26 November 2014 - Thomas Cook Group

11 February 2015
First Quarter Results for the three months ended 31 December 2014
Thomas Cook reports further progress in line with expectations
Financial highlights
 Like-for-like Revenue increased by 1.6%, or £24 million, in the quarter to £1,519 million (Q1 2014:
£1,495 million) reflecting progress in our New Product and Winter Sun initiatives
 Underlying EBIT margin over the last 12 months improved to 3.9%, an increase of 120 basis points
compared to the previous year on a like-for-like basis
 Loss from operations in the quarter decreased by 42%, or £53 million, to £73 million (Q1 2014: loss of
£126 million) on a like-for-like basis, following a £46 million reduction in separately disclosed items
 Net debt reduced by £24 million (£55 million on a like-for-like basis) to £1,262 million (Q1 2014: £1,286
million) reflecting improved cash flow
£m (unless otherwise stated)
Revenue
Gross Margin %
(i)
Underlying Loss from Operations (Underlying EBIT)
Underlying EBIT %
EBIT Separately Disclosed Items
Loss from operations (EBIT)
Net Debt
£m (unless otherwise stated)
Revenue
Gross Margin %
3 months ended
31 Dec 2014
31 Dec 2013
1,519
1,656
21.6%
22.1%
(53)
(56)
(3.5)%
(3.4)%
(20)
(66)
(73)
(122)
(1,262)
(1,286)
Last 12 months (LTM) ended
31 Dec 2014
31 Dec 2013
8,450
9,300
22.2%
22.1%
Change
(137)
(0.5)%
3
(0.1)%
46
49
24
Change
(850)
0.1%
Like-for-like
change
24
(0.3)%
7
0.5%
46
53
(iii)
55
(ii)
Like-for-like
change
(124)
(ii)
0.5%
Underlying Profit from Operations (Underlying EBIT)
325
274
51
101
Underlying EBIT %
3.9%
2.9%
1.0%
1.2%
EBIT Separately Disclosed Items
(215)
(300)
85
84
110
(26)
136
185
Profit from operations (EBIT)
Notes
(i)
(ii)
(iii)
The term ‘Underlying’ refers to trading results that are adjusted for separately disclosed items that are significant in
understanding the ongoing results of the Group. Separately disclosed items are detailed on page 4
‘Like-for-like’ change is quoted to improve the comparability of prior year data, by adjusting 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 11
‘Like-for-like’ net debt adjusts the prior year comparative for foreign exchange translation and the impact of changing finance
lease arrangements to give a true, underlying change in Net Debt
Current trading highlights
 Overall trading is in line with expectations: Winter 2014/15 is 85% sold for the Group as a whole,
broadly in line with last year, and Summer 2015 is 41% sold, 3% higher than this time last year
 Robust trading in the UK, with a significant increase in bookings for both Winter and Summer
 Trading conditions in Continental Europe and parts of Northern Europe have been tougher, against
strong comparatives, although we have seen a significant improvement in recent weeks
 Airlines Germany is performing well, especially in the long haul segment, with the impact of strong
competition evident in the short and medium haul market
 Turkey and the Canaries continue to be our most popular destinations, volumes to Egypt are
improving, and the USA is growing strongly driven by new routes
1.
Progress in executing our strategy
 Further cost out and profit improvements driving bottom line benefits: Wave 1 delivered a further £29
million of benefits in the quarter, bringing the cumulative total benefits realised to £429 million
 New product revenue grew by £44 million in the quarter (growth in Q1 2014: £37 million) driven both
by exclusive product (Concept and Partnership hotels) and by flexible, dynamic packages
 UK EBIT margin improved to 3.7% over the last 12 months (Q1 2014: 2.3%), reflecting the impact of
operational improvements including cost out initiatives and better product
 Our digital progress continues, with bookings on Thomascook.com, our main UK site, up by 24% for
December alone, and by 10% for the quarter as a whole, although the removal of other low-margin
hotel only business has led Group web penetration to remain at 38% over the last 12 months
 New, simplified management structure put in place to improve the execution of strategic priorities,
and to streamline decision making
Outlook
We continue to make good progress strengthening our product offering, digitising our business and
improving the Group’s efficiency. Our UK business and German Airline business have grown both
revenues and operating profits during the quarter. While trading conditions continue to be tough,
particularly in Continental Europe and Northern Europe, we nevertheless expect to deliver further
growth in FY15, consistent with our expectations at our recent full year results.
