Thomas Cook Group Preliminary Results 12 months ended 30 September 2012 28 November 2012
Business Transformation Building an effective organisation Addressing costs and cash Creating a profitable growth strategy Page 2
Building an effective organisation Highlights Harriet Green, Group CEO
Our Opportunity The leisure travel market is large In 2011 our largest source markets saw 355bn of travel spend Growth in global international tourism is forecast to grow at 3.3% pa until 2030 There is huge potential to further unlock the strength of our brands 23m customers travelled with us last year Across the Group our websites received over 310m visits last year We are operating in a target-rich environment Our organisation is ready for change 100m of cost savings identified in just 17 weeks, with more to come Gross margin of 22% is in line with last year, operating margin is down Source: Euromonitor and UNWTO Page 4
Financial Highlights Implementation of improved business monitoring processes including better management information is already yielding results: Fourth quarter underlying EBIT is in line with the previous year, demonstrating we are getting stronger Balance sheet has been strengthened through asset disposals and better working capital management Quarterly underlying EBIT m 20 450 446 Net debt has reduced by 103m to 788m Q4 performance is continuing, with good winter trading -37 Q1-91 -128-171 Q2-26 Q3 Q4 2011 2012 Page 5
Strength and Resilience of the Brand YouGov Brand Health Index Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Thomas Cook Competitor Page 6 Page 6
Strategic Highlights We are building on our core product strengths to improve our proposition with new and different products to attract more customers We are driving a cultural change with a renewed focus on rigorous execution and efficiency Business Transformation is underway and focused on three essential elements: Building an effective organisation Addressing costs and cash Creating a profitable growth strategy Our teams are motivated and have clear objectives and timeframes agreed Page 7
Addressing costs and cash Financial Review Michael Healy, Group CFO
Overview of Results Revenue 3% lower than last year but up 1% excluding the impact of exchange movements Underlying EBIT of 156m, 49% below last year Loss for the year of 590m Substantial improvement in net debt which reduced to 788m and increased liquidity headroom to almost 1bn m FY12 FY11 Change Revenue 9,491 9,809-3% Underlying EBIT 156 304-49% Separately disclosed items (498) (573) -13% Loss for year (590) (518) -16% Net debt 788 891-12% Liquidity headroom 2 981 821 +17% 1 Note: EBIT, profit before tax and earnings per share excluding exceptional operating items, IAS 39 fair value re-measurement, goodwill impairment and BCI amortisation 2 Note: Liquidity headroom represents headroom under available credit facilities at 30 September 2012 Page 9
Group Income Statement Revenue, down 6% excluding acquisitions, reflects planned capacity reductions Gross margin of 21.8% in line with last year Overhead costs reduced 4% excluding acquisitions Group EBIT of 156m, 49% below last year m FY12 FY11 Change Change excl. Acquisitions Revenue 9,491 9,809-3% -6% Cost of tourism services (7,421) (7,649) -3% -5% Gross profit 2,070 2,160-4% -10% Gross margin 21.8% 22.0% Personnel costs (1,109) (1,068) 4% -4% Depreciation (160) (167) -5% -8% Other operating costs (645) (621) 4% -4% Total overheads (1,914) (1,856) 3% -4% EBIT 156 304-49% -44% EBIT margin 1.6% 3.1% Page 10
