H1 2017 Interim Results 18 May 2017
Agenda Highlights - Peter Fankhauser CEO Financial results Strategic progress Current trading and outlook Page 2
Strategic actions leading to improved performance Growing top line Revenue up 3% reflecting expanded Winter Sun programme Improved profit performance Seasonal underlying EBIT loss improved by 2 million; loss after tax better by 27 million Delivering on our customer promises Net Promoter Score up by 8 points More unique holidays Sales of holidays to higher margin own-brand hotels up 10% Good demand for the Summer On track to meet full year expectations 1 HIGHLIGHTS Page 3
Agenda Highlights Financial results - Michael Healy Group CFO Strategic progress Current trading and outlook Page 4
Financial overview Like-for-like revenue up 3% with growth in Spain and Long Haul Underlying EBIT ahead of last year due to strong Tour Operator performance Loss for the period (loss after tax) improved by 27 million Net Debt lower than prior year reflecting improved Summer trading m H1 17 H1 16 Change Like-for-like Change Revenue 2,994 2,672 +322 +77 Gross Margin 21.1% 21.7% -60bps -40bps Underlying EBIT (177) (163) -14 +2 LTM EBIT margin 3.6% 4.1% -50bps -40bps Loss from operations (205) (204) -1 +15 Loss for the period (272) (283) +11 +27 Net Debt (794) (818) +24 +34 2 FINANCIAL RESULTS Page 5
Group revenue bridge Continued expansion of our Western Med and Long Haul programmes Like-for-like change + 77m (+3%) (26) (55) 2,917 56 18 +36% 65 +6% 18 +3% (80) -41% 2,994 326 +5% 2,672 H1 16 FX Fuel Easter timing H1 17 Spain Greece Long Haul Other Turkey H1 17 2 FINANCIAL RESULTS Page 6
Gross margin by business Group gross margin slightly below last year, mainly due to weaker trading at Condor UK Continental Europe Northern Europe Condor Group 21.2% 22.7% 23.1% 22.7% 26.4% 25.8% 27.9% 24.5% 23.3% 21.2% 21.5% 21.1% 14.2% 13.9% 13.7% +40bp -20bp -60bp -120bp -40bp H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 2 FINANCIAL RESULTS Page 7
Group EBIT bridge New Operating Model continues to benefit the UK and Continental Europe Like-for-like change + 2m 0 8 (163) (6) (19) (10) (179) 14 Includes net New Operating Model Benefits of 15m (1) (177) H1 16 FX Easter timing H1 16 UK Continental Europe Northern Europe Condor Corporate H1 17 2 FINANCIAL RESULTS Page 8
EBIT by business Challenging H1 for Condor but on track to meet full year improvement plans LTM EBIT Margin % UK Continental Europe Northern Europe Condor Group (i) 4.5% 4.9% 6.8% 2.5% 2.4% 1.9% 7.3% 10.2% 10.4% 4.9% 3.0% -2.5% 3.9% 4.0% 3.6% + 14m + 8m Same - 19m + 2m 24 42 42 3 (129) (128) (114) (58) (58) (50) (22) (41) (176) (179) (177) H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 H1 15 H1 16 H1 17 (i) Group includes Corporate costs of 14m in H1 17 (H1 16 : 13m; H1 15 : 17m) 2 FINANCIAL RESULTS Page 9
Condor H1 performance Profitability actions starting to improve performance Like-for-like change - 19m (18) (1) (3) (22) (18) (8) 7 (41) H1 16 FX Easter timing H1 16 Yield FX Profitability actions H1 17 2 FINANCIAL RESULTS Page 10
Improving trend of Condor s performance Improving trend for Condor profitability through implementation of improvement measures Condor year-on-year EBIT change ( m) Profit improvement measures (38) (13) (6) Reroute capacity More flexible planning Fuel hedging benefit Cost reduction initiatives Q4'16 Q1'17 Q2'17 Targeting 35m of annualised profit improvement 1 full impact in FY18 1. Versus FY16 baseline 2 FINANCIAL RESULTS Page 11
