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Thomas Cook Group (TCG)

  Print      Mail a friend       Annual reports

Thursday 28 November, 2013

Thomas Cook Group

Final Results

RNS Number : 1305U
Thomas Cook Group PLC
28 November 2013
 



28 November 2013

Audited results for the year ended 30 September 2013 and Strategy Update 

THE FIRST 365 DAYS OF TRANSFORMATION DELIVERED - THIS IS JUST THE START

"I am delighted to report that the first 365 days in the transformation of Thomas Cook have been a great success.   Our underlying EBIT for the year ended 30 September 2013 is up £86 million to £263 million, a rise of 49% compared with the previous year, putting our business back on a firm trajectory of profitable growth.  We've taken out more cost more quickly than originally planned.  The balance sheet has been strengthened; the £1.6 billion recapitalisation has been completed, maturities extended and we have almost halved our net debt.  Finally and significantly, operational cash flow is gathering momentum.   

Yet the implementation of our strategy for sustainable profitable growth has only just begun.   With our systemised approach to business, our products, people and processes and our powerful unified brand, we are confident of delivering significantly more.  Reflecting this, we are increasing three of our key 2015 targets: new product revenue, Wave 1 cost out and profit improvement and cash conversion.  In addition, we are delighted to announce  a new Wave 2 cost out and profit improvement target to be delivered by 2018, which will be of the same magnitude as wave 1.   Totally committed to our continuing transformation, I look forward to Thomas Cook delivering even more value in the years to come."

Harriet Green, Group Chief Executive

Improving financial results

£m

(unless otherwise stated)

Year ended 30 Sept 2013

Year ended 30 Sept 2012

Underlying

Statutory

Underlying

Statutory

Revenue

9,315

9,315

9,195

9,195

EBIT

263

13

177

(170)

EBIT margin (%)

2.8%

0.1%

1.9%

N/A

Profit (loss) after tax

N/A

(207)

N/A

(590)

Earnings (loss) per share (p)

5.0p

(16.7)p

0.6p

(67.2)p

Free cash flow

53

53

(103)

(103)

Net debt

(421)

(421)

(788)

(788)

Note: 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 included on the face of the income statement and are detailed on p23.  The term 'like for like' reflects  the underlying results after removing identifiable non-recurring items in the prior year and adjusting for foreign exchange movements.   Like for like adjustments are shown on p19.

Year ended 30 September 2013 (statutory):

·      Thomas Cook announces an operating profit ("Statutory EBIT") for the first time since FY10

 

Year ended 30 September 2013 compared with year ended 30 September 2012 (underlying):

·      Encouraging profitable growth with revenue of £9,315  million (2012: £9,195 million), up £120 million, an increase of 1.3%, due to pricing, yield improvements and the effect of foreign exchange offsetting a  managed reduction in committed capacity

·      EBIT of £263 million (2012: £177 million), up £86 million, an increase of 48.6%,  reflecting the benefits of disciplined capacity management, cost out and profit improvement initiatives

·      EBIT margin rose by 90 basis points to 2.8% (2012: 1.9%)

·      Underlying earnings per share improved significantly to 5.0p (2012: 0.6p)

·      Free cash flow increased by £156 million to £53 million (2012: (£103)million) due to improved organic cash generation from the Group's operations

Stronger balance sheet

30 September 2013 compared with 30 September 2012:

·      Net debt reduced by £367 million to £421 million (2012: £788 million), with £73 million of the reduction due to improved operational cash flow

·      Credit ratings improved: Fitch "B" with positive outlook (2012: "B-" with stable outlook) and Standard & Poor's "B" with stable outlook (2012: "B-" with negative outlook)

Unified brand portfolio for our customers

·     Simplified brand labels from 85 to 30, unifying them under the "Sunny Heart" symbol representing for our customers personalised and trusted holidays, "high tech, high touch" delivery, backed by market leading international scale and purchasing power

Delivering on targets and KPIs

New product growth

·      Incremental new product revenue growth target increased to more than £700 million in FY15, up from £500 million that was previously targeted. By FY17 we expect to have increased this incremental new product revenue growth by a further £500 million to more than £1.2 billion

·      Incremental new product revenue grew by £94 million in FY13 including the growing contribution from our exclusive concept hotels

·      We have 309 exclusive hotels in total including concept hotels, which are franchised or leased under our brands, and partnership hotels, where we have strong relationships with the hotel owners.  We plan to increase the number of these exclusive hotels to 800 by FY17

·      Progress made developing our city break offer, having doubled our inventory in Central Europe.  We plan to increase the number of city hotels that we can offer our customers from a current level of 7,000 to 20,000 by FY15 

Web penetration

·      36% of holidays booked online (2012: 34%) moving towards our FY15 target of over 50%, the online booking only being recognised once our customer has departed on their holiday

·      All markets saw increased web penetration, including Scandinavia which is over 70%

·      Significant organisational change underway migrating our six key markets to a "OneWeb" common platform

·      Digital Advisory Board appointed, comprising external web experts and supporting product innovation and digital recruitment

·      New products innovated including DreamCapture, which enables the valuable customer relationship discussion in the store to continue digitally after the customer returns home

·      Won "Outstanding Innovation" for our use of new technology to deliver online travel services in the Global Business Excellence Awards

·      Developing our "high tech, high touch" offer: building competitive advantage through the digital delivery of quality assured services that our customers can personalise and trust

Cost out and profit improvement ("Wave 1")

·      FY15 cost out and profit improvement target increased to £440 million, due to a further £40 million of deliverable benefits.  These arose primarily from adjustments to our risk weighting, acknowledging that more of the gross benefits will be realised than we had originally expected.  Going forward,  any increases to our cost out targets as a result of risk weighting adjustments will be disclosed at our half year and full year results announcements

·      By FY13 we have delivered cumulative cost out and profit improvement benefits of £194 million.  This is £24 million above our increased target for the end of FY13 of £170 million; this target already having been raised in Q3 2013 from an original FY13 target of £145 million, which highlights the extent of the accelerated delivery this year

·      Reflecting this accelerated delivery, we now expect to achieve total benefits of £340 million in FY14, higher than the £315 million target that we had previously announced for that year

Gross margin improvement

·      Underlying gross margin on a like for like basis increased by 80 basis points to 22.1% (2012: 21.3%).  This is the result of a systemised approach  to enhance our yield management and realise benefits of cost out and profit improvement across the Group, driven by an internally engineered business operating methodology called "The Thomas Cook Business System"

UK turnaround

·      UK underlying EBIT margin on a like for like basis improved by 210 basis points to 2.2% (FY12: 0.1%)

·      Reduced retail stores by 21% from 1,101 at the beginning of the programme to 874 at the end of September 2013 and increased UK web penetration to 36% (FY12: 33%)

Cash conversion

·      Cash conversion ratio rose to 48% (FY12: 11%) moving towards our FY15 target of more than 60%, reflecting substantial improvements in working capital management

·      Cash conversion target for FY15 increased from more than 60% to a new target of greater than 70%, another example of the benefits of our systemised operating methodology and the gathering momentum of the transformation

·      Delivered almost £100 million working capital improvement in FY13.  Working capital improvement target for FY15 increased by £50 million to a new target of £200 million

Intense business focus

·      Will have delivered £61 million of gross proceeds from disposals, once the announced Airline Group transaction completes, on track to achieve our target of between £100 million and £150 million by FY15

·      Concluded successful discussions that led to an agreement to sell the majority of our interests in The Airline Group, 41.9% owner of NATS Holdings Limited, for a cash consideration of approximately £38 million

·      Announced the disposal of Neilson for a cash consideration of £9.15 million, our outbound business in Egypt and Lebanon for cash consideration of £6.5 million and our Corporate Foreign Exchange business for a cash consideration of £4.5 million.  Also outsourced our UK escorted tours business, Thomas Cook Tours, for a minimum period of five years 

·      Good progress made transforming our French and Russian businesses; French losses reduced and Russian performance stabilised

·      On track in the development of the new "One Airline" structure, which will deliver  integration of our four airlines, realising scale benefits and efficiency improvements

Target increases

·      The following table includes three increases to our FY15 targets and sets out the milestones that we expect to reach in FY14:

-      New Product Revenue FY15 target increased to >£700 million (previous FY15 target >£500 million)

-      Cost Out and Profit Improvement FY15 target increased to >£440 million (previous FY15 target >£400 million)

-      Cash Conversion FY15 target increased to >70% (previous FY15 target >60%)

 



FY 12

FY 13

FY 14

FY 15

 

 

Targets

New Product Revenue

N/A

£94m

> £300m

> £700m

 

 


Web Penetration(i)

34%

36%

> 40%

> 50%

 

 


Cost out/ profit improvement (run-rate)

£60m

£194m

> £340m

> £440m

 

 

KPIs

Sales CAGR(ii)

N/A

N/A

> 2.5%

> 3.5%

 

 


Underlying Gross Margin Improvement(iii)

N/A

0.8%

> 1.2%

> 1.5%

 

 


Underlying UK EBIT Margin

0.1%

2.2%

> 3.5%

> 5%

 

 


Cash Conversion(iv)

11%

48%

> 55%

> 70%

 

Notes

(i)

(ii)

(iii)

(iv)


Measured on a last 12 months departed basis ("LTM")

Compound annual growth rate from FY13 to FY15 including new product revenue

Underlying gross margins, adjusted for disposals and shop closures on a like for like basis

Cash conversion defined as net cash from operating activities less interest paid as a percentage of underlying EBITDA(iv)

 

 

Investment in profitable growth

·      In FY13 we invested an additional £25 million in operating expenses to support the delivery of profitable growth and our Wave 1 cost out and profit improvement programme

·      Investment in FY13 included costs of operating and maintaining upgraded IT systems which will facilitate our profitable growth strategy and increased marketing to support our online and new product expansion

·     In FY14 we expect strategic operating investments to increase by a further £50 million as we build the systems and processes to sustain our profitable growth strategy, facilitating the new Wave 2 cost out and profit improvement initiatives.  In FY15 we estimate that this investment will increase by a further £20 million compared with FY14 

·      In addition, in FY13 we invested £127 million in restructuring the business, which we expect to continue in FY14 at a reduced level of circa £75 million

New cost out and profit improvement target ("Wave 2")

·     Consistent with the roll out of our operating methodology, "The Thomas Cook Business System", we plan to deliver further benefits from enhanced margin management, more efficient use of shared services and a leaner organisational design

·     These will be delivered by a new Wave 2 cost out and profit improvement programme, which will drive benefits in gross margin as well as cost out through reduced overheads

·     They will be in addition to the "Wave 1" cost out and profit improvement programme target

·     We estimate that the total Wave 2 benefits will be of a similar scale to Wave 1 and will be achieved by FY18.  While it is early stages in the implementation of the plan, we do expect that Wave 2 will have a higher investment cost to achieve the benefits than Wave 1.  This investment cost is estimated to be approximately one third of the annual benefit and is expected to be incurred after FY15

·     Over the next six months, we will continue to develop the plan, applying the risk-weighting methodology we used for Wave 1.  We will provide further details on the initiatives, savings and costs to implement  them at our FY14 interim results

Trading outlook

·     The Group's transformation remains on track, with all strategic measures in line with or in excess of internal targets at the end of FY13. Details of our progress during FY14 will continue to be communicated regularly as we continue towards full delivery of our FY15 targets

·     Margins for Winter 2013/2014 are ahead of last year due to our profitable growth strategy; as a consequence of the discontinuance of certain high volume, low value business lines, UK bookings are 7% lower than last year but 1% higher on a comparable basis.  Trading in our other businesses are also in line with expectations with strong levels of price increases.

·     Our market leading Nordic business continues to deliver growth at stable prices and improved margins

·     Airlines Germany has successfully redirected capacity to other destinations to compensate for the downturn in Egypt while achieving a 3% increase in prices 

·     Summer 2014 performance is in line with expectations and our improved flexibility for capacity management and enhanced product offering will ensure that our business is fully aligned with customer demand to produce continued profit improvement for FY14.   We are confident that our new products, continued trading improvement and the accelerated cost savings announced with these results will ensure that the Group will more than deliver on its commitments

 

Enquiries

 

 

 

Investors & analysts

 

 

Geoffrey Pelham-Lane, Thomas Cook Group

+44 (0) 20 7557 6414

 

Media

 

 

Jenny Peters, Thomas Cook Group

+44 (0) 7568 105144

 

Andrew Lorenz, FTI Consulting

+44 (0) 7775 641807

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 p23.  The term 'like for like' reflects  the underlying results after removing identifiable non-recurring items in the prior year and adjusting for foreign exchange movements.   Like for like adjustments are shown on p19.



 

GROUP CHIEF EXECUTIVE'S REVIEW

365 days of delivery

In the first 365 days of the transformation of Thomas Cook we have effected a rigorous and rapid turnaround of the business and set out a robust strategy of sustainable profitable growth.

The results are clear.  Revenue is up 1.3%, despite capacity reductions, costs are down 2%, and underlying EBIT is up 49%.  Free cash flow, an important driver in the continuing deleverage of the business, is up £156m to £53m.  Net debt has almost halved and loan maturities extended.  The £1.6 billion recapitalisation completed in June was a significant achievement.  It comprised of new equity of £431 million, a new bond of Euro 525 million maturing in 2020 and a new four year banking facility of £500 million with a second £191 million tranche available from 2015, supporting the sustainability of the transformation and underpinning the strategy for profitable growth.