Peter Fankhauser, Chief Executive of Thomas Cook commented:
“Our performance in the quarter demonstrates the strong progress we continue to make in
transforming Thomas Cook. We are particularly pleased with the performance of our UK business,
which is now achieving its highest underlying EBIT margin since 2009, while at a Group level we have
nearly halved our first quarter operating loss. Although it’s early days, our strategy for profitable growth
through New Products and Winter Sun is delivering results. The trading environment in many of our
markets continues to be tough, but we believe the measures we are taking to improve our businesses
will continue to strengthen our competitive position. Our strategy remains to generate sustainable
profitable growth by providing differentiated and exclusive holidays while driving efficiencies in
production and distribution, underpinned by digital excellence. I am confident that our focus on
rigorous implementation will continue to drive significant improvements in the Group’s performance.”
Presentation to equity analysts
A conference call and webex for investors and analysts will be held today at 8.30 a.m. (GMT). The
access details are as follows:
United Kingdom free call
Other locations
Global access numbers
Passcode
0800 678 1161
+44 1296 311600
www.btconferencing.com/globalaccess/?bid=54_attended
776 454
To join the web portion of our meeting, please access the following link:
https://btevent.webex.com/btevent/onstage/g.php?MTID=ef9ffacbf8905a7dd7db65b391a991af1
and enter event number 841 028 610, and password 776454.
Forthcoming announcement dates
The Group intends to issue a pre-close update on 31 March 2015 and announce its results for the six
months ended 31 March 2015 on 20 May 2015.
Enquiries
Analysts & Investors
James Sandford, Thomas Cook Group
+44 (0) 20 7557 6433
Media
Mathias Brandes, Thomas Cook Group
Jenny Davey, Finsbury
+44 (0) 20 7924 7199
+44 (0) 20 7251 3801
2.
FINANCIAL REVIEW
3 months
ended 31 Dec
2014
3 months
ended 31 Dec
2013
Change
Like-for-like
Change
1,519
1,656
(138)
24
327
365
(38)
0
Operating expenses
(380)
(421)
41
7
Underlying loss from operations (Underlying EBIT)
(53)
(56)
3
7
EBIT Separately Disclosed Items
(20)
(66)
46
46
Loss from operations (EBIT)
(73)
(122)
49
53
Other income/expenditure
1
1
0
0
Net finance charges (underlying)
(36)
(35)
(1)
(1)
Separately disclosed finance charges
(7)
(5)
(2)
(2)
(115)
(161)
46
50
£m
Revenue
Gross profit
Loss before tax
Revenue
Group revenue has grown by 1.6%, or £24 million, to £1,519 million on a like-for-like basis, driven by
increased sales of New Products including Concept Hotels, city breaks and other flexible product, and by
a strong end to the summer season (October) in Airlines Germany, which increased passenger volumes
and benefited from higher ancillary sales. However, tough trading conditions especially in Continental
Europe have depressed prices, which partially offsets the positive effects.
Gross profit
Group gross profit of £327 million was flat on a like-for-like basis as the benefit of new product sales,
further Wave 1 cost savings and lower fuel costs were offset by lower average selling prices and the
increase in charges relating to the EU261 legislation.
Underlying gross margin of 21.6% is 30 basis points lower than the prior year comparative. This reflects
pricing pressures caused by overcapacity in the airline market creating high levels of competition,
especially in Continental Europe.
Underlying EBIT
Group underlying operating loss reduced by £7 million to £(53) million, following a reduction in
operating expenses of £7 million on a like-for-like basis to £380 million. This was achieved through the
delivery of a further £13 million of Wave 1 cost savings, partially offset by £3 million strategic operating
investments and a £3 million increase in overheads, mainly due to higher depreciation charges.