Revenue by Business Group revenue 1% higher at constant exchange rates UK revenue decline of 4% reflects capacity reductions offset by the Co-op acquisition West Europe revenue declined by 7% due mainly to the impact of MENA Revenue for Airlines Germany increased by 17% as additional capacity was added North America revenue is down 15% as it repositions its offering in the market m FY12 FY11 Change Change constant FX UK & Ireland 3,067 3,206-4% -4% Central Europe 2,587 2,546 2% 9% West Europe 1,467 1,704-14% -7% Airlines Germany 865 802 8% 17% Northern Europe 1,167 1,153 1% 4% North America 296 349-15% -15% Group (excl. India) 9,448 9,760-3% 1% India 43 49-13% -1% Group 9,491 9,809-3% 1% 9% 16% 12% 3% 27% 32% UK & Ireland Central Europe West Europe Airlines Germany Northern Europe North America The Indian business was sold in August 2012 Page 11
Gross Margin by Business Group gross margin of c.22%, in line with last year Margins for most businesses resilient despite higher fuel costs UK margin improved due to transformation benefits in improved yield management and the acquisition of the Co-op, offset by higher fuel prices FY12 m FY11 m FY12 % FY11 % UK & Ireland 772 719 24.7% 22.1% Central Europe 335 342 12.7% 13.1% West Europe 241 295 16.4% 17.4% Airlines Germany 320 375 27.5% 33.4% Northern Europe 316 316 26.9% 27.2% North America 43 65 14.5% 18.6% Group (excl. India) 2,027 2,110 21.5% 21.6% India 43 50 Group 2,070 2,160 21.8% 22.0% The Indian business was sold in August 2012 Page 12
Group EBIT Bridge EBIT Bridge m 304 (18) Higher prices and better yield management Fuel: (110)m* Hotels: (47)m* (54) 68 Reduced capacity in UK and West (157) 35 (22) 156 FY11 * Net of related exchange impact Acquisitions Volume/mix Price/margin Fuel & Hotels Overheads Translation FY12 Page 13
EBIT by Business Excluding fuel impact, Group EBIT was 38m below last year UK delivered 60m turnaround benefits this year significantly improving underlying performance Central Europe includes losses from Russia MENA had a significant impact on demand in West Europe Airlines Germany saw improved underlying profit despite market pressures North America suffered from continued market over capacity m FY12 FY11 Change Change excl. fuel UK & Ireland* 2 21 (19) 37 Central Europe 50 72 (22) (22) West Europe 2 38 (36) (30) Airlines Germany 36 69 (34) 9 Northern Europe 101 106 (5) (4) North America (22) 11 (33) (29) Corporate (23) (27) (4) (4) Group (excl. India) 145 290 (145) (35) India 11 13 (3) (3) Group 156 304 (148) (38) The Indian business was sold in August 2012 * Including Egypt Page 14
Margins by Business Group EBIT margin of 1.6%, half of the level achieved last year Low UK EBIT margin compared with relatively strong gross margin indicates scope for significant improvement in cost efficiency Northern Europe EBIT margin of c.9% remains market leading Gross Margin EBIT Margin FY12 FY11 FY12 FY11 UK & Ireland 24.7% 22.1% 0.0% 0.6% Central Europe* 12.7% 13.1% 1.9% 2.8% West Europe 16.4% 17.4% 0.1% 2.2% Airlines Germany* 27.5% 33.4% 3.1% 6.2% Northern Europe 26.9% 27.2% 8.6% 9.2% North America 14.5% 18.6% -7.5% 3.0% Group (excl. India) 21.5% 21.6% 1.5% 3.0% Group (incl. India) 21.8% 22.0% 1.6% 3.1% * Margin for combined German business of 19.8%; EBIT margin 3.0% Page 15
UK Results Overview Volume fell as capacity was actively reduced to remove low or negative margin business UK EBIT Bridge m Fuel: (56)m* Hotels: (6)m* UK EBIT reduced to 1m this year Turnaround benefits of 60m were eroded by higher fuel costs of 56m and the impact of negative publicity of 30m. 20 60 (30) (15) (6) (62) 1 34 FY11 Transformation Adverse publicity Volume / mix Price / margin Fuel & hotels Overheads FY12 * Net of related exchange impact Page 16
UK turnaround delivery vs. planned UK turnaround initiatives delivered 60m of profit improvement in FY12 at a cost of 36m Actions taken in the year include: 6 aircraft reduction in winter 11/12 >500 underperforming hotels removed with 150 new properties added to the portfolio and 36% of package customers choosing differentiated products* Implemented a single commercial trading and coordinated discount approach m FY12 Delivered Run Rate Airline 5 10 Product 4 15 Yield management 19 40 Distribution 14 30 Operational excellence 18 45 Total 60 140 Cost to achieve 36 70 Closed 149 stores and 5 head office properties Implemented eticketing and epayslips and reduced brochures by 20% We anticipate further incremental benefits in FY13 * 26% of total mainstream customers, vs. 25% target announced in December 2011 Page 17
