Top Movers

Company Announcements

Final Results

Related Companies

RNS Number : 0010Y
Thomas Cook Group PLC
26 November 2014
 



26 November 2014

Audited results for the year ended 30 September 2014

Thomas Cook delivers further strong profit growth

 

Highlights

12 months ended 30 September 2014 compared with 12 months ended 30 September 2013:

·   Underlying EBIT on a like-for-like basis was £323 million, an increase of £98 million, or 44% (FY13 LFL: £225 million)

·   All businesses delivered improved profitability.  In particular, underlying UK EBIT margin improved by 130 basis points to 3.5% (FY13: 2.2%), achieving our FY14 target

·   New Product revenue grew by £186 million in FY14, bringing cumulative growth since FY12 to £280 million and contributing towards our FY15 target of £700 million. Customer demand for Concept Hotels has been encouraging with Summer 14 bookings up 43% year-on-year

·   Web penetration increased to 38% (FY13: 36%). In particular, web performance improved on main websites in the UK, Germany and Northern Europe where our focused digital investment has led to double-digit increases in bookings.  We developed and implemented our omnichannel strategy in the UK, with other markets to follow

·   Further Wave 1 cost out and profit improvements of £206 million delivered in FY14 brought cumulative benefits to £400 million.  Reflecting the continuing success of the programme, we are increasing our Wave 1 FY15 target from £460 million to more than £500 million

·   Our Wave 2 FY18 target currently remains at £400 million.  We are increasing our identified risk-weighted benefits by £30 million to £180 million, reflecting greater certainty of delivery

·   We have de-risked our business by reducing low profit and high risk operations, through business disposals, strategic reductions in risk capacity in France and Russia, and the removal from sale of low quality product

·   Net debt reduced by £95 million to £326 million (FY13: £421 million), alongside significant investment in the business in the form of capital expenditure and transformation costs

£m (unless otherwise stated)

Year ended

30 Sep 14

Year ended

30 Sep 13

Change £'m

Like-for-like change £'m

Revenue

8,588

9,315

(727)

(180)

Underlying Gross Margin

22.3%

22.1%

0.2%

0.6%

Underlying Profit from Operations (EBIT)

323

263

60

98

Underlying EBIT %

3.8%

2.8%

1.0%

1.2%

EBIT Separately Disclosed Items

(269)

(250)

(19)


EBIT

54

13

41


Loss After Tax *

(115)

(213)

98


Basic EPS *

(8.2p)

(17.1p)

8.9p


Underlying EPS

11.3p

5.0p

6.3p


Free Cashflow

116

53

63


Net Debt

(326)

(421)

95


*FY13 separately disclosed interest income restated by £5 million as a result of new pension standard

(1)'Like-for-like change' is quoted to improve the comparability of prior year data, by adjusting the prior year comparative for the impact of disposals, foreign exchange translation and any other factor that distorts the true performance of the business.  The detailed like-for-like adjustments are shown on page 12

(2) 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 included on the face of the income statement and are detailed on page 39. 

Key Financial Points

·   Revenue of £8,588 million was £727 million lower than last year, mainly as a result of business disposals  (£207 million), foreign exchange translation (£300 million), reduction of strategic risk capacity and removal of low quality product (£189 million), and continuing lower demand for Egypt (£177 million), offset by an increase in revenue from new products of £186 million.  This has resulted in an improved quality of business, reflecting our focus on higher margin products as part of our strategy for sustainable profitable growth

·   Gross margin improved by 20 basis points to 22.3% (FY13: 22.1%), despite competitive pressures, due to the benefits from the Wave 1 of our profit improvement programme and improved gross margins in our UK business in the second half of the year.  On a like-for-like basis, gross margin improved by 60 basis points, resulting in a cumulative improvement of 150 basis points since FY12, an achievement of our FY15 target one year early

·   Overhead costs reduced by £107 million (6.3%) on a like-for-like basis, reflecting strong progress in delivering Wave 1 of our cost out and profit improvement programme

·   Underlying EBIT improved by £60 million to £323 million (FY13: £263 million).  After adjusting for disposals (£15 million) and foreign exchange translation (£23 million), underlying EBIT was £98 million (44%) higher than last year, mainly due to improved profitability in our UK and Continental European businesses

·   Northern Europe maintained its strong EBIT position, while all other parts of the business recorded increased profits, with the UK and Continental Europe seeing particularly significant like for like improvements of £38 million and £35 million respectively. Condor also performed positively despite difficult market conditions

·   Separately disclosed items impacting EBIT totalled £269 million (FY13: £250 million). This was mainly due to restructuring costs of £124 million (FY13: £127 million) incurred as part of the transformation, pre-disposal impairments (£41 million) and provision for potential customer claims for flight delays under European directive EU261 (£41 million)

·   EBIT after separately disclosed items for FY14 was £54 million, an improvement of £41 million compared to last year (FY13: £14 million). After deducting net interest and tax charges, the loss for the year amounted to £115 million, an improvement of £98 million (FY13: loss of £213 million)  

·   Free cashflow of £116 million (FY13:  £53 million) was generated in FY14.  Improved underlying EBIT and disposal proceeds were partially reinvested in the business through higher capital expenditure and exceptional costs related to the transformation. The remainder was used to reduce net debt by £95 million to £326 million (FY13: £421 million)

New Group Chief Executive Officer

We have also announced separately that Harriet Green will  hand over the role of Group Chief Executive Officer of Thomas Cook to Peter Fankhauser with immediate effect. 

Outlook 

In the two years since the start of the transformation, we have delivered like-for-like EBIT growth of £102 million (82%) in FY13 and £98 million (43%) in FY14.  Reflecting the tougher trading environment our outlook for growth in FY15, while still positive, is more measured.  Accordingly, we now expect to deliver further growth this year at a more moderate pace.  From a cash perspective, we expect to further improve our net debt position, to between £100 million and £150 million by the end of the financial year. 

Our work to transform Thomas Cook continues.  We are just two years into our major change programmes and, whilst the transformation has already delivered substantial benefits to the business and its stakeholders, there is more to do. We are confident that our robust product strategy, our focus on digital and our continuing profit improvement initiatives will enable us to deliver further significant value this year and beyond.

Forthcoming announcement dates

The Group intends  to publish its first quarter 2015 interim management statement on 11 February 2015, and to release its half year results on 20 May 2015.

Presentation to equity analysts

A presentation will be held for equity analysts by invitation today at 8.15 a.m. (GMT), at FTI Consulting, 9th floor, North Building, 200 Aldersgate, London EC1A 4HD

A live webcast of the presentation will available via the following link and dial in:

http://webcasts.thomascookgroup.com/thomascook004/default.asp

United Kingdom

 020 3059 8125

All other locations

+ 44 20 3059 8125

 

Enquiries

Analysts & Investors

 

James Sandford, Thomas Cook Group

+44 (0) 20 7557 6433

Media

 

Jenny Peters, Thomas Cook Group

+44 (0) 7568 105144

Andrew Lorenz, FTI Consulting

+44 (0) 7775 641807

  

Delivering on targets and KPIs

The following table sets out the milestones on the journey toward the achievement of our FY15 targets and KPIs, which were initially established in March 2013.



Actual






FY 12

FY 13

FY 14

FY14 Target


FY 15 Target

Targets

New Product Revenue

N/A

£94m

£280m

>£300m


> £700m


Web Penetration(i)

34%

36%

38%

>40%


> 50%


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

£60m

£194m

£400m

>£360m


> £500m

KPIs

Sales CAGR (ii)

N/A

N/A

(2.1%)

>2.5%


> 3.5%


Underlying Gross Margin Improvement (iii)

N/A

0.8%

1.5%

>1.2%


> 1.5%


UK EBIT Margin

0.1%

2.2%

3.5%

>3.5%


> 5%


Cash Conversion (iv)

11%

48%

62%

>55%


> 70%

 

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

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

(iii) Underlying gross margin, adjusted for disposals and shop closures on a like-for-like basis

(iv) Cash conversion defined as set out on page 20

 

Against a backdrop of the tougher trading environment and challenges of transforming a complex organisation, we are making good progress towards reaching these targets and KPIs. 

The Group achieved its underlying gross margin improvement target for FY15 one year early, supported by our Wave 1 cost out and profit improvement programme which has consistently exceeded targets.  Turning around our UK business is key to the future success of the Group, and here we are making good headway, achieving an EBIT margin of 3.5%, in line with our FY14 target.  Our focus on margin, combined with initiatives to improve cash management, has resulted in good progress towards our FY15 cash conversion target.

Our New Product strategy is already delivering incremental revenues, although given the tougher trading environment and the revenue impact of removing low quality product, achieving our Group sales growth target in FY15 will undoubtedly be challenging.  However, we now have a higher quality revenue platform from which to build, and we are committed to achieving our FY15 and FY17 new product revenue growth targets of £700 million and £1.2 billion respectively.

The significant progress we have already made in digitising our businesses is not yet fully reflected in our web penetration.  However as we continue to invest region by region and become a more efficient digital business, we expect that the growth of our web penetration will accelerate, and that we will meet our stretching targets over time. 

New Product revenue

Incremental New Product revenue rose by a further £186 million during FY14, to £280 million on a cumulative basis since FY12, contributing towards our targets of £700 million in FY15, and £1.2 billion by the end of FY17.

Our New Product strategy involves reshaping our product portfolio to deliver profitable growth through a combination of increased revenue and improved margin.  We are expanding our range of higher margin differentiated holidays by rolling out more of our exclusive products and trusted brands, such as Sunwing and Sunprime, and our major partnership hotels.  At the same time, we will continue to deliver the same quality assured customer experience for our other, non-differentiated, products. We will do so more flexibly and at a lower cost, thereby improving gross margin.

We are confident that we will achieve our previously announced roll out plan for our exclusive concept and partnership hotels. We aim to have 640 and 800 by FY15 and FY17 respectively compared to 475 currently, as we focus on maximising occupancy levels at our concept hotels through enhanced inventory management. 

