Thomas Cook Group plc
Annual Report & Accounts 2007
Creating millions of
travel dreams for 167 years
TRAVELLING THROUGH TIME
1808
Thomas Cook is born on 22 November
in Melbourne, Derbyshire.
1829
George Stephenson’s steam locomotive, the Rocket,
wins the Rainhill trials.
1841
1845
1865
1867
1872
Thomas Cook organises his fi rst excursion,
a rail journey from Leicester to a temperance
meeting in Loughborough.
Thomas Cook conducts fi rst trip for profi t. For 15 shillings
r 15 shillings
fi rst class and 10 shillings second class, you could travel
to Liverpool from Leicester by train.
Thomas Cook opens his fi rst high street shop
in Fleet Street, London.
Henry Giffard installs a huge captive balloon
for 20 passengers at the World Exposition
in Paris.
Thomas Cook organises and leads the fi rst
round-the-world tour. He is away from home
for 222 days and covers more than 25,000 miles.
1873
Jules Verne publishes Around the World
in 80 Days.
1886
1903
John Mason Cook, son of Thomas Cook,
launches his new fl eet of luxurious
Nile steamers.
The Wright brothers make the fi rst powered fl ight.
1919
Thomas Cook & Son is the fi rst travel
agent to advertise pleasure trips by air.
1925
1.5 million manual workers in Britain
have paid holidays.
1939
ays Holidays
11 million manual workers in Britain have paid holidays. Holidays
by air on specially chartered aircraft to the French Riviera are
included in Cook’s summer brochure for the fi rst time.
1948
Thomas Cook & Son becomes state-owned under
British Transport Holding Company.
1969
Man walks on the moon.
1972
1987
1997
David Crossland purchases Pendle Travel Services
travel agency. A second travel agency business is
acquired by Albert and Ivy Roberts who had registered
it using their initials, A.I.R. Tours. These businesses
are the kernel of MyTravel.
Thomas Cook is privatised and bought by consortium
of Midland Bank, Trust House Forte and the
Automobile Association.
Airtours plc is fl oated on the London Stock Exchange.
Thomas Cook becomes the fi rst UK retail
travel agency to offer customers a way to
buy holidays over the internet.
2001
Thomas Cook is acquired by C&N Touristic AG,
which changes its name to Thomas Cook AG.
2002
Airtours plc becomes
MyTravel Group plc.
2007
12 February – MyTravel Group plc and
Thomas Cook AG announce plans to merge.
19 June – MyTravel Group plc and
Thomas Cook AG merger is completed,
forming Thomas Cook Group plc.
24 December – Thomas Cook Group plc
enters FTSE 100 index.
UK & IRELAND
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ENTAL EUROPE
NORTHERN EUROPE
NORTH AMERICA
01 WHO WE ARE
02
SNAPSHOT
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65
REMUNERATION REPORT
INDEPENDENT AUDITORS’ REPORT
02
THOMAS COOK BY NUMBERS
66 GROUP FINANCIAL STATEMENTS
03 HIGHLIGHTS
66 GROUP INCOME STATEMENT
03
FINANCIAL HIGHLIGHTS
67
GROUP STATEMENT OF RECOGNISED
04 BUSINESS AT A GLANCE
06 CHAIRMAN’S STATEMENT
08
STRATEGY
1 1
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28
19 MILLION DREAMS
BUSINESS REVIEW
FINANCIAL REVIEW
36 MANAGEMENT
36
38
BOARD OF DIRECTORS
SENIOR MANAGEMENT
40
CORPORATE SOCIAL RESPONSIBILITY
43
GROUP DIRECTORS’ REPORT
49 DIRECTORS’ RESPONSIBILITIES
50
CORPORATE GOVERNANCE REPORT
INCOME AND EXPENSE
68 GROUP BALANCE SHEET
70 GROUP CASH FLOW STATEMENT
71
NOTES TO THE FINANCIAL STATEMENTS
115
INDEPENDENT AUDITORS’ REPORT
116 COMPANY FINANCIAL STATEMENTS
116 COMPANY BALANCE SHEET
117
NOTES TO THE COMPANY FINANCIAL
STATEMENTS
123 SHAREHOLDER INFORMATION
WHO WE ARE
WHO WE ARE
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Canada
Sweden
Finland
Norway
Denmark
Ireland
UK
Number 1 or 2 in
our core markets
Netherlands
Belgium
Germany
Poland
Czech
Republic
France
Austria
Hungary
Everyone knows Thomas Cook. It’s the oldest, most respected name in the travel business.
Now, as the newly-formed Thomas Cook Group, we are building on our unrivalled heritage.
We are creating an international company that our 30,000 employees are proud to work
for and one that is ideally placed to serve a world of discerning customers and deliver
outstanding growth to our shareholders.
It is less than a year since we began the merger with MyTravel to form the Thomas Cook
Group. In that brief time, we have announced higher than anticipated operating profi ts
of €375.3 million, fully integrated the two businesses, identifi ed at least €200 million in
synergies, laid the groundwork for a major share buy-back programme and been elevated
to the ranks of the FTSE 100.
Clearly, the merger that began on 12 February, 2007 and saw completion just four months
later was the right decision for all concerned. In this, our fi rst Annual Report, we provide
the background to those events and explain how we’ll maintain the momentum of our fi rst
year by building on the Thomas Cook Group’s early and demonstrable success.
Manny Fontenla-Novoa
Group Chief Executive Offi cer
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THOMAS COOK BY NUMBERS
+
+
+
=
Creating
19 million travel
dreams per year
2,000
destinations
30,000 staff
97 aircraft
3,000 shops
NINE DISTINCT ADVANTAGES
9
Thomas Cook people –
Above all, what makes
us different, is the people
of Thomas Cook.
8
The customers’
choice – 19 million
people in 15 different
countries choose
Thomas Cook for
their holidays.
7
Flexible business
model – Our asset-
light business model
means we have the
fl exibility to respond
to changes in the
business environment.
6
A clear strategy – Improve performance
in mainstream tour operating, make
signifi cant advances in independent
travel, travel-related fi nancial services
and emerging markets, and grow overall
revenue and profi t.
02 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
1
A fl ying start – The new Thomas
Cook Group has made rapid progress
towards target operating profi t
of at least €620 million in 2009/10.
2
Great brand heritage –
Founded 167 years
ago, Thomas Cook,
the pioneer of popular
leisure travel, is one
of the world’s best
known travel brands.
3
Strong fi nancial
position – Net funds
of €357 million and
net assets of €3 billion
at 31 October 2007.
4
Multi-channel distribution
Thomas Cook offers an
unmatched choice of leisure
travel on the internet,
by phone, through television
and in our network of shops.
5
Unique fi nancial services business –
Thomas Cook is well known for travel-
related fi nancial services – foreign
exchange, travel insurance and now
credit cards.
HIGHLIGHTS
• Group pro forma profit from operations* was €375.3 million
(up 26 per cent)
• Group audited statutory profit before tax was €284.3 million
(up 30 per cent)
• Final dividend of fi ve pence per share recommended for 2007
• The Board intends to seek shareholder approval at an EGM
to be held in March for a share buy-back programme of
around €375 million
PRO FORMA FINANCIAL HIGHLIGHTS
Year ended
31 October 2007
Year ended
31 October 2006
Change %
Revenue €m**
11,714.5
11,870.6
-1.3%
Profit from operations €m*
375.3
297.7
+26.1%
Operating profit margin %†
3.2%
2.5%
+28.0%
Adjusted EPS (euro cents)††
Proposed dividend (pence)
27
5
20
+35.0%
* Profi t from operations is defi ned as earnings before interest and tax, and has been adjusted to exclude exceptional items and amortisation of business combination
intangibles. It also excludes our share of the results of associates and joint ventures.
** Revenue for the Group represents external revenue only.
† The operating profi t margin is the profi t from operations (as defi ned above) divided by the external revenue.
†† Adjusted earnings per share is calculated as pro forma net profi t after tax, but before exceptional items and amortisation of business combination intangibles, divided
by the number of shares in issue at 31 October 2007 (also for 2006 comparative). Profi t after tax has been calculated using a notional tax rate of 30 per cent.
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BUSINESS AT A GLANCE
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BUSINESS AT A GLANCE
DIVISION
CEO
PRO FORMA REVENUE
UK &
Ireland
Manny Fontenla-Novoa
€4.7bn
PRO FORMA
OPERATING PROFIT
€121.5m
Northern
Europe
Sam Weihagen
€1.2bn
€109.7m
Continental
Europe
Dr Peter Fankhauser
€4.5bn
€99.5m
North
America
Airlines
Germany
Michael Friisdahl
€0.6bn
€7.9m
Ralf Teckentrup
€0.8bn*
€68.1m
04 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
*external revenue only
MAIN BRANDS
DISTRIBUTION CHANNELS
PROPORTION OF PRO FORMA
REVENUE BY DIVISION
Airtours
Club 18-30
Cresta
Direct Holidays
Going Places
Neilson
Panorama
Sunset
Thomas Cook
Thomas Cook Signature
Spies
Tjaereborg
Ving
Aquatour
Bucher Last Minute
Neckermann Reisen
Pegase
Thomas Cook
Vrij Uit
AlbaTours
Encore Cruise Escapes
Holiday House
Lifestyle Vacation Incentives
Network
Sunquest
The Cruise Store
Condor
Controlled distribution
(retail, internet and call centre)
68%
Proportion of total revenue
40%
Third-party distribution
32%
Remaining proportion
Controlled distribution
(retail, internet and call centre)
77%
Proportion of total revenue
10%
Third-party distribution
23%
Remaining proportion
Controlled distribution
(retail, internet and call centre)
33%
Proportion of total revenue
38%
Third-party distribution
67%
Remaining proportion
Controlled distribution
(retail, internet and call centre)
16%
Proportion of total revenue
5%
Third-party distribution
84%
Remaining proportion
In-house revenue to Thomas Cook
Germany tour operator
Third-party tour operators and
external seat only revenue
39%
61%
Proportion of total revenue
7%
Remaining proportion
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 05
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CHAIRMAN’S STATEMENT
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CHAIRMAN’S STATEMENT
Dr Thomas Middelhoff
The new Thomas Cook Group has an admirable
Notwithstanding our fl exibility, one aspect of our business will remain
pedigree. It springs from the merger of one of
constant. We are committed to operating an asset-light business
model. To that end, we announced plans to merge our German airline,
the world’s oldest and most widely respected
Condor with Air Berlin. Our intention is to create a leading airline that
tourism groups, Thomas Cook AG, and the
highly dynamic MyTravel, which was noted
for operations in the UK, Northern Europe
and North America.
Individually, each company had signifi cant attributes. Together,
they form a Group of truly international stature. Now Thomas Cook
is competing from a position of strength in the mainstream tour
will serve Thomas Cook Group as a long-term strategic partner.
These plans are fully consistent with the strategies that have created
Thomas Cook Group.
Thomas Cook has always succeeded by knowing our customers even
better than they know themselves. In so doing, we have been able to
empathise with their desires and aspirations and help them to achieve
their travel ambitions – sometimes even before they knew they
had them.
business, independent travel and travel-related fi nancial services.
Today, we are combining this knowledge with the skill of being able
We are also ideally positioned to benefi t from growing demand
to adapt to every shift in the increasingly dynamic market for leisure
generated by emerging markets.
travel. That is one of the greatest strengths of the new Thomas Cook.
Looking ahead, we will maximise our advantages. These include
I would like to take this opportunity to thank Peter McHugh and John
a strong fi nancial position; virtually unrivalled scale balanced
Bloodworth, who both retired from the Board on 31 December 2007.
by a streamlined decision-making structure; a respected brand
Peter became Chief Executive of MyTravel in 2002, when the company
portfolio and industry-leading margins.
was in severe fi nancial diffi culties, and led the highly successful
We believe one of our main business differentiators is the high quality
of our people – past and present, leading the competition in terms
of the quality of our workforce. The skills and diversity of our people
enable us to tailor our business model to best meet market needs
no matter where we operate.
turnaround which ultimately made the merger a possibility. He was
appointed Joint Chief Executive of Thomas Cook Group with Manny
Fontenla-Novoa and left as planned after six months. John also played
a valuable role in the MyTravel turnaround as head of its US and later
its UK business. We wish them both well for the future.
06 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
“ We believe one of our main business
differentiators is the high quality of our
people – past and present, leading the
competition in terms of the quality of our
workforce. The skills and diversity of our
people enables us to tailor our business
model to best meet market needs no
matter where we operate.”
The Board was initially formed by members of the boards of Arcandor
Thanks to their leadership and the hard work of everyone at
AG, MyTravel Group plc and Thomas Cook AG. During the year we
Thomas Cook, the Group is already acknowledged as a major
were pleased to welcome to the Board two new independent directors
force in the global leisure travel industry. We have the will, talent
of considerable experience – Hemjö Klein, a former Executive Board
and knowledge to remain a leader in the business in which our
member of Lufthansa AG, and Bo Lerenius, Chairman of the Swedish
name has long been a byword for quality and trust.
Chamber of Commerce and former Group Chief Executive of
ABP Holdings plc.
Together with my fellow Board members, I would like to express
confi dence in the new Group’s management team, led by Manny
Fontenla-Novoa. Drawn from some of the most talented people in
our industry, the people running Thomas Cook have already done
an excellent job of merging the two companies and produced
a fi rst class performance so far.
Dr Thomas Middelhoff
Chairman
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STRATEGY
Manny Fontenla-Novoa
The events of the past 12 months have been
revolutionary. The merger of Thomas Cook AG
and MyTravel Group plc to form Thomas Cook
Group plc led to a year of signifi cant change,
not only for our Group, but for the international
travel industry as a whole.
The new Thomas Cook Group plc is a very positive organisation with
travel, travel-related fi nancial services and emerging markets,
and grow overall revenue and profi t. We have set four key targets:
> Group profi t from operations** to exceed €620 million in 2009/10,
which implies EBITDA of more than €800 million.
> Group revenue to grow to approximately €13 billion in 2009/10.
> Revenue from fi nancial services to grow from €215 million in
2005/06 to around €370 million in 2009/10.
> Revenue from independent travel to grow from €2.2 billion
in 2005/06 to €3.3 billion in 2009/10.
ambitious plans for the future. In its fi rst year, against the backdrop
Mainstream tour operating continues to generate the majority of
of a huge programme of integration, the new company delivered an
excellent set of results, reporting a healthy increase in profi t from
operations. The integration is now largely complete, and having taken
the very best from both former businesses, we are looking to the
future with great confi dence. We have a clear strategy in place that
will build upon our strong foundations and maximise the potential
that comes from being the best-known and most respected name
in travel, with a proven track record for success and a unique
history and heritage.
Strategy
The Group’s new senior management team carried out a strategic
review over the summer and we announced detailed plans
in November.
our profi t but, as the Group’s revenue increases and with our focus
on harnessing the stronger growth potential in independent travel and
fi nancial services, the balance between our revenue streams should
change over time. We expect that revenue from mainstream (excluding
fi nancial services) will decline as a proportion of the total from
80 per cent in 2005/06 to 72 per cent in 2009/10. Revenue from
independent travel is expected to increase as a proportion of the
total from 18 per cent in 2005/06 to 25 per cent in 2009/10, while
revenue from fi nancial services is expected to increase as a proportion
of the total from 2 per cent in 2005/06 to 3 per cent in 2009/10.
We have a successful UK fi nancial services business, which generated
€215 million of revenue and €52 million of profi t from operations in
2005/06. We intend to grow this business signifi cantly and, within the
We now have a clear strategy, which is to improve performance in
fi nancial services business, we plan to develop our credit card business
mainstream tour operating, make signifi cant advances in independent
so that the proportion of revenue from that business rises from zero
08 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
**See Appendix 1
“ We now have a clear strategy, which is to
improve performance in mainstream tour
operating, make significant advances in
independent travel, travel-related financial
services and emerging markets, and grow
overall revenue and profit.”
in 2005/06 to 13 per cent in 2009/10. This means that the proportion
We aim to increase the proportion of sales through controlled
of revenue from foreign exchange is expected to fall from 69 per cent
distribution in all our markets. The key to achieving this increase
to 56 per cent, while the proportion from insurance is expected to
will be growing online sales. For 2007, online sales ranged from
remain at 31 per cent.
Since presenting our strategy to the market in November, we have
announced plans for a €375 million share buy-back programme. The
5 per cent in Continental Europe to 35 per cent in Northern Europe,
with an average for the Group of 13 per cent. Our target is to increase
Group online sales to 35 per cent of the total by 2009/10.
Board recognises fully the benefi ts of an effi cient capital structure in
Condor
helping to deliver value to shareholders. The Board also believes that
In September, we reached agreement on the terms for Condor
in current economic conditions, the price of Thomas Cook Group shares
Flugdienst GmbH, the Group’s German airline, to be merged into Air
is not representative of the true value of the business. It believes that
Berlin plc. The merger is subject to approval by the Bundeskartellamt
a share repurchase programme will make the Group’s shares more
(Federal Cartel Offi ce), whose primary evaluation process is due
attractive to investors by increasing earnings per share in step with the
to be completed by 7 April 2008. It is intended that the merger
percentage of shares repurchased. Consequently, the Board intends to
proceed with a programme of repurchasing around €375 million worth
of the Group’s shares and to seek approval from shareholders at an EGM
to be held on 12 March 2008. This level of share buy-back programme
is consistent with the Group’s fi nancial strategy for developing the
business through acquisitions and organic growth. Our approach to
acquisitions remains as we set out when we described our strategy in
November 2007. We are not seeking signifi cant transactions but we are
concentrating on looking for smaller acquisitions of complementary
will be completed in two stages – 75.1 per cent in February 2009
and 24.9 per cent in February 2010 or earlier.
The Group will receive new Air Berlin shares with a value between
€380 million and €475 million and a cash payment, expected to be
approximately €120 million, in respect of surplus cash held in Condor.
The deal is expected to be earnings-enhancing in 2008/09. The Group
will experience an estimated reduction in net fi nancial debt of
€185 million and in pension obligations of €266 million.
businesses. It is anticipated that a circular setting out full details of the
The combination of Condor with Air Berlin will create one of the
share buy-back programme will be sent to shareholders in February
leading low-fare airlines in Europe. Air Berlin will remain the Group’s
2008. The share repurchase programme will involve both on-market
long-term strategic partner, providing us with continued access
purchases and corresponding off-market purchases from Arcandor AG
to fl ying capacity, as well as a foothold in the German independent
that will maintain Arcandor’s shareholding at its current level.
travel market. As a signifi cant shareholder in Air Berlin we will be
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 09
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STRATEGY CONTINUED
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“ We have a talented and ambitious team
of more than 30,000 people worldwide
and through them we will maintain the
momentum of our first year and continue
to drive our business forward.”
able to benefi t from the strong market position, growth potential
and expected synergies of at least €70 million per annum by 2010.
Thomas Cook is a fantastic business. Everyone across the Group
has played an important role in the Company’s development and,
This is a signifi cant step in the realisation of our asset-light strategy,
as a team we are determined that it should continue to go from
maximising fl exibility and reducing risk.
strength to strength to achieve its potential and more in 2008
There has been press speculation recently about the potential future
of Air Berlin following signifi cant purchases of the company’s shares
by Vatas Holding GmbH, an investment company. It should be noted
that our contract with Air Berlin is binding and is unaffected by
changes in control of the company’s shares.
and beyond.
Thomas Cook Group plc has made great progress in a relatively short
time and this exceptional performance is a true testament to the spirit
Manny Fontenla-Novoa
of our people. Throughout an uncertain 12 months, the teams in all
Group Chief Executive Offi cer
our operating markets have pulled together and never lost sight
of what is important. They have remained focused on performance
and working together as one united international team to ensure
a smooth transition. Despite only coming together in June 2007,
already the culture and values of our people are proving to be a
key differentiator for the new Group and therein lies one of the key
reasons for our confi dent outlook. We have a talented and ambitious
team of more than 30,000 people worldwide and through them we
will maintain the momentum of our fi rst year and continue to drive
our business forward, create value for our shareholders and deliver
exceptional customer service at all times.
10 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
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19 MILLION DREAMS
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RETAIL TRAVEL
Travel dream 9,537
Diving the Barrier
Reef, Australia.
Moira Lumsden – Long haul specialist,
M
T
Thomas Cook Dundee
‘
‘ Most of my customers are planning a honeymoon or anniversary
trip. I love the excitement of creating dream itineraries for
customers to places they never thought they could afford. Last year
I sold almost £2 million worth of holidays – a personal best in my
23-year Thomas Cook career.’
nt of
“ I love the excitement of
creating dream itineraries for
s for
neraries
customers to places they never
ey neve
er
es they
thought they could afford.”
ord.”
d affo
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PACKAGE HOLIDAYS
Travel dream 20,744
Sun, swim and the
kids free to play.
Romy Hallbauer – Holiday Representative,
Neckermann Reisen, Canary Islands
‘ I love travel as much as my guests. So I understand
what makes them happy and how to help them enjoy
their time in new, sometimes challenging cultures.
Every day is different and it’s fantastic when, at the
end, guests thank you for all you’ve done.’
12 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
“ Every day is different and it’s fantastic
when, at the end, guests thank you for
all you’ve done.”
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2007 | 13
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WINTER HOLIDAYS
Henk Eggens – Senior product manager,
Vrij Uit, Hoofddorp
‘ There are so many skiing options now, it’s a challenge
to ensure the right product mix for our customers
here in the Netherlands. But by keeping in close
contact with the market through trade fairs, organising
familiarisation trips and seeing things for ourselves
we’ve managed to win best Wintersport Tour Operator
fi ve years running.’
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Travel dream 71
Virgin snow,
Zell am See, Austria.
“ By keeping in close contact with the market
we’ve managed to win best Wintersport Tour
Operator five years running.”
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FOREIGN EXCHANGE
Travel dream 185,467
Spending money,
Prague.
Geraldine Boyd – Customer services
manager, Thomas Cook Bureau de Change,
Manchester airport
‘ People are often pressed for time at the airport and
dealing with foreign currency can be confusing. We
make things easier by giving our customers good rates
and the most convenient mix of notes. A bit of foreign
cash in your pocket makes you feel your holiday has
really started.’
16 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
“ A bit of foreign cash in your pocket
makes you feel your holiday has
really started.”
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EXPANDING MARKETS
Travel dream 12,856,134
Flying around
the globe.
John Rosasco – Flight operations manager,
Thomas Cook Airlines, Copenhagen
‘ Even after a fl ying career of 15,000 hours, I still get a
kick when I get feedback from my passengers about
how much they’ve enjoyed their fl ights. As I see it, it’s
an essential part of their holidays so everything has to
be right. It’s my responsibility to make it that way.’
18 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
“ I still get a kick when I get feedback from
my passengers about how much they’ve
enjoyed their flights.”
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INDEPENDENT TRAVEL
Travel dream 251
Exotic markets off
the beaten track.
Ben Morris – Call centre, Thomas Cook
Signature, Peterborough
‘ In today’s independent travel market, people can
sometimes be spoilt for choice, that’s where I can help.
The most satisfying thing about my job is helping people
to choose a holiday that’s a perfect fi t – matching their
tastes, schedules and budgets with their dreams. You
can hear it in their voices when you get it right.’
20 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
“ The most satisfying thing about my job is
helping people to choose a holiday that’s
a perfect fit.”
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 21
1
2
3
4
19 MILLION DREAMS
6
7
8
9
10
11
12
13
14 15
CRUISE
Travel dream 4,569
Cruising the world,
Madeira.
Anna Pires – Guest relations manager,
Encore Cruise Escapes, Toronto
‘ A cruise is a big event in most people’s lives. I’m here
to help our customers choose the right trip for them
and then ensure that service meets their expectations.
Having been on 18 cruises myself, I think they’re
magical. I like to share that magic.’
22 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
“ Having been on 18 cruises myself, I think
they’re magical. I like to share that magic.”
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 23
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19 MILLION DREAMS
6
7
8
9
10
11
12
13
14 15
Behind every dream is
167 years of worldwide
experience and 30,000
Thomas Cook people.
24 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
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“ We are on track to achieve
“ We are on track to achieve
merger synergies of at least
merger synergies of at least
€200 million by 2008/09.”
€200 million by 2008/09.”
Manny Fontenla-Novoa
Following the merger between MyTravel Group plc and Thomas Cook AG
Current trading
on 19 June 2007, the successful integration of the two companies, which
Current trading has continued to be strong, with demand for both
was our primary objective for 2007, has now been largely completed:
winter and summer holidays ahead of capacity. Together with our
excellent capacity left to sell position, this places us in a good position
for the rest of the fi nancial year.
> The senior management team is in place and meets regularly
as the Group Management Board to coordinate the operational
management of the Group.
> 144 shops in the UK have been closed to bring our retail estate to
what we believe is the current optimum size. Most of our remaining
UK
812 shops are now branded Thomas Cook, although the Going Places
brand has been retained where this gives us a local advantage.
> The UK headquarters has been established in Peterborough and
a number of sites have been closed to rationalise offi ces and call
centres in the UK.
Winter 2007/08
Year on year pro forma
variation %
Northern Europe
Continental Europe
North America
Average selling price
Bookings
Capacity
+2
+8
+3
-4
-5
+7
-1
-2
-7
+7
-
-1
Note: Figures above are as at 19/20 January 2008. The fi gures above for UK,
Northern Europe and North America represent Risk bookings only. In Continental
Europe, all bookings are included.
> Our new UK and Ireland brand strategy has been implemented, with
Trading for the winter season continues to track in line with
Thomas Cook as our leading brand, supported by a strong portfolio
our expectations.
of brands including Airtours in the mass market segment; Direct
Holidays, the UK’s number one brand for holidays sold direct to the
consumer, and specialist brands such as Thomas Cook Signature,
CruiseThomasCook, Cresta, Tradewinds, Neilson and Club 18-30.
> Thomas Cook Airways is now our integrated UK airline, operating
with a single fl ight programme with effect from spring 2008.
> Our major UK tour operator reservation systems have been
operating successfully on a common platform since the end
of October 2007.
In the UK, bookings for the current winter season are now 5 per cent
lower than the prior year. Capacity on sale is currently 7 per cent below
the prior year and as a result we have fewer holidays left to sell than a
year ago. Average selling prices and margins are ahead of the prior year.
Year on year pro forma
variation %
Short haul
Medium haul
Long haul*
UK total
Left to sell
Capacity
-18
-8
-15
-9
-21
-4
-12
-7
> Our UK fi nance back offi ce systems have been fully integrated since
Capacity to short haul destinations has been reduced by 21 per cent as
November 2007.
We are on track to achieve merger synergies of at least €200 million
by 2008/09, which is an increase of €60 million on our original
prediction and up to a year ahead of schedule.
we rationalise the product offering and exit unprofi table business.
Bookings are in line with this capacity reduction and selling prices are
better year on year.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 25
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€700m
€600m
€500m
€400m
€300m
€200m
€100m
7%
6%
5%
4%
3%
2%
1%
2005/06
2006/07
2009/10
(estimate)
EBIT* €m
2005/06
2006/07
2009/10
(estimate)
EBIT* (% of revenue)
* Earnings before interest, tax, exceptional items, amortisation of
business combination intangibles and excluding our share of results
of associates and joint ventures.
Trading in medium haul is currently very pleasing. Whilst overall
selling prices are 4 per cent lower than last year. The bookings
bookings are slightly down on the prior year, the load factors achieved
position refl ects the continued diffi cult market conditions. However,
to date on departed passengers have been ahead. In addition, selling
management are taking steps to mitigate the impact where possible
prices are currently ahead of the prior year and we expect to see this
and we remain confi dent about achieving our expectations for an
trend continuing throughout the remainder of the season as we fulfi l
improved fi nancial performance year on year.
demand for February half-term and Easter.
The booked seat load factor in Airlines Germany for winter is
*Capacity to long haul destinations has been reduced by 12 per cent
currently 7 per cent ahead of the prior year.
year on year and largely refl ects programme rationalisation to exit
loss-making routes. The booked load factor is currently tracking ahead
of the prior year and average selling prices are strong.
Trading in Northern Europe for winter 2007/08 remains very strong.
Bookings are up 7 per cent on the prior year with 7 per cent more
capacity. Average selling prices are 8 per cent ahead year on year.
Summer 2008
Year on year pro forma
variation %
UK
Northern Europe
Continental Europe
Average selling price
Bookings
Capacity
+2
+10
+1
-2
+14
+5
-9
+2
-
In Continental Europe, trading for winter 2007/08 has shown a
signifi cant improvement over the last few weeks and is very
Note: Figures above are as at 19/20 January 2008. The fi gures above for UK,
Northern Europe and North America represent Risk bookings only. In Continental
Europe, all bookings are included.
encouraging. Total bookings are currently 1 per cent down year on
The post-Christmas trading period is very important in all our major
year and average selling prices are 3 per cent ahead of the prior year.
markets. Whilst it is still early, we are pleased with trading in that
Following sizeable capacity reductions, we are pleased with trading in
period and have experienced robust demand for holidays.
Germany, where we now have signifi cantly fewer holidays to sell than
in the prior year and are utilising our capacity better.
Trading in the UK for the summer season 2008 has continued well
and early indications are that selling in the peak post-Christmas period
Trading in Belgium, our next largest market, has also continued
is encouraging with strong sales to our key medium haul destinations
strongly with both bookings and selling prices well ahead of the prior
of Turkey and Egypt.
year. In the Netherlands, overall bookings are behind the prior year
but this refl ects a reduction in non-risk car holidays. Air-inclusive
Year on year pro forma
variation %
bookings, where we are on risk, are ahead year on year. Selling prices
are signifi cantly ahead following the change in bookings mix from car
holidays to more air-inclusive holidays.
Trading in France, where volumes are much lower, is satisfactory.
Trading in the Eastern markets (Poland, Hungary and the Czech
Republic) is very strong, with bookings signifi cantly ahead year
on year.
In North America, winter trading has improved in the last few weeks
and bookings are now 2 per cent lower than last year and average
26 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Short haul
Medium haul
Long haul*
UK total
Left to sell
Capacity
-25
-6
-25
-14
-21
-3
-9
-9
Overall bookings are currently 2 per cent behind the prior year, however,
as with winter 2007/08, we are adjusting the combined fl ying programme
to exit unprofi table business and optimise yield management. Capacity
is currently 9 per cent lower than for summer 2007.
*Capacity in long haul has been reduced by 9 per cent; however, this is
largely due to the increase in the aircraft seat pitch. In addition, we
PRO FORMA OPERATING PROFIT BY DIVISION €m
121.5
UK & Ireland
Northern Europe
Continental Europe
North America
Airlines Germany
PRO FORMA REVENUE BY DIVISION
UK & Ireland
Northern Europe
Continental Europe
North America
Airlines Germany*
* External revenue only.
109.7
99.5
7.9
68.1
€bn
4.7
1.2
4.5
0.6
0.8
have exited unprofi table routes to China and other long haul
The Board has reviewed current and forecast economic conditions
destinations as part of our review of fl ight programmes. As a result
and considered the impact these could have on our business. We have
of the capacity reductions, particularly in short haul and long haul,
not seen any effect on our trading, which continues to improve in the
we expect to have considerably fewer holidays left to sell in the lates
markets which generate most of our profi ts. We believe this can be
market, which we expect will improve profi tability. Average selling
primarily attributed to (i) the high priority that European consumers
prices are currently 2 per cent ahead.
place on their major foreign holidays, and (ii) our ability, through our
Early trading for summer 2008 in Northern Europe has continued
strongly. Bookings are currently 14 per cent ahead year on year even
though capacity has only been increased by 2 per cent. Average selling
prices are 10 per cent ahead.
asset-light model, to effectively manage the balance between supply
and demand. By managing the number of holidays to be sold, we
believe we are in a position to benefi t from higher average selling
prices and are less exposed to any future change in demand.
The outlook therefore continues to be positive for both winter
Early indications for summer trading in Continental Europe, and
2007/08 and summer 2008.
in particular Germany, are very encouraging with total bookings
5 per cent up and average selling prices 1 per cent up year on year.
The summer programme in North America has only very recently
been launched but has started well.
The booked seat load factor in Airlines Germany for summer
is currently 3 per cent ahead of the prior year.
Fuel and foreign currency
Fuel and foreign exchange rate volatility have a material impact on
the Group’s variable cost base. It continues to be our policy, to manage
this volatility, to hedge fuel and foreign currency trading requirements
over an 18-24 month period. We are comfortable with our overall
hedged position for the current fi nancial year.
Outlook
The Board looks to the future with confi dence. In the short term,
we are encouraged by the business’s performance since the year end
and ongoing current trading. In the longer term, merger synergies
of at least €200 million provide a sound platform for the achievement
of our target of at least €620 million operating profi t in 2009/10.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 27
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FINANCIAL REVIEW
Ludger Heuberg
PRO FORMA (UNAUDITED) FINANCIAL RESULTS AND
Group
PERFORMANCE REVIEW
To assist investors in understanding the
performance of the Group, pro forma
fi nancial information has been prepared to
show the results of the Group as if the two
former groups had always been combined.
The pro forma fi nancial information has
been prepared on an adjusted basis which
means before exceptional items, amortisation
of intangible assets that arose from the
business combination, interest and tax
(unless otherwise indicated), and excludes
our share of the results of associates and
joint ventures.
Key performance indicators
Revenue*
Profi t from operations**
Operating profi t margin %***
Adjusted EPS (euro cents) ‹
Adjusted dividend cover ›
See Appendix 1 for key.
Year ended
31 October
2007
€m
11,714.5
375.3
3.2%
27
2.5
Year ended
31 October
2006
€m
11,870.6
297.7
2.5%
20
Change
%
-1.3
+26.1
+28.0
+35.0
Group pro forma revenue for the year was €11,714.5 million, a decrease
of 1.3 per cent on the prior year. Revenue decreased year on year in
the UK (down €22.3 million), Continental Europe (down €90.4 million),
North America (down €124.8 million) and Corporate (down
€34.9 million). These decreases were offset by increases in Northern
Europe (up €42.9 million) and Airlines Germany (up €73.4 million).
“ Pro forma profit from operations increased
by 26 per cent to €375.3 million.”
Pro forma profi t from operations** increased by 26 per cent to
€375.3 million. Improvements were seen in all segments except for North
America where over capacity in the market place affected margins.
See Appendix 1 for key.
28 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
“ The Board is recommending a final dividend
of five pence per share for the year ended
31 October 2007, for payment after, and
subject to, shareholder approval at the
Annual General Meeting expected to be
held on 10 April 2008.”
Pro forma unaudited segmental performance review
Pro forma exceptional operating items amounted to €211.2 million
(2006: pro forma profi t of €13.6 million) and largely related to the
post-merger integration process.
More details of the movements in revenue and profi t from
operations** are given in the pro forma segmental review opposite.
Pro forma adjusted earnings per share for the period was € cents 27
compared with € cents 20 in the pro forma prior year period. Pro
forma adjusted earnings per share has been calculated using the pro
forma profi t for the period before exceptional items and amortisation
of business combination intangibles divided by the number of shares
in issue at the end of the 2006/07 year. Adjustments have been
made to refl ect a normalised tax charge.
Revenue*
UK
Northern Europe
Continental Europe
North America
Airlines Germany
Corporate
Group
Profi t from operations**
As announced on 21 November 2007, the Board expects to recommend
UK
dividends per share in respect of each full year in the range of
40-50 per cent of earnings per share and to pay one-third of an
annual dividend as an interim and two-thirds as a fi nal dividend. The
Board believes it is desirable to provide shareholders with dividend
payments increasing progressively over time. Applying this policy,
the Board is recommending a fi nal dividend of 5 pence per share for
Northern Europe
Continental Europe
North America
Airlines Germany
Corporate
Group
the year ended 31 October 2007, for payment after, and subject to
See Appendix 1 for key.
shareholder approval at, the Annual General Meeting expected to be
held on 10 April 2008. Based on the adjusted earnings per share fi gure
noted above, this equates to a 40 per cent payout for the full year
(assuming an interim dividend of one-third had been applicable).
Year ended
31 October
2007
€m
Year ended
31 October
2006
€m
4,714.3
1,194.8
4,477.4
559.8
767.8
0.4
4,736.6
1,151.9
4,567.8
684.6
694.4
35.3
11,714.5
11,870.6
121.5
109.7
99.5
7.9
68.1
(31.4)
375.3
89.2
92.6
99.2
15.7
38.1
(37.1)
297.7
Change
%
-0.5
+3.7
-2.0
-18.2
+10.6
-98.9
-1.3
+36.2
+18.5
+0.3
-49.7
+78.7
+15.4
+26.1
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UK
Key performance indicators
Revenue (€m)*
Profi t from operations (€m)**
Year ended
31 October
2007
4,714.3
121.5
Year ended
31 October
2006
4,736.6
89.2
Operating profi t margin %***
2.6%
1.9%
Passengers (000s)†
Risk
Non-Risk
Capacity (000s)††
Average selling price (£)#
Load factor %†††
Brochure mix %##
Controlled distribution %‡
Internet distribution %‡
68.3%
16.2%
65.5%
13.6%
See Appendix 1 for key.
Change
%
-0.5
+36.2
+36.8
-4.0
-4.0
-3.5
+1.6
-0.5
-2.4
+4.3
+19.1
The UK business consists of the previous Thomas Cook businesses
in the UK together with the previous MyTravel UK businesses. Both
companies operated a highly integrated tour operator model
throughout the period of this review. Given the relatively long lead
time between programme planning and holiday departure, the two
businesses have operated largely autonomously for the summer 2007
season departures. However, we were able to unlock some operational
synergies, particularly in selling lates towards the end of the season,
and successfully merged the two businesses onto one reservation
system without any disruption to the selling process during October.
