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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Thomas Cook Group Plc | LSE:TCG | London | Ordinary Share | GB00B1VYCH82 | ORD EUR0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 3.451 | 3.539 | 3.595 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMTCG
RNS Number : 4782F
Thomas Cook Group PLC
18 May 2017
18 May 2017
Results for the six months ended 31 March 2017
Strategic actions improve performance
Hot Features
Premium
GBPm (unless otherwise stated)(i) 6 months ended Change Like-for-like
change(iii)
----------------- ------- --------------
31 Mar 31 Mar
2017 2016
-------- ------- ------- --------------
Revenue 2,994 2,672 +322 +77
Underlying(ii) Gross Margin
% 21.1% 21.7% -60bps -40bps
Underlying(ii) Loss from Operations
(Underlying EBIT) (177) (163) -14 +2
Separately Disclosed EBIT
Items (28) (41) +13 +13
Loss from operations (EBIT) (205) (204) -1 +15
Loss for the period (272) (283) +11 +27
Net Debt(iv) (794) (818) +24 +34
------------------------------------- -------- ------- ------- --------------
Notes (i) This table includes non-statutory alternative performance
measures - see page 22 for explanation, associated definitions
and reconciliations to statutory numbers
(ii) 'Underlying' refers to trading results that are adjusted
for separately disclosed items that are significant in understanding
the on going results of the Group. Separately disclosed items
are detailed on pages 16 and 30
(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) See page 22 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 18 for reconciliation
The comments below are based on like-for-like comparisons unless otherwise stated, as Management believes this provides a clearer view of the Group's underlying year-on-year progression
Robust demand for holidays driving growth
-- Revenue up 3% to GBP2,994 million, reflecting strong Winter demand to Spain and long-haul destinations
-- Gross margin down 40 basis points, mainly due to weaker trading at Condor as previously highlighted
-- Seasonal underlying EBIT loss improved by GBP2 million to GBP177 million -- Seasonal loss for the period (loss after tax) improved by GBP27 million to GBP272 million
-- Net debt of GBP794 million, a GBP34 million improvement reflecting strong bookings for Summer 2017
Delivering for our customers
-- More satisfied customers: Net Promoter Score (NPS) increased by 8 points across the Group -- 24-hour hotel promise rolled out to cover 80% of customers in core sun & beach hotels -- Growing in digital: online bookings up 15% in the UK and 35% in Germany -- Sales of higher margin holidays to own-brand hotels up 10% for the Summer -- Partnership with Webjet on track to improve efficiency in complementary hotels
Trading well for Summer 2017
-- Strong customer demand for Greece and smaller European destinations like Cyprus and Bulgaria -- Double-digit growth in bookings from Northern Europe and Continental Europe -- UK managing through more competitive market to Spanish islands
-- Improved trading and management actions on track to return Condor to profitability for the full year
Peter Fankhauser, Chief Executive of Thomas Cook, commented:
"Thomas Cook has delivered a good performance in the first six months. The progress we've made on our strategy helped achieve a 3 per cent increase in revenues, with strong customer demand for our holidays despite the competitive environment.
"Importantly, the actions we've taken to improve our holiday offering, managing our portfolio of hotels more tightly for quality, are delivering good results. Our customer satisfaction score increased by eight points compared with the same time last year. I am confident we can increase this further, with the roll out of our successful 24-hour hotel satisfaction promise to 80% of customers in our core sun & beach hotels this summer, and other exciting new initiatives in the pipeline.
"We've also made great progress in developing our own-brand hotels and resorts, which give our customers a unique Thomas Cook experience. We're planning 11 new hotel launches this summer including our new family-friendly Casa Cook in Kos, complete with its own beach club, and our first hotel in Sicily, the Sentido Acacia Marina. We also have a further 11 openings in the pipeline for the next 18 months, including at least two new Casa Cook hotels.
"As we look ahead to the key summer season, we are seeing strong customer demand across most of our markets. Greece continues to be the standout destination for Summer 17 while customers are also seeking out smaller European destinations like Cyprus and Bulgaria, as well as travelling further afield. In contrast, following strong growth last year, bookings to the Spanish Islands have levelled off in a very competitive market.
"I'm also pleased with the progress we've made in our Group airlines business. Bookings are up significantly for the Summer, boosted by the addition of 15 new destinations to our flight programme, further expanding the choice and value we offer our customers. In our German airline, Condor, the actions we've taken after the market disruption of last year have started to come through, and we are confident that Condor will return to profit for the full year.
"Despite continued overcapacity in the airline market and strong competition particularly in our UK business, based on current trading we expect underlying EBIT for the full year to be in line with current market expectations.
"As I look across the Group, I see real momentum behind our strategy for profitable growth. By putting a clear focus on giving customers the very best experience when they holiday with Thomas Cook, and making our operations more efficient, I am confident that we can continue to transform the business and deliver increased value to shareholders."
Analyst and Investor Presentation
A presentation will be held for equity analysts and investors today at 9.00 a.m. (BST) at Farmers & Fletchers In the City, 3 Cloth Street, London EC1A 7LD. A live webcast of the presentation will be available via the following link and dial-in:
http://view-w.tv/798-1035-18233/en
United Kingdom: 0808 109 0700
All other locations: +44 20 3003 2666
Call password: Thomas Cook
Forthcoming announcement date
The Group intends to announce its results for the third quarter ended 30 June 2017 on Thursday 27 July 2017.
Enquiries
James Sandford, Thomas Cook
Analysts & Investors Group +44 (0) 20 7557 6433
Tej Randhawa, Thomas Cook
Group +44 (0) 20 7557 6487
Alice Macandrew, Thomas Cook
Media Group +44 (0) 20 7557 6409
Matthew Magee, Thomas Cook
Group +44 (0) 20 7294 7059
FINANCIAL HIGHLIGHTS
The comments below are based on like-for-like comparisons unless otherwise stated, as Management believes this provides a clearer view of business performance
-- Group revenue of GBP2,994 million increased by 3% (H1 2016: GBP2,917 million), as growth to Spain and long haul destinations offset lower demand for Turkey. On a headline basis (before adjusting for the impact of foreign exchange translation and the change in Easter timing), Group revenue increased by 12%
-- Gross margin declined by 40 basis points to 21.1% (H1 2016: 21.5%), mainly due to weaker trading at Condor, as previously highlighted
-- Our seasonal underlying EBIT loss was GBP177 million, an improvement of GBP2 million (H1 2016: GBP179 million loss), after adjusting for currency and a GBP10 million negative impact from Easter falling in the second half
- Our UK business continued to improve its performance, achieving an underlying EBIT loss of GBP114 million (H1 2016: GBP128 million loss)
- Continental Europe improved EBIT by GBP8 million to achieve an underlying loss of GBP50 million (H1 2016: GBP58 million loss)
- Northern Europe's EBIT in the first half was GBP42 million (H1 2016: GBP42 million), in line with a record Winter season last year
- As expected, Condor's losses widened by GBP19 million to GBP41 million (H1 2016: GBP22 million loss), although the year-on-year trend has improved during the period
-- Loss from operations improved by GBP15 million to GBP205 million (H1 2016: GBP220 million loss), following a reduction in EBIT separately disclosed items of GBP13 million. The change in EBIT separately disclosed items is described on page 16
-- Loss for the period improved by GBP27 million to GBP272 million (H1 2016: GBP299 million) due to a higher tax credit to recognise the tax effect of seasonal losses in the UK, partly offset by one-off finance charges connected with our successful bond refinancing in December 2016
-- Net debt decreased by GBP34 million (GBP24 million on a statutory basis) to GBP794 million (H1 2016: GBP828 million), reflecting higher bookings for Summer 2017
CURRENT TRADING AND OUTLOOK
Winter 2016/17
Trading for the Winter 2016/17 season closed out in line with our expectations, as set out in our pre-close update on 28 March 2017.
Summer 2017
Our Summer 2017 programme is 61% sold, in line with last year. Bookings for the Group are up 12% compared to this time last year, with stronger demand for most destinations, especially Greece, Cyprus, Bulgaria and Croatia. In recent weeks Egypt has seen a significant increase in bookings, with customers attracted by the quality and value of the destination. Demand for Turkey has also improved recently, with bookings now in line with this time last year.
Following strong growth last year, bookings to the Spanish Islands have levelled off in a very competitive market.
Northern Europe continues to enjoy a very strong summer season with bookings up 10% and average selling prices up 2%, supported by strong demand for our own-brand hotels and differentiated holiday offering, particularly in Greece, Cyprus and the Spanish Islands.
Bookings in Continental Europe are up 15%, with good growth across all of our source markets. We have seen particularly strong volume growth in Germany and Russia. Overall pricing is in line with last year, while margins are slightly below last year's levels.
Having refocused its flying programme towards Greece and other short and long haul destinations, Condor's bookings have grown by 18%. This positive performance also reflects demand in the market for Condor's high-quality and reliable service. Average selling prices have decreased by 4%, in line with our expectations.
As we highlighted previously, our UK business is managing through a more competitive market to the Spanish Islands, focusing on selling higher margin, quality holidays rather than pursuing volume growth. As a result, charter risk pricing is up 8%, while bookings are slightly behind last year. For the UK as a whole, including seat-only and non-risk package holidays, both bookings and average selling prices are up by 2%.
Summer 2017 Year-on-Year Variation %
---------------------------
Bookings(i) ASP(i) % Sold(ii)
UK +2% +2%(iii) 61%
Continental Europe +15% Flat 66%
Northern Europe +10% +2% 68%
Airlines Germany
(Condor) +18% -4% 58%
Total +12% -1% 61%(iv)
Based on cumulative bookings to 6th May 2017
Notes: (i) Risk and non-risk customers
(ii) Risk customers only
(iii) UK average selling price is up 8% for charter risk and down 4% for seat only, resulting in an overall ASP up 2% on a blended basis
(iv) For the tour operator only, the Summer 2017 season is 66% sold, in line with last year
Winter 2017/18
While it remains very early in the booking cycle for next winter, bookings for Winter 2017/18 holidays are 1% higher than this time last year, against a strong comparative period. Overall pricing is up 5%, driven by growth to long-haul winter sun destinations.
Outlook
Trading for the Group overall is progressing in line with our expectations, despite continued overcapacity in the airline market and strong competition particularly in our UK business. Based on our current trading performance, and supported by further financial benefits from implementing our strategy, we continue to expect our full year underlying operating result to be in line with current market expectations.
TRANSFORMING OUR BUSINESS FOR PROFITABLE GROWTH
We continue to make good progress in implementing our strategy for profitable growth, by streamlining our business to focus on a number of key areas that will differentiate us from competitors, and by simplifying our organisational structure in order to deliver increased value to shareholders.
Customer At Our Heart
Our strategy is centred around giving our customers the very best holiday experience, leading them to return to Thomas Cook and to recommend us to others. To help embed this customer ethos throughout the organisation, we've rolled out customer values and behaviours training to more than 13,000 of our people to date. As a direct result of this and other actions we've taken, our Net Promoter Score (NPS), which we use to measure customer satisfaction, increased by 8 points in the first half, compared to the same time last year.
Customer care
A key differentiator of a Thomas Cook holiday is the level of care and reassurance we provide, whether through the advice we give when customers choose their holiday, the service we provide both before and after their holiday, or the support we offer while customers are on holiday.
In order to provide more transparent information to our customers, we have introduced clear links to the latest government travel advice on all our relevant web pages, customer-friendly blogs on key destinations from our Group Head of Welfare, and new training and advice to all retail and customer services staff.