Group cash flow Improvement in operating cash flow of 46 million offset by bond refinancing costs and Co-op payment m H1 17 H1 16 Change EBITDA (66) (66) - Working Capital (335) (407) +72 Tax (30) (6) -24 Pensions & Other (8) (6) -2 Operating Cashflow (439) (485) +46 Bond refinancing costs (10) - -10 Exceptional items (41) (35) -6 Capital Expenditure (i) (91) (84) -7 Net Interest Paid (67) (42) -25 Free Cash Flow (648) (646) -2 Co-op payment (32) (4) -28 Net Cash Flow (680) (650) -30 Working capital boosted by strong Summer bookings Higher tax due to timing of tax payments in Germany Interest costs higher due to timing of interest payments in relation to bond refinancing 32 million paid to Co-op in respect of UK retail joint venture (i) Capex shown net of disposal proceeds ( 1m in H1 17 and 1m in H1 16) 2 FINANCIAL RESULTS Page 12
Net debt Net Debt of 794 million represents a reduction of 34 million on a like-for-like basis Like-for-like reduction 34m Includes 10m cash and 15m non-cash costs 539m (208)m Includes timing impact of 24m of interest paid in connection with bond refinancing in December 2016 (110)m (818)m 15m (25)m (828)m (155)m (32)m (794)m Mar-16 FX Bond refinancing Mar-16 Operating Cashflow Capex Exceptionals Net Interest Paid Co-op payment Mar-17 2 FINANCIAL RESULTS Page 13
Financing review Strengthened financial position New 750m 2022 bond extends debt maturities at a lower interest rate Improving credit outlook Outlook revised from Stable to Positive by Fitch and Standard & Poor s Target to reduce fixed-term debt by further 200 million Lower interest costs remains a key priority for Group Expect to declare dividend with full year results Policy targets distribution of 20% to 30% of reported net profit 2 FINANCIAL RESULTS Page 14
Agenda Highlights Financial results Strategic progress - Peter Fankhauser CEO Current trading and outlook Page 15
Our strategy for profitable growth a recap 3 STRATEGIC PROGRESS Page 16
Benefits from our strategic progress 1 CARE Focus on service and quality drives up Group Net Promoter Score by 8 points 24-hour hotel promise extended to reach 80% of sun & beach customers in core hotels More satisfied customers CONTACT UK web sales up 15% and Germany up 35% Enriched online content for greater inspiration Growing direct distribution in Germany through more franchise retail and improved web distribution More effective customer engagement 3 STRATEGIC PROGRESS Page 17
Benefits from our strategic progress 2 HOLIDAYS SERVICES PARTNER- SHIPS Own-brand hotel sales up 10% for the Summer Moving towards fewer, better quality differentiated hotels Ancillary sales up 14%, reflecting more personalised offers New business unit to focus on holiday money Webjet partnership in complementary hotels leading to efficiencies across the Group Thomas Cook China growing rapidly More focused, higher quality hotel offering Added value from personalised services Acceleration of strategic progress 3 STRATEGIC PROGRESS Page 18
Progress towards a more focused holiday offering Number of Customers 2/3 of holiday customers Differentiated Hotels Focus on added value to our customers Greater influence on hotel quality Leverage scale across Group Complementary Hotels Automated low-cost production Source electronically Expands choice for customer 1/3 of holiday customers Own-brand hotels (part of differentiated hotel offering) Differentiated hotels Number of Hotels 3 STRATEGIC PROGRESS Page 19