Separately Disclosed Items Non-cash goodwill and intangible impairments of 369m Integration and restructuring costs of 81m primarily relate to the UK business transformation and cost reduction plans in Belgium and Holland m FY12 FY11 Change Restructuring - UK (36) (45) 9 - North America (16) (4) (12) - West Europe (27) (17) (10) - Other (2) (8) 6 (81) (74) (7) Refinancing (30) - (30) Intangibles (369) (399) 30 Other (18) (100) 82 Total Group (498) (573) 75 First half (385) (37) (348) Second half (113) (536) 423 Full Year (498) (573) 75 Page 18
Group Cash Flow Net cash flow of 245m assisted by disposal proceeds Improved working capital management compensated for the impact of capacity reductions Significant proceeds from disposal of businesses (mainly India and HCV hotels) and sale & leaseback of aircraft m FY12 FY11 Change EBIT 156 304 (148) Depreciation 160 167 (7) EBITDA 316 471 (155) Working capital (14) (38) 24 Tax (29) (32) 3 Other 2 (27) 29 Operating cashflow 275 373 (98) Capex (138) (187) 49 Net interest (111) (93) (18) Free cashflow 26 94 (68) Dividends (33) (86) 53 Disposals 381 2 379 Exceptional items (129) (90) (39) Net cashflow 245 (80) 325 Page 19
Group Net Debt Year end net debt of 788m is 103m lower than last year due to significant proceeds from the sale of non-core assets Improved cash flow and further debt reduction is a key focus of the Group m FY12 FY11 Change Opening net debt (891) (804) (87) Net cashflow 245 (80) 325 Aircraft sale & leaseback Debt in divested businesses (189) - (189) 41-41 Other 6 (7) 14 Closing net debt (788) (891) 103 Page 20
Creating a profitable growth strategy Business Transformation Harriet Green, Group CEO
Transformation Initiatives are Focused on Three Essential Elements 1 Building an Effective Organisation The organisation is being structured to maximise the customer experience We have removed the historic organisational siloes The Group is now driven by a sense of urgency, characterised by robust decision making, clear accountability and defined metrics Page 22 2 Addressing Costs and Cash Increased degree of consolidation, for example through better leveraging our global purchasing power Cost reduction through self help measures, particularly the reduction of overhead s such as removing duplication UK Turnaround delivered 60m of benefits in the year and focus is now on reducing overhead costs faster 3 Creating a Profitable Growth Strategy Unlocking the potential of our brands and understanding and reacting to customers changing demands Building on current core product strength with new and different products to attract more customers Development of powerful web channels tailored to local markets
Building an Effective Organisation Organisation is mobilised, silos are being broken down through improved communication, collaboration and respect Driving cultural change at pace and structural change to maximise the customer experience Key management changes have been made to strengthen our team: A third were already in place A third were promoted from within A third are new to the business 8000 + employees shared their views on the priorities and actions to transform the business Page 23