The shortfall in gross margin, however, was more than offset by
reductions in overhead costs, such that the pro forma profi t from
operations** increased by €32.3 million year on year.
As outlined in our strategy presentation which was given to analysts
on 21 November 2007 (and a copy of which is available on our
website at www.thomascookgroup.com), control of distribution
and, in particular, growth of sales through the internet is one of the
cornerstones to our future success. During the period, our share
of internet distribution grew to 16 per cent, an increase of 19 per cent
over the prior year. Our share of controlled distribution also grew in
the period by 4 per cent to 68 per cent.
Northern Europe
Key performance indicators
Year ended
31 October
2007
Revenue (€m)*
Profi t from operations (€m)**
1,194.8
109.7
Year ended
31 October
2006
1,151.9
92.6
Operating profi t margin %***
9.2%
8.0%
Passengers (000s) †
Risk
Non-Risk
Capacity (000s)††
Average selling price (SEK)#
Load factor %†††
Brochure mix %##
Controlled distribution %‡
Internet distribution %‡
76.5%
35.3%
73.5%
28.0%
Change
%
+3.7
+18.5
+15.0
-2.3
+8.7
-3.2
+8.2
+0.9
-1.3
+4.1
+26.1
Pro forma revenue for the year was down 0.5 per cent on the prior
See Appendix 1 for key.
year. This reduction largely refl ects lower passenger numbers offset
by the increase in average selling prices achieved. Within the risk tour
operating business, where capacity is committed prior to the start
of the season, one of the key success factors is ensuring that supply
and demand remain in balance and the sale of loss-making
programmes and holidays are minimised. In order to manage this,
capacity on sale was reduced in the period, particularly in the former
MyTravel risk business, and average selling prices achieved were
The Northern Europe division is made up of fully integrated mainstream
tour operating businesses in Sweden, Denmark, Norway and Finland.
It also operates an airline which services a large proportion of the
tour operators’ fl ight requirements and has an exclusive hotel
concept, Sunwing Resorts. In this division, we had a very successful
year refl ecting a strong performance in both winter and summer
in a mature market.
1.6 per cent higher than in the previous period. Despite a strong late
As noted above, the balance between supply and demand in an
trading performance which saw our margins signifi cantly ahead of last
integrated tour operator model is fundamental to success, and
year and a continuation of our strategy to move more of our capacity
during the year, we reduced capacity in Northern Europe by 3.2 per
into medium haul destinations, these increases were not suffi cient
cent through the removal from the fl eet of an A320 aircraft. Despite
to compensate for the slow market conditions earlier in the year.
this reduction in capacity, pro forma revenue increased in the year
As a consequence of this, and along with the additional charges
by 3.7 per cent. Whilst brochure mix was slightly lower than the prior
placed upon the sector for air passenger duty and the increase in
year, the overall average selling price achieved improved by 8.2 per cent
the cost of fuel, the gross margin achieved was lower year on year.
and the load factor by 0.9 per cent. These improvements refl ect
growth in long haul products in the winter and strong demand in
the summer lates market following an unseasonably wet summer.
The winter long haul growth is predominantly to Thailand, where
we opened a new Sunwing Resort in winter 2006/07. We also opened
a Sunwing Resort in Turkey during the year.
30 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
During the period, our share of internet distribution grew to
conditions was minimised. Successful cost management also
35 per cent, an increase of 26 per cent over the prior year. Our share
mitigated some of the disappointing trading performance.
of controlled distribution also grew in the period, but more modestly,
as we closed 13 shops in Sweden and 2 in Norway.
As a result of the strong trading performance, the pro forma profi t
from operations** increased by €17.1 million to €109.7 million. The
We were very pleased with the trading performance in the Belgian and
French tour operating businesses, where both passengers carried and
average selling prices achieved were much improved year on year. In
addition, the retail business in France performed very well. In Holland,
operating profi t margin also rose to 9.2 per cent, maintaining our
we had a steady performance year on year with lower passenger
industry-leading margin position in this segment.
numbers being offset by increased selling prices as the mix of holidays
Continental Europe
Key performance indicators
Revenue (€m)*
Profi t from operations (€m)**
Operating profi t margin %***
Passengers (000s)†
Flight-inclusive
Non-fl ight inclusive
Average selling price (€)#
Controlled distribution %‡
Internet distribution %‡
See Appendix 1 for key.
Year ended
31 October
2007
Year ended
31 October
2006
4,477.4
4,567.8
99.5
2.2%
99.2
2.2%
33.2%
5.4%
31.2%
4.8%
shifted from car holidays to air-inclusive.
Change
%
-2.0
+0.3
-
-7.7
-0.8
+1.5
+6.4
+12.5
In Poland and Hungary, the operating performance year on year was
satisfactory. We are expanding our presence in the East European
market and recently acquired a retail business in the Czech Republic
as well as establishing our own tour operator.
During the period, our share of internet distribution in the Continental
Europe segment grew over the prior year, but still stands at a modest
5 per cent and is a key area of focus for our strategy going forward. Our
share of controlled distribution also grew in the period to 33 per cent,
but is still below our targeted level.
As a result of the strong performance in Belgium and France and the
successful capacity and cost management to minimise the impact
of the disappointing trading in Germany, the pro forma profi t from
operations** increased slightly to €99.5 million. The operating profi t
The Continental Europe division is made up of businesses operating
margin remained static at 2.2 per cent.
out of Germany, France, Belgium and Holland (West), and Poland,
Hungary and the Czech Republic (East). The businesses in the
Continental Europe segment are, in general, less vertically integrated
than in the UK and Northern Europe segments, with Belgium being
North America
Key performance indicators
the only business where we have both an in-house airline and a strong
presence in retail. In Germany, approximately half of the airline seat
Revenue (€m)*
Profi t from operations (€m)**
capacity is sourced from the Airlines Germany segment but the airline
Operating profi t margin %***
is operated independently of the tour operator business. In France, we
have a stronger retail than tour operator presence, although the tour
Passengers (000s)†
operator business is growing. In Holland, Poland, Hungary, and the
Czech Republic, we have a strong tour operator and retail presence.
Risk
Non-Risk
Year ended
31 October
2007
559.8
7.9
1.4%
Year ended
31 October
2006
684.6
15.7
2.3%
Pro forma revenue in the year in Continental Europe was down
2 per cent from the prior year at €4,477.4 million. This largely refl ects
lower fl ight-inclusive passengers (down 7.7 per cent), offset by an
increase in the average selling price achieved (up 1.5 per cent).
The reduction in fl ight-inclusive passengers largely occurred in
Capacity (000s)††
Average selling price (C$)#
Load factor %†††
Brochure mix %##
Controlled distribution %‡
Internet distribution %‡
16.1%
6.9%
16.5%
5.9%
Change
%
-18.2
-49.7
-39.1
-12.1
+6.3
-11.5
+3.6
-0.6
+4.2
-2.4
+16.9
the German business. Challenging trading conditions prevailed
See Appendix 1 for key.
throughout the year in Germany, particularly in the short haul
business. Average selling prices achieved were higher year on year;
however, demand for holidays was weaker than expected and
consequently we were able to utilise less of our committed aircraft
capacity than originally planned. However, management actions
taken to reduce the capacity throughout the year, where possible,
together with increased sales through controlled and internet
distribution, ensured that the impact of the diffi cult trading
The North America segment largely comprises a tour operator and
a retail business in Canada, although there are also some smaller
independent businesses in Canada and some speciality travel services
businesses in the USA. Unlike in the UK and Continental Europe, where
the peak holiday season is summer, the Canadian peak is in winter.
Pro forma revenue in the year reduced by 18.2 per cent to
€559.8 million. In response to over capacity issues in the market place,
management reduced the capacity on sale by 11.5 per cent
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year on year. However, the majority of this reduction came in the
Our Airlines Germany segment consists of Condor, our low fare
summer season.
leisure-travel airline which operates out of Germany. The airline operates
In the winter season, capacity in our North American tour operator
was reduced by 4 per cent, but this was not suffi cient to fully mitigate
the impact of over capacity in the market place (we estimate that the
capacity in the market increased overall by 8 per cent despite our
reduction). Selling prices achieved in winter were slightly better year
a fl eet of 36 aircraft, of which 27 operate within Europe and 9 operate
long haul. The airline is independent of the German tour operator
however, in 2006/07 44 per cent of its seats sold went to service the
requirements of the Thomas Cook Germany tour operator
(2005/06: 50 per cent).
on year; however this increase was not suffi cient to cover increased
direct costs, resulting in signifi cantly lower margins being achieved.
Total pro forma revenue in 2006/07 increased by 1.6 per cent year on
year to €1,262.4 million. This refl ects an increase in long haul volumes
The poor winter performance was partially offset by improved trading
in the summer, where management actions to reduce capacity on poorly
performing routes had a greater impact and resulted in signifi cant
increases in average margins achieved. Given the counter-cyclical
and yields achieved, offset partly by a reduction in European fl ying,
largely as a result of the capacity reductions in our German tour
operator business and the resultant removal of one aircraft from
the fl eet.
nature of the North American businesses, however, these summer
Operating costs reduced year on year largely as a result of having
improvements were not suffi cient to offset the winter shortfall.
one less aircraft in the fl eet.
As a result, the pro forma profi t from operations** for the year
was reduced by €7.8 million to €7.9 million.
Pro forma profi t from operations** increased in 2006/07 to
€68.1 million (2005/06: €38.1 million). This result comes despite
During the period, our share of internet distribution in the North
the diffi cult trading conditions in Germany and refl ects a strong
America segment grew by 17 per cent over the prior year to 7 per cent.
performance in long haul and the successful completion of the
Our share of controlled distribution fell slightly as the acquisition
turnaround of this business, with management focusing on
of Encore Cruises at the end of 2006 temporarily diluted our
profi table routes and successful cost control.
Corporate
Key performance indicators
Year ended
31 October
2007
Year ended
31 October
2006
Revenue (€m)*
Loss from operations (€m)**
0.4
(31.4)
35.3
(37.1)
See Appendix 1 for key.
Change
%
-98.9
+15.4
The Corporate segment largely represents unallocated head offi ce
costs and the results of businesses held for sale. The signifi cant
reduction in revenue in the year refl ects the completion of the
planned divestment of non-core businesses within the former
Thomas Cook AG.
The loss from operations** reduced by €5.7 million to €31.4 million
year on year. This reduction partly refl ects the divestment programme
noted above and partly refl ects effective cost control within the
corporate functions.
overall share.
Airlines Germany
Key performance indicators
Revenue – external (€m)
Revenue – internal (€m)
Total revenue
Year ended
31 October
2007
767.8
494.6
1,262.4
Year ended
31 October
2006
694.4
547.9
1,242.3
Profi t from operations (€m)**
68.1
Operating profi t margin %***
5.4%
38.1
3.1%
Sold seats (000s)‡‡
TC tour operators
Third-party tour operators
External seat only
Total sold seats
Sold seats (000s)‡‡
Europe (excluding Cities)
Long haul
Cities
Total sold seats
Capacity (ASK m)††
Yield (€)###
Seat load factor %†††
See Appendix 1 for key.
Change
%
+10.6
-9.7
+1.6
+78.7
+74.2
-17.5
+20.9
-9.0
-7.7
-9.6
+6.7
-15.3
-7.7
-3.0
+9.1
+0.8
32 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
RECONCILIATION OF PRO FORMA AND STATUTORY PROFIT
Income statement highlights
FROM OPERATIONS**
The table below sets out the key reconciling differences in profi t from
operations** on a pro forma basis compared with a statutory basis
for 2007 and the comparative period.
Revenue and profi t from operations**
Revenue in the year amounted to €9,439.3 million compared with
€7,780.2 million in the prior year. Profi t from operations before
exceptional items and amortisation of business combination
intangibles was €455.4 million compared with €180.9 million in
Year ended
31 October
2007
Year ended
31 October
2006
the prior year.
Pro forma Group profi t from operations**
375.3
297.7
Adjustments:
Pre-merger operating loss/(profi t) of MyTravel
Pre-merger impact of fair value adjustments
IAS 39 business combination adjustment
79.1
(16.7)
17.7
Exceptional operating items
Total net exceptional operating costs in the year were €184.8 million
compared with a net profi t of €37.3 million in the prior year.
Exceptional items are defi ned as costs or profi ts that have arisen
(90.7)
(26.1)
–
in the period which management do not believe are a result of normal
Statutory Group profi t from operations**
455.4
180.9
operating performance and which, if not separately disclosed, would
See Appendix 1 for key.
distort the year on year comparison of trading performance.
The statutory Group profi t from operations** refl ects 100 per cent of
the results of Thomas Cook AG for the full fi nancial year (and the full
Included within the net €184.8 million of exceptional items are
€133.3 million of costs associated with the integration of the former
comparative period) and 100 per cent of MyTravel Group plc and
MyTravel and Thomas Cook businesses. The majority of these costs
Thomas Cook Group plc from 19 June 2007, being the date of the
have arisen in the UK businesses and largely refl ect property costs,
merger. Consequently, the fi rst adjustment in the table above removes
redundancy and other people-related costs of closing down a number
the pre-merger results of MyTravel Group plc. As MyTravel Group plc
of operational sites.
made losses in the winter period 2007 but profi ts in the full year
2006, this adjustment improves statutory profi tability in 2007,
whilst reducing the 2006 profi tability.
In preparing the pro forma profi t from operations**, account was
taken of the impact of acquisition accounting. As part of the fair value
Other exceptional costs include impairment of property, plant
and equipment and other assets (€13.0 million), irrecoverable air
passenger duty (€9.4 million), aborted acquisition costs (€10.5 million),
non-merger-related business restructuring (€19.6 million), and other
merger-related costs (€16.9 million). These have been partially offset
adjustments, a provision was made in respect of above market rate
hotel lease rentals. In addition, the value of aircraft held on the
by exceptional gains on the disposal of businesses and assets
(€17.9 million).
balance sheet was reduced. In the pro forma fi gures, we have assumed
that both of these adjustments were made prior to 1 November 2005
and, as a result, the impact of a full year of lower rental costs and
reduced depreciation has been refl ected in the pro forma profi t from
operations** in both 2006/07 and 2005/06. The net effect of these
fair value adjustments has been to increase the pro forma profi t from
operations** for both years by €26.1 million. The second adjustment
above, therefore, removes the impact of this adjustment from the
pre-acquisition period.
The IAS 39 business combination adjustment represents unrecognised
losses on hedging instruments taken to reserves within the MyTravel
business prior to the date of the business combination. On consolidation
these amounts are included within goodwill and are therefore not
recognised in the pro forma fi gures but increase statutory profi t
from operations.
AUDITED STATUTORY FINANCIAL RESULTS
As noted above, the statutory results for Thomas Cook Group plc for
the year ended 31 October 2007 contain a full year of results for the
former Thomas Cook AG businesses and four months and 11 days of
results for the former MyTravel Group plc and Thomas Cook Group plc
on an acquisition accounting basis.
Amortisation of business combination intangibles
Amortisation of business combination intangibles in the year
amounted to €43.1 million, of which €15.0 million relates to the
amortisation of brand names, customer relationships and computer
software, and €28.1 million to the amortisation of the order backlog
that existed at the time of the combination.
Associates and joint ventures
The profi t on disposal of associates during the year of €52.4 million
(2006: €20.4 million) largely refl ects the sale, to Arcandor (formerly
KarstadtQuelle), on an arm’s length basis, of our 50 per cent interest
in SunExpress, an airline based in Turkey. The proceeds from the
sale amounted to €54.0 million. This disposal realised a profi t of
€50.1 million. In addition, during the year, the Group disposed of its
interests in Falstacen S.L., Thomas Cook Thailand and Troll Reisen
GmbH, realising further profi ts of €2.3 million.
Our share of results of associates and joint ventures was €2.6 million
(2006: €4.9 million). The reduction in profi tability relates largely to
the disposal of SunExpress. Net investment income which refl ects
dividends and interest received from investments was €2.5 million
(2006: €0.9 million).
**See Appendix 1
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 33
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FINANCIAL REVIEW CONTINUED
Net fi nance costs
Net fi nance costs in the year were €0.7 million (2006: €25.4 million).
The reduction in net costs year on year largely refl ects an increase
in the expected return on pension plan assets. This is as a result of
the increase in the scheme assets year on year, the main contributor
to which was the special one-off contribution payment made in 2006
into the Thomas Cook UK defi ned benefi t scheme of €124.5 million.
Profi t before tax for the year ended 31 October 2007 was
€284.3 million (2006: €219.0 million).
Tax
The tax charge in the year was €58.8 million (2006: €39.2 million).
Cash fl ow and net funds
The net cash infl ow from operating activities during the year was
€237.6 million (2006: €182.7 million). This includes the profi ts from
operations during the year, partly offset by a net outfl ow on working
capital of €235.1 million. The working capital outfl ow results from the
timing of the acquisition of MyTravel by Thomas Cook. As at 19 June
2007, MyTravel would have received cash due from customers
departing on the peak season summer holidays, as these amounts
are due some weeks prior to departure. However, payments to airlines,
hoteliers and other suppliers are generally made later in the cycle,
being just prior to departure in the case of airlines and when
customers return from holiday in the case of hoteliers. Consequently,
Excluding the effect of adjustments to tax provisions made in respect
cash in hand in MyTravel at the time of the acquisition would have
of previous years, this represents an effective tax rate of 30 per cent
been approaching its peak with the post-acquisition period (being the
on the profi t for the year.
The cash tax rate will continue to be considerably lower than
30 per cent as a result of being able to utilise the losses available
in the UK and Germany. Total losses available to carry forward in
the Group at 31 October 2007 are €1.8 billion. Deferred tax assets
have been recognised in respect of €1.0 billion of this amount.
Profi t after tax for the year ended 31 October 2007 was €225.5 million
(2006: €179.8 million).
Earnings per share and dividends
The basic and diluted earnings per share for the year was € cents 33
(2006: € cents 35). To allow a more like-for-like comparison to the prior
year, earnings per share before exceptional items and amortisation of
business combination intangibles has also been calculated. This was
€ cents 54 for 2007 (2006: € cents 25). However, it should be noted that
the earnings per share fi gures noted here are impacted by the weighted
average number of shares in issue which are signifi cantly lower for
the comparative period due to the nature of the merger transaction.
As a result, management believes that the adjusted earnings per share
fi gures included within the pro forma fi nancial results and performance
review section of this report are a better measure of return.
As noted in the pro forma fi nancial results and performance review
section of this report, the Board is recommending a fi nal dividend
of 5 pence per share for the year ended 31 October 2007, for payment
after, and subject to shareholder approval at, the Annual General
Meeting expected to be held on 10 April 2008.
Balance sheet
Net assets at 31 October 2007 were €3,042.4 million (2006:
€598.1 million). The business combination of Thomas Cook AG and
MyTravel has been accounted for on the basis that Thomas Cook AG
is the acquirer. Consequently, the MyTravel acquisition balance sheet
has been the subject of a fair value exercise under IFRS 3. This fair
value exercise resulted in the recognition of goodwill and purchased
intangibles of €2,903.1 million, of which goodwill was €2,396.3 million,
brand names, customer relationships and other intangibles were
€457.3 million and order backlog was €49.5 million.
Net funds at 31 October 2007 were €357.0 million (2006: €65.9 million).
34 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
part consolidated into the Thomas Cook Group plc accounts) showing
signifi cant cash outfl ow to settle creditors.
The net cash infl ow from investing activities was €51.4 million
(2006: €76.3 million). This includes €265.9 million net cash acquired
with businesses, the majority of which relates to the acquisition
of MyTravel; proceeds on disposal of subsidiaries and associates
of €102.0 million (2006: €151.5 million); proceeds on disposal of
property, plant and equipment of €46.2 million (2006: €54.9 million);
and proceeds on disposal of non-current assets held for sale of
€32.7 million (2006: nil). These have been offset by €294.0 million
outfl ow for the purchase of short-term securities (2006: €59.6
million), and €101.4 million outfl ow on the purchase of assets
(2006: €76.5 million).
The net cash outfl ow from fi nancing activities was €152.8 million
(2006: €200.5 million) and largely comprises capital repayments
and interest payments on fi nance leases and similar borrowings.
Also included is €17.9 million of expenses associated with the issue
of ordinary shares, part of which relates to the Thomas Cook/MyTravel
business combination.
Cash and cash equivalents on the balance sheet at 31 October 2007
were €892.8 million (2006: €736.0 million). This excludes cash held in
short-term securities of €366.7 million (2006: €72.7 million). However
the balance does include restricted cash of €166.7 million (2006: nil)
which is held in escrow accounts in the US and Canada, in respect
of local regulatory requirements, and held by White Horse Insurance
Ireland Limited, the Group’s captive insurance company. In addition
it should be noted that the Group’s working capital cycle is such that
cash balances are at their lowest in the winter months and at their
peak in the summer months.
Change of accounting reference date
The Board has decided that it will change the accounting reference
date to 30 September with effect from the current fi nancial period.
The current fi nancial period will therefore cover eleven months.
Information showing what the impact of the change would have
been on the pro forma results for 2007 will be provided as part
of the Half Year reporting.
Treasury policies
Fuel price risk
Thomas Cook Group is subject to risks related to changes in interest
Fuel exposures relate to fl ying costs for the seasons on sale. Price
rates, exchange rates, fuel prices and liquidity within the framework
hedging transactions are undertaken for the purpose of limiting
of its business operations.
To cover these risks, the Board has established treasury policies
which are revised regularly to ensure they remain relevant to
the business.
The Board approves all the fi nancial instruments used by the Group
to limit its risks. Internal guidelines provide the framework governing
actions taken, responsibilities and controls. The use of derivative
fi nancial instruments is not permitted for speculative purposes,
but instead serves exclusively to hedge existing underlying or
the risk of unfavourable changes in the price of fuel. The aim of the
hedging policy is to hedge 95 per cent of the fuel requirement for
the fl ight schedule concerned.
Group policy requires the group airlines to hedge all fuel exposures
with Group Treasury. Hedging is put in place using hedge combinations
and crude oil premium collars as hedging instruments. Hedges
concluded prior to September 2007 make use of crude oil price
range options, fuel commodity swaps and other instruments as
approved by the Board from time to time.
planned transactions by the business units.
Liquidity risk
Treasury activities are managed by Group Treasury. Group Treasury
reports regularly to members of the Board and is subject to periodic
independent reviews and audits.
The Group’s overall objective is to ensure that it is at all times able
to meet its fi nancial commitments as and when they fall due. Surplus
funds are collected and invested with approved counterparties within
authorised limits and with the aim of maintaining short-term liquidity
In accordance with the provisions set out in IAS 39, all derivative
while maximising yield.
fi nancial instruments must be measured at their fair values. The
market valuation of the derivative fi nancial instruments used is
based on market information or appropriate valuation methods.
The fair value of options is determined by recognised option price
models and that of interest rates derivatives takes account of terms
to maturity based on current market interest rates and the interest
rate yield curve. Positive market values of derivative fi nancial
instruments are capitalised under other assets while negative
Use is made of fi nancial planning instruments for the early
recognition of the future liquidity situation based on the results
generated via the Group’s strategy and planning process. The
12-month liquidity plan is updated with actual results on a regular
basis. The Group activities are underpinned by long-term funding
with adequate liquidity reserves freely available for disposal at all
times in accordance with the plan.
market values are shown under other liabilities.
Short-term liquidity
Short-term liquidity is invested in a combination of money market
funds and securities. All securities are denominated in euros and
largely represent corporate bonds, government bonds and asset
backed securities with an average investment grade rating of A.
Foreign currency risks
The Group is active in many destinations and sales regions and,
as such, is subject to the risk of exchange rate fl uctuations in its
operating activities. Exchange rate risks arise in connection with the
sourcing of services from destinations outside the source market.
Additionally, US dollar payments are made for the procurement of
fuel and operating supplies for aircraft as well as for investments
in aircraft.
The Group’s policy requires all subsidiaries to hedge all trade-
generated exposures with Group Treasury either as part
of the budget process or at the time of brochure launch.
Use is made in particular of currency forwards, currency options
(bought calls) and price range options in order to limit exchange
rate risks and are usually designated as cash fl ow hedges of
forecast future transactions.
Interest rate risks
The Group is also subject to risks arising from interest rate movements
in connection with its fi nancing of aircrafts and acquisition of
investments. Floating rate medium to long-term items are exposed
to interest rate risks. Interest rate swaps and cross currency swaps
are designated as cash fl ow hedges of the interest rate.
Cash from operations is invested in short-term bank deposits and
money market funds.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 35
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BOARD OF DIRECTORS
Dr Thomas Middelhoff – Non Executive Chairman
Dr Thomas Middelhoff is Chairman of the management board of Arcandor AG. He is also Chairman
of Senator Entertainment AG, The Polestar Group Limited and moneybookers.com Limited and is on
the board of the New York Times Company. Dr Middelhoff was previously Head of Europe for Corporate
Investment at Investcorp International and Chairman and Chief Executive Offi cer of Bertelsmann AG.
Committees: Member of the Audit and Risk Management, Nominations and Management Development
and Remuneration committees.
Michael Beckett – Non Executive Deputy Chairman. Senior Independent Non Executive Director
Mr Beckett is a non executive director of Northam Platinum and Orica Limited (Australia). Mr Beckett was
previously chairman of London Clubs International plc, Ashanti Goldfi elds Company Limited, Clarkson plc
and WBB Minerals Limited; formerly managing director of Consolidated Gold Fields plc.
Committees: Chairman of the Nominations and Management Development and Remuneration committees,
member of the Audit and Risk Management and Health, Safety and Environmental committees.
Manny Fontenla-Novoa – Group Chief Executive Offi cer
Mr Fontenla-Novoa is also a director of Worldchoice Marketing Limited (a dormant company), Hispano
Alemana de Management Hotelero S.A. and Mediterranean Touristic Management S.L. Mr Fontenla-Novoa
was previously group chief executive offi cer of Thomas Cook UK and Ireland for three years.
Committees: Member of the Health, Safety and Environmental committee.
Ludger Heuberg – Group Chief Financial Offi cer
Mr Heuberg is also a director of Hispano Alemana de Management Hotelero S.A., Mediterranean Touristic
Management S.L. and Viajes Iberoservice S.A. Mr Heuberg was previously head of the supervisory board
of Delvag Rück and the CFO of Lufthansa Cargo AG. Prior to this he was CFO of Kolbenschmidt-Pierburg AG
and a director of Mauser Waldeck AG.
David Allvey – Independent Non Executive Director
Previously a non executive director of MyTravel Group plc, Mr Allvey is also non executive Chairman
of Arena Coventry Limited and non executive Chairman of Costain Group plc. He also holds non executive
roles at Intertek Group plc, Resolution plc and William Hill plc. Mr Allvey was previously group fi nance
director of Barclays Bank plc, BAT Industries plc and Allied Zurich plc and was chief operating offi cer
of Zurich Financial Services AG.
Committees: Chairman of the Audit and Risk Management Committee. Member of the Health,
Safety and Environmental committee.
36 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Roger Burnell – Independent Non Executive Director
Formerly a non executive director of MyTravel Group plc. Mr Burnell was previously chairman
of Home Form Group Limited, chief operating offi cer and a director of Thomson Travel Group plc,
chairman of The First Resort Limited and chairman of International Life Leisure Group Limited.
Committees: Chairman of the Health, Safety and Environmental committee, member of the Audit
and Risk Management, Nominations and Management Development and Remuneration committees.
Dr Peter Diesch – Non Executive Director
Dr Diesch is currently CFO of Arcandor AG. He is also a supervisory board member of Delton AG.
Dr Diesch was previously CFO and HR Director of Linde AG, CFO and HR director of Tchibo Holding AG
and CFO of Airbus GmbH.
Committees: Member of the Audit and Risk Management, Nominations and Management Development
and Remuneration committees.
Hemjö Klein – Independent Non Executive Director
Mr Klein is currently Chairman and CEO of Live Holding AG and was formerly a member of the executive board of
Lufthansa AG and was a member of the executive board of Deutsche Bundesbahn and Deutsche Reichsbahn. He has
also held the position as chairman of the supervisory board of each of Sixt AG, DER Deutsches Reiseburo GmbH and
Condor Flugdienst GmbH. He was previously chairman of the board of directors of Amadeus SA and is a former
member of the supervisory board of TUI AG. He is a past chairman and president of the German National Tourist Board.
Committees: Member of the Management Development and Remuneration and Health, Safety and
Environmental Committees.
Bo Lerenius – Independent Non Executive Director
Since April 2004, Mr Lerenius has been a non executive director of G4S plc and since June 2004 has been a non
executive director of Land Securities Group PLC. He is a non executive director of a Swedish company, Ittur Construction,
which has announced its intention to list on the Swedish Stock Exchange in 2009. Group chief executive of ABP Holdings
PLC until March 2007 and a non executive director until 31 December 2007. Prior to joining ABP, between 1992 and 1998
he was chief executive of listed ferry company Stena Line. Between 1998 and 1999 he was vice chairman of Stena Line
and director of new business at Stena AB. From 1985 to 1992 he was group president and chief executive of Swedish
listed building materials group, Ernstomgruppen.
Mr Lerenius became chairman of the Swedish Chamber of Commerce for the UK on 15 June 2007.
Committees: Member of the Audit and Risk Management committee.
Dr Angus Porter – Independent Non Executive Director
Formerly a non executive director of MyTravel Group plc. Dr Porter is Global Chief Executive Offi cer
of Added Value Group. Dr Porter was previously an executive director, and chairman of the customer
board, of Abbey National plc, and managing director of British Telecom’s consumer division.
Committees: Member of the Nominations and Management Development and Remuneration committees.
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SENIOR MANAGEMENT
Dr Peter Fankhauser — Chief Executive Offi cer – Continental Europe Thomas Cook Group plc
Member of the management board at Thomas Cook AG.
Peter Fankhauser is responsible for the German sales market as well as the Western and Eastern European
markets. Having joined Reisebüro Kuoni AG in 1989, within six years he was appointed director general and
member of group management of Kuoni Reisen Holding AG in Zurich. In that capacity, he was in charge
of managing the Company’s European division, with responsibility for six subsidiaries as well as market
expansion. Soon, his remit extended to all group subsidiaries outside Switzerland and the UK. In 1999 he
moved to LTU Group in Dusseldorf as Chief Executive Offi cer. Two years later, he was appointed a member
of the Board of Thomas Cook AG and in 2003 became chief product offi cer of Thomas Cook Group and
Group Chief Executive Offi cer of Thomas Cook Germany.
Michael Friisdahl – Chief Executive Offi cer – North America Thomas Cook Group plc
Before the merger, Michael Friisdahl was Chief Executive Offi cer of MyTravel Group North America.
Previously, he had served as president, MyTravel Group North America and before that was president of
MyTravel Group Canada. Michael Friisdahl began his career in Canada with Nordic Tours, a company that
had been founded by his family and subsequently acquired by Abercrombie & Kent. In 1987, he re-purchased
Nordic Tours and expanded it to become Canada’s fi rst national wholesaler consolidator. In 1999 the Nordic
Travel Group and Holiday House merged to create a national full-service FIT wholesale organisation called
The Holiday Network. Michael Friisdahl was President and Chief Executive Offi cer of The Holiday Network
when it was acquired by MyTravel plc in May 2000.
Ralf Teckentrup – Chief Executive Offi cer – Airlines Germany Thomas Cook Group plc
Member of the Management Board of Thomas Cook AG.
In addition to his role as Group Chief Executive Offi cer of the Group’s German airline, Condor, Ralf
Teckentrup is in charge of purchasing and IT for Thomas Cook Germany. He has served on the Board
of Thomas Cook AG since 2004. He began his career at Lufthansa AG, where he was closely involved in
reorganisation projects and cost-cutting programmes. He joined the airline’s executive board in 1992, going
on to become Senior Vice President controlling and Executive Vice President for network management and
marketing for Lufthansa’s passenger business. Following a reorganisation in 2003, he became responsible
for the passenger airline’s network management, IT, airport infrastructure and purchasing.
Sam Weihagen – Chief Executive Offi cer – Northern Europe Thomas Cook Group plc
Sam Weihagen has been in travel for the past 32 years and has run the Northern Europe division as
Group Chief Executive Offi cer since 2001. Sam was the former MyTravel Northern Europe Chief Executive
and was a MyTravel plc Board member from 2004 until the merger. During his long service with the
Company Sam has served the Company in several capacities, including commercial director, with
responsibility for purchasing and fl ight planning. Sam also serves as chairman of the Tour Operating
Federation in his native Sweden.
38 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Dr Jürgen Büser – Chief Financial Offi cer – Thomas Cook UK & Ireland
Jürgen Büser is responsible for strategic development, fi nance, tax, information technology and
procurement for Thomas Cook UK Ltd. Prior to this, Jürgen worked for Thomas Cook AG in Germany
for three years as Group head of controlling and M&A. Before joining Thomas Cook, Jürgen occupied
senior positions within Siemens Financial Services international consulting fi rm, Booz Allen & Hamilton
and Westdeutsche Landesbank, Germany’s largest public sector bank.
Pete Constanti – Executive Director – Holidays Division Thomas Cook UK & Ireland
An executive Director since 2005, Pete Constanti has 24 years’ travel industry experience, working for
ILG and then Sunworld where he was HR Director. In his current role, Pete is responsible for the operational
and service elements of the enlarged tour operating business for Thomas Cook UK. This includes call centre
operations, pre- and post-departure customer services, overseas purchasing and overseas operations,
as well as the Company’s hotel interests.
Ian Derbyshire – Executive Director – Holidays Division Thomas Cook UK & Ireland
Ian Derbyshire is Thomas Cook’s executive Board Director for the Holidays Division, responsible for the yield,
product and publishing functions of Thomas Cook, JMC, Sunset, Thomas Cook Signature and Thomas Cook
Sports Ian Derbyshire joined the business in 2000. Prior to joining Thomas Cook, Ian held senior positions
within the leisure and travel sector with companies such as Holiday Autos, The Rank Group and Co-op Travel
and has 22 years of travel experience.
Mark Nancarrow – Managing Director – Financial Services Thomas Cook
Mark Nancarrow came to Thomas Cook from Egg, where he had risen to become Chief Executive Offi cer.
Previously, he had served as Egg’s Chief Information Offi cer, Chief Financial Offi cer and Chief Operating
Offi cer. Before that, he had ten years’ experience at HSBC, where his responsibilities included credit cards,
central operation and business re-engineering. Trained as an accountant, he has also worked for Unilever
and Shell.
Frank Pullman — Executive Director – Airline Thomas Cook UK & Ireland
Following the merger, Frank was appointed executive Director for the combined airline and is now
responsible for Thomas Cook Airlines. Frank has 37 years’ travel experience. He joined BEA as an engineer
and remained with what later became British Airways for the next 21 years, holding various senior positions
including management of four terminals at Heathrow. After running the airline’s worldwide cargo operation,
he left to become managing director of Luton Airport in 1991. Frank Pullman joined MyTravel in 2000
as managing director of Sun Cruises. Three years later, he returned to his roots in aviation to become
managing director of MyTravel Airways.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 39
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CORPORATE SOCIAL RESPONSIBILITY
As one of the world’s most respected travel brands, we are proud that
Figure 1: How we manage CSR
our activities can bring economic benefi t to the destinations we visit,
as well as positive cultural exchange. At the same time we recognise our
potential impact on the environments, communities and cultures of these
places. So we aim to operate in a responsible and sustainable way.
This is not philanthropy. Thomas Cook founded our business with
clear social and educational intentions. But today corporate social
responsibility (CSR) goes much further. It is a core business risk issue,
going to the heart of our acceptance by customers, investors, the public,
and destination governments and communities – especially in relation
to the environment. It is an investment in our brand and a responsibility
to shareholders and other stakeholders. The merger has given us the
opportunity to embed CSR more deeply into the organisation – a process
I am supporting personally.
We are bringing together two companies’ CSR policies, structures and
reporting systems. We want to do this well, to set standards that befi t
an industry leader. It will take time. We have begun the journey, but are
John de Vial
Group Director of
Quality & Safety, CSR
& Government and
Industry Affairs
Ruth Holroyd
Head of CSR
Colin McGregor
Director of Quality,
Health & Safety
Joanne Baddeley
Sustainable Tourism
Manager
Nancy Brock
Responsible
Business Manager
To be appointed
Environment
Manager
Team responsibilites
include employee
and customer health
& safety
not yet where we want to be. If you are interested in our progress, please
The Group Director of Quality and Safety, Corporate Social Responsibility
visit the CSR section of our website at www.thomascookgroup.com for
and Government and Industry Affairs oversees development and
a regularly updated view of our emerging policies and practice.
implementation of policy, reporting directly to the Group CEO. Reporting
Manny Fontenla-Novoa, Group Chief Executive Offi cer
to him are the Director of Quality, Health & Safety (whose team’s
responsibilities include both customer and employee health and safety)
OUR VIEW OF CSR
and the Head of CSR.
As part of our mission to ‘perfect the personal leisure experience’,
we are committed to developing, operating and marketing our business
The Head of CSR manages a team of three:
sustainably. We defi ne CSR as ‘operating responsibly to minimise
> The Responsible Business Manager has responsibility for our impacts
negative and enhance positive environmental, social and economic
on home communities, including our relationships with suppliers in our
impact: ensuring the long-term sustainability of our business and
source markets.
of the resources on which we depend’.
OUR CSR STRUCTURE
> The Sustainable Tourism Manager has responsibility for our resource
and social impacts in destination communities, including our
CSR is recognised as a crucial Group Board issue. The Board’s Health,
relationships with local suppliers.