Developing and growing own-brand hotels Sunwing Sandy Bay, Cyprus Sunprime Miramare, Rhodes Casa Cook, Kos SENTIDO Flora Garden, Antalya Own-brand hotels are key to our holiday offering: - Higher NPS than other hotels - More control - Higher returns Pipeline of 11 new hotels for Summer 17, and a further 11 by Summer 18 Focus on quality and sharpening brands 3 STRATEGIC PROGRESS Page 20
Developing our airline business Customer focus Opening new routes Leveraging distribution Cost control Entire fleet new or refurbished 15 new destinations added this year 50% of passengers from TC tour operator Rigorous cost discipline to maintain competitive edge Significant reduction in 3-hour delays New in-flight entertainment Long-haul growth S17 bookings +9% Short-haul flexibility to match demand changes Growing direct-tocustomer and 3rd party tour operator channels Improved reliability Increased productivity 3 STRATEGIC PROGRESS Page 21
Benefits from our strategic progress 2 HOLIDAYS SERVICES PARTNER- SHIPS Own-brand hotel sales up 10% for the Summer Moving towards fewer, better quality differentiated hotels Ancillary sales up 14%, reflecting more personalised offers New business unit to focus on holiday money Webjet partnership in complementary hotels leading to efficiencies across the Group Thomas Cook China growing rapidly More focused, higher quality hotel offering Added value from personalised services Acceleration of strategic progress 3 STRATEGIC PROGRESS Page 22
Benefits from our strategic progress 3 OPERATIONAL EFFICIENCIES AND STREAMLINED ORGANISATION STRUCTURE Cost initiatives underway to align and integrate our tour operator processes Reducing duplication and sharing best practice in Continental Europe Further restructuring in France New shared service centre in Palma to consolidate finance support across Group 60m of cost efficiencies targeted through New Operating Model 3 STRATEGIC PROGRESS Page 23
Agenda Highlights Financial results Strategic progress Current trading and outlook - Peter Fankhauser CEO Page 24
Current trading Summer bookings up 12% Strong trading with bookings up 12%, pricing broadly in line High demand for Greece and smaller European destinations Summer 2017 Double-digit bookings growth for Continental and Northern Europe Condor bookings up 18% UK focus on quality and margin due to more competitive market to Spain Winter 2017/18 Very early in cycle with around 10% sold Bookings slightly higher than last year; average selling prices up 5% Based on cumulative bookings to 6 th May 2017 4 CURRENT TRADING AND OUTLOOK Page 25
Summary and outlook Strategic progress is delivering results Putting the customer first Improving our holiday offering On track to deliver market expectations for the full year 4 CURRENT TRADING AND OUTLOOK Page 26
Q&A Page 27
Financial calendar Q3 2017 Results - 27 July 2017 Pre-close Trading Update 26 September 2017 2017 Full Year Results 22 November 2017 Q1 2018 Results 8 February 2018 Pre-close Trading Update 27 March 2018 H1 2018 Interim Results 17 May 2018 APPENDIX Page 28
Revenue & EBIT by quarter Share of revenue Q3 23% Q4 40% Q1 20% Q2 17% - 0.2bn - 0.2bn Same + 0.1bn H1 LTM (1) 8.6 8.4 8.1 Revenue bn 2.1 2.0 1.8 3.5 3.5 3.3 1.6 1.6 1.6 1.4 1.3 1.4-0.3bn EBIT m Q3 14 24 Q3 15 24 Q3 16 2 Q4 14 488 Q4 15 498 Q4 16 469 Q1 15 (54) Q1 16 (50) Q1 17 (49) Q2 15 Q2 16-22m - 29m + 1m + 1m Q2 17 (127) (129) (128) H1 15 LTM 331 H1 16 LTM 343-49m H1 17 LTM 294 (1) LTM refers to last twelve months APPENDIX Page 29
