Thomas Cook Group plc Annual Report 2009

FY2009 Annual Report · Thomas Cook Group plc
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Focused on our journey

Thomas Cook Group plc
Annual Report & Accounts 2009

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Directors’ Report
Business Review
02 Chairman’s statement
04 Our Group overview
06 Group Chief Executive Ofﬁcer’s statement
10 Our marketplace
11 Our strategy
20 Operational review
30 Sustainability
33 People
34 Financial review
38 Principal risks and uncertainties

Directors’ Report
Corporate Governance
40 Board of Directors
42 Group Executive Board
43 Corporate governance report
51 Other disclosures
53 Remuneration report

Financial Statements
61 Independent auditors’ report
62 Group income statement
63 Group statement of recognised

income and expense
64 Group balance sheet
66 Group cash ﬂow statement
67 Notes to the ﬁnancial statements
107 Company balance sheet
108 Company statement of recognised

income and expense

108 Company cash ﬂow statement
109 Notes to the Company
ﬁnancial statements

116 Appendix 1 – Audited statutory
information with unaudited
pro forma comparatives
122 Appendix 2 – Key performance

indicators deﬁnitions
123 Shareholder information

14Maximise value

of mainstream

18

Leading travel-related
ﬁnancial services provider

16 Leading independent

travel provider

19Capture growth

through mergers
and acquisitions

06

Group Chief Executive
Ofﬁcer’s statement

We believe that our key differentiator is our people.
We operate in a highly competitive industry in which
most things can be copied easily. What makes Thomas
Cook different is the ability and attitude of our people.
We believe they are our greatest asset and our vision
and values sit at the very core of this philosophy.

P
ioneering our future Results orientated

We inspire energy and enthusiasm. We seek constantly
to be creative, innovative and constructively challenge
the status quo. We thrive in an ever-changing and
dynamic world.

We take responsibility for achieving results. We are
reliable and always deliver our promises. We are
committed and determined to challenge and overcome
barriers and solve problems. We always work to improve
our own and others’ performance and capabilities.

Obsessed

customer se

We deliver the best pos
customers at all times.
to their personal needs

with
ervice

ssible experience for our
We listen and respond
s.

United as one team Driving robust decisions

We support and respect each other and work openly
and collaboratively with our colleagues as a single,
worldwide team. We trust each other and always
demonstrate integrity and honesty.

We strive for quality, speed and clarity of decisions.
We learn from the past. We ensure our decisions
are based on facts and are fair.

For more information see page 33

Thomas Cook Group plc
Annual Report & Accounts 2009

01

We build on a 168-year history of successfully meeting the
travel needs of our customers. Many of the values that our
founder Thomas Cook himself instilled in the business when
he created it in 1841 still hold true. Today, we are one of
the world's leading travel groups, with a focused strategy,
a ﬂexible business model, a portfolio of market-leading
brands and a team of over 31,000 people who are all
committed to our vision of ‘going further to make dreams
come true’ for our customers and delivering sustainable
value to our shareholders.

Focused on our journey

Our Group performance

Our operational highlights

Financial highlights1

Revenue*
£9,268.8m

+5.9%

Proﬁt from operations**
£414•9m

+13.4%

Operating proﬁt margin***
4•5%

+7.1%

Statutory proﬁt before tax
£56•1m
(2008: 48•4m)

Statutory basic EPS
1•9p
(2008: 4•6p)

Adjusted basic EPS
26.4p
+9.5%

Proposed dividend
per share
10•75p
+10.3%

• We achieved strong results, ahead of

expectations, with:
– revenue up 6% to £9,268.8m;
– proﬁt from operations up 13% to £414.9m;
– operating proﬁt margin up 7% to 4.5%;
– adjusted basic earnings per share up 10% to 26.4p.

• The Board is recommending a ﬁnal dividend
of 7.0p per share, bringing the total dividend
for the 2009 ﬁnancial year to 10.75p.

• We have strong foundations for the ﬁnancial

year 2010, provided by continued improvement
in product mix, cost saving initiatives and
further growth from acquired businesses.

• We are conﬁdent we will meet the Board’s
expectations for the 2010 ﬁnancial year.

1 The Group statutory results for the ﬁnancial year ended 30 September 2009 are set out on pages 62 to 106. Current year ﬁgures have been compared to the unaudited pro forma ﬁgures for the

12 months ended 30 September 2008 (see Appendix 1 on pages 116 to 121).
See Appendix 2 on page 122 for key.

02

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Chairman’s statement

Our management team has again delivered
a strong set of results, despite an adverse
economic climate.

Michael Beckett
Chairman

Performance and strategic review
Our management team has again delivered
a strong set of results, despite an adverse
economic climate. We grew proﬁt from
operations and expanded our operating
proﬁt margin, driven by merger synergies
and further cost savings. We are delivering an
increased dividend and at the same time, we
have ensured that we have ﬁrm foundations
for the future.

Our strategy, which we have further developed
during the year, will serve us well in our drive
to maximise shareholder value.

Over a year ago, under the leadership of
Manny Fontenla-Novoa, the management
team took a number of steps in anticipation
of the then worsening economic environment.
They continued to take swift and effective
actions during the year to maintain our
operational and ﬁnancial strength throughout
that period and into the future.

We will continue to build on the strengths
we have created; including a strong ﬁnancial
position, a trusted brand portfolio and the
proven ability, within our ﬂexible model, to
manage our business so we continue to meet
the needs of our customers in the future.

Dividend
The Board is recommending a ﬁnal dividend
of 7.0 pence per share, which when combined
with the interim dividend of 3.75 pence per
share paid on 4 September 2009, makes a
total dividend for the year of 10.75 pence
per share. This recommendation reﬂects the
Group’s ﬁnancial achievement, the strength
of our ﬁnancial model and our commitment
to delivering value to shareholders. The total
dividend for the year represents a payout of
41% of adjusted diluted earnings per share
and is in line with our policy, which remains
to increase dividends progressively, paying
between 40% and 50% of adjusted earnings
by way of dividend.

Once approved, the ﬁnal dividend will be
payable on 8 April 2010 to holders of relevant
shares registered on 19 March 2010.

Shareholder base
During the year, the uncertainty regarding the
continued ownership of the shares in Thomas
Cook Group held by Arcandor was resolved.
Arcandor went into insolvency on 1 September
2009. On 10 September 2009, Arcandor’s
lendor banks successfully placed 43% of our
issued shares with a number of institutional
shareholders at a 2% discount to the closing
market price on 9 September 2009. Following

Thomas Cook Group plc
Annual Report & Accounts 2009

03

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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Executive team
Once again, Manny Fontenla-Novoa and
his executive team have together demonstrated
their ability to lead the Group and deliver
strong operating performance in a challenging
marketplace. In doing so, they have improved
our industry leading margins and have made
progress against our strategic agenda. The Board
would like to thank them for the success they
have delivered and express our conﬁdence
in their ability to address the challenges that
lie ahead.

Employees
Our employees remain central to the future
success of the Group. They live our values and
go further to understand the requirements
of our customers as they deliver their travel
and holiday dreams. With their range of skills
and experience, we believe they are our key
differentiator in the global competitive
environment of our industry. On behalf of
the Board and shareholders, I would like to
thank them for their dedication and high
standards, which they continue to maintain.

The future
Based on our solid foundations and a wide
range of initiatives that we continue to
undertake, the Board remains conﬁdent
that the Group will perform in line with its
expectations for the current year.

Michael Beckett
Chairman
29 November 2009

this, 100% of our shares are freely ﬂoating
on the London market, which means
Thomas Cook is fully independent for the
ﬁrst time since its foundation in 1841.

The Board
The Board is committed to high standards
of corporate governance and, following the
termination of the Relationship Agreement
with Arcandor on 10 September 2009, we
made a number of changes to our governance
arrangements in line with the Combined Code.
During the year, we also carried out a thorough
Board evaluation process, the output of which
will help drive further improvements in the
area of Board and Committee effectiveness.

We have strengthened our Board with a
number of key appointments.

Paul Hollingworth will join the Board on
1 January 2010 as Group Chief Financial Ofﬁcer.
He will replace Jürgen Büser, who is stepping
down from the Board following a period of
ill health. Ludger Heuberg, a member of the
Group Executive Board, who has been Acting
Group Chief Financial Ofﬁcer, will ensure a
smooth handover to Paul Hollingworth.

On 6 November 2009, Sam Weihagen, Chief
Executive Ofﬁcer, Northern Europe, took on
the additional role of Deputy to the Group
Chief Executive Ofﬁcer and joined the Board
as an Executive Director.

Recently, the Nominations Committee
commenced a process to identify and recruit
two additional Independent Non-Executive
Directors. I am pleased to announce that
Peter Middleton, who has experience as a Chief
Executive Ofﬁcer in the global travel industry
and ﬁnancial world, has agreed to join our
Board with effect from 30 November 2009.

During the year, there were a number of
changes to the Board, which were brought
about as a result of the Arcandor situation.
Peter Diesch left the Board on 22 December
2008, and was replaced by Karl-Gerhard Eick
on the same date, and Thomas Middelhoff left
the Board on 17 March 2009, and was replaced
as Chairman by Karl-Gerhard Eick. Upon the
termination of the Relationship Agreement
between Arcandor and Thomas Cook,
Karl-Gerhard Eick left the Board.

Separately, Hemjö Klein, one of our
Independent Non-Executive Directors,
resigned from the Board on 18 September
2009, for personal reasons.

On behalf of the Board, I would like to thank
each of our former Directors and Ludger
Heuberg for their contribution to the Group.

04

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Our Group overview
Thomas Cook Group plc is one of the world’s leading leisure travel groups with sales
of £9.3 billion and 22.1 million customers. We operate under ﬁve geographic segments
in 21 countries, and are number one or number two in our core markets. Our business
is supported by 31,000 employees, a ﬂeet of 95 aircraft1 and a network of over 3,400
owned and franchised travel stores.

UK & Ireland, India and Middle East

Key facts

Key brands

• 7.6 million2 passengers

• 1,0163 retail outlets

• 43 aircraft

• controlled distribution 68.6%#

• 7.0 million passengers

• 2,356 retail outlets

• 6 aircraft

• controlled distribution 38.3%#

• 1.5 million passengers

• 18 retail outlets

• 11 aircraft

• controlled distribution 82.7%#

• 1.1 million passengers

• 52 retail outlets

• controlled distribution 14.1%#

• 5.9 million4 passengers

• 34 aircraft

• approximately one-third of seats

sold in-house

Continental Europe

Northern Europe

North America

Airlines Germany

1 Includes one aircraft on lease to a third party.
2 Includes approximately 0.9m passengers in India and Egypt.
3 Includes 220 retail outlets in India and Egypt.
4 Includes in-house passengers of 2.1 million.

Thomas Cook Group plc
Annual Report & Accounts 2009

05

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Financial highlights

Revenue*

£3,098.0m
2008: £3,097•3m

Percentage of
Group revenue

33.4%

Proﬁt from operations**

Operating proﬁt margin***

Contribution to Group based
on proﬁt from operations$

£162.2m
2008: £143•4m

5.2%
2008: 4.6%

36.8%

Revenue*

£4,000.3m
2008: £3,620•4m

Percentage of
Group revenue

43.2%

Proﬁt from operations**

Operating proﬁt margin***

Contribution to Group based
on proﬁt from operations$

£127.0m
2008: £106•3m

3.2%
2008: 2.9%

28.8%

Revenue*

£1,059.3m
2008: £971•6m

Percentage of
Group revenue

11.4%

Proﬁt from operations**

Operating proﬁt margin***

Contribution to Group based
on proﬁt from operations$

£86.4m
2008: £86•2m

8.2%
2008: 8.9%

19.6%

Revenue*

£370.4m
2008: £384.2m

Percentage of
Group revenue

4.0%

Proﬁt from operations**

Operating proﬁt margin***

Contribution to Group based
on proﬁt from operations$

£17.9m
2008: £6•0m

4.8%
2008:1.6%

4.1%

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For more information
see page 20.

For more information
see page 22.

For more information
see page 24.

For more information
see page 26.

Revenue*

Percentage of
Group revenueØ

Proﬁt from operations**

Operating proﬁt margin***

Contribution to Group based
on proﬁt from operations$

£1,061.2m
2008: £978•2m

8.0%

£47.4m
2008: £45•4m

4.5%
2008: 4.6%

10.7%

For more information
see page 28.

See Appendix 2 on page 122 for key.

Ø The percentage of Group revenue for Airlines Germany has been calculated using the external revenue ﬁgure of £740.8m.
$ The contribution to Group has been based on the proﬁt from operations ﬁgure of £440.9m, which excludes corporate costs of £26m.

06

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Group Chief Executive Ofﬁcer’s statement

We have delivered a strong performance
in 2009 achieving full year results ahead
of market expectations. This comes despite
the worldwide recession and the ﬁnancial
impact of the swine ﬂu outbreak.

Manny Fontenla-Novoa
Group Chief Executive Ofﬁcer

Our strong performance reﬂects the quality of our
product and the experience of our management team
in adapting to changes in demand. It also demonstrates
the resilience of the package holiday and the strength
of our asset-light business model, which gives us high
levels of operational and cost ﬂexibility to support
our proﬁtability.

Proﬁt from operations grew 13%, demonstrating the
resilience of the package holiday and the power of our
brands. The adjusted EBIT margin rose from 4.2% to
4.5%, driven by our focus on medium haul and higher
margin product, careful capacity and cost management
and a strong contribution from our acquisitions.

Looking ahead, the late booking trend is still evident
but our winter 2009/10 trading position continues
to improve and trend towards our planned capacity.
Although it is still early in the cycle, bookings for
summer 2010 are also in line with our expectations.
Recent customer research shows that UK consumers
remain intent on taking their holidays abroad next
summer and we continue to see strong growth in
bookings to medium haul destinations such as Turkey
and Egypt.

We remain committed to achieving signiﬁcant growth
and have embarked on a programme of strategic
initiatives that will deliver revenue, proﬁt and margin
expansion over the medium term. These include
centralising accommodation purchasing in order to
leverage the scale of our Group buying power in
mainstream travel; building on our ﬁnancial services
heritage in key markets; targeted acquisitions in
emerging markets; and taking advantage of
consolidation opportunities as they arise. In addition,
we are restructuring our independent business and
targeting signiﬁcant long term growth in the European
online travel agency (OTA) market.

A ﬁnal dividend of 7.0p when added to the interim
dividend of 3.75p gives a total dividend for the year
of 10.75p per share. The Board remains conﬁdent that
the Group will perform in line with its expectations for
the current year.

Thomas Cook Group plc
Annual Report & Accounts 2009

07

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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Key ﬁnancial achievements in 2009

• Revenue up 6% to £9.3bn*

• Adjusted EBIT up 13% to £414.9m**

• Adjusted EBIT margin up 7% to 4.5%***

• Adjusted basic EPS up 10% to 26.4p

• Recommended ﬁnal dividend of 7.0p
per share, brings the total to 10.75p

See Appendix 2 on page 122 for key.

1 Operating cash ﬂow before exceptional items is deﬁned as cash
generated by operations before tax, interest received, additional
pension contributions and exceptional items.

2 Free cash ﬂow before exceptional items is deﬁned as operating
cash ﬂow before exceptional items (as deﬁned above) less net
capital expenditure (tangible and intangible), net interest paid,
additional pension contributions made and tax paid.

Overview of ﬁnancial results
Group revenue for the 12 months to
30 September 2009 grew 6% to £9,268.8m
(2008: £8,754.2m). Excluding the impact of
currency translation, Group revenue was
down 1%, reﬂecting reduced capacity in all
our major markets, as we actively managed
the business through the global recession,
offset by the year on year increase as a result
of acquisitions in this year and last.

We delivered a 13% increase in adjusted
Group EBIT to £414.9m (2008: £365.9m).
The Group operating proﬁt margin rose 7% to
4.5%, from 4.2% last year. This strong result
reﬂected our ability to adapt to changing
demand by reducing capacity, improvements
in our product and destination mix, increased
average selling prices, acquisitions, merger
synergies and cost initiatives.

Adjusted proﬁt before tax was ﬂat year on
year at £308.2m (2008: £309.3m). Financing
costs increased as a result of higher net debt
throughout the year and our decision to draw
down all available funds to protect ourselves
against counterparty risk in the early stages
of the banking crisis. Net debt increased as
a result of the funding of the share buyback
programme and acquisitions in 2008 and
2009, and the higher working capital
requirements in 2009 resulting from the
capacity cuts and the later booking trend
we have experienced. Adjusted basic EPS
increased 10% to 26.4p (2008: 24.1p).

Operating cash ﬂow broadly followed the
usual seasonal phasing. However, as a result
of the increased cash requirements arising
primarily from the impact of the later booking
proﬁle and the capacity reductions on working
capital, operating cash ﬂow before exceptional
items1 was £420m (2008: £471m) and free
cash ﬂow before exceptional items2 was
£103m (2008: £208m).

The Group and segmental performance is
reported in detail in the Operational Review

on pages 20 to 29 and in the Financial Review
on pages 34 to 37.

Financial position
Net debt at 30 September 2009 was £675m
(30 September 2008: £292m). The increase
year on year reﬂects the completion of the
share buyback programme and payments for
acquisitions, as well as the cash outﬂows on
working capital noted above and expenditure
on integration and restructuring initiatives.

Our ﬁnancial position remains robust. Our
bank facility of €1.8bn does not expire until
May 2011, although we plan to reﬁnance this
by summer 2010.

Dividend
The Board is recommending a ﬁnal dividend
of 7.0p per share, which, when combined with
the interim dividend of 3.75p per share gives
a total dividend for the year of 10.75p. This
represents a payout of 41.0% (2008: 40.5%) of
adjusted diluted EPS. This is in line with our
policy, which remains to increase dividends
progressively, paying between 40% and 50%
of adjusted earnings.

Operational ﬂexibility, cost base and hedging
The ﬂexibility within our asset-light business
model has given us the ability to adapt to
market conditions during this past challenging
period and we have strengthened our
foundations through cost rationalisation to
underpin our future performance even if
demanding conditions persist.

In addition, the mainstream travel market
has been strengthened by capacity
rationalisation throughout the industry.
Capacity reductions in the UK market, for
example, amount to approximately 30% over
the last two years through our actions and
those of other market participants.

The reliance of our partner hotels on the
strength and breadth of our distribution
gives us signiﬁcant buying power to manage
accommodation costs, which represent more
than 30% of revenue.

Conﬁdence for the year ahead
Our recent research suggests customers
remain intent on taking their summer
holidays. Our focus on delivering
outstanding accommodation in great
destinations coupled with our ability to
cope with changing demand by ﬂexing
capacity and improving our efﬁciency
gives us conﬁdence for the year ahead.

08

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Group Chief Executive Ofﬁcer’s statement continued

The ability to adjust our cost base for potential
changes in demand is also important,
particularly in the current market conditions.
At the beginning of the summer season, less
than 10% of our group-wide hotel capacity
is committed, giving us considerable scope
to make further capacity adjustments as
required as the season progresses. We also
have ﬂexibility in ﬂying right up until the
beginning of the season. Tight control of all
costs is a fundamental part of the Thomas
Cook business approach and we have, and will
continue to, cut operating costs throughout
the Group to ensure we operate as efﬁciently
and as ﬂexibly as possible.

Fuel costs represent approximately 9% of revenue
and currency has also been a signiﬁcant element
of our costs during a volatile year. Hedging will
continue to be an important tool for managing
these costs and ensuring pricing certainty. We
use a mixture of swaps, collars and options to
ensure ﬂexibility.

Foreign exchange is hedged 6 to 15 months in
advance of the expected expenditure. We have
hedged 89% of our dollar and euro requirements
for winter 2009/10 and 85% of our dollar and
87% of our euro requirements for summer 2010.

Our fuel hedging recognises the varying
requirements of different markets and we
plan to hedge between 80% and 90% of our
fuel requirements between 6 and 18 months
ahead of consumption. In line with our policy
as at 30 September 2009, we have hedged 99%
of our fuel requirements for winter 2009/10
and 70% for summer 2010.

Strategy
We continue to deliver against our strategy,
which is focused on strengthening our core
mainstream business and investing for growth
in independent travel, ﬁnancial services and
emerging markets. We have made signiﬁcant
progress in each of these areas again this
year, which is set out in more detail on pages
11 to 19.

Merger synergies
The integration of our operations since the
merger between Thomas Cook and MyTravel
Group in June 2007 has been highly successful.

Synergies have amounted to more than initially
identiﬁed, with the target raised to £215m from
£155m at the end of the last ﬁnancial year. By
accelerating synergy delivery, we have realised
total savings of £205m in 2009 (2008: £142m),
of which £63m were additional synergies

Group Executive Board

From left to right:
Back row: Jürgen Büser, Pete Constanti, Thomas Döring, Michael Friisdahl, Ludger Heuberg, Ralf Teckentrup and Paul Wood.
Front row: Alexis Coles-Barrasso, Ian Derbyshire, Peter Fankhauser, Manny Fontenla-Novoa, Sam Weihagen and Derek Woodward.

For more information
see page 42.

Thomas Cook Group plc
Annual Report & Accounts 2009

09

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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Key priorities for 2010

• Deliver ﬁnancial results in line
with the Board’s expectations

• Continue to strengthen our

mainstream business, particularly
leveraging the Group’s buying power

• Continue to build on our brand

strength including Financial Services

• Grow our share in independent
travel, building on the strength
we already have

• Weigh up opportunities for expansion
through M&A, capitalising on those
that deliver value

achieved during the period. We expect to
deliver a ﬁnal tranche during the current year,
achieving the previously stated cumulative
synergies of £215m.

Management team
I am extremely proud of this year’s strong
performance, which is the result of the hard
work of our management team.

On 6 November 2009, Sam Weihagen, Chief
Executive Ofﬁcer, Northern Europe, took on
the additional role of Deputy to the Group
Chief Executive Ofﬁcer and joined the Board
as an Executive Director. In taking this role,
he brings a vast tour operating experience
to beneﬁt the Group more directly.

I am also delighted that Paul Hollingworth
will be joining the Company as Group
Chief Financial Ofﬁcer on 1 January 2010.
Paul brings a wealth of ﬁnancial experience,
having been Chief Financial Ofﬁcer of a
number of UK listed companies.

On 29 November 2009, Jürgen Büser stepped
down as Group Chief Financial Ofﬁcer and as
an Executive Director, following a period of ill
health. We are delighted to conﬁrm, however,
that Jürgen has recovered well and is returning
to the business to take up the role of Group
Strategy Director. Ludger Heuberg, who has
been Acting Group Chief Financial Ofﬁcer since
March 2009, will continue in this role until
31 December 2009, after which time he will
return to his operational role.

The following changes were made at the
Group Executive Board level on 6 November
2009: Pete Constanti, previously Chief
Executive Ofﬁcer, Mainstream Travel – UK and
Ireland, was appointed to the new Group role
of Chief Executive Ofﬁcer, Group Destination
Management and Ian Derbyshire, previously
Chief Executive Ofﬁcer, Independent Travel –
UK and Ireland, was appointed Chief Executive
Ofﬁcer, UK and Ireland.

Employees
Against a very challenging backdrop our Group
has delivered a strong performance, none of
which could have been achieved without the
energy, motivation and commitment of our
people. At Thomas Cook we truly believe that
our people are our true differentiator and this
year they have proved what a strong, talented
and united team they have become.

I would like to take this opportunity to thank
them for their efforts and unwavering support

in a year which will not only go down in our
168-year history as one of the toughest on
record, but one in which we achieved a strong
ﬁnancial performance and made signiﬁcant
strategic progress.

Outlook
While the late booking trend is still evident,
our winter 2009/10 trading position continues
to improve and trend towards our planned
capacity. It is still early in the summer booking
cycle, however, we are conﬁdent we can
manage trading in line with demand.

A range of initiatives within our power
underpins our conﬁdence for the current
ﬁnancial year. Our business model allows us
to ﬂex capacity and product mix well into
the summer 2010 booking cycle. In addition,
capacity rationalisation throughout the
industry supports pricing discipline. We have
further scope to manage input costs and are
negotiating with suppliers to ensure costs, and
accommodation costs in particular, are reduced.
We also have tight cost discipline throughout
the business and are hedging fuel and currency
against extreme volatility. As ever, we have
contingency plans to cut overhead costs further
should tougher market conditions prevail.

The combination of our management team’s
long industry experience, a consolidated
marketplace, our own initiatives and our
current trading supports our conﬁdence that
we can meet the Board’s expectations for the
current ﬁnancial year.

Looking further ahead, we are conﬁdent that
we can grow revenue, proﬁt and margin in
the medium term. This will be achieved
through signiﬁcant growth in our independent
and e-commerce businesses; expansion of
our ﬁnancial services heritage in key markets;
targeted acquisitions, including expansion
into emerging markets and taking advantage
of consolidation opportunities as they arise;
and continued cost efﬁciencies and
improvements in mainstream distribution.

Manny Fontenla-Novoa
Group Chief Executive Ofﬁcer
29 November 2009

10

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Our marketplace

Challenging economic times have impacted
global travel markets and will continue to
do so in 2010; however, there are signs of a
recovery in consumer conﬁdence.

Challenging times in the world economy
The last 12 months have seen some of the
most challenging global economic conditions
experienced for a generation. The travel and
leisure market is impacted in particular by
consumers’ disposable incomes and
conﬁdence, unemployment rates, currency
ﬂuctuations and oil price movements.

All of these major drivers have deteriorated
signiﬁcantly. GDP in major developed
markets is expected to decline by up to
6% in 2009. Unemployment rates have
increased on average by two percentage
points. Oil prices continue to be highly
volatile, and key currencies, particularly
sterling, have devalued signiﬁcantly versus
the euro and US dollar.

It is no surprise then, that corporate
insolvencies have risen signiﬁcantly, which
has contributed to the trillions of pounds of
government bailouts and stimulus plans put
into place in 2009.

Other factors that have impacted global
travel markets
In addition to the generally tough economic
environment, there have been a number
of other factors that have impacted global
travel markets.

Global terrorism, such as the attacks in
November 2008 in Mumbai and the more
recent bombings in Majorca, has impacted
consumer conﬁdence. The swine ﬂu epidemic
has similarly affected travel plans, both in
terms of inbound travel to Mexico as well as
outbound travel more generally.

Increasing taxation has had an impact on the
relative affordability of travel with governments
seeking ways both to raise money to pay for
the aforementioned stimulus plans and bailouts
and to use taxes as a way to mitigate global
climate change as we have seen with recent
airport departure tax rises.

As a result of these challenging economic
conditions and other factors impacting the
travel market over the last year, there has
been a signiﬁcant decline in the overall travel

market. This is highlighted in ﬁgure 1,
which shows that the European leisure and
unmanaged business travel market in 2009
is forecast to shrink by 9% versus 2008.