Having inherited the management of a business that had revenues of over £9 billion, gross margins of over 20%, over 20 million customers, market leadership - being number one or two in each of its core markets - and an iconic brand but that didn't have a strong EBIT margin, it was clear that the first priority was to take cost out.   However, it was also clear that we needed to do more than this to deliver sustainable value for the long term. 

As a result, on 13 March we announced our strategy for profitable growth, on 27 June we successfully completed our £1.6 billion recapitalisation and on 1 October we announced our unified brand strategy. 

Radically reducing our 85 brand labels was a clear priority.  We have now simplified these to  just 30, unifying our brands under one common symbol the "Sunny Heart".  This allows us to focus our considerable brand power, proposition and products in the fulfilment of our customers' needs. 

Building on Thomas Cook's already strong brand heritage, the "Sunny Heart" highlights the combined strengths of the Group in the minds of our customers, symbolizing personalised and trusted holidays, "high tech, high touch" delivery, backed by Thomas Cook Quality Assurance, international scale and market leading purchasing power.

Targets and KPIs

When we announced a strategy for profitable growth, we set a strict timeline for the delivery of clear financial targets.  Since then, a lot has been achieved.  This includes stronger than expected progress in new product development, cost out and profit improvement and cash conversion, the targets for which have been increased



 

 



FY 12

FY 13

FY 15

Targets

New Product Revenue

N/A

£94m

> £700m


Web Penetration

34%

36%

> 50%


Cost out/ Profit Improvement (run-rate)

£60m

£194m

> £440m

KPIs

Sales CAGR

N/A

N/A

> 3.5%


Underlying Gross Margin Improvement

N/A

0.8%

> 1.5%


Underlying UK EBIT Margin

0.1%

2.2%

> 5%


Cash Conversion

11%

48%

> 70%

Notes to this table are shown on page 4

 

New product is being successfully rolled out across the Group and we are therefore increasing our target for incremental new revenue growth by FY15 to £700 million from £500 million. In FY13 we delivered incremental new product revenue growth of £94 million, including the growing contribution from our exclusive concept hotels. 

Our rapid expansion of concept hotels across the Group continues.  93 concept hotels were fully open for the 2013 summer season and a further 57 will be ready for 2014, taking the total to 150 hotels. 

We have 309 exclusive hotels in total including concept hotels, which are franchised or leased under our brands, and partnership hotels, where we have very strong relationships with the hotel owners.  We plan to increase the number of these exclusive hotels to 800 by FY17.

The number of customers booking their holidays online has now risen to 36%.  All markets saw increased web penetration, including Scandinavia which is over 70%.  We expect this to accelerate more towards our FY15 target level of over 50% in the later periods of the plan, as the significant organisational change that is currently underway to migrate our six key markets to a "OneWeb" common platform takes effect.  At the same time, we continue to enrich our online offer with leading digital innovations to improve conversion rates.  In particular, DreamCapture is expected to have a particularly high impact.  This latest innovation enables the valuable customer relationship discussion in the store to continue digitally after the customer returns home, creating a crucial link between e-tail and retail and helping ensure safe passage between the channels.  We expect this to drive increased conversion rates as customers have easy access to previously viewed content and have a clear link straight to purchase.  Another innovation, "RepAdvisor", allows our representatives to upload information, photos and videos on the web so that our customers can benefit from first-hand information about the resort and local area.  We also continue to innovate with  enhancements to content such as increased use of accommodation videos and improved room descriptions to inspire customers to book a holiday that meets their specific needs.

In recognition of our innovation, we recently won the Global Business Excellence Awards for "Outstanding Innovation" and, in respect of "RepAdvisor", "Outstanding App", the latter being described as an outstanding example of harnessing modern technology to deliver great customer service.

Our cost out and profit improvement programme continues to deliver more than planned.  By the end of FY13, we had delivered a cumulative total of £194 million in benefits, £24 million above our target of £170 million, which was increased from £145 million at the last quarter's announcement reflecting the fact that we had delivered ahead of expectations at that time.  Reflecting this accelerated delivery, we now expect to realise total benefits of £340 million in FY14, higher than the £315 million that we previously announced for that year.  Primarily due to the fact that the execution risk of implementing these initiatives has proved less than anticipated, consequently triggering an adjustment in our risk weighting process, we also now expect to deliver total cost out and profit improvement benefits of over £440 million by FY15, an increase of £40 million since the last rise we reported in August.

£m

FY 12

FY 13

FY 14

FY 15

UK turnaround

60

124

140

140

Group-wide cost out and profit improvement

-

70

200

300

̵    Integrated air travel strategy

-

27

63

100

̵    Organisational structure

-

30

77

95

̵    Product, infrastructure, technology, and other

-

13

60

105

Total targeted benefits(i)

60

194

340

440

Expected costs to achieve(ii)





̵   Income statement

36

47

23

8

̵   Cash flow

̵     Operating expenditure

30

29

41

8


̵     Capital expenditure

-

8

31

26

Notes

(i)

Cumulative run-rate

 


(ii)

One-off costs of delivery

 

 

In terms of our financial KPIs, the results are encouraging.  The Group underlying gross margin improvement on a like for like last 12 months basis improved by 80 basis points to 22.1% (2012: 21.3%).  This is the result of a systemised approach to enhance our yield management and realise benefits of cost out and profit improvement in our business, driven by our internal operating methodology, "The Thomas Cook Business System".

The UK underlying EBIT margin improved by 210 basis points, the result of the on-going success of our major turnaround of the business.   We announced in March our plan to reduce our payroll by approximately 2,500 to a target of about 13,000 full time employees. 

We also said that we would reduce the number of retail stores.  This has been successfully completed.  As at 30 September, we had reduced our network by 21% from 1,101 stores at the beginning of the programme to 874, while increasing the percentage of business booked online to 36% (FY12: 33%).  A recent report by retail property consultants, CWM, confirmed that our store network is highly flexible, with well over half available for renegotiation over the next three years.  In addition, we said that we would simplify the number of UK brands to make it easier for customers to interact with us and find the holiday experience they want.  As a result, we have reduced these by almost two thirds to just 10.  They include omni-channel consumer brands such as Thomas Cook and Elegant resorts and online brands such as Direct Holidays.co.uk and Hotels4U.com.

Finally, the Group's cash conversion ratio increased to 48% compared with 11% in FY12, reflecting substantial improvements in working capital management.  In recognition of this progress, we are increasing our cash conversion target for FY15 from more than 60% to greater than 70%.  Of the £150 million improvement in working capital that we had targeted by FY15, we had delivered almost £100 million by the end of FY13.   Reflecting this progress we now expect to achieve a further £50 million improvement by FY15, taking the total targeted improvement to £200 million.

Intense business focus

During the year we undertook an extensive review of our portfolio of assets.  This resulted in a number of disposals that have improved our business mix and enabled more focus on those core assets that will deliver sustained profitable growth.  The review also resulted in the implementation of dedicated programmes to address underperforming businesses and improve integration.

In May we completed the sale of our North American business for cash proceeds of £3.4 million, which reported an operating loss in FY12 of £41.1 million.  At the end of May, we disposed of our 50% share in Thomas Cook Personal Finance and three standalone foreign exchange bureaux in London.  Since the end of our financial year, I am delighted to announce further progress.  On 4 October we disposed of our business in Egypt and Lebanon for cash proceeds of £6.5 million, which reported an operating profit of £1.1 million in FY13.  On 18 November we announced the sale of our Corporate Foreign Exchange business for cash proceeds of £4.5 million and an outsourcing agreement in respect of our escorted tours business, Thomas Cook Tours, for a minimum period of five years.  On the 19 November we announced the disposal of 91.5% of our shareholding and loan note interests in The Airline Group Limited, a 41.9% shareholder in NATS Holdings Limited, for a cash consideration of approximately £38 million.  Finally, on 25 November we announced the sale of Neilson for a cash consideration of £9.2 million.

This equates, once The Airline Group transaction completes, to a total of £61 million of gross proceeds from disposals, putting us on track to achieve our target of between £100 million and £150 million by FY15.

We are also making progress transforming our underperforming businesses.  In France, we have moved closer to our target of breakeven by FY15, reducing its loss by Euros 5.3 million to Euros 18.7 million (FY12: Euros 24 million).  Having successfully concluded our discussions with the Workers Council, we are now implementing the restructuring in line with our planned timescale.  In addition, we have stabilised our Russian business, reporting a loss of Euros 10.5 million (FY12: Euros 11 million) and expect to see significant improvements in FY14 as our restructuring measures take effect.

Finally, we are on track in the development of the new "One Airline" structure, which will deliver  integration of our four airlines, realising scale benefits and efficiency improvements.

 

Further professionalising the way we do business

Building sustainable value at Thomas Cook is crucial.  We aim to deliver profitable growth, not just to 2015, the date of our originally published targets, but also over the long term.

Sustaining success is about ensuring that we have the best people, best products and best processes, underpinned by the very best practices from all industries, not just our own. 

With our customer at the heart of everything we do, as well as how and everywhere we do it, we aim to bring further professionalism to the "high tech high touch" delivery of trusted, personalised products to all our customers, supported by a lean and innovative operating system  that is designed specifically to serve their needs.

To support this, we are using a disciplined operating model called "The Thomas Cook Business System".  Embedding this methodology deeply within our organisation to help drive continuous improvement throughout the Group, across all our people, products and processes, we are already seeing improvements. 

For example, as part of a process to ensure we have the right people, doing the right things in the right way to deliver our strategy, I have now completed my Executive Committee ("ExCo").  This is an important  step on our journey to further professionalise the Group, breaking down regional silos and realigning leadership responsibilities to deliver the best product in the best way to our customers.

Committed in my role as Chief Executive to leading the sustained delivery of profitable growth, I am joined on the Committee by our Group Chief Financial Officer, Michael Healy, the newly appointed Chief Operating Officer, Peter Fankhauser, the Group Head of Air Travel, Chief Technology Officer, Chief Digital Officer, the Group's General Counsel and the Chief People Officer; all key roles as we realign our operating approach to deliver performance excellence as one fully integrated Group.

In addition, we have continued to strengthen the leadership team.  Reto Wilhelm, previously Managing Director of West/East region, part of our Continental European segment, has been promoted to lead the UK business, while also continuing to drive the turnaround of the Group's French operation.   Replacing him to lead West/East region is Salman Syed, who joins from outside the Group, having worked for a number of major international companies across Europe, North America and Asia including Arrow Electronics and Premier Farnell.

Delivering sustained profitable growth

Our strategic management of hotel product is key to our delivery of sustainable profitable growth.  

Having identified from our traveller survey the importance of customer attitudes in terms of holiday preferences, our hotel portfolio is carefully designed to ensure that we meet individual customer needs.   Specifically, we have segmented our product portfolio into four areas: concept hotels, partnership hotels, hotels from our brochures and flexible hotels predominantly available online, including hotels4u.com that has recently broadened its offer to appeal not just to business but also to retail customers.

In FY13 over 500,000 customers enjoyed our 93 exclusive concept hotels, which are operated under our own brands, Sentido, Sunwing, Sunprime and Smartline.  These hotels provide our customers with a consistent experience based on a defined list of features that meet their needs wherever they go on holiday.  These are further catagorised according to whether their customer focus is adult or family orientated.

Our other exclusive hotels are partnership hotels.  In FY13 over 800,000 customers enjoyed these hotels, which currently total 216.  Partnership hotels are owned by world leading hoteliers and strong local partners, with whom we have close relationships and who have strong reputations for providing consistently high quality service.  

Our third segment consists of our traditional brochure hotels, providing customers with a quality range of accommodation and style, as well as more choice across a wide range of destinations. 

Finally, we also offer a significant range of flexible hotels that are available online.  Unlike the other segments which are either exclusive or involve a level of commitment to the hotelier, these hotels are offered on a real time basis via the web to allow the greatest level of flexibility.  Supported by encouraging trials in our German market, we see potential to attract significantly more new customers who like to book these hotels online and typically later than our traditional customers. 

Overall, our strategy is to shift from approximately 20% of hotel revenues in exclusive and flexible hotels in FY12, to approximately 40% by FY17.  Together, they will account for incremental new product revenue growth of £700 million by FY15.  By 2017 we expect to have increased this incremental new product revenue growth by a further £500 million to more than £1.2 billion.

We will focus our total investment spend into exclusive hotels where we have the highest returns.  Our proven concept hotels already deliver a margin premium relative to the other hotels in our portfolio of as much as 500 basis points.  Our partnership hotels also deliver a margin premium, currently in excess of 150 basis points above the other hotels, and it is our aim to double this margin premium over the next three years as we continue to invest further in this area.

Our product growth ambitions also include a relentless pursuit to innovate more product.   In FY13 we have developed and launched a new hotel concept, "SunConnect", which offers value based family holidays with a focus on making life simpler through the use of technology.  This product has been designed specifically in response to customer feedback from our extensive survey.   We will trial an initial 10 hotels in the coming 2014 Summer season.

A key driver of our profitable growth, we plan to have 800 exclusive partnership and concept hotels open by FY17, enjoyed by over 3.5 million customers.

Another key product priority that we identified in March, when we announced our strategy for profitable growth, was the conclusion that we should be providing more holidays to each customer by offering a broader product range. 

For example, the analysis of our survey data informed us that 77% of our Sun & Beach customers who took city breaks last year booked with another provider.

