Thomas Cook Group Profit in tour operating business fell £88 million

Thomas Cook Group (LON:TCG), today announced full year results announcement for the year ended 30 September 2018

Notes: (i) This table includes non-statutory alternative performance measures – see page 23 for explanation, associated definitions and reconciliations to statutory numbers (ii) As part of the preparation of the FY18 Group financial statements, management identified several non-cash adjustments which have been applied to the Group’s financial statements for FY17. Further details of the restatement can be found on page 35 (iii) ‘Like-for-like’ change adjusts for the impact of foreign exchange translation, fuel and other. The detailed like-for-like adjustments are shown on page 10 (iv) ‘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 pages 16 and 31 (v) See page 24 for definition and breakdown of net debt. ‘Like-for-like’ net debt adjusts the prior year comparative for foreign exchange translation and the impact of the Group’s bond refinancing – see page 20 for reconciliation

The comments below are based on underlying like-for-like comparisons unless otherwise stated, as Management believes this provides a clearer view of the Group’s year-on-year progression

Performance highlights

· Group revenue of £9,584 million, up 6% on a like-for-like basis

· Underlying EBIT of £250 million, £58 million lower than prior year on a like-for-like basis

o Tour Operator down £88m, impacted by discounting in ‘lates’ market; UK particularly disappointing

o Strong Airline profit growth of £35 million, despite higher disruption costs

o Group result includes £28 million of legacy and non-recurring charges to underlying EBIT

· EBIT SDIs of £153 million, including transformation and start-up costs

· Net debt of £389 million; increase due to delayed bookings and higher non-cash items

· Bank covenant compliant; headroom for future covenant tests

· Dividend suspended for Full Year 2018, reflecting the overall net loss after tax

Strategic progress developing new opportunities for growth and efficiencies

· Sales of holidays to own-brand hotels up 15%; 2019 pipeline of at least 20 new hotels

· Accelerating own-brand hotel growth through £150-million fund with first £35 million expansion capital

· Strategic integration of Expedia technology and content in first five markets

· Innovative ancillary services driving growth of 4%

Priorities for 2019 onwards

· Address performance in our UK tour operator business

· Better capacity management and improved operational flexibility

· Drive increased focus on cash and cost discipline across group

· Improve selling of higher-margin own-brand hotels and differentiated holidays

Outlook for 2019

· Expect to deliver progress on underlying EBIT and lower separately disclosed items, leading to substantial progress on reported operating profit

· Reported operating profit will be a primary focus going forward, together with free cash generation

Commenting on the results for 2018, Peter Fankhauser added:

“2018 was a disappointing year for Thomas Cook, despite achieving some important milestones in our strategy for transforming the business. After a good start to the year, we experienced a larger-than-anticipated decline in gross margin following the prolonged period of hot weather in our key summer trading period.

“Profit in our tour operating business fell £88 million as the sustained heatwave restricted our ability to achieve the planned margins in the last quarter. The UK was particularly hard hit with very high levels of promotional activity coming on top of an already competitive market for holidays to Spain. Despite the impact of the hot summer, our Northern European tour operator achieved a near record performance, albeit lower than that expected at the end of May. Meanwhile, our Group Airline delivered strong growth in customers and profit, up £35 million, benefitting from increasing capacity in a turbulent European aviation sector.

“We remain committed to our strategy for profitable growth and we’ve made some good progress during the year. Within our own-brand hotels business we have established our hotel investment fund, opening 11 new hotels last summer, including an innovative new concept in Cook’s Club. This positions us well for 2019 as we build on our position as one of the top 5 sun & beach hotel companies in Europe with at least 20 new hotel openings planned. Meanwhile, the launch of our alliance with Expedia, now in five of our markets, offers customers a much wider choice of city and domestic hotels at lower cost to the business. Taken together, these developments are transforming our opportunities for growth.

“Looking ahead, we must learn the lessons from 2018 and go into the new year focused on where we can make a difference to customers in our core holiday offering. We will put particular attention on addressing the performance in our UK tour operator where the challenges of transformation in a competitive environment remain significant. Across the Group, we will continue to streamline our cost base and manage our capacity to give us greater operational flexibility and financial discipline, while focusing the team on delivering performance improvements and giving customers more reasons to holiday with Thomas Cook.”