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Thomas Cook Group (TCG)

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Thursday 30 July, 2015

Thomas Cook Group

3rd Quarter Results

RNS Number : 4974U
Thomas Cook Group PLC
30 July 2015
 



30 July 2015

Third Quarter Results for the three months ended 30 June 2015

Continuing progress despite external shocks

 

·   Twelfth consecutive quarter of improved profitability

·   Operating profit increased by £53 million for the quarter

·   Net debt reduced by £111 million to £392 million

·   Good progress in developing joint initiatives with our strategic partner, Fosun

·   Summer holiday bookings to most destinations are in line with expectations

·   However, the recent tragic events in Tunisia, and concerns regarding Greece's potential exit from the Euro, are expected to impact FY15 EBIT by approximately £25 million

·   The foreign exchange translation impact on FY15 EBIT is expected to be £39 million (up from £25 million at our interim results), following further depreciation of the Euro and Swedish Krona against the Pound

·   Despite these impacts, we continue to expect growth in FY15 on a constant currency basis

 

£m (unless otherwise stated)

3 months ended

Change

Like-for-like(ii) change

30 June 2015

30 June 2014

Revenue

1,950

2,219

(269)

4

Underlying(i) Gross Margin %

20.4%

20.1%

0.3%

(0.2)%

Underlying Profit from Operations (Underlying EBIT)

30

33

(3)

5

Underlying EBIT Margin%

1.5%

1.5%

Flat

0.2%

EBIT Separately Disclosed Items

(27)

(75)

48

48

Profit/(Loss) from operations (EBIT)

3

(42)

45

53

Loss before tax

(44)

(81)

37

44

Net Debt

(392)

(507)

115

111(iii)

 

£m (unless otherwise stated)

Last 12 months (LTM) ended

Change

Like-for-like(ii) change

 

30 June 2015

30 June 2014

 

Revenue

8,050

8,966

(916)

(23)

 

Underlying Gross Margin %

22.4%

22.6%

(0.2)%

0.0%

 

Underlying Profit from Operations (Underlying EBIT)

334

305

29

91

 

Underlying EBIT Margin%

4.1%

3.4%

0.7%

1.1%

 

EBIT Separately Disclosed Items

(171)

(274)

103

103

 

Profit from operations (EBIT)

163

31

132

194

 

Loss before tax

(15)

(137)

122

184

 

 

Notes

 

(i)

The term 'underlying' refers to trading results that are adjusted for separately disclosed items that are significant in understanding the ongoing results of the Group. Separately disclosed items are detailed on page 9

 


(ii)

'Like-for-like' change is quoted to improve the comparability of prior year data, by adjusting for the impact of disposals, foreign exchange translation, fuel and other factors that distort the true performance of the business. The detailed like-for-like adjustments are shown on page 12

 


(iii)

'Like-for-like' net debt adjusts the prior year comparative for foreign exchange translation, the impact of changing finance lease arrangements, new equity investment and disposal proceeds to give a true, underlying change in Net Debt as set out on page 10 

 

Financial highlights

The comments below are based on like-for-like comparisons unless otherwise stated

·   Operating profit improved substantially in the quarter, increasing by £53 million to £3 million (Q3 2014: loss of £50 million), following a reduction in separately disclosed items of £48 million

·   Group revenue increased by £4 million, or 0.2%, to £1,950 million (Q3 2014: £1,946 million) reflecting weaker demand in the quarter as previously announced, particularly in April

·   Underlying EBIT improved by £5 million to £30 million (Q3 2014: £25 million)

·   Net debt reduced by £111 million on a like-for-like basis (£115 million on a statutory basis) to £392 million reflecting improved cash flow generation

 

Current trading highlights

·   Summer 2015 is 78% sold, the same as this time last year, and customer bookings have generally improved in most source markets over the last few weeks

·   Our UK business continues to trade well, with the peak departure months well sold at good margins

·   Northern Europe has proved resilient amid tough conditions, achieving strong "lates" market sales at better prices than last year

·   Airlines Germany has achieved continued growth through increased capacity and better load factors

·   In Continental Europe margins have been impacted by tough market conditions in Germany, as we have previously reported, and by weak demand in France for MENA destinations

 

Progress in executing our strategy

·   Despite disruption in some destinations, our strategy continues to deliver underlying profitable growth

·   Our focus on differentiated holidays is leading to increased customer demand for holidays to our own-brand hotels, where bookings have increased by 38% so far this year

·   We are committed to continually improving the quality of our hotels.  Thanks to our quality control programme, the customer review scores of own-brand and partnership hotels have increased

·   Thomas Cook and Fosun have agreed a Memorandum of Understanding setting out key details of our joint hotel investment platform

·   We have entered into a marketing and distribution partnership with Club Méditerranée, a subsidiary of Fosun, to expand further the range of premium holidays offered to our customers

·   We are serving our customers better through technology.  With OneWeb, our international web platform, embedded in the UK, we have now launched it in Continental Europe, starting with the Netherlands.