Changing consumer behaviours
The challenging economic climate has led
to a number of new trends in consumer
behaviour, as well as a continuation of some
existing trends.

Consumer uncertainty has impacted travel
markets in a number of ways. Fewer people
have travelled abroad cutting, in particular,
second holidays and weekend breaks. In
the last year, there has been an increase in
consumers holidaying in their own countries
(the famous ‘staycation’).

Consumers have, however, prioritised their
main summer holiday abroad, although they
have often waited much later to book their
trips to assess both weather in their home
country and personal ﬁnances. There has
also been a realisation that ‘staycations’ in
many developed markets can in fact be more
expensive than overseas trips and be subject
to much less predictable weather.

For those consumers that did take a foreign
holiday, they have looked to manage their
budgets carefully. As a result there has been
a marked increase in demand for all inclusive
products which allow for easy budgeting, as
well as strong demand for package holidays
that offer both consumer protection and a
single bundle price for travel.

Figure 1
Leisure travel market forecast to shrink in 2009
vs. 2008 European leisure/unmanaged business
travel market gross bookings

Figure 2
Strong growth in travel to medium haul package
destinations Summer 2009 Thomas Cook Group
European passenger bookings growth (as at
September 2009)

Figure 3
Travel continues to be a top spending priority
for 2010 For 2010, which of the following areas
of expenditure do you see as being the most
important to you?

-9%

-1%

€ 202b

€ 199b

€ 191b

€ 181b

€ 180b

€ 182b

€b

210

180

150

120

90

60

30

0

10%

7%

6%

%

15

5

-5

-15

-25

-4%

-6%

-11%

-15%

-22%

%

40

35

30

25

20

15

10

5

0

2006

2007

2008

2009e

2010e

2011e

Tunisia

Turkey

Egypt

Greece

Cyprus

Balearics

Canaries

Total

Online*
%

25

30

34

37

41

44

37% 36% 34%

27%

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18% 17% 16%

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* Online penetration of the leisure market.
Source: PhocusWright European online travel overview 5th edition.

Multiple answers allowed.
Source: YouGov Online Omnibus October 2009.

Other consumer trends have continued and
in some cases accelerated as a result of the
downturn. As ﬁgure 2 shows, there has been
a strong growth in travel to medium haul
package destinations such as Turkey and
Egypt, in part helped by the strength of
the euro (versus, for example, sterling and
the Swedish krona), which makes these
destinations relatively cheap compared to
for example, Spain and Greece, and their
availability of purpose built high quality
accommodation and all inclusive hotels.

The growth of independent travel has also
continued. The ongoing improvement of
dynamic packaging technologies, which allow
consumers to create their own packages,
and greater online penetration (as shown in
ﬁgure 1) are in part responsible for driving this
growth. Consumers are becoming increasingly
comfortable using the internet to research
and create their own trips, but also appreciate
a multi-channel approach, particularly the
advice of a knowledgeable agent.

Looking forward
All the signs point to global economic
conditions continuing to remain tough in
2010. GDP in major markets is expected to
return to slow growth in 2010. Unemployment,
which traditionally lags GDP, is expected to
continue to grow in major markets. Fuel and
currencies are likely to remain volatile as
economic uncertainty persists. In addition,
the impacts of swine ﬂu, taxation and global
terrorism will all continue to impact consumer
conﬁdence and therefore travel plans.

Despite the tough conditions, there is
evidence that consumers are feeling more
positive about their holiday plans for next
year. Recent independent research
commissioned by Thomas Cook in the UK
shows that holidays remain a top spending
priority for 2010 (see ﬁgure 3). The research
also shows a marked increase in the number
of people intending to take a holiday abroad
versus the same time last year.

However, whilst volumes may recover
somewhat, consumers are still likely to
exhibit the same price sensitivity and later
booking patterns as seen in 2009. As a result,
forecasters are pointing towards a relatively
ﬂat 2010 for the European travel market
(see ﬁgure 1).

Thomas Cook Group plc
Annual Report & Accounts 2009

Our strategy

11

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Our strategy remains focused on
strengthening our core mainstream business
and investing in areas of future growth,
primarily independent travel, travel-related
ﬁnancial services and other opportunities
via mergers, acquisitions and partnerships.

D
i
r
e
c
t
o
r
s
’

R
e
p
o
r
t
–
B
u
s
i
n
e
s
s
R
e
v
i
e
w
p
0
2
-
3
9

Vision

Strategic objectives

Strengthening our business and investing for growth

Growth drivers

Maximise
value of
mainstream

Become
a leading
independent
travel provider

Become the
leading
travel-related
ﬁnancial
services
provider

Capture
growth and
value through
mergers &
acquisitions
and
partnerships

Enablers

Product

Technology

Customer insight

Brands

Financial rigour

Values

P
Pioneering
our future

R
Results
orientated

O
Obsessed with
customer service

U
United as
one team

D
Driving robust
decisions

Strategy
Our strategy is built around our vision of
going further to make dreams come true.
For many of our customers, their holidays
are the highlight of their year and we
want to ensure that those holidays live
up to their very high expectations. At
the same time we also aim to deliver
outstanding long-term value to our
shareholders. Our strategy, which was
originally formulated when our Group
was formed in 2007, is designed to

deliver against this vision, and whilst we
have refreshed this strategy regularly to
adjust to changes in our marketplace, it
still holds true. The foundation of our
strategy is our outstanding team of
people and their shared values. They
work together to deliver the four tenets
of our strategy, our growth drivers,
supported by key enablers such as our
portfolio of leading travel brands, our
products and our technology backbone.

12

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Our strategy continued

Our vision and
strategic objectives
We go further to make
dreams come true

Strengthening our business
and investing for growth

Our growth drivers

Our performance highlights

1 Maximise value
of mainstream

For more information
see page 14.

2 Become a leading
independent travel
provider

For more information
see page 16.

3 Become the leading

travel-related ﬁnancial
services provider

For more information
see page 18.

4 Capture growth and
value through M&A
and partnerships

For more information
see page 19.

• Mainstream travel currently represents 74% of

total revenue. Revenue increased 5% in the year
with improved average selling prices and foreign
exchange translation beneﬁts being partly offset
by capacity cuts. Margins were also helped by a
strong focus on cost control.

• Independent travel currently represents 23%

of total revenue. Revenue increased 10% in the
year as a result of continued investment in our
dynamic packaging capabilities and products
as well as improved online operations. Revenue
growth was also achieved through expansion
of our product offering and favourable foreign
exchange translation.

• Financial services performance continued
to be strong helped by share gain in the
UK foreign exchange market, and continued
initiatives to improve insurance cross-sell rates.

• A number of acquisitions were completed,
notably Gold Medal and Med Hotels in the
UK, adding to our independent businesses.
Progress was also made in evaluating
opportunities in China and Russia.

Risks and uncertainties
The key areas of risk to our business come
from unforeseen changes to consumer
conﬁdence, such as major global terrorism
attacks, natural disasters, health scares or
a worse than expected economic outlook.
Other risks come from unforeseen changes to
market dynamics caused either by government
intervention in the form of legislation, new
consumer trends or competitor moves.

To mitigate these risks, we have pursued a
strategy of reducing the amount of inventory
we have ‘at risk’ from assets deployed that
generate high ﬁxed costs. Our ﬂexibility means
we can shape our business to meet consumer
demand, which we track and monitor very
closely. We also devote signiﬁcant time and
resources to ensuring we react quickly to any
unforeseen change, as we demonstrated
earlier in the year with the outbreak of swine
ﬂu in Mexico, swiftly offering customers
refunds and alternative travel options and
reassigning capacity to other destinations.
Finally, we believe our strategy with its mix of
maximising the value of our core mainstream
business, and investing in growth areas,
combined with the quality of our people,
vision and values, gives us a competitive
advantage in the long term.

For more information
see page 38.

Growth drivers
Maximise value of mainstream
Our core business remains our mainstream
business, which is primarily the sale of charter
packages where two or more components of
travel, such as ﬂights, hotels, transfers and rep
services, are bundled together in advance and
sold to customers through brochures and agents
in stores, online through our various websites
or over the phone from our call centres. The
charter package holiday remains very popular
as customers appreciate the value for money
it provides, the ease of choice and selection,
and the security offered. However, in the longer
term, growth is expected to be moderate in
established economies. Our strategy, therefore,
is to maximise the value of our mainstream
business through cost efﬁciencies and through
increasing the proportion of higher value
product such as all inclusive board basis, four
and ﬁve star properties and medium haul
destinations. To this aim we will accelerate
many of the activities started this year.

In mainstream travel, we are reorganising our
purchasing and destination management
activities into a more centralised structure to
maximise the beneﬁts of our size and scale,
whilst retaining our local market expertise.
We will also continue to grow the proportion

of products sold online, making the most of
the efﬁciencies offered by this distribution
channel, as well as continuing to improve
product and destination mix.

For more information
see page 14.

Become a leading independent travel provider
Independent travel, where consumers build
their own trip either on their own or with the
help of an agent, has gained in popularity
boosted by greater online penetration and new
technologies that allow consumers to create
their own packages (dynamic packaging). This
area of travel also includes scheduled tours
where consumers either tailor make their trips
or buy pre-packaged itineraries. It also includes
our wholesale business, where we operate as
an intermediary between suppliers and other
agents providing them with the ability to build
holidays for their customers.

In independent travel, we plan to make further
changes and investments in our e-commerce
capabilities to strengthen our position as an
online travel agent, leveraging our brands,
inventory, buying organisation and multi-
channel model. We also continue to invest in
our dynamic packaging capabilities and our
independent product portfolio in general.

Thomas Cook Group plc
Annual Report & Accounts 2009

13

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Our key performance indicators

For further information

For further information please see the
following areas of our report

Operational review

See page 20

Sustainability

See page 30

Principal risks and uncertainties

See page 38

Revenue*

Proﬁt from operations**

+5•9%
+13•4%
+7•1%

Operating proﬁt margin***

D
i
r
e
c
t
o
r
s
’

R
e
p
o
r
t
–
B
u
s
i
n
e
s
s
R
e
v
i
e
w
p
0
2
-
3
9

Independent travel will continue to grow
helped by technology improvements and
continued consumer demand. Our strategy
is to take advantage of that growth, in
particular the increase in online penetration.
We plan to signiﬁcantly grow both sales of
our in-house inventory online and sales of
third party products, performing the role
of an online travel agent.

For more information
see page 16.

Become the leading travel-related ﬁnancial
services provider
Travel-related ﬁnancial services broadly fall
into the categories of travel money, which are
products that help customers pay for goods
and services whilst travelling such as pre-paid
foreign exchange; travel assurance, which are
products that cover the various risks associated
with travel such as insurance for accidents and
thefts; and travel ﬁnance which are products
that allow customers to ﬁnance their travel,
such as credit cards. These are typically high
margin products, and are naturally sold
alongside other holiday components. Our
strategy is to make the most of our brands
and distribution capabilities to continue to
grow this important part of our business.

See Appendix 2 on page 122 for key.

In travel-related ﬁnancial services we are looking
both to maximise cross-sell opportunities and
to grow our direct-to-consumer sales within
existing markets. We are also planning to launch
a number of innovative new products across the
Group and are looking at opportunities to use
the Thomas Cook brand to expand into new
source markets.

For more information
see page 18.

Capture growth and value through
M&A and partnerships
To support our growth drivers, we are
constantly open to opportunities to bolster
our business through mergers, acquisitions
or partnerships. As developed markets mature,
we are focused on the one hand on ways to
consolidate these markets and maximise the
value from them, and on the other on the
new growth areas of emerging markets, in
particular, large fast growing markets such as
India (where we are already a leading player),
Russia, China and parts of South America. We
are in advanced stages of discussions with
both Russian and Chinese travel providers
and aim to complete at least one of these
early in 2010. In addition, we are always on
the look out for smaller deals that enable us
to maintain our competitive advantage.

For more information
see page 19.

14

Maximise the value of mainstream

Delivering

the future of package holidays

Maximise the value of mainstream
This year has been about making the most of our ﬂexibility
and careful management of the capacity we offer and the
prices we sell at. Our trading results for the year came in as
we expected in line with capacity, but with average selling
prices up as we continue to grow our proportion of four
and ﬁve star and all inclusive products and medium haul
destinations. We also successfully managed the ‘lates’ market
which is often where consumers expect to get cut price deals.
As a result revenues were up 5% overall, despite a slight fall
in passenger numbers.

We have also continued to streamline our mainstream
businesses, looking to take ever greater advantage of the
size and scale of our Group as well as continuing to remove
duplication of functions and invest in systems such as
automated yield management. Our reorganisation efforts

have included creating a new role on our Group Executive
Board of Chief Executive Ofﬁcer, Group Destination
Management. Pete Constanti will perform this role and he will
have responsibility for hotel purchasing, agent relationships
and in-destination management amongst other things. This
will allow us as a Group to be much more efﬁcient in these
areas of our business. We have also restructured some of our
Continental businesses, particularly Germany, to be more
aligned to functional responsibilities helping to generate
efﬁciencies and better sales processes.

In our airline business we have made a number of strategic
developments. These in part were the result of our decision to
retain our German airline, Condor, as part of the Group. Given
this decision, we have made signiﬁcant progress in identifying
synergies between our various airlines and have begun to
deliver signiﬁcant cost savings.

15

16

17

Become a leading independent travel provider

Exploring

the world with Thomas Cook

Become a leading independent travel provider
We have continued to see a growth in our independent travel
businesses, with revenues increasing 10% year-on-year. This is
a result of investments in dynamic packaging capabilities that
enable consumers to build their own packages either online or
with an agent. It is also as a result of expanding our product
range both through a number of recent acquisitions such as
Gold Medal, Med Hotels and Hotels4U as well as sales and
marketing efforts of our existing product ranges.

In addition to investments in dynamic packaging capabilities
and products, we have focused our efforts on signiﬁcantly
improving our online capabilities. Consumers are becoming
increasingly comfortable using the web to research, book and
manage their holidays and as a result this is driving much of
the growth in independent travel. As well as ongoing content
management, merchandising, programming and technology
investment we have also ensured that customers receive a

seamless experience across all our channels including stores
and call centres.

In the medium term, we plan to build upon this platform to
become a leading player in the European online travel agency
market. Plans are well underway, with a focus initially in the
UK where we will leverage our existing brands, experience,
technology and inventory to quickly establish a strong position
from which we can expand into other European markets.

Our wholesale business also continues to expand. In North
America, the TriWest business acquired at the end of the
2007/08 ﬁnancial year has been successfully integrated,
making Thomas Cook one of the leading independent
wholesalers in the Canadian market. In Europe, we now have
leading bed bank, ﬂight consolidator and wholesale scheduled
package positions following integration of our Hotels4U, Med
Hotels and Gold Medal acquisitions. We are using this position
to help drive growth in this segment of the market.

18

Become the leading travel-related ﬁnancial services provider

Serving

more than just a travel agent

Become the leading travel-related ﬁnancial services provider
Travel-related ﬁnancial services, in particular ‘travel money’ and
‘travel assurance’, remain an important and proﬁtable part of
our strategy. Whilst travel-related ﬁnancial services account for
only 1.4% of revenue, they account for 13% of proﬁt from
operations before exceptional items. This year has seen a
renewed focus on the key UK foreign exchange business, with
some innovative sales and marketing efforts including our new
rate boards that compare Thomas Cook rates to other major
providers. As a result we have seen a three percentage point
increase in our foreign exchange market share in that market,
without any major impact on margins.

In addition to our traditional foreign exchange business, we are
continuing to expand our range of travel money products to take

advantage of changing consumer trends and new legislation.
These include Thomas Cook ATMs in the UK, North America and
soon to be in major resorts, the deployment of dynamic currency
conversion technologies, pre-paid foreign currency cards and a
growth in our money transfer capability.

Within our travel assurance product portfolio, we are expecting
signiﬁcant savings to come from a review and re-tender of our
sourcing and underwriting arrangements across our major
markets for travel insurance related products. We have also
continued to focus on the cross-sell of insurance products to
our travel customers, and are exploring options to offer direct
insurance sales.

19

Capture growth through mergers and acquisitions and partnerships

Opportunities

new companies, new opportunities

Capture growth and value through M&A and partnerships
With credit markets in turmoil and the economic challenges
noted earlier, we have focused our strategy on smaller deals
and partnerships to strengthen our position versus pursuing
any large scale M&A activity.

In the UK we acquired 50.1% of Gold Medal, a leading provider
of independent holidays, and its associated brands Netﬂights,
a leading ﬂight consolidator, and Pure Luxury, a high-end
scheduled tour operator. We also acquired Med Hotels, a bed
bank provider, which has natural synergies with our Hotels4U
business. These two acquisitions position us very well in the UK
independent market, and the ﬂight consolidator and bed bank
businesses are also being rolled out to the rest of the Group as
part of our push into the online travel agency space.

Also in the UK we acquired Airtrack, a sports travel business
primarily focussed on motorsports. This adds new products and
capabilities to our already strong Thomas Cook Sports business.
The Thomas Cook Sports business was further bolstered by our

announcement that we will be partnering the London 2012
Olympic and Paralympic Games as one of their tier 2 sponsors,
giving us exclusive access to tickets and the right to use the
London 2012 brand in our marketing efforts.

In Continental Europe we acquired Wasteels, a French
distribution business, increasing our distribution capabilities
in that market.

Looking forward, we are making good progress in negotiations
with travel businesses in both Russia and China, which are the
most attractive of the emerging markets where we currently do
not have a presence. By the very nature of these markets, such
negotiations are time consuming; however, we are conﬁdent
we will come to a conclusion in at least one of these markets
by early 2010.

20

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Operational review
UK & Ireland
Operating under the iconic Thomas Cook brand, we improved
product mix focusing on medium haul destinations and grew
in independent travel.

Financial highlights1

Revenue*

Proﬁt from operations**

+13.1%

Operating proﬁt margin***

+13.0%

Key performance indicators

Year
ended
30 September
2009

Controlled distribution‡‡
Internet distribution‡‡

68.6%

29.9%

5.2%

4.6%

Passengers†
Capacity††
Average selling price#
Load factor†††
Brochure mix##

Pro forma
year ended
30 September
2008

67.4%

25.8%

Change

+1.8%

+15.9%

Change

-9.2%
-9.2%
+7.3%
Flat
+2.6%

3200

£3,097.3m

£3,098.0m

200

2400

1600

800

0

£143.4m

£162.2m

150

100

50

0

8

6

4

2

0

2008

2009

2008

2009

2008

2009

1 The Group statutory results for the ﬁnancial year ended 30 September 2009 are set out

on pages 62 to 106. Current year ﬁgures have been compared to the unaudited pro forma
ﬁgures for the 12 months ended 30 September 2008 (see Appendix 1 on pages 116 to 121).
See Appendix 2 on page 122 for key.

UK & Ireland brands

Mainstream

Distribution

Independent

Market dynamics

Strategy

• While the outlook remains challenging there are signs of

• Target further mainstream margin improvement

recovery in consumer conﬁdence. However, the weakness of
sterling versus the euro and US dollar is expected to increase
input costs and to continue to affect consumer sentiment.

through product and haul mix.

• Develop our e-commerce strategy and move into

the online travel agency market.

• Continue to grow travel-related ﬁnancial services,

notably foreign exchange.

• Build on our strong performance in key medium

haul destinations outside the Eurozone.

Thomas Cook Group plc
Annual Report & Accounts 2009

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Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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progress. Despite this, the business contributed
positively year on year to the segment results
and, following a number of restructuring
measures, is well-placed to take advantage
of the expected post-recessionary bounce
back in trading in future years.

Our Independent businesses in the UK have
seen good growth and the performance of
Gold Medal, Hotels4U and Med Hotels, in
particular, has been strong. Elegant Resorts
has also produced a solid performance,
despite the difﬁcult market conditions.
Synergies from our acquisitions earlier in
the year (Gold Medal and Med Hotels) are
ahead of our expectations.

The business has continued to grow its
proportion of controlled distribution
which we believe is a key factor for success.
Controlled distribution in mass market
now represents 69% of total distribution,
with internet bookings running at 30%.

Progress against strategy
Mainstream
• Holidays to medium haul destinations,
where we can achieve a signiﬁcantly
higher margin, increased by 10%
and now comprise 70% of our UK
mainstream programme.

• Within our medium haul holiday

programme, we built leading market
positions in the key destinations of
Turkey, Egypt and Cuba.

• Capitalising on consumer preferences

for value and cost certainty, we increased
sales of all inclusive holidays to 50% of
the summer programme and four and
ﬁve star holidays to 43%.

Independent
• Through our acquisition of Gold Medal

we are now one of the UK’s leading ﬂight
consolidators. Our acquisition of Med Hotels,
combined with our Hotels4U business,
makes us the UK’s largest bed bank.

• We announced our London 2012 Olympic
sponsorship deal, giving us exclusive rights
to sell event tickets and travel packages in
the UK.

• We grew online sales and took steps
to drive forward our online travel
agency ambitions.

Financial performance
The UK business delivered proﬁt from
operations of £162.2m, an improvement of
13% year on year, despite the tough economic
conditions. The operating proﬁt margin was
also improved from 4.6% to 5.2%. Revenue
was in line with the prior year at £3,098.0m.
However, excluding the year on year impact
of acquisitions we made this year and last,
underlying revenue fell 3%.

In anticipation of the tough market conditions,
we reduced capacity by 9% in our mass market
business, largely in the less proﬁtable summer
short haul programmes. However, we continued
to focus on increasing the proportion of
medium haul holidays, which now represent
over 70% of our mass market programmes. As a
result of the tight capacity control and the shift
to more proﬁtable medium haul destinations,
we were able to achieve a 7% increase in
average selling prices and improved margins.

Underlying trading was further improved
through savings in like-for-like accommodation
rates, merger synergies, and other cost
initiatives. However, these beneﬁts were more
than offset by increased fuel costs and the
adverse impact on our accommodation
costs of the weak pound. Management also
believe swine ﬂu adversely impacted the
results by £8m.

Financial services
• In UK ﬁnancial services, we regained market
share in currency exchange, increased sales
of pre-paid currency cards and took steps
to build our travel insurance business.

However, the UK segment beneﬁted year
on year from the acquisitions made last
year and this. Our Indian business has had
a difﬁcult year, with the global recession
and the Mumbai terrorist activity hampering

Ian Derbyshire
Chief Executive Ofﬁcer,
UK and Ireland

As a result of the tight capacity control
and the shift to more proﬁtable
medium haul destinations, we were
able to achieve a 7% increase in average
selling prices and improved margins.

22

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Operational review
Continental Europe
This segment comprises businesses in Austria, Belgium, the Czech
Republic, France, Germany, Hungary, the Netherlands, Poland,
Slovakia and Switzerland. Each business tailors its products to
its individual markets, while beneﬁting from the Thomas Cook
asset-light approach and focus on margins.

Financial highlights1

Revenue*

+10.5%

Proﬁt from operations**

+19.5%

Operating proﬁt margin***

+10.3%

Key performance indicators

Year
ended
30 September
2009

2.9%

3.2%

Controlled distribution‡‡
Internet distribution‡‡

38.3%

10.0%

4000

3000

2000

1000

0

£4,000.3m

160

£3,620.4m

£127.0m

£106.3m

120

80

40

0

4

3

2

1

0

2008

2009

2008

2009

2008

2009

1 The Group statutory results for the ﬁnancial year ended 30 September 2009 are set out

on pages 62 to 106. Current year ﬁgures have been compared to the unaudited pro forma
ﬁgures for the 12 months ended 30 September 2008 (see Appendix 1 on pages 116 to 121).
See Appendix 2 on page 122 for key.

Continental Europe brands

Passengers†

Flight-inclusive
Non-ﬂight inclusive
Average selling price#

Pro forma
year ended
30 September
2008

36.2%

9.0%

Change

+5.8%

+11.1%

Change

-4.7%
-9.9%
+4.6%

Mainstream

Distribution

Independent

Airlines

Airlines.com

Market dynamics

Strategy

• Following tough trading conditions in the 2009 ﬁnancial

• Increase sales of exclusive and differentiated product

year, GDP forecasts for 2010 are ahead of previous
expectations helping to improve consumer sentiment.

to maintain margin advantage.

• Continue to grow online distribution channels and

improve dynamic packaging capabilities.

• Increase sales to medium haul destinations such as

Turkey and North Africa.

Thomas Cook Group plc
Annual Report & Accounts 2009

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Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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in Belgium and the Netherlands fell by 5% and
10%, and average selling prices increased by
1% and 3% respectively. In France, ﬂight-
inclusive passengers increased by 58% with
average selling prices up 10%. However, this
development was heavily inﬂuenced by the
acquisition of Jet Tours, in August of 2008,
which has been successfully integrated into
the underlying French business and is
performing well. Overall, accommodation
rates were held ﬂat in our Western markets
but swine ﬂu adversely affected the results by
£4.2m. However, proﬁtability was improved
by savings generated from extensive
restructuring programmes in all markets. As a
result, we were able to improve the operating
margin in our Belgian business to over 5%.
Margins in France and the Netherlands were
maintained around 5% and 3% respectively.

In the smaller Eastern businesses (Poland,
Hungary and the Czech Republic) conditions
were also difﬁcult, with passenger volumes
and average selling prices both falling year
on year as a result of the poor economic
conditions and the weak currencies in
those markets.

Our Independent businesses in Continental
Europe have performed well in the year.

We have also continued to grow our
proportion of controlled distribution, further
enhancing the multi-channel proposition
which we continue to believe plays an
important role. Controlled distribution now
represents 38% of total distribution, with
internet bookings running at 10%.

Peter Fankhauser
Chief Executive Ofﬁcer, Central Europe

Thomas Döring
Chief Executive Ofﬁcer, East and West Europe

Progress against strategy
Mainstream
• We achieved industry-leading margins,

supported by robust capacity management,
cost reductions achieved through
negotiations with our suppliers, strong
efﬁciency gains and internal business
process innovation.

• In France, we added scale to our

operations, expanding our tour operating
capabilities through the successful
integration of our Jet Tours acquisition.

• We doubled sales of our unique packages
which deliver higher margins and stronger
customer retention.

• SENTIDO, our hotel franchise concept,

had a successful brand launch and opened
19 four and ﬁve star beach hotels in Egypt,
Spain, Greece, Cyprus, Turkey and Kenya.
Bookings were strong and we have high
demand from hoteliers wishing to join
the concept.

Independent
• In independent travel, we made signiﬁcant
improvements in our dynamic packaging
capabilities.

• Outside of Germany, online sales grew by
30% taking advantage of the opportunity
in those markets.

Financial performance
Our Continental Europe businesses delivered
a strong improvement in results year on year.
Proﬁt from operations increased by 19.5% to
£127.0m and the operating proﬁt margin was
also improved from 2.9% to 3.2%. Revenue
was also 10.5% higher than the prior year at
£4,000.3m. However, this increase was driven
by changes in euro to sterling translation rates
and the full year impact of acquisitions made
last year. Excluding these, underlying revenue
fell 9%, reﬂecting fewer passengers travelling
as a result of the global recession.