With a dedicated team in place we are significantly enhancing our portfolio of city hotels across our Group and have already doubled our inventory in Central Europe.  We plan to increase the number of city hotels that we can offer our customers from a current level of 7,000 to 20,000 by FY15. 

To underpin all our products right across the Group and continue to deliver on the trust that our customers place with us when they book a holiday, we are rolling out an extensive and thorough quality assurance programme.  This involves a continuous audit of key quality measures including health and safety, customer service and overall quality excellence.   The health and safety programme measures standards, audits hotels and includes a clear escalation and decision process.  The customer service includes structured and regular feedback that is continually embedded in our hotel contracting process.  Finally, quality excellence includes extensive surveys that allow us to determine what really matters to customers which we can then reinvest into hotel assessment and our on-going product development.

Quality assurance is a key differentiator as we increasingly become a digital business.  Central to our "high tech, high touch" approach is online delivery combined with protection, quality assured products and personalised support; all of which we know from our extensive traveller survey is what customers want.   Consciously offering a differentiated model from the way the online industry has evolved, we believe that our "high tech, high touch" offer is more relevant to travelers' needs today, bringing us closer to them and therefore better able to meet their needs in future.

New cost out and profit improvement target ("Wave 2")

Consistent with the roll out of our operating methodology, "The Thomas Cook Business System", we plan to deliver further benefits from enhanced margin management, more efficient use of shared services and a leaner organisational design.   These will be delivered under a "Wave 2" cost out and profit improvement programme, which will be in addition to "Wave 1".

Our new Wave 2 cost out and profit improvement initiatives will drive benefits in gross margin as well as in cost out through reduced overheads.  Gross margin benefits are expected to arise from further yield management from adopting one system, one inventory and one web across our markets, scale benefits from purchasing accommodation on a centralised basis and reduced commission expense from growing online sales of our own branded product.

Cost out benefits are expected to arise from the migration of customers to online channels with lower associated distribution costs, the creation of shared service centres to support the businesses more efficiently and the adoption of more lean organisational structures within the Group as a whole.

We estimate that the total Wave 2 benefits will be of a similar scale to Wave 1 and will be achieved by FY18.  While it is early stages in the implementation of the plan, we do expect that Wave 2 will have a higher investment cost to achieve the benefits than Wave 1.  This investment cost is estimated to be approximately one third of the annual benefit.

Over the next six months, we will continue to develop the plan, applying the risk-weighting methodology we use for Wave 1.  We will provide further details on the initiatives, savings and costs to implement  them at our FY14 interim results.

Current trading

Summer 2013

Our Summer programme finished on 31 October with cumulative bookings in line with capacity changes for all markets, with the exception of Continental Europe where fixed capacity commitments have been reduced and replaced with more flexible arrangements. 

Pricing trends were positive in all businesses through improved capacity management, despite generally weaker market conditions in the late Summer market compared to last year. 

 

Summer 13
Year on year variation %
Risk business
Average selling price
Committed capacity
Cumulative bookings
UK
+4
-2
-3
Continental Europe
+1
-11
Flat
Northern Europe
+3
+1
Flat
Airlines Germany
+3
+2
+2
 

Winter 2013/2014

Compared to last year Winter bookings have been adversely impacted by social unrest in Egypt, which has resulted in significantly reduced demand to that destination following travel restrictions or prohibitions issued by governments in all of our source markets.  Accordingly, booking data for each of our principal markets is also stated on a basis which excludes Egypt to remove the distorting impact of reduced demand to that destination.  

 In line with our profitable growth strategy, we have managed Winter capacity in order to focus on improving margin.  This has resulted in the discontinuance of certain high volume, low value business lines, particularly in the UK.  While UK bookings are 7% lower, both margin per passenger and absolute margin for the Winter season are ahead of last year.  Adjusting for the effect of discontinued business lines and the impact of market disruption in Egypt, UK bookings were 1% higher than last year.

Driven by our focus on profitability, bookings in Continental Europe have been impacted by reductions in capacity in France and Russia as we have continued to transform these businesses.

Our market leading Nordic business continues to deliver growth, with bookings up 6%, excluding Egypt, at stable prices and improved margins.

Airlines Germany has successfully redirected capacity to other destinations to compensate for the downturn in Egypt while achieving a 3% increase in prices. 

There are signs of a positive recovery in the Egypt market.

Winter 13/14
Year on year variation %
Risk business
Average selling price
Committed capacity
Cumulative bookings
Cumulative bookings excl. Egypt
UK
Flat
-6
-7
-3
Continental Europe
+6
-10
-6
+1
Northern Europe
Flat
-1
-1
+6
Airlines Germany
+3
+3
-1
+9

Outlook

The Group's transformation remains on track, with all strategic measures in line with or in excess of internal targets at the end of FY13.  Details of our progress during FY14 will continue to be communicated regularly as we continue towards full delivery of our FY15 targets.

Summer 14 performance is in line with expectations and our improved flexibility for capacity management and enhanced product offering will ensure that our business is fully aligned with customer demand to produce continued improvement for FY14.   We are confident that our new products, continued trading improvement and the accelerated cost savings announced with these results will ensure that the Group will more than deliver on its commitments.

This is just the start

I make no apologies for the additional length of this year's Chief Executive's Review.  An enormous amount has been achieved transforming Thomas Cook and the deliverables are clear.  

Yet  the implementation of our strategy for sustainable profitable growth has only just begun.  With our systemised approach to business under The Thomas Cook Business System, our products, people and processes and our powerful unified brand, we are confident of delivering significantly more in the years to come. 



FINANCIAL REVIEW

Financial results and performance review

Group

£m

(unless otherwise stated)

Year ended 30 Sept 2013

Year ended 30 Sept 2012

Change £'m

Change %

Revenue

9,315

9,195

120

1.3

Gross profit

2,059

2,026

33

1.6

Underlying profit from operations (EBIT)

263

177

86

48.6

EBIT Separately Disclosed Items

(250)

(347)

97

28.0

EBIT

13

(170)

183

-

Other income/expenditure

1

2

(1)

(50.0)

Net finance charges (underlying)

(146)

(123)

(23)

(18.7)

Separately disclosed finance charges

(26)

(46)

20

42.2

Loss before tax

(158)

(337)

179

53.1

Tax

(49)

(104)

55

52.9

Discontinued operations

-

(149)

149

100.0

Loss for the year

(207)

(590)

383

64.9






Other Measures

FY13

FY12

Change

Underlying profit per share (p)

5.0

0.6

4.4

Basic loss per share (p)

(16.7)

(67.2)

50.5

Free cash flow (£'m)

53

(103)

156

Closing net debt (£'m)

421

788

367

Closing liquidity headroom (£'m)

1,207

981

226






Like for Like comparators

FY13

Sales growth

(0.3)%/£(29)m

Gross margin (%) increase

0.8%

Overhead reduction

2.1%  / £39m

EBIT Growth

64.4% /£103m

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 p23.  Within the Financial Review results are considered on an underlying basis unless otherwise stated.

 

The term 'like for like' reflects  the underlying results after removing identifiable non-recurring items in the prior year and adjusting for foreign exchange movements.   Like for like adjustments are shown on p19.

 

Free cash flow is shown on p27 and represents Operating Cash Flow less Net Interest, Capital Expenditure and Separately Disclosed Items.

 

Basis of preparation

On 1st May 2013 the Group completed the sale of its North American business segment. In accordance with IFRS5 the North American business has been classified within 'Discontinued Operations'. The FY12 results have been restated on a consistent basis. The disposal resulted in a gain of £2m in the current year.

On 7th October 2013 the Group completed the sale of its outbound tour operating businesses in Egypt and Lebanon. The results for these businesses have been reported within our UK segment. In accordance with IFRS5 these businesses are treated as 'Assets Held for Sale' with unchanged profit and loss account and cash flow disclosure but with the net assets of these businesses reflected as a single line within the balance sheet.

On 18th November 2013 the Group announced that it had reached agreement for the disposal of the entire share capital of Thomas Cook CFX Ltd and on 25 November the Group announced it had reached agreement for the disposal of Neilson Ltd and its subsidiaries. The results for these businesses have been reported within our UK segment. In accordance with IFRS5 these businesses are treated as 'Assets Held for Sale' with unchanged profit and loss account and cash flow disclosure but with the net assets of these businesses reflected as a single line within the balance sheet.

Overview

The past financial year has seen a significant improvement in the financial health of Thomas Cook.

In March 2013, the Group held a Capital Markets Day which set out the medium term strategy for the business for the three years ending 30 September 2015 and published detailed targets against which to track progress. The status of  performance in FY13 against those targets is summarised on page 8. Subsequently, in June, the Group concluded a complex, inter-connected £1.6 billion recapitalisation exercise to reduce debt, extend maturities and strengthen the capital base. 

At the same time Group underlying EBIT has increased by £86 million to £263 million, primarily through the first wave of a Cost Out and Profit Improvement programme and the continuing recovery of the UK business. In line with the Group's Profitable Growth strategy, new product lines have been expanded, which has enabled revenue to be maintained at above £9 billion during a period where capacity commitments have been aligned to customer demand.

In May 2013, the Group announced the disposal of the loss making North American business. Although the disposal only generated £3.4 million of cash proceeds, this transaction significantly de-risked our business by exiting an extremely competitive market which had cost over £40 million in cash terms during FY12. After the year end, the Group also announced the sale of its outbound businesses in Egypt and Lebanon, the Neilson specialist holiday business in the UK, a corporate foreign exchange business and its interest in NATS, generating further disposal proceeds of £61 million.

Free cash flow has improved significantly, to £53 million, an improvement of £156 million over last year, due to better trading and enhanced disciplines in the management of working capital.

As a consequence of the progress over the past year, Group net debt has been reduced from £788 million to £421 million. Whilst further deleveraging of the business will continue to be pursued, the achievements of the past year have significantly strengthened the financial position of the Group and positioned it for profitable growth.

 

Balance Sheet Recapitalisation

On 27th June 2013, the Group completed a major £1.6 billion recapitalisation of the business, which included:

•              Rights Issue and Placement of 496.6m ordinary shares raising gross proceeds of £431 million

•              Issue of a new €525 million Eurobond with a coupon of 7.75% which mature in June 2020

•             A new £470 million four year banking facility maturing in May 2017 to replace prior facilities, together with an additional of £191 million facility available from 2015 and a separate £30 million bonding facility which matures in May 2015

Total costs of £73m were incurred as part of the recapitalisation, of which £19m has been recognised as a reduction in net proceeds from the equity issue, £37m has been capitalised against the carrying value of the new bond and bank facilities and £18m has been included in separately disclosed items within operating profit.

In addition, the recapitalisation has resulted in a significantly improved the financial position of the Group by providing:

•              A strengthened capital base to deliver greater financial headroom and flexibility;

•             A stronger financial position to enable the Group to negotiate improved terms from its suppliers, credit insurers and other trading counterparties; and

•              The financial resources and flexibility to invest in its Profitable Growth strategy.

Following the recapitalisation, the Group's debt levels have been reduced and the debt maturity profile has been lengthened to better match the expected operational cash flow profile. The impact on the Group's net debt and maturity profile is set out in the Treasury Management section below.

 

Like for like Analysis

In implementing Transformation, the Group has undertaken activities that, combined with the normal  translational effect of foreign exchange movements, impact upon the comparability of underlying performance for FY12 and FY13. To assist in understanding the impact of these factors and their influence on year on year progression, we consider 'Like for Like' adjusted growth from FY12 to FY13 in our analysis below. The 'Like for Like' adjustments and resultant year on year movements considered are:

 

 

Revenue

Gross margin

Operating expenses

EBIT

 

£'m

%

£'m

£'m

FY12 Reported (continuing)

9,195

22.0

1,849

177

India disposal(i)

    (43)

(0.3)

    (32)

 (11)

UK disposals / closures(ii)

    (13)

 (0.1)

    (10)

   1

CE disposals(iii)

    (30)

 (0.1)

    (15)

   (2)

Impact of FY12 provision movements(iv)

-

 (0.1)

     16

  (24)

Impact of currency movements(v)

  235

(0.1)

     23

  19

FY12 'Like for Like'

9,344

21.3

1,835

160

FY13 Reported

9,315

22.1

1,796

263

FY13 'Like for Like' growth (£'m)

    (29)

  64

39

103

FY13 'Like for Like' growth (%)

      (0.3)%

    0.8%

  2.1%

64.4%

 

(i)

 

Reflects the results of Thomas Cook India prior to its disposal in August 2012

 

(ii)

Net impact of the disposal/closure of individual businesses comprising Explorers Hotel, FX Bureaux and FY12 store closures.

 

(iii)

Net impact of the disposal/closure of individual businesses comprising  HCV, Austral Lagoons and Secrets

 

(iv)

 

 (v)

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

Net impact of movement in exchange rates on the translation of the results of non GBP entities

 

 

 

 

Underlying EBIT

In the full year FY13 the Group earned underlying EBIT of £263m, up £86m, (48.6%) on FY12 EBIT of £177m. As indicated above, on a like for like basis Group EBIT increased by £103m (64.4%).

