Full Year 2018 Results Update 27 November 2018
Agenda Summary - Peter Fankhauser CEO Financial results Strategic progress Current trading Page 2
2018: A Summary Group revenue up 6% on a like-for-like basis Group underlying EBIT of 250 million Result includes 28 million of legacy and non-recurring charges to underlying EBIT Tour Operator impacted by larger than anticipated gross margin decline in lates Airline growth of 35 million despite increased disruption costs Separately Disclosed Items (EBIT) of 153 million led by higher transformation costs Net Debt increase of 349 million, driven by delayed bookings & non-cash items 1 SUMMARY Page 3
2018: What went wrong Strong trading momentum going into H2 2018 Increased fleet to 100 aircraft Higher level of wet lease capacity for summer months Prolonged heatwave across European source markets restricted our ability to achieve planned margins in key lates trading Tour Operator profits down in all key source markets Significantly weaker position in UK due to higher hotel cost inflation in Spain and deep discounting in lates Complexity and scale of transformation Airline performance constrained by higher levels of disruption 1 SUMMARY Page 4
Summer 2018: Impact of the heatwave Group Tour Operator Bookings v ASP Group Tour Operator margin vs 3-year average Capacity SUMMER HEATWAVE Bookings April 2018 Sept 2018 Yield declines in lates supported bookings Oct 2017 Sept 2018 EBIT IMPACT ASP 1 SUMMARY Page 5
2018: Good strategic progress Hotel NPS up 2 points Group NPS broadly flat after significant airline disruption Strengthened own-brand hotel portfolio Sales of holidays to own-brand hotels up 15%; 2019 pipeline of 20 new hotels including up to 10 Cook s Clubs Hotel Fund established to accelerate own-brand hotel growth prospects Hotel fund launched with 150m seed assets; first 35m of expansion capital confirmed Expedia alliance rolled out in first 5 markets Encouraging early results: 3x increase in conversion Innovative ancillaries driving 4% growth Strong customer demand for personalising their holidays 1 SUMMARY Page 6
Agenda Summary Financial results - Sten Daugaard Group Interim CFO Strategic progress Current trading Page 7
Financial overview Like-for-like revenue growth as demand returns to Turkey and North Africa Gross Profit broadly unchanged Underlying EBIT movement due to significant margin decline in Tour Operator, despite strong Airline result Exceptional items increase due to acceleration of transformation and noncash balance sheet write-offs Net Debt movement due to a delayed customer booking profile and increased transformation spend m FY18 FY17 (Restated) Change Like-for-like Change Revenue 9,584 9,006 +578 +574 Gross profit 1,955 1,992-37 -7 Gross Margin 20.4% 22.1% -170bps -140bps Underlying EBIT 250 326-76 -58 EBIT margin 2.6% 3.6% -100bps -80bps Exceptional items (EBIT) (153) (99) -54-54 Profit before tax (53) 43-96 -78 Net Debt (389) (40) -349-208 FY17 Underlying EBIT has been restated by 3m in relation to debtor balances in the UK and re-presented to show JV income within Underlying EBIT (FY17: 1m cost) 2 FINANCIAL RESULTS Page 8
Group revenue bridge Revenue growth of 6% driven by significant demand for North Africa and Turkey Up 6% 93 (70) (5) 11 9,584 347 9,006 9,010 4 198 FY17 FX FY17 LfL North Africa Turkey Greece Spain Other Short Haul Long Haul FY18 2 FINANCIAL RESULTS Page 9
Group gross margin bridge Gross margin decline due to higher UK cost inflation and mix effects in Continental Europe 21.8% -140 basis points -0.6% -0.3% -0.3% Total Group Tour Operator margin is 190 basis points lower than last year at 13.5% which impacts the Group gross margin by 120 basis points -0.2% 20.4% FY17 LfL UK TO CE TO NE TO Airline FY18 The chart above shows the proportionate impact of each business line on Group gross margin % 2 FINANCIAL RESULTS Page 10