We demonstrated our ability to act quickly to take care of our customers in a crisis in January, when we repatriated 3,500 customers from the Gambia within 48 hours of a change in government advice. By sending in special assistance teams, we ensured the repatriation went as smoothly for our customers as possible.
In response to positive feedback, we've also extended our 24-hour hotel satisfaction promise for Summer 2017, targeting around 80% of our sun and beach hotel customers across more than 2,000 differentiated hotels, up from 1,600 hotels at launch last year. This promise gives customers our commitment to resolve any problems they might have with their hotels within 24 hours.
Customer contact
Building closer relationships with our customers is key to sustained growth. In the last six months, the investment we've made in our websites has delivered growth in online bookings of 15% in the UK and 35% in Germany. We've also fully implemented OneWeb, our international web platform, in Belgium, with the Netherlands to follow shortly, giving a better customer experience based on more efficient technology.
To further improve customer engagement, we've significantly refreshed and expanded our web content, adding over 80,000 images, 1,000 room plans and 130 hotel videos for the Summer. Our websites now host over 325,000 hotel and resort images, and over 1,000 videos, making them a rich source of holiday information and inspiration for our customers.
We continue to reshape our retail store network, closing 46 smaller and less profitable UK "neighbourhood" stores during the first half and taking our UK store count to around 750 at the end of March. We also continued to open a small number of larger, new-concept "discovery" stores in high footfall areas. The Co-Operative Group's forthcoming exit from our retail joint venture allows us to take full control of the network, optimise our geographical presence, and bring all stores under the Thomas Cook brand by November 2018.
We are also taking steps to grow the proportion of sales through own-brand and strategic partner channels in Germany, to help us increase margins and improve the customer experience. By targeting agency sales through new franchise stores, strategic partners and key account distributors, we have signed 41 new agency agreements so far this year, well on the way towards our target of 60 new agencies for the full year.
Holidays
Our hotels
At the heart of our holiday offering is our portfolio of own-brand hotels and resorts, which give customers a unique Thomas Cook experience and achieve higher NPS scores and better margins. Reflecting strong demand, we've grown sales of holidays to own-brand hotels for the summer by 10% so far this year.
We continue to develop our own-brand hotel portfolio, with 11 new hotel launches planned for this Summer, and a further 11 currently in the pipeline over the next 18 months. This year's openings include the 100-room Casa Cook Kos, our second hotel under the Casa Cook brand which we created last year to bring an affordable boutique experience to the beach. Our first Casa Cook hotel, in Rhodes, has proved very popular since it opened last July, generating overwhelmingly positive customer reviews and attracting a new set of customers to Thomas Cook. Other new hotel launches this Summer include four new Sentido hotels, three new Smartline hotels, a Sunconnect and a Sunprime, covering destinations including Sicily, Bulgaria, Croatia, the Canary Islands and the Maldives.
We also offer holidays to a closely managed portfolio of selected partner hotels, where our aim is to streamline the portfolio in order to improve hotel utilisation, strengthen relationships with hoteliers and agree more exclusive terms. For Summer 2017 we will offer around 3,500 differentiated hotels (including own-brand and selected partner hotels), a reduction of around 150 compared to the previous year, and well on the way towards our target of around 3,000 differentiated hotels by Summer 2019.
We are also sharing more of our capacity across the Group, allowing us to maximise margins by allocating capacity where there is most demand. We now share capacity across source markets for 43% of our differentiated hotels, up from just 7% in 2014.
Our airline
Over the last four years we have further centralised our airline operations across the Group into a single business line, in order to achieve significant scale economies and deliver improved service and customer value. Operating principally out of Germany under the Condor brand, and the UK and Scandinavia under the Thomas Cook Airlines brand, our combined airline operations form one of the leading leisure airlines in Europe, serving around 17 million customers annually.
Our airline strategy is to profitably grow our position in the European leisure flights market, by opening new routes particularly to long haul destinations, by leveraging our unique distribution system including via our in-house tour operator channels, and by improving our customer proposition, underpinned by a constant focus on operational efficiency and safety.
We continue to expand in long-haul, with bookings up 5% over the Winter and 9% for the Summer, reflecting growth in demand particularly for the Caribbean and North America. We have also reshaped and grown our short and medium haul programme, with bookings up 10% for the Summer. We've added 15 new destinations for the Summer, including the Portuguese island of Porto Santo, Almeria and Malaga in Spain, and Mykonos in Greece, as well as San Diego, New Orleans and San Francisco in the USA. This brings the total number of destinations we serve globally to 134, flying from 57 departure airports across our source markets.
Around half of our airline's customers are in-house package holiday customers, de-risking our airline proposition by providing visibility on capacity requirements and helping the airline to optimise yields. We are also actively developing our other distribution channels where we are seeing good demand, including via third-party tour operators and our own websites.
In line with the rest of the Group, our airline is focused on delivering an excellent customer experience. Our fleet of 94 aircraft is now entirely new or recently refurbished, and through operational improvements we have reduced delays of 3-hours or more to a level where less than one in 200 of our flights is affected. These and other customer-focused initiatives have improved our airline NPS by 7 points in the first half. Further improvements this year include the introduction of a new in-flight entertainment system which streams music and movies direct to customers' smartphones.
As we've highlighted previously, Condor's financial performance has been impacted over the last year by tough trading conditions. As a result, we have implemented various profit improvement measures, which we expect will return Condor to profitability for the full year. This is further discussed on page 15.
In March we announced that Thomas Cook Belgium intends to widen its existing partnership with Brussels Airlines, giving our Belgian customers an expanded choice of flights and routes, and enabling us to manage our aircraft and personnel more efficiently. Subject to completion of the deal, the operations of Thomas Cook Airlines Belgium will be absorbed into Brussels Airlines from the end of this year.
Services
We increased our revenue from ancillary sales by 14% in the first half, reflecting growing customer demand for more personalised products and services. To meet this demand, we have invested in new systems to better integrate ancillary sales into the booking process, and we have improved the way we present ancillary offers to customers. This has led to growth from in-flight meals and seat selection, extra luggage, travel and booking insurance, and excursions and entertainment while in destination.
In addition, we are building on our trusted heritage in financial services by establishing a new division which will consolidate our existing financial services under one business unit, and roll out new financial services across the Group. Led by Anthony Mooney, formerly Director of Financial Services at Virgin Money, this new division aims to create an innovative holiday money offering, making it easy and rewarding for holiday customers to manage and protect their holiday money.
Partnerships
Our core areas of strategic growth are complemented by a series of partnerships which enable us to streamline our business while tapping into new opportunities for growth.
Complementary hotel sourcing partnership with Webjet
In August 2016 we announced a strategic hotel sourcing partnership with Webjet, a leading online digital services provider. Under the terms of the deal, we are moving the direct contracting for our complementary sun & beach hotels to Webjet, allowing Thomas Cook to focus on its core differentiated holiday offering and to harmonise and simplify IT platforms and business processes across the Group. By the end of June 2017 we expect to have moved well over half of the target hotel contracts to Webjet, in line with our intended timeframe. We are also now able to access Webjet's existing portfolio of 7,000 directly contracted hotels, enabling us to offer more choice to our customers.
Thomas Cook China
Thomas Cook China has expanded rapidly in the first half, already booking more guests so far this year than the whole of 2016. Around 60% of customers are outbound from China, reflecting rapidly growing demand from Chinese consumers for personalised holiday packages to destinations around the world. The remaining 40% travel inbound to China. The venture is also building a strong presence in the travel sports market, offering packages to watch European football teams playing at home, as well as inbound services to football clubs touring China for their summer pre-season. We expect our China business to continue to grow rapidly in the coming years.
Operational efficiencies and streamlined organisational structure
We have a number of efficiency programmes underway both as cross-Group initiatives and in each of our local markets, in order to remain competitive and provide best value for our customers. We've set up horizontal functions in the areas of IT, marketing, and contracting & product, in order to reduce duplication and share best practice across the Group. In Continental Europe, we are streamlining processes and removing duplication to achieve significant savings with a focus on Germany, Belgium and the Netherlands, while in France we are further restructuring support operations in order to improve profitability. We have also started a programme to consolidate finance support across the Group in our new shared service centre in Palma, Mallorca, which we expect to lead to further benefits.
New Operating Model benefits
The New Operating Model is our Group-wide transformation programme through which we manage, and measure the financial benefits from, a number of business change initiatives aimed at implementing our strategy for profitable growth. In the first half, this programme delivered annualised net EBIT benefits of GBP15 million, mainly from retail and online efficiencies relating to the growth of our web channel, higher ancillaries sales and other overhead savings. This takes the cumulative annualised net EBIT benefits delivered over the 18 months since the programme began to GBP41 million. We remain on track to deliver a total of GBP130 million to GBP150 million of cumulative annualised net EBIT benefits between FY16 and FY19.
Financing progress and dividends
We achieved significant progress in our financing strategy in the first half, extending maturities and reducing interest costs through our bond refinancing. The proceeds of our new EUR750 million bond, bearing a coupon of 6.25% and maturing in June 2022, enabled us to redeem in full both the outstanding GBP200 million principal of our GBP300 million bond due in June 2017, and our entire EUR525 million bond due in June 2020. The new bond was issued at a coupon 150 basis points lower than the two bonds it replaced. We continue to target a further GBP200 million reduction of fixed term debt by the end of 2018.
Reflecting the Group's improving financial performance, we recently resumed making dividend payments to shareholders, paying our first dividend for five years in April in respect of FY16 earnings. Our policy is to target a payout ratio of between 20% and 30% of reported net profit each year, as we believe this represents an appropriate balance between debt reduction and providing a return to shareholders. As previously announced, it is not our intention to pay interim dividends for the foreseeable future.
OPERATING AND FINANCIAL REVIEW
GBPm (unless otherwise stated)(i) 6 months 6 months Change Like-for-like
ended 31 ended 31 Change
Mar 2017 Mar 2016 (iii)
------------------------------------- ---------- ---------- ------- --------------
Revenue 2,994 2,672 +322 +77
Underlying(ii) Gross profit 633 579 +54 +6
Underlying(ii) Gross Margin
(%) 21.1% 21.7% -60bps -40bps
Underlying(ii) Operating expenses (810) (742) -68 -4
Underlying(ii) loss from operations
(Underlying EBIT) (177) (163) -14 +2
Separately Disclosed EBIT
Items (28) (41) +13 +13
Loss from operations (EBIT) (205) (204) -1 +15
Net finance charges (underlying) (74) (73) -1 -1
Separately disclosed finance
charges (35) (7) -28 -28
Loss before tax (314) (284) -30 -14
Tax 42 1 +41 +41
Loss for period (272) (283) +11 +27
------------------------------------- ---------- ---------- ------- --------------
Free cash flow(iv) (648) (646) -2 -2
Net debt(v) (794) (818) +24 +34
------------------------------------- ---------- ---------- ------- --------------
Notes (i) This table includes non-statutory alternative performance
measures - see page 22 for explanation, associated definitions
and reconciliations to statutory numbers
(ii) 'Underlying' refers to trading results that are adjusted
for separately disclosed items that are significant in
understanding the on going results of the Group. Separately
disclosed items are detailed on pages 16 and 30
(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) Free cash flow is cash from operating activities less exceptional
items, capital expenditure and interest paid. A summary
cash flow statement is presented on page 17, and a reconciliation
of free cash flow is shown on page 22
(v) See page 22 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 18 for reconciliation
Overview
The comments below are based on like-for-like comparisons unless otherwise stated, as Management believes this provides a clearer view of the Group's underlying year-on-year progression
The Group continued to improve its financial performance in the first half, achieving higher revenues, a lower seasonal EBIT loss and reduced net debt, compared to the first half last year.