Group income statement m H1 17 H1 16 H1 15 H1 17 to H1 16 Change Revenue 2,994 2,917 2,993 +77 Gross Profit 633 627 635 +6 Overheads (810) (806) (811) -4 EBIT (177) (179) (176) +2 Separately Disclosed Items (EBIT) (28) (41) (47) +13 Loss from Operations (205) (220) (223) +15 Associated Undertakings - - 8 - Net Finance costs (74) (73) (79) -1 Separately Disclosed Items (Finance Charges) (35) (7) (12) -28 Loss before Tax (314) (300) (306) -14 Tax 42 1 (11) +41 Loss for the period (272) (299) (317) +27 APPENDIX Page 30
Revenue by business m H1 17 H1 16 H1 16 H1 17 vs. H1 16 Headline variance Like-for-like variance UK & Ireland 707 700 664 +1% +6% Continental Europe 1,206 1,036 1,201 +16% Flat Northern Europe 617 536 583 +15% +6% Condor 609 546 616 +12% -1% Corporate (145) (146) (147) n/a n/a Group Revenue 2,994 2,672 2,917 +12% +3% APPENDIX Page 31
Gross margin by business m H1 17 H1 16 H1 16 H1 17 vs. H1 16 Headline variance Like-for-like variance UK & Ireland 23.1% 22.4% 22.7% +70bps +40bps Continental Europe 13.7% 13.8% 13.9% -10bps -20bps Northern Europe 25.8% 26.7% 26.4% -90bps -60bps Condor 23.3% 24.2% 24.5% -90bps -120bps Corporate n/a n/a n/a n/a n/a Group Gross Margin 21.1% 21.7% 21.5% -60bps -40bps APPENDIX Page 32
EBIT by business m H1 17 H1 16 H1 16 H1 17 vs. H1 16 Headline variance Like-for-like variance UK & Ireland (114) (124) (128) +8% +11% Continental Europe (50) (48) (58) -4% +14% Northern Europe 42 40 42 +5% Flat Condor (41) (18) (22) -128% -86% Corporate (14) (13) (13) n/a n/a Group EBIT (177) (163) (179) -9% +1% APPENDIX Page 33
Supplementary information Tour Operators m H1 17 H1 16 H1 16 H1 17 vs. H1 16 Headline variance Like-for-like variance Revenue 2,284 2,056 2,264 +228 +20 Gross Margin 15.0% 15.0% 14.9% Flat +10bps Underlying EBIT (81) (93) (100) +12 +19 Underlying LTM EBIT margin (%) 4.0% 3.6% 3.5% +40bps +50bps Average Selling Price (ASP) ( ) 723 611 685 +112 +38 APPENDIX Page 34
Supplementary information - Airlines m H1 17 H1 16 H1 16 H1 17 vs. H1 16 Headline variance Like-for-like variance Revenue 1,202 1,098 1,163 +104 +39 Gross Margin 23.8% 24.3% 24.7% -50bps -90bps Underlying EBIT (82) (57) (66) -25-16 Underlying EBITDAR 67 64 75 +3-8 Underlying LTM EBIT margin (%) 2.0% 4.5% 4.4% -250bps -240bps Available Seat Kilometre (ASK) ( m) 22,148 21,675 21,675 +473 +473 Seat Load Factor (SLF) (%) 88.6% 88.3% 88.3% +0.3% +0.3% Long Haul Yields per seat ( ) 307 291 324 +16-17 Short Haul Yields per seat ( ) 116 108 121 +8-5 APPENDIX Page 35
Separately disclosed items P&L ( m) H1 17 H1 16 New Operating Model implementation costs (18) (20) Restructuring costs (9) (4) Reassessment of provisions 32 4 Store closures (16) (13) Other (17) (8) EBIT related items (28) (41) Finance related charges (35) (7) Total (63) (48) Of which: - Cash (i) (57) (23) - Non-Cash (6) (25) Cash ( m) H1 17 H1 16 Cash related exceptionals (57) (23) Of which will be paid in future years 22 - Prior year cash exceptionals paid in financial year (13) (8) Prior year EU261 (paid in financial year) (3) (4) Total (51) (35) (i) Items classified as Cash represent both current year cash flows, and cash effects which are yet to be realised APPENDIX Page 36
Underlying finance costs Assumes all bonds are paid on maturity Pro Forma P&L m Coupon H1 17 H1 16 2017 2018 2019 2020 2021 2022 Interest on bank facilities LIBOR +3.50% 2 0 - - - - - - Interest on 2017 300m bond 7.75% 4 12 4 - - - - - Interest on 2020 525 bond (inc. IRS) 7.75% 6 14 7 - - - - - Interest on 2021 400m bond 6.75% 12 10 23 23 23 23 17 - Interest on 2022 750m bond 6.25% 13-33 40 40 40 40 30 Bank and bond interest and related charges 37 36 67 63 63 63 57 30 Commitment fees 3 4 Letters of credit & bonding 9 8 Other interest costs 7 10 Interest & finance costs before aircraft financing 56 58 Interest income (2) (3) Net interest & finance costs before aircraft financing 54 55 Aircraft financing 9 8 Assumed at c. 70m (same level as 2016) Fee amortisation and other non-cash 11 10 Net Interest Expense (excl. exceptionals) 74 73 137 133 133 133 127 100 APPENDIX Page 37
