis that bookings are only recognised once the customer departs on holiday, the online penetration rate is 36.4%. Backed by our encouraging progress over the last six months, we expect to generate further momentum in the second half of this year as we move towards a tipping point when we expect web penetration to accelerate. This progress is supported by the recent launch of a new dynamic web site in the UK with a substantially improved user interface. We plan to roll this out to other markets over the coming months. Tour Operator bookings via tablets and mobile devices are up 72% compared with the same time last year, desktop conversion rates are up 17% and UK branded traffic on thomascook.com has increased by double digit percentage points since the launch of marketing campaigns in June Our web penetration in mobile and tablet is especially promising. Not only are we attracting a higher proportion of visitors using these devices to our site than a leading digital travel site, we are already seeing mobile and tablet bookings delivering a run rate of almost 0.5 billion in annual revenue. To build on these achievements, we continue to invest in digital talent. In particular, we are pleased to announce the appointment of Jo Hickson, Kathryn Parsons and Nicola Millard to our industry leading Digital Advisory Board. Jo is Group Head of Innovation at Home Retail Group plc, Kathryn is co-founder and co-ceo of the business, De-coded, which has been nominated as one of the top 5 most innovative businesses in the UK and Nicola is a senior member of BT Global Services where she specialises in analysing future trends for customers and organisations. Of our 40 person senior digital team, over half - 8 -

9 are new hires, many joining from leading digital companies such as Expedia, ebay, booking.com, Orange and lastminute.com. We are launching a new fully responsive web site with a substantially improved user interface. Initially introducing in the UK, we plan to roll this out to other markets over the coming months. In addition, we have launched our new FlyTC site, which has delivered excellent tablet conversion in its first month of launch. It was the first fully responsive major airline site launched in the UK, where its screen size automatically adjusts to fit mobile devices and tablets. Thomas Cook continues to receive strong industry recognition for its achievements. Facebook is using our social media initiative in Germany as a case study in best practice in social media and our new Holidays to go! (@TCOffers) was named one of the top social media campaigns for March 2014 by Econsultancy. We won the Chartered Institute of Marketing (CIM) award for Excellence in Digital Marketing and our Swedish brand, Ving, recently won The Service Award for the best service in the holiday travel business. Cost out and profit improvement Concurrent with the focus on new product revenue and digital transformation is the continuing focus on cost out and profit improvement. Wave 1 Wave 1 continues to deliver ahead of plan. In the six months to 31 March 2014, we delivered a further 83 million of Wave 1 cost out and profit improvement benefits, taking the cumulative total to 277 million, enabling us to absorb trading challenges such as the impact of the market disruption in Egypt. Risk weighting adjustments to maturing initiatives whose realisable benefits are expected to be greater than those we had originally assumed have led our FY14 and FY15 cumulative Wave 1 targets to increase to 360 and 460 million respectively, representing a further 20 million of benefits that have been identified in FY14 at minimal extra cost. FY 12 FY 13 H1 14 FY 14 FY 15 UK turnaround Group-wide cost out and profit improvement Integrated air travel strategy Organisational structure Product, infrastructure, technology, and other Total targeted benefits (i) Expected costs to achieve (ii) Income statement Cash flow Operating expenditure Capital expenditure Notes (i) Cumulative run-rate (ii) One-off costs of delivery Wave 2 At our full year results announced at the end of November 2013, we introduced plans for a second wave of cost out and profit improvement that will involve more structural changes than in Wave 1. We - 9 -