·   We continue to develop initiatives under our New Operating Model, including a Group-wide approach to Customer Relationship Management to provide customers with more personalised services and offers

 

Outlook

Overall, the Group performed in line with management's expectations in the third quarter.  Despite the weaker bookings position highlighted at our interim results, our UK, Continental Europe and Northern Europe businesses have all delivered increased EBIT, while Airlines Germany is slightly behind last year's strong comparator. However, our fourth quarter bookings have been disrupted by events in Tunisia and Greece, which we expect will reduce Group EBIT for the full year by approximately £25 million, compared with our previous expectations.  In addition, based on current rates, we expect foreign exchange translation to reduce full year Group EBIT by approximately £39 million, up from the £25 million we announced at our interim results due to further depreciation of the Euro and Swedish Krona against the Pound.  On a constant currency basis, we nevertheless remain confident that Thomas Cook will achieve growth in FY15.

Peter Fankhauser, Chief Executive of Thomas Cook commented:

"We've delivered a good performance in the third quarter, executing on our strategy and improving our underlying operating profit and cash flow in spite of weaker market conditions. Customer demand for our differentiated product continues to grow, our focus on quality is achieving positive results, and our digital progress is encouraging. 

Since the end of the third quarter, our business has been impacted by significant external shocks.  In response to the tragic events in Tunisia, we acted swiftly and decisively, evacuating more than 15,000 guests on approximately 60 flights and sending Special Assistance Teams to offer logistical and compassionate support to customers and staff.  In Greece, our local teams have worked diligently to ensure that economic issues do not disrupt our customers' holidays.  Our people have shown exemplary commitment during these crises, distinguishing Thomas Cook by personally contacting tens of thousands of customers, and amending and rebooking their holidays in just a few days.  It is the dedication of our people that make us one of the most popular travel brands in Europe. 

While the impact of Tunisia and Greece will reduce our fourth quarter and full year profits, and in spite of foreign exchange headwinds, I have every confidence that our progress will continue, supported by the ongoing execution of our profitable growth strategy."

 

Presentation to equity analysts

A conference call and webcast for investors and analysts will be held today at 10.00 a.m. (BST).  The access details are as follows:

 

United Kingdom

020 3059 8125

Other locations

+44 20 3059 8125

http://webcasts.thomascookgroup.com/thomascook006/default.asp 

 

Forthcoming announcement dates

The Group intends to issue a pre-close update on 24 September 2015, and announce its results for the financial year ended 30 September 2015 on 25 November 2015.

Enquiries

Analysts & Investors

James Sandford, Thomas Cook Group

+44 (0) 20 7557 6433

Media

Mathias Brandes, Thomas Cook Group

+44 (0) 20 7294 7199

 

Jenny Davey, Finsbury

+44 (0) 20 7251 3801



CURRENT TRADING

 

Summer 2015

The Summer 2015 season is 78% sold for the Group as whole(i), the same as this time last year.  Although performance for the third quarter was impacted by a later booking profile and softer market demand, as we indicated at our interim results, booking volumes nevertheless have generally improved in most source markets over the past ten weeks since we last reported.  However, in recent weeks, our summer programme has been disrupted by the tragic events in Tunisia, and by political and economic issues in Greece.  The impact of these issues is discussed further below.

Overall bookings are 2% higher than last year while average selling prices are 2% lower, reflecting a higher level of seat only airline sales.  Excluding the mix effect of seat only sales, prices for the charter risk business were 1% higher than last year. 

In the UK, the Summer season is 84% sold, 1% lower than this time last year. As we reported previously, the peak Summer departure months are well sold at good margins, which has enabled us to better maintain improved prices and margins in the "lates" market.  This also reflects a strategy of expanding our "seat only" business as we refine our operating model for the UK airline. Accordingly, although total average selling prices are 1% lower than last year, within the product mix, charter risk and seat only pricing have both improved by 4% and 3% respectively.

