Thomas Cook Group. Full Year Results 12 months ended 30 September December PDF Free Download

Thomas Cook Group Full Year Results 12 months ended 30 September 2010 1 December 2010

Agenda Key Highlights Manny Fontenla-Novoa Financial Review Paul Hollingworth Update on Strategic Initiatives Manny Fontenla-Novoa Current Trading and Outlook Manny Fontenla-Novoa Q&A Page 2

Key Highlights Manny Fontenla-Novoa, CEO

FY 10: one of our most difficult years Robust financial performance given challenging circumstances EBIT 1 391m; only down 6% against prior year UK and Canada down, rest of the business did well, particularly France, Germany and Condor Strong cash performance: 121m operating cash flow improvement Separately disclosed items down 44m, despite volcanic ash costs of 53m Dividend maintained 1: Stated before all separately disclosed items and after adjusting for management s estimate of the margin impact of VAC Page 4

Strategic and operational progress overview Reduced UK cost base & streamlined the organisation, targeting annualised cost savings of 40-50m Taken proactive action in the UK to deliver further benefits through merger with the Co-operatives OTA organisation up and running, gross booking value growth of 22% in 2009/10 Improved our market share from Germany to Turkey through Öger acquisition Announced entry into the Russian market Successfully completed refinancing Continued to make progress on Group initiatives Page 5

Outlook overview Winter 10/11 trading is encouraging; Summer 11 off to a good start Economic outlook remains uncertain in the UK, but improving in other major markets Have taken further action to reduce our cost base UK actions and delivery on strategy leave us well positioned to make progress Page 6

Financial Review Paul Hollingworth, CFO

Financial highlights m change % 3 Revenue 8,890-4.1 Adjusted underlying EBIT 1 391-5.7 Underlying EBIT 2 362-12.7 Profit before tax 42-7.5 Adjusted underlying earnings per share (p) 1 22.8-8.8 Dividend per share (p) 10.75 Flat Operating cash flow 299 +68.1 Net debt (804) -19.0 Strong operating cash flow despite fall in profits 1: Adjusted underlying EBIT/EPS is stated before all separately disclosed items & after adjusting for management s estimate of the margin impact of the volcanic ash disruption. 2: Underlying EBIT is stated before all separately disclosed items 3: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions Page 8

Group EBIT 1 bridge 415 (27) 212 (269) 94 (34) 391 (29) 362 FY09 Trading Fuel & accom savings FX on flying & accom Cost savings Inflation / depreciation Adjusted underlying 2 EBIT VAC FY10 Actions on cost helped mitigate FX impact 1: EBIT is stated before all separately disclosed items 2: Adjusted underlying EBIT is stated before all separately disclosed items & after adjusting for management s estimate of the margin impact of the volcanic ash disruption. Page 9

Segment performance EBIT 1 m Before margin impact of VAC After margin impact of VAC 3 Change YoY2 m Margin % m Margin % UK 124 (38) 3.9 108 3.4 Central Europe 61 10 3.1 58 3.0 West / East Europe 86 1 5.0 82 4.8 Northern Europe 94 7 9.2 92 9.0 North America 10 (8) 2.7 9 2.6 Airlines Germany 4 54 7 5.4 51 5.1 Corporate (38) (3) - (38) - Total Group 391 (24) 4.4 362 4.1 Substantial increase in Central & Airlines Germany result not enough to offset UK decline 1: EBIT is stated before all separately disclosed items 2: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions 3: For full breakdown of VAC costs see slide 51 in Appendix 4: Airlines Germany margin is calculated on total sales; other markets and Group margins are calculated on external sales only Page 10

UK EBIT bridge 1 86 162 29 (161) 21 (13) 124 (16) 108 FY09 Trading Fuel & accom savings FX on flying & accom Cost savings Inflation / Adjusted depreciation underlying 2 EBIT VAC FY10 Weak Sterling has significantly impacted profits in a difficult year 1: EBIT is stated before all separately disclosed items and includes India & Egypt 2: Adjusted underlying EBIT is stated before all separately disclosed items & after adjusting for management s estimate of the margin impact of the volcanic ash disruption. Page 11