In addition, our product strategy includes the development of our range of flexible products such as City Breaks and Long Tail.  As a New Product area accounting for a small proportion of sales, City Breaks is still in an early phase of development.  However we are rapidly expanding our range of City Break products and expect this area to deliver significant New Product revenue growth by the end of FY15.   Our Long Tail products are those hotels which are quality assured by but not exclusive to Thomas Cook. We can minimise input costs through our ability to source them without commitments and to package them flexibly. By using our significant scale and digital capability we can optimise the inventory to offer competitively priced, low cost product more profitably.

In support of this, we have invested significantly during the year in our airline customer experience, including capital expenditure of £37 million pounds on aircraft cabin refurbishments.  By Summer 14, we had replaced 9% of our fleet with brand new aircraft, and refurbished a further 30% of the fleet, leading to increased customer satisfaction and greater operational efficiency.  By Summer 15 we expect to have replaced or refurbished almost 90% of our fleet, including 25 brand new Airbus A321 aircraft. 

Web and Omnichannel

Enabling customers to access our services through multiple channels in an integrated and seamless manner, including making greater use of online channels, will enable us to provide a better service to customers at lower cost. We have made substantial progress in this area in FY14. We have built and launched our new international web platform, OneWeb, invested in digital stores, and further consolidated our systems landscape.  Through these steps we have built the foundations for further digital growth.

OneWeb, launched in the UK market in May, provides a significantly improved customer experience on desktop, tablet and mobile devices, including a fully responsive design which adapts automatically and instantly to any screen size. OneWeb consolidates several different legacy systems into a single state-of-the-art platform, thereby simplifying our technical architecture, and improving resilience and agility.  We will roll OneWeb out into other Continental European markets during the coming year, with migration of our Dutch websites already underway. 

We have also continued to improve our digital proposition in other markets, especially in mobile, including launching fully responsive sites in Germany, The Netherlands, Belgium and Northern Europe during the year.  Also in Northern Europe, we launched our "Companion" App in September, a digital companion to guide customers throughout their Thomas Cook holiday experience; it complements our "Travelguide" App which is already available in Germany, and we plan to roll out this powerful proposition to other markets over the coming year.

Where we have focused our digital investment, we have achieved double digit online growth.  For example, in the three months after OneWeb was launched in May 2014, customers booking on thomascook.com increased by 14% compared to the same period last year, with particularly strong performances on mobile and tablet, which increased by 74% combined.  Similarly in Central Europe,  bookings on our main websites (thomascook.de and neckermann-reisen.de) rose by 17% in FY14 as we focused on improving customer experience. Summer 14 bookings of our new short haul sun and beach flexible product in Northern Europe made through our dynamic booking engine grew by 55% year-on-year.

The proportion of our customers who travelled on Thomas Cook holidays booked through our online channels has risen from 34% when the transformation began in 2012 to 38% in FY14. While this does not yet fully reflect the progress we have made in digitising our business, we believe that the actions we have taken to develop our web proposition over the last two years serve as a firm foundation for further digital growth.  As we roll out OneWeb across the Group, market by market and become a more efficient digital business, we expect that the growth of our web penetration will accelerate, and that our stretching web target of >50% will be achieved over time.

 

Cost out and profit improvement

The table below shows the performance of our Wave 1 cost out and profit improvement programme against targets in FY14, and our new, increased targets for FY15.

£m


FY 12

FY 13

FY 14

FY14 Target


FY 15 Target

UK turnaround


60

124

140

140


140

Group-wide cost out


-

70

260

220


360

̵   Integrated air travel strategy


-

27

100

73


134

̵   Organisational structure


-

30

91

87


111

̵   Product, infrastructure, technology, and other

-

13

69

60


115

Total targeted benefits(i)


60

194

400

360


500

Expected costs to achieve(ii)







̵   Income statement (iii)


36

47

30

27


11

̵   Cash flow

̵   Operating expenditure

30

29

33

33


24


̵   Capital expenditure

-

8

21

30


31

Notes

(i) Run-rate








(ii) One-off costs

(iii) One off costs in the income statement are included in separately disclosed items, please refer to note 4 of appendix 1 for further detail 

Our Wave 1 cost out and profit improvement programme has continued to exceed expectations.

In FY14 we delivered further benefits of £206 million, of which £65 million benefited gross margin and £141 million reduced overhead costs.  This takes the cumulative total of cost out and profit improvement to £400 million at the end of FY14, exceeding our target for the year by £40 million. For FY15, we are now more confident of exceeding our previous target of £460 million, and accordingly we are increasing this target by £40 million to deliver more than £500 million by the end of the year.

Of the cumulative benefits of £400 million at 30 September 2014, £153 million has improved gross margin and £247 million has reduced the Group's overhead cost base.

Our Wave 2 cost out and profit improvement programme is progressing well as we continue to develop and refine opportunities.  Our current estimate of the total potential benefits from Wave 2 is £400 million.  Risk weighted benefits currently total £180 million, an increase of £30 million compared to the last announcement, and should continue to increase towards the gross figure as initiatives continue to mature with an increasing certainty of delivery.

The table below shows the expected benefits and costs of our Wave 2 programme.

 

£m

Risk weighted benefits and costs


Target end state

Improvement

FY15

FY16

FY17

FY18

FY18







- Hotel and airline yield management


48

65

95

220

- Channels and digitisation


17

35

65

140

- Enablers (IT and share services)


10

15

20

40

Total identified benefits(i)

-

75

115

180

400

Expected costs to achieve(ii)

20

25

70

30

145

Notes         (i)       Cumulative run-rate. There are no benefits prior to FY16.




                   (ii)      One off cash costs of delivery.






Wave 2 will improve the profitability of the sales of our hotels and flights through reduced input costs, enhanced margin on sales and greater margin per customer on ancillary products. 

The reduced input costs on hotels are expected to be achieved through improved contracting practices that are adapted from the working methodologies of other successful industries.  For example, we are establishing market price monitors in our largest destinations that are validated with local price checks, and we are targeting many of our contracting staff to outperform the local index so that more margin is captured.  We are also pooling our flight purchasing to optimise airline seat negotiations.

As we focus on distribution efficiencies, our product range will be loaded onto a single inventory management system for use across all markets.  We are also focusing on improving price and yield management though improved web analytics, distribution of risk capacity across multiple source markets and the optimisation of real time online pricing.

In terms of increasing margin per customer on ancillaries, our Northern European business is already generating significant value in this area by pursuing a proactive contact strategy from the time of initial booking through to after our customer returns from holiday.  We are sharing these practices across the Group to maximise returns.

Finally, as we continue to roll out our successful omnichannel strategy and our customers continue to migrate to digital channels, we expect our cost of sales and service per holiday to reduce significantly, enabled by further contact centre consolidation.

Sales growth

Having substantially de-risked our business since the transformation began in FY12, including disposing of or removing low profit and high risk business and product lines, we now have a higher quality revenue platform from which to build and sustain profitable growth.  Specifically in the year, Group sales declined by 2.1% excluding disposals and foreign exchange impact. This was mainly due to lost revenues as a result of market disruption in Egypt, the removal of low quality product, and the strategic reduction of risk capacity in France and Russia.  Due to these factors, and the tougher trading environment, it is clear that achieving our sales growth target of a 3.5% CAGR by FY15 is challenging. However, we remain confident that our investment in product will enable us to deliver an improved revenue performance in FY15.

Underlying gross margin improvement

Underlying gross margin for FY14 of 22.3% has improved by 150 basis points since FY12, representing the achievement of our FY15 target one year early.  This reflects the benefits of our Wave 1 cost out and profit improvement programme, increasing contributions from our higher margin new products and improved yield management.   All of our businesses have improved underlying gross margins over the last two years, and FY14 Group margin improved by 60 basis points compared to last year on a like-for-like basis.  This has been achieved despite market pressures from competitive pricing conditions and overcapacity in the short haul airline sector. 

UK EBIT margin improvement

UK EBIT margin in FY14 improved to 3.5%. This reflects operational improvements made to the business, the successful and sustained delivery of our Wave 1 cost out and profit improvement measures, and changes in UK airline maintenance provisions as part of the Group-wide airline integration. This is in line with our target EBIT margin of 3.5% for the UK business in FY14.

Our target is for UK EBIT margin to improve further as our product strategy begins to deliver more substantial margin benefits to supplement the operational improvements and cost reduction measures made to date, enhancing the capacity for profitable growth.

Cash conversion

Cash conversion for FY14 was 62%, ahead of our 55% target, as £78 million of net proceeds from non-core business disposals has been reinvested in accelerating the transformation.

The cash conversion ratio has improved during the final quarter of the year as the working capital cycle for the peak Summer months has largely been completed.  As a result, the effect of our planned reduction in capacity and consequent reduction in customer receipts and hotel creditors has now unwound through the cash flow statement.

We remain committed to achieving our cash conversion target of more than 70% in FY15 and, as we continue to benefit from our profitable growth strategy and improved cash culture, we expect net debt to reduce to between £100 million and £150 million by the end of September 2015.

Current trading

Summer 14

Our Summer programme finished on 31 October with cumulative bookings in line with capacity changes for all markets.  There have been no significant changes since we made our Pre-Close announcement on 16 September.

Overall, Tour Operator bookings were in line with last year and average selling prices were 1% lower, while Airlines Germany was impacted by overcapacity in the short haul flight market which resulted in average prices being 4% lower year-on-year, offset by a 3% increase in volumes.

 












Summer 14


Year on Year Variation %













Risk Business


Average

Selling Price

Committed Capacity

Cumulative bookings













UK


-3%


+1%


+0%














Central Europe

+0%


+6%


+2%




France


-5%


-12%


-14%




East/West


+3%


-1%


-1%




Continental Europe

+0%


+1%


+0%














Northern Europe

-1%


+3%


+3%














Total Tour Operator

-1%


+1%


+0%














Airlines Germany

-4%


+4%


+3%













 

Winter 14/15

The Winter 14/15 season is 55% sold for the Group as a whole, 1% lower than this time last year. Overall, bookings for the Tour Operator are 2% lower than this time last year, and while prices remain in line with last year, competitive market conditions have led to a continuation of the margin pressures that were evident later in the Summer season.