Safety and Environmental Committee, chaired by non executive Director
Roger Burnell, monitors the activities of our operatin g companies.
It oversees the management of health, safety and environmental risks
and impact on our activities, and the development and implementation
> The Environmental Manager has responsibility for our environmental
impacts including aviation, climate change, domestic energy
consumption and waste management issues.
of our Group Health, Safety and Environmental Policy.
PARTNERS
Both Thomas Cook and MyTravel appointed CSR professionals in 2004
We work with a number of key partners including:
to increase their focus on destination and environmental impacts.
Federation of Tour Operators (FTO): we are an active member of
The merger in 2007 provided the opportunity for a step-change: we
the FTO’s Responsible Tourism Committee. Since 2004 we have been
have created a new CSR department with a dedicated team of four,
developing a supply chain management system with the FTO: we now
reporting to the Group Director of Quality and Safety, Corporate Social
encourage overseas suppliers such as hotels to allow independent auditing
Responsibility and Government and Industry Affairs – see Figure 1.
of their performance across a wide range of sustainability criteria.
40 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
The Travel Foundation: we are a major fundraiser and partner for this
We actively seek customer feedback on all aspects of their holiday
UK charity, which works with the travel industry to protect and enhance
experience, and make improvements where necessary. In 2007 our
the natural environment and improve the well-being of destination
customer service scores showed good year on year improvements
communities. For more information, see www.thetravelfoundation.org.uk.
and for the second year running the volume of complaints reduced.
Enable Holidays: since 2005 we have worked in partnership with this
TREATING EMPLOYEES RESPONSIBLY
specialist fi rm to sell holidays for people with impaired mobility.
We have more than 30,000 employees worldwide. Our success
WRAP: this UK government sponsored agency has been working with
our procurement teams to help us use more recycled paper.
COMMUNICATING THE ISSUES
depends absolutely on how well we recruit, develop, train and retain
them. All areas of the business offer competitive and rounded benefi ts
packages, including employee discounts on our holidays. In the UK, our
Investors in People accreditation confi rms our commitment to improving
We cannot achieve our goals without the support of customers,
performance and managing and developing our people effectively.
employees and suppliers. It is often their actions that make the
real differences.
Our 2006/07 UK and Ireland staff survey drew a high response and a
generally enthusiastic view of the Company: 71 per cent of employees
> We aim to inform customers about sustainable travel and the Travel
responded, and 79 per cent expressed satisfaction with working for us.
Foundation in all our brochures, websites, infl ight publications, resorts
and guide books.
TREATING HOME COMMUNITIES RESPONSIBLY
We want to play an active part in the communities where most of
> We devote considerable effort to informing employees about CSR,
our people live and work. Thomas Cook has a tradition of charitable
why it matters to the business and how they can contribute.
donations, and of supporting voluntary activity and fundraising by
> We have made our suppliers a key part of our CSR activity, through
an increasingly effective supply chain management programme.
SUPPLY CHAIN MANAGEMENT
employees. We are currently developing a more co-ordinated approach,
including creation of the Thomas Cook Foundation as the primary vehicle
for the Group’s corporate giving and for our support of employee
volunteering and fundraising. We also aim to focus our community and
Our social, economic and environmental impacts are closely linked
charitable support more tightly on causes related to children, education
with those of our suppliers in the destinations we serve – particularly
and the environment.
accommodation providers. We give them information and education
on sustainability, and encourage them to use the Travelife Sustainability
System – a one-stop online resource for tourism businesses.
During the past year the business, our customers and our employees
raised more than £1.2 million for charitable causes including local
community projects, the Travel Foundation and the new Thomas Cook
Since 2004 we have been working with the FTO to develop a supply
Children’s Critical Care Unit at King’s College Hospital.
chain management system that will help us ensure that our suppliers
meet health, safety and environmental standards consistent with our
own policies and standards. We now encourage overseas suppliers,
such as accommodation providers, to allow independent auditing
of their performance across a wide range of sustainability criteria.
These include such areas as environmental management, employment
TREATING DESTINATION COMMUNITIES RESPONSIBLY
Whole communities, regions and nations rely on tourism for economic
development and even survival. When tourism is managed sustainably,
it is a power for good: for education, understanding, relief from poverty,
sustainable development and positive social change.
issues and involvement with local communities.
Our long-term mission is that everything we do should be sustainable
TREATING CUSTOMERS RESPONSIBLY
Protecting our customers’ health and safety is a primary responsibility
– an essential part of the quality and strength of our brand. The merger
and responsible, in all product areas and markets. We will keep doing
more to understand our impacts on destinations, and to ensure they
are favourable.
has enabled us to create a new Group Health and Safety department to
The Travel Foundation has become a key partner in this. We support the
risk-manage our property, transport and excursion portfolio, minimising
Travel Foundation as an active partner and in 2007 raised over £500,000
risks to our customers and therefore to our operating businesses.
towards its projects in destination communities. We have also been
supporting the FTO led Travelife award scheme for hotels and other
tourism partners covering areas such as environmental management,
employment issues and involvement with local communities.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 41
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TREATING THE ENVIRONMENT RESPONSIBLY
Employees
We are very committed to doing as much as we can to protect the
> Consolidate legacy HR policies or create new policies as necessary.
resources on which our business depends. We constantly strive to improve
our environmental performance and minimise negative impacts resulting
from our operations. Increasingly, this includes working with suppliers to
> Share best practice across source markets and develop Group-wide
approach to HR.
help reduce the impacts of their operations.
> Launch Sharesave scheme for employees.
We recognise that our aviation operations raise issues over energy use,
> Maintain UK Investors in People accreditation.
carbon emissions and noise. We aim to reduce our impacts progressively.
Recent developments have included new winglets on our Airbus A320/21
aircraft, high-tech coatings to optimise aerodynamics and reduce aircraft
Health & safety
> Review Group-level employee health and safety management structures.
wash, enhanced engine wash procedures and new Green Approach
> Implement new online accident and incident reporting system.
landing procedures. In Northern Europe our websites and confi rmation
emails now offer passengers the option to buy carbon offsets, and from
next year all internal air travel in Northern Europe will be covered by
> Give all employees access to user-friendly health and safety
management system.
carbon offset schemes. The Northern European airline have led the
> Continue remediation work arising from completed fi re
charter airline industry on waste disposal and recycling initiatives,
risk assessments.
directly infl uencing various departure and destination airports.
Home communities
We were the fi rst major travel company to produce brochures on recycled
> Maintain partnership fundraising for organisations such as the
paper. Now 85 per cent of our brochures use recycled paper. Each year
Travel Foundation.
this will divert over 3,500 tonnes of waste paper from landfi ll and save
some 3,400 tonnes of CO2 – equivalent to taking 10,700 cars off the road.
The consolidation of our offi ces since the merger means we are
currently unable to report in detail on energy and waste consumption.
> Launch the Thomas Cook Foundation as primary vehicle for our corporate
giving and support of employee volunteering and fund raising.
> Focus our 2008 giving on children, education and the environment.
But the consolidation should itself increase effi ciency and we are
Destination communities
working with experts to analyse energy use and identify opportunities
> Develop a specifi c sustainable tourism policy.
for improvement.
KEY PRIORITIES FOR 2008
This table outlines some of our principal CSR goals for the
current year. We intend to report our performance against these
> Set up working groups across our source markets to share best
practice and provide Group-wide consistency.
> Raise another £300,000 for the Travel Foundation.
targets in our next Annual Report. More details are available online
> Audit a further 100 properties against Travelife criteria.
at http://csr.thomascookgroup.co.uk
Customers
> Continue reducing customer complaints through effective quality
assurance and problem resolution.
> Improve pre-departure information.
> Share best practice across the Group.
Health & safety
> Develop and apply Group-wide health and safety policies
> Train more employees in sustainable tourism.
> Send out more sustainability information to suppliers.
> Expand animal welfare information on our customer websites.
Environment
> Create new and expanded Group environmental policy.
> Set up working groups across source markets to share best practice
and provide Group-wide consistency.
and procedures.
UK specifi c
> Converge legacy reporting systems to enable consistent health and
safety reporting, and bring together property portfolio and safety
> Establish environmental management system and reporting on offi ce
energy and waste management.
information on a single central system.
> Airline: develop carbon strategy and report on CO2 emissions.
> Maintain continuing professional development of health and safety
Northern Europe
staff, and train appropriate members of staff in their health and
> Airline: reduce fuel consumption per passenger km by 1 per cent.
safety responsibilities.
> Hotels: ensure all Sunwing resorts EU fully implement EU Flower
> Review aviation safety processes, particularly for in-resort suppliers
certifi cation criteria and increase the number of external hotels
of balloon, helicopter and light aircraft excursions.
certifi ed under our environmental programme.
> Offi ces: reduce energy consumption by 10 per cent.
42 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
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GROUP DIRECTORS’ REPORT
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GROUP DIRECTORS’ REPORT
The Directors present their Annual Report, together with the fi nancial
P T McHugh (appointed 8 February 2007 and resigned 31 December 2007)
statements and independent auditors’ report for the period from
Dr T Middelhoff (appointed 28 March 2007)
incorporation on 8 February 2007 to 31 October 2007.
Dr A J Porter (appointed 28 March 2007)
On 19 June 2007, Thomas Cook AG (‘TC AG’) merged with MyTravel
Further details regarding the continuing Directors are set out on pages
Group plc to become Thomas Cook Group plc (‘TCG plc’). For statutory
36 and 37. Details of the interests of the Directors required to be notifi ed
purposes the transaction is treated as a business combination effected
under Disclosure and Transparency Rule 3.1.2R at the end of the period
by a new parent company, TCG plc. Whilst for accounting purposes this
and changes during the period are set out in the Remuneration Report
is a reverse acquisition of TCG plc by TC AG, the overall effect is that
at pages 56 to 64.
TC AG is treated as the acquirer of both TCG plc and MyTravel Group plc.
The statutory results for TCG plc for the year to 31 October 2007,
therefore, include the full year of trading for TC AG and the trading of
MyTravel Group plc for the period from 19 June 2007 to 31 October 2007.
The comparative information includes the full year of trading of TC AG
for the year ended 31 October 2006 and none of the MyTravel Group plc
results. All the TC AG results have been prepared based on the accounting
policies referred to in note 2.
ENHANCED BUSINESS REVIEW
Thomas Cook Group plc continues the combined businesses of Thomas
Cook AG and MyTravel Group plc following their merger on 19 June 2007.
PRINCIPAL RISKS AND UNCERTAINTIES
The following factors may affect the Group’s operating results,
fi nancial condition and/or the trading price of the Company’s shares.
The risk factors described below are those which the Directors believe
are potentially signifi cant but this should not be regarded as a complete
and comprehensive statement of all potential risks and uncertainties
related to an investment in the Company.
Trading risks
The trading performance of the Group may be affected by a number
of factors outside its control, including:
The principal business of the combined group is the supply of packaged
> wars, international unrest, political uncertainty or additional security
holidays in the major European leisure travel markets and Canada.
requirements affecting air travel;
Thomas Cook Group plc was incorporated on 8 February 2007 as
> acts of terrorism, particularly in key tourist destinations, or epidemics
Shakespeareco plc. It changed its name to Thomas Cook Group plc on
such as avian fl u, or the threat of either, which may materially disrupt
12 February 2007. On 19 June 2007 the Company completed the merger
or adversely affect international travel;
of Thomas Cook AG and MyTravel Group plc by the acquisition of the
entire issued share capital of Thomas Cook AG and by way of a scheme
> earthquakes or other natural disasters in key tourist destinations;
of arrangement approved by the High Court on 18 June 2007, the
> weather conditions, both in places where its customers live and in key
acquisition of the entire issued share capital of MyTravel Group plc.
tourist destinations;
In each case the acquisition was made in exchange for the issue of
shares in the Company to the former shareholders of those companies.
> changes in customer preferences or behaviour;
As a consequence, the Company became the holding company of the
> increased operating costs;
combined group.
A comprehensive review of the development and performance of
the Group during the period from the incorporation of the Company
to 31 October 2007 is included in the Business Review
> increases in government taxes or levies;
> labour shortages or other adverse labour market conditions, increased
labour activity or additional health and safety regulation; and
on pages 25 to 27 and Financial Review on pages 28 to 35.
> general economic conditions in its key markets of the UK and Ireland,
RESULTS AND DIVIDENDS
The profi t after taxation for the period ended 31 October 2007
amounted to €225.5 million. The Directors recommend a fi nal dividend
of 5p per ordinary share. No interim dividend was paid during the period.
DIRECTORS
The Directors who served during the period were:
Germany, Austria, Northern Europe, Belgium, the Netherlands, France,
Poland, Czech Republic, Hungary and Canada.
These factors may affect the Group by, among other things, reducing
demand as its potential customers choose not to, or become unable
to, travel. Reductions in demand in an industry with capacity that in
the short term is fi xed, for example, in terms of pre-arranged aircraft
seats or accommodation, can lead to overcapacity with associated
J S Allkins (appointed 11 February 2007 and resigned 28 March 2007)
pressure on margins. These factors may also affect booking patterns,
D P Allvey (appointed 28 March 2007)
M E Beckett (appointed 28 March 2007)
for example, increased political and economic uncertainty may lead to
an increased propensity for customers to book closer to departure, which
J M Bloodworth (appointed 28 March 2007 and resigned 31 December 2007)
as a result of relative infl exibility in capacity could increase the risk that
R D Burnell (appointed 28 March 2007)
Dr P Diesch (appointed 28 March 2007)
holidays which remain unsold late in the season will have to be sold at
prices that are signifi cantly less than the costs of providing them, or will
M Fontenla-Novoa (8-11 February 2007 and re-appointed 28 March 2007)
remain unsold. Adverse impacts arising as a result of trading could
L Heuberg (appointed 28 March 2007)
H Klein (appointed 1 July 2007)
B Lerenius (appointed 1 July 2007)
necessitate or cause a write-down or impairment of the Group’s goodwill
or intangible assets.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 43
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Risk of a decrease in the use of cash
Foreign currency services could be targeted by money launderers.
A primary part of the Group’s foreign currency services business depends
The Group’s foreign currency services business is required to comply
on cash exchanges. As the use of credit, debit and smart cards becomes
with applicable anti-money laundering, antiterrorism and other laws
more widespread the use of cash may decrease. The Group’s foreign
and regulations in the UK, Germany and other jurisdictions in which it
currency services business would be adversely affected if cash were
operates. While the Group has policies and procedures aimed at detecting
to become obsolete or signifi cantly less utilised. As many banks allow
customers to withdraw cash from automated teller machines (“ATMs”)
and preventing the use of its foreign currency services business for
money laundering activities, such policies and procedures may not
in local currencies, people may convert currencies in this manner rather
completely eliminate instances where such business is used by other
than by exchanging cash at a bureau de change. The Group’s foreign
parties to engage in money laundering and other illegal and improper
currency services business would be adversely affected to the extent
activities. To the extent the Group may fail to fully comply with applicable
that travellers obtain more of their local currency by withdrawing
anti-money laundering laws and regulations, the relevant government
it from ATMs.
Competition
In its principal markets, the Group will face competition from a range
of tour operators, some of which are large and well-established. It will
also face competition from internet-based distributors and low fare
agencies who supervise such business have the power and authority to
impose fi nes and other penalties on the Group. In addition, the reputation
and/or goodwill of the Group could potentially be adversely affected
if third parties use its foreign currency services business for money
laundering or other illegal or improper purposes.
airlines. Competitive pressures could affect the ability of the Group
Changes in law otherwise affecting tour operators, travel agencies
to secure bookings at satisfactory levels and acceptable margins.
and/or their businesses could result in the Group having to assume
Regulatory and legal risks
Throughout its operations, the Group requires regulatory licences and
additional or increased liability and/or having increased exposure
to litigation by customers and other third parties.
approvals. These regulatory requirements vary depending on the area
Interest rate, exchange rate and commodity risks
of operation and the specifi c activity. Failure to satisfy any necessary
Interest rate risk arises from the extent to which the Group holds interest
regulatory criteria or requirements (whether fi nancial or operational),
rate-sensitive assets or is exposed to interest rate-sensitive liabilities.
or changes which may be in force from time to time, could result in the
Exchange rate risk arises principally where the Group’s revenue and
suspension, revocation or non-renewal of one or more of the necessary
expenditure are transacted in different currencies or assets and liabilities
licences which, in certain cases, depending on the particular licence
are denominated in currencies other than the Euro. The Group’s exposure
or approval concerned, could result in the cessation of an operation.
to fl uctuations in exchange rates can be categorised as follows:
In particular, in the European countries in which the Group’s airlines
operate, an air carrier is permitted to operate airline services only if it
is majority-owned, and effectively controlled, by EEA member states or
their nationals. The carrier must be able to demonstrate this at any time.
Failure to do so may result in the revocation of, or a refusal to issue, the
carrier’s operating licence or route licences. Accordingly, the Company
must be and remain majority-owned and effectively controlled by EEA
member states or their nationals in order for its airlines to maintain their
operating and route licences. In addition, there may be national ownership
restrictions applicable to the grant of route licences to the Group’s airlines.
Based on the Company’s share register as at 28 January 2008 (the
latest practicable date prior to the publication of this document), less
than 16 per cent of the Company’s Shares are held by persons other than
> Transactional exposure relates primarily to the cost of acquiring
accommodation and aircraft capacity. These costs are in many cases
denominated in US dollars or in local currencies of the places where
holidays are provided, which may differ from the currencies in which
holidays are priced to customers. In addition, the Group prices its
holidays in brochures published a number of months in advance of the
time that people travel and the exchange rates used by the Group to
determine those prices may therefore differ signifi cantly from those
applicable at the time costs are incurred in providing those holidays
and/or receipts are received.
> Translation exposure arises because investments in foreign subsidiaries
or other net assets are held in currencies other than Euro.
nationals of EEA member states. The Articles give the Directors powers
The Group’s principal exposure to exchange rate fl uctuations is in relation
to limit the ownership of the Company’s shares by non-EEA nationals
to the Euro/sterling, Euro/US dollar and sterling/US dollar exchange rates.
and a number of additional powers to enforce this limitation, including
the right to require a shareholder to sell its shares if appropriate evidence
of nationality is not produced.
In addition, the airline industry is heavily regulated and changes to
regulations frequently occur. For example, new regulations have recently
been proposed which could impose stricter requirements in relation to
night-fl ying and environmental emissions. It may not be possible to pass
on to customers increased costs which may result from new regulations,
or otherwise mitigate their impact, and the Group’s fi nancial performance
could therefore be adversely affected.
Commodity risk, which arises from the Group’s aviation operations,
relates to the risk of variations in the cost of jet fuel, which over recent
years has experienced very large movements.
Operational risks
Operational risks include those which could result from a potential
breakdown in individual business units or the Group’s control of its
human, physical and operating resources. The potential fi nancial loss
or loss of reputation arising from failures in internal controls, fl aws or
malfunctions in computer systems, and poor product design or delivery,
all fall within this category.
44 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Aircraft and hotel properties used in the operations of the Group
been a party to an act, or a deliberate failure to act, which had as its main
are exposed to the risk of losses from, among other things, accidents,
purpose (or one of its main purposes) the avoidance of pension liabilities.
terrorist attacks, acts of sabotage and natural catastrophes.
The Pensions Regulator can only issue a contribution notice where it
The Group may not be insured against all such losses, including liability
and expenses arising as a consequence of any resulting civil law claims.
Furthermore, the occurrence of such events, whether affecting the
believes it is reasonable to do so. A person holding, alone or together
with its associates, directly or indirectly, one-third or more of the voting
power of the Company could be the subject of a contribution notice.
Group’s own aircraft or properties or those of third parties, or other
The terms “associate” and “connected person”, which are taken from
factors giving rise to adverse publicity (whether justifi ed or not),
the Insolvency Act 1986, are widely defi ned and could catch signifi cant
may result in a reduction in demand for the Group’s products, harm
shareholders of the Company.
its reputation or otherwise affect adversely the public perception
of the Group or of the businesses which it operates.
If the Pensions Regulator considers that any of the employers participating
in the DB Schemes are “insuffi ciently resourced” or a “service company”,
The Group’s ability to receive, process and manage reservations, and
it may impose a fi nancial support direction requiring any member of the
other critical business and operational functions, including its fi nancial
Group, including the Company, or any person associated or connected
and aviation systems, depends on the effi cient and uninterrupted
with such an employer, to put in place fi nancial support in relation to one
operation of its IT systems. These systems are vulnerable to damage,
or more of the DB Schemes.
power loss, computer viruses, third party disruptions, fi re and similar
events. Any signifi cant disruption to the Group’s IT systems would
adversely affect its ability to carry on its businesses effi ciently.
In addition, as with all companies for which the internet is an important
sales channel, the Group is reliant on the availability to customers
of its websites. Disruption to the Group’s websites, however caused,
could adversely affect the Group’s businesses.
Such a fi nancial support direction might involve, among other things,
putting in place a parent company guarantee for the liabilities of the
relevant DB Scheme.
Liabilities imposed under a contribution notice or fi nancial support
direction may be up to the difference between the value of the assets
of the DB Scheme concerned and the cost of buying out the benefi ts
of members and other benefi ciaries of the relevant DB Scheme.
The Group is dependent on third parties for certain aspects of its
In addition, the Pensions Regulator is required to be notifi ed of certain
businesses and operations. For example, the Group has outsourced
events. Events may occur in the future which need to be notifi ed to the
substantial IT and infrastructure to third parties. It is also supplied
Pensions Regulator. A notifi able event could result in the Pensions
with various services, including aircraft maintenance and catering,
Regulator exercising his power to impose a contribution notice
by Lufthansa. Failure by those third parties to maintain critical services
or fi nancial support direction.
or supplies could lead to disruption of those businesses and operations,
which could affect adversely the Group’s results.
Pension obligations
The Group operates a number of defi ned benefi t pension schemes
(the “DB Schemes”). The Group’s obligations in respect of the DB
In practice, the risk of a contribution notice being imposed may restrict
the freedom of the Group to restructure itself or undertake certain
corporate activities without fi rst seeking agreement of the trustees of
the DB Schemes and, possibly, the approval of the Pensions Regulator.
Additional security may need to be provided to the trustees of the DB
Schemes are partly covered through pension funds and are partly
Schemes before certain corporate activities can be undertaken, and any
accrued for on the balance sheet. There are various risks which could
additional funding of the DB Schemes may have an adverse effect on the
affect adversely the funding and/or liabilities of the DB Schemes and,
Group’s fi nancial condition and the results of its operations.
consequently, the Group’s funding obligations, liabilities and/or profi ts,
such as a signifi cant adverse change in the market value of the pension
assets of the DB Schemes, an increase in pension liabilities, longer life
expectancy of pension plan members, later retirement ages or the
trustees of the DB Schemes altering investment strategy. As at 31 October
2007, the Group’s DB Schemes, were in a combined net defi cit position
of €251.4 million. Any increase in the defi cit in the DB Schemes may result
in a need to increase the Group’s pension contributions. Any increase in
such contributions could have an adverse impact on the Group’s fi nancial
condition and the results of its operations.
TRANSACTION AND INTEGRATION RISKS
The Board believes that the annualised pre-tax cost benefi ts arising from
a combination of the MyTravel and Thomas Cook businesses will be
at least €200 million per annum once the full benefi ts of the Merger are
realised. This is an increase of €60 million from the synergies expected at
the date of the Merger. It is expected that the full benefi ts will be realised
within 24 to 30 months following completion of that merger in June 2007.
However, there is a risk that these cost benefi ts may fail to materialise
or that they may be lower than have been estimated, which may have
an impact on the profi tability of the Group going forward. While a number
The Pensions Regulator in the UK has power in certain circumstances
of key decisions have already been taken and are in the process of being
to issue contribution notices or fi nancial support directions which, if
executed, if the remaining integration process proves more diffi cult than
issued, could result in the Company or members of the Group becoming
anticipated, or if the focus on this process impacts on the performance
subject to signifi cant liabilities. The Pensions Regulator may issue
of its business, there is also a risk to the results or operations of the
a contribution notice to any employer in the DB Schemes or any person
Group. This integration may take longer than expected, or diffi culties
who is connected with or is an associate of any such employer where
relating to the integration may arise. It is estimated that the integration
the Pensions Regulator is of the opinion that the relevant person has
and reorganisation costs associated with achieving these cost benefi ts
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 45
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GROUP DIRECTORS’ REPORT CONTINUED
will be no more than the annualised pre-tax cost benefi ts arising from
carry the right to attend, speak and vote at general meetings of the
the combination (including capital expenditure), and will be incurred over
company and are admitted to trading on the Offi cial List of the London
the period of 12 to 18 months following Completion, although it is expected
Stock Exchange. The deferred shares carry no right to the profi ts of the
that these will be substantially front-ended. These costs have resulted in
Company. On a winding up the holders of the deferred shares would
an exceptional charge in the accounts of the Group in the current fi nancial
be entitled to receive an amount equal to the capital paid up on each
year and are likely to do so in the next fi nancial year. There is a risk that
deferred share. The holders of the Deferred Shares are not entitled to
the integration and reorganisation costs associated with achieving these
receive notice of or to attend and/or speak or vote (whether on a show
cost benefi ts will exceed the estimated cost.
of hands or on a poll) at general meetings of the Company.
RISKS RELATING TO INVESTMENT IN THE COMPANY’S SHARES
Share price fl uctuations and market conditions
Investors should be aware that the value of an investment in the
Company’s Shares may go down as well as up.
The Board intends to proceed with a programme of repurchasing
around €375 million worth of the Group’s shares, subject to obtaining
the necessary shareholder approvals.
SHARE TRANSFER RESTRICTIONS
The market value of shares can fl uctuate and may not always refl ect
The Articles are designed to ensure that the number of the Company’s
the underlying asset value. A number of factors outside the control of
shares held by non-EEA nationals does not reach a level which could
the Company may impact on its performance and the price or liquidity
jeopardise the Company’s entitlement to continue to hold or enjoy the
of the Company’s Shares, including the operating and share price
benefi t of any authority, permission, licence or privilege which it or any
performance of other companies in the industries and markets in which
the Group operates, speculation about its business in the media or the
of its subsidiaries holds or enjoys and which enables an air service to
be operated (each an “Operating Right”). In particular, EC Council
investment community, changes to its revenues or profi t estimates, the
Regulation 2407/92 on licensing of air carriers requires that an air carrier
publication of research reports by analysts and general market conditions.
must be majority-owned and effectively controlled by EEA nationals.
Arcandor’s position as majority shareholder
The Articles allow the Directors, from time to time, to set a “Permitted
Arcandor AG holds (directly or indirectly) 52 per cent of the Company’s
Maximum” on the number of the Company’s shares which may be owned
shares (on a fully diluted basis). As a result, Arcandor will have the voting
by non-EEA nationals at such level as they believe is in compliance with
majority necessary to block or adopt certain resolutions of the Company’s
the Operating Rights, provided that the Permitted Maximum shall not
shareholders. Arcandor will therefore be able to exercise infl uence over
be less than 40 per cent of the total number of issued shares.
the Company, although the relationship agreement between Arcandor,
MyTravel Group plc and the Company states, as a general principle, that
the Group will carry on its business independently of Arcandor, having
regard to the interests of the Company’s shareholders as a whole. The
concentration of ownership may have the effect of delaying or deterring
offers by third parties to purchase some or all of the outstanding the
Company Shares or otherwise to bid for ownership of the Company. Such
delay or deterrence could deprive holders of the Company Shares of
opportunities to receive a premium for the Company Shares as part of a
sale of the Company, and that possibility may prospectively have
a negative effect of the market price for the Company Shares.
Further, although Arcandor agreed in the Relationship Agreement which
it has entered into with the Company in June 2007 (the “Relationship
Agreement”) that neither it, nor any member of the Arcandor group,
The Company maintains a separate register (the “Separate Register”)
of shares in which non-EEA nationals, whether individuals, bodies
corporate or other entities have an interest (such shares are referred to
as “Relevant Shares” in the Articles). An interest in this context is widely
defi ned (see below). The Directors may require relevant members or other
persons to provide them with information to enable them to determine
whether shares are, or are to be treated as, Relevant Shares. If such
information is not provided then the Directors will be able, at their
discretion, to determine that shares to which their enquiries relate be
treated as Relevant Shares. Registered shareholders will also be obliged
to notify the Company if they are aware either (a) that any share which
they hold ought to be treated as a Relevant Share for this purpose;
or (b) that any share that they hold, which is treated as a Relevant Share,
should no longer be so treated. In this case, the Director shall request
will (subject to certain exceptions) dispose of any of its holdings of the
such information and evidence as they require to satisfy themselves that
Company’s shares for a period of 12 months following completion
the share should not be treated as a Relevant Share and, on receipt of
of the merger, the Arcandor group may subsequently sell all or part
such evidence, shall remove particulars of the share from the Separate
of its holding of the Company’s shares. Such a sale could result in an
Register. If the Directors determine that such action is necessary
increase in supply of the Company’s shares in the market which would
in turn negatively impact the market price for the Company’s shares.
SHARE CAPITAL STRUCTURE
The share capital of the Company is divided into two classes of share.
The Company’s authorised ordinary share capital is €200,000,000
divided into 2,000,000,000 ordinary shares of €0.10 each and £50,000
divided into 50,000 deferred shares of £1 each. Ordinary shares carry the
right to the profi ts of the Company available for distribution and to the
return of capital on a winding up of the Company. The ordinary shares
to protect any Operating Right due to the fact that an Intervening
Act (an “Intervening Act” being the refusal, withholding, suspension
or revocation of any Operating Right or the imposition of materially
inhibiting conditions or limitations on any Operating Right in either case,
by any state or regulatory authority) has taken place or is contemplated,
threatened or intended, or the aggregate number of Relevant Shares
is such that an Intervening Act may occur or the ownership or control
of the Company is such that an Intervening Act may occur, the Directors
may, among other things: (i) identify those shares which give rise to the
need to take action and treat such shares as affected shares (“Affected
46 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Shares”) (see below); or (ii) set a Permitted Maximum on the number
Existing holders of Shares will be recorded on the Special Register unless
of Relevant Shares which may subsist at any time (which may not, save
and until they have certifi ed, to the satisfaction of the Company, that they
in the circumstances referred to below, be lower than 40 per cent of the
are EEA nationals.
total number of issued shares) and treat any Relevant Shares in excess of
this Permitted Maximum as Affected Shares (see below). The Directors
may serve a notice (an “Affected Share Notice”) in respect of any
A person shall be deemed to have an “interest” in relation to TCG Shares if:
(i) such person has an interest which would (subject as provided below)
Affected Share. An Affected Share Notice can, if it so specifi es, have the
be taken into account, or which he would be taken as having, in
effect of depriving the registered holder of the right to attend, vote and
determining for the purposes of Part 22 of the Companies Act 2006
speak at general meetings which he would otherwise have had as a
whether a person has a notifi able interest; or
consequence of holding such shares. Such an Affected Share Notice can,
if it so specifi es, also require the recipient to dispose of the Affected
Shares (so that the Relevant Shares will then cease to be Affected
Shares) within 21 days or such longer period as the Directors may
determine. The Directors are also given the power to sell such Affected
Shares themselves where there is non-compliance with an Affected Share
Notice at the best price reasonably obtainable at the relevant time on
behalf of the shareholder.
In deciding which shares are to be dealt with as Affected Shares the
Directors in their sole opinion will determine which Relevant Shares may
give rise to the fact of risk of an Intervening Act occurring and, subject to
any such determination, will have regard to the chronological order in
which particulars of Relevant Shares have been, or are to be, entered in the
Separate Register unless to do so would in the sole opinion of the Directors
be inequitable. If there is a change in any applicable law or the Company or
any subsidiary receives any direction, notice or requirement from any state
or regulatory authority, which, in either case, necessitates such action to
overcome, prevent or avoid an Intervening Act, then the Directors may either:
(i) lower the Permitted Maximum to the minimum extent that they consider
necessary to overcome, prevent or avoid an Intervening Act; or
(ii) he has any such interest as is referred to in Part 22 of the Companies
Act 2006 but shall not be deemed to have an interest in any shares in
which his spouse or any infant, child or stepchild (or, in Scotland, pupil
or minor) of his is interested by virtue of that relationship or which he
holds as a bare or custodian trustee under the laws of England or as
a simple trustee under the laws of Scotland, and “interested” shall be
construed accordingly.
AGREEMENTS RESTRICTING THE TRANSFER OF SHARES
Under the Relationship Agreement, Arcandor AG has agreed to certain
restrictions on the ability of it and other members of the Arcandor group
of companies to acquire further shares in the Company. Under these
restrictions, members of the Arcandor Group may not, subject to certain
exceptions, acquire further shares in the Company without the prior
consent of the Board, provided that such consent will be given for
a purchase of up to 5 per cent of the Company’s issued share capital
unless such purchase would prejudice the Company’s ability to maintain
the free fl oat required by the Listing Rules, or result in the Company
becoming a close company.
APPOINTMENTS TO THE BOARD
Under the articles of association of the Company, the Company by
(ii) resolve that any Relevant Shares shall be treated as Affected Shares
ordinary resolution and the Board each has power to appoint a Director
and the Conversion Permitted Maximum. The rights of the Directors
either to fi ll a vacancy or as an additional Director up to the maximum
referred to above apply until such time as the Directors resolve that
of twenty Directors. Any Director appointed by the Board shall retire
grounds for the making of a determination have ceased to exist,
at the subsequent Annual General Meeting.
whereupon the Directors must withdraw such determination.
The Permitted Maximum is set at 40 per cent. This Permitted
Maximum may be varied by the Directors. If the Directors resolve to
vary the Permitted Maximum to deal with shares as Affected Shares
AMENDMENTS TO THE ARTICLES OF ASSOCIATION
The articles of association of the Company may be amended
by a special resolution of the Company.
or relax the ownership limitations, they shall publish in at least one
SUPPLIER PAYMENT POLICY
national newspaper in the United Kingdom (and in any other country
It is the Company’s policy to comply with the terms of payment agreed
in which the shares are listed) notice of the determination and of any
with its suppliers. Where payment terms are not negotiated, the Company
Permitted Maximum. The Directors shall publish, from time to time:
endeavours to adhere to suppliers’ standard terms. As at 31 October 2007,
(i) information as to the number of shares particulars of which have
been entered on the Separate Register; and
(ii) any Permitted Maximum which has been specifi ed.
the Company had no trade creditors. As such, the disclosure regarding
the number of days’ credit taken by the Company for trade purchases
at 31 October 2007 is not possible.
ENVIRONMENTAL FACTORS
The Directors may not register any person as a holder of shares unless
The Group takes seriously its responsibility towards the environment
such person has furnished to the Directors a declaration, together
which is one of the key areas of our corporate responsibility strategy.
with such evidence as the Directors may require, stating (a) the name
Details of the Group’s policies and initiatives in this area are set out on
and nationality of any person who has an interest in any such share and,
pages 40 to 42 of our Corporate Social Responsibility Report which is
if the Directors require, the nature and extent of such interest; or (b) such
included in this Annual Report.
other information as the Directors may from time to time determine.
The Directors may decline to register any person as a shareholder
if satisfactory evidence of information is not forthcoming.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 47
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GROUP DIRECTORS’ REPORT CONTINUED
EMPLOYEE FACTORS
DIRECTORS’ DISCLOSURE STATEMENT
The Group values highly the contribution made to its business by its
Each of the Directors at the date of approval of this report has
employees across all areas of its operations. Details of our approach
confi rmed that:
to the interests of our workforce are set out in more detail on pages
40 to 42 of our Corporate Social Responsibility Report.
MARKETPLACE
1) so far as the Director is aware, there is no relevant audit information
of which the Company’s auditors are unaware; and
2) the Director has taken all the steps that he ought to have taken as a
Regulatory compliance is treated as a minimum standard and the
Director to make himself aware of any relevant audit information and
Board and executive management seek to operate beyond this through
to establish that the Company’s auditors are aware of that information.
a combination of systems, procedures and controls to ensure our
stakeholders are treated ethically, openly and with integrity.
AUTHORITY TO PURCHASE OWN SHARES
The Company’s articles of association provide a general authority
to purchase the Company’s own shares, subject to the provisions of the
Companies Acts. The Companies Acts provide that such a purchase must
be authorised by the shareholders of the Company. No specifi c authority
was in place on 31 October 2007. The Board intends to seek shareholder
approval at an EGM to be held in March for a share buy back programme.
CORPORATE SOCIAL RESPONSIBILITY
The Group takes its corporate responsibility seriously and is committed
to conducting its business in an ethical and responsible manner.
Please refer to the separate Corporate Social Responsibility Report
section of this Annual Report on pages 40 to 42.
POLITICAL DONATIONS
The Company has not made any political donations and will not seek
authority of its shareholders to do so.
This confi rmation is given and should be interpreted in accordance with
the provisions of s234ZA of the Companies Act 1985.
LIABILITY
All the information supplied in the Chairman’s Statement on pages
6 and 7, the Chief Executive’s Strategy Statement on pages 8 to 10, the
Business Review on pages 25 to 27, the Financial Review on pages 28 to
35 and the Corporate Social Responsibility Report on pages 40 to 42 form
part of the Directors’ Report. Any liability for the information is restricted
to the extent prescribed by the Companies Act 2006.
ANNUAL GENERAL MEETING
The notice convening the Annual General Meeting of the Company
to be held in April 2008 will be accompanied by a letter to shareholders
from the Chairman which will explain any special business to be
transacted at the meeting.