Addressing Costs and Cash The Group needs to address its cost base, particularly overhead costs 9.5bn business with a gross profit margin in FY12 of 22%, in line with last year, but fell to just 1.6% at the operating level We are targeting cost reduction through structural change and in the first 17 weeks have already identified 100m of savings with substantial further opportunities Through working more collaboratively as a Group we can reduce duplication and better leverage our global purchasing power for example in the airline business. More savings through structural change and better use of existing technology We have identified gross working capital improvements of 50m through significantly changing processes and more to come m FY13 FY14 FY15 Integrated air travel strategy Run Rate 5 30 40 40 Organisational structure 5 20 30 35 Infrastructure, technology and 3 20 25 25 other Total 13 70 95 100 Cost to achieve - P&L account 65 - - - Cash 30 20 15 Page 24
Creating a Profitable Growth Strategy We have a great customer base and strong core product 50% of our customers already travel on flexible holidays We will build on this to offer greater choice and flexibility and attract new customers We are reviewing our entire customer proposition, including channels, content and brands to drive loyalty Omni-channel distribution with powerful web channels tailored to local markets Web investment with ecommerce business locally based with a global centre of digital excellence to deliver a more integrated approach and use our online talent most effectively Page 25
Outlook The Group has embarked upon a transformation which will shape its future strategy and we anticipate making good progress during the current year. As our customers are experiencing the financial realities of the weak economic environment, we are focused on delivering higher quality and better value holidays, whilst at the same time implementing measures to improve business profitability and cash flow. The year ahead is the initial stage in this recovery and as we embark upon our first year of Business Transformation, we are optimistic about the future and look forward to updating you on our full plans and additional financial benefits in the spring of 2013. Page 26
Q&A
Appendix
Cost Breakdown FY 12 cost breakdown 1 % cost base ( 9,335m) FY 11 cost breakdown 1 % cost base ( 9,505m) 8% 8% 12% 34% 11% 35% 8% 7% 9% 9% 29% 30% Accommodation Aviation excl fuel Fuel Commission & other Personnel Other opex 1: Stated before separately disclosed items Page 29
FX Rates Income Statement 1 FY 12 FY 11 Euro 1.23 1.15 SEK 10.67 10.37 C$ 1.59 1.58 INR 83.09 72.57 Balance Sheet FY 12 FY 11 Euro 1.25 1.16 SEK 10.56 10.70 C$ 1.59 1.62 INR 85.34 76.34 Note: As profits and losses build up differently over the period, the effective average income statement translation rates may vary Page 30
Debt facilities Debt Structure Maturity m Term Facility May-15 150 Revolving Credit facility May-15 961 Bonding May-15 200 Total Syndicated facility 1.3bn 400 Eurobond Jun-15 312 300 Eurobond Jun-17 300 Page 31
Winter 12/13 Trading Old Divisional Split Average selling price Cumulative bookings Planned capacity Left to sell UK - Total 1% - Specialist & independent 6% - Mainstream 13% -7% -18% -25% Central Europe 5% -1% -53% -57% West Europe 4% -9% -18% -18% Northern Europe 8% -2% -5% -9% Airlines Germany 12% 0% -1% 1% Page 32
New Senior Management Structure Lorna Arthurton (Gabrielle Philpot) Business Assistant Harriet Green Group CEO Anna Gibbney Business & Projects Assistant Michael Healy CFO Peter Fankhauser CEO, UK & Continental Europe Christoph Debus Group Head of Air Travel Zubin Randeria Group Strategy Director Susan Duinhoven CEO, WEB Lars Lofgren CEO, Northern Europe Pete Constanti CPO & Head of Destination Mgmt Ralf Teckentrup CEO, Airlines Germany Jenny Peters Group Head of Comms James Sandford Programme Management Director Reinhard Eschbach Joint CIO Mariano Albera Joint CIO Derek Woodward Group Company Secretary Lee Bradley Director of Enterprise, Risk & Audit Page 33