In Continental Europe, 74% of the Summer programme has been sold, 4% lower than this time last year, with bookings 3% lower than last year.  This represents an improvement in booking volumes since we last reported, due mainly to a later booking profile, particularly in our German business.  However, as we previously reported, competitive market conditions have put pressure on margins and profitability in the German market despite the recent improvement in booking performance. In France, while we have reduced capacity commitments, demand has significantly weakened for holidays to certain MENA destinations including Tunisia, leading to a 15% drop in bookings since last year.

In Northern Europe, with 88% of the Summer season sold, the same as this time last year, bookings are now in line with last year's level.  This reflects a strong booking pattern in the "lates" market since we last reported, when bookings at that time were 4% lower than last year. Average selling prices are 2% higher than last year and, while local market conditions remain competitive, our Nordic business continues to demonstrate its resilience, underpinned by a strong market position and attractive product portfolio.

Airlines Germany continues to perform well with 75% of the Summer season sold, 1% higher than last year. Bookings are 8% higher than last year, reflecting a 7% increase in capacity and improved load factors. Average selling prices are 1% higher than last year, despite a decrease in fuel prices, as improved long haul yields and a higher mix of long haul business has offset pricing pressures in the short and medium haul market.

 


 

 

 

 

 

 

 


Summer 15

Year on Year Variation %














Risk Business

Bookings


ASP


% Sold












UK


 -1%


 -1%


84%



Continental Europe

 -3%


Flat


74%



Northern Europe

Flat


+2%


88%



Airlines Germany

+8%


+1%


75%



Total


+2%


 -2%


78%


 

 

 

 

 

 

 

 

 

Based on cumulative bookings as at 18 July 2015

Note: (i) For the tour operator only, the Summer 2015 season is 81% sold, 2% lower than last year

Winter 2015/16

Although early in the booking cycle, holiday bookings for the Winter 2015/16 season are developing well.  In the UK, with 21% of the programme sold, charter risk bookings are 1% behind last year but at much stronger selling prices (+8%). Northern Europe is 27% sold with bookings 1% higher and ASP up 6%. 

 

Impact of recent events in Tunisia and Greece

The recent tragic events in Tunisia, and subsequent advice from several European governments against travel to that country, have led us to cancel almost our entire programme for Tunisia this Summer.  While we have shifted capacity from Tunisia to alternative destinations, we nevertheless expect this major disruption, occurring in the midst of the "lates" Summer holiday booking period, will have an impact on sales and margin in the fourth quarter of the year. We estimate that the net impact of loss of business to Tunisia will be around £20 million, including the margin from cancelled trips, the impact of reconfiguring our Summer flying programme and the cost of repatriating our customers to the UK. 

We have reshaped our holiday offering and flight schedule as a result of recent events in Tunisia.  However, although difficult to assess at this stage, we believe that there may be some continued adverse impact on the Group's FY16 results, in the event that Foreign Office advice remains negative and demand does not return to former levels.

With regard to Greece, customer demand reduced during the period while it was uncertain whether Greece would remain in the Eurozone.  Although our holidays to Greece were well sold before the crisis and bookings quickly recovered after an agreement was reached, it has resulted in a higher level of discounting in the Summer "lates" market than anticipated. As a result, we estimate that the Greek crisis will impact fourth quarter EBIT by around £5 million through lower margins.

 

PROGRESS IN EXECUTING OUR STRATEGY

We have made continued progress in executing our strategy for sustainable profitable growth, which aims to generate higher quality revenues that lead to better margins and are more competitively resilient.  Our strategic direction is guided by the principle that the customer must be at the heart of everything we do, and our strategy is centred on improving all aspects of our customers' holiday experience.

The growth and development of our own-brand hotels is a key part of improving our holiday offering.  We are pleased that customer demand for our own-brand hotels is growing, with bookings to date for Summer 2015 holidays up by 38%, compared to 33% last time we reported.  We are also improving the quality of the hotels we offer through our quality control programme, under which we take actions to maintain and improve hotel performance while monitoring our hotels' quality scores.  As a result of this programme, the online review scores from customers have increased to an average of 85% for own-brand and partnership hotels, compared to 82% last year (according to meta-review data from TrustYou), with further improvement being targeted.