10 continue to expect that Wave 2 will deliver benefits of a similar scale to Wave 1, in other words over 400 million, and that it will be achieved by FY18. Emanating from a comprehensive implementation of The Thomas Cook Business System, with our customer at the heart of everything we do, it is focused on delivering margin improvement and cost out. We plan to achieve this primarily by improving the way we manage yields through one Group inventory, digitising the business, consolidating diffuse contact centres, and transforming functional effectiveness through shared services. The opportunity is significant. For example, the move to one central inventory will enable us to optimise margin at every level, selling each product in the best market for the best price at the best time. Fully automated and supported by our new IT architecture, it will allow us to deliver product to market significantly more quickly than before. Benefiting from improved customer knowledge, we also expect to be able to test price elasticities and booking behaviours effectively and serve our customers better. We also need to improve the way we support our customers. We currently have a diffuse collection of 32 call centres spread across 18 European countries, as well as a further operation in Thailand. The benefits from a more streamlined operational approach in terms of better service expertise and consistency, improved staff training and management, scale economies and greater use of the web for less complex questions, are clear. Similarly, there is an opportunity to realise value through the transformation of our organisation s functional support system; moving from a vertical business service structure to a Group wide shared service structure, including the reduction of management layers and increases in the spans of control. This is supported by a comprehensive lean programme, a continuous improvement process, that will allow us to deliver service in the most economically efficient way. Based on our analysis so far, we have identified an initial proportion of benefits, which we have fully risk weighted, of 150 million, with substantially more to come. The estimated incremental one-off costs to deliver the target of more than 400 million in annual benefits by FY18 are cash costs of 145 million. Of the currently identified risk weighted benefits of 150 million, approximately 60% are expected to arise from profit improvement initiatives and approximately 40% from cost out initiatives. The Wave 2 benefits are anticipated not only to support further improvements in EBIT but also enable continuing investment in new product development that will ensure sustainable profitable growth over the long term. Risk weighted benefits and costs Target Group-wide Wave 2 cost out and profit improvement FY15 FY 16 FY 17 FY 18 FY18 Hotel and airline yield management Channels and digitisation Enablers (IT and shared services) Total identified benefits (i) >400 Expected costs to achieve (ii) Notes (i) Cumulative run-rate. There are no benefits prior to FY16 (ii) One off cash costs of delivery. There are no cash costs prior to FY15 The capital expenditure costs to achieve both Wave 1 and Wave 2 are included within our previous guidance for total Group capital expenditure of approximately 180 million for FY14 and approximately 200 million for FY

11 Sales growth The 131 million revenue reduction due to market disruption in Egypt more than offset sales growth elsewhere in the Group and resulted in compound annual sales falling by 0.7% on an LTM and like for like basis at H1 2014, a decrease of 60 million to 9,101 million (LTM ended 31 March 2013: 9,161 million). Excluding this, year on year sales growth was up 0.8% on an LTM basis. While the impact of Egypt makes the achievement of our FY14 milestone more challenging, we remain confident that, supported by our encouraging new product momentum, we will achieve our sales growth target of more than 3.5% in FY15. Underlying gross margin improvement Progress continues to be made improving the Group s profitability. Underlying gross margin on an LTM like for like basis improved by 120 basis points to 22.5% compared with 21.3% in the 12 months to 31 March 2013, reflecting further yield management enhancement as part of the operating improvements under The Thomas Cook Business System. UK EBIT margin improvement The UK s underlying EBIT margin on an LTM like for like basis also improved, increasing by 150 basis points to 2.1% compared with 0.6% in the 12 months to 31 March This was achieved despite the adverse impact of Egypt and reflects the successful delivery of our cost out and profit improvements, which have compensated for its weaker gross margin in H We remain confident that our transformational actions, including the acceleration of Wave 1 cost out and profit improvement benefits in FY14, will enable us to achieve the UK underlying EBIT margin target of more than 3.5% by FY14 and more than 5% by FY15. Cash conversion The cash conversion ratio on an LTM basis of 41% (LTM ended 31 March 2013: 61%) is better than the guidance of 35% provided at our Q Interim Management Statement. Cash conversion has been impacted by changes to supplier payment terms and the incidence of aircraft maintenance events. The short term impact of these items will reverse with a positive impact during the final quarter of this financial year. We therefore remain on track to achieve our cash conversion targets of more than 55% in FY14 and of more than 70% in FY15. Disposals As part of our ongoing successful transformation of Thomas Cook, it is particularly pleasing to report the completion of 125 million of gross disposal proceeds and thereby achieving our 100 million to 150 million FY15 disposal target eighteen months early. Net consideration amounted to 107 million, after reflecting completion adjustments and transaction costs. Current trading Winter 2013/2014 The Winter season is now complete. As reported in our Pre-Close Statement on 27 March 2014, Winter bookings were adversely impacted by social unrest in Egypt. Adjusting for the impact of market disruption in Egypt, bookings in all of our source markets were higher than, or in line with, last year, except for Continental Europe due to strategic reductions in capacity in France and Russia as we continue to transform those businesses in order to return them to profitability by FY