In Germany, our largest market in this segment,
ﬂight-inclusive passengers were 10% lower than
in the prior year and average selling prices
were 1% higher. Successful renegotiations with
hoteliers meant that margin loss from volume
was offset by the impact of lower bed rates.
In addition, acquisitions made in the prior
year performed strongly and we were able to
realise signiﬁcant cost savings from a major
restructuring programme that was undertaken
in anticipation of the tough trading conditions.
These positive developments more than offset
the impact of swine ﬂu which management
believe adversely affected the German results
by £3.2m. As a result, we were able to strengthen
the operating margin in our German tour
operator from 1.9% to 2.3%. The overall
operating margin we achieved in Germany
(i.e. including Airlines Germany) also improved
from 3.1% to 3.3%.

We experienced a similar development in results
in our Western markets (France, Belgium and
the Netherlands). Flight-inclusive passengers

We achieved industry-leading
margins, supported by robust
capacity management, cost
reductions achieved through
negotiations with our suppliers,
strong efﬁciency gains and internal
business process innovation.

24

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Operational review
Northern Europe
We operate in Sweden, Denmark, Norway and Finland. In a
disciplined market, our highly vertically integrated model enables
us to capture proﬁt at each part of the value chain delivering the
highest segment margin across the Group.

Financial highlights1

Revenue*

+9.0%

Proﬁt from operations**

+0.2%

Operating proﬁt margin***

-7.9%

Key performance indicators

Year
ended
30 September
2009

8.9%

8.2%

Controlled distribution‡‡
Internet distribution‡‡

82.7%

54.1%

1200

900

600

300

0

£1,059.3m

£971.6m

120

90

60

30

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£86.2m

£86.4m

12

9

6

3

0

2008

2009

2008

2009

2008

2009

1 The Group statutory results for the ﬁnancial year ended 30 September 2009 are set out

on pages 62 to 106. Current year ﬁgures have been compared to the unaudited pro forma
ﬁgures for the 12 months ended 30 September 2008 (see Appendix 1 on pages 116 to 121).
See Appendix 2 on page 122 for key.

Northern Europe brands

Passengers†
Capacity††
Average selling price#
Load factor†††
Brochure mix##

Pro forma
year ended
30 September
2008

79.4%

45.6%

Change

+4.2%

+18.6%

Change

-2.3%
-2.4%
+7.8%
+0.1%
-7.9%

Mainstream

Distribution

Independent

Market dynamics

Strategy

• 2010 is likely to be challenging as the weakness of

• Further expand internet sales.

the Swedish krona puts signiﬁcant pressure on margins,
and in particular, long haul holidays.

• Increase the proportion of customers who book our

exclusive, concept hotels.

• Continue to build on the success of our world class,

in-ﬂight sales.

• Consolidate our position in the major Nordic outbound

destinations of Spain, Greece, Cyprus, Turkey and Thailand.

Thomas Cook Group plc
Annual Report & Accounts 2009

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Directors’ Report – Corporate Governance
Financial Statements

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difﬁcult economic conditions which resulted
in a £7m reduction in proﬁt year on year at
the Half Year. Trading in the summer season
showed a strong recovery, however, despite
the continued delayed booking pattern and
subsequent reduction in the proportion of
brochure bookings. As a result of this, and
the beneﬁts of cost saving initiatives, we
were able to recover the £7m winter shortfall
and deliver an operating margin of 11% in
the second half of the year, ahead of the
prior year.

Northern Europe now controls over 80%
of its distribution, with internet bookings
running at over 50% in all markets. This
continues to be a key driver and differentiator
in achieving margins of over 8%.

Progress against strategy
• Supply was managed carefully in relation
to demand to ensure that prices improved
despite a marked tendency to later booking.

• By building a leading market position in a
concentrated number of key destinations,
Northern Europe has been able to leverage
its buying power with hoteliers and specify
the product tightly.

• Sales to our unique concept hotels including

SunGarden, Sunwing and Sunprime
increased to 27% of our programme,
delivering 40% higher margins.

• Our world class, in-ﬂight sales programme
which captures customer orders prior to
departure, delivered good rewards.

• We launched a new web platform and
increased online holiday bookings to
54%, making Northern Europe one of the
biggest online tour operators worldwide.

• Customer satisfaction rates of 96% result

in approximately 57% of customers
re-booking through one of our Northern
European tour operators within two years.

Financial performance
The Northern Europe business delivered proﬁt
from operations of £86.4m, in line with the
previous year. Revenue was 9% higher than
in the prior year, at £1,059.3m. However,
excluding the year on year impact of changes
in foreign currency translation rates,
underlying revenue was 2% ahead.

Despite the economic recession in the
Northern European region, we were able to
maintain industry-leading margins of over 8%
for the full year. Capacity was maintained at
similar levels to the prior year, down only 2%.
However, average selling prices were increased
by 8% as we sought to recover increased bed
costs, fuel prices and inﬂationary increases in
other operating costs.

Unlike our other European tour operating
segments where losses in the winter season
are typical for both Thomas Cook and the
industry as a whole, our Northern European
business generates a signiﬁcant proportion
of its proﬁts in winter. The winter 2008/09
performance, in both Mainstream and
Independent, was particularly affected by the

Sam Weihagen
Chief Executive Ofﬁcer, Northern
Europe & Deputy to the Group
Chief Executive Ofﬁcer

Despite the economic recession in the
Northern European region, we were
able to maintain industry-leading
margins of over 8% for the full year.

26

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Operational review
North America
Our North American business, which operates predominantly in
Canada, is now the leading wholesaler in that market. This follows
its transformation from pure tour operating through the acquisition
of TriWest in 2008, with a signiﬁcant step-up in proﬁtability.

Financial highlights1

Revenue*

-3.6%

Proﬁt from operations**

+198.3%

Operating proﬁt margin***

+200.0%

Key performance indicators

400

300

200

100

0

£384.2m

£370.4m

20

15

10

5

0

£17.9m

£6.0m

8

6

4

2

0

4.8%

1.6%

2008

2009

2008

2009

2008

2009

1 The Group statutory results for the ﬁnancial year ended 30 September 2009 are set out

on pages 62 to 106. Current year ﬁgures have been compared to the unaudited pro forma
ﬁgures for the 12 months ended 30 September 2008 (see Appendix 1 on pages 116 to 121).
See Appendix 2 on page 122 for key.

North America brands

Year
ended
30 September
2009

Controlled distribution‡‡
Internet distribution‡‡

14.1%

38.1%

Passengers†
Capacity††
Average selling price#
Load factor†††
Brochure mix##

Pro forma
year ended
30 September
2008

15.7%

20.6%

Change

-10.2%

+85.0%

Change

-20.2%
-20.7%
+1.7%
+0.5%
+0.9%

Mainstream

Distribution

Independent

Market dynamics

Strategy

• The outlook is more positive in the independent segment
and, while there is still over capacity in the mainstream
travel market, consolidation is possible with the proposed
Sunwing merger with TUI.

• Pursue ﬂight and accommodation cost savings and

strengthen hotel exclusivities.

• Grow independent travel through dynamic packaging

technology and improved product line.

• Strengthen controlled distribution, especially online.

• Grow newly launched Financial Services division and

expand product range.

Thomas Cook Group plc
Annual Report & Accounts 2009

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Directors’ Report – Corporate Governance
Financial Statements

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Progress against strategy
Mainstream
• Our mainstream packages are strongly
differentiated and while 70% of our
partner hotels are exclusive to us, levels
of commitment required are low.

Independent
• Thomas Cook North America is now

less exposed to the highly competitive
mainstream market in Canada while
beneﬁting from the higher proﬁtability
of the independent segment.

• The majority of our passengers are

independent travellers and with new
dynamic packaging technology, we can
reinforce our position in this market.

• The rebalancing of mainstream and
independent has transformed our
proﬁtability delivering a step-change in
EBIT margins in the 2009 ﬁnancial year.

Financial services
• We have relaunched Thomas Cook
Financial Services offering the ﬁrst
multi-currency automatic telling
machines in Canada.

Financial performance
The North American segment delivered proﬁt
from operations of £17.9m in the year, a
signiﬁcant improvement from the £6.0m in the
prior year. Operating margins also improved
signiﬁcantly to 4.8%, from 1.6% in the prior year.
Revenue was 3.6% lower than in the prior year,
at £370.4m. Excluding the year on year impact
of changes in foreign currency translation rates
and the acquisition of TriWest, underlying
revenue was 23% lower.

The threefold improvement in proﬁtability
reﬂects the transformational effect of the
TriWest acquisition. As a result of the successful
integration of this business with our existing
Independent business, and the realisation of
substantial merger synergies, the greatest
proportion of proﬁts in the North American
segment now come from our Independent
sector. This reduces our exposure to the
highly competitive mass market sector,
which continues to suffer from signiﬁcant
over-capacity. In response to the continuing
tough conditions in this sector, management
reduced capacity by 21%, but this was not
sufﬁcient to prevent margin erosion. Swine ﬂu
also adversely impacted the results by £2.6m.

North America has successfully increased its
proportion of internet distribution to over
38% which has resulted in signiﬁcant beneﬁts
and cost efﬁciency, particularly for the
Independent business.

The rebalancing of mainstream and
independent has transformed our
proﬁtability delivering a step-change in
EBIT margins in the 2009 ﬁnancial year.

Michael Friisdahl
Chief Executive Ofﬁcer,
North America

28

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Operational review
Airlines Germany
Condor is a strong, proﬁtable stand-alone airline. Through
robust capacity and yield management, an outstanding
operational performance and consistent efﬁciency gains,
Condor was proﬁtable for a ﬁfth successive year.

Financial highlights1

Revenue*

+8.5%

Proﬁt from operations**

+4.4%

Operating proﬁt margin***

-2.2%

Key performance indicators

1200

900

600

300

0

£1,061.2m

£978.2m

80

60

40

20

0

£45.4m

£47.4m

8

6

4

2

0

4.6%

4.5%

2008

2009

2008

2009

2008

2009

1 The Group statutory results for the ﬁnancial year ended 30 September 2009 are set out

on pages 62 to 106. Current year ﬁgures have been compared to the unaudited pro forma
ﬁgures for the 12 months ended 30 September 2008 (see Appendix 1 on pages 116 to 121).
See Appendix 2 on page 122 for key.

Airlines Germany brand

Capacity††
Yield###
Seat load factor†††

Sold seats‡‡‡

Thomas Cook tour operators

3rd party tour operators

External seat only

Total sold seats

Sold seats‡‡‡

Europe excl. cities

Long haul

Cities

Total sold seats

Revenue*

Revenue – external*
Revenue – internal*
Total Revenue*

Year
ended
30 September
2009

£740.8m
£320.4m

£1,061.2m

Pro forma
year ended
30 September
2008

£680.7m
£297.5m

£978.2m

Change

-9.8%

+12.2%

-2.3%

Change

-16.0%

-9.5%

-17.3%

-14.4%

Change

-11.3%

-10.4%

-94.9%

-14.4%

Change

+8.8%
+7.7%

+8.5%

Market dynamics

Strategy

• Market conditions have not changed signiﬁcantly in
the German airlines market, but we expect to build
on our success in trading in challenging conditions
over the past year.

• Focus on cost-saving, especially fuel related efﬁciencies.

• Drive synergies and other beneﬁts through greater
co-ordination of activities with other Thomas Cook
Group airlines.

• Enhance beneﬁts from cooperation with other

external airlines.

Thomas Cook Group plc
Annual Report & Accounts 2009

29

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Directors’ Report – Corporate Governance
Financial Statements

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Progress against strategy
• Condor reported a strong performance,

increasing yields by 12% to offset capacity
reductions, increased fuel costs and the
negative impact of swine ﬂu.

• On-time performance improved to an
impressive 85%, up from 74% in the
prior year.

• Further improvements were made to our
product and operational performance,
whilst we reduced our environmental
impact through investment in winglets
for our ﬂeet.

• An ongoing efﬁciency programme
delivered beneﬁts from a range of
initiatives, including an adjustment to
seat-only commission and a reduction
in catering costs.

• We maintained our balanced sales split,
with 35% of seats sold to our in-house
tour operator, 33% to other tour operators
and 32% on a seat-only basis.

Financial performance
Our Airlines Germany segment has continued to
perform well, increasing proﬁt from operations
by £2.0m, to £47.4m, whilst maintaining the
overall margin at 4.5%. This result is particularly
pleasing as it comes despite the impact of
swine ﬂu, which management believe adversely
impacted the results by £9.2m, and in a period
when other airlines have suffered signiﬁcantly
from the global recession.

Total revenue increased by 8.5%. However, this
increase reﬂects the impact of movements in
euro to sterling translation rates. Excluding
this, total revenue fell by 4%, reﬂecting a 14%
reduction in passengers carried and a 12%
increase in yield. The 12% increase in yield
reﬂects increased income from fuel surcharges
to offset the impact of higher fuel costs, together
with the full year effect of the elimination of the
loss-making city programme. Margin was further
protected by a number of initiatives undertaken
during the year to create sustainable additional
revenue streams and reduce direct costs.

Ralf Teckentrup
Chief Executive Ofﬁcer,
Airlines Germany

Condor reported a strong performance,
increasing yields by 12% to offset
capacity reductions, increased fuel costs
and the negative impact of swine ﬂu.

30

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Sustainability

The last year has proved a testing time for all areas of business, not
least the travel industry. The global economic downturn brought with
it a decline in international tourism in 2009, intensiﬁed by many
other factors including consumer conﬁdence, terrorism incidents,
ﬂuctuating exchange rates and the outbreak of swine ﬂu.

At Thomas Cook Group, our response to challenging market conditions is to work harder
and go further to make dreams come true for our customers.

We recognise the many virtues of travel, the positive cultural exchange and the boost
to local economies, but we are also aware of the potential impact on the environment,
societies and local cultures. The travel and tourism industry has a responsibility to operate
in a sustainable way and Thomas Cook, which founded its business with clear social and
educational intentions, is proactive in this area.

We aim to have sustainability at the core of our business and feature it as an integral part
of our strategy, particularly when it comes to the environment. These responsibilities no
longer sit on the periphery; their importance represents a genuine business risk. Society,
customers, investors, governments and communities no longer look for, but demand that
both time and money be invested in the preservation and protection of the incredible
people and places we come into contact with.

Manny Fontenla-Novoa
Group Chief Executive Ofﬁcer

Read our full Sustainability Report at:
http://sustainability2009.thomascookgroup.com

Our approach to sustainability
When Thomas Cook created his ﬁrst package
holiday, he was inspired by his sense of social
responsibility. He believed that travel could
improve people’s lives and make their dreams
come true; that holidays could make a ‘world
of difference’ to all those involved.

This is what still inspires us today – we believe
tourism is a great power for good and we want
to continue to make a difference to all those
whose lives we touch.

In our sustainability policy, we deﬁne
sustainability as ‘operating responsibly to
minimise negative and enhance positive
environmental, social and economic impact:
ensuring the long term sustainability of
our business and of the resources on which
we depend’.

Sustainability is recognised as an integral part
of the Thomas Cook Group and sustainability
strategy is developed and progress monitored
at the most senior level. The Board’s Health,

Safety & Environmental (“HSE”) Committee
meets regularly to assess and review the
management of health, safety and
environmental risks and opportunities and
to review progress made against the
implementation of HSE strategy and policy.
During the year, the HSE Committee: approved
the new group-wide strategy for health and
safety; reviewed how the Group is organised
to ensure it meets its obligations in relation
to health and safety and environmental
legislation; and approved a new corporate
responsibility strategy.

The sustainability team has the responsibility
for the development and implementation of
the Group’s corporate responsibility strategy,
reporting on performance, sharing best
practice around the Group and working to
identify targets for improvement. The team’s
main focus remains ensuring the long-term
success of the business through the integration
of principles of sustainability into the heart of
the business.

Thomas Cook Group plc
Annual Report & Accounts 2009

31

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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for donations raised by customers and
employees. This has enabled a more
co-ordinated policy for the Group and is
focusing charitable support on causes
related to children and education. More
information can be found on page 32.

The Group was also involved in a number of
other charitable activities during the year.
These included supporting Flight of Dreams,
where sick and disadvantaged children are
taken on a ﬂight, and donating £20,000
worth of holidays to the charity Sail 4 Cancer.
The Group has also given ‘in kind’ donations
to the Spinal Injuries Association and the
British Heart Foundation.

More information

The full Thomas Cook Group Sustainability
Report is published annually and sets out
our policies, standards, activities, priorities
and performance; to conserve resources
this is available online only. We welcome
your feedback on all aspects of
sustainability and you can ﬁnd full
contact details on the website.

• Full Sustainability Report at:
http://sustainability2009.thomascookgroup.com

Key stakeholders
Our stakeholders include customers, employees,
investors, suppliers, local communities, industry
partners, governments and non-governmental
organisations, in our source countries and the
destinations where we operate.

We work with them to identify the issues
that can move our business forward. In
particular, we need the support of customers,
employees and suppliers; without them we
cannot achieve real sustainability, so we
attach particular importance to raising their
awareness of sustainability issues and work
with them to enhance policies, standards
and practices.

Customers
The trust of our customers is paramount
to our business and, in order to succeed,
we believe it is essential to build the best
possible relationship with them. Continuous
improvement is our main aim in all aspects
of our customer facing business and we
actively seek feedback through customer
questionnaires and independent research
in order to analyse and develop our
service delivery.

Protecting the health and safety of our
customers remains our primary concern.
During 2009, we approved a Group health
& safety strategy and established a working
party to assist with the development of a set
of Thomas Cook Group preferred practices.
The preferred practices and our wider Group
strategy aim to reﬂect best practice existing
within the organisation, as well as recognise
that the destinations we feature are subject to
varying local legislation and our own source
markets have differing legislative requirements.

Employees
We believe that our employees are the
ultimate drivers of our business success. We
want people to be proud to work for us; good
recruitment, development and training are at
the heart of this and we seek to continually
motivate all those who are part of the team.
More information on our people can be found
on page 33.

Environment / climate change
We recognise that the long-term success of our
business is dependent on the environment
and natural resources and we are committed
to doing as much as we can to protect them.
We continue to strive to reduce the negative
impacts resulting from our operations and to
work with our suppliers to encourage them to
do the same.

We accept the contribution that aviation
makes to climate change and therefore
continue to focus on the reduction of aircraft
emissions, as well as on natural resource use
and waste management. Our work on
monitoring and reporting of our impacts this
year has included taking part in the 2009
Carbon Disclosure Project, where we were
featured in the Carbon Disclosure Leadership
Index for the quality of our reporting.

We continue to gather emissions and energy
consumption data from around the Group
and this will be included in our full 2009
Sustainability Report.

Supply chain management
Our principal suppliers are accommodation
providers in the destinations where we
operate. In order to minimise the negative
impacts of overseas holidays, we must
work with them and support them to
make changes in their businesses and
ensure increasingly high health, safety
and environmental standards.

We continue to use the Travelife Sustainability
System as our supply chain management tool
of choice in the UK – rewarding those who
have made progress in sustainability
performance. Since we began in 2007, we
have audited over 370 hotels and we now
have 51 members of staff trained as Travelife
auditors. More than 75 awards are now
featured within our brochures, promoting
this work to our customers. Thomas Cook
Northern Europe, Thomas Cook Belgium
and Thomas Cook Netherlands also now use
the Travelife scheme, working towards a
consistent set of standards across the Group.

Communities and charitable activities
We believe we should play an active part
in the communities where our people live
and work and where our customers travel.
In destinations, tourism can bring great
economic and social beneﬁt and we want
to ensure that local communities beneﬁt
as much as possible from the visits of
our customers.

During 2009, we have continued to support
the Travel Foundation, a UK charity, as a
key partner, raising money through customer
donations and working closely with them
on projects to improve the lives of people
in our destinations.

Thomas Cook has a tradition of encouraging
charitable giving and, during 2009, we
established the independent Thomas Cook
Children’s Charity as our primary vehicle

32

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Sustainability continued

Sustainability – key achievements

The Thomas Cook Children’s
Charity: Making dreams
come true for sick and
disadvantaged children

The aim of our new charity is ‘making dreams come true for
sick and disadvantaged children’. It is governed by a Board of
Trustees which consists of Manny Fontenla-Novoa as Chairman,
ﬁve employees, the CEO of University Hospital Leicester and
a past patient of London's King's College Hospital. Funds are
being raised by customers and employees of Thomas Cook
UK & Ireland. Customers are asked to make a donation when
they book a holiday and employees raise funds via creative
fundraising events.

The Thomas Cook Children’s Charity accepts applications
for funding for a sick or disadvantaged child or children
from individuals or organisations.

The Travelife Sustainability
System: Successfully engaging
with our suppliers

The Travelife Sustainability System is an all in one sustainability
management tool which enables us to monitor and measure
the environmental and social impacts of our accommodation
suppliers. Suppliers who actively engaged with sustainability
are rewarded with Bronze, Silver and Gold awards which are
displayed in brochures and websites to communicate this
commitment to our customers.

To date our UK business has audited over 370 hotels – 75 of
these have achieved award status. The success of Travelife
continued in 2009, with our Northern Europe, Belgian and
Dutch businesses now also using the system.

Measuring our carbon
footprint: Thomas Cook
Group plc commended by
Carbon Disclosure Project

In 2009, Thomas Cook Group plc was commended by the Carbon
Disclosure Project (“CDP”) for its approach to climate change
disclosure after taking part in the project for the ﬁrst time since
the merger in 2007.

Thomas Cook’s achievements have received further recognition,
with the Company being featured in CDP’s Leadership Index
after just one year in the FTSE 100. The index highlights the
top 10% of companies within the FTSE 350 Index that have
displayed the most professional approach to corporate
governance in respect of climate change disclosure practices.

Working with the Travel
Foundation since 2003:
Bringing beneﬁts to
destinations and
holidaymakers alike

The Travel Foundation, a UK charity which “cares for the places
we love to visit”, is one of our main partners. Thomas Cook was
a founding member of the Travel Foundation in 2003 and has
raised over £1.3 million to date.

Last year we worked with them on sustainable projects in The
Gambia, Cyprus and Turkey. Our overseas employees are directly
involved: they gain experience, offer a wealth of knowledge and
provide continuity to the projects. This is a vital element of our
successful partnership.

Thomas Cook Group plc
Annual Report & Accounts 2009

33

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Our people, our key differentiator

It is the people in the Thomas Cook
Group who make the real difference –
no other organisation can copy our
people and it is our approach to people
that provides the key differentiator.
We employ 31,000 people across the
21 countries in which we operate.

The Group remains committed to
recruiting the very best people and
developing all of our employees to
provide compelling career options
for those who choose to join and stay
with the business.

Our customers can therefore expect
the highest standards of service from
our people and our people in turn
strive to exceed those expectations
at every opportunity.

Development and training is a top
priority in the Group and we support
this activity with incentives that reinforce
the approach of working well together
for the beneﬁt of our customers.

Values
The Group has long-standing ‘PROUD’ values that shape how our people approach
their roles. The values are in everyday use within the Group.

For more information on our core values see the inside front cover of this Report.

We embed the PROUD values in our culture by rewarding behaviour which
demonstrates the values through the PROUD awards. Employees may nominate
colleagues who they believe have achieved something exceptional and made a
difference to the business. For example, in the UK and Ireland, awards are given
quarterly and winners enjoy a special lunch with the management team.

Employee satisfaction
We believe that engaged employees will outperform others and go the extra mile
leading to satisﬁed and loyal customers. Each of the Thomas Cook business segments
has completed an employee survey for a number of years. The response rate to the
2009 survey was 64%. Questions to determine the level of employee engagement were
included in the 2009 survey for the ﬁrst time. We were very pleased that the 2009
survey result for the engagement index was 3.74 compared to the benchmark of 3.67.

Employee engagement
Thomas Cook places a great deal of
importance on internal communications
to create universal understanding of the
Group’s agenda. The Group Chief Executive
Ofﬁcer visits the business segments
throughout the year and communicates
on a monthly basis to update Group
employees on the Company’s progress
and performance.

on the latest business and market
developments. In addition, our key markets
also host annual conferences to review
the previous year’s performance and set
out the priorities for the coming year.

Succession planning
Succession planning for all the executive
positions within the Group is in place with
the Board playing the key role in succession
planning for the Executive Directors.

Regular communications within the
segments keep our people up-to-date

Our planning identiﬁes internal talent
with the potential to step up and also

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benchmarks against the external market,
leading us to develop our people to be ‘best
in class’ in whatever discipline they operate.

Development
Thomas Cook has created a fast-track
development programme at Group level
for high-potential employees from all of
its businesses, as well as a small number
of high-potentials hired into Thomas Cook
from outside the sector. These individuals
will receive business and leadership
development to prepare them to be the
Group’s senior managers of the future.

Reward
Our reward philosophy ensures our people
are incentivised to deliver the ﬁnancial results
we aim for as well as being rewarded for the
achievement of personal objectives. The
Group also rewards individual performance
which is in line with the PROUD values.

Long-term rewards linked to the growth in
our share price remain an integral part of
the reward package at every level within
the Group, with all employee share plans
being in place.

Employment policies
Thomas Cook Group is committed to treating
everyone fairly and reasonably according to
their individual merits and abilities measured
against our justiﬁable business needs.
Therefore, any form of unlawful discrimination
directly or indirectly on the grounds of sex,
gender reassignment, pregnancy, colour, race,
nationality, ethnic or national origins, sexual
orientation, disability, age, religion or belief,
or because someone is married or is a civil
partner is not tolerated.

Thomas Cook Group also aims to reﬂect
the diversity of the community in which it
operates because it values the individual
contribution of all employees and recognises
its legal and social responsibilities.

Thomas Cook Group is committed to
promoting equality and all employees have
a duty to contribute towards ensuring that
the PROUD values are upheld and that the
culture and working environment are free
from harassment and discriminatory treatment.

34

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Financial review

Ludger Heuberg
Acting Group Chief Financial Ofﬁcer

Group ﬁnancial results1

Year ended
30 September
2009
£m

9,268.8
414.9
4.5
308.2
56.1
26.4
26.2
1.9
10.75
(675.3)

Pro forma
year ended
30 September
2008
£m

8,754.2
365.9
4.2
309.3

24.1
24.1

9.75
(292.5)

Year on
year change
%

+5.9
+13.4
+7.1
-0.4

+9.5
+8.7

+10.3

Statutory
11 months to
30 September
2008
£m

8,111.5
363.4

303.9
48.4

4.6
9.75
(292.5)

Revenue*
Proﬁt from operations**
Operating proﬁt margin %***
Adjusted proﬁt before tax2
Statutory proﬁt before tax
Adjusted basic EPS3 (p)
Adjusted diluted EPS (p)
Statutory basic EPS (p)
Dividend per share (p)
Net debt

1 See Appendix 1 on pages 116 to 121 for unaudited pro forma comparatives for year ended 30 September 2008.
2 The adjusted proﬁt before tax is stated before exceptional operating items (2009: £(215.9)m; 2008 pro forma: £(205.3)m; 2008 statutory:
£(179.6)m); amortisation of business combination intangibles (2009: £(34.8)m; 2008 pro forma: £(53.5)m; 2008 statutory: £(49.1)m);
loss on disposal of associates (2009: £(2.2)m; 2008 pro forma: £nil; 2008 statutory: £nil); and exceptional ﬁnance income/(costs) (2009: £0.8m;
2008 pro forma: £(26.8)m; 2008 statutory: £(26.8)m). The statutory income statement is included on page 62.