AUDITORS
PricewaterhouseCoopers LLP and Deloitte & Touche LLP were
appointed as joint auditors to fi ll a casual vacancy. The Directors
EMPLOYEE PARTICIPATION
will place a resolution before the Annual General Meeting to reappoint
The Company is committed to ensuring that as many of its employees
PricewaterhouseCoopers LLP as auditors for the ensuing year.
as possible are given the opportunity to share in its success. The Company
will propose a resolution at the 2008 Annual General Meeting to approve
By order of the board
an all employee save as you earn scheme and share incentive plan both
to benefi t employees and to give additional incentives for them to assist
in building its success.
MAJOR SHAREHOLDING NOTIFICATIONS
As at 28 January 2008, the Company had been notifi ed, in accordance
with rule 5 of the Disclosure Rules and Transparency rules of the UK
Listing Authority of the following major shareholdings in the ordinary
share capital of the Company:
M J Vaux
Acting Company Secretary
30 January 2008
Name
Arcandor AG
Karstadtquelle Freizeit GmbH1
Standard Life Investments Ltd
Pardus Capital Management LLC
Legal and General Group plc
Number of
shares held
% of
issued capital
Registered offi ce:
254,377,423
254,377,423
62,844,431
57,338,759
26.04
26.04
6.43
5.87
The Thomas Cook Business Park
Coningsby Road
Peterborough PE3 8SB
and/or its subsidiaries
36,801,045
3.77
1Karstadtquelle Freizeit GmbH is a wholly owned subsidiary of Arcandor AG.
48 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
DIRECTORS’ RESPONSIBILITIES
STATEMENT OF DIRECTORS’ RESPONSIBILITIES INCLUDING ADOPTION
In preparing these fi nancial statements, the Directors are required to:
OF GOING CONCERN BASIS
The Directors are responsible for preparing the Annual Report, Directors’
> select suitable accounting policies and then apply them consistently;
Remuneration Report and the fi nancial statements in accordance with
> make judgments and estimates that are reasonable and prudent1;
applicable law and regulations.
> state whether applicable UK Accounting Standards have been followed,
Company law requires the Directors to prepare fi nancial statements
subject to any material departures disclosed and explained in the
for each fi nancial year. The Directors are required by the IAS Regulation
fi nancial statements;
to prepare the Group fi nancial statements under IFRSs as adopted by the
European Union. The Group fi nancial statements are also required by law
to be properly prepared in accordance with the Companies Act 1985 and
Article 4 of the IAS Regulation.
International Accounting Standard 1 requires that IFRS fi nancial
statements present fairly for each fi nancial year the Company’s fi nancial
position, fi nancial performance and cash fl ows. This requires the faithful
representation of the effects of transactions, other events and conditions
in accordance with the defi nitions and recognition criteria for assets,
liabilities, income and expenses set out in the International Accounting
> prepare the fi nancial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records
that disclose with reasonable accuracy at any time the fi nancial position
of the Company and enable them to ensure that the parent company
fi nancial statements comply with the Companies Act 1985. They are
also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Standards Board’s ‘Framework for the preparation and presentation
The Directors are responsible for the maintenance and integrity
of fi nancial statements’. In virtually all circumstances, a fair presentation
of the corporate and fi nancial information included on the Company’s
will be achieved by compliance with all applicable IFRSs. However,
website. Legislation in the United Kingdom governing the preparation
Directors are also required to:
and dissemination of fi nancial statements may differ from legislation
> properly select and apply accounting policies;
> present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information; and
in other jurisdictions.
GOING CONCERN
After making appropriate enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future. For this
> provide additional disclosures when compliance with the specifi c
reason, they continue to adopt the going concern basis in preparing
requirements in IFRSs are insuffi cient to enable users to understand
the Financial Statements.
the impact of particular transactions, other events and conditions
on the entity’s fi nancial position and fi nancial performance.
The Directors have elected to prepare the parent company fi nancial
statements in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards and
applicable law). The parent company fi nancial statements are required
by law to give a true and fair view of the state of affairs of the Company.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 49
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CORPORATE GOVERNANCE REPORT
Thomas Cook Group plc is committed to the principles of corporate
AUDIT AND RISK MANAGEMENT COMMITTEE
governance contained in the Combined Code on Corporate Governance
D P Allvey (Chairman of Committee)
that was issued in 2006 by the Financial Reporting Council (‘the Combined
M E Beckett
Code’) for which the Board is accountable to shareholders. The following
R D Burnell
section of the report sets out how the Company applies the principles set
Dr P Diesch
out in the Combined Code.
THE BOARD
B Lerenius
Dr T Middelhoff
The Board regards as paramount the interests of the shareholders
NOMINATIONS COMMITTEE
and is ultimately responsible for ensuring that the Group discharges
M E Beckett (Chairman of Committee)
its corporate governance responsibilities effectively. The Board also
acknowledges its corporate governance responsibilities to the Group’s
customers, employees and other stakeholders.
BOARD AND COMMITTEE COMPOSITION
R D Burnell
Dr P Diesch
Dr T Middelhoff
Dr A J Porter
The full Board of Thomas Cook Group plc is as follows:
MANAGEMENT DEVELOPMENT AND REMUNERATION COMMITTEE
Dr T Middelhoff
(Non Executive Chairman)
M E Beckett
(Independent Non Executive Deputy Chairman)
J M Fontenla-Novoa
(Chief Executive Offi cer)
H-L Heuberg
(Chief Financial Offi cer)
(Independent Non Executive Director)
(Independent Non Executive Director)
M E Beckett (Chairman of Committee)
R D Burnell
Dr P Diesch
H Klein
Dr T Middelhoff
Dr A J Porter
(Non Executive Director)
HEALTH, SAFETY AND ENVIRONMENTAL COMMITTEE
(Independent Non Executive Director)
R D Burnell (Chairman of Committee)
D P Allvey
R D Burnell
Dr P Diesch
H Klein
B Lerenius
D P Allvey
M E Beckett
J M Fontenla-Novoa
H Klein
(Independent Non Executive Director)
Dr A J Porter
(Independent Non Executive Director)
As all appointments of the Directors were made by the Board, each
Director will retire and put himself forwards for re-appointment by the
shareholders at the 2008 Annual General Meeting of the Company.
SENIOR INDEPENDENT DIRECTOR
Mr Beckett has been appointed as the Senior Independent Director.
The Board has appointed the following committees, comprised
of the following members.
50 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
BOARD ATTENDANCE
The fi gures shown below are the number of Board and/or Board committee meetings attended by each Director out of the number convened during
the time in which each such Director served on the Board or relevant committee during the period.
J S Allkins
D P Allvey
M E Beckett
J M Bloodworth
R D Burnell
Dr P Diesch
J M Fontenla-Novoa
H-L Heuberg
H Klein
B Lerenius
P T McHugh
Dr T Middelhoff
Dr A Porter
Management
Development
and
Management Remuneration
Audit
and Risk
Health,
Safety and
Nominations Environmental
Full Board1
3/4
7/8
8/8
5/8
7/8
6/8
9/9
8/8
5/5
5/5
9/11
8/8
6/8
N/A
4/4
4/4
N/A
4/4
4/4
N/A
N/A
N/A
1/1
N/A
2/4
N/A
N/A
N/A
5/5
N/A
5/5
3/5
N/A
N/A
1/2
N/A
N/A
5/5
4/5
N/A
N/A
1/1
N/A
1/1
1/1
N/A
N/A
N/A
N/A
N/A
0/1
0/1
N/A
1/1
1/1
N/A
1/1
N/A
0/1
N/A
1/1
N/A
N/A
N/A
N/A
1In order to consider the terms of the merger and listing and issues relating to them, a number of Board meetings were held prior to the appointment of the majority of the
Board of Directors on 28 March 2007. This results in the different denominator fi gures above for Mr McHugh and Mr Fontenla-Novoa. Mr Klein and Mr Lerenius joined the
Board on 1 July 2007.
OPERATION OF THE BOARD
The Board normally meets at least eight times per annum for scheduled Board meetings. The Board also meets as required on an ad hoc basis to deal
with urgent business – including the consideration and approval of transactions.
The Board has approved a schedule of matters reserved for decision by the Board. This schedule can be viewed on the Group’s website –
www.thomascookgroup.com within the Corporate Governance Compliance Statement published on that website.
To facilitate swift and effi cient operational management decisions, the Board has established an Executive Board sub-committee, the Finance and
Administration Committee (comprised of the Chief Executive Offi cer and the Group Chief Financial Offi cer) which has delegated authority, within clearly
identifi ed parameters, in relation to day to day operational matters.
All Directors have access to the advice and services of the Company Secretary who is responsible for ensuring that Board procedures are complied with.
In addition, to ensure effi cient and effective conduct of the administrative affairs of the Group, the Board has formally delegated authority to the Group
Company Secretary and Assistant Group Company Secretary in relation to a series of administrative matters.
CHAIRMAN
The roles of Chairman and Chief Executive are distinct. Dr Middelhoff is the Non Executive Chairman, Mr Beckett is Non Executive Deputy Chairman and
Mr Fontenla-Novoa is the Chief Executive Offi cer. The other signifi cant commitments of the Chairman and Deputy Chairman are set out in their respective
biographies on page 36.
COMMITTEES OF THE BOARD
The Board has established four standing committees to assist in the discharge of corporate governance responsibilities. The full terms of reference
for these committees are included within the Thomas Cook Group plc Corporate Governance Compliance Statement, published on the Group’s website
at www.thomascookgroup.com.
Nominations Committee
The terms of reference of the Nominations Committee are, in summary, to make recommendations to the Board from time to time on the Board’s
composition and balance, to prepare the description of the role and capabilities required for appointments to the Board and to make recommendations
to the Board on all new appointments to the Board. While the relationship agreement, which formed part of the terms agreed for the merger of
Thomas Cook AG and MyTravel Group plc (the “Relationship Agreement”), remains in force the Committee shall be comprised of no fewer than three
Non Executive Directors who are considered by the Board to be independent of management and free from any business of other relationship which
might materially interfere with the exercise of independent judgement, together with a maximum of two Directors appointed by Arcandor AG.
The majority of the members of the Nominations Committee shall be independent Non Executive Directors and the Chairman of the Committee shall
be an independent Non Executive Director. The quorum is three members of the Committee, the majority of whom must be independent Non Executive
Directors. Meetings are held not less than once a year.
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CORPORATE GOVERNANCE REPORT CONTINUED
The Group Chief Executive Offi cer may attend meetings of the Committee
Management Committee has authority to investigate any activity within
except to the extent that the matter for discussion is the role or
its terms of reference and is responsible for resolution of disagreements
performance of the Group Chief Executive Offi cer. The Committee considers
between the management and the auditor.
candidates for appointment to the Board following consultation between
the Chairman of the Committee and the Group Chief Executive Offi cer.
Meetings are held not less than four times a year. The regular business
of the meetings is to consider reports of the internal and external auditors
Management Development and Remuneration Committee
and of the risk management committee and to make recommendations
The Management Development and Remuneration Committee is
to the Board as appropriate.
responsible for all elements of Executive remuneration, for performance
management and for the Group’s remuneration and incentivisation
policies. The terms of reference of the Management Development and
Remuneration Committee are, in summary, to make recommendations
to the Board on the Group’s framework of Executive remuneration and its
cost and to review and determine on behalf of the Board the remuneration
The Board is satisfi ed that the Chairman of the Committee, David Allvey,
has recent and relevant fi nancial experience and is also satisfi ed that
all members of the Committee have appropriate knowledge and
understanding of fi nancial, risk and accounting matters to contribute
effectively to the Committee.
and incentive packages of the Executive Directors to ensure that they are
The Committee is responsible for reviewing any litigation or regulatory
fairly rewarded for their individual contributions to Thomas Cook Group’s
proceedings to which the Thomas Cook Group is a party or which could
overall performance. The Committee is responsible, in accordance with
have material and signifi cant affect upon the fi nancial, legal, regulatory
the Listing Rules, for reporting to the Board and to the Company’s
or compliance position or operational results of Thomas Cook Group
shareholders in relation to remuneration policies applicable to Executive
and the manner in which such matters have been disclosed in the
Directors. The Committee is responsible for determining the basis upon
fi nancial statements.
which the employment of any Director is terminated, for operating
Thomas Cook Group’s share option and other incentive schemes and
in accordance with the rules of those schemes and for making
recommendations to the Board as to any adjustments to the terms of
such schemes and proposals intended for submission to shareholders
in relation to such schemes. The Committee has no authority in relation
to the remuneration of Non Executive Directors.
While the Relationship Agreement remains in force the Committee shall
be comprised of no fewer than three Non Executive Directors who are
considered by the Board to be independent of management and free
from any business or other relationship which might materially interfere
with the exercise of independent judgement, together with a maximum
of two Directors appointed by Arcandor AG. The majority of members
of the Committee shall be independent Non Executive Directors and the
Chairman of the Committee shall be an independent Non Executive
Director. The quorum shall be three members of the Committee, a majority
of whom must be independent Non Executive Directors and meetings
shall be held not less than once a year. The Group Chief Executive Offi cer
may, on occasion and only for matters which do not personally concern
him, be invited to attend meetings of the Committee and in any event shall
be consulted by the Committee on proposals relating to the remuneration
of the other Executive Directors.
The Committee is authorised by the Board to investigate any activity
within its terms of reference, to require compliance with such
investigation by all employees of the Group and to obtain independent
legal or other professional advice. It is also authorised to approve
the appointment of or termination of employment or engagement
of any regulatory compliance offi cer and the internal auditor.
While the Relationship Agreement remains in force, the Committee
shall be comprised of no fewer than three Non Executive Directors who
are considered by the Board to be independent of management and free
from any business or other relationship which might materially interfere
with the exercise of independent judgement, together with a maximum
of two Directors appointed by Arcandor AG. The majority of members
of the Committee shall be independent Non Executive Directors and
the Chairman of the Committee shall be an independent Non Executive
Director. The quorum shall be three members of the Committee, and the
majority of whom must be independent Non Executive Directors and
meetings should be held not less than four times a year. The Committee
recognises that its composition is not in full compliance with provision
C.3.1 of the Combined Code on Corporate Governance. The Committee
considers that the two representatives of Arcandor AG give valuable
insight into the German trading market and considers that having
a minimum of three, and currently four, independent Non Executive
Full details of Directors’ remuneration are included in the Remuneration
Directors in addition to the two who represent Arcandor AG gives
Report on pages 56 to 64.
Audit and Risk Management Committee
The duties of the Audit and Risk Management Committee include,
in summary, the review of internal and external audit functions, the
review of risk management and internal control processes, the making
of recommendations to the Board in relation to the appointment
appropriate balance to the Committee and preserves its independence.
Relevant executive management and a representative of the external
auditors are invited to attend meetings as appropriate. At least one
meeting each year is held with the external auditors and without
executive management present. The external auditors may request
a meeting if they consider one necessary.
of external auditors and the monitoring of the integrity of the half year
The Committee has developed a policy for the provision of non-audit
and annual fi nancial statements and interim management statements
services by the auditors and pre-approves material fees for non-audit
before submission to the Board. The Committee reports to the Board
services in accordance with that policy in order to ensure that the
on any matter on which it considers that action is required and makes
provision of non-audit services does not impair the external auditor’s
recommendations for steps to be taken. In addition, the Audit and Risk
independence or objectivity. The policy is set out in the Group’s Corporate
52 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Governance Compliance Statement published on the Group’s website
Actions to improve the Board and Board Committee effectiveness
at www.thomascookgroup.com. An analysis of the fees earned by the
have been discussed from time to time, agreed and implemented.
Group’s auditors for audit and non-audit services is disclosed in note
Personal feedback on individual Directors was discussed with them
11 to the fi nancial statements.
Health, Safety and Environmental Committee
The terms of reference of the Health, Safety and Environmental
Committee are, in summary, to review and supervise the management
of health, safety and environmental risks and impact in the Group’s
activities, and to review and oversee the development and
privately by the Chairman. No individual performance problems were
identifi ed. In respect of all Directors who are to be submitted for
re-election at the Company’s AGM, their performance continues to
be effective and they have continued to demonstrate the appropriate
level of commitment to their role. The use of external providers
in the context of Board evaluation is being kept under review.
implementation of the Thomas Cook Group Health, Safety and
BOARD INDUCTION PROCESS
Environmental Policy. It is also responsible for reviewing Thomas Cook
In relation to any new Board appointees, the Group Company Secretary
Group’s compliance with relevant legislation and regulation relating
provides a pack of introductory briefi ng information to new Board
to health, safety and the environment in all of its areas of operation,
members and, in conjunction with the Group HR Director, arranges
including customer and employee safety.
to provide such additional information to the new Director as that
The quorum is three members of the Committee, a majority of whom
must be independent Non Executive Directors, and meetings shall be
Director requests and arranges to schedule any additional briefi ngs
that may be suggested by the Board.
held not less than three times a year. Meetings may be convened more
INDEPENDENT ADVICE
frequently at the request of the Chairman and to deal with specifi c
There is a procedure in place whereby the Directors are able to take
issues that have arisen.
As at 30 January 2008, the Board comprised of the Non Executive
professional advice at the Company’s expense in relation to any matter
which relates to their position as Director (but not personal matters).
Chairman, Non Executive Deputy Chairman, two Executive and six Non
SHAREHOLDER COMMUNICATION
Executive Directors. Biographical details of the Directors are included
The Board promotes open communication with shareholders, which is
on pages 36 and 37. The Non Executive Deputy Chairman (who is also
formalised within a framework of investor relations, and includes formal
the Senior Independent Director) and fi ve of the Non Executive Directors
presentations of full year and interim results, trading statements and
are regarded as being independent for the purposes of the Combined
regular meetings between executive management and institutional
Code. The composition of the Board is designed to provide an appropriate
investors. In addition, the Board responds to ad hoc requests for
balance of Group, industry and general commercial experience and
information and all shareholders have an opportunity to question
is reviewed at regular intervals to ensure that it remains appropriate
the Board at the AGM.
to the nature of the Group’s activities.
PERFORMANCE EVALUATION
A review of the performance and fi nancial position of the key operations
is provided in the Business Review on pages 25 to 27 and the Financial
The Group has established a performance evaluation process for its
Review on pages 28 to 35. The Board uses these reports to present
Board, committees and individual Directors, developed by the Group
a balanced and understandable assessment of the Group’s position
Company Secretary in conjunction with the Group HR Director, which ties
and prospects.
in with the evaluation procedures for other staff within the Thomas Cook
Group of companies. Each of the Executive Directors is subject to the
performance management processes established for all employees.
For the Executive Directors other than the Chief Executive, this involves
their performance being reviewed by the Chief Executive. These appraisals
are then reviewed by the Chairman on behalf of the rest of the Board
and any key conclusions or points of note passed to the Non Executive
RISK MANAGEMENT AND INTERNAL CONTROL
The Board recognises its ultimate accountability for maintaining
an effective system of internal control that is appropriate in relation
to both the scope and the nature of the Group’s activities and complies
with the Turnbull Committee Guidance in the Combined Code and has
approved the framework and the standards implemented.
Directors. In relation to the Chief Executive, the Chairman has carried
The Board, in reviewing the effectiveness of the system of internal
out an appraisal of his performance and discussed his conclusions with
control, can confi rm that necessary actions have been or are being
the Non Executive Directors.
taken to remedy any signifi cant failings or weaknesses identifi ed
During the year the Chairman conducted an evaluation of the Board’s
from that review.
overall performance on an informal basis facilitated by the Group
The Board has delegated responsibility for the implementation of
Company Secretary. This focused on attendance at meetings, preparation
the Group Risk Management Policy to the Group Chief Financial Offi cer.
for discussions, contribution of specialist knowledge and experienced
The Group Chief Financial Offi cer has formed the Group Risk Management
understanding of the Group’s structure and activities, understanding
Committee to support him in fulfi ling this responsibility.
of management responsibilities, understanding of and contribution
to appropriate fi nancial management policies, risk management and the
Group’s corporate governance and compliance policies and procedures.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 53
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CORPORATE GOVERNANCE REPORT CONTINUED
The Group Risk Management Committee is responsible for:
The Group encourages employees to report any concerns which they
Supervising a thorough and regular evaluation of the nature and extent
of the risks to which the Company is exposed.
feel need to be brought to the attention of management and has adopted
a whistleblowing policy and a Group theft and fraud reporting policy
which are published on the Group’s intranet sites, allowing such matters
> Reviewing the corporate risk profi le and recommending Risk
to be raised in confi dence through the appropriate channels.
Management strategies.
> Supervising and assessing the overall effectiveness of the Risk
Management process.
The Group has a code of ethics which deals with:
> prohibitions on employees using their position for personal gain;
To support the Group Risk Management Committee there are segment
> prohibitions on improper business practices;
risk management committees. The Group has established fi ve segmental
> a requirement for compliance with all internal approval and
risk committees:
> UK and Ireland
> Northern Europe
> North America
> Continental and
> German Airlines
authorisation procedures and legal requirements;
> a requirement to disclose potential confl icts of interest and
potential related party contracts.
During the year, the Board, through the work of the Audit and Risk
Management Committee, has conducted a review of the Group’s system
of internal control. There is an ongoing process for the identifi cation
and evaluation of risk management and internal control processes which
has been in place throughout the year and remains in place up to the
which report to the Group Risk Management Committee.
date of the Financial Statements.
By implementing the Risk Management Policy, the segments are
This code of ethics is contained within the Group’s internal policies
responsible for:
> Maintaining and updating risk reporting.
guide which is available to all employees and, in particular, those with
responsibility for procurement or other dealings with third party
suppliers. In addition, the Group Company Secretary is available
> Managing risk action implementation and measurement systems.
for advice on any matter which may give rise to cause for concern
> Maintaining and reviewing risk performance and measurement systems.
in relation to the code of ethics.
Risk registers are compiled and submitted by each segment for
review quarterly.
COMPLIANCE WITH THE PROVISIONS OF THE COMBINED CODE
The Directors have carried out a review of the Group’s corporate
governance policies and procedures in the light of the requirements
The Group Risk Management Committee prepares a half yearly risk report
of section 1 of the Combined Code. This review has indicated that the
for the attention of the Audit and Risk Management Committee, based
Company has been in compliance with the provisions of the Combined
on the feedback from the segment risk management committees for
Code throughout the period since listing, with the exception of the
review at Group level. The report identifi es the principal risks to the
matters referred to below:
business and assesses the adequacy of controls and procedures in place
to mitigate the likelihood and the impacts of these risks.
Dr Thomas Middelhoff does not fulfi l the independence criteria set out
in code provision A3.1 of the Combined Code, as required by provision
The regular risk reporting regime has created an environment for
A2.2 of the Combined Code, as he has been from the date of his
the development and improvement of risk management procedures
appointment, and continues to be, the chairman of the Management
across the Group. The Audit and Risk Management Committee reviews
Board of Arcandor AG, the Company’s largest shareholder. Dr Peter Diesch
the reports of the Group Risk Management Committee and makes
is a Non Executive Director of the Company and is the Chief Financial
recommendations to improve risk management and internal control.
Offi cer of Arcandor AG. The appointments of Dr Middelhoff and Dr Diesch
were an agreed part of the merger of MyTravel Group plc and Thomas
Cook AG and were agreed in consultation with the major shareholders
of those companies, which became the major shareholders of Thomas Cook
Group plc.
This process of risk identifi cation, measurement and reporting provides
a comprehensive ongoing assessment of the signifi cant risks facing
the Group and the mitigation actions taken in respect of those risks.
This process ensures that the Group complies with the relevant corporate
governance best practice in relation to risk management including the
guidance issued under the Turnbull Report.
The Group has established an Internal Audit function which reports
directly to the Chairman of the Audit and Risk Management Committee.
Internal Audit makes recommendations to that Committee in relation to
the maintenance of a sound control environment throughout the Group.
54 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
In accordance with provision A.4.6 of the Combined Code the Company
notes that neither an external consultancy nor open advertising was used
in the appointment of the additional independent Non Executive
Directors, Bo Lerenius and Hemjö Klein. Each of these appointments was
made following the normal process for the evaluation of potential
candidates for appointment to the Board, including meetings between
those new Directors and both Executive and Non Executive Directors of
the Company, and was approved by the nominations committee, the
majority of whom are independent Non Executive Directors.
Provisions B2.1 and C3.1 of the Combined Code provide that the
Remuneration Committee and the Audit Committee respectively
should be made up entirely of independent Non Executive Directors.
Under the terms of the Relationship Agreement, Arcandor AG is entitled
to appoint up to two Non Executive Directors to each of the Audit and Risk
Management Committee, Management Development and Remuneration
Committee and Nominations Committee. The corporate governance
arrangements referred to above are considered by the Board to be
appropriate given the shareholding structure of Thomas Cook Group and
the terms of the Relationship Agreement. The arrangements were agreed
in consultation with the major shareholders of MyTravel Group plc and
Thomas Cook AG, which became the major shareholders of Thomas Cook
Group plc.
The Board has adopted a corporate governance compliance statement
that sets out how the policies, procedures and practices of the Group
comply with, or in the case of the areas referred to in the preceding
paragraphs, deviate from the Combined Code. A copy of this statement
is available, on request, from the Group Company Secretary or on the
Group’s website at www.thomascookgroup.com.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 55
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11
12
13
14 15
REMUNERATION REPORT
This report has been prepared to comply with requirements of the
Committee’s advisors
Companies Act 1985 as amended by The Directors’ Remuneration Report
The Committee invites such other representatives of the Group
Regulations 2002 (the “Regulations”). As the Regulations provide that
to attend meetings as it deems benefi cial to assist it in considering
certain of the information is to be the subject of the auditors’ report and
matters raised. During the year, these have included the Group HR
other information is not, this report is divided into sections of audited
Director, the Group Head of Reward and the Group Company Secretary.
and unaudited information.
No Executive is present when his or her own remuneration arrangements
The report covers the remuneration of the Executive and Non
are being discussed.
Executive Directors for services to the Company from 19 June 2007
In performance of its duties, the Committee seeks assistance from
to 31 October 2007. There was no remuneration for services to the
external advisors where necessary. PricewaterhouseCoopers LLP has
Company for the period from inception of the Company on 8 February
provided services relating to the design of incentive arrangements and
2007 to 19 June 2007.
The remuneration policy described is the remuneration policy for the
Group (which is comprised of the Company and its subsidiaries) and
benchmarking of salaries and benefi ts for Executive Directors to the
Group. PricewaterhouseCoopers LLP currently act as joint auditors
(with Deloitte & Touche LLP) to the Group.
for the Executive Directors of the Company.
Legal advice is provided to the Committee by the in-house legal function
This report will be the subject of a separate resolution for approval
at the Annual General Meeting of the Company before which the annual
accounts are to be laid.
A. INFORMATION NOT SUBJECT TO AUDIT
Management Development and Remuneration Committee
and by Slaughter and May. In particular, advice has been sought regarding
Directors’ contracts and incentive arrangements.
The Committee will always ensure it is suitably advised and will review the
appointment of such advisors on a regular basis. Currently the Committee
has appointed both PricewaterhouseCoopers LLP and Slaughter and May.
The Management Development and Remuneration Committee (the
Remuneration policy
“Committee”) was established following the merger. The members
The Group’s remuneration policy is to ensure that Directors and senior
of the Committee since 19 June 2007 have been:
executives are rewarded in a way which attracts and retains management
Michael Beckett (Chairman)
Roger Burnell
Dr Peter Diesch
Dr Thomas Middelhoff
Dr Angus Porter
of the highest quality and motivates them to achieve the highest level
of performance consistent with the best interests of the Group, its
shareholders and employees. In developing its remuneration policy,
the Committee has had regard to the fact that the Group has signifi cant
international operations and, in order to compete in the global
environment for the recruitment, retention and incentivisation of high
Hemjö Klein joined the Committee on his appointment to the Board
quality Executive Directors and senior managers, it must offer upper
on 1 July 2007.
quartile rewards for upper quartile performance.
The Committee is responsible for making recommendations to the
The Committee has therefore set its remuneration policy in view of,
Board on the Company’s framework of Executive remuneration and
and applying, the following principles:
its cost, for reviewing and determining, on behalf of the Board, the
remuneration and incentive packages of the Executive Directors and
Chairman and for recommending and monitoring the level and structure
> The Group’s objective is to deliver fi nancial results which consistently
outperform the average of the industry sector.
of the remuneration for the senior management of the Company and
> The Group will look to retain and attract Directors and senior executives
its subsidiaries. The terms of reference of the Committee can be found
with above-average skills and leadership potential.
on the Company’s website.
> The remuneration of each Executive Director will be based on
The Committee has held fi ve meetings during the period since listing.
performance (both of the Group and the individual Executive), potential
Attendance at those meetings is disclosed in the Corporate Governance
(i.e. the Executive’s potential to grow in responsibility and performance)
report. The most signifi cant matters discussed by the Committee at the
and scarcity (i.e. the availability of candidates to replace the Executive
formal meetings included:
should he leave the Group).
> the remuneration policy for the Group;
> The proportion between fi xed and variable remuneration will typically
> the market competitiveness of the remuneration packages
for Executive Directors;
> the service contracts for the Executive Directors;
be targeted at 30 per cent fi xed and 70 per cent variable.
The Committee has determined that its policy for the design of
remuneration arrangements for Executive Directors is that the fi xed
elements of remuneration shall be set in line with the median of a
> the severance arrangements for John Bloodworth;
specifi ed comparator group of companies and that total earnings (which
> the introduction of a new Co-Investment Plan (“COIP”); and
are made up of base salary, pension supplements, bonuses and any other
performance-related elements of reward, such as long-term incentive
> the structure of annual bonus arrangements.
arrangements) shall be targeted at the upper quartile of the comparator
56 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
group subject to the attainment of appropriate and challenging
RELATIVE IMPORTANCE OF FIXED AND VARIABLE REMUNERATION
performance criteria.
The remuneration for Executive Directors will be highly geared towards
performance with the proportion of “at risk” pay increasing
disproportionately according to:
> the level of personal performance; and
> the seniority of the Executive Director and his/her ability
to infl uence results.
A bespoke comparator group has been adopted to benchmark the
remuneration of Executive Directors of the Group. This group consists
of companies in the FTSE index with signifi cant international operations.
This particular comparator group has been chosen to refl ect the
international nature of the Group’s business. Where specialist functions
are concerned, the Committee may have reference to other comparator
groups as it feels are appropriate.
Following the establishment of the above policy, the Committee has
reviewed the structure of remuneration for Executive Directors in the
Group and the following changes are to be made (subject to shareholder
approval where required):
> the maximum bonus potential (as a percentage of salary) will be
increased for the fi nancial year 2007/2008 from 100 per cent to
175 per cent (for the Chief Executive Offi cer) and 150 per cent
(for the other Executive Directors) of salary;
> clearer defi nition of non-fi nancial performance targets for the annual
bonus (the point at which full bonus is payable has also been increased
relative to budget outturn, thus giving rise to more stretching targets
Target
performance
Maximum
performance
Target
performance
Maximum
performance
r
e
c
i
f
f
O
e
v
i
t
u
c
e
x
E
f
e
h
C
i
s
r
o
t
c
e
r
i
D
e
v
i
t
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c
e
x
E
r
e
h
t
O
0%
10
20
30
40
50
60
70
80
90
100
Salary
Annual bonus
Benefits
Performance Shares
Pension
Co-invesment Plan matching shares
for full payment); and
Remuneration arrangements for 2008 onwards
> implementation of a COIP to encourage investment by participants
in the Company’s shares and to reward outperformance.
Base salary and benefi ts
The base salaries for the Executive Directors were reviewed by the
Committee on appointment to the Board of the Company following
The relative importance of the fi xed and variable elements of the
a benchmarking exercise carried out by PricewaterhouseCoopers.
remuneration packages of Executive Directors in circumstances of target
Base salaries of Executive Directors will be reviewed annually in January
and strong performance, is shown in the chart opposite.
(the fi rst review for Manny Fontenla-Novoa and Ludger Heuberg to take
The chart opposite assumes:
(a) Base salaries in force at 31 October 2007;
place in January 2009) taking into account individual performance and
market data.
(b) Value of benefi ts provided in year to 31 October 2007;
The annual rates of base salary for the Executive Directors are shown
(c) Pension: 25 per cent of base salary;
(d) Annual bonus:
> 60 per cent of full bonus paid at target performance;
> 100 per cent of full bonus paid at maximum performance;
(e) Performance Share Plan: 37.5 per cent of salary at target
in the table below.
Name
Manny Fontenla-Novoa
Ludger Heuberg
£000
630
425
€0001
904
610
performance; 150 per cent of salary at maximum performance;
1The equivalent fi gures in Euro are based on conversion of the Sterling salary fi gures
(f) Co-Investment Plan: 10 per cent of post tax annual bonus at target
at a year end exchange rate of 1.434583 Euro to the Pound.
performance and the excess above 100 per cent of salary at maximum
performance invested with match of:
a. 0.5:1 at target performance;
b. 3.5:1 at maximum performance.
Remuneration arrangements for the period
Amounts paid to the Executive Directors in respect of the period under
review are set out in the audited section of this report.
Benefi ts include the provision of pensions, private health insurance,
personal accident cover, death in service benefi ts and a fully expensed
motor vehicle. Executive Directors who are required to move from their
home territory to take up residence in the UK have their remuneration
tax-equalised and are provided with a contribution towards their
accommodation costs and travel between the UK and the home territory.
These benefi ts do not form part of the basis for the calculation of
Executive Director pensions.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 57
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REMUNERATION REPORT CONTINUED
Annual Bonus
The maximum annual bonus opportunity for the Chief Executive Offi cer is 175 per cent and for each of the other Executive Directors is 150 per cent of
base salary. Of the maximum bonus payable:
(i) 75 per cent is linked to the attainment of fi nancial targets and is earned on a pro rata basis by reference to the achievement of those targets; and
(ii) 25 per cent is linked to the attainment of individual and other non-fi nancial criteria linked to the development of the Group and the implementation
of the Board’s strategy and which are set by the Committee and agreed with each Executive Director at the start of the fi nancial year. The individual
and other non-fi nancial criteria comprise targets in relation to customer satisfaction, health & safety and employee engagement. Entitlement to
the non-fi nancial based element of the bonus will only vest and become payable rateably to the extent that the fi nancially based elements of that
Executive Director’s bonus vests.
The Committee will determine the extent to which it considers the targets and objectives have been met and the annual bonus payable. Bonuses will
normally be paid in the January following the end of the relevant fi nancial year in which they are earned.
Pensions
The Company contributes each year into a pension scheme or similar arrangement for each of the Executive Directors an amount equivalent to
25 per cent of their annual salary. Mr Fontenla-Novoa receives a pension allowance of 25 per cent of basic salary from the Company. He remains
an active member of a UK defi ned benefi t pension scheme, which provides pension benefi ts on a proportion of salary. Salary above that which
is pensionable in the UK defi ned benefi t scheme is pensioned by paying the balance of the allowance into a UK based tax approved defi ned
contribution pension.
Long-term incentive plans
Thomas Cook Group plc 2007 Performance Share Plan
The Performance Share Plan (“PSP”) was approved by the Board prior to the Company’s listing and provides for the award of shares to Executive
Directors and other senior employees who are selected to participate. The fi rst awards under the PSP were made in July 2007.
Awards are made annually over shares having a face value at the date of grant of up to 200 per cent of the individual’s base salary. Awards will vest
after three years providing the participant is still employed by a company in the Group and to the extent that the performance conditions have been
met. Good leaver provisions apply in the event of cessation of employment due to death, injury, disability, ill-health, redundancy or retirement. In the
event of a change of control, a proportion of the awards (refl ecting the proportion of the performance period that has elapsed) will vest immediately
subject to the achievement of performance conditions as at that time.
The performance conditions and vesting schedule attaching to the outstanding PSP awards are set out in the table below.
PSP Awards
Performance condition
Reference for comparison
25% vesting
100% vesting
25%-100% vesting
50% of award
50% of award
Total shareholder return ranking
Earnings per share (“EPS”) for
against comparator group
Financial Year to 31 October 2009
50 companies at bottom of FTSE 100
and 50 companies at top of FTSE 250
Median of comparator group
Upper quartile or above
Between median and upper quartile
€ cents 34
€ cents 41
Between € cents 34 and € cents 41
on a straight line basis
The TSR comparator group was chosen as it is a broad group of companies of similar size and against which the endeavours of the Company’s management
should be judged. This comparator group excludes investment companies. The comparator group is determined at the date on which PSP awards are made.
Future performance conditions and vesting levels will be attached to awards that are believed to be stretching and provide value to the Executive
Directors commensurate with performance achieved and align their interests with those of shareholders.
Co-Investment Plan (“COIP”)
It is proposed that shareholder approval will be sought for the introduction of a COIP at the Company’s AGM in April 2008. Executive Directors and
other senior employees will be eligible to participate in the COIP. It is currently proposed that a proportion of post tax annual bonus must be deferred
under the COIP with the opportunity to voluntarily defer a further amount such deferred amounts to be applied in the purchase of Company shares.
The requirement for compulsory investment under the COIP will cease once a participant’s shareholding reaches a value equal to 200 per cent of
salary (this level of shareholding must be maintained).
A matching award of up to 2.5 shares for every 1 share purchased will be made subject to the achievement of EPS linked performance targets, agreed
by the Committee, measured over a three year period. A ratchet mechanism based on Return on Invested Capital achievement (ROIC) may increase
the matching award by up to 40 per cent for superior performance but will reduce the matching award by up to 100 per cent for below target range
ROIC performance. Further details of the COIP will be contained in the Company’s AGM notice.