As part of our commitment to improving the holiday experience, we announced earlier this month that we would review our customer service standards, including how we take care of our customers, both ordinarily and during times of crisis. To support this, we have recently appointed Justin King CBE, to conduct an independent review of our customer service, looking into customer health, safety, welfare, relations and crisis management practices.  The results of this review will be published later this year.

In June we announced that we have committed £1 million to setting up a new initiative to promote awareness of and reduce the risks associated with carbon monoxide, through research, campaigns, the promotion of legislation and other initiatives within the tourism industry.

In our airline, our recent investments in new aircraft and in cabin refurbishment are continuing to improve our customers' in-flight experience.  Overall customer satisfaction with our refurbished long-haul fleet has increased by 8%, while on-time performance across our airlines has increased by 1% to 84%.

We have continued to develop OneWeb, our international web platform, in order to deliver a compelling online experience to customers.   Recent enhancements have been aimed at improving functionality such as better search capability, enhanced security and faster page load times, especially on mobile devices.  OneWeb in the UK has continued to grow, achieving an increase in online package holiday sales of 5% for the year-to-date, while conversion has increased by 10%.

OneWeb has also been introduced into The Netherlands on thomascook.nl, where it is gaining traction. Work to migrate OneWeb to Belgium is now beginning.  As the same code is deployed across multiple markets, OneWeb enables us to deliver new website functionality and innovations rapidly across the Group.

In mobile, we have made significant progress creating responsive websites and mobile applications, and usage trends are very encouraging.  One in three of our holidays sold online via OneWeb is now sold via a mobile or tablet device, up from around one in five last year.  Our digital "companion app", launched in Northern Europe at the end of last year, has now achieved more than 150,000 downloads (up by 50% since we last reported). 

We continue to define and implement our New Operating Model, in order to deliver the next phase of Thomas Cook's transformation between FY16 and FY18.  This comprises a number of initiatives, some of which are already underway, aimed at leveraging our scale and eliminating duplicated activities. 

One such initiative is our programme to improve Customer Relationship Management practices across the Group, building on the best practice already in place in the Nordics.  This initiative involves changing many systems and processes, in order to better integrate information about our customers' purchasing history, preferences, interactions and complaints, throughout our sales channels and customer touchpoints.  Most recently our UK business implemented a new complaints handling process, empowering local employees to resolve complaints on the spot, improving the customer experience and preventing escalation.

We will report on our progress under the New Operating Model from FY16 onwards.

 

Strategic partnership with Fosun

As part of the strategic partnership that we announced in March 2015, we have continued to progress our joint initiatives with Fosun International Limited.

On 15th June 2015 we announced the establishment of a joint venture in China, to develop domestic, inbound and outbound tourism activities for the Chinese market under Thomas Cook brands. The joint venture will combine Thomas Cook's brand heritage, know-how and expertise in international travel with Fosun's in-depth local market knowledge and operational resources, enabling Thomas Cook to benefit from direct exposure to China's growing demand for leisure travel.  The joint venture will be 51% owned by Fosun and 49% owned by Thomas Cook, and we expect it to be operational in the Autumn, subject to obtaining the relevant regulatory approvals and licenses.

We also announced recently that Thomas Cook and Club Méditerranée, a wholly-owned subsidiary of Fosun, have agreed to collaborate in the marketing and distribution of Club Med holidays.  Building on Thomas Cook's existing strong relationship with Club Med in France, this agreement aims to develop significant new revenue streams in European markets outside France, enhancing our premium product offering with Club Med's upmarket, all-inclusive holidays.  The two groups are also exploring a potential collaboration in the procurement of flights for our guests.

We are today announcing that Thomas Cook and Fosun have agreed a Memorandum of Understanding to establish a hotel investment vehicle in the form of a limited partnership to acquire an estimated 30 to 50 hotel and resort properties over a period of three to five years.  The acquired properties will be managed and operated by Thomas Cook's Hotels & Resorts division under Thomas Cook's proprietary hotel brands.  Initial investment activity, to be funded by Fosun (or one or more of its portfolio companies), will focus on Thomas Cook's core destination markets including Spain, Greece, Cyprus and Turkey.  Additional limited partners will also be solicited for investment.  We are currently in the process of recruiting several experienced investment professionals for the fund management company, and conducting preliminary due diligence on several investment opportunities.  We will provide a further progress update later in the year.  The hotel investment platform will enable Thomas Cook to better utilise own-brand hotels through consolidated hotel ownership and tighter management control, supporting the improvement and further development of our differentiated hotel offering.