3 Adjusted basic earnings per share is calculated as net proﬁt after tax, but before exceptional items and amortisation of business combination

intangibles, divided by the weighted average number of shares in issue during the period.
See Appendix 2 on page 122 for key.

Basis of ﬁnancial information
The results included within this report for
the current year reﬂect audited statutory
information for Thomas Cook Group plc.
For the comparative period, audited statutory
comparative information for the 11 month
period to 30 September 2008 has been
presented on pages 62 to 106.

However, to allow a more meaningful year on
year comparison of the development of the
business, we have also included unaudited
comparative ﬁnancial information for the
12 months to 30 September 2008 in Appendix 1
on pages 116 to 121. As management deems
this to be a more meaningful comparison,
all narrative in this Financial Review is also
referenced to this comparative data.

Income statement highlights
Revenue and proﬁt from operations
Group revenue for the year was £9,268.8m,
an increase of 6% on the pro forma prior year.
Excluding the impact of translation, Group
revenue was down 1%, reﬂecting reduced
capacity in all our major markets, as we
actively managed the business through the
global recession, offset by the year on year
increase as a result of acquisitions in this
year and last.

Proﬁt from operations before exceptional items
for the year was £414.9m, an increase on the
pro forma prior year of £49m, or 13%. As
noted above, capacity was reduced in all major
markets as we sought to manage the Group
through the global recession. Trading was also
adversely impacted by the swine ﬂu outbreak,
increases in fuel prices year on year, and the
weakening of sterling against the euro and
dollar which served to push up accommodation
costs, particularly in our UK business. The
adverse impact of the above was more than
offset, however, by strong cost control, a year
on year foreign currency translation beneﬁt,
the realisation of additional merger synergies
and contributions from acquisitions made this
year and last. More details of the movements
in revenue and proﬁt from operations are given
in the table on page 36 and the Operational
Review on pages 20 to 29.

Exceptional operating items
Exceptional items are deﬁned as costs or
proﬁts that have arisen in the period which
management do not believe are a result
of normal operating performance and

Thomas Cook Group plc
Annual Report & Accounts 2009

35

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Directors’ Report – Corporate Governance
Financial Statements

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which, if not separately disclosed, would
distort the year on year comparison
of trading performance.

Exceptional operating items amounted to
£215.9m (2008 pro forma: £205.3m). £56.6m
of these costs relate to the Thomas Cook and
MyTravel merger integration process which
is now largely complete. Cumulative merger
synergies delivered to the end of September
2009 were £205m, with a further £10m of
beneﬁts expected to come through in the
year to September 2010. Total merger
integration costs to be incurred in delivering
the annualised savings are expected to be
£274m, of which £268m has been incurred
to date (including £13m of capital costs).

A further £112.8m of exceptional operating
costs have been incurred in the year in relation
to the integration of other acquisitions made
last year and this, and other restructuring
projects that we have undertaken across the
Thomas Cook Group. These restructuring
projects largely reﬂect changes made to
underlying business processes and systems
in the UK, Germany, the Western Europe
markets and Canada to improve efﬁciency
and cost leadership across the Group. These
measures have served to not only protect
proﬁtability in the ﬁnancial year, but will
also ensure that the Group is well-placed
going forward as we expect them to deliver
annualised beneﬁts in excess of £50m.

Other exceptional operating items amounted
to £46.5m and include exceptional costs in
relation to fuel, impairment and book losses
on the disposal of ﬁxed assets (mainly aircraft
related), aborted acquisition costs and losses
resulting from other exceptional operating
events that are not expected to recur.

Amortisation of business
combination intangibles
During the year we incurred costs of £34.8m
in relation to the amortisation of business
combination intangibles (2008 pro forma:
£53.5m), of which £25.6m relates to the
merger of Thomas Cook and MyTravel and
represents the amortisation of brand names,
customer relationships and computer
software. The remaining £9.2m relates to
other acquisitions made post-merger. Of this
amount, £7.8m relates to the amortisation
of brand names, customer relationships
and computer software, and £1.4m to the

amortisation of the order backlog that existed
at the time of the respective acquisitions.

Associates and joint ventures
Our share of the results of associates and joint
ventures before exceptional items was a loss
of £3.8m (2008 pro forma: proﬁt of £0.2m).
The increase in losses year on year largely
reﬂects increased losses from our Barclaycard
joint venture arrangement.

In August 2009, the Group disposed of its
19.99% share in Aqua Sol Hotels Limited, a
quoted hotel group based in Cyprus, resulting
in an exceptional loss on disposal of £2.2m.

Net investment income
Net investment income, which reﬂects dividends
and interest received from investments, was
£1.4m (2008 pro forma: £1.4m).

Net ﬁnance costs
Net ﬁnance costs (excluding exceptional
ﬁnance costs) in the year were £104.3m
(2008 pro forma: £58.2m). The increase
year on year reﬂects the higher net debt
throughout the year which, to a large extent,
resulted from the full year effect of funding
the share buyback programme (£295m) and
acquisitions in 2008 and 2009 (£368m).

The net debt position was further exaggerated
in the ﬁrst quarter of the 2009 ﬁnancial year
as the Group took the prudent decision, in
October 2008, to draw down all available funds
under the bank facility as a protective response
to the uncertainties in the banking market at
that time. This action was taken to limit
counterparty risk going into the Group’s low
point but came at a net cost of approximately
£8m in additional interest costs.

The Group also incurred the annualised effect
of commitment fees and amortisation of
set-up fees on the Group’s banking facility,
which was put in place in May 2008. In
addition, non-cash costs increased by £11.7m
as a result of movements in the notional
interest income and expense on the Group’s
pension schemes. However, this was broadly
offset by income on marking to market the
forward points on our foreign currency
hedging instruments.

Net exceptional ﬁnance income in the year
was £0.8m (2008 pro forma: cost of £26.8m).
The net cost in 2008 included £12.9m relating
to the exceptional element of the phasing
effect of marking to market the forward point

36

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Financial review continued

Segmental performance review

External revenue*
UK
Continental Europe
Northern Europe
North America
Airlines Germany
Corporate
Group

Proﬁt from operations**
UK
Continental Europe
Northern Europe
North America
Airlines Germany
Corporate1
Group

Year ended
30 September
2009
£m

Pro forma
year ended
30 September
2008
£m

3,098.0
4,000.3
1,059.3
370.4
740.8
–
9,268.8

162.2
127.0
86.4
17.9
47.4
(26.0)
414.9

3,097.3
3,620.4
971.6
384.2
680.7
–
8,754.2

143.4
106.3
86.2
6.0
45.4
(21.4)
365.9

Year on
year change
%

Flat
+10.5%
+9.0%
-3.6%
+8.8%

+5.9%

+13.1%
+19.5%
+0.2%
+198.3%
+4.4%
-21.5%
+13.4%

Statutory
11 months to
30 September
2008
£m

2,830.3
3,377.8
907.3
365.2
630.9
–
8,111.5

144.3
103.1
79.8
14.7
40.1
(18.6)
363.4

1 The costs associated with running the corporate headquarters increased in the year to £26.0m. This increase reﬂects the ongoing re-sizing and
re-shaping of the post-merger head ofﬁce functions to ensure that we are appropriately placed to effectively support the operating segments
in delivering the Group’s strategy and growth in the future.
See Appendix 2 on page 122 for key.

on our foreign currency hedging, which
arose in September 2008 as a result of the
global banking crisis. In 2009, £11.4m of
this unwound, but was offset by £10.6m
of additional revaluation losses on trading
securities. The Group has now disposed of
all of its trading securities.

Tax
The tax charge in the year was £37.8m
(2008 pro forma: £13.1m). Excluding the
effect of adjustments to tax provisions
made in respect of exceptional items, this
represents an effective tax rate of 26.9%
on the pre-exceptional proﬁt for the year.

The pre-exceptional effective cash tax rate
was 20% and is expected to continue to be
considerably lower than the effective income
statement rate as a result of being able to
utilise the losses available in the UK and
Germany. Total losses available for carry

forward in the Group at 30 September 2009 are
£1.4bn. Deferred tax assets have been recognised
in respect of £0.8bn of this amount.

Earnings per share and dividends
The basic earnings per share before exceptional
items (“adjusted earnings per share”) for the
year was 26.4p, an increase of 10% on the 2008
pro forma ﬁgure. The adjusted diluted earnings
per share for the year was 26.2p (2008 pro
forma: 24.1p).

The basic and diluted statutory earnings
per share was 1.9p and 1.8p respectively
(2008 statutory: basic and diluted of 4.6p).

The Board is recommending a ﬁnal dividend
of 7.0p per share, for payment after, and
subject to shareholder approval at, the Annual
General Meeting to be held on 25 March 2010.
This, together with the interim dividend of
3.75p per share, brings the total dividend in

Thomas Cook Group plc
Annual Report & Accounts 2009

37

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Directors’ Report – Corporate Governance
Financial Statements

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prudent cashﬂow forecast using its annual
budget and three-year plan and identifying
an appropriate amount of headroom to
provide against any unexpected ﬂows. In
addition, a 13 week cashﬂow forecast is
used to manage short-term positions. At
the year end, the Group had undrawn
committed debt, guarantee and bonding
facilities available to it of £463m.

The Group deposits surplus cash with
approved banks and ﬁnancial institutions
with strong credit ratings. Each counterparty
has a credit limit authorised by the Board
and the credit risk is reduced by spreading
the investments and derivative contracts
across a number of counterparties. At the year
end, the Group had £247m of cash deposits.

In May 2008, the Group entered into a
€1.8bn (£1.6bn) committed bank debt
facility with a number of banks, including
€0.2bn (£0.2bn) for bonding requirements.
During the year, the Group repaid €75m
(£69m) of the term loan, in accordance with
the terms of the facility. The facility provides
funding to manage the seasonal liquidity
requirement of the Group and for general
corporate purposes.

Financial risk management
The Group’s treasury function has primary
responsibility for managing ﬁnancial risks
to which the Group is exposed, including
fuel price risk, currency risk, liquidity risk,
interest rate risk and counterparty risk.
Further details are provided in Note 24 to
the Financial Statements.

respect of the ﬁnancial year to 10.75p. Based
on the adjusted diluted earnings per share
ﬁgure noted above, this equates to a 41.0%
payout ratio for the full year compared with a
payout ratio of 40.5% in the prior year.

Cash and liquidity
Net debt (cash less borrowings, overdrafts
and ﬁnance leases) at 30 September 2009
was £675.3m (2008: £292.5m). The balance
at 30 September 2009 consisted of £550.2m of
cash, £940.0m of borrowings and overdrafts
and £285.5m of ﬁnance lease liabilities. The
increase in net debt year on year is primarily
due to the following net cash outﬂows in
the period:

• £124m on working capital (excluding

exceptional items – see below). The tour
operator cash ﬂow proﬁle is extremely
cyclical. The winter months are traditionally
a period of signiﬁcant cash outﬂows, as
cash paid to hoteliers often lags the end
of the peak summer season, whereas cash
is received from customers in advance of
their holiday departure. In a year with
signiﬁcant capacity cuts, this resulted in
a working capital outﬂow which was
further exaggerated by the delay in holiday
bookings (and hence lower revenue in
advance) we have experienced as a result
of the economic slowdown;

• £214m cash outﬂow for exceptional items,
of which £140m relates to exceptional
items arising in 2009 and £74m to prior
year exceptional items;

• £69m net cash outﬂow on acquisitions and
disposals (largely being the £72m payment
to Lufthansa in March 2009 to complete
the acquisition of the Condor airline);
• £47m cash outﬂow to complete the share

buyback programme;

• £17m additional pension funding payments
for the UK deﬁned beneﬁt scheme; and

• £58m impact of foreign exchange
translation on our non-sterling
denominated borrowings.

These have been partly offset by the year
on year improvement in the underlying
operating proﬁt performance.

Cash and cash equivalents at the balance
sheet date were £550.2m (2008: £761.3m).
This balance includes restricted cash of
£60.2m (2008: £127.1m), which is held in
escrow accounts predominantly in the US

and Canada, in respect of local regulatory
requirements, in addition to amounts held
in respect of White Horse Insurance Ireland
Limited, the Group’s insurance company.

The Board is satisﬁed with the Group’s funding
and liquidity position, which remains robust.
Fixed charges cover1 and the ratio of gross
debt to EBITDAR2 , which are the ratios used
as the basis for the covenants in our credit
facilities, were 3.1x and 2.9x respectively at
30 September 2009.

Our ﬁnancial position remains robust. Our
bank facility of €1.8bn does not expire until
May 2011 and we plan to reﬁnance this by
summer 2010.

Segmental performance review
Segmental performance presented in the table
on page 36 is based on ﬁnancial performance
before exceptional items and amortisation of
business combination intangibles. It also
compares the 12 months to September 2009 to
the pro forma 12 months to September 2008
as the Directors believe that this provides a
more meaningful year on year comparison
of the development of the business. Statutory
segmental information is provided in Note 3
to the Financial Statements.

Treasury policies
The Group is subject to risks related to changes
in interest rates, exchange rates, fuel prices
and liquidity within the framework of its
business operations. To manage these risks,
the Board has established treasury policies
which are reviewed regularly to ensure they
remain relevant to the business.

The Board approves all the ﬁnancial
instruments used by the Group to manage
these risks. Internal guidelines govern the
hedging activities, responsibilities and
controls. The use of derivative ﬁnancial
instruments for speculative purposes is
not permitted.

The Group’s treasury function has primary
responsibility for treasury activities and these
activities are reported regularly to the Board.
The Treasury function is subject to periodic
independent reviews and audits, which are
presented to the Audit Committee.

Management of liquidity risk and ﬁnancing
The Group’s overall objective is to ensure that
it is able to meet its ﬁnancial commitments
as they fall due. This involves preparing a

1 Fixed charges cover is deﬁned as EBITDAR divided by net interest plus operating lease rentals.
2 EBITDAR is deﬁned as earnings before interest, tax, depreciation, amortisation, restructuring

and integration related exceptional items and operating lease rentals.

38

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Principal risks and uncertainties

Thomas Cook Group plc, like all businesses, faces risks and uncertainties as we conduct our operations and execute our strategy.
We place great importance on internal control and risk management, and the system and framework that the Board has put in
place is described in the Corporate Governance Report on page 49.

The table below lists the principal risks and uncertainties that may affect the Group and also highlights the mitigating actions that
are being taken. The content in the table, however, is not intended to be an exhaustive list of all the risks and uncertainties which
may arise.

Operational and strategic risks
Risk

Impact

Mitigation

Downturn in the economies
of our source markets
leading to a reduction in
demand for our products
and services

Fall in demand for
traditional package tours
and competition from
internet distributors
and low-cost airlines

Pressure on volumes
and margins

• Significant capacity reductions through our actions to maintain margins
• Flexible and asset-light business model:

– Less than 10% of our hotel capacity is committed at the beginning of the summer season
– Around 90% of our UK tour operator flying requirements are undertaken by our own fleet,
allowing considerable further flexibility to cut capacity without affecting our own airline

– Changes in capacity can be accommodated late into the booking season

• Utilising our buying power to manage accommodation costs across the Group. New central

team headed by senior executive

• Tight cost discipline throughout the organisation with defined contingency plans to cut costs

further if necessary. Cost synergies identified between our various airlines

• Efficiency improvements, such as a new automated yield management system

Further information can be found on pages 6 to 29.

Reduction of revenue and
pressure on margins

• Strategy to establish Thomas Cook as a leading provider of independent travel and

financial services

• Further acquisitions in the independent sector, eg. Airtrack, Med Hotels and Gold Medal
• Improvement of our online capabilities across the Group and targeting significant long-term

growth in the European online travel agency market

• Shift to higher margin all inclusive resorts
• Continued focus on expanding into new emerging markets
• Proven resilience vs. low-cost airlines through much better access to beds in destination
• Focus on medium haul destinations not economically viable for low-cost airlines

Further information can be found on pages 6 to 29.

• Strategy to increase medium haul non-Eurozone destinations, while reducing our short haul

and long haul programmes

• Flexible and asset-light business model
• Utilising our buying power to manage accommodation costs across the Group. New central

team headed by senior executive

• Increase in higher margin, all inclusive holidays, which give cost certainty to customers

Further information can be found on pages 6 to 29.

Customers’ exposure to the
falling value of sterling

Reduction in bookings
to traditional resorts in
the Eurozone as prices
appear expensive

Environmental and
social concerns

Damage to the Company’s
brand and reputation

• Focus on environmental and social concerns. Development and approval of a corporate

responsibility strategy by the Health, Safety & Environmental Committee

A major incident caused by
a significant lapse in health
and safety procedures

Significant impact on
reputation as a trusted
brand would lead to
reduction in bookings

Loss of, or difficulty in
replacing, senior talent

Inability to drive strategic
initiatives, discontinuity in
management and leadership

• Full sustainability programme as detailed in the Sustainability Report

Further information can be found on pages 30 to 32 and in the full online Sustainability
Report which can be found on www.thomascookgroup.com

• Health and safety management embedded in each business with central co-ordinating function
• Group health and safety strategy in place, developed and approved by the Health, Safety &

Environmental Committee

Further information can be found on pages 30 to 32 and in the full online Sustainability
Report which can be found on www.thomascookgroup.com

• Regular succession and talent reviews within each business segment
• Identification of key roles in line with business continuity plans
• Succession planning established for senior roles – periodic review by the Board
• Competitive package and career development opportunities

Further information can be found on page 33.

Thomas Cook Group plc
Annual Report & Accounts 2009

39

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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Operational and strategic risks continued
Risk

Impact

Mitigation

IT services

Business continuity

Performance failure by
outsourced partners

Financial risks
Risk

Volatility of fuel prices

Foreign currency and interest
rate risks

Liquidity and counterparty
credit risks

Reduction of revenue
due to failure to meet
business requirements

Business disruption and
loss of profits

Business disruption and
loss of profits

• Executive engagement for all new developments and change programmes
• Senior level monitoring of performance with status reports to the Group Executive Board

and Audit Committee

• Performance monitored against service level agreements

• Significant progress made to strengthen the business continuity plans across the Group –

progress is monitored by the Audit Committee

• Business continuity and service level agreements in place

Impact

Mitigation

Costs incurred may not be
recovered from customers
Brochure prices do not reflect
actual cost of travel

Costs incurred may not be
recovered from customers
Brochure prices do not reflect
actual cost of holiday
Interest cost uncertainties

Group is unable to meet its
financial commitments as
they fall due
Loss of cash

• Actively managed Board-approved hedging policy

Further information can be found on pages 6 to 9 and 34 to 37, and in Note 24 to the
Financial Statements.

• Actively managed Board-approved hedging and treasury policies

Further information can be found on pages 6 to 9 and 34 to 37, and in Note 24 to the
Financial Statements.

• Actively managed Board-approved treasury policy
• €1.8bn credit facility put in place in May 2008. Plans in place to refinance during the current

financial year. Considering mixed portfolio of longer term debt instruments to further
strengthen the Group’s financial position.

• Focus on cash management throughout the organisation and regular review of counterparties

Further information can be found on pages 6 to 9 and 34 to 37, and in Note 24 to the
Financial Statements.

Tax risk

Inability to utilise losses resulting
in higher taxation charges

• Compliance with Board-approved tax policy
• Regular monitoring of forecasts and high risk areas

Further information can be found in Note 26 to the Financial Statements.

This may restrict investments in
the businesses

• Broadly diversified pension fund with limited exposure to single asset classes
• Pension scheme assets and liabilities are closely monitored
• Agreed timescales for funding any deficit

Requirement to increase
defined benefit pension
scheme contributions,
which may be imposed
by the trustees or the
Pensions Regulator

Other risks that are continually monitored by management
Risk

Mitigation

Impact

Breakdown in internal controls

Inability to operate, loss of profit

• System of internal control in place, which is continually monitored

Further information can be found in the Corporate Governance Report on pages 49 to 50.

Reduction of revenue and loss
of profit

• Ongoing monitoring by management
• Flexible and asset-light business model provides ability to switch to other markets

and change capacity at short notice

Inability to obtain operating
and/or route licences leading,
ultimately, to cessation
of operation

• Active legal and regulatory management programme in place
• Ongoing programme to review airline operations and safety processes

Political, military, terrorist,
security, natural catastrophe
and health risks in source
markets and key tourist
destinations

Legal and regulatory risks,
especially in respect of airline
operating licences, insurance
and financial services sectors,
and legislative impacts
Failure to comply with
new regulations in relation
to night flying and
environmental emissions
Money laundering legislation
in relation to financial services

40

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Board of Directors

Michael Beckett (73)
Title: Non-Executive Chairman
Appointment: March 2007
Committee memberships: Chairman of
Nominations Committee.
Skills & experience: Michael Beckett was appointed
Chairman of the Company in September 2009, prior
to which he was Deputy Chairman and Senior
Independent Director. He was Chairman of MyTravel
Group plc between 2004 and 2007. Other positions
previously held include Chairman of London Clubs
International plc, Ashanti Goldfields Company
Limited and Clarkson plc, and he was formerly
Managing Director of Consolidated Gold Fields plc.
External appointments: Non-Executive Chairman
of Endeavour Financial Corporation (Canada);
Non-Executive Director of Northam Platinum Ltd
(South Africa), Orica Ltd (Australia), The Egypt Trust
(Luxembourg), Mvelaphanda Resources Limited
(South Africa) and Petroamerica Oil Corp. (Canada).

Manny Fontenla-Novoa (55)
Title: Group Chief Executive Ofﬁcer
Appointment: July 2007
Committee memberships: Chairman of Group
Executive Board, Member of Health, Safety &
Environmental Committee.
Skills & experience: Manny Fontenla-Novoa joined
the Company in 1996 following the acquisition of
Sunworld, which was then the UK’s fourth largest
tour operator. He was a founding director of
Sunworld and has 30 years’ experience in the
travel industry. He has held senior management
positions within the Group, latterly as Chief
Executive Officer of Thomas Cook AG.
External appointments: Director of Mediterranean
Touristic Management, a joint venture between
Thomas Cook Destinations GmbH and Iberostar
Hoteles y Apartamentos S.L.

David Allvey (64)
Title: Independent Non-Executive Director
Appointment: March 2007
Committee memberships: Chairman of Audit
Committee, Member of Nominations Committee
and Health, Safety & Environmental Committee.
Skills & experience: David Allvey was a Non-
Executive Director of MyTravel Group plc between
2003 and 2007. Prior to this he was Group Finance
Director of Barclays Bank plc, B.A.T Industries plc
and was Group Chief Operating Officer for Zurich
Financial Services AG.
External appointments: Chairman of Costain Group
PLC and Arena Coventry Ltd; Senior Independent
Director of both Intertek Group plc and William
Hill plc.

Roger Burnell (59)
Title: Independent Non-Executive Director
Appointment: March 2007
Committee memberships: Chairman of
Health, Safety & Environmental Committee,
Member of Audit Committee, Nominations
Committee and Management Development
& Remuneration Committee.
Skills & experience: Roger Burnell was a Non-
Executive Director of MyTravel Group plc from
April 2003. Before joining MyTravel, he was Chief
Operating Officer and a Director of Thomson Travel
Group plc. Other previous board experience includes
Chairman of The First Resort Limited, Chairman of
International Life Leisure Group Limited and
Chairman of Home Form Group Limited.
External appointments: Non-Executive Director of
Coventry Building Society.

Thomas Cook Group plc
Annual Report & Accounts 2009

41

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Sam Weihagen (59)
Title: Chief Executive Ofﬁcer, Northern Europe
& Deputy to the Group Chief Executive Ofﬁcer
Appointment: November 2009
Committee memberships: Member of Group
Executive Board.
Skills & experience: Sam Weihagen has 34 years’
experience in the travel industry. He was appointed
Deputy to the Group Chief Executive Officer in
November 2009 and has held the role of Chief
Executive Officer, Northern Europe since 2001.
He was the former MyTravel Northern Europe
Chief Executive and was an Executive Director of
MyTravel Group plc for three years prior to the
merger. He has served the Company in several
capacities, including Commercial Director, with
responsibility for purchasing and flight planning.
External appointments: Chairman of the Tour
Operating Federation in Sweden.

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Bo Lerenius (62)
Title: Independent Non-Executive Director
Appointment: July 2007
Committee memberships: Member of
Audit Committee, Nominations Committee
and Management Development &
Remuneration Committee.
Skills & experience: Between 1992 and 1998
Bo Lerenius was Chief Executive of the then listed
company, Stena Line, and 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, Ernstromgruppen.
He was Group Chief Executive of Associated British
Ports Holdings Plc between 1999 and 2007.
External appointments: Chairman of Mouchel Plc
and the Swedish Chamber of Commerce for the UK;
Non-Executive Director of G4S plc, Land Securities
Group plc, Ittur Group (Sweden) and Rorvik Timber
(Sweden). He is an advisor to the infrastructure fund
of Swedish venture capital group, EQT.

Nigel Northridge (53)
Title: Independent Non-Executive Director
Appointment: August 2008
Committee memberships: Chairman of
Management Development & Remuneration
Committee and Member of Nominations Committee.
Skills & experience: Nigel Northridge was Chief
Executive of Gallaher Group Plc for seven years until
April 2007. Over his 30-year career with the Gallaher
Group he held a range of senior positions in general
management and sales & marketing roles.
External appointments: Non-Executive Chairman
of Paddy Power plc; Senior Independent Director
of Aggreko plc and Non-Executive Director of
Inchcape plc.

New appointments
On 29 November 2009, it was agreed that Paul Hollingworth
would be appointed as Group Chief Financial Officer
with effect from 1 January 2010. On the same day, it was
agreed that Peter Middleton would be appointed as an
Independent Non-Executive Director, with effect from
30 November 2009. Biographical details for both Directors
can be found in the AGM Notice and on the Company’s
website www.thomascookgroup.com.

42

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report

Group Executive Board

Alexis Coles-Barrasso (45)
Title: Group Director, PR & Communications
Skills & experience: Alexis joined the Company in
1993, prior to which she held a number of senior
marketing positions with the car rental business,
Hertz, and worked for a corporate communications
consultancy advising blue chip clients on strategic
communications.