UK bookings have increased significantly with volumes 5% higher than at this time last year, against an increase in risk capacity of 10% as we expand our Winter Sun offering to new destinations.  Average selling prices have increased by 1%. As several of our Winter Sun destinations have recently been introduced, pricing and margins also reflect a degree of promotional pricing until those routes are better established in the market.

While average selling prices in Central Europe are flat year on year, bookings are 5% lower than last year, against a reduction on committed capacity of 9%, reflecting a switch to more flexible dynamically packaged products. This has reduced risk in the business in the climate of weaker consumer sentiment in Germany that we communicated in our Pre-Close statement on 16 September, consistent with the market in general. 

Bookings in France are 15% lower and prices are 3% higher, consistent with our strategy of reducing the scale of the risk business in that source market to focus on more profitable business lines. East/West bookings are 4% lower than last year compared with capacity reductions of 15% and prices are 1% lower than last year.

Northern Europe bookings are 2% below last year, broadly in line with capacity commitments, while prices are 2% higher.  Despite a more competitive market environment, we expect our Northern European business to maintain industry-leading margins in FY15, supported by an increased contribution from our dynamically packaged products.

Airlines Germany has increased bookings by 10%.  Our long haul business is performing well, while certain short and medium haul routes continue to experience over capacity, which has resulted in average selling prices remaining stable.

 












Winter 14/15


Year on Year Variation %













Risk Business


Average

Selling Price

Committed Capacity

Cumulative bookings













UK


+1%


+10%


+5%














Central Europe


+0%


-9%


-5%




France


+3%


-17%


-15%




East/West


-1%


-15%


-4%




Continental Europe

-1%


-13% (1)


-6%














Northern Europe

+2%


-1%


-2%














Total Tour Operator

-1%


+0%


-2%














Airlines Germany

+0%


+9%


+10%













(1)      The reductions in committed capacity are consistent with the strategy of switching to flexible products, de-risking the business

Summer 15

While it is early in the booking cycle, we continue to be encouraged by booking and pricing trends for the Summer 15 season. The UK is currently 23% sold, our UK business is showing an encouraging profile with bookings up 8% and prices 1% higher, reflecting our improved product offering for the Summer season.

 

 

FINANCIAL REVIEW

Financial results and performance review

Group

 

£m (unless otherwise stated)

Year ended

Year ended




30 Sep 14

30 Sep 13

Change £'m

Like for Like Change £'m

Revenue

8,588

9,315

(727)

(180)

Underlying Gross Margin

22.3%

22.1%

0.2%

0.6%

Underlying Profit from Operations (EBIT)

323

263

60

98

Underlying EBIT %

3.8%

2.8%

1.0%

1.2%

EBIT Separately Disclosed Items

(269)

(250)

(19)


EBIT

54

13

41


Loss After Tax *

(115)

(213)

98


Basic EPS *

(8.2p)

(17.1p)

8.9p


Underlying EPS

11.3p

5.0p

6.3p


Free Cashflow

116

53

63


Net Debt

(326)

(421)

95


*FY13 separately disclosed interest income restated by £5 million as a result of new pension standard

(1)'Like-for-like change' is quoted to improve the comparability of prior year data, by adjusting the prior year comparative for the impact of disposals, foreign exchange translation and any other factor that distorts the true performance of the business.  The detailed like-for-like adjustments are shown on page 12

(2) 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 included on the face of the income statement and are detailed on page 39. 

 

Overview

The past financial year has seen a continuation in the Group's progress, building upon the foundations laid in 2013 and creating strong momentum for future profitable growth, underpinned by enhanced financial reporting and controls.

In FY13 we set out our medium-term strategy for the three years ending 30 September 2015 and concluded a £1.6 billion recapitalisation exercise to raise additional equity, extend debt maturities and strengthen the Group's capital base. During FY14 we completed the first phase of delivering against the detailed measures of our plan to position the Group for long-term profitable growth.

At the same time, the Group has increased like-for-like EBIT by £98 million to £323 million, which has been achieved, while like for like Group revenue has reduced to £8.6 billion. The reduction in revenue is due to the disposal of non-core businesses in the UK and the discontinuation of less profitable activities.  At the same time, we have increased our portfolio of more profitable higher quality products. This has de-risked the Group's operations.

The main drivers of improved profitability in FY14 are the benefits from the expansion of our new product offering together with the continued delivery of Wave 1 of our cost out and profit improvement programme.

Our asset divestiture programme has now been concluded, having generated gross proceeds of £138 million from 15 disposals in 15 months, meeting our target of £100 million to £150 million more than 15 months ahead of schedule.

Free cash flow of £116 million (FY13:  £53 million) was generated in FY14 as our improved underlying EBIT performance was partially reinvested in the business through higher capital expenditure and exceptional costs related to the transformation.  The remaining improvement in underlying EBIT, together with the net proceeds from asset disposals, has been used to reduce net debt.

As a consequence of our progress over the past year, Group net debt has been reduced from £421 million at the end of FY13 to £326 million, strengthening the balance sheet and better positioning the Group for profitable growth. We expect to continue to improve the Group's finances, through further deleveraging and through pursuit of refinancing opportunities in order to improve the efficiency of our capital structure.

 

Like-for-like Analysis

In implementing the transformation, the Group has undertaken activities which, combined with the normal translational effect of foreign exchange movements, impact upon the comparability of underlying performance for FY13 and FY14. To assist in understanding the impact of those factors and to better present year-on-year trading progression, we consider 'Like-for-like' growth during FY14 in our analysis below.

The 'Like-for-like' adjustments and resultant year-on-year movements are as follows:

 


Revenue

Gross Margin

Operating Expenses

EBIT


£m

%

£m

£m

FY13 Reported (Continuing)

9,315

22.1%

(1,796)

263

Disposals/Store Closures

(207)

(0.3)%

33

(15)

Accounting Changes*

(40)

(0.1)%

23

(0)

Impact of Currency Movements

(300)

0.0%

40

(23)

Year Ended September 2013 'Like for Like'

8,768

21.7%

(1,700)

225






Year Ended September 2014 Reported

8,588

22.3%

(1,593)

323

Like for Like Growth (£'m)

(180)

(9)

107

98

Like for Like Growth (%)

(2.1)%

0.6%

6.3%

43.6%

*Accounting changes adjust prior year comparative to ensure consistent presentation with FY14

 

Revenue

Revenue of £8,588 million was £727 million lower than last year, mainly as a result of business disposals in the UK (impact of c.£207 million),  and foreign exchange translation (impact of c.£300 million), excluding those factors, revenue decreased by £180 million (2.1%) on a like-for-like basis, reflecting lower demand to Egypt which impacted FY14 revenues by c.£177m, and strategic reductions in risk capacity in certain markets. The latter is consistent with our focus on higher margin business as part of our strategy for sustainable profitable growth.

Throughout FY14, the Group has continued to closely manage committed capacity in order to optimise pricing and yield. In FY14 the Group reduced overall committed capacity by approximately £179 million mainly in the UK, France and Russia.

The negative impacts on revenue due to discontinued business and the downturn in demand to Egypt were offset by the benefit of our new product expansion strategy, which contributed £186 million of additional revenue in FY14.

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

 





£m



FY13 like for like Revenue


8,768









New Product Growth

186



Egypt

(177)



Capacity reductions

(179)



Core Portfolio

(10)









FY14 Revenue



8,588








 

Gross Margin

Gross margin of 22.3% represents an increase of 20 basis points on FY13. On a like-for-like basis, FY14 gross margin has increased by 60 basis points, resulting in a cumulative improvement of 150 basis points since FY12, achieving our target for FY15 one year early.

Like-for-like gross margin improved in all of our geographical segments compared to last year. A major factor in this improvement has been the continued delivery of our cost out and profit improvement programme which has had a positive impact of 70 basis points on gross margin. Key initiatives include the continuing benefits of our Group Airline strategy, with further investment in the fleet, together with Lean and standardised processes, reducing maintenance costs.

Pricing and Yield improvements have contributed a further 50 basis point increase in gross margin as we increase our range of new products, which carry a higher average selling price, and sell more high margin ancillary products.

Cost inflation of 60 basis points has partially offset the underlying growth in gross margin. The impact of the redirection of demand from Egypt during the Winter season led to a short-term increase in hotel costs in the Canary Islands. In addition, trading conditions became increasingly competitive in the second half of the year with overcapacity in the short / medium haul airline sector creating downward pressure on prices and margins.

  

The major drivers of this like-for-like movement in gross margin of 60 basis points are outlined below:

 





%



FY13 like for like Gross Margin

21.7%









Yield / Product Mix

0.5%



Gross Margin Cost Out

0.7%



Cost Inflation

(0.6%)















FY14 Gross Margin

22.3%








 

Operating Expenses / Overheads

Operating expenses for FY14 of £1,593m represent a year-on-year reduction of £203m (11.3%), broken down as follows:

 









£m

Year Ended Sep 2014

Year Ended Sep 2013

Change

LFL Change



Personnel Costs

(913)

(1,036)

123

80



Net Operating Expenses

(507)

(598)

91

44



Subtotal

(1,420)

(1,634)

214

124



Depreciation

(173)

(162)

(11)

(17)



Total

(1,593)

(1,796)

203

107









 

Like-for-like operating expenses reduced by £107 million (6%), driven by Wave 1 of the Group's cost out initiatives, which delivered a further £141 million of savings, partially offset by the £34m million impact of strategic operating investments and an increase in depreciation .

The largest contribution to cost reduction came from our UK business, including the full year benefit of our store closure programme and further measures to streamline the tour operator business which were implemented in FY13, alongside new measures initiated in FY14.

There were also savings elsewhere in the Group, most significantly from restructuring activities in France and Russia and through further operational efficiency initiatives in the Group Airline. These benefits were partially offset by further investment in strategic operating expenditure investments as set out below.