58 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Service contracts
Each of the Executive Directors has a service contract with the Company. The dates of the service contracts and their notice periods for each Executive
Director who held offi ce during the period from 19 June to 31 October 2007 are set out below:
Name
Date of contract
Outstanding term
Manny Fontenla-Novoa
30 January 2008
to age 65
Notice period
12 months
Compensation arrangements
See below
Peter McHugh
3 December 20021
Two months
3 months
One year’s annual salary plus
annual bonus, synergy bonus,
retention bonus of £1 million
and other benefi ts (based on
a salary of £600,000)
John Bloodworth
19 June 20072
Two months
12 months
One year’s salary plus bonus
Ludger Heuberg
30 January 2008
to age 65
12 months
1Amended by variation latters dated 8 March 2007 and 27 April 2007.
2Amended by compromise agreement dated 19 September 2007.
and other benefi ts
See below
The Executive Directors’ service contracts (other than those for Peter McHugh and John Bloodworth) do not have a fi xed termination date. The minimum
unexpired term of each contract on a given date will be its notice period as set out above. In the event of early termination, compensation would be
negotiated on an individual basis taking account of salary and the relevant notice period, together with other benefi ts provided by the Company as
set out in this report.
Notice periods are negotiated on an individual basis but are usually 12 months from either party in the case of Executive Directors. The Board believes
that these notice periods are appropriate given the need to retain the specialist skills that the Directors bring to the business and to achieve continuity
in the Company’s senior management.
External appointments
The Company recognises the benefi ts to the individual and to the Group of Executive Directors taking on external appointments as Non Executive
Directors of companies not associated with the Group. Subject to the approval of the Committee and to such conditions as the Committee may, in its
discretion, attach, an Executive Director may accept such appointments at other companies or similar advisory or consultative roles, providing they
do not present a confl ict of interest. The Committee has set a limit of one signifi cant paid appointment per Director. The Executive Director may retain
any fees paid for such an appointment.
The external appointments held by the Executive Directors and fees received during the period under review are shown in the table below.
Director
Ludger Heuberg
Non Executive Directors
Commerzbank AG Regional Advisory Committee
Company Fees received
€3,000
The fees for Non Executive Directors are determined by the Board excluding the Non Executive Directors. The remuneration of the Chairman and
Deputy Chairman is reviewed and determined by a committee comprising the other members of the Committee.
Non Executive Directors’ fees are reviewed annually. Non Executive Directors do not participate in any bonus plans, are not eligible to participate in any
long-term incentive plans and no pension contributions are made on their behalf.
The annual rates of Non Executive Director fees are shown in the table below.
Chairman
Deputy Chairman
Non Executive Director
Chair of Audit & Risk Management Committee
Annual fees
£250,000
£250,000
£60,000
£80,000
The fees paid to the Chairman and the Non Executive Directors in respect of the period under review are set out in the audited section of this report.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 59
1
2
3
4
5
6
7
8
9
GROUP DIRECTORS’ REPORT CONTINUED
11
12
13
14 15
REMUNERATION REPORT CONTINUED
Each of the Non Executive Directors of the Group has been appointed pursuant to a letter of appointment. The appointments under these letters
continue until the expiry date set out below unless terminated for cause or on the period of notice stated below.
Non Executive Director
Dr Thomas Middelhoff
Michael Beckett
David Allvey
Roger Burnell
Dr Peter Diesch
Hemjö Klein
Bo Lerenius
Dr Angus Porter
Date of letter of appointment
Expiry date
Notice period
18 June 2007
13 June 2007
21 June 2007
18 June 2007
18 June 2007
1 July 2007
1 July 2007
See note
See note
See note
90 days
18 June 2010
6 months
18 June 2010
6 months
See note
See note
30 June 2010
6 months
30 June 2010
6 months
18 June 2007
18 June 2010
6 months
Note: Dr Thomas Middelhoff’s and Dr Peter Diesch’s appointments shall continue until terminated by Arcandor AG by notice to the Company. Michael Beckett’s appointment
continues until terminated by either party on 90 days notice.
Performance graph
The graph below shows the total shareholder return for holders of Thomas Cook Group plc €0.10 ordinary shares for the period since listing on 19 June
2007, measured against the FTSE 250 Index and the FTSE Leisure & Hotel Index. These indices were chosen as comparators because the Company has
been a constituent of the FTSE 250 and FTSE Leisure & Hotel Index throughout the period since listing. The calculation of total shareholder return
follows the provisions of the Regulations and is broadly the change in market price together with reinvestment of dividend income.
110
105
100
95
90
85
80
75
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
d
e
s
a
b
e
R
19 June 2007
19 July 2007
19 August 2007
19 September 2007
19 October 2007
Thomas Cook
FTSE 250
FTSE Travel & Leisure
60 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
B. INFORMATION SUBJECT TO AUDIT
Details of the remuneration of the Executive and Non Executive Directors for services to the Company are disclosed below. The period of the remuneration
is from 19 June 2007 to 31 October 2007. There was no remuneration for services to the Company for the period from inception of the Company on
Annual
base salary
October-07
£000
Salary
and fees
£000
Bonus
payments
£000
Compensation
for loss of
offi ce
£000
Other
payments
£000
Benefi ts
£000
Total
2007
£000
Pension
Total contributions
2007
2006
£000
£000
Pension
contributions
2006
£000
8 February to 19 June 2007.
GBP
Executive
Manny Fontenla-Novoa
Peter McHugh
Ludger Heuberg
John Bloodworth
Non Executive
Thomas Middelhoff
Michael Beckett
David Allvey
Roger Burnell
Peter Diesch
Bo Lerenius
Angus Porter
Hemjö Klein
EURO
Executive
Manny Fontenla-Novoa
Peter McHugh
Ludger Heuberg
John Bloodworth
Non Executive
Thomas Middelhoff
Michael Beckett
David Allvey
Roger Burnell
Peter Diesch
Bo Lerenius
Angus Porter
Hemjö Klein
Total emoluments
1,102
7,404
Annual
base salary
October-07
£000
Salary
and fees
£000
Bonus
payments
£000
Compensation
for loss of
offi ce
£000
Other
payments
£000
Benefi ts
£000
Total
2007
£000
Pension
Total contributions
2007
2006
£000
£000
Pension
contributions
2006
£000
630
630
425
450
250
250
80
60
60
60
60
60
231
231
156
165
2,652
2,130
1,002
1,620
783
7,404
92
92
29
22
22
20
22
20
319
–
–
–
–
–
–
–
–
–
904
904
610
645
359
359
115
86
86
86
86
86
336
338
227
242
3,805
3,056
1,438
2,324
1,143
10,623
134
134
43
32
32
29
32
29
465
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
2,888
175
15
139
334
2,536
1,173
1,924
8,521
–
–
–
–
–
–
–
–
–
92
92
29
22
22
20
22
20
319
334
8,840
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80
98
36
70
284
–
–
–
–
–
–
–
–
–
284
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
4,148
251
21
3,645
1,686
200
2,766
479
12,245
–
–
–
–
–
–
–
–
–
134
134
43
32
32
29
32
29
465
479
12,710
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
117
143
52
102
414
–
–
–
–
–
–
–
–
–
414
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 61
Total emoluments
1,608
10,623
1
2
3
4
5
6
7
8
9
GROUP DIRECTORS’ REPORT CONTINUED
11
12
13
14 15
REMUNERATION REPORT CONTINUED
Notes
The annual rates of salary in force from 19 June 2007 were as follows:
Manny Fontenla-Novoa
£630,000
Peter McHugh
Ludger Heuberg
John Bloodworth
£630,000
£425,000
£450,000.
Annual bonus entitlement: Up to 100 per cent of salary with 75 per cent paid by reference to fi nancial targets and 25 per cent payable by reference
to personal objectives. All targets and objectives for all Directors were satisfi ed or deemed satisfi ed in full under the terms of the bonus schemes
concerned in respect of the year.
Pension contributions were payable at a rate of 25 per cent of salary to a pension scheme or equivalent of the Director’s choice.
Taxable benefi ts related to the matters set out below:
> The Company agreed with Peter McHugh, who is not a UK national, to (1) arrange for the tax equalisation of his remuneration such that he would
not be adversely affected by UK taxes (2) pay part of the cost of his UK accommodation and (3) pay for travel between the UK and the USA for
Peter McHugh and his wife (4) pay USD 28,000 per annum in relation to US travel expenses.
> John Bloodworth was entitled to a fully expensed motor car.
> The Company agreed with John Bloodworth who is not a UK national to (1) arrange for the tax equalisation of his remuneration such that he would not
be adversely affected by UK taxes and (2) to pay for travel between the UK and the USA each year to be used by John Bloodworth and/or his family.
> Each of the Executive Directors is eligible for private health insurance, prolonged disability insurance and death in service benefi ts (subject, in each
case, to their being accepted for cover and satisfying any applicable arrangements and/or terms and conditions of the insurers from time to time
in force).
The following table sets out the amount of and the extent to which each of the Directors who were entitled to a product review allowance utilised their
allowance in the period.
Peter McHugh
John Bloodworth
David Allvey
Amount of Product Review
Amount Used
£25,000
£25,000
£13,494
Nil
£7,000
£7,000
Following the merger of MyTravel Group plc and Thomas Cook AG this allowance was discontinued.
In addition to the above payments to the Directors of Thomas Cook Group plc, payments of €10.1 million were made to key management as compensation
in respect of the transactions that led to the formation of Thomas Cook Group plc. These amounts were reimbursed by Arcandor AG and are included
in the Related Parties note 38.
62 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Directors’ interests in shares
The interests, benefi cial unless otherwise indicated, of the Directors in the €0.10p ordinary shares of the Company at 19 June 2007 (or the date of their
appointment to the Board if later) and 31 October 2007 (or the date of resignation from the Board if earlier) were as follows:
Ordinary shares Ordinary shares
19 June
2007
31 October
2007
Management
Incentive Plan
31 October
2007
Management
Incentive Plan
19 June
2007
Performance
Share Plan
31 October
2007
Performance
Share Plan
19 June
2007
David Allvey
Michael Beckett
John Bloodworth
Roger Burnell
Peter Diesch
Manny Fontenla-Novoa
Ludger Heuberg
Hemjö Klein (at 1 July)
Bo Lerenius (at 1 July 2007)
Peter McHugh
Thomas Middelhoff
Angus Porter
–
24,999
100,658
3,692
–
70,643
–
–
10,000
224,013
70,000
10,428
–
24,999
62,652
3,692
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
560,991
168,919
–
–
–
–
–
–
–
–
283,784
127,628
–
–
–
–
–
224,013
846,215
1,746,215
–
10,428
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Peter McHugh and John Bloodworth fall within the class of discretionary benefi ciaries of the MyTravel Group Employee Benefi t Trust (the “No.3 EBT”)
and are therefore deemed, pursuant to the Companies Act 1985, to be interested in all of the 26,742 ordinary shares in the Company held by the No.3
EBT. Each of the Executive Directors falls within the call of discretionary benefi ciaries of the Thomas Cook Group plc 2007 Employee Benefi t Trust and
is therefore deemed, pursuant to the Companies Act 1985, to be interested in all of the 1,670,103 ordinary shares in the Company held by that trust.
Such interests are in addition to the interests disclosed above in relation to them. None of the Directors of the Company held any interest in any other
securities of Thomas Cook Group plc during the period. In the period between 31 October 2007 and 30 January 2008 there were no changes in the
Directors’ interests referred to above.
Share options and long-term incentive schemes
The following table shows in respect of each person who served as a Director at any time in the fi nancial period from 19 June 2007 to 31 October 2007
the number of ordinary shares of €0.10 each that were the subject of a share option at the start of the period (or the date of appointment if later) and
at the end of the year (or the cessation of appointment if earlier). The Non Executive Directors did not hold any options during the period. Holdings
relate to the MyTravel Group plc Management Incentive Plan 2004 (“MIP”) and to the Thomas Cook Group plc 2007 Performance Share Plan (“PSP”).
Scheme
name
At
31 October
2007
Lapsed
in year
Exercised
in year
Granted
in year
At
8 February
2007
Exercise
price
Date from
which
exercisable
John Bloodworth
MIP
Series 1
Series 2
–
–
–
224,396
– 336,595
–
–
224,396
336,595
Manny Fontenla-Novoa
Ludger Heuberg
Peter McHugh
PSP
PSP
PSP
MIP
168,919
283,784
127,628
Series 1
698,486
Series 2
147,729
–
–
–
–
–
–
168,919
–
–
283,784
127,628
–
–
–
–
698,486 144p
900,000
–
1,047,729
144p
144p
144p
nil
nil
nil
Expiry
date
31.01.15
31.01.15
*
**
12.07.10
12.07.17
12.07.10
12.07.17
12.07.10
12.07.17
*
**
31.01.15
31.01.15
* All of the unvested series 1 awards under the Management Incentive Plan vested and became exercisable on completion of the merger.
** 33.3 per cent of the series 2 awards under the Management Incentive Plan became exercisable when the market capital of the Company reached £650 million for 30 consecutive
days. The second 33.3 per cent became exercisable when the market capital of the Company reached £725 million for 30 consecutive days and the fi nal 33.4 per cent became
exercisable when the market capital of the Company reached £800 million for 30 consecutive days.
The mid-market price of the Company’s ordinary shares at the close of business on 31 October 2007 was 300p and the range during the period ended
31 October 2007 was 259.5p to 333p. These mid-market prices are as quoted on the London Stock Exchange.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 63
1
2
3
4
5
6
7
8
9
GROUP DIRECTORS’ REPORT CONTINUED
11
12
13
14 15
REMUNERATION REPORT CONTINUED
Set out below is a summary of the gains on exercise made by Directors who exercised any share options during the period 19 June to 31 October 2007.
J M Bloodworth
Management Incentive Plan – Series 1
J M Bloodworth
Management Incentive Plan – Series 1
J M Bloodworth
Management Incentive Plan – Series 2
P T McHugh
P T McHugh
Management Incentive Plan – Series 2
Management Incentive Plan – Series 2
On behalf of the Board
Exercised period
ended 31 October
2007
Exercise
price
Market price
at date of
exercise
Gain year
ended
31 October
2007
140,247
84,149
336,595
749,124
150,876
144p
144p
144p
144p
144p
309.78p
£232,503.58
311.00p
£140,531.35
311.00p
£562,123.75
310.71p £1,248,899.83
306.13p
£244,610.88
Michael Beckett
Chairman of the Management Development and Remuneration Committee
30 January 2008
64 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
1
2
3
4
5
6
7
8
9
10
INDEPENDENT AUDITORS’ REPORT
12
13
14 15
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF
THOMAS COOK GROUP PLC
We have audited the Group fi nancial statements of Thomas Cook Group
We read the other information contained in the Annual Report as
plc for the year ended 31 October 2007, which comprise the Group Income
described in the contents section and consider whether it is consistent
Statement, the Group Balance Sheet, the Group Cash Flow Statement,
with the audited Group fi nancial statements. We consider the implications
the Group Statement of Recognised Income and Expense and the related
for our report if we become aware of any apparent misstatements
notes 1 to 38. These Group fi nancial statements have been prepared
or material inconsistencies with the Group fi nancial statements.
under the accounting policies set out therein. We have also audited the
Our responsibilities do not extend to any further information outside
information in the Directors’ Remuneration Report that is described as
the Annual Report.
having been audited.
Basis of audit opinion
We have reported separately on the parent company fi nancial statements
We conducted our audit in accordance with International Standards
of Thomas Cook Group plc for the year ended 31 October 2007.
on Auditing (UK and Ireland) issued by the Auditing Practices Board.
This report is made solely to the Company’s members, as a body, in
accordance with Section 235 of the Companies Act 1985. Our audit work
has been undertaken so that we might state to the Company’s members
those matters we are required to state to them in an auditors’ report
and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Company
and the Company’s members as a body for our audit work, for this
An audit includes examination, on a test basis, of evidence relevant to
the amounts and disclosures in the Group fi nancial statements and the
part of the Directors’ Remuneration Report to be audited. It also includes
an assessment of the signifi cant estimates and judgements made by the
Directors in the preparation of the Group fi nancial statements, and
of whether the accounting policies are appropriate to the Group’s
circumstances, consistently applied and adequately disclosed.
report, or for the opinions we have formed.
We planned and performed our audit so as to obtain all the information
Respective responsibilities of Directors and auditors
The Directors’ responsibilities for preparing the Annual Report, the
Remuneration Report and the Group fi nancial statements in accordance
with applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union are set out in the Statement
of Directors’ Responsibilities.
and explanations which we considered necessary in order to provide us
with suffi cient evidence to give reasonable assurance that the Group
fi nancial statements and the part of the Directors’ Remuneration Report
to be audited are free from material misstatement, whether caused
by fraud or other irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in the
Group fi nancial statements and the part of the Directors’ Remuneration
Our responsibility is to audit the Group fi nancial statements and the
Report to be audited.
part of the Remuneration Report to be audited in accordance with
relevant legal and regulatory requirements and International Standards
on Auditing (UK and Ireland).
Opinion
In our opinion:
We report to you our opinion as to whether the Group fi nancial statements
give a true and fair view, whether the Group fi nancial statements and the
part of the Remuneration Report to be audited have been properly
prepared in accordance with the Companies Act 1985 and, as regards the
> the Group fi nancial statements give a true and fair view, in accordance
with IFRSs as adopted by the European Union, of the state of the Group’s
affairs as at 31 October 2007 and of its profi t and cash fl ows for the year
then ended;
Group fi nancial statements, Article 4 of the IAS Regulation. We also report
> the Group fi nancial statements have been properly prepared in accordance
to you whether in our opinion the information given in the Group Directors’
with the Companies Act 1985 and Article 4 of the IAS Regulation;
Report is consistent with the Group fi nancial statements. The information
given in the Group Directors’ Report comprises the information supplied in
the Chairman’s Statement, the Chief Executive’s Strategy Statement, the
Business Review, the Financial Review and the Corporate Social
> the part of the Directors’ Remuneration Report described as having
been audited has been properly prepared in accordance with the
Companies Act 1985; and
Responsibility Report as cross-referenced from the ‘Liability’ section of the
> the information given in the Group Directors’ Report is consistent with the
Group Directors’ Report.
Group fi nancial statements.
In addition we report to you if, in our opinion, we have not received
all the information and explanations we require for our audit, or
if information specifi ed by law regarding Directors’ remuneration
and other transactions is not disclosed.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
30 January 2008
We review whether the Corporate Governance Statement refl ects the
Company’s compliance with the nine provisions of the 2006 Combined
Deloitte & Touche LLP
Code specifi ed for our review by the Listing Rules of the Financial
Chartered Accountants and Registered Auditors
Services Authority, and we report if it does not. We are not required to
Manchester
consider whether the Board’s statements on internal control cover all
30 January 2008
risks and controls, or form an opinion on the effectiveness of the Group’s
corporate governance procedures or its risk and control procedures.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 65
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS
13
14 15
GROUP INCOME STATEMENT
For the year ended 31 October 200 7
Revenue
Cost of providing tourism services
Gross profi t
Other operating income
Personnel expenses
Depreciation and amortisation
Amortisation of business combination intangibles
Other operating expenses
Profi t on disposal of businesses and property,
plant and equipment
Profi t on disposal of non-current assets held for sale
Year ended 31 October 2007
Year ended 31 October 2006
Pre-exceptional
operating
items and
amortisation
of business
combination
intangibles
€m
Notes
Exceptional
operating
items and
amortisation
of business
combination
intangibles
(notes 6, 15)
€m
Pre-exceptional
operating
items and
amortisation
of business
combination
intangibles
€m
Total
€m
Exceptional
operating
items and
amortisation
of business
combination
intangibles
(notes 6, 15)
€m
Total
€m
3
9,439.3
–
9,439.3
7,769.4
10.8
7,780.2
(7,207.6)
(5,966.7)
–
(5,966.7)
4
15/16
15
5
(7,191.4)
2,247.9
55.7
(988.0)
(152.5)
–
(707.7)
–
–
(16.2)
(16.2)
0.9
2,231.7
56.6
(97.0)
(1,085.0)
(1.7)
(43.1)
(88.7)
3.0
14.9
(154.2)
(43.1)
(796.4)
3.0
14.9
1,802.7
48.5
(833.5)
(156.7)
–
10.8
–
(6.9)
–
–
1,813.5
48.5
(840.4)
(156.7)
–
(680.1)
(20.0)
(700.1)
–
–
53.4
–
37.3
53.4
–
218.2
4.9
20.4
0.9
76.4
(101.8)
219.0
(39.2)
179.8
176.7
3.1
179.8
€0.35
€0.35
Profi t from operations
455.4
(227.9)
227.5
180.9
Share of results of associates and joint ventures
Profi t on disposal of associates
Net investment income
Finance income
Finance costs
Profi t before tax
Tax
Profi t for the year
Attributable to:
Equity holders of the parent
Minority interests
Earnings per share
Basic
Diluted
7
6
8
9
10
11
12
14
14
All revenue and results arose from continuing operations.
2.6
52.4
2.5
109.3
(110.0)
284.3
(58.8)
225.5
224.1
1.4
225.5
€0.33
€0.33
66 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 31 October 2007
Losses on cash fl ow hedges
Gains/(losses) on available-for-sale investments
Exchange differences on translation of foreign operations
Actuarial gains/(losses) on defi ned benefi t pension schemes
Tax on items taken directly to equity
Net expense recognised directly in equity
Transfers
Transferred to profi t or loss on cash fl ow hedges
Transfer of translation losses to profi t or loss on disposal
Transfer of losses on available-for-sale investments to profi t or loss on disposal
Tax on items transferred from equity
Profi t for the year
Total recognised income and expense for the year
Attributable to:
Equity holders of the parent
Minority interests
Note: The impact of the change in policy for pension accounting was a reduction in the opening reserves in 2006 of €204.6 million.
Notes
31
31
31
37
12
31
31
31
12
29
2007
€m
(91.3)
0.6
(38.6)
147.3
(32.8)
(14.8)
93.6
(0.6)
(0.7)
(28.5)
63.8
225.5
274.5
273.1
1.4
274.5
2006
€m
(60.4)
(0.6)
2.4
(17.8)
26.9
(49.5)
(58.4)
5.6
–
19.8
(33.0)
179.8
97.3
94.2
3.1
97.3
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 67
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
GROUP BALANCE SHEET
As at 31 October 2007
Non-current assets
Intangible assets
Property, plant and equipment – aircraft and aircraft spares
Investments in associates and joint ventures
– other
Other investments
Deferred tax assets
Tax assets
Trade and other receivables
Pension assets
Derivative fi nancial instruments
Current assets
Inventories
Tax assets
Trade and other receivables
Derivative fi nancial instruments
Cash and cash equivalents
Non-current assets held for sale
Total assets
Current liabilities
Retirement benefi t obligations
Trade and other payables
Borrowings
Obligations under fi nance leases
Tax liabilities
Revenue received in advance
Short-term provisions
Derivative fi nancial instruments
Liabilities related to assets held for sale
68 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Notes
2007
€m
2006
€m
15
16
16
17
17
26
20
37
25
19
20
25
21
28
37
22
23
24
27
25
28
4,126.8
813.5
384.7
51.2
38.2
418.5
5.3
141.8
0.4
29.9
1,214.3
635.0
240.4
40.9
22.1
260.0
–
84.3
–
11.9
6,010.3
2,508.9
27.4
29.2
1,240.1
113.7
892.8
2,303.2
18.2
8,331.7
10.5
8.9
600.6
30.2
736.0
1,386.2
47.2
3,942.3
(4.7)
(4.4)
(2,046.1)
(1,208.7)
(74.7)
(116.2)
(109.3)
(953.5)
(265.2)
(168.2)
(17.5)
(35.3)
(72.9)
(525.8)
(160.7)
(52.5)
(3,737.9)
(2,077.8)
(9.7)
(14.1)
Non-current liabilities
Retirement benefi t obligations
Trade and other payables
Long-term borrowings
Obligations under fi nance leases
Tax liabilities
Revenue received in advance
Deferred tax liabilities
Long-term provisions
Derivative fi nancial instruments
Total liabilities
Net assets
Equity
Called-up share capital
Share premium account
Merger reserve
Translation and hedging reserves
Retained earnings surplus/(defi cit)
Investment in own shares
Equity attributable to equity holders of the parent
Minority interests
Total equity
These fi nancial statements were approved by the Board of Directors on 30 January 2008.
Signed on behalf of the Board
L Heuberg
Director
Notes
2007
€m
2006
€m
37
22
23
24
26
27
25
(247.1)
(177.9)
(187.0)
(515.3)
(3.0)
(0.7)
(120.2)
(257.9)
(32.6)
(411.1)
(86.7)
(167.8)
(513.1)
–
(0.4)
(0.1)
(60.4)
(12.7)
(1,541.7)
(1,252.3)
(5,289.3)
(3,344.2)
3,042.4
598.1
29/30
29
29
29/31
29
29
29
97.7
10.1
2,933.9
(70.7)
66.8
(7.3)
3,030.5
11.9
3,042.4
303.7
539.7
–
(22.7)
(255.2)
–
565.5
32.6
598.1
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 69
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
GROUP CASH FLOW STATEMENT
For the year ended 31 October 2007
Cash fl ows from operating activities
Cash generated by operations
Income taxes paid
Net cash from operating activities
Investing activities
Dividends received from associates
Proceeds on disposal of subsidiaries (net of cash sold)
Proceeds on disposal of associated undertakings
Proceeds on disposal of property, plant and equipment
Proceeds of sale of non-current assets held for sale
Purchase of subsidiaries (net of cash acquired)
Purchase of tangible and fi nancial assets
Purchase of intangible assets
Purchase of non-current fi nancial assets
Purchase of short-term securities
Net cash from investing activities
Financing activities
Interest paid
Dividends paid to minority shareholders
Repayment of borrowings
Repayment of fi nance lease obligations
Purchase of own shares
Proceeds from issue of ordinary shares
Expenses of issue of ordinary shares
Net cash used in fi nancing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
Liquid assets
Cash classifi ed as held for sale
Bank overdrafts
Cash and cash equivalents at end of year
70 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Notes
2007
€m
2006
€m
281.5
(43.9)
237.6
227.0
(44.3)
182.7
32
32
32
18
–
46.2
55.8
46.2
32.7
18
265.9
(35.6)
(58.6)
(7.2)
(294.0)
51.4
(47.4)
–
(22.5)
(68.3)
(7.3)
10.6
(17.9)
6.0
97.1
54.4
54.9
–
–
(48.3)
(28.2)
–
(59.6)
76.3
(49.7)
(1.8)
(114.7)
(34.3)
–
–
–
(152.8)
(200.5)
136.2
733.7
(14.9)
855.0
892.8
–
(37.8)
855.0
58.5
670.9
4.3
733.7
736.0
0.2
(2.5)
733.7
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Thomas Cook Group plc is a limited liability company incorporated and domiciled in England and Wales under the Companies Act 1985 and
listed on the London Stock Exchange. The address of the registered offi ce is The Thomas Cook Business Park, Coningsby Road, Peterborough,
Cambridgeshire PE3 8SB. The principal activities of the Group are discussed in the Business Review and the Financial Review on pages 25 to 35.
These consolidated fi nancial statements were approved for issue by the Board of Directors on 30 January 2008.
Following the merger between Thomas Cook AG and MyTravel Group plc on 19 June 2007, 52 per cent of the fully diluted share capital of the
Company is controlled by Arcandor AG. As part of this transaction, all parties entered into a relationship agreement that enshrined the principle
agreed between the parties that the Thomas Cook Group will operate independently from Arcandor AG and in accordance with the highest standards
of corporate governance best practice. It also sets out the agreement of the parties regarding the composition of the Board of the Company.
The Directors consider that Arcandor AG is the Company’s ultimate controlling party. The largest and smallest group of undertakings for which
consolidated fi nancial statements are prepared and which includes the fi nancial statements of the Thomas Cook Group is that headed by Arcandor
AG. Arcandor AG is incorporated in Germany and copies of its fi nancial statements, which are publicly available, may be obtained from Arcandor AG,
Theodor-Althoff-Str. 2, 45133 Essen, Germany.
At the date of authorisation of these fi nancial statements, the following Standards and Interpretations that are expected to impact on the Group,
but which have not been applied in these fi nancial statements, were in issue but not yet effective.
With the exception of changes in disclosure, the Directors anticipate that the adoption of these Standards and Interpretations in future periods
will have no material impact on the fi nancial statements of the Group. The Directors anticipate that the Group will adopt these standards and
interpretations on their effective dates.
IAS 1 Amendment
Capital disclosures, effective for periods commencing on or after 1 January 2007.
IFRS 7
IFRS 8
IFRIC 11
IFRIC 13
IFRIC 14
Financial instruments: Disclosures, issued in August 2005, effective for periods commencing on or after 1 January 2007.
Operating segments, issued in November 2006, effective for periods beginning on or after 1 January 2009.
Group and treasury share transactions, issued in November 2006, effective for annual periods beginning on or after
1 March 2007.
Customer loyalty programmes, issued in June 2007, effective for annual periods beginning on or after 1 July 2008.
IAS 19 – The limit on a defi ned benefi t asset, minimum funding requirements and their interaction, issued in July 2007,
effective for annual periods beginning on or after 1 January 2008.
IAS 1
Presentation of fi nancial statements, revised version issued in September 2007, effective for annual periods beginning
on or after 1 January 2009.
IAS 23
Borrowing costs, revised version issued in March 2007, effective for annual periods beginning on or after 1 January 2009.
2. ACCOUNTING POLICIES
These fi nancial statements have been prepared in accordance with IFRS and IFRIC interpretations and with those parts of the Companies
Act 1985 applicable to groups reporting under IFRS. The fi nancial statements have also been prepared in accordance with IFRS adopted
for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation.
The only new standard or interpretation adopted during the current period was IFRIC 10 – Interim fi nancial reporting and impairment.
This interpretation had no effect on the fi nancial statements for the period or those for the prior period.
The fi nancial statements have been prepared under the historical cost convention, except for revaluation of certain fi nancial instruments.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 71
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. ACCOUNTING POLICIES
continued
The principal accounting policies applied in the preparation of the fi nancial information presented in this document are set out below. These policies
have been applied consistently to the periods presented.
Basis of preparation
The Group’s fi nancial statements consolidate those of the Company and its subsidiary undertakings. The results of subsidiaries acquired or disposed
of are consolidated for the periods from or to the date on which control passed. Subsidiaries are entities controlled by the Company. Control is achieved
where the Company has the power to govern the fi nancial and operating policies of an investee entity so as to obtain benefi ts from its activities.
Acquisitions are accounted for under the purchase method.
Where a transaction is a business combination amongst entities under common control, the requirements of IFRS 3 are applied and the combination
is accounted for using the purchase method.
Where audited fi nancial accounts are not coterminous with those of the Group, the fi nancial information has been derived from the last audited
accounts available and unaudited management accounts for the period up to the Company’s balance sheet date.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
On 19 June 2007, Thomas Cook AG (TCAG) merged with MyTravel Group plc to become Thomas Cook Group plc (TCG plc). For statutory purposes
the transaction is treated as a business combination effected by a new parent company, TCG plc. However, for accounting purposes this is a reverse
acquisition of TCG plc by TCAG with the overall effect being that TCAG is treated as the acquirer of both TCG plc and MyTravel Group plc. These
fi nancial statements therefore include the full year of trading for TCAG and the trading of MyTravel Group plc for the period from 19 June 2007
to 31 October 2007. The comparative information includes the full year of trading for TCAG and none of the MyTravel Group plc results. All of the
TCAG fi nancial information has been presented in accordance with the accounting policies set out below.
Following the business combination, TCAG changed its accounting policy for pension accounting and made certain changes to the presentation
of fi nancial information from that in the TCAG fi nancial statements for the year ended 31 October 2006. These presentational changes related
to certain classifi cations and had no impact on the income statement or on net assets.
In its fi nancial statements, TCAG had previously applied the corridor method to recognise in the income statement actuarial gains and losses over
the expected working lives of employees in the plans. The Group now recognises all actuarial gains and losses arising from defi ned benefi t plans
directly in equity. As a consequence of listing in the UK and to bring the Group in line with prevailing practice in the UK, the Directors consider
full recognition of the actuarial gains and losses in the Statement of Recognised Income and Expense is more appropriate.
The change in accounting policy has been recognised retrospectively and the 2006 comparatives have been restated from the TCAG fi nancial
statements. The impact of the change in policy is shown in the notes to the Statement of Recognised Income and Expense.
Interpretation guidance included within SIC Interpretation 12 “Consolidation – Special Purpose Entities” indicates that certain special purpose entities
(SPEs), which are involved in aircraft leasing and other arrangements with the Group, should be interpreted as being controlled by the Group, and
therefore subject to consolidation, even though the Group has no direct or indirect equity interest in those entities. As a consequence, the Group
has consolidated 12 SPEs.
The Directors consider that the principal functional currency of the Group is the euro and have therefore decided to adopt the euro as the
presentational currency.
Associates and joint ventures
Entities, other than subsidiaries, over which the Group exerts signifi cant infl uence, but not control or joint control, are associates. Entities which
the Group jointly controls with one or more other party under a contractual arrangement are joint ventures.
The Group’s share of the results of associates and joint ventures is included in the Group income statement using the equity accounting method.
Investments in associates and joint ventures are included in the Group balance sheet at cost as adjusted for post-acquisition changes in the Group’s
share of the net assets of the entity, after adjustment for goodwill.
72 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
2. ACCOUNTING POLICIES
continued
Other non-current asset investments
Investments in equity instruments that do not have a quoted market price in an active market are measured at cost. Loans and receivables
are initially recognised at fair value plus any directly attributable transaction costs and are subsequently measured at amortised cost using
the effective interest method. Any impairment losses are recognised in the income statement.
Intangible assets – goodwill
Goodwill arising on an acquisition represents any excess of the fair value of the consideration given over the fair value of the identifi able assets
and liabilities acquired. Goodwill is recognised as an asset, and is reviewed for impairment at least annually. Any impairment is recognised immediately
in the Group’s income statement and is not subsequently reversed.
On disposal of a subsidiary, joint venture or associate, the attributable amount of goodwill is included in the determination of the profi t or loss
on disposal.
Intangible assets – other
Intangible assets, other than goodwill, are carried on the Group’s balance sheet at cost less accumulated amortisation. Intangible assets with
indefi nite useful lives are not amortised. For all other intangible assets amortisation is charged on a straight line basis over the asset’s useful
life, as follows:
Brands
10 years to indefi nite life
Customer relationships
1 to 5 years
Computer software
3 to 10 years
Other acquired intangible assets are assessed separately and useful lives established according to the particular circumstances.
Intangible assets with indefi nite useful lives are tested for impairment at least annually by comparing their carrying amount to their recoverable
amount. All other intangible assets are assessed at each reporting date for indications of impairment. If such indications exist, the recoverable
amount is estimated and compared to the carrying amount. If the recoverable amount is less than the carrying amount, the carrying amount
is reduced to the recoverable amount and the impairment loss is recognised immediately in the income statement.
Property, plant and equipment
Property, plant and equipment is stated at cost, net of straight line depreciation and any provision for impairment.
Where costs are incurred as part of the start-up or commissioning of an item of property, plant or equipment, and that item is available for use
but incapable of operating in the manner intended by management without such a start-up or commissioning period, then such costs are included
within the cost of the item. Costs that are not directly attributable to bringing an asset to the location and condition necessary for it to be capable
of operating in the manner intended by management are charged to the income statement as incurred.
Depreciation on property, plant and equipment, other than freehold land, upon which no depreciation is provided, is calculated on a straight line
basis and aims to write down their cost to their estimated residual value over their expected useful lives as follows:
Freehold buildings
40 to 50 years
Leasehold properties
Shorter of remaining lease period and 40 years
New aircraft
Aircraft spares
12 to 20 years (or remaining lease period if shorter)
5 to 15 years (or remaining lease period if shorter)
Other fi xed assets
3 to 15 years
Estimated residual values and useful lives are reviewed annually.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 73
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. ACCOUNTING POLICIES
continued
Non-current assets held for sale
The Group classifi es non-current assets as held for sale if their carrying amount will be recovered principally through a sale transaction rather
than through continuing use. To be classifi ed as held for sale, the assets must be available for immediate sale in their present condition subject
only to terms that are usual and customary for the sale of such assets and their sale must be highly probable. Sale is considered to be highly
probable when management are committed to a plan to sell the assets and an active programme to locate a buyer and complete the plan has
been initiated, at a price that is reasonable in relation to their current fair value, and there is an expectation that the sale will be completed
within one year from the date of classifi cation.
Non-current assets classifi ed as held for sale are carried on the Group’s balance sheet at the lower of their carrying amount and fair value
less costs to sell.
Aircraft overhaul and maintenance costs
The cost of major overhauls of owned and fi nance leased engines, auxiliary power units and airframes is capitalised and then amortised over between
two and 10 years until the next scheduled major overhaul, except where the maintenance of engines and auxiliary power units is carried out under fi xed
rate contracts, in which case the cost is spread over the period of the contract. Provision is made for the future costs of major overhauls of leased engines,
auxiliary power units and airframes by making appropriate charges to the income statement, calculated by reference to hours fl own and/or the expired
lease period, as a consequence of obligations placed upon the Group under the terms of certain of the operating leases.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost represents purchase price. Net realisable value represents the estimated
selling price less all costs to be incurred in marketing, selling and distribution.
Revenue recognition and associated costs
Revenue represents the aggregate amount of gross revenue receivable from inclusive tours, travel agency commissions receivable and other
services supplied to customers in the ordinary course of business. Revenue and direct expenses relating to inclusive tours arranged by the Group’s
leisure travel providers, including travel agency commission, insurance and other incentives, are taken to the income statement on holiday departure.
Revenue relating to travel agency commission on third party leisure travel products is also recognised on holiday departure. Other revenue and
associated expenses are taken to the income statement as earned or incurred. Revenue and expenses exclude intra-group transactions.