Dr Jürgen Büser (43)
Title: Group Strategy Director
Skills & experience: Prior to being appointed to his
current role in November 2009, Jürgen was Group
Chief Financial Officer from July 2008, prior to
which he was Chief Financial Officer for the UK &
Ireland segment. He spent three years prior to this
as Head of Controlling & M&A for Thomas Cook AG
in Germany. Before joining Thomas Cook, he held
senior positions within Siemens Financial Services,
the international consulting firm Booz Allen &
Hamilton and Westdeutsche Landesbank.

Pete Constanti (43)
Title: Chief Executive Ofﬁcer, Group
Destination Management
Skills & experience: Pete joined the Company in
1996. Until November 2009 he was Chief Executive
Officer, Mainstream Travel, UK & Ireland. Pete
comes from a strong tour operating background
and has 26 years of travel industry experience,
previously working for ILG and Sunworld where
he was HR Director.

Ian Derbyshire (41)
Title: Chief Executive Ofﬁcer, UK & Ireland
Skills & experience: Ian joined the Thomas Cook
Group in 2000 as Director of Sales and has since
held a variety of roles including Executive Director,
UK Holidays. In September 2008 he became
Chief Executive Officer, Independent Travel, UK
& Ireland. In November 2009, he was appointed
to his current role. He has held senior positions
within the leisure and travel sector with companies
including Holiday Autos, The Rank Group and
Co-op Travel. Ian has 25 years of experience in
the travel industry.

Dr Thomas Döring (40)
Title: Chief Executive Ofﬁcer, East and West Europe
Skills & experience: Thomas joined the Company
in 2001 and has been responsible for the Eastern
and Western European markets since 2006. He
has held senior positions leading the International
Markets Division, Corporate Development and
Mergers & Acquisitions. Before joining the
Company he spent seven years with Roland Berger
Strategy Consultants, latterly as a Partner.

Dr Peter Fankhauser (49)
Title: Chief Executive Ofﬁcer, Central Europe
Skills & experience: Peter joined the Company in
2001 and has held a number of senior roles within
the Group. Prior to joining the Company he was
Executive Board member of Kuoni Reisen Holding
AG in Zürich, where he managed the company’s
European division, and Chief Executive Officer of
LTU Group in Düsseldorf.

Michael Friisdahl (47)
Title: Chief Executive Ofﬁcer, North America
Skills & experience: Michael joined MyTravel North
America as President in 2000 and was appointed
Chief Executive Officer, North America in 2005.
He has 26 years’ experience in the travel industry.
Prior to joining the Group, he was a partner and
CEO of The Holiday Network, which was acquired by
Airtours International (MyTravel Group plc) in 2000.

Ludger Heuberg (50)
Title: Acting Group Chief Financial Ofﬁcer, and
Chief Executive Ofﬁcer, Group Operations
Skills & experience: Ludger joined the Company
in 2004. He was Chief Financial Officer of the
Company until June 2008. Prior to joining the
Company he was CFO of Lufthansa Cargo AG, CFO
of Kolbenschmidt-Pierburg AG and director of
Mauser Waldeck AG.

Ralf Teckentrup (52)
Title: Chief Executive Ofﬁcer, Airlines Germany
Skills & experience: Ralf joined the Company in
2004 and has held a variety of senior roles within
the Group. Previously he held a number of senior
positions with Lufthansa AG.

Paul Wood (39)
Title: Group Director, Human Resources
Skills & experience: Paul joined MyTravel Group plc
in 2006 as Group Head of Reward, a role he retained
after the merger in 2007. He was appointed Group
Director, Human Resources in April 2009.
Prior to 2006 he held senior reward and human
resources roles at Clifford Chance, Atos Origin,
Geest plc, Vodafone plc and De La Rue plc. Paul has
almost 20 years’ experience in human resources
and employee reward.

Derek Woodward (51)
Title: Group Company Secretary
Skills & experience: Derek joined the Company in
April 2008, before which he spent six years as Head
of Secretariat at Centrica plc. From 1998, he was
Company Secretary of Allied Zurich plc, the UK
listed holding company of the Zurich Financial
Services Group, and between 1990 and 1998 he
was Assistant Secretary of B.A.T Industries plc.

Thomas Cook Group plc
Annual Report & Accounts 2009

43

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Directors’ Report

Corporate governance report

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The Relationship Agreement covered the following governance
arrangements:

• Arcandor had the right to appoint two Non-Executive Directors;
• For so long as Arcandor held at least 40% or more of the shares
in the Company, it also had the right to appoint one of their
appointed Directors as Chairman;

• At all times the Independent Non-Executive Directors had to
constitute a majority of the Board, excluding the Chairman;
• The two Arcandor appointed Non-Executive Directors had the

right to membership of the Audit Committee, the Management
Development & Remuneration Committee and the Nominations
Committee. However, the Relationship Agreement provided that
those Committees should also comprise no fewer than three
Independent Non-Executive Directors, one of whom would be
appointed Committee Chairman;

• For so long as Arcandor held 40% or more of the shares in the

Company, the Board could not appoint a new Chief Executive Ofﬁcer
without the prior written consent of Arcandor;

• Provided the nomination processes as set out in the Relationship

Agreement were followed, Arcandor’s voting rights, in respect of the
election or re-election of any non-Arcandor appointed Director at
General Meetings, was restricted to two-thirds of the voting shares
in issue which were not held or controlled by Arcandor;

• The Company should carry on its businesses independently from
Arcandor. Any proposed transactions and relationships between
the Company and Arcandor were to be on a normal commercial
basis and would be subject to the prior approval of a Committee
comprising the Independent Non-Executive Directors and to the
provisions of Chapter 11 of the Listing Rules of the UK Financial
Services Authority (Related Party Transactions). In circumstances
where Chapter 11 of the Listing Rules would require a proposed
transaction to be approved by shareholders, Arcandor would not
vote its shares on that resolution. Although not covered in the
Relationship Agreement, the Company’s ﬁnancing arrangements,
including the €1.8 billion credit facility referred to in the Financial
Review on pages 34 to 37, were ringfenced from Arcandor; and

• The Relationship Agreement would terminate in the event of

Arcandor’s shareholding falling below 30%.

The Relationship Agreement was terminated on 10 September 2009
upon the placing of 43.9% of the Company’s issued shares previously
held by Arcandor by the mandated lead arranging banks who exercised
pledges over those shares in respect of Arcandor’s bank indebtedness.

The Board of Directors
An effective Board of Directors leads and controls the Group and has
a schedule of matters reserved for its approval. This schedule and
the terms of reference for the Audit, Management Development &
Remuneration, Nominations, and Health, Safety & Environmental
Committees are available on request and on the Company’s website
at www.thomascookgroup.com. The powers of the Directors are set
out in the Company’s Articles of Association. These are also available
on the Company’s website.

The Board is speciﬁcally responsible for:
• development and approval of the Group’s strategy and its

budgetary and business plans;

• approval of signiﬁcant investments and capital expenditure;
• approval of annual and half-year results and interim management
statements, accounting policies, and the appointment and, subject
to shareholder approval, remuneration of the external auditors;

• approval of interim, and recommendation of ﬁnal, dividends;
• changes to the Group’s capital structure and the issue of

any securities;

• establishing and maintaining the Group’s risk appetite, system
of internal control, governance and approval authorities;

• executive performance and succession planning; and
• determining standards of ethics and policy in relation to health,
safety, environment, social and community responsibilities.

We recognise the importance of
applying the highest standards
of corporate governance

Michael Beckett
Chairman

The Board of Directors of Thomas Cook Group plc recognises the
importance of applying the highest standards of corporate governance
to enable effective and efﬁcient decision making and to give a
structural aid for the Directors to discharge their duty to promote
the success of the Company for the beneﬁt of its shareholders. Whilst
committed to the principles of corporate governance contained in
the Combined Code on Corporate Governance (the “Code”), the Board
also had to have regard, in the period to 10 September 2009, to the
provisions of the Relationship Agreement between the Company and
Arcandor AG (the “Relationship Agreement”). Following the termination
of the Relationship Agreement on 10 September 2009 the Board has
taken steps to change certain governance arrangements and move
towards compliance with the Code.

This report sets out how the Company applied the principles of
the Code and the extent to which the Company complied with the
provisions of Section 1 of the Code in the year to 30 September 2009.
Non compliance with the Code, which is highlighted in the relevant
sections of this report, was due mainly to compliance with the
provisions of the Relationship Agreement.

Position of Arcandor AG (“Arcandor”) as former major shareholder
Arcandor’s shareholding in the issued shares of the Company was:

• In the period to 4 August 2009 52.66%;
• Between 4 August 2009 and 10 September 2009 43.9%; and
• From 10 September 2009 nil.

Relationship Agreement
The Relationship Agreement, which was in force in the period to 10
September 2009, set out certain aspects of the Company’s governance
arrangements that the Board considered to be in the best interest of
the Company in view of its then ownership structure. The Relationship
Agreement was automatically terminated on 10 September 2009,
when Arcandor’s interest in the shares of the Company fell below 30%.

44

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Corporate governance report continued

At its meetings during the year, the Board discharged its responsibilities
as listed above. In particular, the Board reviewed:

• the strategies and policies being pursued to mitigate the risks to
the Company’s businesses brought upon by volatile fuel prices,
the weakness of sterling against the US dollar and the euro, the
economic downturn and the effect of swine ﬂu;

• the Group’s taxation strategy and policies, including the

management of related risk;

• the risks and uncertainties in respect of the possible insolvency of
the Company’s then 52.66% shareholder, Arcandor, and the impact
on the Company’s share price due to the market’s anticipation of
an ‘overhang’ in the Company’s shares;

• the Group’s ongoing investment in new IT infrastructure;
• future ﬁnancing requirements, both general and in respect

of aircraft reﬁnancing;

• succession plans in respect of the Executive Directors and

members of the Group Executive Board;

• initial plans, following the termination of the Relationship
Agreement, to strengthen the Board by the addition of new
Non-Executive Directors;

• the Group’s governance framework and arrangements, including
the Group Delegation of Authority Document, matters reserved
for the Board, terms of reference of its primary committees and
associated policies and procedures required of a UK listed company;

• developing legal and governance proposals and requirements; and
• the Directors’ conﬂicts of interest register.

One of the Board’s meetings during the year was speciﬁcally devoted
to the development and approval of the Group’s strategy. This Board
meeting was attended by the members of the Group Executive Board,
each of whom presented the proposed strategy of their respective
Segment. Strategy is continually monitored and reviewed by the Board
and periodic updates of strategy and market conditions are presented
to the Board by the Segment Chief Executive Ofﬁcers.

Board meetings and attendance
The Board has regular scheduled meetings throughout the year and
supplementary meetings are held as and when necessary. The Board
held ten scheduled and 12 unscheduled supplementary meetings
during the year. A table detailing individual Director attendance at
scheduled Board and Committee meetings during the year is set out
below. Non attendance at meetings was due to illness and prior
business commitments. Directors who were unable to attend speciﬁc
Board or Committee meetings reviewed the relevant brieﬁng papers
and provided their comments to the Chairman of the Board or
Committee, as appropriate. The Chairman and each Non-Executive
Director have provided assurance to the Board that they remain fully
committed to their respective roles and can dedicate sufﬁcient time
to meet what is expected of them.

The table below shows the number of scheduled Board and Committee
meetings attended by each Director out of the number convened
during the time served by each Director on the Board or relevant
Committee during the year.

Current Directors who served during the year:

Name

Michael Beckett (Non-Executive Chairman)
Manny Fontenla-Novoa
David Allvey
Roger Burnell
Bo Lerenius
Nigel Northridge

Former Directors who served during the year:

Name

Peter Diesch1
Thomas Middelhoff 2
Karl-Gerhard Eick 3
Hemjö Klein 4
Jürgen Büser 5

Nominations
Committee

Audit
Committee

Management
Development &
Remuneration
Committee

Health, Safety &
Environmental
Committee

7/7
–
–
7/7
–
7/7

4/7
–
7/7
6/7
6/7
–

8/8
–
–
8/8
–
8/8

4/5
5/5
5/5
5/5
–
–

Nominations
Committee

Audit
Committee

Management
Development &
Remuneration
Committee

Health, Safety &
Environmental
Committee

1/2
2/3
1/4
–
–

3/3
3/4
1/4
–
–

2/4
3/5
2/3
6/8
–

–
–
–
4/5
–

Board

9/10
10/10
10/10
10/10
9/10
10/10

Board

1/2
2/3
5/7
8/10
3/10

Notes in respect of former Directors
1. Peter Diesch resigned on 22 December 2008.
2. Thomas Middelhoff resigned on 17 March 2009.
3. Karl-Gerhard Eick was appointed on 22 December 2008 and resigned on 10 September 2009.
4. Hemjö Klein resigned on 18 September 2009.
5. Jürgen Büser resigned on 29 November 2009.

Special note in respect of the Acting Group Chief Financial Ofﬁcer
During the period in which Ludger Heuberg was acting Group Chief Financial Ofﬁcer, he attended all seven scheduled Board and all three scheduled Audit Committee meetings.

Further details are given under the heading of Board composition opposite.

Thomas Cook Group plc
Annual Report & Accounts 2009

45

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Board composition
As at 30 September 2009 the Board comprised the Chairman, two
Executive Directors and four Independent Non-Executive Directors.
Biographical details of those Directors can be found on pages 40 and 41.

Board Composition

Chairman
Independent Non-Executive Directors
Executive Directors

The Chairman
Michael Beckett was appointed Non-Executive Chairman of the
Company upon the termination of the Relationship Agreement on
10 September 2009, prior to which he was Deputy Chairman and Senior
Independent Director. Karl-Gerhard Eick was Chairman in the period
17 March 2009 to 10 September 2009. Thomas Middelhoff was
Chairman in the period to 17 March 2009. Both Thomas Middelhoff
and Karl-Gerhard Eick were nominated by Arcandor under the
provisions of the Relationship Agreement and, as neither was
independent on appointment as Chairman, the Company was not
compliant with provision A.2.2 of the Code. Michael Beckett was
independent upon his appointment as Chairman of the Company.

The roles of the Chairman and Chief Executive Ofﬁcer are separate
and distinct and each has a written statement of his respective
responsibilities, a summary of which can be found on the Company’s
corporate website at www.thomascookgroup.com.

The Board
Changes to the Board during the year were as follows:

Peter Diesch resigned from the Board on 22 December 2008 and
was replaced as an Arcandor nominated Non-Executive Director by
Karl-Gerhard Eick with effect from the same date. Karl-Gerhard Eick
resigned from the Board on 10 September 2009. Thomas Middelhoff
resigned from the Board on 17 March 2009. Hemjö Klein resigned from
the Board as an Independent Non-Executive Director due to personal
reasons on 18 September 2009.

Changes to the Board since the year end were as follows:

Sam Weihagen was appointed to the Board as Deputy to the Group
Chief Executive Ofﬁcer on 6 November 2009. He is also Chief Executive
Ofﬁcer, Northern Europe and a member of the Group Executive Board.
Jürgen Büser stepped down from the Board and the position of Group
Chief Financial Ofﬁcer on 29 November 2009 following a period of
ill health. The Nominations Committee led and directed a process
to ﬁnd a new Group Chief Financial Ofﬁcer aided by external search
consultants. The Chairman of the Audit Committee was involved in
the search and selection criteria and the interview process. Following
this process, Paul Hollingworth was appointed as Group Chief
Financial Ofﬁcer with effect from 1 January 2010. Since March 2009
when Jürgen Büser took absence for health reasons, Ludger Heuberg
has carried out the role as Acting Group Chief Financial Ofﬁcer.
Ludger Heuberg (Group Chief Financial Ofﬁcer of the Company from
June 2007 until June 2008 and a current member of the Group Executive
Board) is not a Director of the Company.

In order to strengthen the Board following the termination of the
Relationship Agreement, a formal, rigorous and transparent process
was put in place to appoint two additional Independent Non-Executive

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Directors. The ﬁrst of these, Peter Middleton, was appointed as
a Non-Executive Director with effect from 30 November 2009.

The search, selection and appointment process in respect of both
the new Group Chief Financial Ofﬁcer and new Independent
Non-Executive Directors is fully described in the section on the
Nominations Committee on page 48.

Director independence and the Senior Independent Director
At its September 2009 Board meeting, as part of its annual audit of
corporate governance against the Code, the Board considered the
independence of the Non-Executive Directors against the criteria
speciﬁed in the Code and determined that David Allvey, Roger Burnell,
Bo Lerenius and Nigel Northridge remained independent. Hemjö Klein,
who left ofﬁce prior to the September Board Meeting met the
independence criteria in the Code. However, the Arcandor-nominated
Directors who left ofﬁce during the year; Thomas Middelhoff, Peter
Diesch and Karl-Gerhard Eick were not considered as independent.

Until 10 September 2009, Michael Beckett was the Deputy Chairman
and Senior Independent Director and, as such, was available to
shareholders if they had concerns which had not, or could not, be
resolved through discussion with the Chairman or the Executive
Directors. In that capacity, he chaired meetings of the Independent
Non-Executive Directors, who met periodically throughout the year.
A new Senior Independent Director was not appointed when Michael
Beckett relinquished that role upon his appointment as Chairman on
10 September 2009 as the Board has agreed that it would be preferable
to defer such appointment until the Board is at full strength upon the
appointment of additional Non-Executive Directors (referred to above).
Until such appointment is made, the Company will be non-compliant
with provision A.3.3 of the Code.

Re-appointment of Directors
In accordance with the Code and the Company’s Articles of Association,
all Directors are subject to election by shareholders at the ﬁrst Annual
General Meeting (“AGM”) following their appointment to the Board and
thereafter are subject to re-election every third year. Non-Executive
Directors are initially appointed for a three-year term and, subject to
rigorous review by the Nominations Committee and re-election by
shareholders, can serve up to a maximum of three such terms.

Upon the recommendation of the Nominations Committee, Manny
Fontenla-Novoa and Roger Burnell will be proposed for re-election
and Sam Weihagen, Paul Hollingworth and Peter Middleton, having
been appointed to the Board since the last AGM, will each retire and
offer himself for appointment by shareholders at the 2010 AGM.

Operation of the Board
Before each Board meeting, Directors received a comprehensive pack
of papers and reports on the matters to be discussed at the meeting.
Senior executives below Board level also attended relevant parts
of Board meetings in order to make presentations on their areas
of responsibility. This gave the Board access to a broader group of
executives and helped the Directors make assessments of the Group’s
succession plans.

Between Board meetings, Directors were provided with relevant
information on matters affecting the businesses.

The Group Company Secretary, who was appointed by the Board,
is responsible for advising and supporting the Chairman and the
Board on company law and corporate governance matters as well
as ensuring that there is a smooth ﬂow of information to enable
effective decision making. All Directors have access to the advice and
services of the Group Company Secretary and, through him, have
access to independent professional advice in respect of their duties
at the Company’s expense. The Group Company Secretary acts as
secretary to the Board, the Group Executive Board, the Finance &
Administration Committee, the Disclosure Committee, the Audit
Committee, the Nominations Committee and the Management
Development & Remuneration Committee. The Deputy Group Secretary
acts as secretary to the Health, Safety & Environmental Committee.

46

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Corporate governance report continued

The Code provides that the Chairman and Non-Executive Directors
should meet without executives present. Such meetings have taken
place, but because of the governance structure under the Relationship
Agreement that existed for most of the year, the Board believed that
the spirit of the Code was best served by meetings of the Independent
Non-Executive Directors chaired by the then Deputy Chairman and
Senior Independent Director. In the future, such meetings will be
chaired by the Company Chairman in accordance with the Code.

In accordance with its Articles, the Company has granted a deed of
indemnity, to the extent permitted by law, to each Director and the
Group Company Secretary. The Company also maintains Directors’
and Ofﬁcers’ liability insurance.

Board evaluation
A thorough evaluation of the Board and its Committees was conducted
during the year. This was facilitated by the Group Company Secretary
under the direction of the then Deputy Chairman and Senior
Independent Director. The process involved each of the Directors
completing a comprehensive questionnaire, which was structured to
encourage both graded responses and narrative feedback in respect
of a range of questions that focused on the following areas:

• Board and Committee composition, knowledge and dynamics;
• Time management;
• Support;
• Strategic development and oversight;
• Delegation of authority;
• Risk management;
• Corporate responsibility;
• Human resource management;
• Executive remuneration;
• Mergers & acquisition transactions;
• Performance of Executive and Non-Executive Directors;
• Committee structure and performance; and
• Priorities for change.

Board evaluation process

Detailed questionnaire

Effectiveness report
(Compiled by the Group Company Secretary and agreed with
the Deputy Chairman and Senior Independent Director.)

Discussed at September Board meeting

Priorities and improvements

Upon receipt of the completed forms, the Group Company Secretary
compiled a report, drawing out the key themes and issues that were
raised and formulated a number of recommendations to further
enhance the overall effectiveness of the Board and its Committees.
This report was developed and agreed with the then Deputy Chairman
and Senior Independent Director and circulated to the Board for debate
at the September 2009 Board meeting. The results of the evaluation
concluded that the operation of the Board and its Committees had
improved during the year but highlighted a small number of areas
where further improvement could be made as part of the natural
evolution of a Board that was formed two years previously upon the
merger of Thomas Cook AG and MyTravel Group plc. Areas for further
improvement included: a requirement for more regular reviews of
executive and senior management succession plans; the need for
additional Non-Executive Directors to strengthen the Board to ensure a
pool of candidates for succession to the positions of the Chairman and,
more immediately, the Senior Independent Director; an increase in the

frequency and time allocated to the review of strategy and risk;
increased exposure to members of the Group Executive Board and other
senior managers; and the ﬁne tuning of certain regular Board reports.
The Board debated the above and agreed the recommended actions
and a forward agenda of additional key issues for review. The Board
and Committee evaluation to be carried out in the current ﬁnancial
year will cover the same areas as listed above and will be designed to
track progress against the agreed actions set in 2009.

The Independent Non-Executive Directors did not conduct a
performance review of the Chairman, Karl-Gerhard Eick, due to the
short period of time that he had been in ofﬁce. The Independent
Non-Executive Directors and the Executive Directors did evaluate the
performance of the Deputy Chairman and Senior Independent Director
as part of the Board evaluation process shortly before appointing him
as Chairman of the Company. As part of the Company’s performance
management system that applies to management at all levels across
the Group, the performance of the Group Chief Executive Ofﬁcer and
the Group Chief Financial Ofﬁcer is reviewed by the Management
Development & Remuneration Committee.

Board training and induction
An induction programme tailored to meet the needs of individual
Directors is provided for each new Director. Overall, the aim of the
induction programme is to introduce new Directors to the Group’s
business, its operations and its governance arrangements. Such
inductions typically include meetings with senior management,
including a structured meeting with the Group Company Secretary,
visits to the Company’s Business Segments, and the receipt of
presentations on key business areas and relevant documentation.

Directors also receive training throughout the year. At Board meetings
and, where appropriate, Committee meetings, the Directors receive
regular updates and presentations on changes and developments to
the business, and to the legislative and regulatory environments.
During the year, the Board was provided with: updates on the economic
environment in each of the Segments, including customer perceptions
and booking habits; a brieﬁng on how the Company complies with
health and safety legislation applicable to customers and employees
in both source and destination markets; and brieﬁng papers on the
ﬁnal implementation of the Companies Act 2006, the implementation
of the EU Shareholder Rights Directive, the Financial Reporting
Council’s review of the Combined Code on Corporate Governance, the
potential impact on the governance arrangements for all companies
following Sir David Walker’s review of governance in respect of banking
institutions, and potential changes to executive remuneration
governance as a result of the above and the European Commission’s
Recommendations in respect of executive remuneration.

Directors’ conﬂicts of interest
From 1 October 2008, a Director has had a statutory duty to avoid a
situation in which he has, or can have, an interest that conﬂicts or
possibly may conﬂict with the interests of the Company. A Director will
not be in breach of that duty if the relevant matter has been authorised
in accordance with the Articles of Association by the other Directors.

At its meeting in September 2008, the Board approved a set of guiding
principles on managing conﬂicts; considered the process that had
been adopted for identifying current conﬂicts; authorised the conﬂicts
that had been identiﬁed and stipulated conditions in accordance with
the guiding principles; and agreed a process to identify and authorise
future conﬂicts. It was also agreed that the Nominations Committee
would review the authorised conﬂicts every six months, or more
frequently if the potential conﬂict situation materialises. The
Nominations Committee and Board applied the above principles and
process throughout the year to 30 September 2009. The Board was
mindful of the potential conﬂict situation during the year in respect of
the ﬁnancial difﬁculties of Arcandor, the Company’s major shareholder
until 10 September. This resulted in Peter Diesch, Thomas Middelhoff
and Karl-Gerhard Eick, each being Arcandor-nominated Directors,
absenting themselves from deliberations of the Board at certain times.

Thomas Cook Group plc
Annual Report & Accounts 2009

47

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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The Group governance structure
The Board has delegated authority to its Committees on speciﬁc aspects of management and control of the Group. The papers in respect of
the Audit, Nominations, Health Safety & Environmental, and Disclosure Committees are circulated to all the Directors, regardless of Committee
membership, and the papers in respect of the Management Development & Remuneration Committee are circulated to the Non-Executive
Directors. Matters discussed and agreed at those Committees and at the Group Executive Board are reported to the next Board meeting.

Thomas Cook Group plc
Board of Directors

Group Executive
Board

Audit
Committee

Management Development
& Remuneration
Committee

Nominations
Committee

Health, Safety
& Environmental
Committee

Disclosure
Committee

Finance &
Administration
Committee

Group Risk
Management Committee

Segment
Boards

Function
Boards

Fuel Hedging
Committee

Country
Boards

Group Executive Board

The Group Chief Executive Ofﬁcer chairs the Group Executive Board
which meets at least ten times a year to oversee the strategic
development and operational management of the Group’s businesses.
The Group Chief Financial Ofﬁcer and the Chief Executive Ofﬁcer,
Northern Europe & Deputy to the Group Chief Executive Ofﬁcer are also
members of the Group Executive Board. The other current members of
the Group Executive Board, together with their biographies, are set out
on page 42.

Finance & Administration Committee

To facilitate swift and efﬁcient operational management decisions,
the Board has established the Finance & Administration
Committee (comprising any two Directors, one of whom must be
an Executive Director) which has delegated authority, within clearly
identiﬁed parameters, in relation to day-to-day ﬁnancing and
administrative matters.

Disclosure Committee

The Board has established a Disclosure Committee, which is responsible
for implementing and monitoring systems and controls in respect of
the management and disclosure of inside information in accordance
with the Company’s obligations under the UK Listing Authority’s
Disclosure and Transparency Rules. The Committee comprises the
Group Chief Executive Ofﬁcer, who is the Chairman, the Group Chief
Financial Ofﬁcer, the Group Investor Relations Director, the Group
Director of PR & Communications and the Group Company Secretary.