Group Underlying EBIT bridge by segment Underlying EBIT fell 30 million, before legacy and non-recurring items, due to weak Tour Operator performance 326 (14) (4) 308-30 million (33) (5) 278 (25) (2) Group Tour Operator - 60m before legacy and non-recurring items 35 (28) 250 FY17 restated* FX Airline set up costs FY17 LfL UK CoE NE Airlines Corporate FY18 before legacy and nonrecurring items Legacy and nonrecurring items FY18 Reported FY17 Underlying EBIT has been restated by 3m in relation to debtor balances in the UK and re-presented to show JV income within Underlying EBIT (FY17: 1m cost) 2 FINANCIAL RESULTS Page 11
New Operating Model benefits Cumulative Net Operating Model EBIT benefit of 131m since FY15; 61m delivered in FY18 Delivery ahead of original FY15 three-year target of 100m to 120m Gross benefits total 208m 103 (77) 131 25 Equates to 1.6% inflation 39 4 25 12 Own-brand hotels & flights Differentiated Holiday offering Complementary Holiday offering Omni-channel CRM & Ancillaries Efficiencies Cost Inflation & Depreciation Net EBIT benefit 2 FINANCIAL RESULTS Page 12
EBIT by business Strong Airline growth partially offsets Tour Operator margin pressure Group Tour Operator Group Airline Total Group EBIT Margin % 3.4% 3.5% 2.2% 2.6% 3.0% 3.7% 3.3% 3.6% 2.6% - 88m + 35m - 58m 229 249 161 74 94 129 273 308 250 FY16 LfL FY17 LfL FY18 FY16 LfL FY17 LfL FY18 FY16 LfL FY17 LfL FY18 Corporate costs were 40m in FY18, 35m in FY17 LfL and 30m in FY16 LfL 2 FINANCIAL RESULTS Page 13
UK Tour Operator EBIT bridge Underlying EBIT impacted by higher Spanish hotel cost inflation and margin impact from heatwave Underlying EBIT Bridge ( m) 49-33 million Higher hotel cost inflation and airline overcapacity, largely to Spain FY17 Hotel Cost Restated* inflation 2 FINANCIAL RESULTS Heatwave Long Haul & Other Retail Closures *FY17 Underlying EBIT has been restated by 3m in relation to debtor balances Turkey / North Africa 16 FY18 before legacy and nonrecurring items legacy and nonrecurring items (7) FY18 Reported Pace of transformation challenged by complex, legacy systems Low awareness of own-brand hotel offering Highly competitive market in lates exacerbated by excess risk capacity Page 14
Strong Airline performance constrained by industry disruption Higher irregularity costs during H2 in relation to ATC issues and registration delays for new aircraft Increase in 3-hr delays (y-o-y) Irregularity costs in Airline* +270% FY17 FY18 101 49 30 36 Oct 2017 Sept 2018 H1 H2 * Irregularity costs include EU261 compensation costs, welfare, sub-charter and maintenance costs 2 FINANCIAL RESULTS Page 15
Separately disclosed items Total SDIs increase by 39 million due to acceleration of transformation costs, higher disruption and new start-up costs Separately Disclosed Items ( m) EBIT SDIs Finance SDIs FY17 99 41 FY18 153 26 + 8m YoY + 35m YoY + 16m YoY - 5m YoY - 15m YoY Start up costs: Expedia transition; Thomas Cook Money; China JV Transformation: Streamlining process and delivering synergies in the Tour Operator Disruption costs: air traffic strikes and administrative delays in AOC issuance Other operating SDIs Finance SDIs: Bond refinancing costs 2 FINANCIAL RESULTS Page 16
Group cash flow Cash outflow for year due to lower EBITDA, working capital outflow and higher transformation costs m FY18 FY17 Change EBITDA 469 549-80 Working Capital (26) 108-134 Hotel Fund investment (34) - -34 Tax, Pensions & Other (67) (61) -6 Operating Cashflow 342 596-254 Exceptional items (151) (105) -46 Capital Expenditure (209) (206) -3 Unlevered Free Cash Flow (18) 285-303 Bond refinancing (12) (10) -2 Net Interest Paid (118) (129) +11 Free Cash Flow (148) 146-294 Proceeds on disposal 7 7 0 Dividends + Co-op (67) (40) -27 Net Cash Flow (208) 113-321 Working capital outflow due to delayed customer booking profile Cash exceptional cost increase reflects higher transformation spend Payments to Co-op now complete 2 FINANCIAL RESULTS Page 17