Group revenue increased by GBP77 million, or 3%, on a like-for-like basis, and by GBP322 million, or 12%, on a headline basis (before adjusting for the positive benefits of foreign exchange translation differences), reflecting stronger demand for our holidays particularly to Spain and long-haul destinations. While gross profit increased by GBP6 million, gross margin decreased by 40 basis points to 21.1%, mainly as a result of weaker trading at Condor.
The Group's underlying EBIT loss improved by GBP2 million to GBP177 million, while the Group's loss from operations improved by GBP15 million to GBP205 million, as a result of lower EBIT Separately Disclosed Items.
Separately disclosed finance charges increased by GBP28 million as a result of costs arising from our bond refinancing in December. As a result, Group loss before tax increased by GBP14 million to GBP314 million.
Tax for the period was a credit of GBP42 million, which reflects the recognition of the tax effect of seasonal losses in the UK in the first half of the year. This results in an effective tax rate, based on pre-exceptional loss before tax, of 22.1% for H1 2017 (H1 2016: -1.8%).
Loss for the period improved by GBP27 million to GBP272 million due to the higher tax credit, partly offset by one-off finance charges connected with our successful bond refinancing in December 2016.
The seasonal cash outflow of GBP648 million is GBP2 million higher than last year, with the business achieving working capital improvements due to stronger Summer bookings, offset by the timing of tax payments and additional one-off financing costs associated with the bond refinancing.
As a consequence of the Group's improved working capital position, and after reflecting non-cash changes such as foreign currency translation, Group net debt reduced to GBP794 million, GBP34 million lower on a like-for-like basis than at 31 March 2016.
Like-for-like Analysis
Certain items, such as the normal translational effect of foreign exchange movements, affect the comparability of the Group's financial performance between years. Accordingly, to better represent the Group's underlying year-on-year progression, 'like-for-like' comparisons with H1 2016 are presented in addition to the change in reported numbers.
This year Easter fell in the second half of our financial year, resulting in a shift of holidays taken over Easter into the second half, compared to last year when Easter fell in our first half. The movement in the date of Easter is estimated to have adversely affected H1 2017 revenue and underlying EBIT by GBP55m and GBP10m, respectively, compared to last year.
'Like-for-like' adjustments to the Group's H1 2016 results and the resulting year-on-year changes are as follows:
Underlying
Underlying Operating Underlying
Group Revenue Gross Margin Expenses EBIT
GBPm % GBPm GBPm
---------------------- -------- -------------- ----------- -----------
H1'16 Reported 2,672 21.7% (742) (163)
Easter timing (55) 0.1% - (10)
Currency Movements
& Other(i) 326 (0.5)% (64) (6)
Reduced fuel costs (26) 0.2% - -
H1'16 Like-for-like 2,917 21.5% (806) (179)
H1'17 Reported 2,994 21.1% (810) (177)
Like-for-like change
(GBPm) +77 n/a -4 +2
Like-for-like change
(%) +2.6% -40bps -0.5% +1.1%
---------------------- -------- -------------- ----------- -----------
Note (i) Other includes alignment of comparatives to reallocate per
diem costs associated with airline crew from operating costs
to cost of sales
Performance by source market
The Group reports the performance of its principal geographic source markets, as that best represents the Group's integrated operating activities (tour operator and airline) and customer experience in each market. The exception to this is Condor, our German airline, which operates independently of our German tour operator and has a high proportion of third party customers.
Underlying EBIT by Continental Northern
source market UK Europe Europe Condor Corporate Group
------------------------
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------- ------------ --------- ------- ---------- ------
H1'16 Reported (124) (48) 40 (18) (13) (163)
Easter timing (5) (1) (1) (3) - (10)
Internal business unit
transfer(i) 1 (1) - - - -
Impact of Currency
Movements - (8) 3 (1) - (6)
H1'16 Like-for-like (128) (58) 42 (22) (13) (179)
H1'17 Reported (114) (50) 42 (41) (14) (177)
Like-for-like change
(GBPm) +14 +8 Same -19 -1 +2
Like-for-like change
(%) +10.9% +13.8% Same -86.4% -7.7% +1.1%
------------------------ ------- ------------ --------- ------- ---------- ------
Note (i) The trade and assets of our accommodation business, Hotels4U,
was transferred from our UK business to our Continental
Europe business in August 2016; a like-for-like adjustment
has been made to show comparable performance of these two
segments
Performance by business line
In addition to the Group's source market reporting, we also provide supplementary information to give a better understanding of the separate financial performance of our tour operator and airline business lines. Although these functions are integrated to varying degrees in each of the Group's source markets, they are now separately reported for certain internal management purposes.
From a commercial perspective, we believe the pricing arrangements between our tour operator and airline businesses represent a reasonable approximation of third party arrangements that our tour operator businesses could secure in the market for an equivalent service.
Underlying EBIT Group Group
by business line Tour Operator Airline Corporate Group
GBPm GBPm GBPm GBPm
---------------------- --------------- --------- ------------ --------
H1'16 Reported (93) (57) (13) (163)
Easter (4) (6) - (10)
Currency (3) (3) - (6)
H1'16 Like-for-like (100) (66) (13) (179)
H1'17 Reported (81) (82) (14) (177)
Like-for-like change
(GBPm) +19 -16 -1 +2
Like-for-like change
(%) +19.0% -24.2% -7.7% +1.1%
---------------------- --------------- --------- ------------ --------
Revenue
Group revenue increased by GBP77 million (2.6%) on a like-for-like basis to GBP2,994 million, as we have reshaped and expanded our Winter holiday programme to meet changing customer demand. This resulted in the growth of holiday sales to Spain (+GBP56 million), Greece (+GBP18 million) and to long haul destinations (+GBP65 million), which has more than offset lower customer demand for holidays to Turkey (-GBP80 million).
The main components of the changes in like-for-like revenue are as follows:
GBPm
H1'16 Like-for-like
Revenue 2,917
Spain 56 +5%
Greece 18 +36%
Long haul 65 +6%
Other 18 +3%
Turkey (80) -41%
H1'17 Revenue 2,994
--------------------- ------ -----
Underlying Gross Margin
Gross margin of 21.1% is 40 basis points lower than last year, principally reflecting market overcapacity which continued to affect our German Airline, Condor, putting downward pressure on yields.
The relative impact on the Group's gross margin performance form each of our sources markets is set out below.
%
H1'16 Like-for-like
Gross Margin 21.5
UK +0.1
Continental Europe -0.1
Northern Europe -0.1
Condor -0.3
H1'17 Like-for-like
Gross Margin 21.1
--------------------- -----
Underlying Operating Expenses / Overheads
Operating expenses before depreciation decreased by GBP1 million to GBP699 million as the benefits of efficiency initiatives were offset by inflationary increases to the operating cost base. Depreciation increased by GBP5 million to GBP111 million following further investment in our aircraft fleet and IT enhancements.
Six months Six months Change Like-for-like
to 31 Mar to 31 Mar Change
GBPm 2017 2016
Personnel Costs (446) (417) -29 +8
Net Operating
Expenses (253) (228) -25 -7
Sub Total (699) (645) -54 +1
Depreciation and
amortisation (111) (97) -14 -5
Total (810) (742) -68 -4
------------------ ----------- ----------- ------- --------------
Underlying EBIT
The Group reported an underlying EBIT loss of GBP177 million in the first half of the year, an improvement of GBP2m compared to last year.
Net benefits of GBP15 million were delivered in the first half of the year from the implementation of our New Operating Model, in line with our expectations for the Winter period. This contributed to an improved result in our UK and Continental Europe businesses, where seasonal losses were GBP14 million and GBP8 million lower than last year, respectively.
However, profitability in Condor has been affected by market overcapacity and weaker customer demand to certain destinations. As a result, Condor's EBIT loss was GBP19 million higher than last year, but with an improving trend in the second quarter (Q1 -GBP13m, Q2 -GBP6m year-on-year).
EBIT
The Group's statutory EBIT loss of GBP205 million represents an improvement of GBP15 million compared to last year due to the improvement in underlying EBIT explained above, together with lower separately disclosed items of GBP28 million (H1 2016: GBP41 million) (see page 16).
SEGMENTAL REVIEW
Performance by source market
A summary of the results for each geographical segment is set out below.
GBPm (unless otherwise UK Continental Northern Condor Corporate(i) Group
stated) Europe Europe
Revenue 707 1,206 617 609 (145) 2,994
Underlying Gross Margin
(%) 23.1% 13.7% 25.8% 23.3% n/a 21.1%
Underlying EBIT (114) (50) 42 (41) (14) (177)
Underlying EBIT Change +10 -2 +2 -23 -1 -14
Like-for-Like Underlying
EBIT Change +14 +8 Same -19 -1 +2
Departed Customers
(000's) 1,671 1,938 700 2,694 (647) 6,356
-------------------------- ------ ------------ --------- ------- ------------- ------
Note (i) Negative revenue and customers reported in Corporate is
a result of inter-segment eliminations
United Kingdom & Ireland
GBPm (unless otherwise H1'17 H1'16 Change H1'16 Like-for-Like
stated) Like-for-Like(i) Change
------------------------- ------ ------ ------- ------------------ --------------
Revenue 707 700 +7 664 +43
Underlying Gross Margin
(%) 23.1% 22.4% +70bps 22.7% +40bps
Underlying EBIT (114) (124) +10 (128) +14
Departed Customers
(000's) 1,671 1,799 -128 1,480 +191
------------------------- ------ ------ ------- ------------------ --------------
Note (i) The trading assets of our accommodation business, Hotels4U,
was transferred from our UK to our Continental Europe business
in August 2016; a like-for-like adjustment has been made
to show comparable performance
Our UK business traded strongly in the first half, with revenue of GBP707 million, GBP43 million (6.5%) higher than last year, reflecting the continued growth of our Winter programme particularly to long haul destinations, and focus on quality. This also benefited gross margins, which improved by 40 basis points.
In addition to revenue and margin growth, operating efficiencies of GBP10 million were achieved in the first half, primarily relating to lower distribution costs as our customers increasingly book online, allowing us to selectively refine our retail store network.
As a result, the UK reported a seasonal underlying EBIT loss of GBP114 million for the period, representing an improvement of GBP14 million (H1 2016: GBP128 million loss).
As part of our distribution strategy, we have agreed to acquire The Co-operative Group's minority interest in our UK retail joint venture. In connection with this, we paid GBP32m in dividends to The Co-operative Group and will pay a further GBP56 million in November 2017.
In common with the rest of the UK package travel industry, we have seen an increase in illness related claims from UK consumers. At a time when customer satisfaction levels are increasing, we believe many of these claims are questionable and are motivated by the actions of certain claims management companies. We are working closely with our hotel partners and the authorities, particularly in Spain, to improve processes in resort and will continue actively to lobby government for changes to legislation in this area.
Continental Europe
GBPm (unless otherwise H1'17 H1'16 Change H1'16 Like-for-Like
stated) Like-for-Like(i) Change
------------------------ ------ ------ ------- ------------------ --------------
Revenue 1,206 1,036 +170 1,201 +5
Underlying Gross
Margin (%) 13.7% 13.8% -10bps 13.9% -20bps
Underlying EBIT (50) (48) -2 (58) +8
Departed Customers
(000's) 1,938 1,885 +53 2,123 -185
------------------------ ------ ------ ------- ------------------ --------------
Note (i) The trade and assets of our accommodation business, Hotels4U,
was transferred from our UK to our Continental Europe business
in August 2016; a like-for-like adjustment has been made
to show comparable performance
Our Continental European businesses reported revenue of GBP1,206 million, in line with last year, and an underlying EBIT loss of GBP50 million, an improvement of GBP8 million. Revenue and underlying EBIT performance by key source market within Continental Europe is set out below.