12 Winter 13/14 (1) Year on year variation % Average selling Committed Cumulative Risk business price (2) capacity bookings Cumulative bookings excl. Egypt UK Flat Continental Europe Northern Europe Total Tour Operator Airlines Germany Flat +3 Summer 2014 (1) Based on cumulative bookings as at 3 May 2014 (2) Stated in local currency at constant intra-segment exchange rates The Summer season is currently approximately 60% sold, in line with last year. Trading performance across the group is in line with expectations against a strong prior year comparative. Bookings for our UK business are 1% lower than last year in line with a similar reduction in capacity commitments. Summer capacity is 66% sold, the same as this time last year. Headline average selling prices are 3% lower than last year due mainly to product mix and a higher proportion of shorter duration holidays reflecting customer demand. Consistent with our strategy, we expect selling prices to improve as we sell a higher proportion of exclusive hotel product to UK customers. However, although bookings for these products have shown strong growth for the Summer 2014 season, they do not yet represent a significant part of the UK business. Continental Europe continues to trade strongly with prices and bookings both 1% higher than last year, with volume growth being mainly driven by our German business where bookings are 4% higher than this time last year. Capacity commitments are 55% sold, in line with last year, due mainly to improved performances by our German and French businesses. Bookings in Northern Europe are 1% higher than last year with the season 60% sold, slightly lower than at this time last year. Average selling price is 2% lower than last year, due to a lower proportion of peak season holidays being sold at this time of the year as part our strategy of promoting lower demand periods early in the booking cycle. As set out in our Pre-Close Statement, while average selling prices are 2% lower than last year, overall margins are expected to be maintained. Airlines Germany bookings are 3% higher than last year with the seat load factor in line with 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 destinations. However, long haul prices are 4% higher reflecting the introduction of an improved business class proposition. Despite lower prices, operating margins are expected to increase year-on-year due to improved operating efficiencies

13 Summer 14 (1) Year on year variation % Risk business Average selling price (2) Committed capacity Cumulative bookings UK Continental Europe +1 Flat +1 Northern Europe Total Tour Operator -1 Flat Flat Airlines Germany Outlook (1) Based on cumulative bookings as at 3 May 2014 (2) Stated in local currency at constant intra-segment exchange rates Our Summer 2014 booking performance is developing well with solid volumes in our main markets. Although our UK business has experienced some pricing softness for the Summer season, profit performance has been improved through the successful delivery and acceleration of our Cost Out measures. Our profitable growth strategy remains on track. The enhancement of our exclusive hotel products and the expansion of growth areas such as Winter Sun and City Breaks underpin our strategy of delivering revenue growth and improved margins over the medium term. Given the early stage of development and the low season over the Winter period, the benefits of this strategy have not yet been fully reflected in the Group s results for H1 14. However, we are very encouraged by early Winter 14/15 bookings, which are over 11% higher than last year in the UK with an increase in average selling prices of 2%. This represents the first tangible benefits of our enhanced product and Winter Sun strategy. Since setting out on the transformation of Thomas Cook in the latter half of 2012, we have achieved significant results very quickly. We have turned around the business, announced a strategy for sustainable profitable growth, set out clear targets and KPIs, strengthened the balance sheet and delivered on everything we said we would do, plus promising more. Continuing delivery remains an overriding objective. So too, is our relentless realisation of further value within the business. Highly encouraged by the results of our new product development, such as the 11% rise in UK bookings for our new 14/15 Winter Sun vacations and the strong exclusive hotel pipeline which we are looking to accelerate, we are confident of delivering further momentum. Directed through the Thomas Cook Business System, developing products that delight our customers, digitising the Group, consolidating diffuse operations and implementing a lean culture of efficiency, all designed with our customer at its heart, we look forward setting new parameters for profitability and generating superior shareholder returns