Income statement presentation
Profi t or loss from operations includes the results from operating activities of the Group, before its share of the results of associates and
joint ventures.
Exceptional items are items that are unusual because of their size, nature or incidence and which the Group’s management consider should
be disclosed separately to enable a full understanding of the Group’s results.
Material business combination intangible assets were acquired as a result of the merger between Thomas Cook AG and MyTravel Group plc.
The amortisation of these intangible assets is signifi cant and the Group’s management consider that it should be disclosed separately to enable
a full understanding of the Group’s results.
Tax
Tax represents the sum of tax currently payable and deferred tax. Tax is recognised in the income statement unless it relates to an item recognised
directly in equity, in which case the associated tax is also recognised directly in equity.
Tax currently payable is provided on taxable profi ts based on the tax rates and laws that have been enacted or substantively enacted at the balance
sheet date. Provision is made for deferred tax so as to recognise all temporary differences which have originated but not reversed at the balance
sheet date that result in an obligation to pay more tax, or a right to pay less tax, in the future, except as set out below. This is calculated on
a non-discounted basis by reference to the average tax rates that are expected to apply in the relevant jurisdictions and for the periods in
which the temporary differences are expected to reverse.
74 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
2. ACCOUNTING POLICIES
continued
Deferred tax assets are assessed at each balance sheet date and are only recognised to the extent that their recovery against future taxable profi ts
is probable. Deferred tax liabilities are recognised for the retained earnings of overseas subsidiaries, joint ventures and associates unless the Group
is able to control the timing of the distribution of those earnings and it is probable that they will not be distributed in the foreseeable future.
Pensions
Pension costs charged against profi ts in respect of the Group’s defi ned contribution schemes represent the amount of the contributions payable
to the schemes in respect of the accounting period.
The Group also operates a number of defi ned benefi t schemes. The pension liabilities recognised on the balance sheet in respect of these schemes
represent the difference between the present value of the Group’s obligations under the schemes and the fair value of those schemes’ assets.
Actuarial gains or losses are recognised in the period in which they arise within the statement of recognised income and expense. Other movements
in the pension liability are recognised in the income statement. Past service costs are recognised immediately in the income statement.
Foreign currency
Average exchange rates are used to translate the results of all subsidiaries, associates and joint ventures that have a functional currency other
than the euro. The balance sheets of such entities are translated at period end exchange rates.
The resulting exchange differences are dealt with through a separate component of equity.
Transactions in currencies other than the functional currency of an entity are translated at the exchange rate at the date of the transaction.
Foreign currency monetary assets and liabilities held at the period end are translated at period end exchange rates. The resulting exchange
gain or loss is dealt with in the income statement.
Leases
Leases under which substantially all of the risk and rewards of ownership are transferred to the Group are fi nance leases. All other leases
are operating leases.
Assets held under fi nance leases are recognised within property, plant and equipment on the balance sheet and depreciated over the shorter
of the lease term or their expected useful lives. The interest element of fi nance lease payments represents a constant proportion of the capital
balance outstanding and is charged to the income statement over the period of the lease.
Operating lease rentals are charged to the income statement on a straight line basis over the lease term.
Derivative fi nancial instruments
Derivatives are recognised at their fair value. When a derivative does not qualify for hedge accounting as a cash fl ow hedge, changes in fair
value are recognised immediately in the income statement. When a derivative qualifi es for hedge accounting as a cash fl ow hedge, changes
in fair value that are determined to be an effective hedge are recognised directly in the hedging reserve. Any ineffective portion of the change
in fair value is recognised immediately in the income statement.
If a hedged transaction subsequently results in the recognition of a non-fi nancial asset or a non-fi nancial liability, the associated cumulative gain
or loss is removed from the hedging reserve and is included in the initial cost or other carrying amount of the asset or liability. For all other cash
fl ow hedges, the associated cumulative gain or loss is removed from the hedging reserve and recognised in the income statement in the same
period or periods during which the hedged forecast transaction affects profi t or loss.
When a derivative qualifi es for hedge accounting as a fair value hedge, changes in fair value of the derivative are recognised in the income statement
when they offset changes in the fair value of the hedged asset or liability, attributable to the hedged risk.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 75
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. ACCOUNTING POLICIES
continued
Non-derivative fi nancial instruments
Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are
derecognised when the Group transfers the fi nancial asset or when the contractual rights expire. Financial liabilities are derecognised when the
obligation is discharged or cancelled or expires. The measurement of particular fi nancial assets and liabilities is set out below.
Trade receivables
Trade receivables are recognised at their fair value and subsequently recorded at amortised cost using the effective interest method as reduced
by allowances for estimated irrecoverable amounts.
Available-for-sale fi nancial assets
Available-for-sale fi nancial assets are recognised and subsequently recorded at their fair value. Gains or losses (except for impairment losses and
foreign exchange gains and losses) are recognised directly in equity until the fi nancial asset is derecognised. At this point, the cumulative gain or
loss previously recognised in equity is recognised in the income statement. Any impairment losses, foreign exchange gains or losses or dividends
receivable are recognised in the income statement.
Held for trading investments
Short-term investments are classifi ed as held for trading and are recognised and subsequently recorded at their fair value. Gains or losses
are recognised in the income statement.
Trade payables
Trade payables are recognised at their fair value and subsequently recorded at amortised cost using the effective interest method.
Borrowings
Interest bearing borrowings are recognised at their fair value net of any directly attributable transaction costs. They are subsequently recorded
at amortised cost using the effective interest method.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, if it is probable that an outfl ow of resources
will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Provisions are recognised and subsequently recorded at the Directors’ best estimate of the expenditure required to settle the obligation
at the balance sheet date. Where the effect of the time value of money is material, the provision is discounted to its present value.
Share-based payments
The Group issues share options to certain employees as part of their total remuneration. The fair values of the share options are calculated
at the date of grant, using an appropriate option pricing model. These fair values are charged to the income statement on a straight line basis
over the expected vesting period of the options, with a corresponding increase in equity reserves.
Insurance contracts and reinsurance contracts
Premiums written relate to business incepted during the year, together with any differences between the booked premiums for prior years and
those previously accrued, less cancellations. Premiums are recognised as revenue (earned premiums) proportionally over the period of coverage.
Premiums are shown after the deduction of commission and premium taxes where relevant.
Claims and loss adjustment expenses are charged to income as incurred based on the estimated liability for compensation owed to policyholders
or third parties damaged by policyholders. The Group does not discount its liabilities for unpaid claims. Liabilities for unpaid claims are estimated
using the input of assessments for individual cases reported to the Group and statistical analysis for the claims incurred but not reported.
76 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
2. ACCOUNTING POLICIES
continued
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on one or more contracts issued by the Group
and that meet the classifi cation requirements for insurance contracts are classifi ed as reinsurance contracts held.
The benefi ts to which the Group is entitled under its reinsurance contracts held are recognised as receivables from reinsurers. The Group assesses
its reinsurance assets for impairment on an annual basis.
Receivables and payables are recognised when due. These include amounts due to and from insurance policyholders.
Critical judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, described above, management has made the following judgements that have the most
signifi cant effect on the amounts recognised in the fi nancial statements.
Residual values of tangible fi xed assets
Judgements have been made in respect of the residual values of aircraft included in property, plant and equipment. Those judgements determine
the amount of depreciation charged in the income statement.
Recoverable amounts of goodwill and intangible assets with an indefi nite life
Judgements have been made in respect of the amounts of future operating cash fl ows to be generated by certain of the Group’s businesses in order
to assess whether there has been any impairment of the amounts included in the balance sheet for goodwill or intangible assets with an indefi nite life
in relation to those businesses.
Special purpose entities
The nature of the relationship with certain SPEs involved in leasing aircraft to the Group shows that they should be interpreted as controlled
by the Group, and therefore consolidated, even though the Group has no direct or indirect equity interest in those entities.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a signifi cant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below.
Impairment of goodwill and intangible assets with an indefi nite life
Determining whether goodwill or intangible assets with an indefi nite life are impaired requires an estimation of the value in use of the
cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash fl ows
expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amounts of goodwill
and intangible assets with an indefi nite life at the balance sheet date were €3,550.0 million and €282.4 million respectively. No impairment losses
were recorded during the year.
Recoverable amounts of deposits and prepayments
Estimates have been made in respect of the volumes of future trading with hoteliers and the credit-worthiness of those hoteliers in order to assess
the recoverable amounts of deposits and prepayments made to those hoteliers.
Aircraft maintenance provisions
Provisions for the cost of maintaining leased aircraft and spares are based on forecast aircraft utilisation, estimates of future maintenance costs
and planned rollover and renewal of the aircraft fl eet.
Tax
The Group operates in many tax regimes and the tax implications of its operations are complex. It can take several years for tax liabilities
to be agreed with the relevant authorities. Tax assets and liabilities represent management’s estimates of tax that will be payable or recoverable
in the future and may be dependent on estimates of future profi tability.
In addition, estimates have been made in respect of the probable future utilisation of tax losses and deferred tax assets have been recognised.
The recoverability of these assets is dependent on the agreement of the losses with the relevant authorities and the estimates of future profi tability.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 77
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3. SEGMENTAL INFORMATION
For management purposes, the Group is currently organised into fi ve geographic operating divisions: UK and Ireland, Continental Europe, Northern
Europe, North America and Airlines Germany. These divisions are the basis on which the Group reports its primary segment information. Certain residual
businesses and corporate functions are not allocated to these divisions and are shown separately as Corporates.
The primary business of all of these operating divisions is the provision of leisure travel services and, accordingly, no separate secondary segmental
information is provided.
Segmental information for these activities is presented below.
Primary segments – management structure
Year ended 31 October 2007
Revenue
Segment sales
Inter-segment sales
Total revenue
Result
UK and
Ireland
2007
€m
Continental
Europe
2007
€m
Northern
Europe
2007
€m
North
America
2007
€m
Airlines
Germany
2007
€m
Corporates
2007
€m
Total
2007
€m
3,635.6
4,482.5
446.2
122.2
1,262.4
(6.2)
(5.7)
(3.5)
–
(494.6)
3,629.4
4,476.8
442.7
122.2
767.8
0.4
–
0.4
9,949.3
(510.0)
9,439.3
Profi t/(loss) from operations before exceptional items
and amortisation of business combination intangibles
Exceptional items
Amortisation of business combination intangibles
Segment result
Share of results of associates and joint ventures
Profi t on disposal of associates
Net investment income
Finance income
Finance costs
Profi t before tax
Tax
Profi t for the year
250.1
(158.1)
(17.0)
75.0
99.5
3.9
–
103.4
63.9
(3.1)
(26.5)
34.3
(3.3)
(0.2)
0.4
(3.1)
68.1
0.2
–
68.3
(22.9)
(27.5)
–
455.4
(184.8)
(43.1)
(50.4)
227.5
2.6
52.4
2.5
109.3
(110.0)
284.3
(58.8)
225.5
78 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
3. SEGMENTAL INFORMATION
continued
Primary segments – management structure continued
UK and
Ireland
2007
€m
Continental
Europe
2007
€m
Northern
Europe
2007
€m
North
America
2007
€m
Airlines
Germany
2007
€m
Corporates
2007
€m
Total
2007
€m
Year ended 31 October 2007
Other information
Capital additions
Depreciation
Amortisation of intangible assets
Impairment of property, plant & equipment
Reversal of impairment of property, plant & equipment
Impairment of intangible assets
Impairment of non-current investments
35.4
25.0
27.4
4.5
–
1.1
–
17.4
14.4
5.4
0.3
(0.2)
3.0
2.3
5.0
3.2
26.7
–
–
–
–
1.6
0.1
–
–
–
–
–
2.7
82.9
–
–
–
–
–
32.8
1.2
11.0
–
–
–
–
94.9
126.8
70.5
4.8
(0.2)
4.1
2.3
Balance sheet
Assets
Segment assets
Inter-segment eliminations
Investments in associates and joint ventures
Tax and deferred tax assets
Total assets
Liabilities
Segment liabilities
Inter-segment eliminations
Tax and deferred tax liabilities
Borrowings and obligations under fi nance leases
Total liabilities
4,230.0
1,647.3
1,922.2
356.1
1,381.2
2,069.9
11,606.7
(3,781.3)
7,825.4
51.2
455.1
8,331.7
2,358.5
1,069.9
598.2
304.5
802.0
2,802.1
7,935.2
(3,781.3)
4,153.9
232.9
902.5
5,289.3
Inter-segment sales are charged at prevailing market prices.
Segment assets consist primarily of goodwill, other intangible assets, property, plant and equipment, trade and other receivables and cash and
cash equivalents.
Segment liabilities comprise trade and other payables, revenue received in advance and provisions.
Tax and deferred tax assets include €2.1 million (2006: €2.9 million) included within non-current assets held for sale and tax and deferred
tax liabilities include €0.4 million (2006: €0.5 million) included in liabilities related to assets held for sale. Borrowings also include €9.3 million
(2006: €9.3 million) included in liabilities related to assets held for sale (see note 28).
Capital additions comprise additions to property, plant and equipment (note 16) and other intangible assets (note 15).
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 79
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
UK and
Ireland
2006
€m
Continental
Europe
2006
€m
Northern
Europe
2006
€m
North
America
2006
€m
Airlines
Germany
2006
€m
Corporates
2006
€m
Total
2006
€m
2,484.9
4,574.6
(2.2)
(6.8)
2,482.7
4,567.8
1,242.3
(547.9)
694.4
54.6
(19.3)
35.3
8,356.4
(576.2)
7,780.2
3. SEGMENTAL INFORMATION
continued
Year ended 31 October 2006
Revenue
Segment sales
Inter-segment sales
Total revenue
Result
Profi t/(loss) from operations before exceptional items
80.7
Exceptional items
Segment result
39.1
119.8
99.2
(24.8)
74.4
Share of results of associates and joint ventures
Profi t on disposal of associates
Net investment income
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
38.1
4.4
42.5
(37.1)
18.6
(18.5)
4.8
94.7
–
–
25.2
6.4
11.9
–
–
1,432.1
727.6
180.9
37.3
218.2
4.9
20.4
0.9
76.4
(101.8)
219.0
(39.2)
179.8
61.4
132.0
24.7
8.4
5,144.8
(1,516.1)
3,628.7
41.8
271.8
3,942.3
17.5
17.9
6.7
–
13.9
13.0
6.1
8.4
1,719.6
1,265.5
Finance income
Finance costs
Profi t before tax
Tax
Profi t for the year
Other information
Capital additions
Depreciation
Amortisation of intangible assets
Impairment of non-current assets held for sale
Balance sheet
Assets
Segment assets
Inter-segment eliminations
Investments in associates and joint ventures
Tax and deferred tax assets
Total assets
Liabilities
Segment liabilities
Inter-segment eliminations
Tax and deferred tax liabilities
Borrowings and obligations under fi nance leases
Total liabilities
80 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
974.1
873.1
–
–
762.6
1,434.0
4,043.8
(1,516.1)
2,527.7
73.5
743.0
3,344.2
4. PERSONNEL EXPENSES
Wages and salaries
Social security costs
Defi ned benefi t pension costs (see note 37)
Other pension costs (see note 37)
The average number of employees of the Group during the year was:
UK and Ireland
Continental Europe
Northern Europe
North America
Airlines Germany
Corporates
2007
€m
901.9
126.8
41.5
14.8
1,085.0
2007
Number
11,953
6,121
1,000
341
2,300
386
22,101
2006
€m
726.6
101.5
12.3
–
840.4
2006
Number
9,883
6,055
–
–
2,315
1,522
19,775
Disclosures of Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension entitlements required by
the Companies Act 1985 and those specifi ed for audit by the Financial Services Authority are on pages 56 to 64 within the Remuneration report
and form part of these audited fi nancial statements.
These disclosures relate to the period from 19 June 2007 to 31 October 2007. Disclosures in respect of remuneration of key management personnel
for the full year are included in note 38.
5. OTHER OPERATING EXPENSES
Advertising expenses
Rents and expenses for building maintenance
Information technology costs
Travel expenses and ancillary personnel expenses
Telecommunications costs
Legal and consultancy fees
Impairment of current and non-current assets
Insurance
Training expenses
Other taxes
Other operating expenses
2007
€m
174.6
191.4
111.9
73.2
42.6
48.6
29.2
16.9
15.5
6.8
85.7
796.4
2006
€m
164.1
132.2
92.3
57.3
43.6
29.9
31.7
18.2
12.5
6.8
111.5
700.1
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 81
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6. EXCEPTIONAL ITEMS
Property costs, redundancy and other costs incurred in integrating the Thomas Cook and MyTravel businesses
Disposal of businesses
Disposal of property, plant and equipment
Disposal of non-current assets held for sale
Disposal of brand rights
Exceptional past service credit in pension scheme
Property costs, redundancy and other costs incurred in other reorganisations
Impairment of property, plant and equipment, intangible assets, non-current investments and assets held for sale
Loan write offs, impairment of trade receivables and other assets
Cost of irrecoverable aircraft passenger duty
Abortive transaction fees
Other expenses incurred as a result of the merger
Exceptional items included within operating profi t
Exceptional items have been included in the income statement as follows:
Revenue
Cost of providing tourism services
Other operating income
Personnel expenses
Depreciation and amortisation
Other operating expenses
Profi t on disposal of businesses and property, plant and equipment
Profi t on disposal of non-current assets held for sale
Share of associates’ exceptional items
Impairment of investments in associates (see note 7)
Profi t on disposal of associates
2007
€m
(133.3)
–
3.0
14.9
–
–
(19.6)
(11.2)
(1.8)
(9.4)
(10.5)
(16.9)
2006
€m
–
32.4
21.0
–
10.8
31.2
(46.5)
(8.4)
(3.2)
–
–
–
(184.8)
37.3
–
(16.2)
0.9
(97.0)
(1.7)
(88.7)
3.0
14.9
(184.8)
–
52.4
52.4
10.8
–
–
(6.9)
–
(20.0)
53.4
–
37.3
(7.5)
20.4
12.9
Total exceptional items
(132.4)
50.2
The profi t on disposal of associates of €52.4 million principally relates to the disposal of the Group’s 50 per cent interest in SunExpress, an airline
based in Turkey, to Arcandor on an arm’s length basis. The proceeds from the sale amounted to €54.0 million in cash and resulted in a profi t on
disposal of €50.1 million.
In addition, during the year, the Group disposed of its interests in Falstacen S.L., Thomas Cook Thailand and Troll Tours Reisen GmbH, realising
further profi ts of €2.3 million. Deferred consideration of €5.8 million in relation to these disposals is expected to be received by 1 November 2008.
82 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
7. SHARE OF RESULTS OF ASSOCIATES AND JOINT VENTURES
Group’s share of the results of associates and joint ventures before exceptional items
Exceptional items – impairment of investments in associates
8. NET INVESTMENT INCOME
Dividends received from other investments
Interest on fi xed asset investments
9. FINANCE INCOME
Income from loans included in fi nancial assets
Other interest and similar income
Expected return on pension plan assets
Fair value gains on derivative fi nancial instruments
10. FINANCE COSTS
Interest payable
Finance costs in respect of fi nance leases
Interest cost on pension plan liabilities
Fair value losses on derivative fi nancial instruments
Interest on overdue tax
Other fi nance costs (including discounting charges)
2007
€m
2.6
–
2.6
2007
€m
1.8
0.7
2.5
2007
€m
1.3
49.7
57.4
0.9
109.3
2007
€m
30.3
19.0
56.0
–
0.4
4.3
110.0
2006
€m
12.4
(7.5)
4.9
2006
€m
0.9
–
0.9
2006
€m
0.3
35.6
39.0
1.5
76.4
2006
€m
17.8
30.2
51.0
0.1
–
2.7
101.8
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 83
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11. PROFIT BEFORE TAX
Profi t before tax for the year has been arrived at after charging/(crediting):
Net foreign exchange gains
Depreciation of property, plant and equipment – owned assets
– held under fi nance leases
Amortisation of intangible assets
Amortisation of business combination intangibles
Cost of inventories recognised as expense
Profi t on disposal of associates
Operating lease rentals payable
– hire of aircraft and aircraft spares
Exceptional items (see note 6)
Including: Impairment of property, plant and equipment
– other
Impairment of non-current investments
Impairment of non-current assets held for sale
Impairment of intangible assets
Staff costs (see note 4)
Auditors’ remuneration (see below)
A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below:
PricewaterhouseCoopers LLP
Fees payable to the Company’s auditors for the audit of the Company’s fi nancial statements
Fees payable to the Company’s auditors and their associates for other services:
the audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
other services pursuant to legislation
tax services
information technology services
valuation and actuarial services
recruitment and remuneration services
services relating to corporate fi nance transactions
all other services
Total non-audit fees
Total fees
2007
€m
(39.4)
76.3
50.5
27.4
43.1
58.5
(52.4)
115.6
149.3
184.8
4.8
2.3
–
4.1
1,085.0
14.2
2006
€m
(14.6)
80.8
51.2
24.7
–
33.8
(20.4)
80.9
128.3
(37.3)
–
–
8.4
–
840.4
2.9
2007
€m
2006
€m
0.6
1.8
2.4
0.1
0.5
0.5
0.2
0.7
3.6
0.5
6.1
8.5
0.2
1.8
2.0
0.2
0.1
–
–
–
0.1
0.5
0.9
2.9
84 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
11. PROFIT BEFORE TAX
continued
Deloitte & Touche LLP
Fees payable to the Company’s auditors for the audit of the Company’s fi nancial statements
Fees payable to the Company’s auditors and their associates for other services:
the audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
other services pursuant to legislation
tax services
information technology services
services relating to corporate fi nance transactions
Total non-audit fees
Total fees
2007
€m
2006
€m
0.3
1.2
1.5
0.1
1.0
0.3
2.8
4.2
5.7
–
–
–
–
–
–
–
–
–
€3.0 million of the non-audit fees paid to Deloitte & Touche LLP were earned before the date of the merger of MyTravel Group plc and
Thomas Cook AG.
Fees paid to the Company’s joint auditors and their associates for services other than the statutory audit of the Company are not disclosed in
subsidiaries’ accounts since the consolidated accounts of the subsidiaries’ parent, Thomas Cook Group plc, are required to disclose non-audit
fees on a consolidated basis.
A description of the work of the Audit and Risk Management Committee is set out in the Corporate Governance Report on page 52 and includes
an explanation of how auditor objectivity and independence are safeguarded when non-audit services are provided by the auditors.
12. TAX
Analysis of tax charge in the year
Current tax
UK
corporation tax charge for the year
income/reimbursements in respect of prior periods
Overseas
corporation tax charge for the year
income/reimbursements in respect of prior periods
Total current tax
Deferred tax
tax charge/(credit) for the year
adjustments in respect of prior periods
Total deferred tax
Total tax charge
2007
€m
2006
€m
–
(0.4)
(0.4)
37.0
(23.8)
13.2
12.8
47.9
(1.9)
46.0
58.8
33.6
(6.6)
27.0
35.8
(19.9)
15.9
42.9
(3.7)
–
(3.7)
39.2
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 85
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12. TAX
continued
Tax reconciliation
Profi t before tax
Expected tax charge at the UK corporation tax rate of 30% (2006: 30%)
Impact of changes in tax rates
Income not liable for tax
Expenses not deductible for tax purposes
Difference in rates of tax suffered on overseas earnings
Impact of disposal of subsidiaries
Losses for which tax relief is not available
Utilisation of tax losses not previously recognised
Income tax charges in respect of prior periods
Other
Tax charge
2007
€m
2006
€m
284.3
85.3
9.7
(21.6)
13.6
3.7
–
–
(4.2)
(26.1)
(1.6)
58.8
219.0
65.7
–
(45.0)
–
(1.4)
23.5
0.5
(10.2)
7.0
(0.9)
39.2
In addition to the amount charged to the income statement, deferred tax relating to actuarial losses on pension schemes and the fair value
of derivative fi nancial instruments of €61.3 million has been charged directly in equity (2006: €46.7 million credited).
UK corporation tax is calculated at 30 per cent (2006: 30 per cent) of the estimated assessable profi t for the year. Taxation for other jurisdictions
is calculated at the rates prevailing in the respective jurisdictions.
Surplus losses not recognised in deferred tax of €800.0 million (2006: €162.0 million) are available in the UK and Germany for offset against
future profi ts.
13. DIVIDENDS
Proposed fi nal dividend for the year ended 31 October 2007 of 5 pence (sterling) (€cents 7.17) per share (2006: nil)
No dividends were declared or paid during the year (2006: nil).
2007
€m
70.0
2006
€m
–
The proposed fi nal dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these
fi nancial statements.
86 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
14. EARNINGS PER SHARE
The calculations for earnings per share, based on the weighted average number of shares, are shown in the table below. The weighted average
number of shares shown excludes 0.5 million shares held by the employee share ownership trusts (2006: nil).
Basic and diluted earnings per share
Net profi t attributable to equity holders of the parent
Weighted average number of shares for basic earnings per share
Effect of dilutive potential ordinary shares – share options*
Weighted average number of shares for diluted earnings per share
2007
€m
2006
€m
224.1
176.7
millions
681.1
0.8
681.9
millions
508.8
–
508.8
* Awards of shares under the Thomas Cook Group plc executive share option scheme will be satisfi ed by the purchase of existing shares in the market and will therefore
not result in any dilution of earnings per share. The outstanding share options of MyTravel Group plc will result in the issue of a further 1,533,551 ordinary shares
of Thomas Cook Group plc which are potentially dilutive.
Basic earnings per share
Diluted earnings per share
€
0.33
0.33
€
0.35
0.35
Adjusted earnings per share fi gures are presented below. These exclude the effects of exceptional items, amortisation of business combination
intangibles and the combined tax effect thereof. Adjusted earnings per share are presented to allow comparison to the prior period on a
like-for-like basis.
Adjusted earnings per share
Net profi t attributable to equity holders of the parent
Amortisation of business combination intangibles
Tax relating to amortisation of business combination intangibles
Exceptional items
Included in profi t from operations (note 6)
Included in share of associates and joint ventures (note 6)
Tax relating to the exceptional items
Adjusted net profi t attributable to equity holders of the parent
Weighted average number of shares for basic earnings per share
Effect of dilutive potential ordinary shares – share options
Weighted average number of shares for diluted earnings per share
Basic adjusted earnings per share
Diluted adjusted earnings per share
€m
€m
224.1
43.1
(7.2)
184.8
(52.4)
(22.1)
370.3
millions
681.1
0.8
681.9
€
0.54
0.54
176.7
–
–
(37.3)
(12.9)
–
126.5
millions
508.8
–
508.8
€
0.25
0.25
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 87
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15. INTANGIBLE ASSETS
Goodwill
Business combination intangible assets
Other
Goodwill
Cost
At 1 November 2005
Additions
Disposals
Transfer to non-current assets held for sale
Exchange differences
At 31 October 2006
Acquisitions (note 18) – MyTravel
– other
Disposals
Exchange differences
At 31 October 2007
Accumulated impairment losses
At 1 November 2005
Transfer to non-current assets held for sale
Disposals
At 31 October 2006
Impairment losses for the year
At 31 October 2007
Carrying amount
At 31 October 2007
At 31 October 2006
The carrying value of goodwill analysed by business segment is as follows:
UK and Ireland
Continental Europe
Northern Europe
North America
Airlines Germany
88 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
2007
€m
3,550.0
460.8
116.0
2006
€m
1,143.0
–
71.3
4,126.8
1,214.3
€m
1,309.9
0.3
(42.8)
(0.7)
2.5
1,269.2
2,396.3
56.3
(0.2)
(45.4)
3,676.2
127.3
(0.7)
(0.4)
126.2
–
126.2
3,550.0
1,143.0
2007
€m
2006
€m
2,381.8
1,000.9
171.6
837.9
133.6
25.1
142.1
–
–
–
3,550.0
1,143.0
15. INTANGIBLE ASSETS
continued
In accordance with accounting standards, the Group annually tests the carrying value of goodwill for impairment.
At 31 October 2007, the review was undertaken on a value in use basis, assessing whether the carrying value of goodwill was supported
by the net present value of future cash fl ows derived from those assets, using cash fl ow projections discounted at 10 per cent to 11 per cent
(2006: 11.8 per cent to 15.4 per cent).
The key assumptions used in the value in use calculations are those regarding the discount rates, revenue and cost growth rates and the level
of capital expenditure required during the period. The Group prepares cash fl ow forecasts derived from the most recently approved annual budgets
and three year plans of the relevant businesses. The cash fl ow forecasts refl ect the risk associated with each asset. Cash fl ow forecasts for years
beyond the three year plan period are extrapolated based on estimated growth rates which do not exceed the average long-term growth rates for
the relevant markets.
The goodwill attributable to Airlines Germany is supported by the fair value less costs to sell of the business.
There were no impairment losses for the year (2006: nil).
Business combination intangibles
Cost
Acquisitions (note 18) – MyTravel
Exchange differences
At 31 October 2007
Amortisation
Charge for the year
At 31 October 2007
Carrying amount
At 31 October 2007
Brands and
customer
relationships
€m
Order
backlog
€m
Computer
software
€m
439.4
(2.2)
437.2
49.5
(0.7)
48.8
13.5
13.5
28.1
28.1
17.9
–
17.9
1.5
1.5
Total
€m
506.8
(2.9)
503.9
43.1
43.1
423.7
20.7
16.4
460.8
On the acquisition of the MyTravel Group, fair values were attributed to the brands, customer relationships, confi rmed orders on hand at the acquisition
date and certain computer software that had no carrying amount in the books of MyTravel. Brands with an initial fair value of €283.8 million are
regarded as having an indefi nite life and are not being amortised; the remainder are being amortised over a period of 10 years. Customer relationships
are being amortised over periods of one to fi ve years. Order backlog is being amortised over the period from acquisition to departure and computer
software over a period of four years.
The carrying values of brands with an indefi nite life analysed by business segment are as follows:
UK and Ireland
Northern Europe
North America
2007
€m
97.8
154.2
30.4
282.4
2006
€m
–
–
–
–
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 89
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15. INTANGIBLE ASSETS
continued
Other intangible assets
Cost
At 1 November 2005
Additions
Exchange differences
Disposal of subsidiary undertakings
Transfer to non-current assets held for sale
Disposals
At 31 October 2006
Additions
Acquisitions (note 18)
Exchange differences
Reclassifi cation
Transfer from non-current assets held for sale
Disposals
At 31 October 2007
Amortisation
At 1 November 2005
Disposal of subsidiary undertakings
Charge for the year
Exchange differences
Transfer to non-current assets held for sale
Disposals
At 31 October 2006
Charge for the year
Impairment losses
Exchange differences
Transfer from non-current assets held for sale
Disposals
At 31 October 2007
Carrying amount
At 31 October 2007
At 31 October 2006
Concessions and
computer software
Other
Purchased
€m
Internally
generated
€m
Purchased
€m
Total
€m
155.3
23.7
0.4
(2.3)
(0.1)
(4.2)
172.8
54.3
12.7
(1.0)
(0.5)
0.1
(3.0)
235.4
102.0
(1.2)
18.8
0.4
(0.1)
(0.3)
119.6
19.3
4.1
(1.0)
0.1
(3.0)
139.1
31.7
4.2
–
–
–
(1.5)
34.4
4.3
4.2
(0.2)
0.5
–
(0.2)
43.0
11.3
–
5.9
–
–
(0.9)
16.3
7.9
–
(0.2)
–
–
–
–
–
–
–
–
–
–
0.9
–
–
–
–
187.0
27.9
0.4
(2.3)
(0.1)
(5.7)
207.2
58.6
17.8
(1.2)
–
0.1
(3.2)
0.9
279.3
–
–
–
–
–
–
–
0.2
–
–
–
–
113.3
(1.2)
24.7
0.4
(0.1)
(1.2)
135.9
27.4
4.1
(1.2)
0.1
(3.0)
163.3
24.0
0.2
96.3
53.2
19.0
18.1
0.7
–
116.0
71.3
Computer software is amortised on a straight line basis over its estimated useful life of between three and 10 years.
Concessions include the value of licences granted to the Group, as well as copyrights and trademarks and similar items.
Licences are amortised over the period of the licence, up to a maximum of 10 years, and other items over their estimated useful lives of between
three and fi ve years.
90 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
16. PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 November 2005
Additions
Exchange differences
Disposals
Disposal of subsidiary undertakings
Transfer to non-current assets held for sale
At 31 October 2006
Additions
Acquisitions (note 18) – MyTravel
– other
Exchange differences
Transfer from non-current assets held for sale
Reclassifi cation
Disposals
At 31 October 2007
Accumulated depreciation and impairment
At 1 November 2005
Charge for the year
Exchange differences
Disposals
Disposal of subsidiary undertakings
Transfer to non-current assets held for sale
At 31 October 2006
Charge for the year
Provision for impairment
Reversal of impairment provision
Exchange differences
Transfer from non-current assets held for sale
Disposals
At 31 October 2007
Carrying amount
At 31 October 2007
At 31 October 2006
Other property, plant and equipment
Aircraft and
aircraft spares
€m
Freehold land
and buildings
€m
Short
leaseholds
€m
Other
fi xed assets
€m
1,560.4
348.8
173.7
268.4
Total
€m
790.9
27.8
2.1
(23.8)
(173.6)
(47.9)
575.5
30.0
153.3
0.1
(10.2)
11.1
–
(13.4)
746.4
8.8
1.1
(7.2)
(8.7)
–
167.7
8.5
20.4
–
(4.7)
3.4
(0.1)
(8.2)
17.9
0.6
(6.6)
(45.7)
(15.1)
219.5
18.2
55.3
0.1
(4.8)
7.7
(0.6)
(4.7)
187.0
290.7
102.8
198.2
398.4
10.4
1.0
(5.4)
(4.7)
–
104.1
11.6
1.8
–
(3.3)
1.8
(7.8)
21.6
0.5
(7.3)
(30.5)
(11.3)
171.2
17.6
2.4
–
(3.7)
5.7
(3.9)
37.3
1.6
(17.5)
(67.8)
(16.9)
335.1
34.6
4.2
(0.2)
(7.4)
7.5
(12.1)
108.2
189.3
361.7
5.4
0.5
(23.5)
–
–
1,542.8
6.3
291.4
–
(11.8)
–
–
(39.7)
1,789.0
832.5
94.7
0.5
(19.9)
–
–
907.8
92.2
0.6
–
(0.5)
–
(24.6)
975.5
1.1
0.4
(10.0)
(119.2)
(32.8)
188.3
3.3
77.6
–
(0.7)
–
0.7
(0.5)
268.7
97.4
5.3
0.1
(4.8)
(32.6)
(5.6)
59.8
5.4
–
(0.2)
(0.4)
–
(0.4)
64.2
813.5
635.0
204.5
128.5
78.8
63.6
101.4
48.3
384.7
240.4
Freehold land with a cost of €45.1 million (2006: €37.5 million) has not been depreciated.
The cost of property, plant and equipment stated above does not include capitalised interest.
The net book value of aircraft and aircraft spares includes €433.4 million (2006: €338.3 million) in respect of assets held under fi nance leases.
The net book value of other property, plant and equipment includes €16.9 million (2006: €17.5 million) in respect of assets held under fi nance leases.
Capital commitments
Capital expenditure contracted but not provided for in the accounts
2007
€m
12.7
2006
€m
8.4
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 91
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
17. NON-CURRENT ASSET INVESTMENTS
Cost
At 1 November 2006
Acquisitions (note 18) – MyTravel
– other
Disposals
Share of result of associates and joint ventures after tax
Exchange differences
At 31 October 2007
Amounts written off or provided
At 1 November 2006
Impairment losses
Disposals
At 31 October 2007
Carrying amount
At 31 October 2007
At 31 October 2006
Associated undertakings
Associated and
joint venture
undertakings
€m
Other
investments
€m
75.8
11.2
–
(4.1)
2.6
0.5
86.0
34.9
–
(0.1)
34.8
23.0
20.1
0.1
(1.2)
–
(0.7)
41.3
0.9
2.3
(0.1)
3.1
Total
€m
98.8
31.3
0.1
(5.3)
2.6
(0.2)
127.3
35.8
2.3
(0.2)
37.9
51.2
40.9
38.2
22.1
89.4
63.0
Investments in associated undertakings at 31 October 2007 included 40 per cent interests in Viajes Iberoservice S.A., an incoming agency and hotel
company, and Hispano Alemana de Management Hotelero S.A., a hotel management company. Both companies are based in Palma de Mallorca,
Spain. Investments also include a 25.1 per cent interest in Oasis Company SAE, a hotel company in Egypt.
The investment in associated undertakings acquired with MyTravel represents a 19.99 per cent interest in Aqua Sol, a quoted hotel group based
in Cyprus. The interest consists of 51,574,200 of the existing shares of Aqua Sol. This investment is regarded as an associated undertaking and is
accounted for under the equity method as the Group is represented on the Board of Directors of Aqua Sol and, therefore, has signifi cant infl uence
over that undertaking. The market value of the Group’s investment in Aqua Sol at 31 October 2007 was €16.0 million compared with a carrying
amount of €13.6 million.
Joint venture
During the year, the Group has entered into a joint venture arrangement with Barclays Bank, Thomas Cook Personal Finance Limited, the Group’s
share being 50 per cent.