Other markets Central Europe EBIT 60.9m, +20.8% Strong result, benefitting from good price positioning and competitive cost structure Öger acquisition should deliver 8m uplift in FY 12 Margin >3% for the first time West / East Europe EBIT 86.7m, +1.2% Belgium very competitive, France and The Netherlands performed well in 2H Margin has increased from 4.6% to 5.0% Northern Europe EBIT 93.9m, +8.4% Good result under difficult circumstances with competitors increasing capacity Margin remains excellent at 9.2% North America EBIT 9.7m, -45.8% Mainstream affected by overcapacity; validates decision to rebalance towards independent Margin 2.7% well down on prior year Airlines Germany EBIT 54.1m, +14.1% Difficult 1H due to impact of fuel on yields Strong 2H, helped by long haul yields and lower depreciation Margin of 5.4% Note: EBIT and margin shown is adjusted underlying and is stated before all separately disclosed items & after adjusting for management s estimate of the margin impact of the volcanic ash disruption. Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions Page 12

Cost control FY 10 cost breakdown 1 % cost base 9% 12% 7% 34% Accommodation costs have fallen benefitting from the set up of Group Destination Mgt function Airline synergies project saving 19m Benefited from cost cutting initiatives, assisted by Group procurement 9% 29% Further cost savings of 75m achieved by segments, largely in overheads Accommodation Aviation excl fuel Fuel Commission & other Personnel Other opex Accommodation costs have fallen from 33.7% to 32.5% of sales 1: Stated before separately disclosed items Page 13

Interest charge m FY 10 FY 09 Restated 3 Average bank debt (644) (765) Debt interest cost (29) (52) Implied interest rate 4.6% 6.7% Average bond debt 1 (627) - Bond interest cost (21) - Implied interest rate 7.6% - Interest on cash and deposits 3 9 Other net interest costs 2 (69) (75) Underlying net finance costs (116) (118) Interest charge in line with expectations 1: Annualised 2: See appendix slide 53 3: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions Page 14

Exceptional items m 232 217 69 47 184 Volcanic Ash Other 2 Other integration & restructuring MyTravel integration 47 113 53 131 96 116 57 35 FY08 FY09 FY10 (restated) 1 Exceptional costs lower by 33m, despite VAC impact Note: For full breakdown of FY 10 exceptional costs see slides 51 & 52 in Appendix 1: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions 2: Other items include Hi Hotels and Skyservice impairment Page 15

Dividend m FY10 FY09 Restated 2 Adjusted underlying basic EPS 1 22.8p 25.0p Adjusted underlying diluted EPS 1 22.8p 24.8p Interim dividend 3.75p 3.75p Final dividend 7.00p 7.00p Total dividend 10.75p 10.75p Cover 3 2.1x 2.3x Earnings payout 3 47.1% 43.3% Dividend maintained 1: Stated before all separately disclosed items & after adjusting for management s estimate of the margin impact of the volcanic ash disruption 2: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions 3: Calculated using diluted EPS; payment date 7 April 2011 Page 16

Operating cash flow m FY 10 FY 09 Change EBITDA 1 544 573 (29) Cash costs of VAC (74) - (74) Cash costs of other exceptionals (113) (214) 101 Additional pension payment (16) (17) 1 Working capital movement (45) (124) 79 Provision movement (37) (25) (12) Tax paid (25) (27) 2 Interest received 6 16 (10) Other (inc non-cash items) 59 (4) 63 Net operating cash flow 299 178 121 Improved working capital management benefits operating cash flow 1: Stated before all separately disclosed items & after adjusting for management s estimate of the margin impact of the volcanic ash disruption Page 17

Group cash flow m FY 10 FY 09 Change Net operating cash flow 299 178 121 Capital expenditure (net) (266) (187) (79) Interest paid (65) (103) 38 Other 2 1 1 Free cash flow (30) (111) 81 Net acquisitions / disposals (27) (69) 42 Share buy-back - (47) 47 Dividends (60) (87) 27 Movement in cash net of debt (117) (314) 197 Cash outflow 197m lower Page 18