Segmental analysis of Underlying EBIT
Underlying EBIT by segment
3 months ended 31 Dec 2013 LFL
UK
£m
(69)
CE
£m
(16)
NE
£m
20
AG
£m
10
Corp
£m
(5)
Group
£m
(60)
3 months ended 31 Dec 2014
(62)
(14)
17
14
(8)
(53)
3 months LFL change (£m)
7
2
(3)
4
(3)
7
3 months LFL change (%)
11%
11%
(16%)
46%
(59%)
12%
3.
The UK business continued to show improved profitability, with an increase in like-for-like EBIT of £7m.
This result came from the enhanced product offering, including a higher proportion of concept hotels
and long haul destinations, combined with further cost out delivered through the WAVE programme,
most of which has mitigated the increase in direct costs associated with the EU261 legislation.
Continental Europe also delivered EBIT growth, of £2 million on a like-for-like basis, against tough
comparatives last year. This has been delivered through further cost out offset by a slight reduction in
gross margin, which was adversely impacted by continued intense competition exerting downward
pressure on selling prices.
Northern Europe’s EBIT has reduced by £3m in Q1 15. This represents a resilient performance overall,
with Sweden and Denmark showing an improved performance, while trading conditions in Norway were
more difficult.
Airlines Germany recorded like-for-like EBIT growth of £4m for Q1, driven by a strong conclusion to the
summer season in October and selected long haul capacity being added to the Winter 14/15 schedule,
which benefits the months of November and December. This has been partly offset by continued
pressure in the short haul market.
Corporate costs are £3m higher year-on-year reflecting the additional skill sets required to deliver the
transformation.
Separately Disclosed Items
Separately Disclosed Items reduced by £44 million to £27 million for the quarter in total (including
finance related charges), and by £46 million to £20 million at an EBIT level. The table below summarises
the year-on-year development.
Q1 15
£m
Q1 14
Cash
Non-cash
Total
Cash
Non-cash
Total
(9)
-
(9)
(18)
-
(18)
Goodwill impairment
-
-
-
-
(42)
(42)
Onerous contracts
-
(9)
(9)
(9)
1
(8)
Amortisation of intangibles
-
(2)
(2)
-
(3)
(3)
Pensions/Other
-
-
-
-
5
5
(9)
(11)
(20)
(27)
(39)
(66)
-
(7)
(7)
-
(5)
(5)
(9)
(18)
(27)
(27)
(44)
(71)
Restructuring
EBIT related items
Finance related charges
Total
Note: Items labelled Cash will impact cash either in the period or in a future period. non-cash items will not have any future effect on Cashflow
Restructuring costs of £9 million include £3 million in relation to Wave 1 transformation projects with
the remainder comprising costs associated with the Group-wide transformation and Head Office
reorganisation costs.
Within onerous contracts, the Group has recognised an accelerated non-cash charge of £8 million to
provide for future losses in relation to the previously disclosed termination of a UK outsourcing contract.
Amortisation of intangible assets relates to the result of the merger between Thomas Cook AG and
MyTravel Group plc and other business combinations made in subsequent years.
Finance related charges include notional interest of £2 million on the discounted value of deferred
acquisition consideration, a £4m net interest charge arising on the Group’s defined benefit pension
schemes and a £1 million charge recognised in respect of IAS39 allocations of the time value of
derivative products.
4.
Loss from operations (EBIT)
The Group loss from operations reduced in the quarter by 42%, or £53 million, on a like-for-like basis to
£73 million. This improvement reflects the reductions in operating expenses and separately disclosed
items set out above.
Cash Conversion
The Group uses a measure of cash conversion reflecting the amount of cash flow retained by the
business and which can be used for investment in capital expenditure, debt repayment or payment of
dividends.
LTM ended 31 December
2014
LTM ended 31 December
2013
433
460
Net Interest
(123)
(139)
Cash Exceptionals
(115)
(211)
Disposal Proceeds
71
0
Converted Cash
266
110
EBITDA
501
440
Cash Conversion
53%
25%
£m
Operating Cashflow
The Group’s cash conversion measure over the last 12 months was 53% compared to 25% for the 12
months ended 31 December 2013. The cash conversion result at the end of December 2014 includes
disposal proceeds realised during FY14; excluding those proceeds, Group cash conversion would be 39%.