Revenue and EBIT by Market
GBPm H1'17 H1'16 Change H1'16 Like-for-Like
Like-for-Like Change
-------------------------- ------ ------ ------- --------------- --------------
Revenue
* Central Europe(i) 761 653 +108 756 +5
* East/West(ii) 321 268 +53 310 +11
* Other(iii) 124 115 +9 135 -11
Total 1,206 1,036 +170 1,201 +5
Underlying EBIT
* Central Europe(i) 7 8 -1 8 -1
* East/West(ii) (42) (41) -1 (48) +6
* Other(iii) (15) (15) Same (18) +3
Total (50) (48) -2 (58) +8
-------------------------- ------ ------ ------- --------------- --------------
Notes (i) Central Europe includes Germany and Austria
(ii) East/West includes Belgium, Netherlands, France, Russia,
Poland, Hungary, and the Czech Republic
(iii) "Other" includes the head office functions based in Germany,
our hotel accommodation businesses based in Switzerland,
In-Destination Services, and other support functions
Our Central Europe business has successfully rebalanced capacity in response to changing customer demand, substituting alternative destinations to replace lower demand for Turkey. This has resulted in revenue being maintained at last year's levels. This strategy has enabled us to increase market share in a competitive market, despite margin pressures, enabling the business to report a result broadly in line with last year. We continue to take steps to improve controlled distribution, including expanding our relationships with distribution partners and growing our online presence. Our new web platform has contributed to a rise in online bookings of 35% so far this financial year, albeit from a low base.
In East/West, we have achieved modest profit improvements in France, Russia and Belgium, while our Dutch business traded in line with last year. Russia has benefited from the resumption of holidays to Turkey which, together with the successful expansion of our domestic Russian business, has resulted in strong sales growth of almost 40%. We have also continued to expand our Winter long haul holidays from France, growing revenue by 6% compared to last year. While customer demand in Belgium was below historical levels, due to the negative impact on customer demand after the Brussels airport attack in March last year, our focus on capacity control, margins and efficiency measures has enabled us to reduce seasonal losses in that market.
Other Continental Europe EBIT performance also benefitted from the ongoing streamlining of our structure, which has resulted in an improvement in profitability of GBP3 million.
Northern Europe
GBPm (unless otherwise H1'17 H1'16 Change H1'16 Like-for-Like stated) Like-for-Like Change ------------------------ ------ ------ ------- --------------- -------------- Revenue 617 536 +81 583 +34 Underlying Gross Margin (%) 25.8% 26.7% -90bps 26.4% -60bps Underlying EBIT 42 40 +2 42 Same Departed Customers (000's) 700 687 +13 687 +13 ------------------------ ------ ------ ------- --------------- --------------
Our Northern Europe business reported revenue of GBP617 million, GBP34 million (5.8%) higher than last year, reflecting the benefits of our expanded range of own-brand hotels and increased focus on ancillary products. Although gross margin was 60 basis points lower following strong Winter trading last year, underlying EBIT was maintained at GBP42 million.
Revenue growth has been supported by our leading position in the package holiday market in Nordics and the expansion of our dynamic packaging business. During the Winter season, in response to customer demand, we increased sales of holidays to the Canary Islands and Cape Verde, which compensated for lower demand to certain long haul destinations. In addition, we continue to refine and streamline cost structures within the four Nordic source markets and to leverage the competitive strengths of our integrated business model.
Condor (Airlines Germany)
GBPm (unless otherwise H1'17 H1'16 Change H1'16 Like-for-Like stated) Like-for-Like Change ------------------------ ------ ------ ------- --------------- -------------- Revenue 609 546 +63 616 -7 Underlying Gross Margin (%) 23.3% 24.2% -90bps 24.5% -120bps Underlying EBIT (41) (18) -23 (22) -19 Departed Customers (000's) 2,694 2,850 -156 2,811 -117 ------------------------ ------ ------ ------- --------------- --------------
As we previously reported, Condor has been impacted by weak consumer demand, particularly to Turkey where it is a market leader, and by market overcapacity particularly to Spanish destinations.
Revenues of GBP609 million were GBP7 million (1.1%) lower than last year as we reduced short haul capacity (especially to Turkey) and continued to expand our flights to long haul destinations. Despite this resilient revenue performance, yield pressures have resulted in a seasonal underlying EBIT loss of GBP41 million, GBP19 million higher than last year (H1 2016: GBP22 million loss). However, the trend in Condor's profitability has improved in the second quarter (Q1: -GBP13m, Q2: -GBP6m year-on-year), reflecting the measures we have implemented to respond to market pressures.
We have made good progress on the profit improvement measures that we set out in our results announcement in November 2016, including rerouting capacity and increasing our operational flexibility. We estimate that these measures have delivered benefits of GBP7 million in the first half of the year and have helped to mitigate competitive pricing pressures in the market.
Corporate
Corporate operating expenses of GBP14 million were broadly in line with prior year.
GBPm (unless otherwise H1'17 H1'16 Change H1'16 Like-for-Like stated) Like-for-Like Change ------------------------ ------ ------ ------- --------------- -------------- Underlying Operating Expenses (14) (13) -1 (13) -1 Underlying EBIT (14) (13) -1 (13) -1 ------------------------ ------ ------ ------- --------------- --------------
Performance by Business Line
A review of the financial performance of each of the Group's principal business lines is set out below.
Group Tour Operator business
GBPm (unless otherwise H1'17 H1'16 Change H1'16 Like-for-Like stated) Like-for-Like Change ------------------------ ------ ------ ------- --------------- -------------- Revenue 2,284 2,056 +228 2,264 +20 Underlying Gross Margin (%) 15.0% 15.0% Flat 14.9% +10bps Underlying EBIT (81) (93) +12 (100) +19 ASP (GBP) 723 611 +112 685 +38 ------------------------ ------ ------ ------- --------------- --------------
Tour operator revenue of GBP2,284 million was GBP20 million (0.9%) higher than last year, primarily due to growth in our UK and Nordic businesses. The Group's tour operator businesses generated an underlying EBIT loss of GBP81 million, an improvement of GBP19 million (19.0%) compared to last year. Benefits from our New Operating Model have underpinned EBIT growth in our tour operator businesses, especially in the UK and Continental Europe, together with another strong performance from our Nordic business, which reported an EBIT result which was only slightly lower than an exceptionally strong result last year.
Group Airline business
GBPm (unless otherwise H1'17 H1'16 Change H1'16 Like-for-Like
stated) Like-for-Like Change
-------------------------- ------- ------- ------- --------------- --------------
Segmental Sales(i) 1,202 1,098 +104 1,163 +39
Underlying Gross Margin
(%) 23.8% 24.3% -50bps 24.7% -90bps
Underlying EBIT (82) (57) -25 (66) -16
Underlying EBITDAR 67 64 +3 75 -8
Available Seat Kilometre
(ASK) (m) 22,148 21,675 +473 21,675 +473
Seat Load Factor (SLF)
(%) 88.6% 88.3% +0.3% 88.3% +0.3%
Long Haul Yields per
seat (GBP) 307 291 +16 324 -17
Short Haul Yields
per seat (GBP) 116 108 +8 121 -5
-------------------------- ------- ------- ------- --------------- --------------
Note (i) Segmental sales in the Airline include inter-segment revenues
which totalled GBP492m in H1'17 (GBP458m in H1'16 and GBP482m
in H1'16 LfL)
Airline revenue increased by 3.4% to GBP1,202 million as further expansion of our long haul business from the UK and Germany has offset lower capacity and demand in the short and medium haul sector, particularly in Germany and Belgium.
Overall capacity in Available Seat Kilometres was in line with last year, with a 4% reduction in short and medium haul being compensated by a 5% increase in long haul capacity. The seat load factor improved slightly from 88.3% to 88.6%.
The Group's Airline generated an underlying EBIT loss of GBP82 million, GBP16 million higher than in the prior year, impacted by lower profitability in Condor, as set out above. Average yields for long haul and short haul seats fell, by GBP5 (4.1%) and GBP17 (5.2%) per seat respectively, on a like-for-like basis.
OTHER FINANCIAL ITEMS
Net Finance Charges
Net finance charges increased by GBP1 million to GBP74 million (H1 2016: GBP73 million) and a detailed analysis is set out Note 5 on page 31. Our new bond issued in December 2016 refinanced a significant part of the Group's debt at a cheaper interest rate, which has further strengthened the Group's balance sheet and extended our debt maturity profile. The reduction of fixed term debt through operating cash flow remains a key priority for the Group, which will facilitate a consequent reduction in finance costs.
Separately Disclosed Items
Net Separately Disclosed Items totalled a charge of GBP63 million, which is GBP15 million higher than last year (H1 2016: GBP48 million), as analysed below.
GBPm H1'17 H1'16
New Operating Model implementation
costs (18) (20)
Restructuring costs (9) (4)
Reassessment of provisions 32 4
Store closures (16) (13)
Other (17) (8)
------------------------------------ ------ ------
EBIT related items (28) (41)
------------------------------------ ------ ------
Finance related charges (35) (7)
------------------------------------ ------ ------
Total (63) (48)
------------------------------------ ------ ------
Of which:
- Cash(i) (57) (23)
- Non-Cash (6) (25)
------------------------------------ ------ ------
Note (i) Items classified as "Cash" represent
both current year cashflows, and
cash effects which are yet to be
realised
Further information on Separately Disclosed Items is set out in Note 4 on page 30.
Summary Cash Flow Statement(i)
GBPm H1'17 H1'16
------------------------------ ------ ------
Underlying EBIT (177) (163)
Depreciation 111 97
------------------------------ ------ ------
Underlying EBITDA (66) (66)
Working capital (335) (407)
Tax (30) (6)
Pensions & other operating (8) (6)
------------------------------ ------ ------
Operating Cash flow (439) (485)
Exceptional bond refinancing (10) -
costs
Exceptional items (41) (35)
Capital expenditure (net of
disposal proceeds) (91) (84)
Net interest paid (67) (42)
------------------------------ ------ ------
Free Cash flow (648) (646)
------------------------------ ------ ------
Co-op payment(ii) (32) (4)
------------------------------ ------ ------
Net Cash flow (680) (650)
------------------------------ ------ ------
Notes (i) The Group uses three non-statutory cash flow measures to
manage the business. Operating Cashflow is net cash from
operating activities excluding interest income and the cash
effect of separately disclosed items impacting EBIT. Free
Cash flow is cash from operating activities less capital
expenditure and net interest paid. 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
(ii) We have agreed to acquire The Co-operative Group's minority
interest in our UK retail joint venture. As part of this
arrangement we paid GBP32m in dividends to The Co-operative
Group and we will make a final payment of GBP56 million
by November 2017
The seasonal free cash outflow of GBP648 million was GBP2 million higher than last year (H1 2016: GBP646 million). While the Group's working capital position has improved, reflecting an increased level of Summer bookings and customer deposits, this has been offset by the timing of tax payments in Germany, additional bond refinancing costs and the timing of interest payments.