 

Targets and key performance indicators

Since 2013, we have consistently reported a set of targets and KPIs that were intended to measure our progress in implementing our strategy between FY13 and FY15.  The table below shows our achievements for the first 9 months of FY15.

 

 

Financial year ended 30 September

Actual


Target

FY12

FY13

FY14

Q3 15


FY15

Targets

New Product revenue

N/A

£94m

£280m

£376m


>£700m


Web penetration(i)

34%

36%

38%

39%


>50%


Wave 1 cost out/profit improvement (run-rate)

£60m

£194m

£400m

£487m


>£500m

KPIs

Sales Growth

N/A

N/A

(2.1)%

0.2%


>3.5%(ii)


Underlying gross margin improvement(iii)

N/A

0.8%

1.5%

1.5%


>1.5%


UK underlying EBIT margin

0.1%

2.2%

3.5%

4.6%


>5%


Cash conversion(iv)

11%

48%

62%

50%


>70%

Notes:    (i)          Measured on a last 12 months (LTM) departed basis

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

                   (iii)       Underlying gross margin, adjusted for disposals and shop closures to make all periods from FY12 - FY15 like-for-like

                   (iv)       Cash conversion ratio is defined as free cash flow after exceptional items and before capital expenditure as a percentage of EBITDA

 

As we have transformed Thomas Cook over the last three years, our overarching focus has been to put the business on more stable foundations by sustainably growing profits.  Accordingly we have made good progress towards those targets that are directly aligned with profit improvement.

The Group achieved its underlying gross margin improvement target for FY15 one year early, supported by our Cost Out and Profit Improvement programme, which has consistently exceeded targets.  Turning around the UK business is key to the future success of the Group, and here we have made good progress, being on track to achieve our 5% EBIT margin for FY15, up from close to zero in FY12.  We have also made good progress on cash conversion, and are now consistently achieving levels of cash performance that are significantly higher than in FY12.  After reflecting the estimated impact of Tunisia, cash conversion for the full year is expected to be at a similar level to FY14.

Our New Product strategy has delivered strong incremental revenue from higher margin own-brand and partner hotel sales that have exceeded targets.  However, New Product revenue also includes sales of our lower margin City Breaks and longtail hotels, and this category has fallen short of its target.  As a result, we are likely to fall below the overall target of £700 million.  As previously disclosed, it is also unlikely that we will achieve our full year sales growth and web penetration targets, as our progress has been offset by the removal of certain low or no profit business lines in order to focus on profits and to reduce business risk.

The Group intends to continue to report against these targets and KPIs until the end of FY15, at which point a new set of simpler and more relevant KPIs will be introduced to measure the Group's strategic progress over the next phase of its transformation.

 



FINANCIAL REVIEW

 

£m

3 months ended 30 Jun 2015

3 months ended 30 Jun  2014

Change

Like-for-like

Change

Revenue

1,950

2,219

(269)

4

Gross profit

399

446

(47)

(2)

Gross Margin (%)

20.4%

20.1%

0.3%

(0.2)%

Operating expenses

(369)

(413)

44

7

Underlying profit from operations (Underlying EBIT)

30

33

(3)

5

EBIT Separately Disclosed Items

(27)

(75)

48

48

Profit from operations (EBIT)

3

(42)

45

53

Net finance charges (underlying)

(37)

(30)

(7)

(7)

Separately disclosed finance charges

(10)

(9)

(1)

(2)

Loss before tax

(44)

(81)

37

44

 

Revenue

Group Revenue of £1,950 million is broadly unchanged from last year's level on a like-for-like basis, as increased revenues from our own-brand hotels have been offset by weaker customer demand in our principal source markets and consequent changes in capacity to certain destinations.

 

Gross Margin

Gross Profit of £399 million was £2 million lower than prior year on a like-for-like basis, as the benefit of a stronger product mix was offset by increased costs relating to customer compensation under EU261 legislation and investment in margin in the parts of our programme most affected by the prevailing market conditions.

Underlying gross margin of 20.4% decreased by 20 basis points a like-for-like basis. In the trading businesses, gross margins were broadly flat, reflecting the resilience of our businesses in competitive market conditions. At a Group level, year-on-year margin performance has been impacted by the recognition of foreign exchange gains in Q3 last year which have not been repeated in the current year.

 

Underlying EBIT

Group underlying operating profit of £30 million represents an increase of £5 million in the quarter. This was due mainly to the delivery of further operating cost efficiencies, which reduced operating expenses by £7 million (2%) on a like-for-like basis. 