In FY13, the Group has started to implement a number of projects that will support the delivery of our strategy for profitable growth. Given the nature of our business there is a lead-time before the financial benefit of these initiatives will be reflected in financial results. As such the like for like FY13 EBIT improvement of £103m is driven primarily by improved capacity management, generating gross margin improvement and a net reduction in overheads:

 

£m

FY13

 

FY12 like for like EBIT

160

Volume

 (58)

Gross margin increase

            122

Overhead reduction

  39

FY13  EBIT

263

 

Each element contributing to full year like for like EBIT growth of £103m is considered in more detail below.

Revenue

Underlying revenue for FY13 of £9,315m represents an increase of £120m (1.3%) on the comparable figure for FY12. 'Like for like' revenue decreased by £29m (0.3%) primarily as a result of planned capacity management.

The main components of this like for like revenue movement are:

 

£'m

FY13

 

FY12 like for like revenue

9,344

Volume

 (290)

Pricing / yield

   261

FY13 Group revenue

9,315

 

Throughout FY13 the Group has pursued a strategy of closely managing committed capacity to market requirements in order to allow effective management of pricing and yield to achieve improved and sustainable quality of earnings. In FY13 the Group reduced overall committed capacity by approximately 5%. 

Summer season revenue was also impacted by social unrest in Egypt which reduced revenue by approximately £40m. 

Although year on year volume driven revenue reduced by £290m this was offset by the benefits on pricing and yield, increasing revenue by £261m.

 

Gross Margin

Underlying gross margin of 22.1% represents a 0.1% increase on FY12. On a like for like basis, FY13 Gross margin of 22.1% represents a 0.8% increase on FY12.

The major drivers of this like for like movement in gross margin of  0.8% are outlined below:

 

 

 

%

FY12 like for like GM

21.3

Cost out and profit improvement

0.6

Pricing / yield

2.2

Cost inflation

(2.1)

Other net movements

        0.1

FY13 GM

22.1

 

The incremental benefits realised in FY13 from the Group's  cost out and profit improvement programme totalled £134m. Of this, £57m contributes to gross margin improvement, with £77m being reflected in operating cost reduction (see below).

Pricing and yield benefits have been delivered through improved capacity management  as well as improved capability in dynamic pricing across our businesses. These benefits have offset the margin impact of Summer 13 weather in UK and continental Europe being unusually warm. We estimate that this impacted our gross margin by approximately £20m (0.2%).

Cost inflation of £196m represents a net increase across our relevant cost of sales of approximately 2.7%. The harmonisation of hotel purchasing across the Group has significantly improved our ability to optimise purchasing negotiations and provide benefits to our strategic hotelier partners through strengthened relationships. The benefit of this improved purchasing activity is not yet reflected in our financial results.

 

Operating Expenses / Overheads

Operating expenses for FY13 of £1,796m represent a reduction of £53m from FY12.

By expense category operating expenses were:

 

£'m

FY13

FY12

Change

Personnel costs

1,036

1,068

32

Depreciation

   162

   156

( 6)

Net operating expenses

   598

   625

27

 

1,796

 1,849

53

 

The reduction in personnel costs is impacted by a reduction in the number of employees within the Group. The average number of employees in the Group's continuing operations reduced by 10% in the year.

In the year like for like operating expenses reduced by £39m (2.1%).

This reduction in operating expenses represents the net effect of the impact of the Group's cost out and profit improvement initiatives with increases from certain volume related airline costs and strategic operating expenditure investments, as well as inflationary and performance related cost increases. Details of the impact of these factors are noted below:

 

£'m

FY13

 

FY12 like for like operating expenses

1,835

Cost out and profit improvement

   ( 77) 

           Volume related flight costs

     11

           Strategic opex. investment

     25

Other net movements

       2  

FY13 operating expenses

1,796

 

Strategic operating investments

The group's strategic operating expense investments include costs associated with:

·     Operating investments to support transformation: (£17m)

In order to facilitate the Group's structural transformation it is necessary to establish skill bases and infrastructure that facilitate future organisational efficiency and cost reduction through our Wave 2 initiatives. This results in operating investment in the areas of ecommerce development and IT that will be offset by future efficiencies across the Group as relevant transformational activity progresses. These investments cover improvements to our IT infrastructure and functional development in areas such as our reservation systems and dynamic packaging capability.

·     Strategic marketing expenditure focussed on web transition: (£4m)

Net expenses required to support the Group's development of its web supported omni-channel strategy. As web penetration develops this will facilitate a compensating reduction in non-web marketing. 

·     Operation of leased concept hotels: (£2m)

A key element of the Group's strategy for profitable growth is the further development of our concept hotel offering. These exclusive hotels are operated under a mix of franchise arrangements and lease arrangements. Approximately 75% of concept hotels are expected to be franchised with the balance leased.

·     Introduction of business activities optimising returns eg in-house duty free warehouse in NE: (£2m)

The Group has introduced strict assessment criteria to identify opportunities for integration of incremental activities that add value and meet our capital allocation requirements. In FY13 the our Northern European business brought the storage of airline duty free product in-house through the establishment of a bonded warehouse in Sweden.

 

 

Separately disclosed items

Separately disclosed items represent  costs or profits that have been recognised in the period which management believes are not the result of normal operating activity and performance.  They are, therefore, disclosed separately to give a more comparable view of the year-on-year underlying trading performance.

The table below summarises separately disclosed items within these categories. 

 

 

Cash1

Non cash

FY13

FY12

 

 

£'m

£'m

£'m

£'m

Restructuring costs

(107)

(20)

(127)

  (55)

Refinancing costs

(18)

-

(18)

  (30)

Goodwill impairment and asset valuation reviews

21

(39)

(18)

(206)

Onerous contracts and legal disputes

(16)

(43)

(59)

  (10)

Amortisation of business combination intangibles

 

(14)

(14)

  (28)

Provision for tax dispute resolution

 

(14)

(14)

  (12)

Pension / other

 

   -

  -

    (6)

Impacting EBIT

(120)

(130)

(250)

(347)

Finance related charges

 

(26)

(26)

  (46)

Total

(120)

(156)

(276)

(393)

1 The cash column above represents items that  impacted cash in the current period or will impact cash in the future (FY12: £115m)

Restructuring costs

Restructuring costs include £44m in relation to the UK, £43m in relation to Group wide transformation projects, £13m in respect of the France turnaround plan, £8m in respect of the Russia turnaround plan, £8m in respect of specific transformation activities within Continental Europe, £5m in respect of UK aircraft fleet reductions and £3m in respect of each of Airlines Germany and Head Office.  Of these costs £47m are directly attributable to 'Cost out and profit improvement' initiatives.

Refinancing costs

Financial structuring costs from the 2013 recapitalisation of £18m that cannot be attributed to specific debt or equity elements have been charged to the profit and loss account. Refinancing costs that are specifically attributable to financing elements have either been capitalised and will be amortised over the period of the funding (bank facility and bond issuance), or netted off the share premium account (equity issuance).

Goodwill impairment and asset valuation reviews

This net charge includes a pre-disposal review of goodwill in respect of Thomas Cook Egypt and Lebanon (£18m impairment), the review of the value of the Group's non-current asset investment in NATS (£29m increase), a pre-disposal review of the goodwill and other assets of Nielson  Active Holidays (£13m impairment), a revaluation of specific investments held by the UK pension fund with a value guaranteed by the Group (impairment of £8m) and other intangible asset impairments (£8m).

In the prior year goodwill in respect of the then West Europe segment totalling £94 million was impaired. Also in the prior year an impairment of £96 million was made in respect of India prior to its disposal. 

Due to improved business performance no further goodwill impairments have been made in the current year in respect of on-going business activity.

Onerous contracts and legal disputes

In the year the Group assessed its position in respect of certain onerous contracts. It made appropriate adjustments to assets on the balance sheet and made provision for future losses under these contracts. These contracts included certain UK service outsourcing contracts (£10m), hotel leases (£14m), sports marketing and related travel contracts (£9m) and foreign exchange and other commercial contracts (£26m).

Amortisation of business combination intangibles

The amortisation of business combination intangibles has reduced as a result of impairments made in 2012 as well as the disposal of the Group's North American business.

Provision for tax dispute resolution

A provision of £14 million has been made following an adverse third party sales tax judgement in respect of the Tour Operator Margin Scheme 'TOMS' (under appeal). The Group will continue to monitor the progress of the case but takes a prudent view of the outcome and has no cash exposure.

Finance related charges

The Group has provisions for future liabilities arising from separately disclosed circumstances - primarily deferred acquisition consideration. A notional interest charge of £9m on the discounted value of such provisions is recognised within separately disclosed finance related charges. Accelerated amortisation of £7m of capitalised financing fees from cancelled facilities is also recognised. In FY13 the Group has adopted industry practise of separately disclosing the notional net interest charge arising from its pension scheme assets / liabilities (£9m). Prior year comparatives are restated. £1m has also been charged in respect of IAS39 allocations of the time value of derivative products.

Reconciliation of Cash Separately Disclosed Items to Cash Flow Statement

 

£'m

Impacting FY13 Cash Flow

Impacting Future Cash Flow

Total Cash flow Current or Future

FY12 P&L Cash S.D.I.

33

-

33

FY13 P&L Cash S.D.I.

87

33

120

 

120

33

153

 

Net finance costs

Net  interest charges before aircraft financing for the year to 30th September 2013 totalled £114m (2012: £105m). Net  interest and finance costs (excluding separately disclosed items of £26m) were £146 million (2012: £123 million) up £23 million mainly as a result of costs arising from the sale and leaseback of aircraft in 2012.

 

 

 

FY13

£'m

 

FY12

£'m

Net interest and finance costs

 

 

Bank and bond interest and related charges

 (83)

 (81)

Commitment fees

               (7)

    (4)

Letters of credit and bonding

             (16)

             (15)

Other interest costs

       (14)

          (12)

Interest and finance costs before aircraft financing

(120)

(112)

Interest income

     6

      7

Net interest and finance costs before aircraft financing

(114)

(105)

Aircraft financing

  (25)

             (10)

Fee amortisation

    (7)

    (8)

Net interest expense

(146)

(123)

 

Following the financing activity completed in June 2013 it is anticipated that Net Interest before Aircraft Financing will remain broadly flat until repayment of the Group's 2015 Bonds.

In September 2013 two aircraft operating leases were extended such that under the IAS assessment criteria they are now adjudged to be finance leases. As such aircraft financing interest is likely to be around 10% higher in FY14 than FY13 without any further changes to aircraft financing.

Operating lease charges

 

 

 

FY13

£'m

 

FY12

£'m

Included within net operating expenses:

 

 

Aircraft operating lease charges

101

103

Retail operating lease charges

59

67

Hotel operating lease charges

34

28

 

194

198

Retail operating lease charges have reduced by 12% primarily due to the reduction in the UK retail footprint following the closure of 185 stores.

Taxation

The Group tax charge and tax paid for the year can be analysed as follows:

 

£'m

FY13

FY12

Current tax:

 

 

UK

5

(4)

Overseas

39

30

Total current tax

44

26

Deferred tax

  5

78

Total tax charge

49

104

 

 

 

Cash tax

31

28

 

The overall tax charge in the year reduced from £104m to £49m. In FY12, due to its trading position the Group derecognised significant deferred tax assets. In the current year the tax position has become more normalised with the income statement tax charge and cash tax being more closely aligned.

The Group continues to pay corporation tax in its profitable markets, in particular in Northern Europe and Germany, where the annual offset of profits against prior losses is restricted.

Earnings / Loss per share

Underlying basic earnings per share for the year were 5.0p (FY12: 0.6p).  The basic loss per share, after taking into account separately disclosed items, was  16.7p (FY12: loss 67.2p).

 

Cash Flow Statement

 

 

 

FY13
£m

FY12
£m

Change

£m

 

 

EBITDA

425

316

109

 

 

Working capital

77

(14)

91

 

 

Tax

(31)

(29)

(2)

 

 

Pensions & other

(18)

(22)

4

 

 

Operating cash flow

453

251

202

 

 

Exceptional Items

(120)

(105)

(15)

 

 

Capital expenditure

(150)

(138)

(12)

 

 

Net interest paid

(130)

(111)

(19)

 

 

Free cash flow

53

(103)

156

 

 

Dividends

-

(33)

33

 

 

Disposals

(34)

192

(226)

 

 

New equity

431

-

431

 

 

Other

(31)

 

(31)

 

 

Net Cash Flow

419

56

363

 

Note: FY12 EBITDA represents £333m from continuing operations offset by £17m from discontinued operations (TCNA).

Free cash flow totalled £53 million, an improvement of £156m compared to FY12 due to better trading and working capital management which together improved by £200 million. The improved operating cash flow has facilitated the delivery of the transformation programme by funding the costs of restructuring and increased capital expenditure. Cash interest costs are higher than last year due to the sale and leaseback of aircraft in FY12.

Net cash flow was further improved through the equity issue in June 2013 as part of the recapitalisation process, which together with cash divested with the North American business, resulted in net cash flow of £419 million, all of which has been applied to debt reduction.

Cash Conversion

The Group uses a measure of cash conversion reflecting the amount of cash flow retained by the business and which can be used for investment in capital expenditure, debt repayment or payment of dividends.

 

£'m

FY13

FY12

Free cash flow

53

(103)

Capital expenditure

150

138

FCF before Capex

203

35

Underlying EBITDA

425

316

Cash Conversion

48%

11%

Note: FY12 EBITDA represents £333m from continuing operations offset by £17m from discontinued operations (TCNA).