Current year cash exceptional charges totalling GBP51 million are analysed as follows:
Exceptional items (GBPm) H1'17 H1'16
------------------------------ ------ ------
Cash related exceptionals (57) (23)
Of which will be paid in 22 -
future years
Prior year cash exceptionals
paid in financial year (13) (8)
Prior year EU261 (paid in
Financial Year) (3) (4)
Total cash exceptional items (51) (35)
------------------------------ ------ ------
Note (i) Items classified as "Cash" represent
both current year cashflows, and
cash effects which are yet to be
realised
The Group uses a measure of cash conversion representing the percentage of underlying profit before tax that is converted into free cash flow. On this basis, cash conversion on a last twelve months basis to March 2017 is 36% as summarised below.
Cash conversion (GBPm) H1'17 H1'16
LTM LTM
------------------------ ------ ------
Underlying EBIT 294 321
Net interest (141) (135)
Underlying Profit
before tax 153 186
Free Cash flow(i) 56 (51)
------------------------ ------ ------
Cash conversion 36% n/m
------------------------ ------ ------
Note (i) Free cash flow is cash from
operating activities less
exceptional items, capital
expenditure and interest paid
Net Debt
The Group sources debt and finance facilities from a combination of the international capital markets and its relationship banking group. During the last 6 months, the Group's net debt has fallen from GBP818 million to GBP794 million, equivalent to an improvement of GBP34 million on a like-for-like basis.
GBPm
---------------------------- ------
H1'16 Reported (818)
Impact of currency
movements 15
Impact of bond refinancing (25)
H1'16 Like-for-like (828)
H1'17 Reported (794)
Like-for-like change +34
---------------------------- ------
The composition and maturity of the Group's net debt is summarised below.
GBPm 31 Mar. 31 Mar. Movement Maturity
2017 2016
------------------------- -------- -------- --------- ----------
2017 GBP Bond - (299) +299 June 2017
2020 Euro Bond - (415) +415 June 2020
2021 Euro Bond (342) (316) -26 June 2021
2022 Euro Bond (642) - -642 June 2022
Commercial Paper (140) (134) -6 Various
Revolving Credit
Facility (50) - -50 May 2019
Finance Leases(i) (167) (183) +16 Various
Aircraft related
borrowings(i) (47) (69) +22 Various
Other external debt (33) (25) -8 Various
Arrangement fees
& other(ii) 18 16 +2 n/a
Total Debt (1,403) (1,425) +22
Cash (net of overdraft) 609 607 +2
Net Debt (794) (818) +24
------------------------- -------- -------- --------- ----------
Notes (i) Debt specific to the Group's Airline operations totalled
GBP203 million at 31 March 2017 (31 March 2016: GBP241
million)
(ii) Other includes a fair value adjustment to bonds and
associated hedging instruments
The Group's GBP800 million Committed Facilities comprise a Revolving Credit Facility of GBP500 million, of which GBP50 million was drawn at 31 March 2017 (nil at 31 March 2016), and a GBP300 million bonding and guarantee facility of which GBP273 million was drawn at 31 March 2017 (31 March 2016: GBP253 million). These Committed Facilities expire in May 2019.
In December 2016, we issued a new EUR750 million bond, bearing a coupon of 6.25% and maturing on 15 June 2022. The proceeds of the bond enabled us to redeem in full both the outstanding GBP200 million principal of our GBP300 million bond maturing in June 2017, and our entire EUR525 million bond maturing in June 2020. The new bond was issued at a coupon 150 basis points lower than the two bonds it replaced, helping to enhance our financial and operational flexibility.
Treasury and Cash Management
The Group's funding, liquidity and exposure to foreign currencies, interest rates, commodity prices and nancial credit risk are managed by a 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, which provides a degree of certainty to the operating segments, and to 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 nancial commitments as they fall due, and enhance the Group's credit rating over the medium term.
Due to the seasonality of the Group's business cycle and cash ows, 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 terms of the policy but returns in general remain low given the low interest rate environment in the UK, the US and Europe.
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 our liquidity headroom calculation.
Hedging of Fuel and Foreign Exchange
The proportion of our forthcoming requirements for Euros, US Dollars and Jet Fuel that have been hedged are shown in the table below
Summer 17 Winter 2017/18 Summer 18
----------- ---------- --------------- ----------
Euro 95% 76% 41%
US Dollar 94% 84% 43%
Jet Fuel 90% 98% 51%
----------- ---------- --------------- ----------
As at 30 April 2017
As Jet Fuel is priced in US Dollars, we buy forward the requisite amount of US Dollars from a mix of base currencies. For FY17, we estimate that our net fuel costs will fall by around GBP30 million compared to FY16.
The Group's policy is not to hedge the translation impact of profits generated outside the UK. If end-April rates for the Euro and Swedish Krona were maintained throughout the remainder of FY17, there would be a negative year-on-year translation impact on EBIT of approximately GBP11 million.
The average and period end exchange rates for the Group were as follows:
Average Rate Period End Rate
H1'17 H1'16 H1'17 H1'16
GBP/Euro 1.16 1.34 1.17 1.26
GBP/US Dollar 1.24 1.47 1.25 1.44
GBP/SEK 11.14 12.49 11.14 11.67
--------------- ------- ------ -------- --------
Credit Rating
Both Fitch and Standard & Poor's revised the outlook on the Group's 'B' ratings to 'positive' in February 2017, recognising the continuing progress in the transformation of Thomas Cook despite external challenges. Moody's affirmed the B1 rating assigned in May 2016.
Corporate At 31 March 2017 At 31 March 2016
Ratings
------------- ------------------- -------------------
Rating Outlook Rating Outlook
-------- --------- -------- ---------
Standard and B Positive B Stable
Poor's
Fitch B Positive B Stable
Moody's B1 Stable B1 Stable
------------- -------- --------- -------- ---------
FORWARD-LOOKING STATEMENTS
This document includes forward-looking statements that are based on estimates and assumptions and are subject to risks and uncertainties. These forward-looking statements are all statements other than statements of historical facts or statements in the present tense, and can be identified with words such as "aim", "anticipates", "aspires", "assumes", "believes", "could", "estimates", "expects", "intends", "hopes", "may", "outlook", "plans", "potential", "projects", "predicts", "should", "targets", "will", "would", as well as the negatives of these terms and other words of similar meaning. These statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those otherwise expressed.
The forward-looking statements in this document are made based upon our estimates, expectations and beliefs concerning future events affecting the Group and are subject to a number of known and unknown risks and uncertainties. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which it will operate, which may prove not to be accurate. We caution that these forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in these forward-looking statements. Undue reliance should therefore not be placed on such forward-looking statements.
Any forward-looking statements contained in this document apply only as at the date of this document and are not intended to give any assurance over future results. Other than in accordance with any legal or regulatory obligations, the Group does not undertake any obligation to update or revise any forward-looking statement after the date on which the forward-looking statement was made, whether as a result of new information, future developments or otherwise.
PRINCIPAL RISKS & UNCERTAINTIES
Management have undertaken a broader review of the principal risks and uncertainties affecting the business activities of the Group.
The assessment indicated that the following risks are of a particular relevance to the likely outturn for September 2017 as their impact could have an immediate effect:
-- Due to the nature of its business, the Group will always be exposed to a risk of a health and safety incident that may impact our customers or colleagues together with associated reputational damage.
-- A significant decline in customer demand due to the growing threat of terrorist attacks in our key tourist destinations, may lead to decreased revenue.
-- Cash generation is insufficient to strategically manage debt repayment and/or dividend payment.
-- A decision or a course of action is perceived negatively by the media, investors and/or general public, which in turn impacts the corporate reputation of the Group and its share price.
The potential likelihood and impact of these risks remain broadly unchanged since the September 2016 year-end evaluation was performed.
The following principal risks were identified which could impact the Group beyond September 2017:
-- Our transformation initiatives fail to deliver our strategic and operational targets.
-- Inability to consistently meet customer expectations may have an adverse impact on Thomas Cook's market share.
-- Failure to develop a more diverse product portfolio may have an adverse impact on our ability to improve the customers' experience of Thomas Cook holidays.
-- Failure to achieve growth in our digital distribution channel may have an adverse impact on our market share, profitability and future growth.
-- Failure to recruit or to retain the right people at the right time will lead to a lack of capability or capacity to enable the implementation of our business strategy.
-- IT architecture is unable to support the needs of the business.
-- Information security and cyber threats are currently a priority across all industries and remain a key Government agenda item. The Group recognises that we have high risk exposure in this area.
-- The decision for the UK to exit the EU has a detrimental impact on the Group's operations.
-- Failure to comply with regulatory, legislative and corporate social responsibility requirements in the legal jurisdictions where Thomas Cook operates.
The potential likelihood and impact of these risks remain broadly unchanged since the September 2016 year-end evaluation was performed.
In addition, in February 2017, the European Union Competition Commission launched an investigation into the travel industry regarding hotel accommodation agreements. As announced publicly on 3 February 2017, the Group notes the decision by the European Commission to investigate the availability of hotel bookings and pricing between member states. Across the Group's 15 European source markets, Thomas Cook is committed to fair and open competition and will cooperate fully with the Commission through this process.
With the exception of the EU Competition Commission investigation, the outcome of this review has not identified new risks for the Group or changes to the Group's control environment which is more fully described throughout the Directors' Report of the Annual Report & Accounts for the year ended 30 September 2016, a copy of which is available on the Group's corporate website, www.thomascookgroup.com.
APPIX 1 - USE OF ALTERNATIVE PERFORMANCE MEASURES
The Directors have adopted a number of alternative performance measures (APM), namely underlying EBIT, net debt, operating cash flow, free cash flow and net cash flow. The Group's results are presented both before and after separately disclosed items. Separately disclosed items are disclosed in note 4 of the consolidated financial statements.
These measures have been used to identify the Group's strategic objectives of 'Underlying EBIT and Underlying EBIT margin growth' and 'Net Debt' reduction, and to monitor performance towards these goals. The alternative performance measures are not defined by IFRS and therefore may not be directly comparable with other companies' alternative performance measures. These measures are not intended to be a substitute for, or superior to, IFRS measurements. The definition of each APM presented in this report, together with a reconciliation to the nearest measure prepared in accordance with IFRS is presented below.
Underlying EBIT
This is the headline measure of the Group's performance, and is based on profit from operations before the impact of separately disclosed items. Underlying EBIT provides a measure of the underlying operating performance of the Group and growth in profitability of the operations.
Reconciliation to IFRS measures: GBPm H1'17 H1'16 Loss from operations (205) (204) Less: Separately disclosed items affecting loss from operations (Note 4) 28 41 -------------------------------------------- ------ ------ Underlying EBIT (177) (163) -------------------------------------------- ------ ------
Management cash flow statement
The Group uses three non-statutory cash flow measures to manage the business. Operating Cashflow is net cash used in operating activities excluding the cash effect of separately disclosed items. Free Cash flow is cash from operating activities less capital expenditure and interest paid. Net Cashflow is the net decrease in cash and cash equivalents excluding the net movement in borrowings, facility set-up fees and finance lease repayments. These cash flow measures are indicators of the financial management of the business. They reflect the cash generated by the business before and after investing and financing activities and explain changes in the Group's Net Debt position.