 

Segmental analysis of Underlying EBIT

 

Underlying EBIT by segment

UK

CE

NE

AG

Corp

Group


£m

£m

£m

£m

£m

£m

3 months ended 30 Jun 2014 LFL

37

5

4

(7)

(14)

25

3 months ended 30 Jun 2015

40

7

8

(9)

(15)

30

3 months LFL change (£m)

3

2

4

(2)

(1)

5

 

Our UK business generated EBIT of £40 million in the quarter, representing growth of £3 million (7%) on a like-for-like basis. This improvement in profitability reflects the margin benefits from improved product quality and enhanced online capability, together with the delivery of further cost efficiencies.

Continental Europe grew EBIT by £2 million through the streamlining of cost structures which has compensated for lower market demand in France and margin pressures in our German business, as we indicated in our half year results announcement.

EBIT from our Nordic business increased by £4 million in the quarter, mainly through further efficiency savings as part of our One Airline strategy.  Margins in Northern Europe also improved, further demonstrating the resilience of our business model in competitive market conditions. 

Seasonal losses in our German Airline increased by £2 million in the quarter against a strong prior year comparative, mainly due to higher depreciation costs following an increased level of investment in recent years.

Corporate costs were £1 million higher year-on-year, primarily the result of one-off foreign exchange  gains last year which have not repeated in the third quarter this year. 

 

Separately disclosed items

In total, Separately Disclosed Items reduced by £46 million to £37 million for the quarter ended 30 June 2015 (including finance related charges) and by £48 million to £27 million at an EBIT level.  The table below summarises such items by principal category. 

 


3 months to 30 June 15

3 months to
30 June 14

£m

Cash

Non-cash

Total

Restructuring

(9)

(1)

(10)

(30)

Onerous contracts and legal disputes

(2)

(8)

(10)

(41)

Amortisation of business combination intangibles

-

(3)

(3)

(1)

Loss on disposal of assets

-

(1)

(1)

-

Other

(5)

2

(3)

(3)

EBIT related items

(16)

(11)

(27)

(75)

Finance related charges

-

(10)

(10)

(8)

Total

(16)

(21)

(37)

(83)

 

Restructuring costs

Restructuring costs of £10 million relate to Group-wide transformation projects and head office reorganisation costs.

 

Onerous contracts and legal disputes

The charge of £10 million mainly relates to the termination of a UK outsourcing contract. The Group has recognised a non-cash charge of £7 million in relation to this contract to provide for future losses. In addition, the Group has paid cash costs during the quarter in connection with the settlement of certain legal cases.

 

Amortisation of business combination intangibles

Amortisation of business combination intangibles relates to intangible assets which were acquired as a result of the merger between Thomas Cook AG and MyTravel Group plc and other business combinations made in subsequent years.

 

Finance related charges

Finance related charges comprise a notional interest charge on the discounted value of provisions for future liabilities (£2 million), the net interest charge arising on the Group's defined benefit pension schemes (£3 million) and accelerated charges to write off bank facility fees following the new facility agreed in the quarter (£7 million). In addition, a £2 million benefit has been recognised in respect of IAS39 allocations of the time value of derivative products.

 

Profit from operations (EBIT)

The Group reported a profit from operations of £3 million for the quarter, an improvement of £53 million on a like-for-like basis compared to last year, which mainly reflects the reduction in Separately Disclosed Items set out above.

 

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. The Group's cash conversion measure over the last 12 months was 50% compared to 23% for the 12 months ended 30 June 2014 as calculated below:

 

£m

LTM ended 30 June 2015

LTM ended 30 June 2014

Operating Cashflow (before regulatory changes)

505

305

Impact of Regulatory Changes*

(40)

(0)

Net Interest

(126)

(141)

Cash Exceptionals (net of proceeds)

(88)

(69)

Converted Cash

252

95

EBITDA

509

457

Cash Conversion

50%

21%

 

Net Debt

The components of the movement in Net Debt over the last 12 months are:

 

£m


30 June 2014 closing net debt position

(507)

Regulatory changes*

(40)

New equity

92

Exchange rate movements

17

Non-cash movements

(65)

Like-for-like 30 June 2014 closing net debt position

(503)

Operating cashflow (before regulatory changes)

505

Capex

(176)

Exceptionals

(88)

Net Interest paid

(126)

JV Dividend and Other

(4)

30 June 2015 closing net debt position

(392)



*Regulatory changes of £40 million relate to additional payments as a result of EU261 legislation, and reduced customer deposits in Germany due to the successful legal claim by the German Consumers Association against German tour operator general terms & conditions concerning cancellation fees, prepayments and payment terms

 

Net Debt at 30 June 2015 of £392 million has reduced by £115 million since the same time last year.  On a like-for-like basis, excluding the impact of new equity, exchange rate movements, the reclassification of leases and other changes outside the Group's control, Net Debt has reduced by £111 million.