 

Cash conversion has improved from 11% to 48% in the year reflecting improved trading and significant improvements in working capital management.

Treasury Management

The Group's funding, liquidity and exposure to foreign currency, interest rates, commodity prices and financial credit risk are managed by the centralised Treasury function and are conducted within a framework of Board approved policies and guidelines.

The principle aim of treasury activities are to reduce volatility by hedging, providing a degree of certainty to operating segments and ensure a sufficient level of liquidity headroom at all times. 

The successful execution of policy will support a sustainable low risk growth strategy, enable the Group to meet its financial commitments as they fall due and will enhance the group's credit rating over the medium term.

 

Net Debt

The Group sources debt and finance facilities from a combination of the international capital markets and its relationship banking group. During the year, the Group completed a £1.6 billion recapitalisation as summarised on page 18  which, together with operating cash flows, reduced net debt from £788 million to £421 million.

The components of this reduction in Net Debt are:

 

FY12 closing net

(788)

Net cash on disposals (i)

(36)

Foreign exchange movement(ii)

(13)

Lease reclassification(iii)

(23)

Pre and post-retirement benefits(iv)

(13)

Net movement from recapitalisation(v)

379

Trading improvement

73

FY 13 closing net debt

(421)

 

(i)

Net cash outflow from the disposal of TCNA and other smaller disposals

(ii)

Net impact of exchange movements, primarily on GBP vs Euro and USD

(iii)

Net impact of reclassification of 2 aircraft leases (on extension) from operating to finance lease

(iv)

(v)

Net impact of issuance of equity in relation  employee benefit plans and pension fund payments

Net cash proceeds of issuance of £431m equity less related costs (see below)

 

 

 

The trading improvement in Net Debt has been achieved through the implementation of  working capital improvement initiatives across the Group combined with the implementation of strict investment appraisal and capital allocation criteria.  

The movement in net debt arising from the FY13 recapitalisation comprised:

 

 

£'m

Gross proceeds from equity

431

Refinancing costs

(73)

Issue costs capitalised

37

Financing fees amortised

(16)

Impact on net debt of recapitalisation

379

 

The composition and maturity of the Group's debt is summarised below:

 

£m

30 Sept. 2013

30 Sept. 2012

Movement

Maturity

2015 Euro Bond

(335)

(319)

(16)

June 2015

2017 GBP Bond

(300)

(300)

-

June 2017

2020 Euro Bond

(440)

-

(440)

June 2020

Commercial Paper

(134)

-

(134)

Oct/Nov 2013

Revolving Credit Facility

-

(142)

142

n/a

Term Loan

-

(150)

150

n/a

Finance Leases

(224)

(233)

9

Various

Other external debt

(122)

(123)

1

Various

Arrangement fees

40

18

22

n/a

Total Debt

(1,515)

(1,248)

(267)

 

Cash & cash equivalents

1,094

460

634

 

Net Debt

(421)

(788)

367

 

 

The Group's £500m Committed Facility comprises a Revolving Credit Facility of £300m which was undrawn at 30 September 2013 and a £200m bonding and guarantee facility of which £175m was drawn at 30 September 2013.  This Facility matures partly in May 2015 (£30m) and partly in May 2017 (£470m). The Group also has access to an Additional Facility of £191 million which is available from 2015 to partially repay the 2015 Bonds, £100m of this facility matures in May 2016 with the remainder maturing in May 2017.

The Group's credit rating was upgraded during the year as a result of the recapitalisation process:.

 

Corporate Ratings

2013

2012

 

Rating

Outlook

Rating

Outlook

Standard and Poor's

B

Stable

B-

Negative

Fitch1

B

Positive

B-

Stable

1Fitch rate the 2020 bond 1 notch higher at B+

A significant proportion of the Group's debt is held in Euros as a natural hedge against its Euro denominated assets and earnings.

In addition to financing working capital and capital expenditure, the Group finances its fleet of 86 aircraft. This is achieved through a mix of secured debt financing, finance leases and operating leases. Following the recapitalisation in June 2013, the Group completed a sale and leaseback transaction for 6 aircraft and has a requirement to arrange financing for a further 6 aircraft due for delivery in 2015 and 2016.

Cash Management

Due the seasonality of the Group's business cycle and cash flows, a substantial amount of surplus cash accumulates during the summer months. Efficient use and tight control of cash throughout the Group is facilitated by the use of cash pooling arrangements and the net surplus cash is invested by Treasury in high quality, short term liquid instruments consistent with Board approved policy, which is designed to mitigate counterparty credit risk. Yield is maximised within the constraints of the policy but returns in general remain low given the low interest rate environment in the UK, the US and Europe.

A 26-week rolling cash forecasting process, driven and embedded by Treasury and supported by business segments, provides a high degree of confidence in the Group's ability to manage cash effectively and predict accurately the liquidity headroom requirements during the seasonal low point.

A small portion of the Group's cash is either trapped or restricted in overseas jurisdictions. Such cash does not form part of the liquidity headroom calculation.

 

Currency and Commodity Risk

The Group's companies operate globally and experience variations in input costs arising from movements in exchange rates and oil prices. The main currency exposures include Euro relating to hotel sourcing and USD for aircraft fuel costs.

Treasury executes hedging transactions on behalf of all business segments in line with policies agreed with local management using a mix of forward contracts and options. Hedging for both foreign exchange and fuel is built up over a period of up to 18 months on a season by season basis so that the business has a substantial amount of price certainty at the time of publishing holiday brochures.  

Interest Rate Risk

The majority of the Group's Eurobonds is at fixed interest rates. Treasury continually monitor the sensitivity of the Group's interest charge to movements in rates and periodically use interest rate derivatives to alter the fixed - floating mix. Short term borrowings under the bank facilities are typically at floating rates and investment of surplus cash also attracts a floating rate return.

Counterparty Credit Risk

The Group is exposed to counterparty default when depositing surplus cash and when undertaking hedging transactions. The mark to market value of outstanding derivatives is measured frequently and added to the principal amount of deposits to determine total counterparty risk. Only counterparties with acceptable credit ratings are recommended to and approved by the Board.

Hedging of Fuel  and Foreign Exchange

The Group hedges its principal transactional market risks - which are exposure to fluctuation in the sterling / euro and sterling / US dollar exchange rates and fuel price movements. The proportion of forthcoming requirements hedged are as noted below:

 

 

Winter 13/14

Summer 14

Euro

90%

65%

US Dollar

92%

63%

Jet Fuel

89%

As at 31 October 2013

Exchange Rates

The average and year end exchange rates relevant to the Group were:

 

Average Rate

Year End Rate

 

FY13

FY12

FY13

FY12

GBP/Euro

1.19

1.21

1.19

1.25

GBP/UD dollar

1.56

1.58

1.62

1.62

GBP/SEK

10.22

10.68

10.37

10.56

 

Ordinary Shares in Issue

                                                                         

Million

No.

Ordinary shares in issue at 1 October 2012

885.9

Ordinary shares in issue at 30 September 2013                     

1,453.4

Weighted average number of shares in issue during period

1,195.9

 

The increase in ordinary shares in issue arises from the  exercising of warrants (49.1m) and as a result of the placement (87.6m) and rights issue (409.0m) in June 2013.

 

Post Balance Sheet Disposals

Following the year end the Group has announced the disposal of its:

1.    outbound tour operator businesses in Egypt and Lebanon

2.    UK Corporate Foreign Exchange business

3.    Neilson Active Holidays

4.    91.5% of its investment in NATS

The combined gross proceeds of these disposals will be approximately £58m.  The value expected  to realised in relation to each of the above transactions has been reflected in the respective asset carrying values in the Group accounts for the year ended 30 September 2013.

In the year to 30 September 2013, the assets disposed listed above contributed £89m to Group Revenue and £4m to EBIT.

 

Fourth quarter

 

 

Q4 FY13

Prior Year Variance

Like for Like Variance

 

£'m

£'m

%

£'m

%

Revenue

3,764

130

3.6

(49)

(1.3)

Gross profit

926

46

5.2

9

1.0

Gross margin (%)

24.6

0.4

 

0.5

 

Net operating expenses

(466)

(32)

(7.4)

(14)

(3.1)

EBIT

460

14

3.0

(5)

(1.1)

EBIT margin (%)

12.2

(0.1)

 

-

 

 

In the fourth quarter revenue of £3,764m generated underlying EBIT of £460m. On a like for like basis sales reduced by 1.3% (£49m) and EBIT by £5m (1.1%) from FY12. Trading in the quarter was significantly influenced by two factors:

1.    Political and social disruption in Egypt that resulted in disruption in varying degrees across all source markets. Whilst our Group wide coordination allowed us to minimise the impact of this disruption we estimate that it reduced our FY13 revenue by approximately £40m and  EBIT by approximately £10m.

2.    In FY12 most of continental  Europe suffered from particularly poor weather throughout the summer months. This resulted in a particularly strong 'lates' market in FY12. In FY13 this weather pattern was not replicated and we consider that the 'lates' market returned to a more 'normalised' level.  We estimate that the year on year impact of this normalisation to have reduced FY13 EBIT by approximately £20m, primarily reflected in a reduction of gross profit.

 

Net operating expenses increased by £14m on a like for like basis, including  £20m of strategic operating investment in IT and marketing.

 

Segmental Review

Sources of Growth in Underlying EBIT

The adjustments to reflect year on year growth in like for like EBIT, on a segmental basis are summarised as:

 

£'m

United Kingdom

Continental Europe

Northern Europe

Airlines Germany

Corporate

Group

FY12 reported

13

52

101

35

(24)

177

Disposals / closures

(10)

(2)

-

-

-

(12)

Provision movements

-

-

(9)

(15)

-

(24)

Foreign Exchange

-

12

5

2

-

19

FY12 Like for Like

 3

62

97

22

(24)

160

FY13 Reported

66

78

109

48

(38)

263

Like for Like EBIT Growth

63

16

12

26

(14)

103

Like for Like EBIT Growth %

2,100

25.8

12.4

118.2

(58.3)

64.4

 

Across the Group the drivers of EBIT growth in the year  were as noted below:

 

£'m

United Kingdom

Continental Europe

Northern Europe

Airlines Germany

Corporate

Group

FY12 like for like EBIT

3

62

97

22

(24)

160

Volume

(38)

(16)

(7)

8

(5)

(58)

Gross margin %

46

14

25

38

 

122

Overheads

55

18

(5)

(20)

(9)

 39

FY13  EBIT

66

78

109

48

(38)

263

 

Cost out and profit improvement

The cost out and profit improvement program produced the incremental gross margin and operating expense benefits noted below in the year to 30 September 2013:

 £'m                        

United Kingdom

Continental Europe

Northern Europe

Airlines Germany

Corporate

Group

Gross margin

37

6

2

12

-

57

Operating expenses

69

4

0

1

3

77

Total

106

10

2

13

3

134

The financial performance of each segment is considered below:

 

United Kingdom & Ireland

£'m

FY13

Growth*

Like for Like Growth

Revenue

2,977

(132)

(119)

Gross margin (%)

25.9%

1.1%

1.2%

Operating expenses

(704)

65

55

EBIT

66

64

63

EBIT margin (%)

2.2%

1.9%

2.1%

Pax Booked (No)

6.2m

(0.6)m

(10.0)%

Pax Committed Capacity

3.3m

(0.2)m

(6.1)%

                             *excludes India

In the year to 30 September 2013 the turnaround of the UK business continued at pace. 

Trading turnaround was focussed  on the improvement in the quality of earnings through improved yield management, facilitated by a reduction in committed capacity, and a reduction in unprofitable business in specialist markets.

Operationally,  focus was on the continued simplification of the business with de-duplication of back office functions and a significant reduction in the number and scale of management boards. First steps were taken in a radical simplification of the UK corporate structure which will allow further complexity to be removed from the business.

From a customer perspective this corporate simplification is manifested through the launch of the Group's new brand identity on 1st October 2013, and a reduction in the number of UK brands from 27 to 10.

On the high street the business  continued the overhaul of its retail estate with the number of retail outlets being reduced by 195 from 1,069 to 874. The roll out of the Group's high tech concept stores commenced, with 5 openings, and this combined with the roll out of store rebranding, will deliver a refreshed high street presence.

Financially, the UK turnaround plan delivered year on year cost savings of £64m and  further savings of approximately £35m were achieved through Group wide cost out and profit improvement initiatives.

Improved yield management combined with contribution from the cost out and profit improvement initiatives realised a 1.1% increase in gross margin percentage.

These trading improvements, significantly improving quality of earnings offset the managed volume reduction of non-profitable business to deliver underlying EBIT of £66m, which, in delivering an EBIT margin of 2.2% represented a significant step towards achievement of the FY15 targeted 5% EBIT margin. 

Continental Europe

£'m

FY13

Growth

Like for Like Growth

Revenue

4,195

110

(10)

Gross margin (%)

13.8%

(0.3)%

0.0%

Operating expenses

(503)

22

18

EBIT

78

26

16

EBIT margin %

1.8%

1.3%

0.4%

Pax Booked (No)

7.2m

  (0.1)m

(1.4)%

Pax Committed Capacity

2.5m

(0.4)m

(13.8)%

 

The Continental Europe reporting segment combines the previous West and Central Europe segments. Through more integrated management the Group will realise the benefits of scale and the implementation of common processes and procedures where appropriate, whilst maintaining local knowledge and capability.