Net debt Net Debt increased by 208m on a like-for-like basis due to delayed bookings and higher transformation spend (26) (67) - 208m on a Like-for-like basis 469 (202) Transformation has required significant cash outlay in the year (40) (141) (181) 30 Sept 2017 Non-cash 30 Sept EBITDA Working Tax and Capex Net Exceptionals Hotel Refinancing Co-op Dividend 30 Sept 2018 movements 2017 LFL Capital Pensions interest Fund Costs timing paid investments (118) (151) (34) (12) (58) (9) (389) 2 FINANCIAL RESULTS Page 18
Financing review No major bond or facility maturities until 2022 Call options provide flexibility to proactively manage refinancing risk Bank covenant compliant Sufficient headroom for future covenant tests Maturity profile 30 September 2018 ( m) 1,541 Bank Facility 750m senior notes 400m senior notes 875 FY 2018 dividend suspended 666 355 2018 2019 2020 2021 2022 2023 2 FINANCIAL RESULTS Page 19
Agenda Summary Financial results Strategic progress - Peter Fankhauser CEO Current trading Page 20
Strategic progress Delivering the strategy Managing risk & execution Page 21
Our strategy for profitable growth a recap 3 STRATEGIC PROGRESS Page 22
Good progress on strategy in 2018 CARE HOLIDAYS +2 points +3% +15% +11 Hotel NPS New customers Own-brand hotel revenues* New own-brand hotels CONTACT SERVICES PARTNERSHIPS +12% +2ppts 4% 8x Online revenue Online mix at 48% Ancillary revenue TC China growth *Own-brand hotel revenues from Group Tour Operator 3 STRATEGIC PROGRESS Page 23
Our customer focus stays a priority Higher NPS leads to growth in bookings and improved GP margins Higher Gross Margins in Own-Brand & Select Partner Hotels vs Complementary*** 15% Tour Operator GP Margin per Own-Brand Hotel against NPS** 10% 25% NPS 0-10 10-20 20-30 30-40 40-50 50-60 60+ Rebooking rate for Differentiated Hotels against NPS* Up to 1.4x Up to 2.0x 20% 15% NPS 0-10 10-20 20-30 30-40 40-50 50-60 60+ Select Partner Own-Brand 3 STRATEGIC PROGRESS * Prior year NPS versus current rebooking rate ** Prior year NPS versus current gross margin *** From Group Tour Operator Page 24
Own-brand hotels: The cornerstone of our strategy 186 Own-brand hotels across 8 brands 1.2m 38k Hotels & Resort in-house customers Rooms Top 5 European Sun and Beach Hotel Company 47 Destinations 3 STRATEGIC PROGRESS Page 25
Own-brand hotels: Hotel Fund to accelerate growth prospects STRATEGY JV Acquire underperforming, distressed and underinvested hotel projects Bring expertise and brand appeal to create flagship own-brand hotels 50:50 ownership between TC and LMEY 5 seed assets with 150 million asset value First 35m of expansion capital secured 5 hotels in pipeline to be redeveloped into own-brand properties Targeting 10-15 new hotels by FY20 Focus on attractive Mediterranean hotel assets across Greece and Spain 3 STRATEGIC PROGRESS Page 26
Own-brand hotels: Growing number of Managed contracts Management Contract gives us bigger piece of hotel value chain Targeting higher Managed hotel mix 250 + Asset Hotel Fund 186 30% + Management fee Hotel Management 15% + Sales distribution % Brand Licence Fee Sales Agreement Franchise Agreement 85% 70% Target 3 STRATEGIC PROGRESS Page 27
Own-brand hotels: Strong pipeline for 2019 2018 11 own-brand hotels opened First Cook s Club launched 2019 Pipeline of at least 20 ownbrand hotels Includes up to 10 new innovative Cook s Clubs New Casa Cooks include first in Spain, and first family hotel launch in Crete 3 STRATEGIC PROGRESS Page 28
Differentiated Hotels: Concentrating our portfolio 3,630 43% 3,150 80% 7% Summer 2016 Summer 2019 FY14 FY18 Concentrating growth into a more focused portfolio of core hotels Differentiated Hotel revenues from top 1,000 hotels Sharing hotel capacity more effectively across Group More influence and control over quality standards, and higher margins 3 STRATEGIC PROGRESS Page 29