Net debt movement m FY 10 FY 09 Opening net debt (675) (292) Movement in cash net of debt (117) (314) Closing net debt before non-cash items (792) (606) Non cash movement in net debt (incl. FX) (12) (69) Closing net debt (804) (675) Cash 340 550 Debt (1,063) (939) Finance leases (81) (286) Net debt (804) (675) Facilities headroom at 30 September 1 846 667 Refinancing increased available headroom 1: FY09 includes the aircraft refinancing facility which became available on 1 October 2009 Page 19

FY10 summary Robust result in a challenging year Exceptionals reduced even after the cost of the volcanic ash Delivered a major refinancing of the Group Cashflow from operations up 121m, despite lower profits Page 20

Update on strategic initiatives Manny Fontenla-Novoa, CEO

Topics covered today Optimising our existing businesses 1 2 3 UK retail merger and restructuring Group wide cost initiatives Aircraft fleet replacement programme Investing in future growth 4 5 OTA Russia and emerging markets Page 22

Strategy recap Vision Strategic objectives Growth drivers Maximise value of mainstream Strengthening our business and investing for growth Become a leading independent travel provider Optimising our existing businesses 120 150 bps Become the leading travel-related financial services provider Capture growth and value through M&A and partnerships Investing in future growth 130 150 bps FY09 Margin 4.5% Optimising existing businesses Investing in future growth 1.2 1.5% 1.3 1.5% Margin pressure (1.5%) Medium Term Margin Target 5.5 6.0% Enablers Product Technology Customer insight Brands Financial rigour Values P R O U D Pioneering our future Results orientated Obsessed with customer service United as one team Driving robust decisions Committed to medium term margin target Page 23

Progress on Group strategic KPIs FY 10 Movement (ppt) Independent revenue share 27.2% +2.4% Controlled distribution Group 52.4% +1.6% UK 1 72.0% +0.4% Online distribution Group 23.4% +1.6% UK 1 32.6% +2.6% OTA gross bookings value 1b +22% UK exclusive & differentiated product 34.6% +2.7% Financial services EBIT contribution 2 14.3% +1.1% EBIT margin 2 4.4% -0.1% Page 24 Despite trading challenges, progress made on strategic KPIs 1: UK controlled and online distribution relate to mass market only 2: Stated before all separately disclosed items & after adjusting for management s estimate of the margin impact of the volcanic ash disruption

The UK market challenge FY 10 very challenging year: ash cloud, warm weather, austerity program UK market backdrop Customers continue to face an uncertain economic environment in 2011 Holidays are a top priority for consumers but budgets remain tight Packaged holidays offer good value and protection Against this backdrop: Actions taken during summer Industry: bold merger with Co-operative Travel to create No.1 retailer with significant upstream synergies Self-help: comprehensive review to streamline UK organisation structure and reduce cost base Should position us well to meet our FY11 objectives Proactive in strengthening UK business and mitigating cost pressures Page 26

High street travel merger with the Co-operative Announced on 8 Oct, formally expanded to include the Midlands Co-operative Creates the UK s largest high street travel network with over 1,300 shops Increases in-house distribution of Thomas Cook s travel products from 72% to over 80% Estimated synergies of at least 35m in the merged entity; 10m upstream synergies Merged entity to be 66.5% owned by Thomas Cook; 30.0% by the Co-operative Group, 3.5% Midlands No initial cash consideration and earnings accretive from year one Page 27

New UK organisation structure UK Board Retail 1 Mainstream Independent Retail stores Foreign exchange Cruise Tour operators Airline Specialists Scheduled Accom only IT Brand & marketing Human resources Finance New structure disaggregates key business activities, three divisions with dedicated management teams New UK Board to oversee segment Shared support functions Improves visibility and accountability of business 1: Additional reporting into the shareholder board Page 28

Cost savings of 40-50m Targeted savings and status Area Target Description Personnel c. 20m c.500 reduction in management and back office roles and pensions review IT Costs 8-10m Consolidation & upgrade of systems to simplify and improve performance whilst generating savings Other Opex 5-10m Property savings Indirect Spend 7-10m Renegotiation of supplier costs and requirements Total 40-50m Expected to deliver at least 30m in the current year Cost to achieve is c. 20m, incurred in FY11 Savings help mitigate input cost pressure Page 29