Across Europe the Group took action to significantly reduce risk and improve quality of earnings through reduction in committed capacity. These reductions, of close to 30% in the Winter season and 10% in the summer (average 13.8%) allowed the businesses to significantly improve its flexibility. Through leveraging strengthening hotelier relationships capacity was added during the seasons where demand was highest, resulting in the overall reduction in bookings being 12% ahead of capacity management.

Following a review of the French business at the start of the year it was decided to retain the business and integrate it within the Continental Europe segment. A detailed turnaround plan was developed and implementation is proceeding well towards achieving breakeven by FY15.

The stabilisation and integration of our Russia business continues to make good progress.

Underlying EBIT growth of 23.2% represents a significant improvement on the prior year, giving an EBIT margin of 1.8%.  In addition to the currently dilutive impact of our French and Russian businesses EBIT margin was also influenced by pricing pressure in some markets, which is being addressed through our hotel product strategy.

Controlled distribution of product within Continental Europe is significantly lower than in other segments. This is being addressed through increasing focus on our multi-channel strategy, with the development of improved web capability and marketing throughout Continental Europe being a strategic focus area.

 

Northern Europe

£'m

FY13

Growth

Like for Like Growth

Revenue

1,239

66

13

Gross margin (%)

27.4%

0.4%

1.1%

Operating expenses

(230)

(15)

(5)

EBIT

109

9

12

EBIT margin %

8.8%

8.6%

0.9%

Pax Booked (No)

1.5m

-

(2.2)%

Pax Committed Capacity

1.4m

-

(1.1)%

The Northern European business once again performed robustly in the year to 30th September 2013 and achieved a record EBIT result. Revenue growth of 1% and improved gross margins resulted in underlying EBIT growth of 3.9% and like for like EBIT growth of 13.0%. Gross margin improved by 1.1% on a like for like basis.

Reflecting market conditions, Winter 12/13 capacity was reduced by 4% with capacity for the full year reduced by 1%. This capacity reduction was offset by a combination of higher average sales prices and sales mix. Despite challenging summer 2013 trading conditions due to the very good summer weather in the Nordics, gross margin remained strong with growth driven by yield management, positive currency effect, reduced agent sales and a successful launch of two new own operated Sunprime concept hotels. These hotels form part of the group strategy to market more concept hotels and differentiated products. The increase in operating expenses is primarily due to these new leased hotels and insourcing of tax free goods logistics in the airline.  

The Northern European market for traditional package holidays continues to be strong however, recognising developing market trends and new opportunities in the dynamic packaging market, the Group is investing to develop its flexible package capability and offering, leveraging strength from the wider Group.

In December 2012 Northern Europe launched the new branding platform with the "Sunny Heart" as the unifying symbol for all brands in the business segment. This was a pilot launch for the wider Group, leading to the Group wide launch on 1st October 2013.

Airlines Germany

 

£'m

FY13

Growth

Like for Like Growth

Revenue

1,312

147

116

Gross margin

28.6%

1.1%

1.1%

Operating expenses

(327)

(42)

(20)

EBIT

48

13

26

EBIT margin %

3.7%

3.1%

1.8%

Pax Booked (No)

6.9m

0.2m

2.3%

Pax Committed Capacity

7.5m

-

0.3%

 

The Airlines Germany business has performed strongly in the year to 30th September 2013. Capacity was increased in the long haul business, driven by the reallocation of an aircraft from within the Group, and with this capacity increase higher yields (+4%) and a higher load factor (+0.9%p.) were achieved.  Due to reduced capacity in the whole short/medium haul market, yields (+7%) and load factors (+1.1%) have improved significantly, especially in the Winter season.

 
These effects, combined with the delivery of the Group-wide profit improvement program, more than offset the increases of the hedged kerosene price [in Euro], increased depreciation (as a consequence of the Sale & Leaseback transaction in the prior year) and the adverse effect of the Egypt crisis in summer, allowing like for like EBIT more than double from the prior period.

Corporate

£'m

FY13

Growth

Growth %

Operating Expenses

32

9

39.1%

Foreign Exchange

6

5

500%

 

38

14

58.3%

 

During the year, Group wide functions necessary to drive the Group's transformation and continue its future profitable growth  were developed. These functions include Finance, HR, IT, Legal, E-Commerce, Procurement. In order to establish these Group functions in the time available there was initially a high utilisation of temporary and contract labour. Through the course of the year this resource has gradually been brought in-house, reducing future run rates. Additionally, due to the relative performance of the Group in the financial year 2013 and the prior period  incentive based remuneration increased year on year

Prior to the Group's refinancing, completed on 27th June 2013, the Group operated with restricted facilities for the hedging of foreign exchange exposures. In the year this resulted in foreign exchange losses of £6m being incurred (2012: £1m).  

 

 

 

 

 

Appendix 1 - Audited statutory information with comparatives

 

Group Income Statement


Restated



Audited

Audited



Year ended 30 September 2013

Year ended 30 September 2012



Underlying results

Separately disclosed items (note 5)

Total

Underlying results

Separately disclosed items  (note5)

Totaltal


notes

£m

£m

£m

£m

£m

£m

Continuing operations








Revenue

3

9,314.5


9,314.5

9,195.0

 -

9,195.0

Cost of providing tourism services

4

(7,255.7)

(38.5)

(7,294.2)

(7,169.2)

5.6

(7,163.6)

Gross profit


2,058.8

(38.5)

2,020.3

2,025.8

5.6

2,031.4









Personnel expenses


(1,035.7)

(40.2)

(1,075.9)

(1,067.6)

(39.5)

(1,107.1)

Depreciation and amortisation


(161.7)

(10.0)

(171.7)

(155.6)

(12.3)

(167.9)

Net operating expenses


(598.3)

(122.4)

(720.7)

(625.6)

(101.4)

(727.0)

(Loss)/ profit on disposal of assets


-

(8.0)

(8.0)

 -

19.1

19.1

Impairment of goodwill and amortisation of business combination intangibles

5

-

(31.0)

(31.0)

 -

(218.6)

(218.6)









Profit/(loss) from operations

3

263.1

(250.1)

13.0

177.0

(347.1)

(170.1)









Share of results of associates and joint venture


0.7

-

0.7

2.1

 -

2.1

Loss on disposal of associates and joint venture


-

(0.4)

(0.4)

 -

(0.9)

(0.9)

Net investment income


0.4

-

0.4

0.4

 -

0.4

Finance income

6

6.4

41.2

47.6

6.7

41.4

48.1

Finance costs

6

(152.4)

(67.0)

(219.4)

(129.9)

(86.5)

(216.4)









Profit/(loss) before tax

7

118.2

(276.3)

(158.1)

56.3

(393.1)

(336.8)









Tax

8



(49.5)



(104.1)

Loss for the year from continuing operations




(207.6)



(440.9)









Discontinued operations








Profit/ (loss) for the year from discontinued operations

12



0.3



(149.2)









Loss for the year




(207.3)



(590.1)









Attributable to:








Owners of the parent




(199.0)



(585.7)

Non-controlling interests




(8.3)



(4.4)





(207.3)



(590.1)

Basic and diluted loss

per share (pence)

10







Continuing operations




(16.7)



(50.1)

Discontinued operations




-



(17.1)

Total




(16.7)



(67.2)

 



Group Statement of Other Comprehensive Income




Restated



Audited

Audited



Year ended

Year ended



30/09/13

30/09/12



£m

£m





Loss for the year


(207.3)

(590.1)





Other comprehensive income and expense








Items that will not be reclassified to profit or loss




Actuarial losses on defined benefit pension schemes


(77.2)

(35.7)

Tax on actuarial losses


(0.2)

12.3





Items that may be reclassified subsequently to profit or loss




Foreign exchange translation losses


(19.6)

(30.7)





Fair value gains and losses




Losses deferred for the year


(13.8)

(31.9)

Tax on losses deferred for the year


1.9

7.7

Losses/ (gains) transferred to the income statement


8.6

(48.4)

Tax on losses/ (gains) transferred to the income statement


(1.0)

12.1





Total comprehensive expense for the year


(308.6)

(704.7)









Attributable to:




Owners of the parent


(300.3)

(700.5)

Non-controlling interests


(8.3)

(4.2)

Total comprehensive expense for the year


(308.6)

(704.7)

 



Group Cash Flow Statement




Restated



Audited

Audited



Year ended

Year ended



30/09/13

30/09/12


notes

£m

£m

Continuing operations








Loss before tax


(158.1)

(336.8)





Adjustments for:




Net finance costs


171.8

168.3

Net investment income and share of results of associates and JV


(1.1)

(2.5)

Loss on disposal of associates and joint venture


0.4

0.9

Depreciation, amortisation and impairment


224.6

408.5

Loss/ (profit) on disposal of assets


8.0

(19.1)

Share-based payments


7.5

1.9

Write up of investments


(29.0)

-

Increase in provisions


3.7

23.2

Income received from other non-current investments


0.4

0.4

Additional pension contributions


(26.0)

(22.6)

Interest received


6.7

5.8

Decrease/ (increase) in working capital:




   Inventories


(1.4)

6.7

   Receivables


111.8

38.3

   Payables


82.9

(86.2)

Cash generated from operations


402.2

186.8

Income taxes paid


(31.0)

(28.3)

Net cash used in discontinued operations


(30.1)

(6.6)

Net cash from operating activities


341.1

151.9





Dividends received from associates


2.5

-

Proceeds on disposal of JV


0.3

-

Proceeds on disposal of subsidiaries (net of cash disposed)

11

(37.8)

122.7

Proceeds on disposal of property, plant and equipment


4.0

34.0

Purchase of subsidiaries (net of cash acquired)


(2.4)

32.4

Purchase of tangible assets


(102.8)

(96.9)

Purchase of intangible assets


(47.5)

(41.4)

Proceeds from other investments


1.9

1.9

Net cash (used in)/ from investing activities


(181.8)

52.7





Interest paid


(137.5)

(116.5)

Dividends paid


-

(32.7)

Dividends paid to non-controlling interests


-

(0.6)

Draw down of borrowings


1,369.5

869.2

Repayment of borrowings


(1,083.6)

(930.5)

Payment of facility set-up fees


(37.9)

(29.3)

Proceeds from sale and finance leaseback


-

189.4

Shares purchased by Employee Benefit Trust


(16.1)

-

Net proceeds from issue of ordinary shares


413.5

0.8

Repayment of finance lease obligation


(32.3)

(23.5)

Net cash from/ (used in) financing activities


475.6

(73.7)





Net increase in cash and cash equivalents


634.9

130.9





Cash and cash equivalents at beginning of year


453.5

341.7

Effect of foreign exchange rate changes


2.0

(19.1)

Cash, cash equivalents and overdrafts at end of year


1,090.4

453.5

 

 

 

 

 

 

 

 

Group Balance Sheet



Audited

Audited



as at

as at



30/09/13

30/09/12


notes

£m

£m

Non-current assets




Intangible assets


3,154.5

3,158.9

Property, plant & equipment





Aircraft and aircraft spares


602.9

599.6


Other


198.0

241.2

Investment in associates and joint venture


14.4

14.2

Other investments


1.2

11.4

Deferred tax assets


168.0

204.7

Tax assets


-

5.6

Trade and other receivables


142.7

146.8

Derivative financial instruments


0.1

0.2



4,281.8

4,382.6

Current assets




Inventories


28.2

30.5

Tax assets


5.5

50.1

Trade and other receivables


785.4

944.1

Derivative financial instruments


25.0

39.2

Cash and cash equivalents

13

1,088.8

460.3



1,932.9

1,524.2

Assets held for sale


70.1

-

Total assets


6,284.8

5,906.8





Current liabilities




Retirement benefit obligations


(1.3)

(6.8)

Trade and other payables


(1,995.2)

(2,008.5)

Borrowings

13

(176.5)

(37.8)

Obligations under finance leases

13

(42.7)

(32.6)

Tax liabilities


(41.0)

(90.4)

Revenue received in advance


(1,120.2)

(1,094.1)

Short-term provisions


(246.8)

(201.5)

Derivative financial instruments


(63.9)

(68.4)



(3,687.6)

(3,540.1)

Liabilities related to assets held for sale


(17.0)

-





Non-current liabilities




Retirement benefit obligations


(403.1)

(324.0)

Trade and other payables


(96.9)

(95.4)

Long-term borrowings

13

(1,113.8)

(977.6)

Obligations under finance leases

13

(181.8)

(200.6)

Non-current tax liabilities


(8.2)

(1.0)

Revenue received in advance


-

(2.5)

Deferred tax liabilities


(52.8)

(89.7)

Long-term provisions


(172.2)

(214.3)

Derivative financial instruments


(3.3)

(3.7)



(2,032.1)

(1,908.8)

Total liabilities


(5,736.7)

(5,448.9)

Net assets


548.1

457.9





Equity




Called-up share capital


68.4

60.0

Share premium account


434.3

29.2

Merger reserve


1,546.5

1,546.5

Hedging and translation reserves


201.8

225.7

Capital redemption reserve


8.5

8.5

Accumulated losses


(1,720.7)

(1,450.0)

Investment in own shares


(29.5)

(13.4)

Equity attributable to owners of the parent


509.3

406.5

Non-controlling interests


38.8

51.4

Total equity


548.1

457.9


Group Statement of Changes in Equity

The movements in equity for the year ended 30 September 2013 were as follows:

 


