Net Debt
The components of the movement in Net Debt over the last 12 months are:
£m
31 December 2013 closing net debt position
(1,286)
Operating Cash Flow
433
Disposal Proceeds
71
Capital Expenditure
(177)
Cash Exceptionals
(115)
Net Interest Paid
(123)
Other
(34)
Like-for-like movement in net debt
55
Exchange rate movements
(6)
Lease reclassification
(25)
31 December 2014 closing net debt position
(1,262)
The overall reduction in Net Debt is £24m. On a like-for-like basis, excluding exchange rate movements
and reclassification of leases, which the Group considers to be out of its control, the reduction is £55m.
After the period end, on 23 January 2015, the Group completed its offering of €400 million Senior Notes
due 2021, further strengthening its financial position by extending and rebalancing the debt maturity
5.
profile and increasing liquidity, especially in the context of the forthcoming redemption of its
outstanding €400 million 6.75% guaranteed notes, due in June 2015.
Hedging of Fuel and Foreign Exchange
The Group operates a rolling programme of hedging to smooth fluctuations in the price of fuel and
currency, in order to provide greater price certainty when planning for current and future seasons. The
proportion of our forthcoming requirements for Euros, US Dollars and Jet Fuel that have been hedged
are shown in the table below.
Winter 14/15
Summer 15
Winter 15/16
Euro
94%
82%
69%
US Dollar
99%
94%
73%
Jet Fuel
100%
100%
90%
As at 9 February 2015
For Jet Fuel, we are now 100% hedged for FY15, 54% hedged for FY16 and 0% for FY17. Our hedging
policy means that any long term movements in the price of Jet Fuel take time to impact our net fuel
costs. As Jet Fuel is priced in US Dollars, we also buy forward the requisite amount of US Dollars from a
mix of base currencies. As we are now 100% hedged for FY15, changes in the price of Jet Fuel will have
no further impact on our fuel costs during the year. For the first quarter, our fuel costs were £7 million
lower than in Q1 2014, reflecting the lower hedge rates in place, partially offset by an increase in flying.
We also hedge our transactional exposure to a range of non-fuel related foreign currency costs,
including the US Dollar, the Euro and a number other currencies. Currently 87% of these exposures are
hedged for FY15, 33% for FY16 and 0% for FY17. A 1% movement in the US Dollar exchange rate would
result in a £0.2 million variance in FY15, while a 1% movement in the Euro exchange rate would result in
a £1.1 million variance in FY15, based on our current proportion of hedging for the year.
The Group’s policy is not to hedge the translation impact of profits generated outside the UK. If current
rates for Euro and Swedish Krona were maintained throughout the remainder of FY15, there would be a
negative year-on-year translation impact of approximately £19 million.
The average and period end exchange rates relevant to the Group for the quarter were as follows:
Average Rate
Period End Rate
Q1'15
Q1'14
Q1'15
Q1'14
GBP/Euro
1.27
1.19
1.28
1.20
GBP/UD dollar
1.58
1.62
1.56
1.65
GBP/SEK
11.77
10.54
12.10
10.66
6.
CURRENT TRADING
Winter 14/15
With the Winter season 85% sold, total tour operator bookings are in line with this time last year with
average selling prices down 2%.
Bookings in our UK business have increased significantly, with volumes 6% higher than at this time last
year (and average selling prices 1% lower) as we have expanded our Winter Sun offering to new
destinations, including the Caribbean, Cuba and Cape Verde.
Continental Europe bookings are 4% lower than last year, reflecting the discontinuation of unprofitable
routes in France and Russia and a later booking profile in Germany. Average selling prices are 3% lower
than last year reflecting competitive market conditions. However, the booking trend in the last four
weeks has improved significantly.
Northern Europe bookings are 1% below last year, while prices are 3% higher. Our Nordic business
continues to perform well in Sweden and Denmark, while demand in Norway has been impacted by
wider macroeconomic factors.
Airlines Germany has increased bookings by 9%, with load factors similar to last year. Average selling
prices are 2% lower than last year, mainly reflecting overcapacity in the short and medium haul sector.
Winter 14/15
Year on Year Variation %
Average
Selling
Price
Cumulative
bookings
Programme
Sold
UK
-1%
+6%
82%
Continental Europe
-3%
-4%
77%
Northern Europe
+3%
-1%
95%
Total Tour Operator
-2%
Flat
85%
Airlines Germany
-2%
+9%
80%
Risk Business
Summer 15
The Summer 15 season is 41% sold for the Group as whole, 3% higher than this time last year. Total
bookings for our tour operator business are 2% lower than last year with a slight decrease in average
selling prices.