Complementary Hotels: Partnerships delivering growth City Breaks and Hotel-Only volume growth (y-o-y) 290% 240% 190% 140% 90% 40% -10% -60% Old business in decline Expedia launched in late July 2018 Conversion up 3x Feb 2018 July 2018 Oct 2018 Partnerships with Webjet and Expedia allow us to offer greater choice for customers, better booking experience, all at a lower cost Expedia launched across 5 markets Conversion up 3x in initial months since Expedia launch 3 STRATEGIC PROGRESS Page 30
Airlines: Strong performance in challenging environment +9.5% Revenues of 3.3bn +8.8% 20.2m seats sold* FY18 Seats sold mix 55% 45% Seat-only & 3rd Party Tour op Own Tour op 3 STRATEGIC PROGRESS * One-way flight basis
Airlines: Good strategic progress Grown fleet to 100 aircraft. Building reputation as high quality, reliable airline 2 new AOC s and crewing company launched 70 additional routes in Summer 2018 Growing number of interline agreements with other airlines to offer greater customer choice 3 STRATEGIC PROGRESS Page 32
Thomas Cook China: Strong growth in customers 8x growth in customers achieved in FY18; targeting double customer numbers in FY19 Outbound bookings currently account for over 80% of total sales Introduction of own-brand resorts in China opens up the domestic tourism market Ambition to become comparable in size to one of our existing key source markets Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sept-18 FY18F Thomas Cook China booking numbers 3 STRATEGIC PROGRESS Page 33
Thomas Cook Money: Mobile-first approach to financial services TC Money has 3 million customers expected to double in 3 years Strengthened product reach through UK retail stores Lyk pre-paid travel card replaced cash passport, offering lower fees Roam product offers flexible pay-asyou-go travel insurance New B2B partnerships: Revolut and InterMundial 3 STRATEGIC PROGRESS Page 34
Strategic progress Delivering the strategy Managing risk & execution Page 35
Lessons from 2018 Challenges of business model How we are addressing concerns Results heavily weighted to Q4 Balancing risk capacity with demand imperative External shocks increasingly common Highly competitive market at volume end Burden of complex, legacy systems in some markets Build more flexibility into our capacity planning Focus on achieving margin rather than chasing volume Better leverage our higher-margin own-brand and differentiated hotels Embed IT successes across markets Scrutinise every cost significantly reduce level of SDIs 3 STRATEGIC PROGRESS Page 36
Actions to improve UK Tour Operator profitability Clear set of actions being implemented to deliver benefits from FY19 Action Drive awareness and take-up of own-brand hotels Reduce committed risk capacity and increase dynamic packaging New automated yield systems to drive higher margins Optimise retail profitability and strengthen in-store Thomas Cook Money offer Target best-in-class cost base by channel and service 3 STRATEGIC PROGRESS Page 37
Agenda Summary Financial results Strategic progress Current trading - Peter Fankhauser CEO Page 38
Current trading WINTER 2018/19 SUMMER 2019 Tour Operator bookings down 3% Weak demand for the Canaries and the knock-on impact from hot summer Continued strong demand for Egypt and Tunisia Airline bookings up 11% with strong short/medium-haul demand Mixed start to Summer 2019 trading UK Tour Operator bookings up, while Nordics and Continental Europe behind last year against tougher comparatives Strong demand for Turkey and North Africa, with growth in longhaul Based on cumulative bookings to 17 November 2018 4 CURRENT TRADING Page 39
Summary Disappointing year-end after a strong start We have the right strategy and evidence it is delivering Clear plan to address the UK tour operator More cautious approach to capacity risk Well positioned to deliver sustainable growth 4 SUMMARY Page 40
Q&A Page 41
Financial calendar Q1 2019 Trading Update & AGM - 7 February 2019 H1 2019 Results - 16 May 2019 Q3 2019 Trading Update - 24 July 2019 Pre-close Trading Update - 24 September 2019 FY 2019 Results - 28 November 2019 APPENDIX Page 42