14 FINANCIAL REVIEW Summary of Results (unless otherwise stated) 6 months ended 31 Mar months ended 31 Mar Change 'm Change % Revenue 3,011 3,224 (213) (6.6)% Gross Profit (underlying) (17) (2.5)% Underlying profit from operations (EBIT) (187) (198) % EBIT Separately Disclosed Items (96) (116) % EBIT (283) (314) % Other income/expenditure Net finance charges (underlying) (71) (70) (1) (1.4)% Separately disclosed finance charges (13) (11) (2) (18.2)% Loss before tax (366) (394) % Tax (7) 124 (131) (105.6)% Loss for period (373) (270) (103) (38.1)% (unless otherwise stated) LTM ended 31 LTM ended 31 Change 'm Change % Mar Mar Revenue 9,101 9,109 (8) (0.1)% Gross Profit (underlying) 2,043 2, % Underlying profit from operations (EBIT) % EBIT Separately Disclosed Items (230) (197) (33) (16.8)% EBIT % Other income/expenditure 1 2 (1) (50.0)% Net finance charges (underlying) (147) (132) (15) (11.4)% Separately disclosed finance charges (30) (45) % Loss before tax (132) (144) % Tax (180) (75) (105) (140.0)% Loss for period (312) (219) (93) (42.5)% Like for like comparators 6 months ended 31 Mar LTM ended 31 Mar Revenue growth () (86) (60) Gross margin increase (%) Overhead reduction () EBIT growth () Free cash flow (decrease)/increase () (53) (87) Closing net debt improvement () Throughout this document the term underlying refers to trading results after adjusting statutory results for separately disclosed items that are significant in understanding the on-going results of the Group. Separately disclosed items are detailed on page 19. Within the Financial Review results are considered on an underlying basis unless otherwise stated. During the six months ended 31 March 2014, the Group divested several businesses as summarised on page 24. The results for those businesses have been reported within our UK & Ireland segment for the pre-disposal period. In accordance with IFRS 5, those businesses have been treated as Assets Held for Sale, with unchanged income statement and cash flow disclosure

15 Like-for-like analysis In implementing our Transformation, the Group has undertaken activities that impact upon the comparability of underlying performance such as business divestments and retail store closures in the UK. In addition, the timing of the Easter holiday period has distorted year-on-year comparability as it fell during April in 2014 (H2 14) but during March in 2013 (H1 13). To assist in understanding of underlying year-on-year performance, the impact of distorting factors has been removed in the like-for-like analysis below: 6 Months to 31 March Revenue Gross Margin Operating Expenses Underlying EBIT 'm % 'm 'm 6 Months to 31 March 2013 Reported (Continuing) 3, % (866) (198) Easter Timing (1) (40) (0.2)% - (15) Disposals/Store Closures (76) (0.3)% 12 (1) Accounting Changes (2) - - (4) (4) Impact of currency movements (11) Months to 31 March 2013 'Like for Like' 3, % (856) (217) 6 Months to 31 Mar Reported 3, % (839) (187) 'Like for Like' growth ( 'm) (86) 'Like for Like' growth (%) (2.8)% 1.5% 2.0% 13.8% Last Twelve Months to 31 March Revenue Gross Margin Operating Expenses Underlying EBIT 'm % 'm 'm LTM 31 Mar Reported (Continuing) 9, % (1,777) 228 Easter Timing (1) (80) (0.1)% - (30) Disposals/Store Closures (119) (0.5)% 34 (12) Provisions/Accounting Changes (2) (3) - - (8) (8) Impact of currency movements 251 (0.1)% (30) 19 LTM 31 Mar 'Like for Like' 9, % (1,781) 197 LTM 31 Mar Reported 9, % (1,769) 274 'Like for Like' growth ( 'm) (60) 'Like for Like' growth (%) (0.7)% 1.2% 0.7% 39.1% (1) Adjustment has been made for the timing of Easter which fell during April in 2014 (H2 14) but during March in 2013 (H1 13) with an estimated impact of 40 million on revenues and 15 million on EBIT; the impact is double for the Last Twelve Months analysis as the twelve months to 31 March 2014 included no Easter holiday period whereas the twelve months to 31 March 2013 included two. (2) Accounting changes relates to the treatment aircraft maintenance which in prior years was charged to the income statement based on flying hours but is now accounted for on a straight line basis; this change has no effect on the full year but impacts the timing in each half of the financial year. (3) Net impact of provision releases in Northern Europe and Airlines Germany in the year ended 30 September 2012 where the underlying liability for aircraft related and other costs no longer exists