 

 




£m


FY13 like for like operating expenses

(1,700)






Cost Out and Profit Improvement


141


Strategic Opex investment


(28)


Other


(6)






FY14 operating expenses


(1,593)





 

Strategic operating investments

We continued to make investment in strategic operating costs to support the transformation and our cost out and profit improvement initiatives. These totalled £28 million in FY14, primarily for senior management appointments, investment in IT and strategic marketing expenditure focused on web transition to support our omnichannel strategy.

The structural cost out that has been delivered over the first two years of the transformation has directly benefited Group EBIT. This has been partly offset by strategic operating investment of £53 million over the same period. Strategic operating investment totalled £28 million in FY14, below our previous guidance of £40 million, and we expect to incur further costs of £40 million in FY15.

Underlying EBIT

In FY14 the Group generated underlying EBIT of £323 million, an increase of £60 million (23%) on FY13 EBIT of £263 million. On a like-for-like basis Group EBIT increased by £98 million (44%), with every geographical source market reporting EBIT growth.

The improvement in EBIT during the year is primarily due to the continuing delivery of Wave 1 of our cost out and profit improvement measures of £206 million; including a positive impact of £65 million on our Gross Margin.

However, £61 million of this improvement has been offset by underlying trading pressures, which impacted profitability particularly in the first half of the year in our UK business. Included in underlying trading are the initial benefits amounting to £21m of from the expansion of our New Products and £10 million of additional costs for customer compensation payments relating to EC Regulation 261/2004. In addition, unrest in Egypt impacted EBIT by £20 million.

We have also reduced our overhead cost base through our ongoing Cost Out measures by a further £141 million (of the £206 million total Cost Out and Profit Improvement). Some of those savings have been re-invested in the business either through strategic operating investments and increased depreciation from our airline fleet, an impact of £46 million.

We have also benefited this year from lower Corporate overhead costs primarily as result of the incidence of foreign exchange differences, together with revised provisions for employee incentive plans and other remuneration schemes, which have an impact of £19 million.

 





£m



FY13 like for like EBIT

225









Gross Margin Profit Improvement

65



Egypt

(20)



Underlying Trading

(61)



Overhead Cost Out

141



Strategic Opex / Depreciation

(46)



Corporate

19









FY14 EBIT



323








 

Separately Disclosed Items

The table below summarises separately disclosed items charged to the income statement for FY14 of £296 million, which are £15 million higher than the prior year (FY13: £281 million). They have a cash impact of £119m, broadly in line with last year (FY13: £120 million)

 


FY14

FY13

£m

Cash

Non-cash

Total

Cash

Non-cash

Total

Restructuring costs

(114)

(10)

(124)

(107)

(20)

(127)

EU261 related costs

(5)

(36)

(41)

-

-

-

Provisions & Impairments

-

(104)

(104)

(13)

(110)

(123)

EBIT related items

(119)

(150)

(269)

(120)

(130)

(250)

Finance costs

-

(27)

(27)

-

(31)

(31)

Total

(119)

(177)

(296)

(120)

(161)

(281)

1 Non-cash items encompasses both non-cash entries and cash effects, which haven't been realised before the end of the period

 

A full description of these items is disclosed on page 39.

            

            Net finance costs

Net interest charges before aircraft financing for FY14 totalled £113 million (FY13: £114 million). Aircraft financing charges and fee amortisation totalled £21 million and £9 million respectively, bringing the total net interest cost for FY14 to £143 million (FY13: £146 million).

 

Underlying Net interest and finance costs

FY14

£m

FY13

£m




Total bank and bond interest

(82)

(83)

Commitment fees

(6)

(7)

Letters of credit and bonding

(17)

(16)

Other interest costs

(8)

(8)




Underlying Net interest and finance costs before aircraft financing

(113)

(114)




Aircraft financing

(21)

(25)

Fee amortisation

(9)

(7)




Underlying Net Interest Expense

(143)

(146)

 

 

Operating lease charges

 


FY14

£m

FY13

£m




Included within EBIT:



Aircraft operating lease charges

106

101

Retail operating lease charges

49

59

Hotel operating lease charges

30

34

Total

185

194

Retail operating lease charges have reduced by 17% primarily due to the full year impact of the reduction in the UK retail footprint following the closure of  stores in FY13.

 

Taxation


FY14

£m

FY13

£m




Current Tax:



UK

0

(5)

Overseas

(17)

(39)

Total Current Tax

(17)

(44)




Deferred Tax

16

(6)

Total Tax Charge

(1)

(50)




Cash Tax:



UK

0

5

Overseas

(32)

(36)

Total Cash Tax

(32)

(31)

The overall tax charge in the year reduced from £50 million to £1 million. A major contributor to the reduction in charge is the increase in deferred tax assets recognised in the year, mainly in respect of our UK business tax losses. The Group continues to pay corporation tax in its profitable markets, in particular in Northern Europe and Belgium. Excluding deferred tax movements and other specific adjustments, the Group's annual tax charge should be broadly consistent with the cash tax cost, which is expected to remain in the range of £30-40 million per year.

Basic Loss per share

The basic loss per share for the year was 8.2 pence, delivering a year-on-year improvement of 8.9 pence (FY13: loss 17.1 pence).

 


FY14

FY13*

Loss After Tax (£m)

(115)

(213)

Attributable to Minority Interest (£m)

(3)

8

Adjusted Loss After Tax (£m)

(118)

(205)




Weighted Ave. # of shares (m)

1,440

1,196




Loss per Share (Pence)

(8.2)

(17.1)

*FY13 separately disclosed interest income restated by £5 million as a result of new pension standard

 

Underlying Earnings Per Share

The underlying earnings per share, after taking into account separately disclosed items, was 11.3 pence, delivering a year-on-year improvement of 6.3 pence (FY13: 5.0 pence).

 


FY14

FY13

Loss After Tax (£m)

(115)

(213)

Exceptionals

296

281

Attributable to Minority Interest (£m)

(3)

8

Exceptional Tax

(15)

(16)

Adjusted Loss After Tax (£m)

163

60




Weighted Ave. # of shares (m)

1,440

1,196




Earnings per Share (Pence)

11.3

5.0

 

 

Summary Cash Flow Statement1



FY14

FY13




£m

£m


Underlying EBIT


323

263


Depreciation


173

162


EBITDA


496

425


Working Capital


38

77


Tax


(32)

(31)


Pensions & Other


(22)

(18)


Operating Cash flow


480

453


Exceptional Items 2


(43)

(120)


Capital Expenditure


(156)

(150)


Aircraft Related Costs 3


(35)

0


Net Interest Paid


(130)

(130)


Free Cash flow


116

53


New Equity


0

431


Other 4


(9)

(65)


Net Cash flow


107

419







Opening Net Debt


(421)

(788)


Net Cash Flow


107

419


Other Movements in Net Debt 5

(12)

(52)


Closing Net Debt


(326)

(421)


1  The Group uses three non-statutory cash flow measures to manage the business. Operating Cashflow is net cash from operating activities excluding interest income, aircraft related costs and the cash effect of separately disclosed items impacting EBIT.  Free Cash flow is cash from operating activities less capital expenditure and interest paid.  In FY14 Free Cash flow also includes the net cash received on disposals.  Net Cashflow is the net (decrease)/increase in cash and cash equivalents excluding the net movement in borrowings, finance lease repayments and facility set-up fees.

 Exceptional items include net cash from disposals of £78 million in FY14

3 Aircraft related costs reflect maintenance cashflow relating to aircraft financed under operating leases which would otherwise be treated as capital expenditure if financed under finance leases

4  This figure includes a £38 million cash outflow relating to restricted cash within the Thomas Cook North America business, which was disclosed as a Discontinued Operation in the FY13 statements

 Represents retranslation of foreign currency debt items and amortisation of capitalised fees

Net Cash flow of £107 million (FY13:  £419 million) was generated in FY14.  Improved underlying EBIT was reinvested in the business through higher capital expenditure and exceptional costs related to the transformation.  The remaining improvement in underlying EBIT in addition to disposal proceeds has been used to reduce net debt to £326 million (FY13: £421 million).

 

Cash Conversion

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

Cash conversion has improved from 48% to 62% in the year reflecting improved trading and the benefit of disposal proceeds.

 



FY14

FY13

Operating Cash flow*

480

453

Net Interest


(130)

(130)

Cash Exceptionals

(43)

(120)

Converted Cash

307

203

EBITDA


496

425

Cash conversion

62%

48%

 

*Operating Cash flow defined as net cash from operating activities excluding interest income, aircraft related costs and cash exceptionals.

 

Balance Sheet

The summarised Group Balance sheet is as follows:






£m

30 Sept 2014

30 Sept 2013


Total Intangible Assets

2,873

3,155


Total Tangible Fixed Assets

755

801


Other

337

326


Non Current Assets

3,965

4,282


Current Trade And Other Receivables

705

785


Cash And Cash Equivalents 1

1,019

1,089


Other

105

129


Current Assets

1,829

2,003


Current Trade And Other Payables

(2,083)

(1,995)


Current Borrowings 1

(449)

(177)


Short Term Obligations Under Finance Leases 1

(34)

(43)


Revenue Received In Advance

(999)

(1,120)


Other

(329)

(370)


Current Liabilities

(3,894)

(3,705)


Long Term Borrowings 1

(715)

(1,114)


Long Term Obligations Under Finance Leases 1

(147)

(182)


Other

(753)

(736)


Non Current Liabilities

(1,615)

(2,032)


Net Assets

285

548






1 Net Debt

(326)

(421)*

*At 30 September 2013 cash of £5 million was included in assets held for sale on the Group's balance sheet.

 

The Group's Net Asset value fell by £263 million, from £548 million to £285 million during FY14. This was mainly due a reduction in Intangible Assets, as a result of the write off of goodwill associated with the disposal of businesses in the UK (c£41 million), together with the impact of foreign exchange translation due to an 8% fall in the value of the Euro against GBP.

 

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 reduced net debt from £421 million to £326 million.