UK Summer bookings are 5% higher than last year with average selling prices 1% lower. As part of our
capacity management for the Summer season, we have increased the level of flight capacity allocated to
dynamically packaged products and “seat only” business, reflecting customer demand for more flexible
products. In addition, we have successfully launched new sales channels for our airline, including long
haul flight destinations such as New York and Miami. This strategy has improved our operational
flexibility to meet customer demand while ensuring that in-house flight capacity is managed in the most
efficient manner. As a result, although average selling prices in total are 1% lower than last year, Charter
Risk pricing has improved by 2%.
In Continental Europe, with 29% of the programme sold, early Summer bookings are 6% lower than last
year compared to a strong comparative, particularly in our German business, which has experienced a
later booking profile. Average selling prices have been maintained at last year’s level.
7.
Northern Europe Summer bookings are 7% lower than last year while average selling prices are
unchanged. While our Swedish and Danish source markets continue to perform well, trading in Norway
remains challenging due to other macroeconomic factors, such as low consumer confidence, currency
weakness and falling oil prices, which have impacted demand.
Over the last four weeks, demand in Germany and Northern Europe has improved, with significantly
stronger bookings and firm pricing, confirming the later booking profile.
Airlines Germany continues to perform well in competitive market conditions with Summer bookings
10% higher than last year, improved load factors and average prices maintained at last year’s level. As
part of our broader strategy, we have expanded Summer capacity in the long haul sector, which has
helped mitigate trading pressures caused by continuing market overcapacity in the short and medium
haul sector.
Summer 15
Year on Year Variation %
Average
Selling
Price
Cumulative
bookings
Programme
Sold
UK
-1%
+5%
45%
Continental Europe
Flat
-6%
35%
Northern Europe
Flat
-7%
29%
Total Tour Operator
-1%
-2%
41%
Airlines Germany
Flat
+10%
30%
Risk Business
8.
PROGRESS IN EXECUTING OUR STRATEGY
Our strategy is to generate sustainable profitable growth by investing in differentiated and exclusive
product, improving our digital customer proposition, and driving efficiencies in production and
distribution. To measure our progress in successfully executing our strategy, we established in March
2013 a set of key targets and KPIs, which are shown in the following table, together with our progress
made towards these targets to date.
Actual
Financial year ended 30 September
Targets
New product revenue
(i)
Web penetration
Wave 1 cost out/profit
improvement (run-rate)
Sales Growth
Underlying gross margin
(iii)
improvement
UK underlying EBIT margin
(iv)
Cash conversion
KPIs
Notes:
(i)
(ii)
(iii)
(iv)
FY12
N/A
34%
FY13
£94m
36%
FY14
£280m
38%
Q1 15
£324m
38%
Target
FY15
>£700m
>50%
£60m
£194m
£400m
£429m
>£500m
N/A
N/A
(2.1)%
1.6%
N/A
0.8%
1.5%
1.5%
>1.5%
0.1%
11%
2.2%
48%
3.5%
62%
3.7%
53%
>5%
>70%
(ii)
>3.5%
Measured on a last 12 months (LTM) departed basis
Compound annual growth rate from FY13 to FY15 including new product revenue
Underlying gross margin, adjusted for disposals and shop closures to make all periods from FY12 - FY15 like-for-like
Cash conversion ratio is defined as free cash flow after exceptional items and before capital expenditure as a percentage of
EBITDA
Product
Our New Product strategy continues to deliver incremental revenues, with a further £44 million being
achieved in the quarter, representing growth in the sales of both exclusive Concept and Partnership
hotels, and in flexible, dynamic product. This New Product growth, together with a strong performance
from Airlines Germany, has contributed to overall like-for-like Revenue growth of 1.6%, compared to a
decline of 2.1% for FY14. Whilst it remains unlikely that we will achieve our original Group sales growth
target of 3.5% in FY15, having reduced our revenue base in order to focus on profits and in response to
geopolitical events, we are nevertheless encouraged by the improved revenue performance in the
quarter. We continue to develop product focused on areas where we believe we can gain market share,
including exclusive and differentiated hotels, and an expanded winter programme. We have also relaunched Thomas Cook Signature, our premium holiday brand in the UK, and are seeing positive early
results. Repositioning and enhancing our core product proposition is a critical part of our strategy, and
we continue to explore ways to further accelerate our development in this area.