Group wide cost initiatives deliver benefit Group Destination Management Group function up and running with control over > 1b of spend Accommodation costs have fallen 120bps from 33.7% to 32.5% of sales Airline Synergies 19m incremental airline synergies delivered in FY10 On track to achieve 35m targeted saving Group Procurement Now well embedded and delivering savings Continue to work on a number of initiatives Key enabler in delivering other cost savings of 75m in FY10 Page 31

Fleet renewal strategy Existing fleet Renewal and harmonisation benefits No. of aircraft: Average age: Aircraft type: Ownership: Lease profile: 71 narrow body; 22 wide body 12 years Composite Airbus & Boeing fleet 6 different airframe & engine variants 25% owned outright 25% finance lease 50% operating lease 48 operating leases due to expire by 2016 Savings in maintenance, fuel, training & operability Substantial reduction in maintenance costs, particularly in first 6 years of aircraft life Improved fuel efficiency from modern engines and improved aerodynamics Cost and customer benefit from less disruption Makes undoubted economic sense to replace fleet and move to new aircraft Page 33

Fleet renewal plan Scope Prioritise narrow body fleet renewal and harmonise on Airbus 320/321 Fleet size will not increase, but maintain flexibility to scale to demand Replacement programme Combination of both firm orders and access to lessor market Initial order for 12 aircraft direct from Airbus Expect to sign contract with Airbus for 12 new aircraft early in 2011 Timeline New A321 aircraft delivery from 2014 Five year replacement schedule starting December 2012 Combination of firm orders and access to lease market delivers optimum flexibility Page 34

OTA - March recap European OTA market is large and growing fast +14% CAGR (2006-11) Less consolidated than the US, still massive opportunity Significant online platform to build from 180m visits in FY10 Gross sales of 1.0b Leverages our brand Unique multi-channel proposition Our Ambition: To become a top 3 European OTA Targeting c. 3.5b incremental gross sales Margins on par with market leaders We can create a unique market position Page 36

FY10 - optimising existing online business 12 mths to 10 Oct 2010 Total Visits (m) 182.4 Conversion rate (bookings / visits) 0.42% Bookings (000s) 1,053 Gross booking value ( m) 1,046 YoY growth (constant currency) +22% OTA organisation up and running under leadership of Thomas Doering Senior hires from online market leaders; c.180 staff with further growth in line with activity OTA scope comprises sites from UK, Germany, France, Netherlands and Belgium Site improvements to date drive strong growth UK, Netherlands and France Net P&L investment in FY11 expected to be c. 10m, with c. 20m capital investment 22% growth in gross booking value to over 1b Page 37

Entry into fast growing Russian market Russian Market Intourist JV: Outbound travel market size Outbound Growth Main Holiday Types 6m passengers >10% Beach, family Mainly Turkey & Egypt Russia s oldest travel brand; strong reputation Carried >650k passengers in FY09 and is showing c.30% growth in FY10 Thriving outbound tour operating business, retail network of 144 shops 2009 sales of $324m and EBITDA of $5m (2008: $12m) $45m for initial stake of 50.1%, options to acquire remainder within 4 years at 6x EBITDA Page 39

Strategy update summary Committed to medium term margin target Making significant progress on strategic initiatives Cost savings and merger will position UK business to fulfil its potential Aircraft fleet replacement plan; unlocking significant benefits Making real progress on OTA Russia a key building block in emerging markets strategy Making good progress on Group initiatives & proactively responded to challenging market conditions Page 40

Current Trading & Outlook Manny Fontenla-Novoa, CEO

W10/11 trading % change Average selling price Cumulative bookings Planned capacity UK +2 +2 +2 Central Europe +5 +3 +5 West / East Europe +8 +5 +9 Northern Europe +3 +4 +1 Bookings recovered in Germany after initial adverse reaction to aviation tax introduction Rate of intake and booking pattern are in line with last year All inclusive and differentiated product are continuing to sell well Easter falls in 2H this year Encouraging picture with bookings ahead of last year Note: All figures as at 27/28 th November 2010. In Central and West/East Europe, booking represent all bookings inc cars/overland; however capacity represents airline capacity only. Northern Europe season is October - March. Page 42