Biographies Harriet Green joined the Group as Group CEO on 30 July 2012. Prior to this, she was CEO of leading high service technology distributor Premier Farnell plc. Harriet is a global executive with extensive, multi-channel business leadership experience of the worldwide technology and industrial markets. She has driven innovation and strategic transformation through profitable global growth strategies and delivered industry leading results. Michael Healy joined the Group on 14 May 2012 and became Group CFO on 1 July 2012. Prior to this, he was Group Finance Director of Kwik-Fit Group. Michael has considerable international experience, across a broad range of industries and was previously Chief Operating Officer and Finance Director of the Hong Kong listed First Pacific Company Limited and subsequently Chief Financial Officer of ebookers plc. Dr Peter Fankhauser became CEO UK & Continental Europe on 1 November 2012. Prior to this he was CEO Continental Europe, a role he took up in June 2007. Prior to joining Thomas Cook, Peter managed the European division of Kuoni. Christoph Debus joined the Group in September 2012 at Global Head of Air Travel. Previously, Christoph was COO and CCO at Air Berlin and prior to that was CFO of Condor. Page 34
FY12 Segmental Commentary Note: Segmental results are presented including internal revenue Page 35
UK Management of Mainstream capacity to remove low or negative margin business resulted in revenue being 4% below last year UK business is undergoing fundamental transformation and FY12 saw the first significant delivery of financial benefits, particularly in gross margin through improved yield management and control of discounting As a result gross margin improved by 2.5 points despite increased cost of fuel and hotels m FY12 FY11 Change % Change Change excl. acquisitions Revenue 3,102 3,226 (123) -4% (271) Gross profit 765 713 52 7% (62) Gross margin 24.7% 22.1% 2.5% -0.1% Personnel costs (406) (380) (26) -7% 44 Depreciation (53) (60) 7 11% 12 Other operating (305) (254) (51) -20% (12) costs EBIT 1 20 (19) -96% (19) EBIT margin 0.0% 0.6% -0.6% -0.6% EBIT Bridge m 20 60 (30) (15) (6) (62) 34 1 FY11 Transformation Adverse publicity Volume / mix Price / margin Fuel & hotels Overheads FY12 Page 36
Central Europe The German business achieved higher volumes and average selling prices despite a highly competitive market assisted by growth of dynamically packaged products; however EBIT fell from 70m to 61m Eastern European businesses experienced difficult market conditions with general economic uncertainty together with local over-capacity; these factors reduced revenue and margins resulting in a decline in EBIT from 0.7m to a loss of 1.9m Winter sales in the Russian business were affected by issues in key destinations of Egypt and Thailand; Russia reported an EBIT loss of 9m (profit of 2m last year) but the year on year comparison is adversely impacted due to the inclusion of only the peak summer trading period last year m FY12 FY11 Change EBIT Bridge m 72 (12) (1) 12 (8) % Change (7) Change excl. acquisitions Revenue 2,638 2,600 37 1% (104) Gross profit 335 341 (6) -2% (22) Gross margin 12.7% 13.1% -0.3% -0.2% Personnel costs (158) (155) (3) -2% 9 Depreciation (9) (12) 3 21% 1 Other operating (118) (102) (15) -15% 1 costs EBIT 50 72 (22) -31% (11) EBIT margin 1.9% 2.8% -0.9% -0.3% (6) 50 The Central Europe segment includes East Europe (Poland, Hungary and Czech Republic) and Russia (acquired in July 2011); From October 2012 Belgium and Holland will also be included in this segment FY11 Acquisitions Volume / mix Price / margin Hotels Overheads FX Translation FY12 Page 37