Summarised fi nancial information in respect of the associated and joint venture undertakings is as follows:
Total assets
Total liabilities
Net assets
Group’s share of net assets
Revenue
Profi t for the year
Group’s share of associates and joint ventures profi t/(loss) for the year
2007
Joint
ventures
€m
2007
Associates
€m
2006
Associates
€m
41.7
(48.0)
(6.3)
(3.2)
(0.5)
(6.5)
(3.2)
535.6
(253.1)
282.5
74.2
350.2
20.7
5.8
428.1
(284.4)
143.7
48.8
426.0
30.6
12.4
92 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
17. NON-CURRENT ASSET INVESTMENTS
continued
The fi nancial statements of Viajes Iberoservice S.A. are made up to 31 October each year. The fi nancial statements of the other associated undertakings
are made up to 31 December each year, being their fi nancial reporting date. For the purposes of applying the equity method of accounting for 2007,
the fi nancial statements of these undertakings for the year ended 31 December 2006 have been used together with management accounts for the
period from 1 January 2007 to 31 October 2007.
Other investments
Other investments include €19.4 million in respect of the Group’s investment, as a member of the Airline Group, in the UK National Air Traffi c
Services (NATS). The investment comprises ordinary shares and loan notes carrying interest at 8 per cent and 11 per cent in the Airline Group.
Other investments also include €10.8 million in respect of a 10 per cent interest in L’tur Tourismus AG, a German package tour operator, and
€6.4 million in respect of a 24.9 per cent interest in Aldiana GmbH, a German tour operator. Aldiana is not accounted for under the equity
method as the Group does not have signifi cant infl uence over its activities.
18. SUBSIDIARIES
A list of the signifi cant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given
in note 13 to the Company’s separate fi nancial statements. All of the subsidiary undertakings have been consolidated in the Group accounts.
Interpretation guidance included within SIC Interpretation 12 “Consolidation – Special Purpose Entities” indicates that certain special purpose
entities (SPEs), which are involved in aircraft leasing arrangements with the Group should be interpreted as being controlled by the Group,
and therefore subject to consolidation, even though the Group has no direct or indirect equity interest in those entities. As a consequence,
the Group has consolidated 12 SPEs that own 11 aircraft operated by the Group on operating leases.
Acquisitions
On 19 June 2007, the Group acquired 100 per cent of the share capital of MyTravel Group plc, a leading provider of package holidays, with operations
in the UK and Ireland, Northern Europe and North America.
As explained under Basis of preparation in note 2, for accounting purposes Thomas Cook AG is treated as the acquirer of both Thomas Cook Group plc
and MyTravel Group plc.
Details of the net assets acquired are set out in the table below:
Intangible assets
Property, plant and equipment
Deferred tax assets
Investments
Other non-current assets
Current assets
Cash and cash equivalents
Current liabilities
Non-current liabilities
Borrowings and fi nance lease obligations
Deferred tax liabilities
Provisions
Net liabilities acquired
Goodwill
Total consideration
Satisfi ed by: issue of ordinary shares
directly attributable costs (of which €31.8 million cash costs during period)
Carrying
amount
before
combination
€m
Fair value
adjustments
€m
Amount
recognised at
acquisition
date
€m
211.3
525.3
16.0
11.3
75.8
541.1
338.7
313.3
(80.6)
277.1
20.0
(1.3)
(3.1)
–
524.6
444.7
293.1
31.3
74.5
538.0
338.7
(1,686.0)
(20.4)
(1,706.4)
(38.0)
(235.7)
(29.0)
(125.5)
(394.7)
–
–
(110.1)
(145.1)
249.8
(38.0)
(235.7)
(139.1)
(270.6)
(144.9)
2,396.3
2,251.4
2,205.6
45.8
2,251.4
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 93
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
18. SUBSIDIARIES
continued
Acquisitions continued
Consideration took the form of one ordinary share in Thomas Cook Group plc in exchange for the cancellation of each ordinary share in MyTravel
Group plc. In total 463,157,278 ordinary shares in Thomas Cook Group plc were issued in respect of the acquisition. The fair value of the consideration
was determined by the closing price of the MyTravel Group plc shares on 18 June 2007 of £3.22 per share. Costs associated with the acquisition
were €45.8 million.
Since 19 June 2007, Thomas Cook Group plc has acquired a further 4,929,028 ordinary shares of MyTravel Group plc issued pursuant to the exercise
of outstanding MyTravel share options. The cost of acquisition of these shares was €10.6 million and was satisfi ed by the issue of the same number
of new Thomas Cook Group plc ordinary shares for cash.
Goodwill includes the fair value of the synergies expected to arise following the combination and the fair value of the expertise of the acquired entity’s
workforce. The fair value adjustments detailed above are provisional as the fair value review has not been wholly completed. Any adjustments to the
above values will be incorporated in the Group’s interim fi nancial statements for 2007/8.
The main elements of the signifi cant provisional fair value adjustments recognised are described below:
Intangible assets in respect of acquired brands and customer lists in accordance with IFRS 3 – Business combinations;
Deferred tax assets in recognition of acquired accumulated tax losses;
Deferred tax liabilities in relation to the acquired intangible assets;
Provisions in respect of off-market leases.
From the date of acquisition, MyTravel Group has contributed €48.0 million to the Group’s profi t before tax for the period.
If the transaction had taken place at the start of this fi nancial period, the revenue of the Group would have been €11,684.6 million and the Group’s
profi t before tax would have been €176.5 million.
The transaction has been accounted for by the purchase method of accounting.
On 31 August 2007, the Group acquired the business of Travel Plus s.r.o., a Czech distributor of leisure travel services.
Travel Plus also owns the subsidiaries Dusek Tours s.r.o. (100 per cent) and Cestovni Kancelar Oriana s.r.o. (51 per cent). The purchase price
was CZK70 million of which CZK49 million has been paid in cash and the balance of CZK21 million is deferred to the end of a guarantee period
which cannot exceed fi ve years.
Details of the net assets acquired are set out in the table below:
Net assets acquired
Property, plant and equipment
Non-current asset investments
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Goodwill
Total consideration
Satisfi ed by: cash
deferred consideration
The purchase price of each asset component of the acquisition is considered to represent its fair value.
The companies contributed €0.1 million to the Group’s profi t before tax for the period.
The transaction has been accounted for by the purchase method of accounting.
94 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Fair value
€m
0.1
0.1
1.3
0.8
(1.9)
0.4
2.1
2.5
1.8
0.7
2.5
18. SUBSIDIARIES
continued
Acquisitions continued
The agreement between Arcandor and Lufthansa on 2 April 2007, whereby Arcandor acquired the remaining 50 per cent interest in Thomas Cook AG
that it did not already own, also affected the interests of Thomas Cook AG in its subsidiaries, TC Touristik GmbH (TCT), the German tour operator,
and Condor Flugdienst GmbH, the German airline.
Before the transaction, Thomas Cook AG owned 90 per cent of both companies. As part of the agreement, Thomas Cook AG acquired the remaining
10 per cent interest in TCT at a value of €40 million and sold 14.9 per cent of the total Condor share capital to Lufthansa for €46.2 million.
Based on the Condor sales agreement, Thomas Cook AG has the right to acquire and Lufthansa has the right to sell Lufthansa’s 24.9 per cent interest
in Condor for a fi xed price of €77 million (put/call options). These options are exercisable on 9 February 2009 at the earliest. As a result of the
call and put options, all risks and rewards of the Condor investment remain with Thomas Cook AG.
The effect of these transactions on the Group balance sheet was:
Goodwill – Condor
– TCT
Cash and cash equivalents
Minority interests
Trade and other payables
Liability for option
Net cash infl ow arising on acquisitions:
Cash consideration - shares
– attributable costs
Cash and cash equivalents acquired
Net cash infl ow arising on disposal:
Cash consideration – Condor
19. INVENTORIES
Goods held for resale
Raw materials and supplies
Fair value
€m
25.1
29.1
6.2
18.4
(1.2)
(77.6)
–
Total
€m
(41.8)
(31.8)
339.5
265.9
€m
46.2
2006
€m
8.1
2.4
10.5
MyTravel
€m
Travel Plus
€m
–
(31.8)
338.7
306.9
(1.8)
–
0.8
(1.0)
TCT
€m
(40.0)
–
–
(40.0)
2007
€m
18.4
9.0
27.4
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 95
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20. TRADE AND OTHER RECEIVABLES
Non-current assets
Deposits and prepayments
Loans
Securities
Trade receivables
Amount owed by parent undertaking
Other receivables
Current assets
Trade receivables
Amounts owed by associated and joint venture undertakings
Amounts owed by parent undertaking
Deposits and prepayments
Loans
Securities
Other taxes
Other receivables
2007
€m
100.1
21.2
6.1
0.2
4.7
9.5
2006
€m
41.6
34.0
5.6
0.1
–
3.0
141.8
84.3
302.9
15.4
4.9
403.4
3.4
366.7
48.5
94.9
141.6
12.1
4.8
258.8
3.7
72.7
18.6
88.3
1,240.1
600.6
The average credit period taken on invoicing of leisure travel services is nine days (2006: seven days). No interest is charged on the receivables.
The credit risk in respect of direct receivables from customers is limited as payment is required in full before the services are provided. In the case
of travel services sold by third-party agents, the credit risk depends on the creditworthiness of those third parties, but this risk is also limited
because of the relatively short period of credit.
Deposits and prepayments include amounts paid in advance to suppliers of hotel and other services in order to guarantee the provision of those
supplies and historically have covered periods from one to 36 months in advance. The Group’s current policy is that deposits and prepayments
will normally only be made for periods of up to 12 months in advance. There is a credit risk in respect of the continued operation of those suppliers
during those periods. Deposits and prepayments also include €78.4 million (2006: €40.1 million) of deposits on aircraft lease arrangements which
are primarily attributable to the UK Airline.
Securities include money market securities amounting to €5.5 million (2006: €5.2 million) purchased as collateral against liabilities arising from
part-time retirement contracts at Thomas Cook AG.
Current asset securities of €366.7 million (2006: €72.7 million) include €292.3 million (2006: nil) in relation to a managed investment fund
established to optimise the utilisation of the Group’s surplus liquidity. The fund is classifi ed as held-for-trading investments and includes corporate
and government bonds (€239.4 million), quoted (€10.2 million) and unquoted (€37.6 million) securities and other assets (€5.1 million). Securities
also include money market deposits with a maturity of greater than three months of €74.4 million (2006: €72.7 million) which are also classifi ed
as held-for-trading investments.
Loans include advances of €2.6 million (2006: €2.6 million) to two hotel companies in which the Group has a participating interest. These loans
are interest bearing at rates based on Euribor and are unsecured.
The amounts presented in the balance sheet are net of allowances for doubtful receivables of €73.2 million (2006: €54.1 million). An allowance
for impairment is made where there is an identifi ed loss event which, based on previous experience, is evidence of a reduction in the recoverability
of the cash fl ows.
Trade and other receivables are not subject to restrictions on title. The Directors consider that the carrying amount of trade and other receivables
approximates their fair values.
96 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
21. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Term deposits with a maturity of less than three months
2007
€m
798.8
94.0
892.8
2006
€m
735.7
0.3
736.0
Included within the above balances is an amount of €85.6 million (2006: nil) held within escrow accounts in the United States and Canada in respect
of local regulatory requirements. Also included within the above balances is an amount of €81.1 million (2006: nil) of cash held by White Horse
Insurance Ireland Limited, the Group’s captive insurance company. These balances are considered to be restricted.
Cash and cash equivalents largely comprise bank balances denominated in both euro and other currencies for the purpose of settling current
liabilities as well as balances arising from agency collection on the part of the Group’s travel agencies.
At the balance sheet date, surplus cash was placed on deposit at interest rates of up to 5.8 per cent per annum (2006: up to 4.87 per cent).
The Directors consider that the carrying amount of these assets approximates their fair value.
22. TRADE AND OTHER PAYABLES
Current liabilities
Trade payables
Amounts owed to associated undertakings and participations
Amounts owed to parent undertaking
Social security and other taxes
Accruals and deferred income
Other payables
Non-current liabilities
Accruals and deferred income
Other payables
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
The average credit period taken for trade purchases is 34 days (2006: 33 days).
2007
€m
2006
€m
967.6
558.6
8.7
2.7
113.2
842.7
111.2
7.0
31.9
60.9
470.6
79.7
2,046.1
1,208.7
56.6
121.3
177.9
64.4
22.3
86.7
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 97
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
23. BORROWINGS
Short-term borrowings
Unsecured bank loans
Unsecured bank overdrafts
Current-portion of long-term borrowings
Long-term borrowings
Bank loans – repayable within one year
– repayable between two and fi ve years
– repayable after fi ve years
Less: amounts due for settlement within one year shown under current liabilities
Amount due for settlement after one year
The currency analysis of long-term borrowings is:
US dollar
Euro
Danish krone
2007
€m
3.7
37.8
41.5
33.2
74.7
33.2
157.6
29.4
220.2
(33.2)
187.0
90.1
128.5
1.6
220.2
2006
€m
3.7
2.5
6.2
11.3
17.5
11.3
131.0
36.8
179.1
(11.3)
167.8
30.5
148.6
–
179.1
The liabilities to banks primarily relate to the refi nancing of purchased aircraft, administrative buildings, hotel and club complexes and expansion
in the European sales markets. The useful lives of the fi nanced items and the maturities of the respective liabilities to banks are congruent.
Bank loans with a carrying amount of €9.3 million (2006: €9.3 million) and a fair value of €9.7 million are related to non-current assets classifi ed
as held for sale and are presented in accordance with IFRS 5 (see note 28).
For the year ended 31 October 2007 the average effective borrowing rate was 4.86 per cent (2006: 4.43 per cent). Interest rates on €114.2 million
(2006: €162.6 million) of borrowings are fi xed at an average weighted interest rate of 4.56 per cent (2006: 4.63 per cent). Interest rates on the
balance of the borrowings are fl oating with an average reference interest rate of 5.08 per cent (2006: 3.68 per cent).
Bank loans include €161.8 million (2006: €117.0 million) relating to the fi nancing of aircraft included in property, plant and equipment which is secured
via aircraft mortgages.
US dollar bank loans include €65.6 million relating to the fi nancing of two aircraft owned by SPEs consolidated in the Group’s fi nancial statements
in accordance with SIC 12 (see note 17). The loans are secured by a charge on those aircraft. The loans carry interest at a rate of 0.475 per cent over
US six month LIBOR, fi xed at six monthly intervals. The average effective interest rate for the year to 31 October 2007 approximates 6.05 per cent
(2006: 5.75 per cent). The loans are repayable in instalments by the end of June 2009.
The Danish krone loan represents a mortgage loan to fi nance a building extension. The loan was taken out for a period of 15 years in August 2006
at a fi xed rate of interest of 4.98 per cent per annum and is secured on the property in Denmark.
The Directors consider that the fair value of the Group’s bank loans with a carrying value of €233.2 million was €236.4 million at 31 October 2007 (2006:
carrying value €192.1 million; fair value €198.4 million). The fair values quoted were determined on the basis of the interest rates for the corresponding
terms to maturity/repayment as at the year end.
Borrowing facilities
As at 31 October 2007, the Group had undrawn committed guarantee and bonding facilities of €219.0 million (2006: €26.5 million).
98 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
24. OBLIGATIONS UNDER FINANCE LEASES
Amounts payable under fi nance leases:
Within one year
Between two and fi ve years
After fi ve years
Less: future fi nance charges
Present value of lease obligations
Less: amount due for settlement within 12 months (shown under current liabilities)
Amount due for settlement after 12 months
The currency analysis of amounts payable under fi nance leases is:
Euro
US dollar
Finance leases principally relate to aircraft and aircraft spares.
Minimum
lease payments
Present value
of minimum
lease payments
2007
€m
2006
€m
2007
€m
150.4
532.6
48.5
731.5
(100.0)
631.5
64.4
526.3
70.3
661.0
(112.6)
548.4
116.2
480.7
34.6
631.5
–
631.5
(116.2)
515.3
2007
€m
458.1
173.4
631.5
2006
€m
35.3
458.2
54.9
548.4
–
548.4
(35.3)
513.1
2006
€m
517.7
30.7
548.4
The average lease term at inception was 11.1 years and the average remaining lease term is 2.8 years (2006: 4 years). For the year ended
31 October 2007 the average effective borrowing rate was 5.76 per cent (2006: 5.03 per cent). Interest rates on €491.0 million of lease obligations
are fi xed at 5.41 per cent (2006: €548.4 million at 5.03 per cent). Interest rates on the balance of the fi nance lease obligations are fl oating and are
fi xed quarterly or six-monthly in advance based on US LIBOR. No arrangements have been entered into for contingent rental payments.
The Directors consider that the fair value of the Group’s fi nance lease obligations with a carrying value of €631.5 million was €652.7 million
at 31 October 2007 (2006: carrying value €548.4 million; fair value €584.1 million). The fair values quoted were determined on the basis of the
interest rates for the corresponding terms to maturity/repayment as at the year end.
The Group’s obligations under fi nance leases are secured by the lessors’ rights over the leased assets.
Sub-lease rentals receivable
During the year, two aircraft (2006: no aircraft) held under fi nance leases were sub-let on operating leases for the whole or part of the year.
Details of income receivable under operating sub-leases are provided in note 34.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 99
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
25. DERIVATIVE FINANCIAL INSTRUMENTS
A summary of the Group’s policies in relation to the use of fi nancial instruments is set out on page 75.
At the balance sheet date, total notional amounts of outstanding forward contracts and other derivative instruments that the Group has committed
to are as below.
Foreign exchange
Interest rate swaps
Total
Fuel
2007
€m
2006
€m
3,859.5
2,087.9
99.1
3,958.6
73.8
2,161.7
metric tonnes
metric tonnes
1,675,555
1,346,218
The fair values of derivative fi nancial instruments at 31 October 2007 were:
Interest
rate swaps
€m
Currency
contracts
€m
Fuel
contracts
€m
At 31 October 2005
Movement in fair value during the year
At 31 October 2006
Fair values of derivatives at acquisition (MyTravel)
Movement in fair value during the year
At 31 October 2007
Non-current assets
Current assets
Current liabilities
Non-current liabilities
(4.5)
0.9
(3.6)
–
(2.3)
(5.9)
32.5
(70.0)
(37.5)
(35.4)
(57.0)
(129.9)
49.0
(31.0)
18.0
(4.2)
64.8
78.6
2007
€m
29.9
113.7
(168.2)
(32.6)
(57.2)
Total
€m
77.0
(100.1)
(23.1)
(39.6)
5.5
(57.2)
2006
€m
11.9
30.2
(52.5)
(12.7)
(23.1)
The Group uses derivative instruments to hedge against signifi cant future transactions and cash fl ows. The Group enters into a variety of foreign
currency forward contracts, options and other fi nancial instruments approved by the Board in the management of its exchange rate exposures.
The instruments used are primarily denominated in the currencies of the Group’s principal markets, predominantly euro, US dollar and sterling,
and are typically established for periods of 12 to 24 months in advance of a season to which the expected cash exposures pertain.
Price hedging transactions are also undertaken in order to limit the risk of unfavourable changes in the price of fuel, which is denominated in
US dollars, for up to three future seasons. At 31 October 2007, the Group had put in place hedging transactions for fuel volumes of 1,675,555 metric
tonnes (2006: 1,346,218 metric tonnes) with terms running up until October 2009 at the latest. Use was primarily made of hedge combinations and
crude oil price range options as hedging instruments, together with limited use of gas oil and kerosene derivatives and derivatives for hedging price
differentials between the various product groups (cracks).
The Group is also subject to risks arising from interest rate movements in connection with the fi nancing of aircraft and acquisition of investments.
Floating rate medium to long-term borrowings are exposed to interest rate change risks. Interest rate swaps and cross currency swaps are designated
as cash fl ow hedges of the interest rate and the US dollar/euro currency risk on such borrowings. Other instruments used to manage interest
rate risk include forward rate agreements and caps. Interest rate currency swaps are reported within interest rate derivatives. The maturities
of interest rate derivatives extend out to mid 2011 at the latest.
The fl oating interest rates for interest rate swaps are based on the six month Euribor.
The fair values of the Group’s derivative fi nancial instruments set out above have been determined by reference to prices available from the markets
in which the instruments are traded.
Fair value of derivatives designated and effective as cash fl ow hedges deferred in equity at 31 October
2007
€m
(39.6)
2006
€m
(41.9)
100 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
25. DERIVATIVE FINANCIAL INSTRUMENTS
continued
Management of insurance and fi nancial risk
Incidental to its main business, the Group, through its subsidiary White Horse Insurance Ireland Limited, issues contracts that transfer signifi cant
insurance risk and that are classifi ed as insurance contracts. As a general guideline, the Group defi nes as signifi cant insurance risk the possibility
of having to compensate the policyholder if a specifi ed uncertain future event adversely affects the policyholder.
Business written includes standard commercial risks for the Group and travel insurance for both Group and non-Group customers.
The principal nature of travel insurance risks is one of short-term, low value and high volume. Underwriting performance is monitored on
an ongoing basis and pricing reviewed annually for each individual contract. Exposure is capped by specifi c limits within the insurance policy
and by using reinsurance contracts for any claims in excess of these retention limits. Commercial policies with the Group are subject to policy
excesses and single event and aggregate limits.
Insurance risk is spread across several European countries where the Group operates including the UK, Ireland and Scandinavia.
When estimating the cost of claims outstanding at the year end, the principal assumption underlying the estimates is the Group’s past
development pattern. This includes assumptions in respect of historic claims costs, average claims handling expenses and market developments.
The Group also uses an independent actuary to review its liabilities to ensure that the carrying values are adequate. Any changes to these variables
are not expected to have a material effect on the Group fi nancial statements.
The Group operates a reinsurance policy approved by the Board which ensures that reinsurers have a fi nancial stability rating of B+ (A M Best)
or above. The Group has assessed these credit ratings as being satisfactory in diminishing the Group’s exposure to the credit risk of its
insurance receivables.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 101
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
26. DEFERRED TAX
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior
reporting years:
At 1 November 2005
Credit/(charge) to income
Credit to equity
Disposals
Exchange differences
At 31 October 2006
Credit/(charge) to income
Charge to equity
Acquisitions
Exchange differences
At 31 October 2007
Aircraft
fi nance
leases
€m
52.1
5.4
–
–
–
57.5
(0.5)
–
–
–
Retirement
benefi t
obligations
€m
Fair value
of fi nancial
instruments
€m
Other
temporary
differences
€m
124.9
(2.1)
4.7
–
–
127.5
(39.3)
(50.3)
2.1
–
(23.8)
(4.7)
42.0
–
–
13.5
0.4
(11.0)
–
–
2.9
(39.8)
(6.7)
–
(1.2)
0.5
(47.2)
22.1
–
(52.8)
0.5
(77.4)
57.0
40.0
Tax
losses
€m
96.8
11.8
–
–
–
108.6
(28.7)
–
204.7
(8.8)
275.8
Total
€m
210.2
3.7
46.7
(1.2)
0.5
259.9
(46.0)
(61.3)
154.0
(8.3)
298.3
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for fi nancial reporting purposes:
Deferred tax liabilities
Deferred tax assets
2007
€m
(120.2)
418.5
298.3
2006
€m
(0.1)
260.0
259.9
At the balance sheet date, the Group had unused tax losses of €1,800.0 million (2006: €478.0 million) available for offset against future profi ts.
Deferred tax assets have only been recognised where there is suffi cient probability that there will be future taxable profi ts against which the assets
may be recovered. No deferred tax asset has been recognised in respect of tax losses of €800.0 million (2006: €162.0 million) due to the
unpredictability of future profi t streams.
In addition, the Group had unused other short-term timing differences in respect of which no deferred tax asset has been recognised amounting
to €67.0 million (2006: nil), also due to the unpredictability of future profi t streams.
Deferred tax liabilities were offset against the corresponding deferred tax assets where both items fell within the responsibility of the same
tax authority.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which
no deferred tax liabilities have been recognised was €386.0 million (2006: nil). No liability has been recognised in respect of these differences
because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences
will not reverse in the foreseeable future.
Reductions in corporate tax rates in the UK from 30 per cent to 28 per cent, which will be effective from 1 April 2008, and in Germany from
38 per cent to 29 per cent, which will have effect from 1 November 2007, have been taken into account in determining the deferred tax balances
at 31 October 2007. The effect is a reduction in the deferred tax assets in those countries, resulting in an additional tax charge in the income
statement of €9.7 million.
102 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
27. PROVISIONS
At 1 November 2006
Additional provisions in year
Unused amounts released in year
Unwinding of discount
Utilisation of provisions
Acquisitions
Exchange differences
At 31 October 2007
Included in current liabilities
Included in non-current liabilities
Aircraft
maintenance
provisions
€m
Other
provisions
€m
113.4
58.4
(8.4)
–
(59.5)
92.9
(8.8)
188.0
72.6
115.4
188.0
107.7
136.2
(20.4)
4.3
(65.7)
177.7
(4.7)
335.1
192.6
142.5
335.1
Total
€m
221.1
194.6
(28.8)
4.3
(125.2)
270.6
(13.5)
523.1
265.2
257.9
523.1
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 10 years (see note 2).
Other provisions relate to provisions for onerous contracts and future obligations, including those arising as a result of reorganisation and restructuring
plans that are irrevocably committed including severance payments and provisions for social security compensation plans.
Provisions included in non-current liabilities are principally in respect of onerous contracts and are expected to be utilised over the term of those
contracts which extend up to 10 years from the balance sheet date.
28. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE
Assets
Property, plant and equipment
Buildings
Financial assets
Associated companies
Other investments
Other current assets
Deferred tax assets
Liabilities
Deferred tax liabilities
Borrowings of companies held for sale
Other liabilities of companies held for sale
2007
€m
16.1
–
–
–
2.1
18.2
0.4
9.3
–
9.7
2006
€m
19.1
4.6
14.6
6.0
2.9
47.2
0.5
9.3
4.3
14.1
The non-current assets and liabilities held for sale in 2007 relate to land and buildings owned by Thomas Cook Nederland BV. The Group’s management
determined that the property was surplus to requirements in October 2006 and it has been vacated. The Group expects to complete a sale within the
next 12 months at a price around the carrying value.
The other items included in 2006 have been sold in the year with the exception of Thomas Cook Vertriebs GmbH which has been withdrawn from sale
and reclassifi ed as continuing assets and liabilities.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 103
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
At 1 November 2005
Total recognised income and expense
for the year
Disposal of minority interest
Dividends paid
Net change directly in equity
Total movements
Share
capital
€m
303.7
Share
premium
€m
539.7
–
–
–
–
–
–
–
–
–
–
Balances at 31 October 2006
303.7
539.7
Total recognised income and expense
for the year
Equity credit in respect
of share-based payments
Capital increase
–
–
–
Issue of equity shares net of expenses
0.5
–
–
0.6
10.1
Reclassifi cation to Thomas Cook Group plc
(252.8)
(540.3)
Acquisition of MyTravel
Acquisition of minority interests
Purchase of own shares
Dividends paid
Net change directly in equity
Total movements
Balances at 31 October 2007
46.3
–
–
–
–
–
–
–
(206.0)
(529.6)
(206.0)
(529.6)
97.7
10.1
Own
shares
€m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(7.3)
–
(7.3)
(7.3)
(7.3)
Hedging
and
translation
reserves
€m
46.7
(69.4)
–
–
–
(69.4)
(22.7)
(48.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(18.5)
793.1
2,159.3
–
–
–
Retained
earnings/
(defi cit)
€m
Attributable
to equity
holders of
the parent
€m
Merger
reserve
€m
Minority
interest
€m
(418.8)
471.3
44.1
Total
€m
515.4
163.6
94.2
3.1
97.3
–
–
–
–
–
–
163.6
94.2
(255.2)
565.5
(12.8)
(1.8)
(14.6)
(11.5)
32.6
(12.8)
(1.8)
(14.6)
82.7
598.1
321.1
273.1
1.4
274.5
0.9
–
–
–
–
–
–
–
0.9
0.6
(7.9)
–
–
–
–
–
0.9
0.6
(7.9)
–
2,205.6
0.1
2,205.7
–
(18.5)
(18.5)
(7.3)
–
–
(3.7)
(7.3)
(3.7)
2,933.9
0.9
2,191.9
(22.1)
2,169.8
(48.0)
2,933.9
322.0
2,465.0
(20.7)
2,444.3
(70.7)
2,933.9
66.8
3,030.5
11.9
3,042.4
The merger reserve arose on the reverse acquisition of Thomas Cook Group plc and MyTravel Group plc by Thomas Cook AG. In the case of
Thomas Cook Group plc, the merger reserve represents the difference between the existing share capital and share premium of Thomas Cook AG
and the share capital of Thomas Cook Group plc issued in exchange, and in the case of MyTravel Group plc, the merger reserve represents the
difference between the fair value and the nominal value of the share capital issued by Thomas Cook Group plc.
Expenses of issue of Thomas Cook Group plc shares during the period amounted to €18.5 million and have been charged against the merger reserve.
Details of changes in hedging and translation reserves are set out in note 31.
104 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
30. CALLED-UP SHARE CAPITAL
Authorised
50,000 deferred shares of £1 each (2006: nil)
2,000,000,000 ordinary shares of €0.10 each (2006: 60,742,000 ordinary shares of €5 each)
Allotted, called-up and fully paid
976,841,152 ordinary shares of €0.10 each (2006: 60,742,000 ordinary shares of €5 each)
Allotted, called-up and partly paid
50,000 deferred shares of £1 each, 25p paid (2006: nil)
2007
€m
0.1
200.0
2006
€m
–
303.7
97.7
303.7
–
–
Thomas Cook Group plc was incorporated on 8 February 2007 and on that date issued 50,000 ordinary shares of £1 each at par which were paid
up as to 25p on issue.
On 29 April 2007, the authorised share capital was increased by the creation of 2,000,000,000 ordinary shares of €0.10 each. Also on that date,
the initial 50,000 ordinary shares of £1 each held by MyTravel and Arcandor were reclassifi ed as deferred shares.
On 19 June 2007, 508,754,846 ordinary shares of €0.10 each were allotted to Arcandor on completion of the acquisition of the entire ordinary
share capital of Thomas Cook AG and 463,157,278 ordinary shares were allotted in consideration for the acquisition of the entire ordinary share
capital of MyTravel Group plc. A further 4,929,028 ordinary shares of €0.10 each were subsequently issued in exchange for additional shares
issued by MyTravel Group plc consequent to the exercise of outstanding share options.
Contingent rights to the allotment of shares
At 31 October 2007, MyTravel Group plc had outstanding executive share options over 1,533,551 shares. On exercise of these options, an equal
number of Thomas Cook Group plc ordinary shares will be issued.
At 31 October 2007, the following options to subscribe for ordinary shares of €0.10 each were outstanding:
Thomas Cook Group plc 2007 Performance Share Plan
Date of grant
12 July 2007
Subscription price
per share
Number of
shares
nil
2,869,648
The options granted under the plan will vest if performance targets for earnings per share and total shareholder return are met during the three
years following the date of grant. Subject to vesting conditions, the options are exercisable up to 10 years after the date of grant.
On exercise, the awards of shares under the plan will be satisfi ed by purchases in the market of existing shares.
Own shares held in trust
Shares of the Company are held under trust by Halifax EES Trustees International (Jersey) Limited in connection with the Thomas Cook Group plc
2007 Performance Share Plan. In accordance with IFRS, these are treated as Treasury Shares and are included in other reserves in the balance sheet.
The number of shares held at 31 October 2007 by Halifax EES Trustees International (Jersey) Limited was 1,670,104 (2006: nil). The cost of acquisition
of these shares was €7.3 million (2006: nil) and the market value at 31 October 2007 was €7.2 million (2006: nil). Shares held by the trust have been
excluded from the weighted average number of shares used in the calculation of earnings per share.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 105
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
31. HEDGING AND TRANSLATION RESERVES
Balance at 1 November 2005
Exchange differences on translation of overseas operations
Valuation losses taken to equity
Transfer to profi t or loss
Transfer to profi t or loss on disposals
Tax relating to valuation losses and transfers
Balance at 31 October 2006
Exchange differences on translation of overseas operations
Valuation losses taken to equity
Transfer to profi t or loss
Tax relating to valuation losses and transfers
Balance at 31 October 2007
32. NOTES TO THE CASH FLOW STATEMENT
Profi t before tax
Adjustments for:
Finance income
Finance costs
Net investment income
Share of results of associates and joint ventures
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Amortisation of intangible assets
Impairment of intangible assets
Amortisation of business combination intangibles
Impairment of non-current investments
Impairment of non-current assets held for sale
Profi t on disposal of businesses and property, plant and equipment
Profi t on disposal of non-current assets held for sale
Profi t on disposal of associates
Share-based payments
Other non-cash items
Contribution to pension scheme
Increase in provisions
Income received from other non-current investments
Interest received
Operating cash fl ows before movements in working capital
Increase in inventories
Decrease in receivables
Decrease in payables
Cash generated by operations
Income taxes paid
Net cash from operating activities
Hedging
reserve
€m
50.0
–
(60.4)
(58.4)
–
42.0
(26.8)
–
(91.3)
93.6
(11.0)
(35.5)
Available
for sale
investments
€m
Translation
reserve
€m
0.4
–
(0.6)
–
–
–
(0.2)
–
0.6
(0.7)
–
(0.3)
(3.7)
2.4
–
–
5.6
–
4.3
(38.6)
–
(0.6)
–
(34.9)
2007
€m
284.3
(109.3)
110.0
(2.5)
(2.6)
126.8
4.8
27.4
4.1
43.1
2.3
–
(3.0)
(14.9)
(52.4)
0.9
(16.0)
–
68.1
1.8
43.7
516.6
(3.9)
117.4
(348.6)
281.5
(43.9)
237.6
Total
€m
46.7
2.4
(61.0)
(58.4)
5.6
42.0
(22.7)
(38.6)
(90.7)
92.3
(11.0)
(70.7)
2006
€m
219.0
(76.4)
101.8
(0.9)
(4.9)
132.0
–
24.7
–
–
–
8.4
(53.4)
–
(20.4)
–
(39.0)
(124.5)
25.0
0.9
35.9
228.2
(2.1)
1.4
(0.5)
227.0
(44.3)
182.7
Cash and cash equivalents, which are presented as a single class of assets on the face of the balance sheet, comprise cash at bank and other
short-term highly liquid investments with a maturity of three months or less.
106 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
33. NET FUNDS
Liquidity
Cash and cash equivalents
Cash classifi ed as held for sale
Trading securities
Current debt
Bank overdrafts
Short-term borrowings
Current portion of long-term borrowing
Borrowings classifi ed as held for sale
Obligations under fi nance leases
Non-current debt
Long-term borrowings
Obligations under fi nance leases
Total debt
Net funds
At
1 November
2006
€m
Cash fl ow
€m
Other
non-cash
changes
€m
Acquisitions/
disposals
€m
Exchange
movements
€m
At
31 October
2007
€m
736.0
0.2
72.7
808.9
(2.5)
(3.7)
(11.3)
(9.3)
(35.3)
(62.1)
(167.8)
(513.1)
(680.9)
(743.0)
65.9
171.7
(0.2)
294.0
465.5
(35.3)
–
(7.5)
–
(54.7)
(97.5)
30.0
123.0
153.0
55.5
521.0
–
–
–
–
–
–
–
–
–
–
3.6
–
3.6
3.6
3.6
–
–
–
–
–
–
(14.4)
–
(26.2)
(40.6)
(57.2)
(137.9)
(195.1)
(235.7)
(235.7)
(14.9)
892.8
–
–
(14.9)
–
366.7
1,259.5
–
–
–
–
–
–
4.4
12.7
17.1
17.1
2.2
(37.8)
(3.7)
(33.2)
(9.3)
(116.2)
(200.2)
(187.0)
(515.3)
(702.3)
(902.5)
357.0
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 107
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
34. OPERATING LEASE ARRANGEMENTS
The Group as lessee
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases,
which fall due as follows:
Within one year
Later than one and less than fi ve years
After fi ve years
Property
and other
2007
€m
138.7
428.6
332.0
899.3
Aircraft and
aircraft
spares
2007
€m
150.8
354.9
29.7
535.4
Total
2007
€m
289.5
783.5
361.7
1,434.7
Property
and other
2006
€m
64.5
176.2
99.0
339.7
Aircraft and
aircraft
spares
2006
€m
100.6
200.8
4.0
305.4
Total
2006
€m
165.1
377.0
103.0
645.1
Operating lease payments principally relate to rentals payable for the Group’s retail shop properties and for aircraft and spares used by the
Group’s airlines.
Shop leases are typically negotiated for an average term of fi ve years and aircraft leases for an average term of 10 years.
The Group as lessor
At the balance sheet date, the Group had contracted with tenants for future minimum lease payments under non-cancellable operating leases,
which fall due as follows:
Within one year
Later than one and less than fi ve years
After fi ve years
Rental income earned during the year was:
Property
2007
€m
1.4
2.8
0.5
4.7
0.5
Aircraft
2007
€m
5.9
5.0
–
10.9
Total
2007
€m
7.3
7.8
0.5
15.6
4.6
5.1
Property
2006
€m
Aircraft
2006
€m
Total
2006
€m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Certain of the Group’s retail and other properties and aircraft that are not being used in the Group’s businesses are sub-let on the best terms available
in the market for varying periods, with an average future committed period of 3.4 years for property and 13 months for aircraft.
Two of the aircraft sub-let are held by the Group on fi nance leases. At 31 October 2007, these aircraft had an aggregate cost and a carrying amount
of €29.3 million. There were no impairment provisions relating to these aircraft and the depreciation charge for the period was nil.
35. CONTINGENT LIABILITIES
Contingent liabilities
2007
€m
171.2
2006
€m
4.1
Contingent liabilities primarily comprise counter-guarantees for bank funding and letters of credit amounting to €115.8 million (2006: €2.9 million).