S11 trading UK launch reverted to May, following late launch for S10 Early indications on UK performance are encouraging Capacity expected to increase c.5% Average selling prices are ahead of last year at +5% Booking patterns are in line with S10 36% of sales are for differentiated product Early in the season for other markets, but bookings look good: Northern Europe is 11% sold Central Europe is 13% sold Early days, but a good start Note: All figures as at 27/28 th November 2010. In Central and West/East Europe, bookings represent all bookings inc. cars/overland; however capacity represents airline capacity only. Northern Europe season is April - September. Page 43

Summary - FY11 outlook Whilst UK environment remains uncertain, restructuring and merger strengthen UK business Central, West/East and Northern Europe economic environment more encouraging Booking trends are positive, but still early for S11 Overall, well positioned to make progress and meet our medium term strategic targets Page 44

Management focus in FY11 Further focus on cash flow and exceptionals to improve cash conversion of earnings Execute on aircraft fleet replacement plan Deliver savings from UK restructuring and retail merger Integrate acquisitions made in the year OTA development key priority Further progress and embed Group strategic initiatives Page 45

Questions

Appendix

Reporting changes IAS 38 Brochure costs Immediate recognition IAS 39 Time value options Immediate recognition Forward points on forex Separate disclosure IFRS 8 Segmental reporting Split out Central 1 and West/East 2 Europe Acquisition revisions Prior year adjustment 1. Central Europe comprises Germany, Switzerland and Austria 2. West/East Europe comprises France, Belgium, The Netherlands, Poland, Hungary and the Czech Republic Page 48

Impact of reporting changes FY 09 m As previously stated Brochure costs Time value of options Forward points Acquisition accounting As restated Revenue 9,268.8 9,268.8 Cost of providing tourism services (7,017.8) (7,017.8) Gross profit 2,251.0 2,251.0 Net operating expenses (1,836.1) 0.2 (1,835.9) Adjusted EBIT 414.9 0.2 415.1 Share of associates & JV & net inv. income (2.4) (2.4) Net finance costs (104.3) (10.0) (3.5) (117.8) Adjusted profit before tax 308.2 0.2 (10.0) (3.5) 294.9 Total exceptional items (217.3) (217.3) IAS 39 - (8.1) 10.0 1.9 Amortisation of BCI (34.8) 0.4 (34.4) Profit before tax 56.1 0.2 (8.1) - (3.1) 45.1 Reported basic EPS (p) 1.9 0.8 Underlying basic EPS (p) 26.4 25.0 Page 49

Group income statement FY 09 Change m FY 10 Restated 3 Change % exc FX % Revenue 8,890 9,269-4 -5 Cost of providing tourism services (6,746) (7,018) Gross profit 2,144 2,251 Net operating costs (1,782) (1,836) Underlying EBIT 1 362 415-13 -13 Share of assocs. & JV & net invest. income 2 (2) Net finance costs (116) (118) Underlying profit before tax 1 248 295-16 Total exceptional items (184) (217) IAS 39 9 2 Amortisation of BCI (31) (35) Profit before tax 42 45-8 Adjusted underlying earnings per share (p) 2 22.8 25.0 Basic (loss)/earnings per share (p) (0.3) 0.8 1: Stated before separately disclosed items 2: Adjusted underlying EPS stated before all separately disclosed items & after adjusting for management s estimate of the margin impact of the volcanic ash disruption. 3: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions Page 50

Financial impact of volcanic ash cloud m UK Central West/East Northern Europe North America Airlines Germany Total Lost contribution 16 2 5 2 1 3 29 Welfare costs (accommodation mainly) Repatriation costs (inc empty legs) Additional costs (grounded aircraft, staff overtime) 11 2 3 2 - - 18 10 4 8 3-1 26 4-2 1-2 9 Total impact of disruption 41 8 18 8 1 6 82 Page 51