Reconciliation to IFRS measures: GBPm H1'17 H1'16 Underlying EBIT (177) (163) IFRS depreciation and amortisation 111 97 IFRS share based payments 3 3 IFRS movement in working capital and provisions (363) (416) Add back cash impact of separately disclosed items on working capital 28 9 IFRS Income taxes paid (30) (6) IFRS additional pension contributions (12) (11) Add back non cash impact of separately disclosed items 1 2 -------------------------------------------------- ------ ------ Operating Cash Flow (439) (485) Cash Impact of EBIT separately disclosed items (41) (34) IFRS net cash used in operating activities (480) (519) IFRS proceeds on disposal of property, plant and equipment 1 1 IFRS Investments in joint ventures & associates - (3) IFRS purchase of tangible assets (62) (47) IFRS purchase of intangible assets (30) (33) IFRS interest paid (77) (45) Free Cash Flow (648) (646) -------------------------------------------------- ------ ------ IFRS dividends paid to non-controlling interests (32) (4) Net Cash Flow (680) (650) -------------------------------------------------- ------ ------ IFRS Draw down of borrowings (1) 904 147 IFRS Repayment of borrowings (1) (848) (191) IFRS Payment of facility set-up fees (1) (10) - IFRS Repayment of finance lease obligation (1) (20) (17) -------------------------------------------------- ------ ------ Net decrease in cash and cash equivalents (654) (711) Cash and cash equivalents net of overdrafts at beginning of year 1,234 1,286 Effect of foreign exchange rate changes 29 32 -------------------------------------------------- ------ ------ Cash and cash equivalents net of overdrafts at end of the period 609 607 -------------------------------------------------- ------ ------
(1) These cash flows are Net Debt neutral
Net debt
Net debt comprises bank and other borrowings, finance lease payables and net derivative financial instruments used to hedge exposure to interest rate risks of bank and other borrowings, offset by cash and cash equivalents. Net debt is a measure of how the Group manages its balance sheet and capital structure. A strong balance sheet and efficient capital structure is essential to withstand external market shocks and seize opportunities. Accordingly, reducing net debt and the cost of the debt is a priority for the Group.
Reconciliation to IFRS measures: GBPm HY17 HY16 Borrowings (1,245) (1,256) Obligations under finance leases (167) (184) Net derivative financial instruments - interest rate swaps (Note 9) (1) 7 Cash and cash equivalents 619 615 ------------------------------------------------- -------- -------- Net Debt (794) (818) ------------------------------------------------- -------- --------
APPIX 2 - CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Group Income Statement
Unaudited Unaudited restated
Six months ended 31 March Six months ended 31 March
2017 2016
----------------------- ----- --------------------------------------------- ---------------------------------
Underlying Separately Total Underlying Separately Total
results disclosed results disclosed
items (note items (note
4) 4)
Notes GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 3 2,994 - 2,994 2,672 - 2,672
Cost of providing
tourism services (2,361) - (2,361) (2,093) 4 (2,089)
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
Gross profit 633 - 633 579 4 583
Personnel expenses (446) (15) (461) (417) (12) (429)
Depreciation and
amortisation (111) - (111) (97) - (97)
Net operating expenses (253) (10) (263) (228) (30) (258)
Amortisation of
business combination
intangibles 4 - (3) (3) - (3) (3)
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
Loss from operations 3 (177) (28) (205) (163) (41) (204)
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
Finance income 5 2 - 2 3 - 3
Finance costs 4/5 (76) (35) (111) (76) (7) (83)
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
Loss before tax (251) (63) (314) (236) (48) (284)
Tax 6 42 1
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
Loss for the period (272) (283)
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
Attributable to:
Equity holders
of the parent (267) (265)
Non-controlling
interests (5) (18)
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
(272) (283)
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
Basic and diluted
loss per share
(pence) 7 (17.4) (17.3)
----------------------- ----- ---------------------- ------------ ------- ---------- ------------ -------
The notes on pages 28 to 34 form an integral part of the condensed consolidated interim financial statements.
Group Statement of Other Comprehensive Income
Unaudited
Unaudited restated
Six months Six months
ended ended
31 March 31 March
2017 2016
GBPm GBPm
--------------------------------------------- ----------- -----------
Loss for the period (272) (283)
Other comprehensive income/(loss)
Items that will not be reclassified to
the Income Statement
Actuarial gains/(losses) on defined benefit
pension schemes 54 (42)
Tax on actuarial gains (15) 8
Items that may be reclassified subsequently
to the Income Statement
Foreign exchange translation (losses)/gains (7) 50
Fair value gains and losses
Gains/(losses) deferred for the period 68 (135)
Tax on gains/(losses) deferred for the
period (15) 44 (Gains)/losses/transferred to the income statement (34) 69 Tax on (gains)/losses transferred to the income statement (5) (19) ---------------------------------------------- ----------- ----------- Total net other comprehensive income/(loss) for the period 46 (25) ---------------------------------------------- ----------- ----------- Total comprehensive loss for the period (226) (308) ---------------------------------------------- ----------- ----------- Attributable to: Equity holders of the parent (220) (290) Non-controlling interests (6) (18) ---------------------------------------------- ----------- ----------- Total comprehensive loss for the period (226) (308) ---------------------------------------------- ----------- -----------
The notes on pages 28 to 34 form an integral part of the condensed consolidated interim financial statements.
Group Cash Flow Statement
Unaudited
Unaudited restated
Six months Six months
ended ended
31 March 31 March
2017 2016
GBPm GBPm
--------------------------------------------- ----------- -----------
Loss before tax (314) (284)
Adjustments for:
Net finance costs 109 80
Net investment income and share of
results of joint ventures and associates - -
Depreciation, amortisation and impairment 125 112
Share-based payments 3 3
Increase/(decrease) in provisions 11 (30)
Additional pension contributions (12) (11)
Interest received 2 3
Decrease/ (increase) in working capital:
Inventories (3) (7)
Receivables (198) (171)
Payables (173) (208)
---------------------------------------------- ----------- -----------
Cash used in operations (450) (513)
Income taxes paid (30) (6)
---------------------------------------------- ----------- -----------
Net cash used in operating activities (480) (519)
---------------------------------------------- ----------- -----------
Proceeds on disposal of property,
plant and equipment 1 1
Investment in joint ventures and associates - (3)
Purchase of tangible assets (62) (48)
Purchase of intangible assets (30) (33)
---------------------------------------------- ----------- -----------
Net cash used in investing activities (91) (83)
---------------------------------------------- ----------- -----------
Interest paid (77) (45)
Dividends paid to non-controlling
interests (32) (4)
Draw down of borrowings 904 147
Repayment of borrowings (848) (190)
Payment of facility set-up fees (10) -
Repayment of finance lease obligation (20) (17)
---------------------------------------------- ----------- -----------
Net cash used in financing activities (83) (109)
---------------------------------------------- ----------- -----------
Net decrease in cash and cash equivalents (654) (711)
Cash and cash equivalents net of overdrafts
at beginning of year 1,234 1,286
Effect of foreign exchange rate changes 29 32
---------------------------------------------- ----------- -----------
Cash and cash equivalents net of overdrafts
at end of the period 609 607
---------------------------------------------- ----------- -----------
The notes on pages 28 to 34 form an integral part of the condensed consolidated interim financial statements.
Group Balance Sheet
Unaudited Audited
Unaudited restated restated
as at as at as at
31 March 31 March 30 September
2017 2016 2016
Notes GBPm GBPm GBPm
----------------------------------- ------ ----------------------------- ---------- -------------
Non-current assets
Intangible assets 3,078 2,924 3,077
Property, plant and equipment
Aircraft and aircraft spares 580 610 627
Other 229 210 222
Investment in joint ventures
and associates 7 8 8
Other investments 1 1 1
Deferred tax assets 261 246 228
Pension asset 63 50 52
Trade and other receivables 74 62 58
Derivative financial instruments 9 4 15 26
----------------------------------- ------ ----------------------------- ---------- -------------
4,297 4,126 4,299
----------------------------------- ------ ----------------------------- ---------- -------------
Current assets
Inventories 47 40 43
Tax assets 5 2 4
Trade and other receivables 811 768 688
Derivative financial instruments 9 122 82 145
Cash and cash equivalents 619 615 1,776
----------------------------------- ------ ----------------------------- ---------- -------------
1,604 1,507 2,656
----------------------------------- ------ ----------------------------- ---------- -------------
Total assets 5,901 5,633 6,955
----------------------------------- ------ ----------------------------- ---------- -------------
Current liabilities
Retirement benefit obligations (9) (7) (8)
Trade and other payables (1,366) (1,274) (2,177)
Borrowings (179) (175) (891)
Obligations under finance leases (43) (39) (42)
Tax liabilities (60) (35) (40)
Revenue received in advance (1,916) (1,688) (1,251)
Short-term provisions 8 (135) (112) (138)
Derivative financial instruments 9 (45) (230) (83)
----------------------------------- ------ ----------------------------- ---------- -------------
(3,753) (3,560) (4,630)
----------------------------------- ------ ----------------------------- ---------- -------------
Non-current liabilities
Retirement benefit obligations (447) (378) (501)
Trade and other payables (29) (79) (105)
Long-term borrowings (1,066) (1,081) (847)
Obligations under finance leases (124) (145) (141)
Non-current tax liabilities (6) (13) (31)
Deferred tax liabilities (54) (51) (51)
Long-term provisions 8 (274) (237) (255)
Derivative financial instruments 9 (12) (30) (3)
----------------------------------- ------ ----------------------------- ---------- -------------
(2,012) (2,014) (1,934)
----------------------------------- ------ ----------------------------- ---------- -------------
Total liabilities (5,765) (5,574) (6,564)
----------------------------------- ------ ----------------------------- ---------- -------------
Net assets 136 59 391
----------------------------------- ------ ----------------------------- ---------- -------------
Equity
Called-up share capital 69 69 69
Share premium account 524 524 524
Merger reserve 1,547 1,547 1,547
Hedging and translation reserves 123 (3) 115
Capital redemption reserve 8 8 8
Accumulated losses (2,126) (2,074) (1,889)
Treasury shares (8) (18) (8)
----------------------------------- ------ ----------------------------- ---------- -------------
Equity attributable to equity
owners of the parent 137 53 366
Non-controlling interests (1) 6 25
----------------------------------- ------ -----------------------------
Total equity 136 59 391
----------------------------------- ------ ----------------------------- ---------- -------------
The notes on pages 28 to 34 form an integral part of the condensed consolidated interim financial statements.
Group Statement of Changes in Equity
The unaudited movements in equity for the six months ended 31 March 2017 were as follows:
Share Other Hedging Translation Accumulated Attributable Non- Total
capital reserves reserve reserve losses to equity controlling
& share holders interests
premium of
the parent
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ---------- --------- ------------ ------------ ------------- ------------- ------
Opening balance at
1 October 2016* 593 1,547 40 75 (1,885) 370 21 391
Loss for the period - - - - (267) (267) (5) (272)
Other comprehensive
income/(loss) for
the period - - 14 (6) 39 47 (1) 46
--------------------- ---- ---------- --------- ------------ ------------ ------------- ------------- ------
Total comprehensive
income/(loss) for
the period - - 14 (6) (228) (220) (6) (226)
--------------------- ---- ---------- --------- ------------ ------------ ------------- ------------- ------
Equity credit in
respect
of share- based
payments - - - - 3 3 - 3
Dividends paid to
non-controlling
interest - - - - - - (32) (32)
Settlement of
non-controlling
interest - - - - (16) (16) 16 -
--------------------- ---- ---------- --------- ------------ ------------ ------------- ------------- ------
At 31 March 2017 593 1,547 54 69 (2,126) 137 (1) 136
--------------------- ---- ---------- --------- ------------ ------------ ------------- ------------- ------
*Opening balances have been restated.