Share capital & share premium

Other reserves

Translation & hedging reserve

Accumulated losses

Attributable to equity holders of parent

Non-controlling interests

Total


£m

£m

£m

£m

£m

£m

£m









Opening balance at 1 October 2011

88.4

1,613.0

316.9

(871.4)

1,146.9

36.3

1,183.2









Loss for the year

-

-

-

(585.9)

(585.9)

(4.2)

(590.1)

Other comprehensive expense:








Foreign exchange translation losses

-

-

(30.7)

-

(30.7)

-

(30.7)

Actuarial losses on defined benefit








pension schemes (net of tax)

-

-

-

(23.4)

(23.4)

-

(23.4)

Fair value gains and losses:








Loss deferred for the year (net








of tax)

-

-

(24.2)

-

(24.2)

-

(24.2)

Gains transferred to the income








statement (net of tax)

-

-

(36.3)

-

(36.3)

-

(36.3)

Total comprehensive

expense for the year

-

-

(91.2)

(609.3)

(700.5)

(4.2)

(704.7)

Equity credit in respect of share-based payments

-

-

-

2.0

2.0

-

2.0

Purchase of own shares

-

(0.1)

-

-

(0.1)

-

(0.1)

Issue of shares

0.8

-

-

-

0.8

-

0.8

Release of merger reserve

-

(71.3)

-

71.3

-

-

-

Derecognition of put option to non-controlling interest

-

-

-

18.8

18.8

-

18.8

Acquisition of Co-op

-

-

-

(61.4)

(61.4)

36.7

(24.7)

Disposal of HCV

-

-

-

-

-

(2.9)

(2.9)

Disposal of Thomas Cook India

-

-

-

-

-

(11.4)

(11.4)

Exchange difference on non-controlling interests

-

-

-

-

-

(2.5)

(2.5)

Dividends

-

-

-

-

-

(0.6)

(0.6)

At 30 September 2012

89.2

1,541.6

225.7

(1,450.0)

406.5

51.4

457.9









 

Loss for the year

-

-

-

(199.0)

(199.0)

(8.3)

(207.3)

Other comprehensive expense:








Foreign exchange translation losses

-

-

(19.6)

-

(19.6)

-

(19.6)

Actuarial losses on defined benefit








pension schemes (net of tax)

-

-

-

(77.4)

(77.4)

-

(77.4)

Fair value gains and losses:








Loss deferred for the year (net








of tax)

-

-

(11.9)

-

(11.9)

-

(11.9)

Losses transferred to the income








statement (net of tax)

-

-

7.6

-

7.6

-

7.6

Total comprehensive

expense for the year



(23.9)

(276.4)

(300.3)

(8.3)

(308.6)

Equity credit in respect of share-based payments

-

-

-

7.9

7.9

-

7.9

Investment in Employee Benefit Trust

-

(16.1)

-

-

(16.1)

-

(16.1)

Issue of shares - exercise of warrants

4.6

-

-

-

4.6

-

4.6

Issue of shares - rights issues

431.0

-

-

-

431.0

-

431.0

Issue of shares - transaction costs

(22.1)

-

-

-

(22.1)

-

(22.1)

Acquisition of Russia

-

-

-

(2.2)

(2.2)

(4.3)

(6.5)

At 30 September 2013

502.7

1,525.5

201.8

(1,720.7)

509.3

38.8

548.1











Notes to the Financial Information

 

1.    General information and basis of preparation

The financial information contained in this preliminary announcement, which comprises the Group income statement, Group statement of comprehensive income, Group cash flow statement, Group balance sheet, Group statement of changes in equity and related notes, has been prepared on a going concern basis under the historical cost convention using the accounting policies set out in the 2012 Annual Report unless otherwise stated. The basis of preparation is consistent with the year ended 30 September 2012, unless otherwise stated. 

 

The financial information contained herein does not constitute the statutory accounts of the Group within the meaning of section 435 of the Companies Act 2006.  The statutory accounts for the year ended 30 September 2013, on which the auditors have given an unqualified opinion are expected to be posted to shareholders in January 2014.  Further copies will be available for members of the public on our website at www.thomascookgroup.com, or on application to the Group Company Secretary, Thomas Cook Group plc, 3rd Floor, South Building, 200 Aldersgate, London, EC1A 4HD.

 

2.    Accounting policies

 

The accounting policies adopted, are consistent with those of the annual financial statements for the year ended 30 September 2012, as described in those annual financial statements, with the exception of the Group's policy on separately disclosed items. This has been expanded to include the interest income and charges arising on the Group's defined benefit pension schemes as well as the interest charges arising on the unwind of discount on exceptional provisions and deferred consideration.

 

Adoption of new or amended standards and interpretations in the current year

In the current year, the following new or amended standards have been adopted. Their adoption has not had a significant impact on the amounts reported or the disclosure and presentation in these financial statements, but may impact the accounting or the disclosure and presentation for future transactions and arrangements.

 

IAS 1 Amendment

"Presentation of Items of Other Comprehensive Income" is effective for annual reporting periods commencing on or after 1 July 2012. The amendment requires disclosure of items that may be reclassified to profit or loss and items that will not be reclassified to profit or loss.

 

New or amended standards and interpretations in issue but not yet effective

The following new standards, amendments to standards and interpretations that are expected to impact the Group, which have not been applied in these financial statements, were in issue, but are not yet effective:

IFRS 9

"Financial Instruments" is effective for annual reporting periods commencing on or after 1 January 2015 subject to EU endorsement. The standard will eventually replace IAS 39 but currently only details the requirements for recognition and measurement of financial assets and financial liabilities.

IFRS 10

"Consolidated financial statements" is effective for annual reporting periods beginning on or after 1 January 2014. This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within consolidated financial statements. The standard provides additional guidance to assist in determining control where this is difficult to assess.

 

 

 

 

2.    Accounting policies (continuing)

 

 

IFRS 11

"Joint arrangements" is effective for annual periods beginning on or after 1 January 2014. This standard provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form.

IFRS 12

"Disclosure of interests in other entities" is effective for annual periods beginning on or after 1 January 2014. This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles.

IFRS 13

"Fair value measurement" is effective for annual periods beginning on or after 1 January 2013. This standard applies to IFRSs that require or permit fair value measurements or disclosures and provides a single source of fair value measurement and disclosure requirements for use across IFRSs.

IAS 19 (revised 2011)

"Employee benefits" is effective for annual periods beginning on or after 1 January 2013 with retrospective application in line with IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors". The most significant change that will impact the Group is that both the expected returns on pension plan assets (currently based on expected returns) and the finance charge (currently based on the unwinding of the discount rate on scheme liabilities) will be replaced with a single net interest expense or income, calculated by applying the discount rate used in determining the present value of scheme liabilities to the net defined benefit asset or liability. Had the Standard  been applied in the current financial year, the Group's profit  before tax would have been reduced by approximately £5m.

IAS 27 (revised)

"Separate financial statements" is effective for annual periods beginning on or after 1 January 2014. This standard includes the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new IFRS 10.

IAS 28 (revised)

"Investments in associates and joint ventures" is effective for annual periods beginning on or after 1 January 2014. This standard includes the requirements for joint ventures, as well as associates, to be equity accounted following the issue of IFRS 11.

IFRS 7 (amendment)

"Financial instruments: disclosures" is effective for annual periods beginning on or after 1 January 2013, and amends the disclosures required where certain items have been offset.

IAS 32 (amendment)

"Offsetting financial assets and liabilities" is effective for annual periods beginning on or after 1 January 2014, and provides clarification on the application of offsetting rules.

 

The Group continues to assess the impact of adopting these new or amended standards and interpretations in future accounting periods.

 

 

 



3.    Segmental information

For management purposes, the Group is currently organised into four geographic operating divisions: UK, Continental Europe, Northern Europe, and Airlines Germany.  These divisions are the basis on which the Group reports its primary segment information.  Certain residual businesses and corporate functions are not allocated to these divisions and are shown separately as Corporate. 

 

On 1 May 2013 the Group completed the sale of its businesses in North America and consequently the results of the North America segment are reported as discontinued operations. In addition, following changes in management structure, the Belgian, French and the Netherlands businesses have been transferred from the former West segment to the Central Europe segment which has been renamed as Continental Europe. The prior year segmental analysis has been restated to reflect the current segmental reporting of continuing operations. The reportable segments are consistent with the presentation of information to the Group Chief Executive (chief operating decision maker) for the purpose of resource allocation and assessment of performance.

 

The primary business of all these operating divisions is the provision of leisure travel services and, accordingly, no separate secondary segmental information is provided.

 

Segmental information for these activities is presented below.

 

Year ended 30 September 2013







 

Continental

 

Northern

 

Airlines




UK

Europe

Europe

Germany

Corporate

Total


£m

£m

£m

£m

£m

£m

Continuing operations







Revenue







Segment sales

2,977.4

4,195.0

1,239.3

1,311.9

-

9,723.6

Inter-segment sales

(46.6)

(28.7)

(6.9)

(326.9)

-

(409.1)

Total revenue

2,930.8

4,166.3

1,232.4

985.0

-

9,314.5








Result







Underlying profit/(loss) from operations

66.3

77.5

109.5

48.2

(38.4)

263.1

Exceptional operating items

(126.3)

(28.7)

0.8

(6.5)

(58.4)

(219.1)

Impairment of goodwill and amortisation of business combination intangibles

(27.2)

(3.7)

(0.1)

-

-

(31.0)

Segment result

(87.2)

45.1

110.2

41.7

(96.8)

13.0








Share of results of associates and joint venture 




0.7

Loss on disposal of associates 




(0.4)

Net investment income






0.4

Finance income






47.6

Finance costs






(219.4)

Loss before tax






(158.1)

Tax






(49.5)

Loss for the year from continuing operations




(207.6)






Discontinued operations





Profit for the year from discontinued operations (note 12)



0.3

Total loss for the year




(207.3)

 

 

 

 

3.    Segmental information (continued)

 

Year ended 30 September 2012 (restated)







 

Continental

 

Northern

 

Airlines




UK

Europe

Europe

Germany

Corporate

Total


£m

£m

£m

£m

£m

£m

Continuing operations







Revenue







Segment sales

3,152.5

4,084.7

1,173.6

1,164.6

-

9,575.4

Inter-segment sales

(43.1)

(30.8)

(6.5)

(300.0)

-

(380.4)

Total revenue

3,109.4

4,053.9

1,167.1

864.6

-

9,195.0








Result







Underlying profit/(loss) from operations

12.7

52.1

100.9

35.7

(24.4)

177.0

Exceptional operating items

(86.8)

(10.7)

(2.7)

4.1

(32.4)

(128.5)

Impairment of goodwill and amortisation of business combination intangibles

(108.3)

(97.1)

(13.2)

-

-

(218.6)

Segment result

(182.4)

(55.7)

85.0

39.8

(56.8)

(170.1)








Share of results of associates and joint venture 




2.1

Loss on disposal of associates 




(0.9)

Net investment income






0.4

Finance income






48.1

Finance costs






(216.4)

Loss before tax






(336.8)

Tax






(104.1)

Loss for the year from continuing operations




(440.9)






Discontinued operations





Loss for the year from discontinued operations (note 12)



(149.2)

Total loss for the year




(590.1)

 

Inter-segment sales are charged at prevailing market prices. 

 

10.  Cost of providing tourism services

 


2013

2012


£m

£m

Continuing operations






Tour accommodation

2,895.9

2,869.5

Transportation costs

1,390.5

1,385.9

Commissions and sales incentives

400.8

387.6

Aircraft fuel

902.8

849.0

Aircraft passenger taxes

459.3

446.3

Other airline related costs

916.2

955.6

Other costs of sales

290.2

275.3

Net cash from operating activities

7,255.7

7,169.2

 

 

5.   Separately disclosed items

 



Restated


2013

2012


£m

£m

Affecting profit from operations



Reorganisation and restructuring costs

(127.3)

(55.4)

Costs associated with refinancing

(17.7)

(30.1)

Impairment of goodwill and asset valuation reviews

(18.2)

(205.7)

Onerous contracts and legal disputes

(58.5)

(9.9)

Amortisation of business combination intangibles

(13.8)

(28.2)

Provision for tax dispute resolution

(14.2)

(12.2)

Other (including time value of options)

(0.4)

(5.6)


(250.1)

(347.1)

Affecting income from associates and JV



Loss on disposal of associates and JV

(0.4)

(0.9)


(0.4)

(0.9)

Affecting finance income and costs



Write off of unamortised bank facility set-up and related costs

(6.8)

(23.1)

Interest cost on pension plan liabilities

(50.2)

(54.6)

Other separately disclosed finance charges

(2.4)

(0.9)

Unwind of discount on provisions

(9.2)

(9.8)

  IAS 39 fair value re-measurement - forward points on foreign

  exchange cash flow hedging contracts

1.6

1.9

  Expected return on pension plan assets

41.2

41.4

 




(25.8)

(45.1)




Total separately disclosed items

(276.3)

(393.1)

 

 

Restructuring costs include £44m in relation to the UK turnaround plan, £29m in relation to transformation and restructuring in Continental Europe and £43m in relation to Group wide transformation projects. Costs associated with refinancing represent those costs that could not be attributed to specific debt or equity elements of the May 2013 refinancing and have therefore not been capitalised or netted against share premium. Of these costs £47m are directly attributable to 'cost out and profit improvement' initiatives.