 

Hedging of Fuel and Foreign Exchange

The Group operates a rolling programme of hedging to smooth fluctuations in the price of fuel and currency, in order to provide greater price certainty when planning for current and future seasons.  The proportion of our forthcoming requirements for Euros, US Dollars and Jet Fuel that have been hedged are shown in the table below. 

 


Summer 15

Winter 15/16

Summer 16

Euro

94%

81%

57%

US Dollar

94%

93%

66%

Jet Fuel

100%

90%

83%

As at 30 June  2015

 

For Jet Fuel, we are 100% hedged for FY15 and 90% hedged for Winter 15/16.  Our hedging policy means that any long term movements in the price of Jet Fuel take time to impact our net fuel costs.  As Jet Fuel is priced in US Dollars, we also buy forward the requisite amount of US Dollars from a mix of base currencies.  As we are 100% hedged for FY15, changes in the price of Jet Fuel will have no further impact on our fuel costs during the year.  For the third quarter, our fuel costs were £36 million lower than in Q3 2014, reflecting the lower hedge rates in place, partially offset by an increase in flying.

We also hedge our transactional exposure to a range of non-fuel related foreign currency costs, including the US Dollar, the Euro and a number other currencies.  Currently 94% of these exposures are hedged for Summer 15, and for Winter 15/16, we are 81% and 93% hedged against the Euro and the US Dollar respectively.

The Group's policy is not to hedge the translation impact of profits generated outside the UK.  If current rates for Euro and Swedish Krona were maintained throughout the remainder of FY15, there would be a negative year-on-year translation impact of approximately £39 million, including the impact of intra-Nordic currency movements.

 

The average and period end exchange rates relevant to the Group for the quarter were as follows:

 


Average Rate

Period End Rate


Q3'15

Q3'14

Q3'15

Q3'14

GBP/Euro

1.39

1.23

1.39

1.24

GBP/US Dollar

1.53

1.68

1.56

1.69

GBP/SEK

12.89

11.11

12.87

11.30

 

 

 



APPENDIX

 

Like-for-like analysis

In implementing the transformation, the Group has undertaken activities which, combined with the normal translational effect of exchange rate movements, impact upon the comparability of underlying performance.

To assist in understanding the impact of these factors and their influence on year on year progression, we consider 'like-for-like' (LFL) adjusted growth from the 3 month period to 30 June 2014 to the 3 month period to 30 June 2015 in our analysis below:

 

Group

Revenue

Gross margin

Operating expenses

Underlying
EBIT


£m

%

£m

£m

3 months ended 30 June 2014

2,219

20.1%

(413)

33

Disposals/store closures

(3)

(0.1)%

2

-

Accounting Changes

(8)

(0.2)%

6

-

Easter

(43)

0.2%

0

(5)

Fuel

(39)

0.3%

0

0

Impact of Currency Movements

(180)

0.3%

29

(3)

3 months ended 30 June 2014 LfL

1,946

20.6%

(376)

25

3 months ended 30 June 2015

1,950

20.4%

(369)

30

3 month LfL change (£m)

4

(0.2)%

7

5

 

Underlying EBIT by segment

UK

CE

NE

AG

Corp

Group


£m

£m

£m

£m

£m

£m

3 months ended 30 June 2014

39

6

8

(6)

(14)

33

Disposals/store closures

(0)

0

-

-

-

(0)

Accounting Changes

-

-

-

-

-

-

Easter

(2)

(0)

(1)

(2)

-

(5)

Fuel

-

-

-

-

-

-

Impact of Currency Movements

-

(1)

(2)

1

-

(2)

3 months ended 30 June 2014 LfL

37

5

4

(7)

(14)

25

3 months ended 30 June 2015

40

7

8

(9)

(15)

30

3 month LfL change (£m)

3

2

4

(2)

(1)

5

 

 


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