Audit Committee

Role of the Committee
The Board has delegated to the Committee responsibility for overseeing
the ﬁnancial reporting and internal risk management control functions
and for making recommendations to the Board in relation to the
appointment of the Company’s internal and external auditors.

Non-Executive Directors only
Executive Directors and Non-Executive Directors
Executive Directors and/or other senior executives only

In accordance with its terms of reference, the Committee, which
reports its ﬁndings to the Board, is authorised to:

• monitor the integrity of the annual and half-year results and
interim management statements, including a review of the
signiﬁcant ﬁnancial reporting judgements contained in them;

• review the Company’s internal ﬁnancial controls, internal

control and risk management systems;

• monitor and review the effectiveness of the Company’s

internal audit function;

• establish and oversee the Company’s relationship with
the external auditors, including the monitoring of their
independence; and

• monitor matters raised pursuant to the Company’s

whistleblowing arrangements.

The full terms of reference of the Committee are available on
www.thomascookgroup.com or from the Group Company Secretary
at the registered ofﬁce.

Composition of the Committee
All members of the Committee are Non-Executive Directors. Consistent
with the Relationship Agreement, the Arcandor-nominated Directors
who held ofﬁce for periods of the year and who did not therefore
meet the test of independence, were members of the Committee.
However, the other four members of the Committee at that time
were independent. During the year, the Arcandor-appointed Directors,
Peter Diesch, Thomas Middelhoff and Karl-Gerhard Eick, resigned from
the Board, and therefore ceased to be members of the Committee on
22 December 2008, 17 March 2009 and 10 September 2009 respectively.
Michael Beckett resigned from the Committee on 24 September 2009
following his appointment as Chairman of the Company. As of that
date, the Committee comprised the following members, all of whom
were Independent Non-Executive Directors:

David Allvey (Chairman)
Roger Burnell
Bo Lerenius

David Allvey is considered by the Board to have recent and relevant
ﬁnancial experience as required by the Code.

48

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Corporate governance report continued

Meetings and attendance
The Committee, which meets as often as required, met seven times
during the year, which included meetings held by teleconference,
to review and approve matters such as the provision of ﬁnancial
information to Arcandor pursuant to the Relationship Agreement.
Attendance by Committee members at each meeting is set out in
the attendance table on page 44.

Meetings of the Committee are normally also attended by the Chairman
of the Company, the Group Chief Executive Ofﬁcer, the Group Chief
Financial Ofﬁcer, the Group Company Secretary and the internal and
external auditors.

During the year, the Committee met with the external auditors,
PricewaterhouseCoopers LLP (“PwC”), and separately with Ernst
& Young LLP (“E&Y”), the internal auditors of the Company.

Principal activities during the year
At its meetings during the year, the Committee discharged its
responsibilities as listed above and in particular, it reviewed:

• the Group’s ongoing investment in new IT infrastructure;
• the Group’s business continuity plans and the work plan

and timetable for further development;

• the Group’s main risks and mitigating actions;
• the Group’s taxation strategy and policies, including

the management of related risk;

• a plan for dealing with the deﬁcit in the UK deﬁned

beneﬁt pension scheme;

• the Group’s system of internal control, receiving reports from
management, the external auditors and the internal auditors;

• proposals for engaging the external auditors to carry out

non-audit related work (see below); and

• the Committee’s terms of reference and related policies.

Support to the Committee
The Committee received information and support from
management during the year to enable it to carry out its duties
and responsibilities effectively.

External auditors
There is a policy in place which requires all material non-audit
work proposed to be carried out by the external auditors to be
pre-authorised by the Committee in order to ensure that the
provision of non-audit services does not impair the external auditors’
independence or objectivity. The policy, which is appended as a
schedule to the Audit Committee’s terms of reference, is published
on the Company’s website at www.thomascookgroup.com.

An analysis of the fees earned by the Group’s auditors for audit and
non-audit services is disclosed in Note 9 to the Financial Statements.

The full terms of reference of the Committee are available on
www.thomascookgroup.com or from the Group Company Secretary
at the registered ofﬁce.

Composition of the Committee
All of the members of the Committee are Non-Executive Directors.
During the year, Peter Diesch, Thomas Middelhoff and Karl-Gerhard
Eick, all Arcandor-nominated Directors, resigned from the Board, and
therefore ceased to be members of the Committee on 22 December
2008, 17 March 2009 and 10 September 2009 respectively. Hemjö Klein
resigned from the Board as an Independent Non-Executive Director, and
therefore ceased to be a member of the Committee, on 18 September
2009. On 24 September 2009, David Allvey and Bo Lerenius were
appointed to the Committee. At 30 September 2009, the Committee
comprised the following members, all of whom, except the Committee
Chairman, were Independent Non-Executive Directors:

Michael Beckett (Chairman)
David Allvey
Roger Burnell
Bo Lerenius
Nigel Northridge

Board appointments
Appointments to the Board are made on merit and against objective
criteria. This process is led by the Nominations Committee which, after
evaluating the balance of skills, knowledge and experience of each
Director, makes recommendations to the Board.

Meetings and attendance
During the year, the Committee, which meets as often as required, had
seven formal meetings. Attendance by Committee members at each
meeting is given in the attendance table on page 44. Meetings of the
Committee are normally also attended by the Group Chief Executive
Ofﬁcer and the Group Company Secretary.

Principal activities during the year
At its meetings during the year, the Committee discharged its
responsibilities as listed above and in particular:

• considered Directors’ potential conﬂicts (see page 46);
• considered the re-appointment of the Directors subject to
retirement by rotation, before making a recommendation
to the Board regarding their re-election;

• agreed and monitored the process in respect of the search
and selection of a new Group Chief Financial Ofﬁcer; and
• commenced the process to recruit additional Non-Executive

Directors in order to strengthen the Board and to ensure there
is a pool of candidates amongst current and new Directors
for succession to the positions of the Chairman and, more
immediately, the Senior Independent Director.

PwC were re-appointed by shareholders at the AGM held on 19 March
2009. Upon the recommendation of the Audit Committee, PwC will
be proposed for re-election by shareholders at the AGM to be held on
25 March 2010. PwC have conﬁrmed their independence as auditors
of the Company in a letter addressed to the Directors.

In respect of the appointment of a new Group Chief Financial Ofﬁcer,
the Committee agreed that the search and selection ﬁrm, Spencer
Stuart, should be used and that the Chairman of the Audit Committee
should be involved with the engagement of such ﬁrm and the interview
of the short-listed candidates.

Nominations Committee

Role of the Committee
The Board has delegated to the Committee responsibility for reviewing
and proposing appointments to the Board and for recommending
any other changes to the composition of the Board or the Board
Committees. The principal responsibility of the Committee is to make
recommendations to the Board on all new appointments to the Board,
as well as Board balance and composition. The Committee ensures
that there is clarity in respect of the role description and capabilities
for such appointments. The Committee is also responsible for reviewing
at least every six months, or more frequently if required, the Directors’
potential conﬂicts and for making recommendations to the Board in
respect of authorising such matters.

In respect of the process to appoint two new Non-Executive Directors
to the Board, the Committee formulated a set of criteria, including the
required skills and attributes for suitable candidates. This took account
of the comments from the Board evaluation process and considered the
current composition of the Board and the skills and attributes required
in the future. The Committee considered candidates brought to their
attention from a wide range of professional ﬁrms and other sources.

Management Development & Remuneration Committee

A report detailing the composition, responsibilities and work carried out
by the Management Development & Remuneration Committee during
the year, including an explanation of how it applies the principles of
the Code in respect of Executive Directors’ remuneration, is included
within the Remuneration Report on pages 53 to 60.

Thomas Cook Group plc
Annual Report & Accounts 2009

49

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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On 24 September 2009, the terms of reference of the Committee were
changed in line with the Code to include responsibility for determining
the remuneration of the Chairman. Prior to that date the Chairman’s
remuneration was the responsibility of the Committee of Independent
Non-Executive Directors. That arrangement, which was technically
in breach of the Code, was considered to be more appropriate and
balanced in view of the Chairman’s nomination by Arcandor and his
membership of the Committee. A further explanation of this is set
out in the Remuneration Report on pages 53 to 60.

Composition of the Committee
All current members of the Committee are Non-Executive Directors.
Consistent with the Relationship Agreement, the Arcandor-nominated
Directors who held ofﬁce for periods of the year and who therefore did
not meet the test of independence, were members of the Committee.
However, the other four members who held ofﬁce during the year,
being a majority of the Committee, were independent. During the year,
the Arcandor-nominated Directors, Peter Diesch, Thomas Middelhoff
and Karl-Gerhard Eick, resigned from the Board, and therefore ceased to
be members of the Committee on 22 December 2008, 17 March 2009
and 10 September 2009 respectively. On 24 September 2009 the Board,
on the recommendation of the Nominations Committee, agreed to
appoint Nigel Northridge as Chairman of the Committee in place of
Michael Beckett who, as Chairman of the Company, had decided to
resign from the Committee. Bo Lerenius was appointed to the
Committee on the same day.

Meetings of the Committee are normally also attended by the Chairman
of the Company, the Group Chief Executive Ofﬁcer, (other than in
respect of matters speciﬁcally related to their own remuneration),
the Group HR Director and the Group Company Secretary.

Health, Safety & Environmental Committee

Role of the Committee
The Board has delegated to the Committee responsibility to review,
develop and oversee consistent policy, standards and procedures
for managing health, safety and environmental risks to the Group’s
business. It is also responsible for the review and oversight of
compliance with relevant legislation and regulation relating to health,
safety and the environment across the Group.

The full terms of reference of the Committee are available on
www.thomascookgroup.com or from the Group Company Secretary
at the registered ofﬁce.

Composition of the Committee
During the year Hemjö Klein and, following his appointment as Chairman
of the Company, Michael Beckett resigned as members of the Committee
on 18 September and 24 September 2009 respectively. As at 30 September
2009, the Committee comprised the following members, all of whom,
except Manny Fontenla-Novoa, were Independent Non-Executive Directors:

Roger Burnell (Chairman)
David Allvey
Manny Fontenla-Novoa

Meetings and attendance
During the year, the Committee met ﬁve times. Attendance by
Committee members at each meeting is set out in the attendance table
on page 44. Meetings of the Committee are normally also attended by
the Chairman of the Company, a number of executives and senior
managers with responsibility for health, safety and environmental
matters, the Group Company Secretary and the Deputy Group Company
Secretary.

During the year, the Committee reviewed and agreed the Group’s
sustainability report; approved a new group-wide strategy for health
and safety; reviewed the legal framework for health and safety and how
the Group is organised to ensure it meets its obligations in relation to
health and safety; approved a new corporate responsibility strategy and
reviewed the process of health and safety reporting across the Group.

The Group’s sustainability report for 2008/2009 is available on
www.thomascookgroup.com and contains the Group’s health, safety
and environmental policies, an explanation of how Thomas Cook
manages corporate responsibility and progress against targets.

A summary of the online report is contained on pages 30 to 32 in
the Directors’ Report – Business Review.

Shareholder communication
The Board promotes open communication with shareholders. This is
formalised within a framework of an investor relations programme
conducted by the Group Chief Executive Ofﬁcer and the Group Chief
Financial Ofﬁcer and the Investor Relations team. The programme
includes the presentation of preliminary and half-year results, which
can be accessed on the Thomas Cook website along with ﬁnancial
reports, interim management statements and trading updates. The
management team conducts regular meetings with institutional
investors, and welcomes the dialogue that this enables with
shareholders. The Company makes every effort to ascertain investor
perceptions of the Company and regular reports of investor and analyst
feedback are provided to the Board. Additionally, the Board responds
to ad hoc requests for information and all shareholders are entitled
to attend the AGM, where they have an opportunity to ask questions
of the Board.

The Chairman, who was until 10 September 2009 the Deputy Chairman
and Senior Independent Director, met a number of major institutional
shareholders during the year to discuss the Group’s remuneration policy
and governance arrangements, and to gain a ﬁrst-hand understanding
of any issues or concerns they may have had. With 100% of the shares
in the Company now freely ﬂoating on the London Stock Exchange, the
Company is responding to an increased level of investor interest.

At its 2008 AGM, the Company passed a resolution allowing the website
and email to be used as the primary means of communication with
its shareholders. This arrangement provides signiﬁcant beneﬁts for
shareholders and the Company in terms of timeliness of information,
reduced environmental impact and cost. Shareholders may still opt
to receive their communications in a paper format. The Company’s
website contains information for shareholders, including share price
and news releases, and can be found at www.thomascookgroup.com.

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 on the Combined Code and
has approved the framework and the standards implemented. The
Board has delegated responsibility for the implementation of the
Group risk management policy to the Group Chief Financial Ofﬁcer.
The Group Chief Financial Ofﬁcer has formed the Group Risk
Management Committee comprising senior executives from across
the Group, to support him in fulﬁlling this responsibility.

The Group Risk Management Committee is responsible for:

• supervising a thorough and regular evaluation of the nature
and extent of the risks to which the Company is exposed;
• reviewing the corporate risk proﬁle and recommending risk

management strategies; and

• supervising and assessing the overall effectiveness of the risk

management process.

To support the Group Risk Management Committee, there are segment
risk management committees, each comprising the respective segment
Chief Executive Ofﬁcer, Chief Financial Ofﬁcer and other senior managers.
The Group has established ﬁve segment risk committees which report
into and support the work of the Group Risk Management Committee:

• UK & Ireland;
• Continental Europe;
• Northern Europe;
• North America; and
• Airlines Germany.

50

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Corporate governance report continued

By implementing the risk management policy, the segments are
responsible for:

• maintaining and updating risk reporting;
• managing risk action implementation and measurement

systems; and

• maintaining and reviewing risk performance and

measurement systems.

Risk registers are compiled and submitted by each segment for review
quarterly. The Group Risk Management Committee prepares a half
yearly risk report for the attention of the Audit Committee based on
the feedback from the segment risk management committees.

The report identiﬁes the principal risks to the business and assesses the
adequacy of controls and procedures in place to mitigate the likelihood
and the impact of these risks. The regular risk reporting regime has
created an environment for the development and improvement of
risk management procedures across the Group. The Audit Committee
reviews the reports of the Group Risk Management Committee and
makes recommendations to improve risk management and internal
control. This process of risk identiﬁcation, measurement and reporting
provides a comprehensive ongoing assessment of the signiﬁcant risks
facing the Group and the mitigating actions taken in respect of those
risks. This process ensures that the Group complies with relevant
corporate governance best practice in relation to risk management,
including the guidance issued under the Turnbull Report. The Group’s
internal audit function reports directly to the Chairman of the Audit
Committee. Internal audit makes recommendations to that Committee
in relation to the maintenance of a sound control environment
throughout the Group.

A schedule of the Group’s principal risks and uncertainties, likely
impacts on the Group and mitigating actions being taken by
management is set out on pages 38 to 39 of the Directors’
Report-Business Review.

The Group encourages employees to report any concerns which they
feel need to be brought to the attention of management and has
adopted a whistleblowing policy and theft and fraud reporting policy.
These are published on the Group’s intranet sites, allowing such
matters to be raised in conﬁdence through the appropriate channels.
The Group has a code of ethics which deals with:

• prohibitions on employees using their position for personal gain;
• prohibitions on improper business practices;
• a requirement for compliance with all internal approval and

authorisation procedures and legal requirements; and
• a requirement to disclose potential conﬂicts of interest and

potential related party contracts.

This code of ethics is contained within the Group’s internal policies
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 for
advice on any matter which may give rise to cause for concern in
relation to the code of ethics.

During the year, the Board, through the work of the Audit Committee,
has conducted a review of the Group’s system of internal control.
There is an ongoing process for the identiﬁcation and evaluation of
risk management and internal control processes which has been in
place throughout the year and remains in place up to the date of
the ﬁnancial statements. The work conducted by management and
described on pages 38 to 39 is complemented, supported and
challenged by the controls assurance work carried out independently
by the external auditors, PwC, and the internal auditors, E&Y. Regular
reports on control issues are presented to the Audit Committee by PwC
and E&Y. The Board, in reviewing the effectiveness of the system of
internal control, can conﬁrm that necessary actions have been, or are
being, taken to remedy any signiﬁcant failings or weaknesses identiﬁed
from that review.

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
reason, they continue to adopt the going concern basis in preparing
the ﬁnancial statements.

Statement of Directors’ responsibilities in respect of the
Annual Report, the Directors’ Remuneration Report and
the ﬁnancial statements
The Directors are responsible for preparing the Annual Report,
the Directors’ Remuneration Report and the ﬁnancial statements
in accordance with applicable law and regulations.

Company law requires the Directors to prepare ﬁnancial statements
for each ﬁnancial year. Under that law, the Directors have prepared
the Group and the Company ﬁnancial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union. The ﬁnancial statements are required by law to give
a true and fair view of the state of affairs of the Company and the
Group and of the proﬁt or loss of the Group for that period.

In preparing those ﬁnancial statements, the Directors are required to:

• select suitable accounting policies and then apply

them consistently;

• make judgements and estimates that are reasonable

and prudent; and

• state that the ﬁnancial statements comply with IFRSs

as adopted by the European Union.

The Directors conﬁrm that they have complied with the above
requirements in preparing the ﬁnancial statements.

The Directors are responsible for keeping proper accounting records
that disclose with reasonable accuracy at any time the ﬁnancial position
of the Company and the Group, and for ensuring that the ﬁnancial
statements and the Directors’ Remuneration Report comply with the
Companies Act 2006 and, as regards the Group ﬁnancial statements,
Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and the Group and hence
for taking reasonable steps for the prevention and detection of fraud
and other irregularities.

The Directors are responsible for the maintenance and integrity of the
Company’s website, and legislation in the United Kingdom governing
the preparation and dissemination of ﬁnancial statements may differ
from legislation in other jurisdictions.

Disclosure of information to auditors
Each of the Directors who held ofﬁce at the date of approval of this
Directors’ report conﬁrms that: so far as he is aware, there is no relevant
audit information of which the Company’s auditors are unaware; and
that he has taken all steps that he ought to have taken as a Director to
make him aware of any relevant audit information and to establish
that the Company’s auditors are aware of that information.

Responsibility statement of the Directors in respect of the annual
ﬁnancial statements
Each of the Directors, who were in ofﬁce at the date of this report,
whose names and responsibilities are listed on pages 40 and 41 conﬁrm
that, to the best of their knowledge:

• the Group ﬁnancial statements, which have been prepared in

accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, ﬁnancial position and proﬁt of the
Group; and

• the Directors’ Report contained on pages 2 to 60 includes a fair

review of the development and performance of the business and
the position of the Group, together with a description of the
principal risks and uncertainties that it faces.

Thomas Cook Group plc
Annual Report & Accounts 2009

51

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Directors’ Report

Other disclosures

Share capital
As at 30 September 2009, the authorised share capital of the Company
was divided into the following two classes of share: €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. The concept of
authorised share capital was abolished from 1 October 2009, following
the ﬁnal implementation of the Companies Act 2006. Therefore, an
ordinary resolution will be put to the Annual General Meeting (“AGM”)
on 25 March 2010 removing the limit created by the statement of
authorised share capital and other references in the Articles of
Association. The ordinary shares carry the right to the proﬁts of the
Company available for distribution and to the return of capital on a
winding up of the Company. The ordinary shares carry the right to
attend and speak at general meetings of the Company; each share
holds the right to one vote. The ordinary shares are admitted to trading
on the Ofﬁcial List of the London Stock Exchange. The deferred shares
carry no right to the proﬁts of the Company. On a winding up, the
holders of the deferred shares would be entitled to receive an amount
equal to the capital paid up on each deferred share. The holders of
the deferred shares are not entitled to receive notice, attend, speak
or vote (whether on a show of hands or on a poll) at general meetings
of the Company.

Authority to purchase shares
At the Extraordinary General Meeting held on 12 March 2008, the
Company was authorised to make market purchases of ordinary
shares up to a maximum number of 70,386,610 shares as part of a
£290m (€375m) share buyback programme, announced on 30 January
2008. During the ﬁnancial year ended 30 September 2009, the
Company acquired:

• 6,102,962 ordinary shares through on-market purchases, the total

consideration paid for these shares was £12.4m; and

• 6,831,425 ordinary shares through off-market purchases from

Arcandor AG and KarstadtQuelle Freizeit GmbH, at a cost of £13.9m.

The above purchases concluded the share buyback programme.

Share transfer restrictions
The Articles of Association (the “Articles”) are designed to ensure that
the number of the Company’s shares held by non-EEA nationals does
not reach a level which could jeopardise the Company’s entitlement
to continue to hold or enjoy the beneﬁt of any authority, permission,
licence or privilege which it, or any of its subsidiaries, holds or enjoys
and which enables an air service to be operated (each an “Operating
Right”). In particular, EC Council Regulation 1008/2008 on licensing of
air carriers requires that an air carrier must be majority-owned and
effectively controlled by EEA nationals.

The Articles allow the Directors, from time to time, to set a “Permitted
Maximum” on the number of the Company’s shares which may be owned
by non-EEA nationals at such level as they believe is in compliance with
the Operating Rights, provided that the Permitted Maximum shall not
be less than 40% of the total number of issued shares.

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
deﬁned (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 they hold ought to be treated as a Relevant Share for this
purpose; or (b) that any share they hold which is treated as a Relevant
Share should no longer be so treated. In this case, the Directors shall
request such information and evidence as they require to satisfy
themselves that the share should not be treated as a Relevant Share

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and, on receipt of such evidence, shall remove particulars of the share
from the Separate Register. If the Directors determine that such action
is necessary 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:

• identify those shares which give rise to the need to take action and
treat such shares as affected shares (“Affected Shares”) (see below); or
• set a Permitted Maximum on the number of Relevant Shares which
may subsist at any time (which may not, save in the circumstances
referred to below, be lower than 40% of the 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 Affected Share.
An Affected Share Notice can, if it so speciﬁes, have the effect of
depriving the registered holder of the right to attend, vote and
speak at general meetings which he would otherwise have had as a
consequence of holding such shares. Such an Affected Share Notice
can, if it so speciﬁes, 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:

• lower the Permitted Maximum to the minimum extent that they
consider necessary to overcome, prevent or avoid an Intervening
Act; or

• resolve that any Relevant Shares shall be treated as Affected Shares
and the Conversion Permitted Maximum. The rights of the Directors
referred to above apply until such time as the Directors resolve that
grounds for the making of a determination have ceased to exist,
whereupon the Directors must withdraw such determination. The
Permitted Maximum is set at 40%. 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 or relax
the ownership limitations, they shall publish in at least one national
newspaper in the United Kingdom (and in any other country in
which the shares are listed) notice of the determination and of any
Permitted Maximum.

The Directors shall publish, from time to time:

• information as to the number of shares particulars of which have

been entered on the Separate Register; and

• any Permitted Maximum which has been speciﬁed.

As at 30 September 2009, 45,688 ordinary shares (0.005%) were held
on the Separate Register.

The Directors may not register any person as a holder of shares unless
such person has furnished to the Directors a declaration, together with
such evidence as the Directors may require, stating (a) the name and

52

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Other disclosures continued

nationality of any person who has an interest in any such share and, if
the Directors require, the nature and extent of such interest; or (b) such
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.

Existing holders of Shares will be recorded on the Special Register unless
and until they have certiﬁed, to the satisfaction of the Company, that
they are EEA nationals.

A person shall be deemed to have an interest in relation to Thomas
Cook Group plc shares if:

• such person has an interest which would (subject as provided below)
be taken into account, or which he would be taken as having, in
determining for the purposes of Part 22 of the Companies Act 2006
whether a person has a notiﬁable interest; or

• 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
interest shall be construed accordingly.

Agreements governing the transfer of shares
Under the Relationship Agreement, which was in force in the period
to 10 September 2009, Arcandor AG had undertaken to give the
Company written notice of any intention to dispose of any shares,
and such disposal had to be carried out in consultation with the Board
of the Company. Under the Relationship Agreement, Arcandor AG had
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
could not, subject to certain exceptions, acquire further shares in the
Company without the prior consent of the Board, provided that such
consent would be given for a purchase of up to 5% of the Company’s
issued share capital, unless such purchase would have prejudiced
the Company’s ability to maintain the free ﬂoat required by the
Listing Rules, or result in the Company becoming a close company.
The Relationship Agreement was automatically terminated on
10 September 2009, when Arcandor’s interest in the shares of the
Company fell below 30%.

Provisions on change of control
The Company has a €1.8bn Group Facility Agreement (the “Agreement”)
in place, which provides that, on any change of control of the Company,
the Lenders under the Agreement are entitled to negotiate (for a period
not exceeding 30 days) new terms for continuing the facilities but,
where agreement on new terms cannot be reached, any such Lender is
entitled to: (i) receive a repayment of amounts owing to such Lender;
and (ii) cancel all commitments under the Agreement. The ceding of
control by Arcandor of its former 52.7% interest and the placing of
those shares by the mandated lead arranging banks did not constitute
or give rise to a change of control.

Contractual arrangements
The Group has contractual arrangements with numerous third parties
in support of its business activities. The disclosure in this report of
information about any of those third parties is not considered necessary
for an understanding of the development, performance or position of
the Group’s businesses.

Political donations
The Company did not make any political donations during the ﬁnancial
year (2008: nil).

Charitable donations
The Company did not give money for charitable purposes within the
United Kingdom during the ﬁnancial year (2008: nil). However, the
Company’s charitable activities are described on page 31.

Supplier payment policy
It is the Company’s policy to comply with the terms of payment agreed
with its suppliers. Where payment terms are not negotiated, the
Company endeavours to adhere to suppliers’ standard terms. As at
30 September 2009, the Company had no trade creditors (2008: nil).

Major shareholdings
As at 27 November 2009, the Company had been notiﬁed, 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:

Name

Number of shares held

AXA S.A.
Lloyds Banking Group plc
Standard Life Investments Limited
Legal & General Group plc

137,403,567
53,241,364
35,506,178
26,098,414

Percentage of
issued capital (%)

16.01
6.20
4.14
3.04

Auditors
PricewaterhouseCoopers LLP have expressed their willingness to be
re-appointed as auditors of the Company. Upon the recommendation
of the Audit Committee, resolutions to re-appoint them as the
Company’s auditors and to authorise the Directors to determine their
remuneration will be proposed to the Annual General Meeting.

Registered ofﬁce
Following approval by the Board the Company’s registered ofﬁce
was changed from The Thomas Cook Business Park, Coningsby Road,
Peterborough PE3 8SD to 6th Floor South, Brettenham House,
Lancaster Place, London WC2E 7EN on 29 October 2009.