West Europe West Europe has continued to be affected by the ongoing political unrest in the MENA region and the economic uncertainty caused by the European debt crisis These factors have adversely impacted sales volumes to key holiday destinations which has had a direct affect on revenues and margins The French market continues to show a significant impact of both MENA and the economic uncertainty on both the tour operating business and the retail business; as a result the French business recorded a loss of 21m (FY11 loss of 11m) The Dutch and Belgian markets continue to be very price competitive and Belgium is also characterised by flight overcapacities; together these businesses recorded EBIT of 23m, a significant reduction from last year ( 49m) m FY12 FY11 Change % Change Revenue 1,472 1,711 (239) -14% Gross profit 241 295 (54) -18% Gross margin 16.4% 17.3% -0.9% Personnel costs (119) (128) 9 7% Depreciation (8) (10) 3 25% Other operating costs (112) (120) 7 6% EBIT 2 38 (36) -95% EBIT margin 0.1% 2.2% -2.1% EBIT Bridge m 38 (20) 2 (12) (1) (5) 2 The West Europe segment includes France, Belgium and Holland; from October 2012 Belgium and Holland transferred to Central Europe FY11 Volume / mix Price / margin Hotels Overheads FX Translation FY12 Page 38
Northern Europe The Northern Europe business delivered another strong result with EBIT of 101m, only slightly below last year s level despite increase fuel and hotel costs Performance in the second half of the year improved significantly following a difficult winter trading period, affected by strong competition and weaker demand following floods in the key winter destination of Thailand In the second half of the year, although the market remained competitive and input costs rose, poor summer weather and a strong lates market led to better margin performance in the Summer 12 season m FY12 FY11 Change % Change Revenue 1,174 1,159 14 1% Gross profit 316 316 0 0% Gross margin 26.9% 27.2% -0.3% Personnel costs (152) (147) (5) -4% Depreciation (17) (17) 0 0% Other operating costs (46) (46) 0 0% EBIT 101 106 (5) -5% EBIT margin 8.6% 9.2% -0.6% EBIT Bridge m 106 FY11 2 Volume / mix 24 Price / margin (24) Hotels (4) (3) Overheads FX Translation 101 FY12 Page 39
North America The North American business had a very difficult year and reported a loss of 22m (2011: profit of 11m) The decline in performance was caused primarily by continued over-capacity in the market which drove down average selling prices across the Mainstream programme and the loss of the an important premium hotel contract which adversely affected product mix In addition, demand was reduced by a very mild Canadian winter which impacted the performance during the peak holiday period The turnaround plans initiated by the new management team in 2012 have started to deliver trading improvement, particularly in the Mainstream business; plans to de-risk and reposition the business have been implemented, which are designed to return the business to profitable growth Change excl acquisitions m FY12 FY11 Change % Change Revenue 296 349 (53) -15% (56) Gross profit 43 65 (22) -34% (25) Gross margin 14.5 % 18.6 % -4.0% -4.9% Personnel costs (41) (37) (5) -12% 0 Depreciation (4) (4) 0 0% 0 Other operating costs (20) (14) (6) -46% (4) EBIT (22) 11 (33) n/a (29) EBIT margin -7.5% 3.0% -10.5% -9.3% EBIT Bridge m 11 FY11 (3) Acquisitions (3) Volume / mix (14) Price / margin (8) Fuel & hotels (5) Overheads (22) FY12 Page 40
Airlines Germany Revenue was 4% higher than last year due to the expansion of long haul capacity with the addition of two aircraft compared to winter 11/12. However, the German airline market was very competitive in FY12 with significant over-capacity and pricing pressure in the short / medium haul sector; results of the long haul business were slightly better than the prior year As a result it was not possible to fully pass on significant fuel price increases, leading to a decrease in gross margin to 27.5% (FY11 33.4%) EBIT margin reduced to 3.1% (FY11: 6.2%) but remains market leading in Germany m FY12 FY11 Change % Change Revenue 1,165 1,120 44 4% Gross profit 320 375 (54) -15% Gross margin 27.5% 33.4% -5.9% Personnel costs (177) (178) 1 1% Depreciation (62) (57) (5) -8% Other operating costs (46) (70) 24 35% EBIT 36 69 (34) -49% EBIT margin 3.1% 6.2% -3.1% EBIT Bridge m 69 5 23 (43) (14) (4) 36 FY11 Volume / mix Price / margin Fuel Overheads FX FY12 Translation Page 41