Omnichannel
Digitising our business remains a key priority, in order to serve customers through multiple channels in
an integrated and seamless manner. Our international web platform, OneWeb, is performing well in the
UK, with bookings on Thomascook.com up 24% in December alone, and 10% for the quarter as a whole.
Since Christmas, mobile and tablet traffic has overtaken desktop traffic, while our overall conversion
rate has increased by 20%. We have now also rolled OneWeb out in the Netherlands. However our
Group web penetration remained at 38% for the last 12 months, the same level as for the FY14, as the
benefits of OneWeb were offset by the removal of certain low value hotel-only sales in the UK.
Although it is unlikely that we will achieve 50% by the end of FY15, we believe our web penetration will
grow over time as we continue to enhance our digital customer proposition.
9.
Operating efficiencies
The EBIT margin of our UK business has continued to improve, increasing to 3.7% over the last 12
months compared to 2.3% for the 12 months to 31 December 2013, underpinned by the operational
improvements we have made. Key to the strong UK performance has been the continued success of our
Wave 1 Cost Out and Profit improvement programme, which delivered an incremental saving of £29
million and is on track towards achieving its full year cumulative target of £500 million in benefits. Our
underlying gross margin improvement of 1.5%, which we achieved one year earlier than planned in
FY14, has been sustained in the quarter, despite sustained competitive pricing conditions. We have
made progress towards our cash conversion target of 70%, achieving 53% in the last 12 months,
compared to 25% for the 12 months to 31 December 2013.
Our Wave 2 change programme incorporates the initiatives we will take to further reposition the
business towards our New Operating Model. This target model aims to leverage our scale and eliminate
duplicated activities by creating a set of efficient, common technology platforms and process
methodologies across all of our geographical segments. As previously disclosed, the risk-weighted
benefits of moving to the New Operating Model through the Wave 2 change programme are £180
million, with target end-state benefits of more than £400 million, and the estimated one-off costs to
achieve these benefits are £145 million. It is our practice to update our targets, if appropriate, at our
half year and full year results.
10.
APPENDIX
Like-for-like analysis
In implementing the transformation, the Group has undertaken activities that, combined with the
normal translational effect of exchange rate movements, impact upon the comparability of underlying
performance.
To assist in understanding the impact of these factors and their influence on year on year progression,
we consider ‘like-for-like’ (LFL) adjusted growth from the 3 month period to 31 December 2013 to the 3
month period to 31 December 2014 in our analysis below:
Group
Revenue
Gross margin
Operating
expenses
Underlying
EBIT
£m
%
£m
£m
1,656
22.1%
(421)
(56)
Disposals/closures
(64)
(0.2)%
10
(2)
Accounting Changes
(4)
0.0%
6
0
3 months ended 31 Dec 2013
Impact of Currency Movements
(94)
0.0%
18
(2)
3 months ended 31 Dec 2013 LFL
1,495
21.9%
(387)
(60)
3 months ended 31 Dec 2014
1,519
21.6%
(381)
(53)
3 months LFL change (£m)
24
0
7
7
3 months LFL change (%)
1.6%
(0.3)%
1.7%
11.7%
Underlying EBIT by segment
3 months ended 31 Dec 2013
UK
£m
(67)
CE
£m
(17)
NE
£m
22
AG
£m
10
Corp
£m
(5)
Group
£m
(56)
Disposals/closures
(2)
0
0
0
0
(2)
0
1
(2)
(1)
0
(2)
3 months ended 31 Dec 2013 LFL
(69)
(16)
20
10
(5)
(60)
3 months ended 31 Dec 2014
(62)
(14)
17
14
(8)
(53)
3 months LFL change (£m)
7
2
(3)
4
(3)
7
3 months LFL change (%)
11%
11%
16%
46%
(59%)
12%
Impact of currency translation
11.