16 Overview of Results The past six months has seen a continued improvement in the financial health of Thomas Cook. On a statutory basis, revenue fell by 213 million (6.6%) to 3,011 million due mainly to lower demand to Egypt (six months ended 31 March 2013: 3,224 million). Statutory EBIT for the period was a loss of (283) million, an improvement of 31 million compared to last year (six months ended 31 March 2013: (314) million). The following analysis of the results deals with underlying and like-for-like numbers as we believe these better reflect underlying performance. Group underlying EBIT loss for H1 14 was 187 million, an improvement of 11 million in headline terms compared to last year. On a like for like basis, after adjusting for the timing of Easter and other distorting factors, Group underlying EBIT improved by 30 million (13.8%). The Group EBIT improvement in H1 14 was mainly due to higher profits in Northern Europe, reduced seasonal losses in Germany and improved performances in France and Russia in line with our strategy of returning both businesses to profitability by FY15. Our UK & Ireland business reported a seasonal loss of 154 million, in line with last year on a like for like basis, as the successful delivery of the first phase of our cost out and profit improvement programme has compensated for lower margins as a result of challenging market conditions and social unrest in Egypt. On a like for like basis, Group underlying EBIT has increased by 77 million (39.1%) to 274 million for the twelve months ended 31 March 2014, primarily through the successful delivery of our cost out and profit improvement programme, which has enabled us to accelerate the targeted benefits for FY14 and FY15. Separately disclosed items affecting EBIT were 96 million for the period, 20 million lower than last year, reflecting lower levels of restructuring charges offset by non-cash goodwill adjustments relating to the divestment of UK businesses concluded during H1 14. Net finance charges at 71 million were only 1 million higher than last year as interest cost savings achieved through better utilisation of cash and flexible funding have offset increased interest relating to the 2020 bond issued in June Net debt at 31 March 2014 was 811 million, a reduction of 404 million compared to the same time last year. After adjusting for the recapitalisation completed in June 2013 and other non-recurring changes, net debt reduced by an underlying amount of 38 million compared to last year despite an increased capital expenditure investments of 20 million. During the period, the Group generated 119 million in gross disposal proceeds through the divestment of non-core businesses in the UK as we further streamline operations and focus on a smaller number of brands. After completion adjustments, net consideration in H1 14 totalled 106 million. Divested businesses contributed revenues of 271 million and EBIT of 13 million in FY13 as summarised on page 24. The improving financial position underpins the delivery of the Group s profitable growth strategy through enhancement of our exclusive hotel products and the expansion of growth areas such as Winter Sun and City Breaks. Our strategy is designed to deliver revenue growth and improved margins over the medium term and, accordingly, the benefits have not yet been reflected in the Group s results for H1 14 given the early stage of development and the low season over the Winter period. However, bookings for our new products are strong for the Summer 2014 season and we expect to report the initial benefits from our profitable growth strategy from the second half of this financial year

17 Revenue Revenue for H1 14 of 3,011 million represents a decrease of 213 million (6.6%) compared to last year. However, year-on-year comparability has been impacted by the disposal of businesses in the UK, the timing of Easter and foreign exchange, which have been adjusted for to arrive at a like for like comparison as follows: H1 13 like for like Revenue 3,097 Egypt disruption (131) Volume 20 Pricing / Yield 25 H1 14 Revenue 3,011 Like for like revenue decreased by 86m (2.8%) primarily as a result of market disruption in Egypt which reduced Group sales by 131 million compared to H1 13. During H1 14 the Group has continued to pursue a strategy of new product expansion and effective yield management to achieve improved and sustainable quality of earnings. This has improved underlying yield by 25 million compared to last year, while volume growth excluding Egypt contributed 20 million. Gross Margin Underlying gross margin of 21.7% represents an increase of 100 basis points compared to H1 13. On a like for like basis, H1 14 gross margin improved by 150 basis points, the major drivers of which are outlined below: % H1 13 like for like GM 20.2% Cost out and profit improvement 0.6% Pricing, yield and mix 0.9% H1 14 GM 21.7% The incremental benefits realised in H1 14 from the Group s cost out and profit improvement programme totalled 83 million. Of this, 17m contributed to gross margin improvement, equivalent to a 60 basis points improvement in gross margin, with the remaining 66 million being reflected in reduced operating expenses (see below). Pricing and yield benefits have been delivered through improved yield management as well as improved capability in dynamic pricing across our businesses which in net terms improved gross margin by 100 basis points after absorbing inflationary pressures. Operating Expenses Operating expenses before depreciation for H1 14 have reduced by 32 million (4.1%) from H1 13 as set out below. On a like for like basis after adjusting for disposals and the impact of exchange rates, total operating expenses were 17 million lower as the benefits of cost out and profit improvement of 66 million were offset by strategic operating investment of 23 million, mainly to support the transformation through increased IT and marketing, increased volume in Airlines Germany and inflationary pressures