Exceptional items lower m FY 10 FY 09 Restated 1 Volcanic ash cloud (53) - Hi Hotels impairment in UK (26) - Skyservice closure in Canada (15) - Continuation of 2009 restructuring and integration programmes (35) (113) Continuation of 2009 fuel-related exceptionals (23) (21) TC / MyTravel merger integration - (57) Other operating exceptional items (14) (25) Exceptional operating costs (166) (216) Loss on disposal of associate - (2) Exceptional finance (costs) / income (18) 1 Total exceptional items (184) (217) 1: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions Page 52

Other Interest m FY 10 FY 09 Restated 1 Interest on other borrowings (11) (10) Finance leases (13) (22) Net finance cost of pension schemes (17) (12) Amortisation of set up fees (12) (11) Commitment fees (6) (7) Other (inc unwinds of discount factor on provisions & deferred consideration) (10) (13) Total net other interest costs (69) (75) 1: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions Page 53

Group balance sheet m FY10 FY 09 Restated 1 Goodwill & intangible assets 3,829 3,770 Property, plant & equipment 1,008 993 Investments 57 56 Net debt (804) (675) Net current liabilities (2,127) (2,196) Net non-current liabilities (220) (228) Net assets 1,743 1,720 1: Prior year figures restated for new accounting standards and resultant changes in accounting policies, and restatement of prior period acquisitions Page 54

FX rates Income Statement FY 10 FY 09 Euro 1 1.15 1.14 SEK 11.30 12.11 C$ 1.62 1.82 INR 71.79 75.46 Balance Sheet FY 10 FY 09 Euro 1.16 1.09 SEK 10.57 11.19 C$ 1.62 1.72 INR 70.22 76.28 Note: As profits and losses in our Euro-denominated segments build up differently over the period, the average income statement translation rates may vary Page 55

Refinancing summary Refinancing delivered Simpler framework, increased facilities, longer and varied maturities 3 year facility maturing May 2013, extendable for up to 2 years Bank facility 200m term loan and 850m revolving credit facility Borrowings at LIBOR plus 2.75% Separate 200m bonding facility Bond Issue 400m, 6.75% 5 year Euro bond maturing June 2015 300m, 7.75% 7 year Sterling bond maturing June 2017 Page 56

Co-op merger synergies and costs m FY 11 FY 12 Cost synergies 10 30 Rationalisation of back office staff, locations; store rationalisation; integration of independent & cruise Revenue synergies 2 5 Foreign exchange, aligning supplier terms Merged entity synergies 12 35 Upstream synergies 3 10 Increased mainstream sales & in-house flying, independent and ancillary sales Total synergies for TCG 15 45 Integration costs (30) - Redundancies, property exit & integration costs Assumes completion in December 2010 Page 57

Co-op merger - estimated impact on Group P&L 9 months FY 11 FY 12 Group EBIT increase 15.0 45.0 TCG Group PAT increase 11.0 33.0 Minority interest (5) (12) TCG Group Retained Profit 6.0 21.0 Assumes merger completes by end December Includes upstream synergies of 10m on FY basis Assumes no interest & pre-integration costs Page 58

Aircraft operating lease profile (as at 30 th September 2010) <1 Year 6 2-3 Years 10 3-4 Years 20 4-5 Years 12 Total operating leases 48 Finance leases 11 Owned aircraft 34 Total aircraft 93 Note: Post 30 th September, 1 aircraft expiring <1yr has been extended Page 59

Russia transaction details Transaction Overview Initial stake of 50.1% for maximum consideration of $45m (adjusted for net debt) Consideration satisfied by $10m cash payment and $35m in Thomas Cook Group shares Potential repayment of up to $15m based on 6x 2012 EBITDA Intourist Financials FY09 Sales $324m; FY08 Sales $405m FY09 EBITDA $5.3m; FY08 EBITDA $12.5m Management Intourist s existing management to run business day-to-day Thomas Cook to have JV operational control and board majority Thomas Cook to appoint CFO Page 60

Thomas Cook Group. Full Year Results 12 months ended 30 September December 2010