The restated unaudited movements in equity for the six months ended 31 March 2016 were as follows:
Opening balance at 1 October 2015 593 1,537 (102) 90 (1,778) 340 28 368 Loss for the period - - - (265) (265) (18) (283) Other comprehensive income/(loss) for the period - - (41) 50 (34) (25) - (25) --------------------------- ---- ------ ------ ---- -------- ------ ----- ------ Total comprehensive income/(loss) for the period - - (41) 50 (299) (290) (18) (308) --------------------------- ---- ------ ------ ---- -------- ------ ----- ------ Equity credit in respect of share-based payments - - - - 3 3 - 3 Dividends paid to non-controlling interest - - - - - - (4) (4) --------------------------- ---- ------ ------ ---- -------- ------ ----- ------ At 31 March 2016 593 1,537 (143) 140 (2,074) 53 6 59 --------------------------- ---- ------ ------ ---- -------- ------ ----- ------ 1. Basis of Preparation
Thomas Cook Group plc. ('the company') and its subsidiaries (together, 'the group') is one of the world's leading leisure travel groups. The company is a public limited liability company limited by shares incorporated, registered and domiciled in England and Wales under the Companies Act 2006 and listed on the London Stock Exchange. The address of its registered office is 3rd Floor, South Building, 200 Aldersgate, London EC1A 4HD.
The consolidated interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority, the Listing Rules and with IAS 34, 'Interim Financial Reporting' as adopted by the European Union. This condensed consolidated interim financial information does not comprise statutory accounts of the Group within the meaning of Section 434(3) and 435(3) of the Companies Act 2006. They should be read in conjunction with the Annual Report for the year ended 30 September 2016 (the 'Annual Report'), which has been prepared in accordance with IFRSs as adopted by the European Union, approved by the Board of Directors on 22 November 2016 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.
The accounting policies and methods of computation used and presentation of these consolidated interim financial statements are the same as those in the Annual Report.
The consolidated half-yearly financial information has been prepared on a going concern basis. The Directors of the Group have a reasonable expectation that, on the basis of current financial projections and borrowing facilities available, the Group is well positioned to meet its commitments and obligations for at least the next 12 months from the date of this report. Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.
The half year report for the six months ended 31 March 2017 was approved by the Directors on 17 May 2017. The half year report has been reviewed, not audited. The auditor's review report is on page 35.
During the year a reassessment of contingent consideration to be settled in the period has been performed. This has resulted in a GBP4m reduction to the prior year separately disclosed items, within the Income Statement, and corresponding reduction in non-controlling interest. Refer to Note 4 for further details of the reassessment.
2. New or amended standard and interpretations in issue but not yet effective or EU endorsed
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that have been issued but are not yet effective or EU endorsed:
IFRS 9 'Financial instruments' is effective for periods commencing on or after 1 January 2018 and is applicable to the Group from 1 October 2018. IFRS 9 is a replacement for IAS 39 'Financial Instruments' and covers three distinct areas. Phase 1 contains new requirements for the classification and measurement of financial assets and liabilities. Phase 2 relates to the impairment of financial assets and requires the calculation of impairment on an expected loss basis rather than the current incurred loss basis. Phase 3 relates to less stringent requirements for general hedge accounting. The adoption of IFRS 9 is likely to have a significant impact on the Group in future periods, specifically in relation to the impairment charge recognised on financial asset balances. The Group is assessing the impact of IFRS 9. This is expected to impact the measurement and disclosures of financial instruments.
IFRS 15 'Revenues from Contracts with Customers' is effective for periods commencing 1 January 2018 and is applicable to the Group from 1 October 2018. IFRS 15 introduces a five-step approach to the timing of revenue recognition based on performance obligations in customer contracts. The Group is assessing the impact of IFRS 15.
IFRS 16 'Leases' is effective for annual periods beginning on or after 1 January 2019 and is applicable to the Group from 1 October 2019 subject to endorsement by the EU. IFRS 16 provides a single lessee accounting model, requiring lessees to recognise right of use assets and lease liabilities for all applicable leases. The leasing standard is expected to have a material impact on net debt, gross assets, profit from operations and interest. The Group await the result of on going HMRC consultation to understand the impact on taxes.
3. Segmental information
For management purposes, the Group is organised into four geographic based operating divisions: UK, Continental Europe, Northern Europe, and Condor.
These divisions are the basis on which the Group reports its segment information. Certain residual businesses and corporate functions are not allocated to these divisions and are shown separately as Corporate.
These reportable segments are consistent with how information is presented 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.
3. Segmental information (continued)
Segmental information for these activities is presented below:
Continental Northern
UK Europe Europe Condor Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ------- ---- -------- -------------- ----------- -------- ---------- ---------
Unaudited six months ended
31 March 2017
Revenue
Segment sales 707 1,206 617 609 - 3,139
Inter-segment
sales (29) (8) (9) (99) - (145)
----------------------- ----- ---- -------- -------------- ----------- -------- ---------- ---------
Total revenue 678 1,198 608 510 - 2,994
----------------------- ----- ---- -------- -------------- ----------- -------- ---------- ---------
Result
Underlying (loss)/profit
from operations (114) (50) 42 (41) (14) (177)
Separately disclosed items (4) (19) (1) - (4) (28)
Segment
result (118) (69) 41 (41) (18) (205)
--------------------- ------- ---- -------- -------------- ----------- -------- ---------- ---------
Finance income 2
Finance costs (111)
------------------------- ---- -------- -------------- ----------- -------- ---------- ---------
Loss before tax (314)
Tax 42
------------------------- ---- -------- -------------- ----------- -------- ---------- ---------
Loss for the period (272)
------------------------------------ -------- -------------- ----------- -------- ---------- ---------
Balance
sheet
Assets
Segment assets 3,559 3,623 1,670 1,362 7,706 17,920
Inter-segment eliminations (12,292)
------------------------------------- -------- -------------- ----------- -------- ---------- ---------
5,628
Investments in joint ventures
and associates 7
Tax and deferred tax assets 266
------------------------------------- -------- -------------- ----------- -------- ---------- ---------
Total assets 5,901
------------------------------------- -------- -------------- ----------- -------- ---------- ---------
Liabilities
Segment liabilities (3,795) (2,018) (870) (1,017) (8,112) (15,812)
Inter-segment eliminations 11,579
------------------------------------- -------- -------------- ----------- -------- ---------- ---------
(4,233)
Tax and deferred tax liabilities (120)
Borrowings and obligations
under finance leases (1,412)
------------------------------------- -------- -------------- ----------- -------- ---------- ---------
Total liabilities (5,765)
------------------------------------- -------- -------------- ----------- -------- ---------- ---------
Unaudited six months ended
31 March 2016
Revenue
Segment sales 700 1,036 536 546 - 2,818
Inter-segment
sales (28) (9) (7) (102) - (146)
-------------------- ----- --- -------- -------------- ----------- -------- ---------- ---------
Total revenue 672 1,027 529 444 - 2,672
-------------------- ----- --- -------- -------------- ----------- -------- ---------- ---------
Result
Underlying (loss)/profit
from operations (124) (48) 40 (18) (13) (163)
Separately disclosed
items (24) (14) 3 3 (9) (41)
Segment
result (148) (62) 43 (15) (22) (204)
------------------ ------- --- -------- -------------- ----------- -------- ---------- ---------
Finance income 3
Finance costs (83)
-------------------------- --- -------- -------------- ----------- -------- ---------- ---------
Loss before tax (284)
Tax 1
-------------------------- --- -------- -------------- ----------- -------- ---------- ---------
Loss for the period (283)
------------------------------------------ -------------- ----------- -------- ---------- ---------
3. Segmental information (continued)
Continental Northern
UK Europe Europe Condor Corporate Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------ ------------ --------- ------- ---------- ---------
Balance
sheet
Assets
Segment assets 3,278 3,403 1,557 1,310 8,195 17,743
Inter-segment eliminations (12,366)
--------------------------------- ------ ------------ --------- ------- ---------- ---------
5,377
Investments in joint ventures
and associates 8
Tax and deferred tax assets 248
--------------------------------- ------ ------------ --------- ------- ---------- ---------
Total assets 5,633
--------------------------------- ------ ------------ --------- ------- ---------- ---------
Liabilities
Segment liabilities (3,615) (2,067) (903) (1,090) (8,143) (15,818)
Inter-segment eliminations 11,783
------------------------------------ -------- -------- ------ -------- -------- ---------
(4,035)
Tax and deferred tax liabilities (99)
Borrowings and obligations
under finance leases (1,440)
------------------------------------ -------- -------- ------ -------- -------- ---------
Total liabilities (5,574)
------------------------------------ -------- -------- ------ -------- -------- ---------
4. Separately disclosed items
Re-presented
Unaudited Unaudited
Six months Six months
ended ended
31 March 31 March
2017 2016
GBPm GBPm
-------------------------------------------------- ------------ -------------
Affecting profit from operations
New Operating Model implementation costs (18) (20)
Restructuring costs (9) (4)
Onerous leases and store closures (16) (13)
Amortisation of business combination intangibles (3) (3)
Reassessment of contingent consideration 32 4
Asset valuation reviews (11) (11)
Other (3) 6
-------------------------------------------------- ------------ -------------
(28) (41)
-------------------------------------------------- ------------ -------------
Affecting finance income and costs
Net interest cost on bond refinancing (23) -
Net interest cost on defined benefit obligation (3) (3)
Unwind of discount on provisions and other
non-current liabilities (9) (4)
-------------------------------------------------- ------------ -------------
(35) (7)
-------------------------------------------------- ------------ -------------
Total separately disclosed items (63) (48)
-------------------------------------------------- ------------ -------------
New Operating Model implementation and restructuring costs
Implementation costs relating to the New Operating Model total GBP18m (2016: GBP20m) and relate to the pillars of efficiencies and omni channel. Restructuring costs of GBP9m (2016: GBP4m) largely relate to legacy rationalisation in the UK and France.
Onerous contracts and store closures
Onerous contracts and store closures include GBP10m in relation to a provision associated with the leases of loss-making UK stores. The provision follows the results of continued strategic reviews of the UK store network as part of the New Operating Model and the transaction with The Co-operative Group discussed below. In addition, GBP6m of costs have been incurred from closing various stores in UK.
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. Group management considers that amortisation of these assets should be disclosed separately to enable a full understanding of the Group's results.
Reassessment of contingent consideration
In December 2016, the Group announced its intention to acquire full control of its UK retail store network, following notification by The Co-operative Group ('the Co-op') of the decision to exercise its option over its stake in their UK retail joint venture. In line with the requirements of IFRS, the Group has reassessed the carrying value of a contingent obligation to acquire the Co-op shares and this reassessment resulted in a reduction of GBP32m to the liability previously accrued. As part of the reassessment it was noted that a payment of GBP4m was made in the prior period which has been restated in the comparatives above (refer to Note 1).
Asset revaluation reviews
Asset valuation reviews of GBP11m primarily relate to impairments of property, fixtures and fittings of closed UK stores and IT assets in the UK no longer required as part of the implementation of the New Operating Model.
Finance related charges
The Group has provisions for future liabilities arising from separately disclosed circumstances, primarily deferred acquisition consideration. A notional interest charge of GBP9m on the discounted value of such provisions is recognised within separately disclosed finance related charges. In addition, the Group incurred an interest charge of GBP23m as a result of issuing a new Euro bond in December 2016 which refinanced the Group's debt at a lower interest rate, while net interest charges arising on the Group's defined benefit pension schemes were GBP3m.