The principal components of this reduction are as follows:

 

30 Sep 13, closing net debt

(421)



Gross Proceeds on disposals

134

Client cash disposed with divestments

(56)

Exchange Rate Movements

10

Equity and Pension Payments

(22)

Additional capex and airline investment

(41)

Underlying change

70



30 Sep 14, closing net debt

(326)

 

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

 

£m

30 Sept. 2014

30 Sept. 2013

Movement

Maturity

2015 Euro Bond

(310)

(335)

25

Jun-15

2017 GBP Bond

(297)

(300)

3

Jun-17

2020 Euro Bond

(408)

(440)

32

Jun-20

Commercial Paper

(82)

(134)

52

Oct-14

Revolving Credit Facility

0

0

0

n/a

Term Loan

0

0

0

n/a

Finance Leases

(181)

(224)

43

Various

Other external debt

(92)

(122)

30

Various

Arrangement fees

25

40

(15)

n/a

Total Debt

(1,345)

(1,515)

170


Cash

1,019

1,094

(75)


Net Debt

(326)

(421)

95


At 30 September 2013 cash of £5 million was included in assets held for sale on the Group's balance sheet

The Group's £500 million Committed Facility comprises a Revolving Credit Facility of £300 million which was undrawn at 30 September 2014 and a £200 million bonding and guarantee facility of which £126 million was drawn at 30 September 2014.  This Facility matures partly in May 2015 (£30 million) and partly in May 2017 (£470 million). The Group also has access to an Additional Facility of €164 million (originally €224 million) which is available from 2015 to partially repay the 2015 Bonds. The Additional Facility must be further reduced by €57 million May 2016 with the remainder maturing in May 2017.

 

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 principal aim of Treasury activities is 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 is intended to 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.

 

Credit Rating

In April 2014, Standard & Poor's upgraded the outlook on the Group to "Positive" from "Stable". Also in July 2014, Fitch Ratings affirmed their "Positive" outlook for the Group. Both ratings agencies referenced the significant progress made in the transformation of the Group under the new management team and the outlook reflects expected future debt reduction, leading to a more efficient capital structure.

 

Corporate Ratings

2014

2013


Rating

Outlook

Rating

Outlook

Standard and Poor's

B

Positive

B

Stable

Fitch

B

Positive

B

Positive

 

Cash management

Due to 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.

Cash culture has been further strengthened within the Group with clear tone from the top, re-enforcing the importance of the 26-week rolling cash forecasting process, driven and embedded by Treasury and supported by business segments, providing 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 restricted in overseas jurisdictions primarily due to legal or regulatory requirements. Such cash does not form part of the liquidity headroom calculation.

 

Hedging of Fuel and Foreign Exchange

The Group operates a rolling programme of hedging to smooth fluctuations in the price of fuel and currency.

Hedging allows the business to plan with certainty for the forthcoming holiday seasons in the knowledge that input costs for fuel will be c£60-80 million lower in FY15 than FY14. The net gain to profit will be influenced by competitive pressures at the time of booking but we expect to retain at least 20% of the total fuel cost reduction through improved margins.

In addition to being substantially hedged for FY15, as the table below shows, hedging for FY16 has already commenced and will progress in line with the policy. 

 


Winter 14/15

Summer 15

Euro

91%

75%

US Dollar

94%

71%

Jet Fuel

93%

72%

As at 31 October 2014

 

Exchange Rates

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


Average Rate

Year End Rate


FY14

FY13

FY14

FY13

GBP/Euro

1.22

1.19

1.29

1.19

GBP/UD dollar

1.66

1.56

1.62

1.62

GBP/SEK

10.98

10.23

11.72

10.37

Currency movements impact the Group's cost base for purchasing product and fuel, and also impact the translation into Sterling of profits made outside the UK. The Group does not hedge against the translation into sterling of overseas profits and so consolidated group profits remain subject to fluctuations in foreign exchange rates.

 

Business disposals

As part of the Group's divestiture programme, we concluded the disposal of certain non-core UK businesses during the year.  We made disposals to focus on our core businesses and have applied net disposal proceeds of £78 million to reduce our indebtedness. This divestment strategy has improved our business mix and enabled us to focus more on our core assets that we believe will deliver sustained profitable growth.

Our formal divestiture programme has now come to an end, having generated gross proceeds of £138 million from 15 disposals in 15 months, thus meeting the Board's target of £100 million to £150 million.

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:

 

FY13 Like for Like Reconciliation £m

UK

CE

NE

Airlines Germany

Corporate

TCG








FY13 Reported

66

78

109

48

(38)

263








Disposals / Store Closures

(15)

0

0

0

0

(15)








Impact of Currency Movements

0

(9)

(11)

(3)

0

(23)








FY13 Like for Like

51

69

98

45

(38)

225








FY14 Reported

89

102

101

50

(19)

323

 

In FY14 the Group reported an improvement in underlying EBIT of £98 million on a like-for-like basis with all segments reporting improved results:

£m

United

Kingdom

Continental

Europe

Northern

Europe

Airlines

Germany

Corporate

Group

Revenue

2,585

3,958

1,153

1,299

(407)*

8,588

Gross Margin %

26.1%

14.2%

27.4%

27.8%

n.a.

22.3%

EBIT

89

102

101

50

(19)

323

EBIT Growth

23

24

(8)

2

19

60

Like for Like EBIT Growth

38

33

3

5

19

98

 

*As a result of intercompany eliminations

Across the Group the drivers of EBIT growth were:

£m


United Kingdom

Continental Europe

Northern Europe

Airlines Germany

Corporate

Group









FY13 like for like EBIT

51

69

98

45

(38)

225









Volume


(83)

1

6

14

0

(62)

Gross Margin Change

35

3

(1)

9

7

53

Overhead Reduction

86

29

(2)

(18)

12

107









FY14 EBIT


89

102

101

50

(19)

323









 

The improvements in Gross Margin and Overheads are driven primarily by the cost out and profit improvement programme as noted below:


United Kingdom

Continental Europe

Northern Europe

Airlines Germany

Corporate

Group









Delivered in FY14:







Gross Margin


1

14

13

37

0

65

Operating Expenses

98

31

6

4

2

141

Total


99

45

19

41

2

206









As Reported in FY13

162

14

3

12

3

194









Cumulative to FY14:







Gross Margin


73

19

15

46

0

153

Operating Expenses

188

40

7

7

5

247

Total


261

59

22

53

5

400









 

The financial performance of each segment is considered below:

 

United Kingdom & Ireland

£m

FY14

FY13

Change

FY13 LFL

Like for like change

Revenue

2,585

2,978

(393)

2,756

(171)

Gross Margin %

26.1%

25.9%

0.2%

25.4%

0.7%

EBIT

89

66

23

51

38

EBIT Margin %

3.5%

2.2%

1.3%

1.9%

1.6%

Departed Customers (000's)

6,170

7,289

(1,119)

6,979

(809)

                            

The UK business continued on its path of transformation with growth in new products, significant progress in the development of omnichannel and digitisation of the business, accompanied by continued delivery of cost out and profit improvement measures.

Our new web site, OneWeb, was launched in May 2014, consistent with the development of our Omnichannel strategy. Customers are now able to use a browser designed specifically for use with tablet and mobile devices, and directly connect their online searches with in-store bookings (and vice versa) through new features such as MyAccount and Wishlist.  Since the launch of OneWeb, bookings made on thomascook.com have increased by 12% compared to the same period last year, with particularly strong performances on mobile and tablet.

These operational actions, together with the further delivery of Cost Out, have underpinned an improved EBIT result of £89 million in FY14, which represents growth of £38 million on a like-for-like basis.  This brings the UK's EBIT margin to 3.5%, in line with our target, despite the UK airline incurring charges of £6 million relating to the EU261 legislation, which has been offset by changes in UK airline maintenance provisions as part of the group wide airline integration (impact of £10 million). 

The UK successfully concluded its divestiture programme in FY14. In addition to the disposal of non-core businesses, the UK also took the opportunity to trim capacity further, better matching customer demand and focusing on improved quality product. This led to a like-for-like reduction in revenue of £171 million (£393 million on a headline basis).

FY14 gross margin was maintained at around 26%, despite the pressure on margins in the first half of the year. As a consequence of the switch in customer demand from Egypt to the Canary Islands, margins in the UK business came under pressure during the Winter season but recovered in the second half of the year.  Improved margin performance in the second half of the year reflects the early benefits from improvement in product quality, with a higher proportion of customers staying in our exclusive hotels, and the continuing delivery of our profit improvement programme.

Further cost reductions were achieved through the simplification of the corporate structure with the removal of duplicated back office functions and rebalancing of the retail store network, which were implemented in FY13 and had a full year effect in FY14. As a result, UK overheads reduced by £86 million in FY14 to £587 million.

In FY15 our UK business is expected to continue to deliver the remainder of the first wave of our profit improvement initiatives, supplemented by an increasing proportion of new products, such as Concept hotels, which is expected to drive margin improvement.

 

Continental Europe

£m

FY14

FY13

Change

FY13 LFL

Like for like change

Revenue

3,958

4,195

(237)

4,013

(55)

Gross Margin %

14.2%

13.8%

0.4%

13.8%

0.4%

EBIT

102

78

24

69

33

EBIT Margin %

2.6%

1.8%

0.8%

1.7%

0.9%

Departed Customers (000's)

7,458

7,429

29

7,429

29

  

Revenue and EBIT performance by key market within Continental Europe is set out below:

Revenue by Market

Revenue £m

FY14

FY13

Change

FY13 LFL

Like for like change

Germany

2,449

2,462

(13)

2,366

83

France

329

413

(84)

399

(70)

Russia

181

228

(47)

219

(38)

Other Continental Markets

999

1,092

(93)

1,029

(30)

Continental Europe

3,958

4,195

(237)

4,013

(55)

 

EBIT by Market

EBIT £m

FY14

FY13

Change

FY13 LFL

Like for like change

Germany

77

71

6

68

9

France

(9)

(15)

6

(16)

7

Russia

(3)

(9)

6

(9)

6

Other Continental Markets

37

31

6

26

11

Continental Europe

102

78

24

69

33

 

Continental Europe performed strongly in FY14 with EBIT of £102 million, £33 million higher than last year on a like-for-like basis after adjusting for the negative impact of currency translation. All of our markets continued to benefit from our cost out and profit improvement programme, with gross margin improving by 40 basis points and a £29 million reduction in overheads on a like-for-like basis.