The Directors’ Report comprising pages 2 to 60 has been approved
by the Board and signed on its behalf by:

Derek Woodward
Group Company Secretary
29 November 2009

Registered ofﬁce
6th Floor South
Brettenham House
Lancaster Place
London WC2E 7EN

Registered number
6091951

Thomas Cook Group plc
Annual Report & Accounts 2009

53

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Directors’ Report

Remuneration report

The Management Development & Remuneration Committee (the
“Committee”) has adopted the principles of good governance as set
out in the Combined Code. This report, which has been prepared
by the Committee and approved by the Board, complies with the
requirements of the Companies Act and The Directors’ Remuneration
Report Regulations 2002 (the “Regulations”) and meets the relevant
requirements of the Financial Services Authority’s Listing Rules. As the
Regulations provide that certain of the information is to be the subject
of the auditors’ report and other information is not, this report is
divided into sections of audited and unaudited information.

This report explains the Group’s remuneration policy and provides details
of the remuneration of the Executive and Non-Executive Directors for
services to the Company from 1 October 2008 to 30 September 2009
(the “Financial Year”). The comparative ﬁgures in the audited information
are for the period from 1 November 2007 to 30 September 2008; this
was an 11 month period because the Company amended its accounting
reference date to 30 September during that period.

The Committee has a policy of transparent reporting of Executive
Director remuneration arrangements. The Chairman of the
Committee, the Group Company Secretary and Group HR Director met
with major institutional shareholders and bodies during the Financial
Year to discuss key remuneration issues. The Committee is committed
to participating in full consultation with the Company’s major
shareholders prior to any future change to, or deviation from, the
Company’s remuneration policy.

This report will be the subject of a separate resolution for approval at
the Annual General Meeting to be held on Thursday 25 March 2010.

Information not subject to audit
Composition of the Committee
All members of the Committee are Non-Executive Directors. Consistent
with the Relationship Agreement that existed between the Company
and Arcandor AG (“Arcandor”) up to 10 September 2009 (see page 43 for
details), the Arcandor-nominated Directors who held ofﬁce for periods
in the year and who did not therefore meet the test of independence,
were members of the Committee. However, the other members of the
Committee who served during the Financial Year were independent.
During the year, the Arcandor-nominated Directors Peter Diesch,
Thomas Middelhoff and Karl-Gerhard Eick, resigned from the Board,
and therefore ceased to be members of the Committee on 22 December
2008, 17 March 2009 and 10 September 2009 respectively. Hemjö Klein
resigned from the Board and therefore ceased to be a member of the
Committee on 18 September 2009.

Following his appointment as Chairman of the Company, Michael
Beckett resigned from the Committee on 24 September 2009 and
was replaced as Chairman of the Committee by Nigel Northridge.
Bo Lerenius was also appointed to the Committee on 24 September
2009. As of that date, the Committee comprised the following
members, all of whom were Independent Non-Executive Directors:

Nigel Northridge (Chairman)
Roger Burnell
Bo Lerenius

Meetings of the Committee are normally attended by the Chairman
of the Company and the Group Chief Executive Ofﬁcer, (other than
in respect of matters speciﬁcally related to their own remuneration),
the Group HR Director and the Group Company Secretary.

No Director or senior executive is present at meetings when his or her
own remuneration arrangements are being discussed.

Committee responsibilities
The responsibilities of the Committee include:

• making recommendations to the Board on the Company’s framework

of executive remuneration and its cost;

• reviewing and determining, on behalf of the Board, the remuneration
and incentive packages of the Executive Directors to ensure that they
are fairly rewarded for their individual contributions to Thomas
Cook’s overall performance; and

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• formulating remuneration policy with regard to the strategic
objectives and operational performance of the Company.

The terms of reference of the Committee are available on
www.thomascookgroup.com or from the Group Company Secretary
at the registered ofﬁce.

Principal activities during the year
The Committee held eight meetings during the Financial Year.
Attendance at those meetings is disclosed on page 44 of the Corporate
Governance Report. Matters discussed by the Committee during the
Financial Year included:

• the Group’s remuneration policy;
• achievement of the annual bonus targets for Executive Directors

in respect of the previous ﬁnancial period;

• the market competitiveness of the remuneration packages for

Executive Directors;

• appointment of new remuneration advisers;
• current trends in executive reward including use of long-term incentives;
• awards under Thomas Cook Group plc 2007 Performance Share Plan
and the Thomas Cook Group plc 2008 Co-Investment Plan including
the setting of the performance targets and review of the performance
targets set in relation to previous awards;

• the structure and targets of the annual bonus arrangements for the

current Financial Year; and

• institutional shareholder and governance body pre-AGM voting

recommendations.

Committee evaluation
Details of the Committee evaluation, which took place during the Financial
Year, are included in the Corporate Governance Report on page 46.

Committee’s advisers
The Committee invites individuals to attend meetings as it deems
beneﬁcial to assist it in reviewing matters for consideration. During
the Financial Year, these individuals included the Chairman of the
Company, the Group Chief Executive Ofﬁcer, the Group HR Director
and the Group Company Secretary.

In the performance of its duties, the Committee seeks assistance from
external advisers, where necessary, to ensure it is suitably advised.
During the Financial Year, the remuneration advisers provided services
relating to the benchmarking of salaries and beneﬁts for Executive
Directors and setting of performance targets for the long-term incentive
plans. The appointment of these advisers is reviewed on a regular
basis. The Committee was mindful of the dual role performed by
PricewaterhouseCoopers LLP (“PwC”) as the Committee’s remuneration
advisers and the Company’s external auditors. PwC held this dual role
because prior to the merger they had acted as remuneration adviser
to MyTravel Group plc and external auditor to Thomas Cook. The Board
and its Committees concluded, at the time of the merger, that it was
in the best interests of the Company at that stage of its development to
have PwC acting in that dual role, at least in the short to medium-term.
In April 2009, the Committee decided that this initial arrangement had
served the Company well, but there was no reason for it to continue.
Accordingly, the Committee reviewed a shortlist of potential remuneration
advisers, following which Kepler Associates (“Kepler”) were appointed
in June 2009. Kepler does not advise the Company in any other capacity.

Remuneration policy
The Group’s remuneration policy is to ensure that Executive Directors
and senior executives are rewarded in a way which attracts and retains
management 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
signiﬁcant international operations and, in order to compete in the
global environment for the recruitment, retention and incentivisation
of high quality Executive Directors and senior executives, it must offer
upper quartile rewards for upper quartile performance.

54

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Remuneration report continued

The Committee has therefore set its remuneration policy in view of, and
applying, the following principles:

• The Group’s objective is to deliver ﬁnancial results which consistently

outperform the average of the industry sector.

• The Group will look to retain and attract Executive Directors and
senior executives with above-average skills and demonstrated
leadership qualities.

• The remuneration of each Executive Director will be based on

performance (both of the Group and the individual Executive Director),
potential (i.e. the Executive Director’s potential to grow in responsibility
and performance) and scarcity (i.e. the availability of candidates to
replace the Executive Director should he leave the Group).

• The proportion between ﬁxed and variable remuneration will
typically be targeted at 30% ﬁxed and 70% variable – see table
opposite for the range between target and stretch performance.

The Committee has determined that its policy for the design of
remuneration arrangements for Executive Directors is that the ﬁxed
elements of remuneration shall be set in line with the median of a
speciﬁed comparator group of companies and that total earnings
(made up of base salary, pension supplement, bonus and any other
performance-related elements of reward, such as long-term incentive
arrangements) shall be targeted at the upper quartile of the comparator
group subject to the attainment of upper-quartile performance as
gauged by appropriate and challenging performance criteria. An
exception to this policy was agreed for the Group Chief Executive
Ofﬁcer in September 2008, see below for details.

The remuneration of 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

inﬂuence results.

The performance related portion of remuneration will reward short-
term and long-term performance separately, with the potential level
of payment being heavily weighted in favour of the long term.

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 350 with signiﬁcant international operations.
This particular comparator group has been chosen to reﬂect the
international nature of the Group’s business. Where specialist functions
are concerned, the Committee may have reference to other comparator
groups as it considers appropriate.

The relative importance of the ﬁxed and variable elements of the
remuneration packages of Executive Directors in circumstances of
target and stretch performance, is shown in the chart opposite.

The chart opposite assumes:

(a) Base salaries as at 30 September 2009 (or date of appointment

in the case of new Directors);

(b) Value of beneﬁts provided in the Financial Year to 30 September 2009;
(c) Pension: 25% of base salary;
(d) Annual bonus:

• 60% of full bonus paid at target performance;
• 100% of full bonus paid at maximum performance;

(e) Performance Share Plan: 25% of the award vests at target performance

with 100% of the award vesting at maximum performance;

(f) Co-Investment Plan: an initial investment of:

• at target performance, 10% of net of tax base pay;
• at maximum performance, the excess of bonus paid above 100%

of net of tax base pay.

At the end of the three-year performance period, initial investment will
be matched (further details are disclosed on page 55):

a. 0.5:1 at target performance;
b. 3.5:1 at maximum performance.

Relative importance of ﬁxed and variable remuneration

% of total remuneration

100

80

60

40

20

0

Variable

Fixed

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Group Chief
Executive Ofﬁcer

Group Chief
Financial Ofﬁcer

Deputy to
the Group CEO

Remuneration arrangements
The remuneration of the Executive Directors in respect of the Financial
Year is set out in the audited section of this report.

For the Financial Year, the remuneration of the Executive Directors
comprised base salary, annual bonus, participation in the Performance
Share Plan (“PSP”) and the Co-Investment Plan (“COIP”), other beneﬁts
including the provision of pensions, private health insurance, disability
cover, personal accident cover, death in service beneﬁt and a car
allowance. The only component of executive remuneration which
is pensionable is base salary.

The remuneration arrangements for the newly appointed Deputy to
the Group Chief Executive Ofﬁcer, Sam Weihagen (appointed 6 November
2009), and the new Group Chief Financial Ofﬁcer (as announced on
29 November 2009) were set in line with the remuneration policy.

Base salary
In accordance with the Group’s remuneration policy, the base salary of
Executive Directors reﬂects the size and scope of their responsibilities.
As an exception to the policy to set base salaries at median, the base
salary of the Group Chief Executive Ofﬁcer was increased in September
2008 to the upper quartile of the comparator group. This recognised
his appointment as sole Group Chief Executive Ofﬁcer (from June to
December 2007 he was joint Chief Executive Ofﬁcer) and operational,
ﬁnancial and strategic achievements. At the time of awarding this
increase the Committee agreed that the Group Chief Executive Ofﬁcer’s
base salary should next be reviewed in December 2009, and thereafter
at annual intervals, and an increase would only be made if it was
required to bring his base salary in line with the remuneration policy.
The Committee reviewed the base salary of the Group Chief Executive
Ofﬁcer in November 2009 and agreed that it should remain at its
current level. The Committee reviewed the base salary of the Group
Chief Financial Ofﬁcer in December 2008 and it was agreed that it
should remain at its then current level. A review of market rates of

Thomas Cook Group plc
Annual Report & Accounts 2009

55

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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base salary was conducted in November 2009 prior to the appointment
of Sam Weihagen as Deputy to the Group Chief Executive Ofﬁcer and
agreeing to appoint Paul Hollingworth as Group Chief Financial Ofﬁcer.

The annual rates of base salary, as at 29 November 2009, for the
Executive Directors are shown in the table below:

Name

Manny Fontenla-Novoa
Paul Hollingworth1
Sam Weihagen2

2009
£000

850
480
500

2008
£000

850
–
–

1 Paul Hollingworth has been appointed with effect from 1 January 2010.

2 Sam Weihagen receives the sterling equivalent of 5.6 million Swedish krona per annum

as base salary.

Annual bonus
Should all objectives be achieved in full, the maximum annual bonus
opportunity for all Executive Directors is 175% of base salary. Of the
maximum bonus payable:

(i) 75% is linked to the attainment of Group ﬁnancial targets and is
earned on a pro rata basis by reference to the achievement of
those targets; and

(ii) 25% is linked to the attainment of individual and other non-ﬁnancial

criteria linked to the development of the Group and the implementation
of the Board’s strategy.

These targets are set by the Committee at the start of the ﬁnancial year
and are individually tailored for each Executive Director. The individual
and other non-ﬁnancial criteria for the Group Chief Executive Ofﬁcer
for the Financial Year included targets in relation to development of
Group strategy, succession planning, customer satisfaction, health and
safety and employee engagement. The criteria for the Group Chief
Financial Ofﬁcer included strategic sourcing and segmental structures.
The non-ﬁnancial based element of the bonus will only vest and become
payable rateably to the extent that the ﬁnancially based element of
that Executive Director’s bonus vests.

The Committee determines the extent to which it considers the targets
and objectives have been met and the annual bonus payable. For the
Financial Year, the Committee took into account ﬁnancial and overall
business and personal performance and awarded Manny Fontenla-
Novoa, Group Chief Executive Ofﬁcer, a total bonus of 96% of maximum
and Jürgen Büser, Group Chief Financial Ofﬁcer, (on the basis of a part
year) a total bonus of 48% of maximum.

Pensions
The Company contributes each year into a pension scheme or other
arrangement for each of the Executive Directors to an amount equivalent
to 25% of base salary.

Long-term incentive plans
The Committee believes the close alignment of Executive Directors’
remuneration with the interests of shareholders is an important
element of the Company’s remuneration policy. The following two
share-based long-term incentive plans, both of which have been
approved by shareholders, have been designed with an appropriate
blend of performance criteria with that in mind.

During the Financial Year, the Committee undertook a review of the
current long-term incentives offered to Executive Directors and senior
executives against those offered in comparable companies. The review
included whether the types of executive share plans operated by the
Company and participation levels were still appropriate. On completion,
the Committee agreed to retain both plans in their current format as
the plans have only been introduced relatively recently and participants
are still building up a portfolio of awards. The Committee will conduct a
further review next year.

Thomas Cook Group plc 2007 Performance Share Plan (“PSP”)
During the Financial Year ended 30 September 2009, a PSP award equal
to 175% of base salary was made to Manny Fontenla-Novoa, the Group
Chief Executive Ofﬁcer, and an award of 150% of base salary was made
to Jürgen Büser, the Group Chief Financial Ofﬁcer. Awards with a value
of 100% or less of base salary were also made to other senior executives.
The Committee currently intends to make awards in January 2010 of
175%, 200% and 150% of base salary to the Group Chief Executive
Ofﬁcer, the newly appointed Group Chief Financial Ofﬁcer and the
Deputy to the Group Chief Executive Ofﬁcer respectively, with awards
to other senior executives of 100% or less. Unless there are exceptional
circumstances, awards to Executive Directors are made annually within
42 days of the Company’s ﬁnal results being announced. In line with
market practice, awards vest three years after the award date, providing
the participant is still employed by a company within the Group and to
the extent that the performance conditions have been met. No award
can be made under the PSP later than ten years after the anniversary
of the adoption date and options are not exercisable later than 10 years
after the date of the award. Under the rules of the PSP there is no retest
provision. For UK participants £30,000 of awards can be made and held
under a HMRC approved Company Share Option Plan arrangement.

Thomas Cook Group plc 2008 Co-Investment Plan (“COIP”)
Executive Directors and a small group of key executives are eligible to
participate in the COIP, which is designed to reward and retain these
individuals over the longer term whilst also aligning their interests with
those of the Company’s shareholders. Under the COIP, participants must
purchase the Company’s shares out of their bonus. If the bonus paid
is below 100% of salary, 10% of the participant’s net base salary (or the
whole of the net bonus if less) must be invested. If the bonus paid is
above 100% of base salary, all of the bonus payable above 100% of base
salary (subject to the minimum investment of 10% of net base salary)
must be used to acquire shares. Participants can also choose to defer
a further part of their bonus to purchase shares. The shares purchased,
either on a voluntary or mandatory basis, are referred to as Lodged
Shares. Participants may receive up to three and a half Matching Shares
for every one Lodged Share at the end of the three-year performance
period subject to the satisfaction of the performance condition. The
requirement for compulsory investment under the COIP will cease once
the value of all shares held by a participant reaches a value equal to
200% of base salary. This level of shareholding must be maintained.
Unless there are exceptional circumstances, awards of Matching Shares
are made within 42 days of the Company’s ﬁnal or half-year results
being announced. No award of Matching Shares can be made under
the COIP later than ten years after the anniversary of the adoption date
and options are not exercisable later than 10 years after the date of
the award. Under the rules of the COIP there is no retest provision.

Selection of long-term incentive performance conditions
PSP
The performance conditions are split into two elements, the vesting of
up to 50% of the award is dependent on the Total Shareholder Return
(“TSR”) of the Company relative to the TSR of the comparator group.
TSR is considered by the Committee to be aligned with shareholder
interests and inclusion of an Earnings Per Share (“EPS”) target provides
an appropriate balance between relative and absolute performance.
The remaining 50% of the award will only vest if an adjusted EPS target is
achieved. None of the PSP awards has been held for a full performance
period as the ﬁrst awards were made in 2007. At the end of the
performance period TSR calculations will be made by the Company’s
external advisers using the 90 day average share price at the start and
end of the performance period. EPS will be derived from the income
statement for the last ﬁnancial year ending prior to the end of the
performance period.

COIP
Two and a half Matching Shares for every one Lodged Share purchased will
be awarded subject to the achievement of EPS linked performance targets,
agreed by the Committee, measured over a three-year period. The EPS
targets for the 2008 and 2009 COIP awards are the same for the equivalent
PSP awards. EPS will be derived from the income statement for the last
ﬁnancial year ending prior to the end of the performance period.

56

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Remuneration report continued

Participants can receive up to one additional Matching Share for superior Return On Invested Capital (“ROIC”) performance but the number of
Matching Shares awarded is reduced to nil for a below target ROIC performance.

A further explanation of each performance element is given below:

• TSR in relation to the PSP: The TSR comparator group consists of the 50 companies at the bottom of the FTSE 100 and the 50 companies at the top of
the FTSE 250. This was chosen as it is a broad group of companies of similar size and against which the performance of the Company’s management
should be judged. This comparator group excludes investment companies. The comparator group is determined at the date the PSP awards are made.

• EPS in relation to the PSP and COIP: EPS was chosen as it is regarded as a good reﬂector of business performance. The Committee was advised
that an absolute target was considered more appropriate than a percentage growth target as there was little historic data for the Company,
having only been established in 2007. The EPS target range was set by reference to early consensus forecasts.

• ROIC in relation to the COIP: ROIC was chosen to measure the efﬁciency of the use of the Group’s capital in achieving the underlying earnings

target. The ROIC ranges were set by reference to the Weighted Average Cost of Capital used by the Group for the purposes of impairment testing.
ROIC will be calculated over the three-year performance period by taking the post tax operating proﬁt over the performance period and dividing
this by the sum of the opening capital for each year in the period.

The Committee will review the performance conditions attached to any future awards to ensure they are stretching and that the interests of the
Executive Directors and senior management are aligned with shareholders.

Award date

Vesting criteria

Performance conditions over three-year period

Performance Share Plan

2007, 2008 and 2009

50% – Total Shareholder
Return ranked against
comparator group

Full vesting for upper quartile ranking. Zero vesting for sub-median ranking. Vesting
will increase on a straight line basis from 25% to 100% of the TSR linked part of the
initial award for ranking between median and upper quartiles.

50% – Earnings Per Share

July 2007 award: Full vesting for adjusted EPS of 28 pence or above. Zero vesting for
EPS below 23 pence. Vesting will increase on a straight line basis from 25% to 100%
of the EPS linked part of the initial award for EPS between 23 pence and 28 pence.
March 2008 award: The same vesting schedule applies as for the July 2007 awards
but the EPS targets are 28 pence to 33 pence.
January and June 2009 award: The same vesting schedule applies as for the July 2007
awards but the EPS targets are 35 pence to 40 pence.

Co-Investment Plan

2008 and 2009

Earnings Per Share

Return On Invested
Capital achievement

June 2008 award: Vesting of up to 2.5 Matching Shares for adjusted EPS of 33 pence
or above. Zero vesting for EPS below 28 pence. Vesting will increase on a straight line
basis from 0.5 Matching Shares to 2.5 Matching Shares for EPS between 28 pence and
33 pence subject to ratchet.
January, June and August 2009 award: The same vesting schedule applies as for the
June 2008 awards but the EPS targets are 35 pence to 40 pence.

If ROIC is below 4% no Matching Shares will vest. If ROIC is between 4% and 6%, a
reduction of up to 40% is applied on a straight line basis. If ROIC is between 6% and
10%, Matching Shares vest according to EPS performance only (overall opportunity
of up to 2.5 times a participant’s investment). If ROIC is between 10% and 14%, an
uplift of up to 40% is applied on a straight line basis, subject to a maximum uplift
of 40% for ROIC in excess of 14%.

Following the decision by the Company to state its results in sterling, the EPS targets were restated to the following in 2008:

July 2007

March 2008

PSP EPS target

Zero vesting
Full vesting

COIP EPS target

Zero vesting
Full vesting

€c

34
41

£p

23
28

€c

41
47

€c

41
47

£p

28
33

£p

28
33

The Committee elected to use the exchange rate of €1.4733:£1.00 for the July 2007 PSP award as it was the exchange rate as at the award date of
12 July 2007. The Committee elected to use the exchange rate of €1.442:£1.00 for the 2008 PSP and COIP awards as it was the exchange rate as at
1 November 2007, the date the performance period began.

In October 2009, the Committee conducted a detailed review of the performance targets for the long-term incentive plans to ensure that they
were in line with the Group’s strategic and ﬁnancial plans, and that they were sufﬁciently stretching. As a result of that review, the Committee
has proposed a number of changes to the targets for the PSP and COIP on which it intends to consult the Company’s major shareholders and
their representative bodies.

Thomas Cook Group plc
Annual Report & Accounts 2009

57

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

The Committee will reﬁne its proposals based on the outcome of those consultations and, in accordance with corporate governance best practice,
will put any proposed changes to a vote at the Company’s annual general meeting to be held on 25 March 2010.

In the event of a change of control, the awards under both the PSP and COIP shall vest at the Committee’s discretion taking into account the period
of time for which the award has been held by participants and the extent to which performance conditions have been achieved since the award
date after an independent valuation of performance to date. Where options have been granted, participants would have six months following the
change of control to exercise their options, to the extent permitted by the Committee. On the death of a participant or in the case of early
termination of a participant’s employment for ‘good leaver’ reasons participants (or their representatives) would have twelve and six months
respectively to exercise their options, to the extent permitted by the Committee.

Funding of share plans
It is the Company’s current intention to satisfy the requirements of its share schemes in the method best suited to the interests of the Company,
either by acquiring shares in the market or, subject to institutional guidelines, issuing new shares. The Committee has agreed that it is prudent and
appropriate to hedge the shares awarded under the PSP and the matching element awarded under the COIP. As at 30 September 2009, 5,090,822
shares were held in the Thomas Cook Group plc 2007 Employee Beneﬁt Trust, which represents 26% of share incentive awards held on that date
and 0.6% of the total issued share capital. The level of hedging will be kept under review. Subject to the rules of the Plans, awards cannot be made
if awards under any discretionary employee share scheme operated by Thomas Cook Group plc in the preceding ten-year period would exceed 5%
of the Company’s issued share capital at that time.

The Trustee would not normally vote at general meetings on the Thomas Cook Group plc shares held in the Employee Beneﬁt Trust and did not
vote at the AGM held in March 2009.

All-employee share schemes
Thomas Cook operates two all-employee share schemes which have been approved by HM Revenue & Customs. The Thomas Cook Group plc 2008
SAYE Scheme (“SAYE”) operates in 20 countries and offers employees the opportunity to purchase shares in the Company at a 20% discount to the
market value on the invitation date. The Thomas Cook Group plc 2008 Buy As You Earn Scheme (“BAYE”) is open to all UK based employees who
have been employed by the Group for at least six months. Participants may contribute up to £125 per month, which the trustee of the Plan uses
to purchase shares on their behalf. For every 10 shares purchased, participants are awarded one Matching Share. Executive Directors are eligible
to participate in the SAYE and UK based Executive Directors are eligible to participate in the BAYE.

Service contracts
Each of the Executive Directors, who served during the year, has a service contract with the Company. The date of the service contract and notice
period for each Executive Director are set out below:

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Name

Manny Fontenla-Novoa
Paul Hollingworth
Sam Weihagen
Jürgen Büser

Date of contract

Outstanding term

30 January 2008
29 November 2009
6 November 2009
1 July 2008

To age 65
To age 65
To age 65
To age 65

Notice period

12 months
12 months
12 months
12 months

Compensation arrangements

See below
See below
See below
See below

The notice period for Executive Directors is 12 months. The Committee believes that this is appropriate given the need to retain the specialist skills
that the Executive Directors bring to the business and to achieve continuity in the Company’s senior management. Either the Executive Director or the
Company may terminate employment by giving one year’s written notice and the Company may pay compensation in lieu of notice. Under its
terms of reference it is the Committee’s responsibility to determine the basis on which the employment of an Executive Director is terminated. The
Committee aims to avoid rewarding poor performance and to take a robust line on reducing compensation to reﬂect any obligation to mitigate loss
on the part of the departing Executive Director. There is no clause in the Executive Directors’ contracts providing them with additional protection in
the form of compensation for severance as a result of change of control.

External appointments
The Company recognises the beneﬁts to the individual, and to the Group, of Executive Directors taking on external appointments as non-executive directors.
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. The Committee has set a limit of one external appointment for each Executive
Director, to a FTSE 100 or FTSE 250 company, or an international company of a similar size, unless there is justiﬁcation for a further appointment.

Until 7 September 2009, Manny Fontenla-Novoa served as a member of the Arcandor AG Management Board; he did not receive a fee for this appointment.

Non-Executive Directors
In view of the governance arrangements which existed under the Relationship Agreement (see page 43 for details) and prior to its termination on
10 September 2009, the remuneration arrangements for the Chairman were determined by the Committee of Independent Non-Executive Directors.
On 24 September 2009, the terms of reference of the Committee were changed in line with the Code to include responsibility for determining the
remuneration of the Chairman. The fees for the other Non-Executive Directors are set by the Board. No Director votes on his own remuneration.

Prior to 24 September 2009, the role of Committee Chairman was carried out by the Deputy Chairman as part of his overall responsibilities; for
which he did not receive an additional fee. Following Nigel Northridge’s appointment as Committee Chairman, it was agreed that he should receive
an additional fee of £20,000 per annum in recognition of his increased responsibilities. Additionally, it was agreed that the Chairman of the Health,
Safety and Environmental Committee should be paid an additional £10,000 per annum to reﬂect his role and the importance to the Company of
heath, safety and environmental issues.

During the Financial Year, Non-Executive Directors’ fees were reviewed, for the ﬁrst time since the merger between MyTravel Group plc and Thomas
Cook AG in June 2007. The fees were benchmarked against other companies in the bottom half of the FTSE 100 and companies who are constituents of
the bespoke comparator group used by the Committee when benchmarking the remuneration of the Executive Directors. Following the review, it
was agreed that no increase in the fees should be made, but a further review will take place in 2010. 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.

58

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Remuneration report continued

The annual rates of Non-Executive Director fees are shown in the table below.