In addition, they include guarantees in relation to uncommitted facilities of €32.3 million (2006: nil) and other contingent liabilities relating
to structured aircraft leases of €21.7 million (2006: nil). Other items amounted to €1.4 million (2006: €1.2 million).
The Group complies with all the standards relevant to consumer protection and formal requirements in respect of package tour contracts and has
all the necessary licences for the various sales markets. The customer’s right to reimbursement of the return travel costs and amounts paid in case
of insolvency or bankruptcy on the part of the tour operator or travel agency is guaranteed in all Thomas Cook sales markets in line with local
legislation and within the various guarantee systems applied. Customer rights in relation to Thomas Cook Group in Germany, Belgium and Austria
are guaranteed via an insolvency insurance system, in Great Britain, Ireland, Scandinavia and France via guarantees provided by banks and insurance
companies, and in the Netherlands via a guaranteed fund. In North America, customer payments are held in escrow accounts until the obligations
of the tour operator or travel agent have been completed.
108 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
36. SHARE-BASED PAYMENTS
The Thomas Cook Group plc 2007 Performance Share Plan
The Company operates a Performance Share Plan under which Executive Directors and senior management of the Company and its subsidiaries
are granted options to subscribe for ordinary shares of the Company. The options granted under the plan will vest if performance targets for
earnings per share (EPS) and total shareholder return (TSR) are met during the three years following the date of grant. Subject to vesting conditions,
the options are exercisable up to 10 years after the date of grant.
No options were exercisable at the beginning of the period. Options over 2,869,648 shares were granted on 12 July 2007 at an exercise price
of nil and remained outstanding at 31 October 2007. At that date, none were exercisable and the remaining contractual life of the options
was nine years and eight months.
The weighted average fair value of the options granted was £2.14 (€3.07) at the date of grant. The fair value of the options subject to EPS
performance targets was determined by the use of a Black-Scholes model and the fair value of the options subject to TSR performance targets
was determined by the use of a Monte Carlo simulation. The key inputs to the models were as follows:
Share price at date of grant
Exercise price
Expected volatility
Expected volatility of comparator group
Expected correlation with comparator group
Option life
Risk free rate
Expected dividend yield
2007
£2.97
nil
32%
13%-43%
14%
3 years
5.7%
3%
Expected volatility has been based on the historic volatility of the shares of MyTravel Group plc and the shares of other companies in the same
or related sectors.
The total expense recognised during the period in respect of equity-settled share-based payment transactions was €0.9 million.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 109
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. RETIREMENT BENEFIT SCHEMES
Pension schemes for the employees of the Thomas Cook Group consist of defi ned contribution plans and defi ned benefi t plans, with the defi ned
benefi t plans being both funded and unfunded. The obligations arising from defi ned contribution plans are satisfi ed by contribution payments
to both private and state-run insurance providers.
Unfunded defi ned benefi t pension obligations
Unfunded defi ned benefi t pension obligations primarily relate to the Group’s employees in the German businesses of Thomas Cook AG and the
Condor Group. Provisions are established on the basis of commitments made to those employees for old-age and transitional pensions based
on the legal, tax and economic circumstances of the individual countries and on the period of employment and level of remuneration of the
respective employees.
Provisions for pensions and similar obligations totalling €202.2 million (2006: €254.1 million) were attributable to the pension commitments
of Condor Group (Condor Flugdienst GmbH and Condor Berlin GmbH). For employees who joined a Condor Group company prior to 1995, the
total pension commitment of the pensions authority of the German federal government and regional states was adjusted and maintained
in the form of a company pension scheme.
The fl ight crews were additionally entitled to a transitional provision for the period between the termination of their in-fl ight employment and the
time they became eligible for a state-run or company pension. In both cases, the benefi t commitment depended on the fi nal salaries of the employees
concerned prior to the termination of their in-fl ight employment (fi nal salary plan).
Employees who joined a Condor Group company after 1994 participate in a company pension scheme under which the pension entitlements are
based on the average salaries of those employees (average salary plan). Condor Group also has retirement obligations arising from individual
commitments and transitional provisions.
In accordance with IAS 19, all these commitments are classifi ed as unfunded defi ned benefi t obligations and classifi ed as such in these fi nancial
statements.
The Condor Group defi ned benefi t plans have been closed to new entrants (with the exception of pilots) since 2004.
There are additional unfunded defi ned benefi t obligations comprising individual commitments to executive staff at Thomas Cook Group and
obligations in respect of past service for employees in Sweden.
The unfunded pension benefi ts are accounted for as part of liabilities for retirement benefi t obligations in the balance sheet.
The following weighted average actuarial assumptions were made for the purpose of determining the unfunded defi ned benefi t obligations:
Discount rate for scheme liabilities
Expected rate of salary increases
Future pension increases
2007
%
5.50
2.80
2.00
The mortality tables 2005 G drawn up by Prof. Dr Klaus Heubeck were used as the basis for the mortality assumptions used in arriving at the
present value of the pension obligations at 31 October 2007. These assume a life expectancy for members currently aged 60 of 22.35 years
for men and 26.98 years for women.
Amounts recognised in income in respect of these defi ned benefi t schemes are as follows:
Current service cost
Past service cost
Interest cost on scheme liabilities
Total included in income statement
2007
€m
15.1
–
11.7
26.8
2006
%
4.25
2.68
2.68
2006
€m
15.9
0.1
10.5
26.5
Service costs have been included in personnel expenses in the income statement and the unwinding of the discount rate of the expected retirement
benefi t obligations has been included in fi nance costs.
Actuarial gains and losses have been reported in the statement of recognised income and expense.
110 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
37. RETIREMENT BENEFIT SCHEMES
continued
Changes in the present value of unfunded pension obligations were as follows:
At beginning of year
Current service cost
Past service cost
Interest cost
Benefi ts paid
Settlements
Actuarial gains
Acquisitions
At the end of the year
2007
€m
277.7
15.1
–
11.7
(12.3)
(4.8)
(62.6)
8.1
232.9
2006
€m
268.0
15.9
0.1
10.5
(5.2)
(3.3)
(8.3)
–
277.7
Funded defi ned benefi t pension obligations
The pension entitlements of employees of Thomas Cook UK, the Group’s Dutch companies and employees in Norway are provided through funded
defi ned benefi t schemes where pension contributions are paid over to the schemes and the assets of the schemes are held separately from those
of the Group in funds under the control of trustees.
Pension costs are assessed in accordance with the advice of qualifi ed actuaries in each country. The fair value of the pension assets in each scheme
at the year end is compared with the present value of the retirement benefi t obligations and the net difference reported as a pension asset or
retirement benefi t obligation as appropriate. Pension assets are only recognised to the extent that they will result in reimbursements being made
or future payments being reduced.
Funded defi ned benefi t pension obligations have been determined on the basis of assumptions relevant to each country and the weighted averages
of these were:
Discount rate for scheme liabilities
Infl ation rate
Expected return on scheme assets
Expected rate of salary increases
Future pension increases
2007
%
5.70
3.25
7.10
4.50
3.25
The Thomas Cook UK Pension Plan accounts for approximately 90 per cent of the total funded defi ned benefi t obligations and the mortality
assumptions used in arriving at the present value of those obligations at 31 October 2007 are based on a life expectancy for members currently
aged 60 of 25.2 years for men and 28.3 years for women.
The Thomas Cook UK Pension Plan has been closed to new entrants since April 2003. Employees who have joined since that date participate
in a new defi ned contribution scheme.
Amounts recognised in income in respect of these defi ned benefi t schemes are as follows:
Current service cost
Past service cost/(credit)
Gain on settlements
Expected return on scheme assets
Interest cost on scheme liabilities
Total included in income statement
2007
€m
26.4
0.3
(0.3)
(57.4)
44.3
13.3
2006
%
4.95
2.90
7.30
4.15
2.90
2006
€m
26.7
(30.4)
–
(39.0)
40.5
(2.2)
Service costs have been included in personnel expenses in the income statement and the unwinding of the discount rate of the expected retirement
benefi t obligations has been included in fi nance costs. The expected return on scheme assets has been included in fi nance income.
The actual return on scheme assets was €72.3 million (2006: €70.9 million).
Actuarial gains and losses have been reported in the statement of recognised income and expense.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 111
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. RETIREMENT BENEFIT SCHEMES
continued
Changes in the present value of funded defi ned benefi t obligations were as follows:
At beginning of year
Current service cost
Past service cost/(credit)
Settlements
Interest cost
Benefi ts paid
Acquisitions
Contributions paid by plan participants
Actuarial (gains)/losses
Exchange difference
At the end of the year
Changes in the fair value of scheme assets were as follows:
At beginning of year
Expected return on scheme assets
Contributions from the sponsoring companies
Contributions paid by plan participants
Actuarial gains
Benefi ts paid
Acquisitions
Exchange difference
At the end of the year
2007
€m
904.4
26.4
0.3
(0.3)
44.3
(18.1)
11.1
5.4
(22.0)
(21.7)
929.8
2007
€m
766.6
57.4
53.9
5.4
62.7
(18.1)
10.9
(27.5)
911.3
2006
€m
810.8
26.7
(30.4)
–
40.5
(13.9)
–
5.6
58.0
7.1
904.4
2006
€m
545.0
39.0
148.8
5.6
31.9
(13.9)
–
10.2
766.6
During 2006, a special one-off contribution payment was made by Thomas Cook UK to the pension fund amounting to €124.5 million (£85 million)
in order to offset actuarial losses. In the subsequent fi ve years, an amount totalling £4.35 million is to be paid to the pension fund on a quarterly
basis. The Group is expected to make aggregate contributions to its funded defi ned benefi t schemes of €49.5 million during the year commencing
1 November 2007.
The fair value of scheme assets at the balance sheet date is analysed as follows:
Equities
Property
Fixed interest gilts
Hedge funds
Other
At 31 October
2007
Long-term
rate of return
%
8.2
6.6
5.6
8.2
8.2
2006
Long-term
rate of return
%
8.7
6.3
4.5
–
7.9
2007
€m
434.3
115.5
220.5
81.0
60.0
911.3
2006
€m
384.6
79.5
174.7
–
127.8
766.6
The scheme assets do not include any of the Group’s own fi nancial instruments, nor any property occupied by, or other assets used by, the Group.
The expected rates of return on scheme assets have been calculated as the weighted average rate of return on each asset class. The return on each
asset class is taken as the market rate of return.
112 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
37. RETIREMENT BENEFIT SCHEMES
continued
The amount included in the balance sheet arising from the Group’s obligations in respect of its defi ned benefi t pension schemes is as follows:
Present value of funded defi ned benefi t obligations
Fair value of scheme assets
Defi cit on funded retirement benefi t obligations
Present value of unfunded defi ned benefi t obligations
Scheme defi cits recognised in the balance sheet
This amount is presented as follows:
Non-current assets
Current liabilities
Non-current liabilities
2007
€m
929.8
(911.3)
18.5
232.9
251.4
(0.4)
4.7
247.1
251.4
2006
€m
904.4
(766.6)
137.8
277.7
415.5
–
4.4
411.1
415.5
The cumulative net actuarial losses recognised in the statement of recognised income and expense at 31 October 2007 were €176.5 million
(2006: €323.8 million).
The history of the experience gains and losses of the schemes is as follows:
Present value of defi ned benefi t obligations
Fair value of scheme assets
Scheme defi cits
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
Defi ned contribution schemes
2007
€m
1,162.7
(911.3)
251.4
2006
€m
1,182.1
(766.6)
415.5
2005
€m
1,078.8
(545.0)
533.8
7.7
14.9
(49.7)
31.9
(148.9)
36.6
There are a number of defi ned contribution schemes in the Group, the principal ones being the MyTravel UK Group scheme which relates to
employees of MyTravel Group plc and various of its UK subsidiary companies and the new scheme for Thomas Cook UK employees joining since
April 2003.
The total charge for the year in respect of those and other defi ned contribution schemes, including liabilities in respect of insured benefi ts relating
to workers’ compensation arrangements, amounted to €14.8 million (2006: nil).
The assets of these schemes are held separately from those of the Group in funds under the control of trustees.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 113
1
2
3
4
5
6
7
8
9
10 11
GROUP FINANCIAL STATEMENTS CONTINUED
13
14 15
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
38. 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 associated and joint venture undertakings are disclosed below. Transactions between the
Company and its subsidiaries and associates are disclosed in the Company’s separate fi nancial statements.
Until 2 April 2007, Thomas Cook AG was jointly owned by Arcandor and Lufthansa and both were regarded as related parties. On 2 April 2007,
Arcandor acquired Lufthansa’s interest in Thomas Cook AG and on 19 June 2007 contributed Thomas Cook AG to the Thomas Cook Group plc
in exchange for shares in the Company. As a result, Arcandor now controls 52 per cent of the ordinary share capital of the Company and is
therefore regarded as a related party. Transactions with Arcandor for the year and the prior year and with Lufthansa up to 2 April 2007 are
included in the disclosures below as transactions with the parent company.
Trading transactions
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
Sale of goods and services
Purchases of goods and services
Interest receivable
Interest payable
Other income
Management fees and other expenses
Amounts owed by related parties
Provisions against amounts owed
Amounts owed to related parties
Associates, joint ventures
and participations*
Parent company
2007
€m
1.8
34.0
0.1
–
0.3
–
22.6
(4.6)
8.7
2006
€m
40.1
29.3
–
–
–
–
21.4
(6.7)
7.0
2007
€m
8.0
69.3
–
0.5
0.8
1.6
9.6
–
2.7
2006
€m
43.9
173.3
–
0.1
–
–
4.8
–
31.9
All transactions are considered to have been made at market prices. Outstanding amounts will normally be settled by cash payment.
* Participations are equity investments where the Group has a signifi cant equity participation but which are not considered to be associates or joint ventures.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories
specifi ed in IAS 24 “Related Party Disclosures”.
Further information about the remuneration of individual Directors is provided in the audited part of the Remuneration Report on pages 61 to 64.
Short-term employee benefi ts
Post-employment benefi ts
Share-based payments
2007
€m
23.7
0.7
0.3
24.7
2006
€m
3.2
0.2
–
3.4
The above amounts for 2006 relate to the Thomas Cook AG key management only. The compensation for 2007 includes the Thomas Cook AG
key management for the full year and the Thomas Cook Group plc key management for the period from 19 June 2007 to 31 October 2007.
The 2007 amount includes €10.1 million related to payments made to key management from Thomas Cook AG as compensation in respect
of the transactions that led to the formation of Thomas Cook Group plc.
These amounts were reimbursed by Arcandor AG.
114 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
1
2
3
4
5
6
7
8
9
10 11
12
INDEPENDENT AUDITORS’ REPORT
14 15
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF THOMAS COOK GROUP PLC
We have audited the parent company fi nancial statements of Thomas
Basis of audit opinion
Cook Group plc for the year ended 31 October 2007, which comprise
We conducted our audit in accordance with International Standards
the Balance Sheet and the related notes 1 to 13. These parent company
on Auditing (UK and Ireland) issued by the Auditing Practices Board.
fi nancial statements have been prepared under the accounting policies
An audit includes examination, on a test basis, of evidence relevant to
set out therein.
We have reported separately on the Group fi nancial statements
of Thomas Cook Group plc for the year ended 31 October 2007
and on the information in the Directors’ Remuneration Report that
is described as having been audited.
This report is made solely to the Company’s members, as a body,
in accordance with Section 235 of the Companies Act 1985. Our audit
work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an auditors’
report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body for our audit work,
for this report, or for the opinions we have formed.
the amounts and disclosures in the parent company fi nancial statements.
It also includes an assessment of the signifi cant estimates and
judgements made by the Directors in the preparation of the parent
company fi nancial statements, and of whether the accounting policies
are appropriate to the Company’s circumstances, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide us
with suffi cient evidence to give reasonable assurance that the parent
company fi nancial statements to be audited are free from material
misstatement, whether caused by fraud or other irregularity or error.
In forming our opinion we also evaluated the overall adequacy of the
presentation of information in the parent company fi nancial statements.
Respective responsibilities of Directors and auditors
The Directors’ responsibilities for preparing the Annual Report and
Opinion
In our opinion:
the parent company fi nancial statements in accordance with applicable
> the parent company fi nancial statements give a true and fair view,
law and United Kingdom Accounting Standards (United Kingdom
in accordance with United Kingdom Generally Accepted Accounting
Generally Accepted Accounting Practice) are set out in the Statement
Practice, of the state of the Company’s affairs as at 31 October 2007;
of Directors’ Responsibilities.
> the parent company fi nancial statements have been properly prepared
Our responsibility is to audit the parent company fi nancial statements
in accordance with the Companies Act 1985; and
in accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the parent company fi nancial
> the information given in the Group Directors’ Report is consistent with
the parent company fi nancial statements.
statements give a true and fair view and whether the parent company
PricewaterhouseCoopers LLP
fi nancial statements have been properly prepared in accordance with
Chartered Accountants and Registered Auditors
the Companies Act 1985. We also report to you whether in our opinion
London
the information given in the Group Directors’ Report is consistent with the
30 January 2008
parent company fi nancial statements. The information given in the Group
Directors’ Report comprises the information supplied in the Chairman’s
Deloitte & Touche LLP
Statement, the Chief Executive’s Strategy Statement, the Business
Chartered Accountants and Registered Auditors
Review, the Financial Review and the Corporate Social Responsibility
Manchester
Report as cross-referenced from the ‘Liability’ section of the Group
30 January 2008
Directors’ Report.
In addition we report to you if, in our opinion, the Company has not kept
proper accounting records, if we have not received all the information and
explanations we require for our audit, or if information specifi ed by law
regarding Directors’ remuneration and other transactions is not disclosed.
We read the other information contained in the Annual Report as
described in the contents section and consider whether it is consistent
with the audited parent company fi nancial statements. We consider
the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the parent company
fi nancial statements. Our responsibilities do not extend to any further
information outside the Annual Report.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 115
Notes
2007
€m
5
6
7
8
9
10
10
10
10
4,684.7
4,684.7
120.2
–
120.2
(92.3)
27.9
4,712.6
4,712.6
97.7
10.1
4,512.6
99.5
(7.3)
4,712.6
1
2
3
4
5
6
7
8
9
10 11
12
13
COMPANY FINANCIAL STATEMENTS
15
COMPANY BALANCE SHEET
As at 31 October 2007
Fixed assets
Investments in subsidiaries
Current assets
Debtors falling due within one year
Cash and deposits
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Net assets
Equity
Called-up share capital
Share premium account
Merger reserve
Profi t and loss account
Investment in own shares
Equity shareholders’ funds
These fi nancial statements were approved by the Board of Directors on 30 January 2008.
Signed on behalf of the Board
L Heuberg
Director
Notes 1 to 13 form part of these fi nancial statements.
116 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The fi nancial statements are prepared under UK GAAP (United Kingdom Generally Accepted Accounting Practice) and in accordance with applicable
United Kingdom law and accounting standards. The particular accounting policies adopted are described below and have been applied on a consistent
basis in the current period.
Basis of accounting
These fi nancial statements have been prepared under the historical cost convention.
The Company was incorporated on 8 February 2007 as Shakespeareco plc and is registered in England and Wales (registered number 6091951).
On 12 February 2007, the Company changed its name to Thomas Cook Group plc.
These are the fi rst fi nancial statements of Thomas Cook Group plc and therefore no comparative amounts are shown.
Income from shares in Group undertakings
These amounts represent dividends from investments. The dividends are recognised in the period in which consideration is received.
Investments in subsidiaries
Investments in subsidiaries are shown at cost less provision for impairment.
Leases
Operating lease rentals are charged to the profi t and loss account on a straight line basis over the initial period of the lease term.
Foreign currency
Transactions denominated in foreign currencies are translated at the exchange rate at the date of the transaction. Foreign currency monetary
assets and liabilities held at the period end are translated at period end exchange rates. Resulting exchange gains or losses are taken through
the profi t and loss account.
Capital instruments
Capital instruments are accounted for in accordance with the principles of FRS 26 “Financial Instruments: Measurement” and are classifi ed as equity
share capital, minority interest or debt as appropriate.
Own shares held under trust
Shares held within employee share ownership plans are dealt with in the balance sheet as a deduction from equity shareholders’ funds.
2. PROFIT FOR THE YEAR
As permitted by Section 230 of the Companies Act 1985, the Company has elected not to present its own profi t and loss account for the year.
The profi t after tax of the Company amounted to €99.4 million.
The auditors’ remuneration for audit services to the Company was €0.9 million.
3. STAFF COSTS
Staff costs during the year were as follows:
Wages and salaries
Social security costs
The average number of employees of the Company during the year was:
Employees are based in the United Kingdom and Germany.
2007
€m
7.4
0.9
8.3
Number
1
Disclosures of individual Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension entitlements
required by the Companies Act 1985 and those specifi ed for audit by the Financial Services Authority are on pages 61 to 64 within the Remuneration
report and form part of these audited accounts.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 117
1
2
3
4
5
6
7
8
9
10 11
12
13
COMPANY FINANCIAL STATEMENTS CONTINUED
15
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
4. DIVIDENDS
It is proposed that a fi nal dividend of 5 pence per share (€cents 7.17) will be paid in 2008. The cost of this dividend will be €70 million. This proposed
dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these fi nancial statements.
5. INVESTMENTS IN SUBSIDIARIES
Cost and net book value
Additions
At 31 October 2007
2007
€m
4,684.7
4,684.7
A list of the Company’s principal subsidiary undertakings is shown in note 13 to the fi nancial statements on pages 120 to 122.
On 19 June 2007, the Company acquired the whole of the share capital of Thomas Cook AG and MyTravel Group plc pursuant to the merger agreement
dated 12 February 2007 between the Company, Arcandor (formerly KarstadtQuelle) and MyTravel. The consideration for these acquisitions was
satisfi ed by the issue of 971,912,124 new ordinary shares of €0.10 each of the Company. The fair value of these shares was deemed to be £3.22,
the closing quoted share price of MyTravel Group plc on 18 June 2007.
Directly attributable expenses of €45.8 million were incurred in connection with these acquisitions and have been capitalised.
The Company subsequently acquired a further 4,929,028 ordinary shares of MyTravel which had been issued by MyTravel pursuant to the exercise
of MyTravel executive share options. The consideration was satisfi ed by the issue of an equal number of new ordinary shares of the Company.
2007
€m
107.2
0.5
8.9
3.6
120.2
2007
€m
–
2007
€m
–
70.9
21.4
92.3
6. DEBTORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Amounts owed by subsidiary undertakings
Other debtors
Tax recoverable
Deposits and prepayments
7. CASH AND DEPOSITS
Cash at bank and in hand
8. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade creditors
Amounts owed to subsidiary undertakings
Accruals and deferred income
118 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
9. CALLED-UP SHARE CAPITAL
The details of the Company’s share capital are the same as those of the Group, and are disclosed in note 30 in the notes to the Group fi nancial
statements in this report.
Details of share options granted by the Company are set out in notes 30 and 36 to the Group fi nancial statements.
Of the expense recognised in respect of share-based payments, €0.1 million related to employees of the Company.
10. RESERVES
Premium on allotments during the period
Acquisition of Thomas Cook AG
Acquisition of MyTravel Group plc
Expenses of issue of shares
Transfer of retained profi t for the year
Equity credit in respect of share-based payments
Purchase of own shares
At 31 October 2007
Share
premium
account
€m
10.1
–
–
–
–
–
–
Merger
reserve
€m
–
2,371.8
2,159.3
(18.5)
–
–
–
10.1
4,512.6
Own shares
€m
Profi t and
loss account
€m
–
–
–
–
–
–
(7.3)
(7.3)
–
–
–
–
99.4
0.1
–
99.5
The merger reserve arose on the issue of shares of the Company in connection with the acquisition of the entire share capital of Thomas Cook AG
and MyTravel Group plc on 19 June 2007:
Shares issued
Merger reserve
Cost of shares
€m
97.2
4,531.1
4,628.3
The share premium arises in connection with the issue of ordinary shares of the Company following the exercise of MyTravel executive share options:
€m
0.5
10.1
10.6
Shares issued
Merger reserve
Cost of shares
At 31 October 2007, the Company had distributable reserves of €99.5 million.
Details of the own shares held are set out in note 30 to the Group fi nancial statements.
11. OPERATING LEASE ARRANGEMENTS
There were no operating lease costs or commitments during the period.
12. CONTINGENT LIABILITIES
At 31 October 2007, the Company had contingent liabilities in respect of counter-guarantees for bank funding and letters of credit amounting
to €156.1 million.
There were, in addition, contingent liabilities in respect of guarantees of amounts owed by subsidiaries of €0.2 million.
The Company complies with all the standards relevant to consumer protection and formal requirements in respect of package tour contracts
in the UK and has all the necessary licences. The customer’s right to reimbursement of the return travel costs and amounts paid in case
of insolvency or bankruptcy on the part of the tour operator or travel agency is guaranteed in line with legislation in the UK via guarantees
provided by banks to the Civil Aviation Authority.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 119
1
2
3
4
5
6
7
8
9
10 11
12
13
COMPANY FINANCIAL STATEMENTS CONTINUED
15
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
13. PRINCIPAL SUBSIDIARIES AND ASSOCIATED AND JOINT VENTURE UNDERTAKINGS
At 31 October 2007 the Company’s principal subsidiary and associated and joint venture undertakings were:
Country of
incorporation
and operation
Proportion
held by
Company (%)
Proportion
held by
Group (%)
Holding company
Holding company
Germany
England
100
100
100
100
Germany
Switzerland
Portugal
Germany
Switzerland
Spain
Turkey
Spain
Poland
Slovenia
Czech Republic
Slovakia
Hungary
Netherlands
Germany
Spain
Senegal
Germany
Hungary
Austria
Belgium
Belgium
Germany
France
France
Belgium
Netherlands
Switzerland
Belgium
Belgium
Germany
France
Germany
Czech Republic
100
100
100
100
100
80.75
100
51
100
100
100
60
100
100
100
92
100
100
96.67
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Direct subsidiaries
Thomas Cook AG
MyTravel Group plc
Indirect subsidiaries
Continental Europe
Bucher Reisen GmbH
CHB AG
Dos Delfi nos-Sociedade Immob. Tourist Lda.
Gesellschaft fur Reise-Vetriebssysteme mbH
GFT Gesellschaft fur Touristic AG
Golf Novo Sancti Petri S.A.
Hotel Investment Sarigerme Turizm Ticaret L.S.
Hoteles y Clubs de Vacaciones S.A.
Neckermann Polska BP Sp. z.o.o.
Neckermann Reisen d.o.o.
Neckermann Reisen s.r.o.
Neckermann Slovakia s.r.o.
NUR Neckermann Utazas Szolgas Szolgaltato Kft
Reisburo Neckermann Nederland BV
SATEE GmbH
Sociedad Royal Cupido S.A.
Societe Touristique et Hoteliere du Senegal S.A.
TC Touristik GmbH
Thomas Cook Air Market Hungary Kft
Thomas Cook Austria AG
Thomas Cook Belgium NV
Thomas Cook Airlines Belgium NV
Thomas Cook Destinations GmbH
Thomas Cook France SAS
Thomas Cook France Hoteliere Holding SARL
Thomas Cook Interservices NV
Thomas Cook Nederland BV
Thomas Cook Service AG
Thomas Cook Service Centre Belgium NV
Thomas Cook Retail Belgium NV
Thomas Cook Vertriebs GmbH
Thomas Cook Voyages S.A.
T.K. Touristik GmbH
travel plus s.r.o.
120 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
13. PRINCIPAL SUBSIDIARIES AND ASSOCIATED AND JOINT VENTURE UNDERTAKINGS
continued
Country of
incorporation
and operation
Proportion
held by
Company (%)
Proportion
held by
Group (%)
Germany Airlines
Condor Berlin GmbH
Condor Flugdienst GmbH
Lufthansa Leasing GmbH & Co. Fox-Juliett OHG
Lufthansa Leasing GmbH & Co. Fox-Kilo OHG
Lufthansa Leasing GmbH & Co. Fox-Lima OHG
Lufthansa Leasing GmbH & Co. Fox-Mike OHG
Lufthansa Leasing GmbH & Co. Fox-November OHG
Lufthansa Leasing GmbH & Co. Fox-Oscar OHG
Lufthansa Leasing GmbH & Co. Fox-Papa OHG
Lufthansa Leasing GmbH & Co. Fox-Zulu OHG
LLG Nord GmbH & Co. Delta OHG
TC Delta GmbH
UK and Ireland
Airtours Holidays Transport Limited
BCT Travel Group Limited
Capitol Holdings Limited
Falcon Istioploiki Hellas S.A.
Inspirations Plc
Jeropatur-Viagens e Turismo Ltda
JMCH Services Limited
MyTravel Aircraft Engineering Limited
MyTravel UK Limited
MyTravel 330 Leasing Limited
Neilson Active Holidays Limited
Neilson Hellas A.E.
Neilsen Turizm Danismanlik VE Ticaret Ltd STI
O.A. Yacht Charter S.A.
Praznik D.O.O. ZA Turizam
Resorts Mallorca Hotels International S.L.
Style Holidays Limited
Thomas Cook Airlines Limited
Thomas Cook Airlines UK Limited
thomascook.com Limited
Thomas Cook Retail Limited
Thomas Cook Signature Limited
Thomas Cook Tour Operations Limited
Thomas Cook UK Limited
Thomas Cook USA Travel Services Limited
Thomas Cook TV Limited
C&N UK plc
White Horse Insurance Ireland Limited
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
England
England
Ireland
Greece
England
Portugal
England
England
England
Cayman Islands
England
Greece
Turkey
Greece
Croatia
Spain
England
England
England
England
England
England
England
England
England
England
England
Ireland
100
75.1
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
95
100
100
100
100
100
100
100
100
100
100
100
100
100
100
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 121
1
2
3
4
5
6
7
8
9
10 11
12
13
COMPANY FINANCIAL STATEMENTS CONTINUED
15
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
13. PRINCIPAL SUBSIDIARIES AND ASSOCIATED AND JOINT VENTURE UNDERTAKINGS
continued
Country of
incorporation
and operation
Proportion
held by
Company (%)
Proportion
held by
Group (%)
Spain
Denmark
Denmark
Sweden
Norway
Sweden
Finland
Greece
Canada
USA
Ireland
Channel Islands
Channel Islands
England
England
England
Germany
Germany
England
England
Channel Islands
England
Cyprus
Spain
Spain
Spain
Egypt
Spain
England
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
19.99
25
40
25
25.1
40
50
Northern Europe
Hoteles Sunwing S.A.
MyTravel Airways A/S
MyTravel Denmark A/S
MyTravel Northern Europe AB
MyTravel Norway A/S
MyTravel Sweden AB
Oy Tjareborg AB
Sunwing Hoteles Hellas S.A.
North America
Thomas Cook Canada Inc.
MyTravel USA Holdings Inc.
NALG Ireland
Corporate
Airtours Channel Islands Limited
Airtours Finance Limited
Airtours the Holidaymakers Limited
Blue Sea Investments Limited
Blue Sea Overseas Investments Limited
“Eurocenter” Beteiligungs-und Reisevermittlung GmbH
GUT Reisen GmbH
Sandbrook UK Investments Limited
Sandbrook Overseas Investments Limited
Parkway Limited Partnership (No. 1) L.P.
Thomas Cook Treasury Limited
Associated companies
Aqua Sol Hotels Limited
COPLAY 95 S.L.
Hispano Alemana de Management Hotelero S.A.
Hotelera Adeje, S.A.
Oasis Company SAE
Viajes Iberoservice S.A.
Joint venture
Thomas Cook Personal Finance Limited
122 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
1
2
3
4
5
6
7
8
9
10 11
12
13 14
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
Analysis of shareholders
At 31 October 2007 there were 16,868 shareholders registered.
Type
Individuals
Life/Insurance Funds
Pension Funds
Overseas Funds
Unit/Investment Trusts
Other
Collateral/Proprietary/Market Makers
Arcandor AG
TOTAL
Shareholder enquiries
Number of holders
Shares held
16,258
15,502,417
97
121
104
108
142
37
95,756,596
65,380,529
104,438,100
52,972,277
7,679,315
126,357,072
1
508,754,846
16,868
976,841,152
The Company’s share register is maintained by Equiniti.
Any queries about the administration of shareholdings such as change of
address, change of ownership or dividend payments should be directed to
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA,
or through the shareholder telephone helpline on 0871 384 2154.
Shareholders are also able to access and amend details of their
shareholding online, subject to passing an identity check, at the
registrar’s website at www.shareview.co.uk.
UK based shareholders are now offered a simple and low-cost
share sale and purchase service by our registrars. This is available
by telephone 0871 384 2020 (8am – 4.30pm) or via the internet
at www.shareview.co.uk/dealing.
Calls to the above numbers are charged at 8p per minute from a BT landline.
Other telephony providers’ costs may vary.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007 | 123
1
2
3
4
5
6
7
8
9
10 11
12
13 14
SHAREHOLDER INFORMATION CONTINUED
CORPORATE ADVISORS
Appendix 1
Key Performance Indicators Defi nitions
* Revenue for the Group and segmental analysis represents external revenue only, except
in the case of the Airlines Germany segmental key performance analysis where revenue
of €494.6 million (2006: €547.9 million) largely to the Continental Europe division have
been included.
** Profi t from operations is defi ned as earnings before interest and tax, and has been adjusted
to exclude exceptional items and amortisation of business combination intangibles. It also
excludes our share of the results of associates and joint ventures.
*** The operating profi t margin is the profi t from operations (as defi ned above) divided by the
external revenue, except in the case of the Airlines Germany segmental key performance
analysis where total revenue has been used as the denominator to more accurately refl ect
the trading performance.
In
the case of pro forma profi t from operations, the fi gures refl ect the underlying results for
the 12 months to 31 October 2007 and the 12 months to 31 October 2006 for each of MyTravel
Group plc, Thomas Cook AG and Thomas Cook Group plc and have been prepared by the
Directors to illustrate the effect of the merger of Thomas Cook AG and MyTravel Group plc as
if the transaction had taken place prior to 1 November 2005 (the fi rst day of the comparative
period presented).
‹ Adjusted earnings per share is calculated as pro forma net profi t after tax, but before
exceptional items and amortisation of business combination intangibles, divided by the
number of shares in issue at 31 October 2007 (also for 2006 comparative). Profi t after tax
has been calculated using a notional tax rate of 30 per cent.
› Adjusted dividend cover is calculated by dividing the adjusted earnings per share (see above)
by the pro forma full year proposed dividend in euro (translated at the rate prevailing on
31 October 2007).
† Passengers in the case of UK, Northern Europe and North America represents the total
number of passengers (in thousands) that departed on a Thomas Cook Group plc holiday in
the period. It excludes customers who booked third party tour operator products through
Thomas Cook retail channels. For Continental Europe passengers represents all tour operator
passengers departed in the period, excluding those on which only commission is earned.
Risk
passengers in UK, Northern Europe and North America represent those holidays sold
where the business has fi nancial commitment to the product (fl ights and accommodation)
before the customer books. The analysis excludes accommodation only passengers.
Non-Risk
passengers in UK, Northern Europe and North America represents those holidays
sold where the business has no fi nancial commitment to the product (fl ights and
accommodation) before the customer books.
†† Capacity for UK, Northern Europe and North America represents the total number of holidays
available to sell. This is calculated by reference to committed airline seats (both in-house and
third party).
In
the case of Airlines Germany, capacity represents the total number of available seat
kilometres (ASK). ASK is a measure of an airline’s passenger carrying capacity and is
calculated as available seats multiplied by distance fl own.
# Average selling price for UK, Northern Europe and North America represents the average
selling price (after discounts) achieved per mainstream passenger departed in the period
(excluding accommodation only passengers). For Continental Europe, average selling price
represents the average selling price (after discounts) achieved per passenger departed in
the period.
††† For UK, Northern Europe and North America, load factor is a measure of how successful the
mainstream businesses were at selling the available capacity. This is calculated by dividing
the departed mainstream passengers in the period (excluding accommodation only) by the
capacity in the period.
For
Airlines Germany, seat load factor is a measure of how successful the airline was at selling
the available capacity. This is calculated by dividing the revenue passenger kilometres (RPK)
by the available seat kilometres (ASK – see capacity defi nition above) and is the recognised
IATA defi nition of load factor used for airlines. RPK is a measure of the volume of passengers
carried by an airline. One RPK is fl own when a passenger is carried one kilometre.
## Brochure mix is defi ned as the number of mainstream holidays (excluding accommodation
only) sold at brochure prices divided by the total number of holidays sold and is a measure of
how successful a business was at selling holidays early. Holidays are generally discounted
closer to departure.
‡ Controlled distribution is defi ned as the proportion of sales generated through our in-house
retail shops, call centres and websites. Internet distribution is a sub-set of controlled
distribution and is defi ned as the proportion of sales generated through in-house websites.
Both performance indicators are calculated on sales value of departed passengers in
the period.
‡‡ Sold seats in Airlines Germany represents the total number of one-way seats sold on aircraft
(in thousands) that departed in the period.
### Yield in Airlines Germany represents the average price achieved per seat departed in
the period.
Stockbrokers and fi nancial advisors:
Citigroup
Citigroup Centre
Canada Square
London E14 5LB
UBS Limited
1 Finsbury Avenue
London EC2M 2PP
Financial communications:
Brunswick Group LLP
16 Lincoln’s Inn Fields
London WC2A 3ED
Registrars and transfer offi ce:
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
External auditors:
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
Internal auditors:
Ernst & Young LLP
1 More London Place
London SE1 2AF
Solicitors:
Slaughter and May
One Bunhill Row
London EC1Y 8YY
124 | THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2007
Environmental statements:
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