Overall revenue was £55 million lower than last year on a like-for-like basis, mainly due to a strategic reduction in risk capacity in France and Russia as part of the restructuring plans for those businesses.  Although these reductions in capacity impacted revenue, as a result of focusing on more profitable business, losses were significantly reduced in both of those source markets.

Our German business performed strongly during the year, improving EBIT by £9 million on a like-for-like basis, mainly through improved passenger volumes to Turkey and Greece. However, as we noted in our Pre-Close Statement, competitive market conditions combined with weaker consumer confidence impacted trading during the later part of the Summer season, which impacted margins and profitability.

As noted above, our businesses in France and Russia continued to reduce losses through execution of turnaround plans, strategic reductions in capacity and right-sizing their cost bases. France reported a loss for FY14 of £9 million, £7 million better than last year on a like-for-like basis and Russia reduced losses by £6 million to £3 million. These improvements represent a strong performance in challenging trading conditions, which have been impacted by economic and geopolitical factors. The French tourism market continues to be depressed by reduced demand to North Africa and weak economy, while the political situation in the Ukraine and the consequent depreciation of the Rouble has adversely impacted our Russian business.

Our other businesses in West / East Europe performed well in competitive market conditions with Belgium reporting a £7 million improvement in like-for-like EBIT, assisted by the release of excess aircraft maintenance provisions, and the Netherlands improved EBIT by £3 million.

Trading conditions in most of our source markets within Continental Europe remain challenging, particularly in Germany, where consumer confidence has fallen in recent months and in Russia as demand to Euro-zone destinations has been inhibited by a significant depreciation of the Rouble as a result of the Ukraine situation.  In addition, macroeconomic conditions remain weak in certain other markets, such as France. However, we are confident that our actions in expanding new products and in reducing risk and costs will deliver further benefits in FY15.

 

Northern Europe

£m

FY14

FY13

Change

FY13 LFL

Like for like change

Revenue

1,153

1,239

(86)

1,149

4

Gross Margin %

27.4%

27.4%

0.0%

27.2%

0.2%

EBIT

101

109

(8)

99

2

EBIT Margin %

8.7%

8.8%

(0.1)%

8.6%

0.1%

Departed Customers (000's)

1,511

1,486

25

1,486

25

 

Northern Europe reported an EBIT result of £101 million in FY14, slightly ahead of last year on a like-for-like basis as it maintained its industry leading EBIT margin of almost 9%.

The operating environment in the Nordics has been challenging with increased margin pressure from low cost carriers and overcapacity in the flight market. As well as competitive conditions in the Summer lates market, which led to increasing margin pressures, the Winter season was disrupted by the impact of the political situation in Egypt and consequent flight over capacity to the Canaries.  Accordingly, in such circumstances, our Nordic business has performed well to deliver like-for-like EBIT result ahead of last year.

Revenue of £1,153 million is in line with last year on a like-for-like basis and demonstrates the resilient nature of our business model and its strong differentiating factors, including a high proportion of exclusive product, strong online penetration, focus on customer relationship management and the ability to successfully yield manage its inventory. In FY14 we continued to develop our range of Concept Hotels which helped to improve average selling price and increased the volume of departed customers, especially by growing the scale and profitability of our dynamic packaging business.

Further benefits to both revenue and gross margin were delivered through higher margins from the ancillary sales, such as the continued growth of the insourced duty free business, and growth in revenues and gross margin in our Concept Hotel operations.

Our Nordic business continues to innovate and to find ways of further streamlining its cost base, for example, by taking advantage of economies of scale in our business model. In FY15 we will continue to expand our successful dynamic packaging business while investment in the airline fleet and improved maintenance processes are expected to deliver cost savings in the airline. These measures should help maintain our industry leading margins and mitigate the competitive pressures that have been evident in the market during Summer 14 and the early part of the Winter 14/15 season.

  

Airlines Germany

£m

FY14

FY13

Change

FY13 LFL

Like for like change

Revenue

1,299

1,312

(13)

1,258

41

Gross Margin %

27.8%

28.6%

(0.8%)

26.9%

0.9%

EBIT

50

48

2

46

4

EBIT Margin %

3.8%

3.7%

0.1%

3.6%

0.2%

Departed Customers

7,196

6,931

265

6,931

265

 

Condor, our German airline, performed well in a competitive market characterised by overcapacity in the short/medium haul sector to report EBIT of £50 million in FY14, £4m higher than last year on a like-for-like basis. As a consequence, Condor delivered an EBIT margin of 3.8% in FY14, a like-for-like improvement of 20 basis points compared to last year.

Revenues increased by £41 million on a like-for-like basis despite substantial competitive pressure in the  European airline market. Despite a yield reduction of 3% and a slight decrease of 0.7% in load factor for short/medium haul flights, revenues in this market increased by 1.6%, driven due to higher earning capacity. The increased seat capacity resulted from the replacement of A320 aircraft by larger A321 aircraft and the benefits of a newly refurbished A320 fleet with higher seat capacity per aircraft.

In the long haul market, Condor increased revenues by 1% with a constant seat capacity and a yield increase of 2%. Yields benefited from the refurbishment of the entire 767 fleet with the introduction of a competitive "lie-flat" business class option.

The like for like improvement in gross margin of 90 basis points reflects the successful implementation of the Group's cost out and profit improvement programme which delivered profit improvements of £37 million and compensated for price increases in landing and overflight costs, maintenance costs and irregularity costs (especially EU261 customer compensation). In addition, ancillary revenues increased by more than 10% due to a focus on class upgrades and the introduction of pre-flight sales concepts.

Aircraft ownership cost increased by 8% due to the higher cost of the new A321 aircraft and increased depreciation following the cabin refurbishment programme. However, the benefits of those operational actions are expected to be reported in future periods through improved margins and greater fuel efficiency.

We will continue to deliver cost efficiencies through our One Airline strategy and will seek to improve margins further by offering our customers a wider variety of ancillary services. The recent reduction in fuel prices should provide us with greater flexibility to manage yields during FY15, although the proportion of the savings that are retained in improved profitability will depend on market conditions and competitor behaviour.

 

Corporate

£m

FY14

FY13

Change

FY13 LFL

Like for like change

Operating Expenses

(20)

(32)

12

(32)

12

Foreign Exchange

1

(6)

7

(6)

7

EBIT

(19)

(38)

19

(38)

19

 

Corporate overhead is £19 million lower than last year on a like-for-like basis at £19 million (FY13: £38 million)

The Corporate centre continues to provide group-wide support with several key senior management appointments during the year, reflecting the additional skill-sets required to deliver the Group Transformation.

In addition, the Corporate result for FY14 has been impacted by the incidence of foreign exchange losses in FY13 which were not repeated in FY14 (year-on-year impact £7 million), together with revised provisions for employee share incentive plans and other remuneration schemes (impact £12 million).

 

 

Appendix 1 - Audited statutory information with comparatives

 

Group Income Statement


Restated



Audited

Audited



Year ended 30 September 2014

Year ended 30 September 2013



Underlying results

Separately disclosed items (note 4)

Total

Underlying results

Separately disclosed items  (note 4)

Totaltal


notes

£m

£m

£m

£m

£m

£m

Continuing operations








Revenue

3

8,588

-

8,588

9,315

 -

9,315

Cost of providing tourism services


(6,672)

(48)

(6,720)

(7,256)

(39)

(7,295)

Gross profit/ (loss)


1,916

(48)

1,868

2,059

(39)

2,020

Personnel expenses


(913)

(26)

(939)

(1,036)

(40)

(1,076)

Depreciation and amortisation


(173)

-

(173)

(162)

(10)

(172)

Net operating expenses


(507)

(126)

(633)

(598)

(122)

(720)

Net loss on disposal of assets


-

(19)

(19)

 -

(8)

(8)

Impairment of goodwill and amortisation of business combination intangibles

4

-

(50)

(50)

 -

(31)

(31)

Profit/ (loss) from operations


323

(269)

54

263

(250)

13

Share of results of associates


2

-

2

1

 -

1

Finance income

5

10

-

10

6

-

6

Finance costs

5

(153)

(27)

(180)

(152)

(31)

(183)

Profit/(loss) before tax


182

(296)

(114)

118

(281)

(163)

Tax

6



(1)



(50)

Loss for the year from continuing operations




(115)



(213)









Attributable to:








Owners of the parent




(118)



(205)

Non-controlling interests




3



(8)





(115)



(213)













pence



pence

Basic and diluted loss per share (pence)

7



(8.2)



(17.1)



Group Statement of Other Comprehensive Income


Audited

Restated Audited


Year ended

Year ended


2014

2013


£m

£m




Loss for the year

(115)

(213)




Other comprehensive income and expense






Items that will not be reclassified to profit or loss



Actuarial losses on defined benefit pension schemes

(91)

(72)

Tax on actuarial losses

19

-




Items that may be reclassified subsequently to profit or loss



Foreign exchange translation losses

(103)

(20)




Fair value gains and losses



Losses deferred for the year

-

(14)

Tax on losses deferred for the year

-

2

Losses transferred to the income statement

45

9

Tax on losses transferred to the income statement

(10)

(1)

Total net other comprehensive expense for the year

(140)

(96)

Total comprehensive expense for the year

(255)

(309)







Attributable to:



Owners of the parent

(258)

(301)

Non-controlling interests

3

(8)

Total comprehensive expense for the year

(255)

(309)

 



Group Cash Flow Statement


Audited

Restated Audited


Year ended

Year ended


2014

2013


£m

£m

Loss before tax

(114)

(163)

Adjustments for:



Net finance costs

170

173

Net investment income and share of results of associates

(2)

(1)

Depreciation, amortisation and impairment

233

225

Loss on disposal of assets

19

8

Share-based payments

4

8

Write up of investments

-

(29)

(Decrease)/ increase in provisions

(51)

4

Additional pension contributions

(26)

(26)

Interest received

9

7

Decrease/ (increase) in working capital:



   Inventories

(8)

(1)

   Receivables

86

112

   Payables

47

83

Cash generated from operations

367

400

Income taxes paid

(32)

(31)

Net cash used in discontinued operating activities

-

(30)

Net cash from operating activities

335

343




Dividends received from associates

2

3

Proceeds/ (loss) on disposal of subsidiaries (net of cash disposed)

78

(38)

Proceeds on disposal of property, plant and equipment

2

4

Purchase of subsidiaries (net of cash acquired)

(4)

(2)

Purchase of tangible assets

(118)

(103)

Purchase of intangible assets

(38)

(48)

Proceeds from other investments

-

2

Net cash used in investing activities

(78)

(182)




Dividends paid to non-controlling interests

(4)

-

Interest paid

(139)

(138)

Draw down of borrowings

125

1,370

Repayment of borrowings

(208)

(1,084)

Payment of facility set-up fees

-

(38)

Shares purchased by Employee Benefit Trust

(9)

(16)

Net proceeds on the issue of ordinary shares

1

414

Repayment of finance lease obligations

(44)

(32)

Net cash (used in)/ from financing activities

(278)

476

Net (decrease)/increase in cash and cash equivalents

(21)

633

Cash and cash equivalents at beginning of year

1,090

455

Effect of foreign exchange rate changes

(52)

2

Cash,  cash equivalents and overdrafts at end of year

1,017

1,090

 
 
 
Group Balance Sheet



Audited

Restated Audited



As at

As at



2014

2013



£m

£m

Non-current assets




Intangible assets


2,873

3,155

Property, plant and equipment




- aircraft and aircraft spares


578

603

- other


177

198

Investments in associates


14

14

Other investments


1

1

Deferred tax assets


195

168

Tax assets


2

 -

Trade and other receivables


106

143

Derivative financial instruments


19

 -



3,965

4,282

Current assets




Inventories


34

28

Tax assets


3

6

Trade and other receivables


705

785

Derivative financial instruments


68

25

Cash and cash equivalents


1,019

1,089



1,829

1,933

Assets held for sale


-

70

Total assets


5,794

6,285

Current liabilities




Retirement benefit obligations


(1)

(1)

Trade and other payables


(2,083)

(1,995)

Borrowings


(449)

(177)

Obligations under finance leases


(34)

(43)

Tax liabilities


(15)

(41)

Revenue received in advance


(999)

(1,120)

Short-term provisions


(247)

(247)

Derivative financial instruments


(66)

(64)



(3,894)

(3,688)

Liabilities related to assets held for sale


 -

(17)

Non-current liabilities




Retirement benefit obligations


(447)

(403)

Trade and other payables


(90)

(97)

Long-term borrowings


(715)

(1,114)

Obligations under finance leases


(147)

(182)

Non-current tax liabilities


(21)

(8)

Deferred tax liabilities


(49)

(53)

Long-term provisions


(143)

(172)

Derivative financial instruments


(3)

(3)



(1,615)

(2,032)

Total liabilities


(5,509)

(5,737)

Net assets


285

548

 
 
 
Group Balance Sheet continued



Audited

Audited



as at

as at



2014

2013

Equity


£m

£m

Called-up share capital


69

68

Share premium account


435

434

Merger reserve


1,547

1,547

Hedging and translation reserves


133

202

Capital redemption reserve


8

9

Accumulated losses


(1,907)

(1,721)

Investment in own shares


(38)

(30)

Equity attributable to equity owners of the parent

247

509

Non-controlling interests


38

39

Total equity


285

548

 
Group Statement of Changes in Equity

The 2013 movement in equity has been restated for IAS19R. The movements in equity for FY14 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 2012

89

1,542

225

(1,450)

406

51

457

Loss for the year

-

-

-

(205)

(205)

(8)

(213)

Other comprehensive expense for the year

-

-

(24)

(72)

(96)

-

(96)

Total comprehensive

expense for the year

-

-

(24)

(277)

(301)

(8)

(309)

Equity credit in respect of share-based payments

-

-

-

8

8

-

8

Investment in Employee Benefit Trust

-

(16)

-

-

(16)

-

(16)

Issue of shares - exercise of warrants

5

-

-

-

5

-

5

Issue of shares - rights issues

431

-

-

-

431

-

431

Issue of shares - transaction costs

(22)

-

-

-

(22)

-

(22)

Acquisition of Russia shares

-

-

-

(2)

(2)

(4)

(6)

At 30 September 2013

503

1,526

201

(1,721)

509

39

548

 

Loss for the year

-

-

-

(118)

(118)

3

(115)

Other comprehensive expense for the year

-

-

(68)

(72)

(140)

-

(140)

Total comprehensive income/ (expense) for the year

-

-

(68)

(190)

(258)

3

(255)

Equity credit in respect of share-based payments

-

-

-

4

4

-

4

Investment in Employee Benefit Trust

-

(9)

-

-

(9)

-

(9)

Issue of shares - exercise of warrants

1

-

-

-

1

-

1

Dividends to non-controlling interests

-

-

-

-

-

(4)

(4)

At 30 September 2014

504

1,517

133

(1,907)

247

38

285



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 2013 Annual Report unless otherwise stated. The basis of preparation is consistent with the year ended 30 September 2013, 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 2014, on which the auditors have given an unqualified opinion are expected to be posted to shareholders in January 2015.  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 2013, as described in those annual financial statements, with the exception of the Group's accounting estimate on depreciation of aircraft which has changed from 18 years to 23 years.

 

In the current year, the following new or amended standards have been adopted.

IFRS 7 (amendment) "Financial instruments: disclosures" is effective for annual reporting periods beginning on or after 1 January 2013, and amends the disclosures required where certain items have been offset.

 

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 IFRS framework for measuring fair value and requires disclosures about fair value measurement.

 

IAS 19 (revised 2011) "Employee benefits" is effective for annual periods beginning on or after 1 January 2013. The most significant change was 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) was replaced with a single net interest expense or income, that was calculated by applying the discount rate used in determining the present value of scheme liabilities to the net defined benefit asset or liability. The prior year has been restated to reflect this. As a result of applying this standard retrospectively, the Group's profit before tax for the financial year has been restated by £5m.

 

 

3.    Segmental information

For management purposes, the Group is currently organised into four geographic operating divisions: UK and Ireland, 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. 

 

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 2014







 

Continental

 

Northern

 

Airlines




UK

Europe

Europe

Germany

Corporate

Total


£m

£m

£m

£m

£m

£m

Continuing operations







Revenue







Segment sales

2,585

3,958

1,153

     1,299

-

            8,995

Inter-segment sales

(56)

(26)

(8)

(317)

-

(407)

Total revenue

 2,529

3,932

    1,145

       982

-

       8,588








Result







Underlying profit/(loss) from operations

89

102

101

50

(19)

323

Separately disclosed operating items

(95)

(41)

-

(16)

(67)

(219)

Impairment of goodwill and amortisation of business combination intangibles

(48)

(2)

-

-

-

(50)

Segment result

(54)

59

101

34

(86)

54








Share of results of associates




2

Finance income






10

Finance costs






(180)

Loss before tax






(114)

Tax






(1)

Loss for the year




(115)

 

 

 

 

 

 

Year ended 30 September 2013 Restated







 

Continental

 

Northern

 

Airlines




UK

Europe

Europe

Germany

Corporate

Total


£m

£m

£m

£m

£m

£m

Continuing operations







Revenue







Segment sales

2,978

4,195

1,239

1,312

-

9,724

Inter-segment sales

(46)

(29)

(7)

(327)

-

(409)

Total revenue

2,932

4,166

1,232

985

-

9,315








Result







Underlying profit/(loss) from operations

66

78

109

48

(38)

263

Separately disclosed operating items

(126)

(29)

1

(6)

(59)

(219)

Impairment of goodwill and amortisation of business combination intangibles

(27)

(4)

-

-

-

(31)

Segment result

(87)

45

110

42

(97)

13








Share of results of associates




1

Finance income






6

Finance costs






(183)

Loss before tax






(163)

Tax






(50)

Loss for the year from continuing operations




(213)

 

 

 

4.   Separately disclosed items

 


2014

Restated 2013


£m

£m

Affecting profit from operations



Reorganisation and restructuring costs

(124)

(127)

Costs associated with refinancing

-

(18)

Impairment of goodwill and asset valuation reviews

(57)

(18)

Onerous contracts and legal disputes

(79)

(59)

Amortisation of business combination intangibles

(9)

(14)

Provision for tax dispute resolution

 2

(14)

Other (including time value of options)

(2)

-


(269)

(250)




Affecting finance income and costs



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

-

(7)

Net interest cost on defined benefit obgliation

(15)

(14)

Other separately disclosed finance charges

-

 (2)

Unwind of discount on provisions

(10)

(9)

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



cash flow hedging contracts and interest accrual on swaps

(2)

1


(27)

(31)




Total separately disclosed items

(296)

(281)

 

Restructuring costs

Restructuring costs of £124 million include £30 million in relation to implementation of Wave 1 of our cost out and profit improvement programme and £60 million in relation to group wide restructuring activity. In addition, £11 million has been incurred in relation to IT rationalisation projects and £12 million following the disposal of non core UK businesses.

 

Refinancing costs

Refinancing costs in the prior year related to the Group's refinancing announced in May 2013.

 

Goodwill impairment and asset valuation reviews

Pre disposal impairments were made in respect of Essential Travel (£11 million) and Gold Medal (£28 million) and Elegant Resorts (£2 million). Asset valuation reviews (£16 million) relate to the UK and Continental Europe segments.