Net debt composition m H1 17 H1 16 Variance 2017 GBP Bond Jun-17 - (299) +299 2020 Euro Bond Jun-20 - (415) +415 2021 Euro Bond Jun-21 (342) (316) -26 2022 Euro Bond Jun-22 (642) - -642 Commercial Paper Various (140) (134) -6 Revolving Credit Facility May-19 (50) - -50 Finance Leases Various (167) (183) +16 Aircraft related borrowings Various (47) (69) +22 Other external debt Various (33) (25) -8 Arrangement fees & other n/a 18 16 +2 Total Debt (1,403) (1,425) +22 Cash 609 607 +2 Net Debt (794) (818) +24 Maturity profile 31 March 2017 m Bank facility 400m senior notes 750m senior notes 800 342 641 2017 2018 2019 2020 2021 2022 APPENDIX Page 38
Cash conversion Cash conversion ( m) H1 17 LTM H1 16 LTM FY16 36% 33% Underlying EBIT 294 321 308 Net interest (141) (135) (140) Underlying PBT 153 186 168 Free cash flow 56 (51) 56 Cash conversion 36% n/m 33% Not meaningful H1 17 LTM H1 16 LTM FY16 APPENDIX Page 39
Reconciliation of like for like to underlying numbers Underlying refers to trading results after adjusting for separately disclosed items that are significant in understanding the ongoing results. m H1 17 m Revenue Gross Margin EBIT H1 16 m Change m H1 17 % H1 16 % Change % H1 17 m H1 16 m Change m Underlying 2,994 2,672 +322 21.1% 21.7% -60bps (177) (163) -14 Easter timing (55) +55 0.1% -10bps (10) +10 Like for like reflects the comparison in the underlying results after removing identifiable non-recurring items in the prior year. Impact of Currency Movements and other (i) 326-326 (0.5)% +50bps (6) +6 Reduced fuel costs (26) +26 0.2% -20bps - - Like-for-Like 2,994 2,917 +77 21.1% 21.5% -40bps (177) (179) +2 (i) Other includes alignment of comparatives to reallocate per diem costs associated with airline crew from operating costs to cost of sales APPENDIX Page 40
Capital expenditure H1 17 H1 16 7 5 3 6 4 3 Airlines 91m 45 IT Hotels Store refits 84m 41 31 Other 30 APPENDIX Page 41
FX and fuel hedging (30 April 2017) Winter 2016/17 Price Summer 2017 Price 2017 Price Winter 2017/18 Price Summer 2018 Price 2018 Price EUR 99% 95% 96% 76% 41% 51% USD 97% 94% 95% 84% 43% 62% Jet Fuel (i) 95% $587 90% $485 92% $536 98% $519 51% $528 72% $521 Overall Fuel Rate (ii) 466 468 (i) Jet Fuel Price [$/Mt] incorporates achieved hedge rates per season with market forward rates applied to unhedged portion. (ii) Based on estimated Jet Fuel costs & Intoplane costs, converted at $ blended hedged rates into functional CCY equivalents and then translated into GBP, either at blended rates for partially completed years or latest spot rates [ /Mt] FY17 overall fuel rate 466/Mt represents a projected saving of 30m versus FY16 ( 505/Mt) Transactional USD exposures against EUR, GBP and DKK have been hedged in line with Fuel hedges. A 1% variance in 2017 would have an annualised 0.7m impact Transactional EUR exposures against GBP and SEK hedged in line with policies. A 1% variance in 2017 would have an annualised 0.4m impact It is our policy not to hedge EUR and SEK profits and so FY16 profits will not be hedged. At current rates (iii), the impacts of fluctuations in those currencies can be summarised as: Every 1% move in Euro has a 1.3m impact on EBIT Every 1% SEK movement has a 0.6m impact on EBIT ((iii) Spot rates as at 30 April 2017 APPENDIX Page 42