5. Finance income and costs
Unaudited Unaudited
Six months Six months
ended 31 ended 31
March 2017 March 2016
--------------------------------------
GBPm GBPm
-------------------------------------- ------------ ------------
Underlying finance income
Other interest and similar income 2 3
--------------------------------------- ------------ ------------
2 3
-------------------------------------- ------------ ------------
Underlying finance costs
Bank and bond interest (42) (43)
Fee amortisation (4) (3)
Letters of credit (9) (8)
Other interest payable (12) (14)
--------------------------------------- ------------ ------------
(67) (68)
-------------------------------------- ------------ ------------
Underlying aircraft related finance
costs
Interest payable (1) (1)
Finance costs in respect of finance
leases (8) (7)
--------------------------------------- ------------ ------------
(9) (8)
-------------------------------------- ------------ ------------
Net underlying interest (74) (73)
--------------------------------------- ------------ ------------
Separately disclosed finance costs
(note 4)
Bond refinancing costs (23) -
Net interest cost on defined benefit
obligation (3) (3)
Unwind of discount on provisions and
other non-current liabilities (9) (4)
--------------------------------------- ------------ ------------
(35) (7)
-------------------------------------- ------------ ------------
Total net finance costs (109) (80)
--------------------------------------- ------------ ------------
6. Income taxes
Income tax is recognised based on our best estimate of the average annual effective income tax rate for each material tax jurisdiction and applied individually to the interim period pre-tax income of that jurisdiction. The effect of adjustments to tax provisions made in respect of separately disclosed items is excluded from the estimate of the average annual effective income tax rate.
The tax rate on our overall IFRS results for the six months to 31 March 2017 is 13.41% (31 March 2016: 0.41%). The tax rate on pre-exceptional continuing operations for the six months to 31 March 2017 is 22.12% (tax rate for the six months to 31 March 2016 was -1.81%).
7. Loss per share
The calculations for loss per share, based on the weighted average number of shares, are shown in the table below.
Re-presented
Unaudited Unaudited
Six months Six months
ended 31 ended 31
March 2017 March 2016
-------------------------------------------------- ------------- -------------
Basic and diluted loss per share GBPm GBPm
Net loss attributable to owners of the parent (267) (265)
-------------------------------------------------- ------------- -------------
Millions Millions
Weighted average number of shares for basic loss
per share 1,532 1,529
Effect of dilutive potential ordinary shares - -
-------------------------------------------------- ------------- -------------
Weighted average number of shares for diluted
loss per share 1,532 1,529
-------------------------------------------------- ------------- -------------
Pence Pence
Basic and diluted loss per share (17.4) (17.3)
-------------------------------------------------- ------------- -------------
Underlying basic and diluted loss per share
Underlying net loss attributable to owners of
the parent * (202) (221)
-------------------------------------------------- ------------- -------------
Pence Pence
Underlying basic and diluted loss per share (13.2) (14.5)
-------------------------------------------------- ------------- -------------
* Underlying net loss attributable to owners of the parent is derived from the Group's continuing pre-exceptional loss before tax for the six month period ended 31 March 2017 of GBP251m (2016: GBP236m) and then adding a notional tax credit of GBP44m (2016: deducting a notional tax charge of GBP3m), and taking into account losses attributable to non-controlling interest of GBP5m (2016: GBP18m).
In accordance with IAS 33 'Earnings per share', the calculation of basic and diluted loss per share has not included items that are anti-dilutive.
8. Provisions
Aircraft Off-market Onerous Insurance Reorganisation Other Total
maintenance leases leases and litigation and provisions*
provisions and store restructuring
closures* plans*
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------- ----------- ----------- --------------- --------------- ------------- ----------
At 1 October
2016 284 5 10 71 - 23 393
Additional
provisions 34 - 16 24 4 12 90
Unused amounts
released (17) - - (2) (1) - (20)
Unwinding of
discount 6 - - - - - 6
Utilisation
of provisions (2) (1) (6) (45) (3) (9) (66)
Exchange
differences 6 - - - - - 6
---------------- ------------- ----------- ----------- --------------- --------------- ------------- ----------
At 31 March
2017 311 4 20 48 - 26 409
---------------- ------------- ----------- ----------- --------------- --------------- ------------- ----------
Unaudited
as at
31 March
2017
GBPm
---------------- ------------- ----------- ----------- --------------- --------------- ------------- ----------
Included in current
liabilities 112
Included in non-current
liabilities 237
------------------------------- ----------- ----------- --------------- --------------- ------------- ----------
409
---------------- ------------- ----------- ----------- --------------- --------------- ------------- ----------
* To aid user understanding, presentation of provisions has been changed to show a new provision class of onerous leases and store closures, which were previously presented within reorganisation and restructuring plans and other provisions. The opening provision amount of GBP10m at 1 October 2016 was previously disclosed in other provisions of GBP7m and reorganisation and restructuring plans of GBP3m.
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 through the Resorts Mallorca Hotels International S.L.U. (Hi!Hotels) acquisition in the past and certain office locations which have commitments in excess of the market rate at the time of transaction.
Onerous lease and store closure provisions relate to leases on loss making stores and stores which have closed during the period in the UK. The GBP16m charge for the period has been classified as a Separately Disclosed Item within Note 4.
Insurance and litigation represents costs related to legal disputes, customer compensation claims (including EU261) and estimated costs arising through insurance contracts in the Groups subsidiary, White Horse Insurance Ireland DAC.
Reorganisation and restructuring plans represent committed restructuring costs in the UK and Continental Europe segments.
Other provisions included items such as dilapidations and emission trading liabilities.
9. Financial risk management and financial instruments i) Financial risk factors
The Group is subject to risks related to changes in interest rate, exchange rates, fuel prices, counterparty credit and liquidity within the framework of its business operations.
A full description of the Group's exposure to the above risks and the Group's policies and processes that are in place to manage the risks arising, is included in financial risks note (note 22) in the 2016 Annual Report & Accounts financial statements. There has been no significant changes in the nature of the financial risks to which the Group is exposed, or the Group's policies and processes to manage these risks, since 1 October 2016.
ii) Fair value estimation
Fair value hierarchy
The fair value of the Group's financial instruments are disclosed in hierarchy levels depending on the valuation method applied.
The different methods are defined as follows:
Level valued using unadjusted quoted prices in active markets
1: for identical financial instruments
Level derived using inputs other than quoted prices included within
2: Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived
from prices). The fair value of financial instruments is
determined by discounting expected cash flows at prevailing
interest rates.
Level valued using techniques incorporating information other
3: than observable market data as at least one input to the
valuation cannot be based on observable market data
9. Financial risk management and financial instruments (continued)
The fair value of the Group's financial assets and liabilities at 31 March 2017 are set out below:
Unaudited Audited
as at as at
31 March 30 September
2017 2016
GBPm GBPm
---------------------------------- ---------- -------------
Level 2 valuations
Derivative financial instruments
- assets
Currency contracts 99 131
Fuel contracts 27 24
Interest rate swaps - 16
----------------------------------- ---------- -------------
126 171
----------------------------------- ---------- -------------
Derivative financial instruments
- liabilities
Currency contracts (38) (35)
Fuel contracts (18) (51)
Interest rate swaps (1) -
----------------------------------- ---------- -------------
(57) (86)
----------------------------------- ---------- -------------
Level 3 valuations
Derivative financial instruments
- liabilities
Contingent consideration - (79)
----------------------------------- ---------- -------------
69 6
----------------------------------- ---------- -------------
The Group uses derivative financial instruments to hedge significant future transactions and cash flows denominated in foreign currencies. The Group enters into foreign currency forward contracts, swaps and options in the management of its exchange rate exposures.
The Group also uses derivative financial instruments to mitigate the risk of adverse changes in the price of fuel. The Group enters into fixed price contracts (swaps) and net purchased options in the management of its fuel price exposures. All fuel hedges are designated as cashflow hedges.
In addition, the Group uses derivative financial instruments to manage its interest rate exposures. The Group enters into interest rate swaps to hedge against interest rate movements in connection with the financing of aircraft and other assets and to hedge against interest rate exposures on fixed rate debt. The Group also enters into cross currency interest rate swaps to hedge the interest rate and the currency exposure on foreign currency external borrowings.
There were no transfers between Levels 1 and 2 during the period.
In December 2016, the Group announced its intention to acquire full control of its UK retail store network, following notification by The Co-operative Group of the decision to exercise its option over its stake in their UK retail joint venture. The Group's contingent consideration is now fixed, therefore is no longer classified as a Level 3 financial liability.
There were no other Level 3 financial assets or liabilities as at 31 March 2017.
10. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its joint ventures, associates and participations are disclosed below.
Trading transactions
During the period, Group companies entered into the following transactions with related parties who are not members of the Group:
Joint ventures, associates
and participations*
Unaudited Unaudited Audited
31 March 31 March 30 September
2017 2016 2016
GBPm GBPm GBPm
--------------------------------- ---------- ---------- -------------
Sale of goods and services 2 2 5
Purchases of goods and services (1) (1) (3)
Other income - - 1
Amounts owed by related parties 2 1 1
Amounts owed to related parties (1) (1) (1)
--------------------------------- ---------- ---------- -------------
*Participations are equity investments where the Group has significant equity participation but which are not considered to be associates.
Outstanding amounts will normally be settled by cash payment.
11. Seasonality and Foreign Exchange
Revenue is subject to significant seasonal fluctuations between Winter and Summer seasons, with peak demand in the Summer season. The Group partially mitigates this seasonal impact through operating in different global holiday markets which have different annual cycles and offering a broad range of holiday products in both the Winter and Summer seasons.
The following exchange rates against Sterling for our major functional currencies are the average of those used to translate the results of the current and prior year periods.
Income Statement 31 March 2017 31 March 2016 ------------------ -------------- -------------- Euro 1.16 1.34 SEK 11.14 12.49 USD 1.24 1.47 ------------------ -------------- --------------
As profits and losses in foreign currency denominated segments build up differently over the period, the average income statement translation rates may vary.
The following exchange rates against Sterling for our major functional currencies are the average of those used to translate the balance sheet at the current and prior period end.
Balance Sheet 31 March 2017 30 September 2016 31 March 2016 --------------- -------------- ------------------ -------------- Euro 1.17 1.16 1.26 SEK 11.14 11.17 11.67 USD 1.25 1.30 1.44 --------------- -------------- ------------------ -------------- 12. Contingent liabilities
Contingent liabilities primarily comprise guarantees, letters of credit and other contingent liabilities, all of which arise in the ordinary course of business.
In the ordinary course of its business, the Group is subject to commercial disputes and litigation including customer claims, employee disputes, taxes and other kinds of lawsuits. These matters are inherently difficult to quantify. In appropriate cases, a provision is recognised based on best estimates and management judgement but there can be no guarantee that these provisions will result in an accurate prediction of the actual costs and liabilities that may be incurred. These are not expected to have a material impact on the financial position of the Group.
Responsibility Statements
The directors confirm, to the best of their knowledge, that these condensed interim financial statements have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' as adopted by the European Union, and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
-- material related party transactions in the first six months and any material changes in the related party transactions described in the last annual report.
A list of current directors is maintained on the Thomas Cook Group plc. website: www.thomascookgroup.com.
By order of the Board
Michael Healy
Group Chief Financial Officer
17 May 2017
INDEPENT REVIEW REPORT TO THOMAS COOK GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2017 which comprises a Condensed Consolidated Interim Income Statement, a Condensed Consolidated Interim Statement of Other Comprehensive Income, a Condensed Consolidated Interim Balance Sheet, a Condensed Consolidated Interim Statement of Changes in Equity, a Condensed Consolidated Interim Statement of Cash Flows and the related explanatory notes 1 to 12. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
17 May 2017
The company news service from the London Stock Exchange
END
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