 

Onerous contracts and legal disputes

In the year the Group has assessed its position in respect of certain onerous contracts and made appropriate adjustments to assets on the balance sheet and made provision for future losses under these contracts. These contracts included £24 million in respect of a UK outsourcing contract. This amount also comprises a settlement on disposal of £8 million and £41 million in relation to EU261 claims. As a result of a recent court ruling the airlines are liable to compensate customers for delays caused by normal technical problems. The Group has made a provision of £41 million for the potential impact of the case on claims relating to historic delays.

Amortisation of business combination intangibles

Material business combination intangible assets were acquired as a result of the merger between Thomas Cook AG and MyTravel Group plc and other business combinations made in subsequent years. The amortisation of these intangible assets is significant and the Group's management consider that it should be disclosed separately to enable a full understanding of the Group's results.

 

Provision for tax dispute resolution

A provision of £14 million was made in FY13 following an adverse third party sales tax judgement relating to the Tour Operator Margin Scheme. In FY14 the courts clarified the law in this area and subsequently £2 million was released. 

 

Other

This relates to the time value on fuel derivatives.

 

Finance related charges

The Group has provisions for future liabilities arising from separately disclosed circumstances, primarily deferred acquisition consideration. A notional interest charge of £10 million on the discounted value of such provisions is recognised within separately disclosed finance related charges. The net interest charge arising on the Group's defined benefit pension schemes is £15 million. 

 

IAS 39 fair value re-measurement includes movements in forward points related to foreign exchange forward contracts and time value of options in cash flow hedging relationships. Both items are subject to market fluctuations and unwind when the options or forward contracts mature and therefore are not considered to be part of the Group's underlying performance.  A £2 million  charge has been recognised in respect of IAS39 allocations of the time value of derivative products.

 

 

5. Finance income and costs

 


2014

Restated 2013


£m

£m

Underlying finance income



Income from loans included in financial assets

1

-

Other interest and similar income

9

6

Total underlying finance income

10

7




Underlying finance costs



Bank and bond interest

(89)

(90)

Fee amortisation

(9)

(7)

Letters of credit

(17)

(16)

Other interest payable

(17)

(14)


(132)

(127)




Underlying aircraft related finance costs



Interest payable

(4)

(7)

Finance costs in respect of finance leases

(17)

(18)


(21)

(25)

Total underlying finance cost

(153)

(152)

Net underlying interest

(143)

(146)




Separately disclosed finance costs



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

-

(7)

Interest cost on pension plan liabilities

(15)

(14)

Discounting of provisions and other non-current liabilities

(10)

(9)

Other separately disclosed finance charges

-

(2)

Forward points on foreign exchange cash flow hedging contracts

(2)

1


(27)

(31)




Total net interest

(170)

(177)

 

 

 

6.   Tax

 

Analysis of tax charge

 

Analysis of tax charge

2014

2013


£m

£m

Current tax




corporation tax charge for the year

23

42


adjustments in respect of prior periods

(6)

2



17

44

Deferred tax




tax (credit)/charge

(16)

6


(16)

6

Total tax charge

1

50

 

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 £9 million has been credited directly to equity (FY13: credit of £1 million).  UK corporation tax is calculated at 22% (FY13: 23.5%) 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 £2,340 million (FY13: £1,941 million) are available predominantly in the UK, France and Spain for offset against future profits.

  

 

7.   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 21 million shares held by the employee share ownership trusts (FY13: 8 million).

 


2014

Restated

2013

Basic and diluted loss per share

£m

£m

Net loss attributable to owners of the parent from continuing operations

(118)

(205)





millions

millions

Weighted average number of shares for basic earnings/(loss) per share

1,440

1,196

Weighted average number of shares for diluted earnings/(loss) per share*

1,464

1,218





pence

pence

Basic and diluted loss per share from continuing operations

(8.2)

(17.1)




Underlying basic and diluted earnings per share

£m

£m

Underlying net profit attributable to equity holders of the parent **

163

60





pence

pence

Underlying basic earnings per share

11.3

5.0

Underlying diluted earnings per share

11.1

4.9

 

* 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 FY14 of £182 million (FY13: £118 million) and deducting a notional tax charge of £16 million (FY13: £67 million).

  

 

8.   Provisions

 


Aircraft

Off-

Insurance

Reorganisation

Deferred and




maintenance

market

and

and restructuring

contingent

Other



provisions

leases

litigation

plans

consideration

provisions

Total


£m

£m

£m

£m

£m

£m

£m

At 1 October 2013

256

30

40

43

5

45

419

Additional provisions in the year

96

1

97

17

 -

7

218

Unused amounts released in the year

(21)

(9)

(4)

(4)

 -

(7)

(45)

Unwinding of discount

6

3

 -

 -

 -

 3

12

Utilisation of provisions

(97)

(9)

(43)

(32)

(5)

(19)

(205)

Exchange differences

(6)

(1)

 -

(1)

 -

(1)

(9)

At 30 September 2014

234

15

90

23

-

28

390

 

 


2014

2013

£m

£m

Included in current liabilities

247

247

Included in non-current liabilities

 143

172

At 30 September

 390

419

 

The aircraft maintenance provisions relate to maintenance on leased aircraft and spares used by the Group's airlines in respect of leases which include contractual return conditions. This expenditure arises at different times over the life of the aircraft with major overhauls typically occurring between two and ten years. The aircraft maintenance provisions are re-assessed at least annually in the normal course of business, with a corresponding adjustment made to either non-current assets (aircraft and aircraft spares) or aircraft costs.

 

Off-market leases relate to leases acquired in previous years through the Resorts Mallorca Hotels S.L.U (Hi! Hotels) acquisition and The Co-operative Group and Midlands Co-operative, and MyTravel Group plc mergers, which have commitments in excess of the market rate at the time of the transaction.

 

Insurance and litigation represents costs related to legal disputes, customer compensation claims and estimated costs arising through insurance contracts in the Groups subsidiary, White Horse Insurance Ireland Limited. Reorganisation and restructuring plans predominantly represent committed restructuring costs in the UK and Continental Europe segments.

 

"Other" represents liabilities where there is uncertainty of the timing or amount of the future expenditure required in settlement and includes such items as onerous contracts, dilapidations and emissions trading liabilities. This grouping contains no single category larger than £15 million.

 

 

9.   Disposals

 

Disposal of businesses during the year

During the year, the Group completed the disposal of a number of non-core businesses, principally in the UK.  Financial information related to the disposals that have occurred is set out below.

 


Thomas Cook Egypt & Lebanon

UK Corporate Foreign Exchange business

Neilson Active Holidays Ltd

Essential Travel Limited

Elegant Resorts

Gold Medal

NATS

Corporate Travel Business

Intourist Egypt

Total












Gross Consideration

7

5

9

2

14

45

38

14

-

134

Completion adjustments and transaction costs

-

1

(8)

1

-

(8)

1

(1)

-

(14)

Dividend paid to NCI

-

-

-

-

-

-

-

(4)

-

(4)

Net consideration

7

6

1

3

14

37

39

9

-

116

Carrying amount of net assets disposed

(8)

(4)

(3)

(3)

(14)

(37)

(36)

(14)

(7)

(126)

Profit/(Loss) on disposal

(1)

2

(2)

-

-

-

3

(5)

(7)

(10)

Cash impact:











Net consideration

7

6

1

3

14

37

39

9

-

116

Cash and cash equivalents

(3)

(4)

(6)

(1)

(8)

(9)

-

(1)

-

(32)

Net cash inflow/(outflow)

4

2

(5)

2

6

28

39

8

-

84

 

Thomas Cook Egypt & Thomas Cook Lebanon                                                     

On 9 October 2013, the Group announced that it had sold 100% of the Thomas Cook Egypt and Thomas Cook Lebanon businesses to Yusuf Bin Ahmed Kanoo (Holdings) Co WLL of Bahrain.                                                                                                                                                      

Thomas Cook CFX Limited

On 18 November 2013, the Group sold its UK Corporate Foreign Exchange business, Thomas Cook CFX Ltd, to Moneycorp.                            

                            

Neilson Active Holidays Limited                     

On 10 December 2013, the Group sold its specialist activity tour operator Neilson Active Holidays Ltd to the private equity firm Risk Capital Partners.                                                              

 

Essential Travel Limited        

On 24 January 2014, the Group sold its UK ancillary travel products business Essential Travel Limited to Holiday Extras Group. The Group settled deferred consideration of £4m which was agreed at the time of the acquisition of Essential Travel Limited (acquired in March 2010).    

   

Elegant Resorts Limited         

On 7 February 2014, the Group sold its UK luxury travel tour operator Elegant Resorts Limited to Al Tayyar, a leading global travel group based in Saudi Arabia.  

                                                                                                    

Gold Medal Limited                

On 27 February 2014, the Group sold Gold Medal, a UK-based distributor of long-haul scheduled flights, hotels and car hire, to dnata, the Dubai-based travel company which is part of the Emirates Group. The disposal generated net cash of £28m before payment of a £9m termination penalty that crystallised following the sale. This payment is included in proceeds on disposal of subsidiaries in the cash flow statement.             

                                                                                      

NATS Holding Limited            

On 19 November 2013, the Group announced that it had agreed to sell its 91.5% of its shareholding and loan note interests in The Airline Group Limited, which is a 41.9% shareholder in NATS Holding Limited, to Universities Superannuation Scheme Limited.  The disposal was completed on 18 March 2014, following competition clearance from the European Commission.                               

                                                         

Corporate Business Travel                                                                                           

On 27 May 2014, the Group announced the sale of the UK corporate travel business (Co-operative Travel Management) to Mawasem Travel & Tourism Ltd for a consideration of £14 million. The net consideration of £9m includes a £4m dividend payable to non-controlling interest which is shown separately in the cash flow statement within investing activities.

                                                         

Intourist Egypt                                                                                                                                               

On 10 September 2014, the Group sold 100% of the incoming agency Intourist Egypt to Essam Michel.

                            

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. During the year ended 30 September 2014 the Group received the final cash payment of £1m in respect of the sale.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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

Top of Page