 

Impairment of goodwill and asset valuation reviews principally relate to the UK segment. The Egyptian and Lebanese businesses have been written down to their recoverable amount and classified as held for sale. A review of the carrying value in the Group's investment in the UK National Air Traffic Services (NATS) resulted in a write up to the disposal value giving rise to a gain of £29m. A pre-disposal review of Nielson and its subsidiaries resulted in an impairment of £13m. A revaluation of specific investments held by the UK pension fund, with a value guaranteed by the Group, resulted in an impairment of £8m.

 

In the year the Group assessed its position in respect of certain onerous contracts and made adjustments to assets on the balance sheet and made provision for future losses under these contracts. These contracts included certain UK service outsourcing contracts (£10m), hotel leases (£14m), sports marketing and related travel contracts (£9m) and foreign exchange and other commercial contracts (£26m).  

 

Provision for tax dispute resolution relates to a £14m provision in respect of an adverse third party sales tax judgement relating to the TOMS. The case is under appeal however the Group has taken a prudent view of the outcome and has no cash exposure. 

 

The Group has recognised a number of separately disclosed items affecting financing income and cost. During the year the Group has adopted industry practise of separately disclosing financing charges and

 

5.   Separately disclosed items (continued)

 

income relating to defined benefit pension schemes. Following the successful refinancing in May 2013, the unamortised facility fees relating to the previous facility were written off. This resulted in a charge of

£6.8m. The unwind of discount on provisions, relating primarily to deferred acquisition consideration, have also been separately disclosed. 

 

6.    Finance income and costs

 



Restated


2013

2012


£m

£m

Underlying finance income



Income from loans included in financial assets

0.4

0.4

Other interest and similar income

6.0

6.3


6.4

6.7




Underlying finance costs



Bank and bond interest

(90.1)

(85.1)

Fee amortisation

(6.5)

(7.9)

Letters of credit

(16.0)

(15.3)

Other interest payable

(14.4)

(12.0)


(127.0)

(120.3)




Underlying aircraft related finance costs



Interest payable

(7.1)

(4.2)

Finance costs in respect of finance leases

(18.3)

(5.4)


(25.4)

(9.6)




Net underlying interest

(146.0)

(123.2)




Separately disclosed finance income



Interest income on pension plan assets

41.2

41.4


41.2

41.4




Separately disclosed finance costs



Write off of unamortised bank facility set-up and related costs

(6.8)

(23.1)

Interest cost on pension plan liabilities

(50.2)

(54.6)

Discounting of provisions and other non-current liabilities

(9.2)

(9.8)

Other separately disclosed finance charges

(2.4)

(0.9)


(68.6)

(88.4)




IAS 39 fair value re-measurement



Forward points on foreign exchange cash flow hedging contracts

1.6

1.9




Total net interest

(171.8)

(168.3)

 

 

7.    Loss before tax

 

Loss before tax for the year has been arrived at after charging/(crediting):

 


2013

2012


£m

£m

Separately disclosed items affecting profit from operations (see note 5)

250.1

347.1

Including:

Impairment of goodwill

17.2

190.4


Impairment of other non-current intangible assets

7.4

22.6


Amortisation of business combination intangibles

14.7

28.2

92.3

 98.5

Depreciation of property, plant and equipment - held under finance leases

49.2

26.3

Amortisation of intangible assets

32.7

43.1

Cost of inventories recognised as expense

43.3

40.2

Loss on disposal of associates

0.4

0.9

Operating lease rentals payable - hire of aircraft and aircraft spares

101.3

103.1

Operating lease rentals payable - other

115.1

115.9

Net foreign exchange gains

(12.1)

(19.9)

Personnel expenses

1,075.9

1,107.1

Auditors' remuneration

6.6

5.8

 

8.    Tax

 



Restated

Analysis of tax charge

2013

2012


£m

£m

Current tax




corporation tax charge for the year

41.8

32.8


adjustments in respect of prior periods

2.0

(6.9)



43.8

25.9

Deferred tax




tax charge for the year

(10.5)

52.2


adjustments in respect of prior periods

16.2 

26.0



5.7

78.2




Total tax charge

49.5

104.1

 

In addition to the amount charged to the income statement, deferred tax relating to actuarial losses on pension schemes and the fair value of derivative financial instruments of £0.7m has been credited directly to equity (2012: credit of £32.1m).  UK corporation tax is calculated at 23.5% (2012: 25.0%) of the estimated assessable loss for the year.  Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. 

 

Surplus losses not recognised in deferred tax of £1,940.5m (2012: £1,933.9m) are available predominantly in the UK, France and Germany for offset against future profits.

 

9.    Dividends

 

No dividends were declared during the year ended 30 September 2013 (2012: nil). 

 

10.  Earnings per share

 

The calculations for earnings per share, based on the weighted average number of shares, are shown in the table below.  The weighted average number of shares shown excludes 7.5m shares held by the employee share ownership trusts (2012: 3.7m).

 

 





2013

2012




Basic and diluted loss per share

£m

£m

Continuing operations

(199.3)

(436.5)

Discontinued operations

0.3

(149.2)

Net loss attributable to owners of the parent

(199.0)

(585.7)





millions

millions

Weighted average number of shares for basic and diluted loss per share

1,195.9

871.9





pence

pence

Basic and diluted loss per share continuing operations

(16.7)

(50.1)

Basic and diluted loss per share discontinued operations

-

(17.1)

Total basic and diluted loss per share 

(16.7)

(67.2)





2013

2012




Underlying basic and diluted earnings per share

£m

£m

Underlying net profit/(loss) attributable to owners of the parent **

59.8

5.5





millions

millions

Weighted average number of shares for basic earnings per share

1,195.9

871.9

Effect of dilutive potential ordinary shares - share options *

21.7

-

Weighted average number of shares for diluted earnings per share

1,217.6

871.9





pence

pence

Underlying basic earnings per share

5.0

0.6

Underlying diluted earnings per share

4.9

0.6

 

* Awards of shares under the Thomas Cook Performance Share Plan, Buy As You Earn Scheme, Restricted Share Plan and Co-Investment Plan will be satisfied by shares held in trust and therefore are potentially dilutive.  The remainder of the share schemes will be satisfied by the purchase of existing shares in the market and will therefore not result in any dilution of earnings per share.

 

**Underlying net profit attributable to equity holders of the parent is derived from the continuing pre exceptional profit before tax for the year ended 30 September 2013 of £118.2m (2012: £56.3m) and deducting a notional tax charge of £66.7m (2012: £55.2m).

 

 

 

 



 

11.  Acquisitions and disposals

 

Acquisitions made in previous periods

 

Hotels4U.com

During the year a final deferred consideration of £5.5m was paid to the former owners of Hotels4U.com.

 

ITC Travel Investments SL

A cash payment of £3.1m ($5.0m) was received during the year in respect of partial settlement of deferred consideration.  

 

Disposal of businesses

 

Thomas Cook Canada Inc. and Thomas Cook USA Holdings Inc.

On 1 May 2013 the Group sold Thomas Cook Canada Inc. and Thomas Cook USA Holdings Inc. to Red Label Vacations Inc. for a cash consideration of 5.3m Canadian dollars. At the balance sheet date, 3.3m Canadian dollars (£2.2m) had been received from the purchaser. £38m cash was included within the net assets disposed with the business.

 

The results of these businesses have been included as discontinued operations. Further details can be found in note 12 'Discontinued operations and assets classified as held for sale'.

 


£m

Consideration received, net of costs

3.4

Less carrying amount of net assets disposed of

(41.3)

Less share of translation reserve

39.9

Gain on disposal

2.0

 

 

Disposal of Russian subsidiaries

During the year the Group disposed of a number of small, non-core subsidiaries in Russia. The net cash disposed with these businesses was £2.9m.

 

Thomas Cook Personal Finance Ltd

In March 2013, Thomas Cook Personal Finance Limited, a joint venture arrangement with Barclays Bank, was wound up. The net cash proceeds received for the Group's 50% share were £0.3m. The Group recorded a loss of £0.4m.

 

Disposal of businesses in previous periods

During the year the Group received a deferred cash consideration payment of £0.9m in relation to the sale of Oasis Company SAE, a business disposed of in the prior year.

 

12.  Discontinued operations and assets classified as held for sale

 

Following the sale on 1 May 2013 of the businesses previously disclosed within the North America segment, the results of these businesses have been included as discontinued operations.

 

Consolidated Income Statement - discontinued operations

 


Year ended 30 September 2013

Year ended 30 September 2012


Underlying results

Separately disclosed items

Total

Underlying results

Separately disclosed items

Total


£m

£m

£m

£m

£m

£m

Revenue

174.8

-

174.8

296.2

-

296.2

Cost of providing tourism services

(142.8)

-

(142.8)

(252.3)

-

(252.3)

Gross profit

32.0

-

32.0

43.9

-

43.9








Personnel expenses

(22.0)

-

(22.0)

(41.0)

(3.1)

(44.1)

Depreciation and amortisation

(2.5)

-

(2.5)

(4.0)

-

(4.0)

Net operating expenses

(9.5)

-

(9.5)

(19.8)

(14.5)

(34.3)

Profit/ (loss) on disposal of assets

-

2.9

2.9

-

(1.2)

(1.2)

Impairment of goodwill and amortisation of business combination intangibles

-

(0.9)

(0.9)

-

(109.5)

(109.5)








(Loss)/ profit from operations

(2.0)

2.0

-

(20.9)

(128.3)

(149.2)








Finance income

0.4


0.4

0.5

-

0.5

Finance costs

(0.1)

0.1

-

(0.2)

0.4

0.2








(Loss)/ profit before tax

(1.7)

2.1

0.4

(20.6)

(127.9)

(148.5)








Tax



(0.1)



(0.7)








Profit/ (loss) for the period



0.3



(149.2)

 

Cash flows - discontinued operations

 


Audited

Audited


Year ended

Year ended


30/09/13

30/09/12


£m

£m

Net cash used in operating activities

(30.1)

(6.6)

Net cash (used in)/ from investing activities

(1.5)

6.4

Net cash used in financing activities

(0.1)

(0.7)

 

 

 

12.  Discontinued operations and assets classified as held for sale (continued)

 

Assets classified as held for sale

 


2013


£m

Assets




Intangible assets

0.3

Property, plant and equipment

7.9

Non-current asset investments

36.6

Inventories

4.4

Tax assets

0.2

Trade and other receivables

16.0

Cash and cash equivalents

4.7


70.1

 


2013


£m

Liabilities




Trade and other payables

17.0


17.0

 

In the current year the assets and liabilities of the Egyptian and Lebanese businesses, Neilson Active Holidays and Corporate FX, all of which were reported within the UK segment, have been classified as held for sale. In addition, the Group has included its investment in UK National Air Traffic Services which has been written up to the expected disposal value. The Group expects to complete the sale of these businesses within the next 12 months.

 

13.  Net debt

 


At 1 October 2012

Cash

flow

Transfer to assets held for sale

Other

non-cash

changes

Exchange

movements

At 30

September

2013


£m

£m

£m

£m

£m

£m

Liquidity







Cash and cash equivalents

460.3

630.9

(4.7)

-

2.3

1,088.8

Cash classified as held for sale

-

-

4.7

-

-

4.7


460.3

630.9

-

-

2.3

1,093.5








Current debt







Bank overdrafts

(6.8)

3.9

-

-

(0.3)

(3.2)

Short-term borrowings

(0.6)

(132.9)

-

-

(0.5)

(134.0)

Current portion of

long-term borrowings

(30.4)

24.7

-

(32.1)

(1.5)

(39.3)

Obligations under finance leases

(32.6)

9.7

-

(19.2)

(0.6)

(42.7)


(70.4)

(94.6)

-

(51.3)

(2.9)

(219.2)

Non-current debt







Long-term borrowings

(977.6)

(139.8)

-

15.9

(12.3)

(1,113.8)

Obligations under finance leases

(200.6)

22.6

-

(3.7)

(0.1)

(181.8)


(1,178.2)

(117.2)

-

12.2

(12.4)

(1,295.6)

Total debt

(1,248.6)

(211.8)

-

(39.1)

(15.3)

(1,514.8)

Net debt

(788.3)

419.1

-

(39.1)

(13.0)

(421.3)

 

 

14.  Subsequent events

 

Subsequent to the balance sheet date and the approval of this financial information a number of events occurred that require disclosure:

 

Disposal of Egypt and Lebanon

 

On 7 October 2013 the Group announced it had sold 100% of Thomas Cook Egypt and Thomas Cook Lebanon to Yusuf Bin Ahmed Kanoo (Holdings) Co WLL of Bahrain for a cash consideration of £6.5m. At the balance sheet date the assets and liabilities have been classified as held for sale in accordance with IFRS.

 

Disposal of UK Corporate Foreign Exchange

 

On 18 November 2013 the Group announced it had sold its UK Foreign Exchange business, Thomas Cook CFX Ltd, to Moneycorp for a cash consideration of £4.5m

 

Disposal of interest in the Airline Group (NATS)

 

On 19 November 2013 the Group announced it had agreed to sell 91.5% of its shareholding and loan note interests in The Airline Group Limited. The cash consideration is £38m.

 

Disposal of Neilson Active Holidays Ltd

 

On 25 November 2013 the Group announced it had agreed to sell Neilson Active Holidays Ltd for a consideration of £9.15m. The transaction is expected to complete in December 2013.

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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