Position

Chairman
Non-Executive Director
Additional fee for the Chair of the Audit Committee
Additional fee for the Chair of the Management Development & Remuneration Committee
Additional fee for the Chair of the Health, Safety & Environmental Committee

Annual fees
£000

250
60
20
20
10

The fees paid to the Chairman and the Non-Executive Directors in respect of the Financial Year are set out in the audited section of this report.

Non-Executive Directors, including the Chairman, do not hold service contracts. Each of the Non-Executive Directors has been appointed pursuant
to a letter of appointment. The appointments under these letters continue until the expiry dates set out below unless terminated for cause or on
the period of notice stated below:

Name

Current Directors
Michael Beckett
David Allvey
Roger Burnell
Bo Lerenius
Nigel Northridge
Former Directors
Hemjö Klein
Karl-Gerhard Eick
Thomas Middelhoff
Peter Diesch

Date of letter of appointment

Expiry date

Notice period

13 June 2007
18 June 2007
18 June 2007
1 July 2007
1 August 2008

1 July 2007
22 December 2009
18 June 2007
18 June 2007

See note
18 June 2010
18 June 2010
30 June 2010
31 July 2011

See note
See note
See note
See note

6 months
6 months
6 months
6 months
6 months

N/A
N/A
N/A
N/A

Michael Beckett’s appointment continues until terminated by either party on six months’ notice. Under the governance arrangements which existed under the Relationship Agreement with
Arcandor (see page 43 for details) and prior to its termination on 10 September 2009, Arcandor had the right to appoint two Non-Executive Directors. The following Arcandor appointed
directors resigned during the year: Peter Diesch (22 December 2008), Thomas Middelhoff (17 March 2009) and Karl-Gerhard Eick (10 September 2009). Hemjö Klein resigned as an Independent
Non-Executive Director due to personal reasons on 18 September 2009.

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 100 Index and the FTSE Travel & Leisure Index. These indices were chosen as comparators because the
Company has been a constituent of the FTSE 100 for the whole of the Financial Year and a member of the FTSE Travel & Leisure 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

100

90

80

70

60

50

40

30

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19/6/07

19/9/07

19/12/07

19/3/08

19/6/08

19/9/08

19/12/08

19/3/09

19/6/09

19/9/09

Thomas Cook

FTSE 100

FTSE Travel & Leisure

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Thomas Cook Group plc
Annual Report & Accounts 2009

59

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Information subject to audit
Directors’ interests in shares
The following table shows the beneﬁcial interests of the Directors who held ofﬁce at the end of the Financial Year in the €0.10 ordinary shares of
the Company:

Directors as at 30 September 2009
Executive Directors
Manny Fontenla-Novoa1
Jürgen Büser1
Non-Executive Directors
Michael Beckett
David Allvey
Roger Burnell
Bo Lerenius
Nigel Northridge

Ordinary shares
at 30 September 2009

Ordinary shares at
1 October 2008

642,353
151,040

24,999
–
3,692
10,000
10,000

239,653
21,126

24,999
–
3,692
10,000
–

1 The holdings of the Executive Directors include shares held as Lodged Shares under the COIP: 571,710 held by Manny Fontenla-Novoa and 151,040 held by Jürgen Büser.

None of the Directors of the Company held any interest in any other securities of Thomas Cook Group plc during the Financial Year. In the period
between 30 September 2009 and 29 November 2009, there were no changes in the Directors’ interests referred to above.

Directors’ remuneration
Details of the remuneration of the Directors for services to the Company for the Financial Year are disclosed below.

Name

Executive Directors
Manny Fontenla-Novoa

Non-Executive Directors
Michael Beckett
David Allvey
Roger Burnell
Bo Lerenius
Nigel Northridge

Past Executive Directors5
Jürgen Büser
John Bloodworth6

Past Non-Executive Directors5
Hemjö Klein
Karl-Gerhard Eick
Thomas Middelhoff
Peter Diesch

Base
salary/fees
£000

Annual
bonus payments1
£000

Pay in lieu
of pension2
£000

Total
Beneﬁts3 emoluments 2009
£000

£000

Total
emoluments 20084
£000

850

1,428

41

46

2,365

7,037

250
80
60
60
60

425
–

58
136
116
15

–
–
–
–
–

306
–

–
–
–
–

–
–
–
–
–

80
–

–
–
–
–

–
–
–
–
–

30
69

–
–
–
–

250
80
60
60
60

841
69

58
136
116
15

229
73
55
55
10

1,572
1,034

55
–
229
55

Total

2,110

1,734

121

145

4,110

10,404

1 Annual bonus entitlement: Up to 175% and 150% of salary for the Group Chief Executive Ofﬁcer and Group Chief Financial Ofﬁcer respectively, with 75% paid by reference to ﬁnancial
targets and 25% payable by reference to personal objectives. Part of the annual bonus paid to the Executive Directors must be invested in Lodged Shares under the COIP – see page 55
for details.

2 The pay in lieu of pension which is paid as a salary supplement to Manny Fontenla-Novoa and Jürgen Büser is treated as a separate non-salary beneﬁt and is excluded from the calculation

of bonus entitlement and share scheme award calculations.

3 Beneﬁts received by the Executive Directors include a car allowance, petrol and private medical insurance or cash payment in lieu of medical cover and life assurance.
4 The total emolument ﬁgures declared for 2008 were for the period 1 November 2007 to 30 September 2008. This is an 11 month period as the Company amended its accounting

reference date to 30 September.

5 The following Directors left ofﬁce on the dates shown: Jürgen Büser (29 November 2009), Hemjö Klein (18 September 2009), Karl-Gerhard Eick (10 September 2009), Thomas Middelhoff

(17 March 2009) and Peter Diesch (22 December 2008). No Director received any payment for loss of ofﬁce.

6 John Bloodworth resigned as an Executive Director from the Company on 31 December 2007. A tax equalisation payment of US$110,772 (£69,415) was paid to him during the year

as a contractual entitlement.

60

Thomas Cook Group plc
Annual Report & Accounts 2009

Directors’ Report
Remuneration report continued

Directors’ pensions
The Company contributes each year into a pension scheme or other arrangement for each of the Executive Directors to an amount equivalent to
25% of their annual base salary. The Executive Directors are active members of the Thomas Cook Pension Plan, a deﬁned beneﬁt pension scheme.
For salary above that which is pensionable in the UK deﬁned beneﬁt scheme, the following arrangements are made:

• For Manny Fontenla-Novoa, a contribution of £144,900 was made to a UK based tax approved money purchase pension scheme and the balance was

paid as a salary supplement; and

• For Jürgen Büser the balance was paid as a salary supplement.

The pay in lieu of pension salary supplement paid to Manny Fontenla-Novoa and Jürgen Büser are disclosed in the emoluments table on page 59.
Increase in
transfer value
during 2009 net
of Director’s
contributions
£

Transfer value of
during 2009 accrued pension at accrued pension at
1 Oct 2008
30 Sep 2009
£
£

Increase in
accrued pension
during 2009
£ pa

Director’s
contributions
during 2009
£

Accrued pension
at 30 Sep 2009
£ pa

Increase in
accrued pension

(net of inﬂation)
£ pa

Transfer value of

Manny Fontenla-Novoa
Jürgen Büser

22,750
6,825

3,280
2,370

2,307
2,147

400,961
78,005

214,408
22,785

6,375
6,375

180,178
48,845

Share options and long-term incentive plans
The following tables show in respect of each person who served as a Director at any time during the Financial Year the number of ordinary shares
of €0.10 each that were the subject of a share option or a share award at the start and at the end of the Financial Year. Holdings relate to the COIP
and PSP. The Non-Executive Directors did not hold any options or share awards during the period.

The following table gives details of PSP awards held by Executive Directors who served during the Financial Year:

Date of award

Manny Fontenla-Novoa
Jürgen Büser
Share price used to calculate award (pence)
End of performance period
Expiration date

12 July 2007

11 March 2008

9 January 2009

283,784
56,306
333
12 July 2010
12 July 2017

389,576
88,339
283
11 March 2011
11 March 2018

791,223
339,096
188
9 January 2012
9 January 2019

Total held at
30 September 2009

1,464,583
483,741

The following table gives details of awards made under the HMRC Approved Company Share Option Plan in conjunction with the PSP:

Date of award

Manny Fontenla-Novoa
Jürgen Büser
Option price (pence)
End of performance period
Expiration date

Total held at
30 September 2009

15,957
15,957

9 January 2009

15,957
15,957
188
9 January 2012
9 January 2019

At the date of exercise, to the extent that there is a gain on the approved options, PSP options will be forfeited to the same value.

Vesting of awards made under the PSP (including the HMRC approved options) is dependent on 50% Total Shareholder Return ranked against the
comparator group and 50% growth in Earnings Per Share. Further information on the performance conditions is detailed on page 56.

The following table gives details of the maximum number of Matching Shares each Executive Director can receive under the COIP if the performance
conditions are met in full. Details of the Lodged Shares purchased under the COIP are in the Directors’ interests in shares table on page 59:

Date of award

Manny Fontenla-Novoa
Jürgen Büser
Share price used to calculate award (pence)
End of performance period
Expiration date

Total number of
Matching Shares held at
12 July 2007

Number of Matching
Shares awarded
11 March 2008

Number of Matching
Shares awarded
9 January 2009

591,535
73,941
192
12 January 2012
12 January 2019

1,091,275
454,699
218
13 August 2012
13 August 2019

318,174
–

Total held at
30 September 2009

2,000,984
528,640

Vesting of Matching Shares awarded under the COIP is dependent on growth in Earnings Per Share and Return on Invested Capital achievement.
Further information on the performance conditions is detailed on page 56.

The mid-market price of the Company’s ordinary shares at the close of business on 30 September 2009 was 232.3p and the range during the
Financial Year was 127.6p to 297.5p. These mid-market prices are as quoted on the London Stock Exchange.

This report on remuneration has been approved by the Board of Directors and signed on its behalf by:

Derek Woodward
Group Company Secretary
29 November 2009

Thomas Cook Group plc
Annual Report & Accounts 2009

Independent auditors’ report to the
members of Thomas Cook Group plc

61

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Matters on which we are required to report by exception
We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if,
in our opinion:

• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or

• the parent company ﬁnancial statements and the part of the
Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration speciﬁed by law

are not made; or

• we have not received all the information and explanations we

require for our audit; or

• a Corporate Governance Statement has not been prepared by

the parent company.

Under the Listing Rules we are required to review:

• the Directors’ statement in relation to going concern; and
• the parts of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the
June 2008 Combined Code speciﬁed for our review.

John Minards (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
29 November 2009

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We have audited the ﬁnancial statements of Thomas Cook Group plc
for the year ended 30 September 2009, which comprise the Group
income statement, the Group and Company balance sheets, the
Group and Company cash ﬂow statements, the Group and Company
statements of recognised income and expense and the related notes.
The ﬁnancial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards
the parent company ﬁnancial statements, as applied in accordance
with the provisions of the Companies Act 2006.

Respective responsibilities of Directors and auditors
As explained more fully in the Statement of Directors’ Responsibilities,
the Directors are responsible for the preparation of the ﬁnancial
statements and for being satisﬁed that they give a true and fair view.
Our responsibility is to audit the ﬁnancial statements in accordance
with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only
for the Company’s members as a body in accordance with Sections 495
to 497 of the Companies Act 2006 and for no other purpose. We do not,
in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.

Scope of the audit of the ﬁnancial statements
An audit involves obtaining evidence about the amounts and
disclosures in the ﬁnancial statements sufﬁcient to give reasonable
assurance that the ﬁnancial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to
the Group’s and the parent company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of signiﬁcant accounting estimates made by the Directors; and the
overall presentation of the ﬁnancial statements.

Opinion on ﬁnancial statements
In our opinion:

• the ﬁnancial statements give a true and fair view of the state of the

Group’s and of the parent company’s affairs as at 30 September 2009
and of the Group’s proﬁt and Group’s and parent company’s cash
ﬂows for the year then ended;

• the Group ﬁnancial statements have been properly prepared in

accordance with IFRSs as adopted by the European Union;
• the parent company ﬁnancial statements have been properly

prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and

• the ﬁnancial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group ﬁnancial statements, Article 4 of the lAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• the information given in the Directors’ Report for the ﬁnancial year
for which the ﬁnancial statements are prepared is consistent with
the ﬁnancial statements.

62

Thomas Cook Group plc
Annual Report & Accounts 2009

Group income statement

For the year ended 30 September 2009

Year ended 30 September 2009

Exceptional
items and
amortisation
of business
combination
intangibles
(notes 6,13)
£m

–
(58.7)
(58.7)
(59.7)
(9.2)

(34.8)
(84.4)

(3.9)
(250.7)

–
(2.2)
–
–
0.8
(252.1)

Pre-exceptional
items and
amortisation
of business
combination
intangibles
£m

9,268.8
(7,017.8)
2,251.0
(1,027.1)
(158.4)

notes

3

4
13/14

–
(650.6)

–
414.9

(3.8)
–
1.4
51.2
(155.5)
308.2

13
5

6
3

15
6
15
7
8
9
10

12
12

Revenue
Cost of providing tourism services
Gross proﬁt
Personnel expenses
Depreciation and amortisation
Amortisation of business
combination intangibles
Net operating expenses
Loss on disposal of businesses and
property, plant and equipment
Proﬁt from operations

Share of results of associates and joint ventures
Loss on disposal of associate
Net investment income
Finance income
Finance costs
Proﬁt before tax
Tax
Proﬁt for the period
Attributable to:
Equity holders of the parent
Minority interests

Earnings per share (pence)
Basic
Diluted

All revenue and results arose from continuing operations.

Total
£m

9,268.8
(7,076.5)
2,192.3
(1,086.8)
(167.6)

(34.8)
(735.0)

(3.9)
164.2

(3.8)
(2.2)
1.4
51.2
(154.7)
56.1
(37.8)
18.3

15.8
2.5
18.3

1.9
1.8

11 months ended 30 September 2008
Restated
Exceptional
items and
amortisation
of business
combination
intangibles
(notes 6,13)
£m

Pre-exceptional
items and
amortisation
of business
combination
intangibles
£m

8,111.5
(6,226.9)
1,884.6
(849.3)
(127.6)

–
(544.3)

–
363.4

(1.6)
–
0.5
68.4
(126.8)
303.9

–
(13.0)
(13.0)
(47.0)
(0.4)

(49.1)
(117.5)

(1.7)
(228.7)

–
–
–
–
(26.8)
(255.5)

Total
£m

8,111.5
(6,239.9)
1,871.6
(896.3)
(128.0)

(49.1)
(661.8)

(1.7)
134.7

(1.6)
–
0.5
68.4
(153.6)
48.4
(4.8)
43.6

43.9
(0.3)
43.6

4.6
4.6

Thomas Cook Group plc
Annual Report & Accounts 2009

63

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Group statement of recognised income and expense

For the year ended 30 September 2009

(Losses)/ gains on cash ﬂow hedges
Losses on available-for-sale investments
Exchange differences on translation of foreign operations
Actuarial losses on deﬁned beneﬁt pension schemes
Movement in asset cap on deﬁned beneﬁt pension schemes
Tax on items taken directly to equity
Net (expense)/income recognised directly in equity

Transfers
Transferred to proﬁt or loss on cash ﬂow hedges
Transfer of translation losses to proﬁt or loss on disposal
Tax on items transferred from equity

Proﬁt for the period
Total recognised (expense)/income for the period

Attributable to:
Equity holders of the parent
Minority interests

Year ended
30 September 2009

notes

31
31
31
37
37
10

31
31
10

29

29
29

£m

(213.7)
(1.1)
86.4
(170.1)
0.7
113.3
(184.5)

(24.6)
4.5
7.0
(13.1)

18.3
(179.3)

(181.8)
2.5
(179.3)

11 months ended
30 September
2008
Restated
£m

281.4
(0.9)
121.6
(16.3)
–
(74.5)
311.3

(177.8)
–
53.3
(124.5)

43.6
230.4

230.7
(0.3)
230.4

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64

Thomas Cook Group plc
Annual Report & Accounts 2009

Group balance sheet

At 30 September 2009

Non-current assets
Intangible assets
Property, plant and equipment – aircraft and aircraft spares

– investment property
– other

Investments in associates and joint ventures
Other investments
Deferred tax assets
Tax assets
Trade and other receivables
Pension assets
Derivative ﬁnancial instruments

Current assets
Inventories
Tax assets
Trade and other receivables
Derivative ﬁnancial instruments
Cash and cash equivalents

Non-current assets held for sale
Total assets

Current liabilities
Retirement beneﬁt obligations
Trade and other payables
Borrowings
Obligations under ﬁnance leases
Tax liabilities
Revenue received in advance
Short-term provisions
Derivative ﬁnancial instruments

30 September
2009

notes

£m

30 September
2008
Restated
£m

13
14
14
14
15
15
26

18
37
23

17

18
23
19

28

37
20
21
22

27
23

3,775.1
628.3
18.0
347.1
36.0
20.3
431.8
5.6
113.8
–
4.9
5,380.9

27.0
38.6
931.6
133.9
550.2
1,681.3
9.1
7,071.3

(4.8)
(1,904.7)
(619.1)
(237.8)
(80.9)
(861.8)
(206.1)
(251.1)
(4,166.3)

3,438.1
584.8
15.7
312.3
42.7
29.4
328.0
9.9
126.4
0.4
55.6
4,943.3

24.2
15.1
1,016.0
261.6
761.3
2,078.2
–
7,021.5

(9.0)
(1,856.0)
(356.0)
(182.6)
(69.4)
(917.5)
(185.0)
(174.3)
(3,749.8)

Thomas Cook Group plc
Annual Report & Accounts 2009

65

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Non-current liabilities
Retirement beneﬁt obligations
Trade and other payables
Long-term borrowings
Obligations under ﬁnance leases
Revenue received in advance
Deferred tax liabilities
Long-term provisions
Derivative ﬁnancial instruments

Total liabilities
Net assets

Equity
Called-up share capital
Share premium account
Merger reserve
Hedging and translation reserves
Capital redemption reserve
Retained earnings deﬁcit
Investment in own shares
Equity attributable to equity holders of the parent
Minority interests
Total equity

These ﬁnancial statements were approved by the Board of Directors on 29 November 2009.

Signed on behalf of the Board

Manny Fontenla-Novoa
Director

30 September
2009

notes

£m

30 September
2008
Restated
£m

37
20
21
22

26
27
23

29/30
29
29
29/31
29
29
29

29
29

(366.3)
(17.1)
(320.9)
(47.7)
(1.2)
(111.5)
(294.3)
(18.8)
(1,177.8)
(5,344.1)
1,727.2

57.7
8.9
1,984.2
136.1
8.5
(474.0)
(13.1)
1,708.3
18.9
1,727.2

(181.6)
(36.1)
(416.1)
(228.3)
(0.9)
(99.3)
(234.1)
(66.9)
(1,263.3)
(5,013.1)
2,008.4

59.8
8.9
1,984.2
214.8
6.4
(265.4)
(13.0)
1,995.7
12.7
2,008.4

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66

Thomas Cook Group plc
Annual Report & Accounts 2009

Group cash ﬂow statement

For the year ended 30 September 2009

Cash ﬂows from operating activities
Cash generated by operations
Income taxes paid
Net cash from operating activities

Investing activities
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 disposal of available for sale ﬁnancial assets
Purchase of subsidiaries (net of cash acquired)
Purchase of tangible and ﬁnancial assets
Purchase of intangible assets
Purchase of non-current ﬁnancial assets
Additional loan investment
Disposal of short-term securities
Net cash used in investing activities

Financing activities
Interest paid
Dividends paid
Dividends paid to minority shareholders
Draw down of borrowings
Repayment of borrowings
Repayment of ﬁnance lease obligations
Purchase of own shares
Proceeds from issue of ordinary shares
Net cash (used in)/from ﬁnancing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period

Liquid assets
Bank overdrafts
Cash and cash equivalents at end of period

notes

32
32
32

16

19
21

Year ended

11 months ended
30 September 2009 30 September 2008
£m

£m

204.7
(26.6)
178.1

1.1
1.5
12.3
9.0
(71.2)
(131.0)
(68.5)
(4.8)
(3.7)
125.3
(130.0)

(102.6)
(87.4)
–
181.9
(128.9)
(174.4)
(47.1)
–
(358.5)

(310.4)
747.5
69.9
507.0

550.2
(43.2)
507.0

420.9
(63.7)
357.2

–
–
13.2
–
(296.4)
(82.2)
(60.2)
–
–
134.1
(291.5)

(55.2)
(78.2)
(1.9)
732.3
(221.7)
(91.3)
(247.8)
2.2
38.4

104.1
596.0
47.4
747.5

761.3
(13.8)
747.5

Thomas Cook Group plc
Annual Report & Accounts 2009

67

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

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 2006 and listed
on the London Stock Exchange. The address of the registered ofﬁce is 6th Floor South, Brettenham House, Lancaster Place, London, WC2E 7EN. The
principal activities of the Group are discussed in the Business Review on pages 2 to 39.

These consolidated ﬁnancial statements were approved for issue by the Board of Directors on 29 November 2009.

At the date of authorisation of these ﬁnancial statements, the following Standards and Interpretations that are expected to impact on the Group
but which have not been applied in these ﬁnancial statements, were in issue but not yet effective.

IFRS 8

IFRS 3
Revised

IAS 28
Amendment

IAS 27
Revised

IFRS 2
Amendment

IAS 23
Amendment

IFRS 7
Amendment

IAS 1
Revised

IAS 32
Amendment

IAS 38
Amendment

IFRIC 13

IFRIC 14

‘Operating segments’, issued in November 2006, effective for periods beginning on or after 1 January 2009. This may change
the way in which we report operating segments in the future.

‘Business combinations’, effective prospectively to business combinations for which the acquisition date is on or after the
beginning of the ﬁrst annual reporting period beginning on or after 1 July 2009. This will signiﬁcantly change the recognition
of goodwill, acquisition costs and contingent consideration relating to future acquisitions.

‘Investments in associates’ and amendment to IAS 31, ‘Interests in joint ventures’ (with consequential amendments to IAS 32,
‘Financial Instruments: presentation’ and IFRS 7, ‘Financial instruments: disclosures’), effective for annual periods beginning
on or after 1 January 2009. These amendments are part of the IASB’s annual improvements project published in May 2008
and will change the disclosure requirements for investments accounted for in accordance with IAS 39 ‘Financial instruments:
recognition and measurement’. The adoption of these amendments is not expected to have a material impact on the Group.

‘Consolidated and separate ﬁnancial statements’ is effective for annual periods beginning on or after 1 July 2009. The revised
standard requires different accounting treatment for minority interest but it is not expected to affect the Group’s ﬁnancial
results or position materially.

‘Share based payment’, effective for annual periods beginning on or after 1 January 2009. This provides a deﬁnition of vesting
conditions and speciﬁes the accounting treatment for non-vesting conditions. It is not expected to materially affect the share
based payment charge recognised in the Group accounts.

‘Borrowing costs’, revised version issued in March 2007, effective for annual periods beginning on or after 1 January 2009.
This eliminates the option of expensing all borrowing costs when they are incurred and is not expected to have a material
impact on the Group.

‘Financial instruments – disclosures’, effective 1 January 2009. The amendment requires enhanced disclosures about fair
value and measurement risk. As the change only results in disclosure changes there is no impact on the results of the Group.

‘Presentation of ﬁnancial statements’ is effective for annual periods beginning on or after 1 January 2009. This requires the
reconciliation of movements in equity to be presented as a primary ﬁnancial statement and increased disclosures when there
is a restatement of comparatives. Adopting this standard will not affect the recognition or measurement of any transactions
or events.

‘Financial instruments: Presentation’, issued in February 2008, effective for annual periods beginning on or after 1 January
2009. This clariﬁes the treatment of puttable ﬁnancial instruments. The adoption of this amendment is not expected to
have a material impact on the Group.

‘Intangible assets’, effective for annual periods beginning on or after 1 January 2009. The amendment is part of the IASB’s
annual improvements project published in May 2008. This will change the way in which the Group accounts for brochure costs.

‘Customer loyalty programmes’, issued in June 2007, effective for annual periods beginning on or after 1 January 2009.
The interpretation is not expected to have a material impact on the Group.

‘IAS 19 – The limit on a deﬁned beneﬁt asset, minimum funding requirements and their interaction’, issued in July 2007, effective for
periods beginning on or after 1 January 2009. The interpretation is not expected to have a material impact on the Group.

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The Directors anticipate that the Group will adopt these standards and interpretations on their effective dates.

2. Accounting policies
These ﬁnancial statements have been prepared in accordance with IFRS and IFRIC interpretations and with those parts of the Companies Act 2006
applicable to groups reporting under IFRS. The ﬁnancial 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.

No new standards or interpretations have been adopted during the current year which have had a material impact on the ﬁnancial statements.

The ﬁnancial statements have been prepared under the historical cost convention, except for revaluation of certain ﬁnancial instruments and
investment property.

The principal accounting policies applied in the preparation of the ﬁnancial information presented in this document are set out below. These
policies have been applied consistently to the periods presented.

Basis of preparation
During the year, the prior period was restated for fair value adjustments and revenue accounting adjustments related to the acquisitions of TriWest
Travel Holdings and Jet Tours S.A. The revenue accounting adjustments have no impact on proﬁt. The determination of fair values related to these
acquisitions has now been concluded. Refer to note 16 of the Group Financial Statements for further detail.

During the prior period, the year end of the Group had been changed from 31 October to 30 September, as a result the prior period results are
for eleven months and are not comparable with the current year numbers.

68

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

2. Accounting policies continued
The Group’s ﬁnancial 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 ﬁnancial and operating policies of an investee entity so as to obtain beneﬁts 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. The purchase method of accounting is used to account for the acquisition of subsidiaries by the
Group. The cost of an acquisition is measured at fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the
date of exchange, plus costs directly attributable to the acquisition. Identiﬁable assets acquired and liabilities and contingent liabilities assumed in
a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of
the Group’s share of identiﬁable net assets acquired is recorded as goodwill.

Where audited ﬁnancial accounts are not coterminous with those of the Group, the ﬁnancial 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.

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 controlled by the Group, and
therefore subject to consolidation, even though the Group has no direct or indirect equity interest in those entities. The Group has consolidated
three SPEs that own four aircraft operated by the Group under operating leases. In addition, as a result of the sale of the ultimate parent’s
(Arcandor AG) shareholding in the Group during the year, the operations of the German Airline have been placed in a holding company, in which
the Group holds a 50.0023% direct interest. All risks and rewards continue to be held by the Group and under accounting standards the entity
should be interpreted as 100% controlled and fully consolidated by the Group.

Associates and joint ventures
Entities, other than subsidiaries, over which the Group exerts signiﬁcant inﬂuence, 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’s 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, and including
any goodwill identiﬁed on acquisition, net of any accumulated impairment loss. When the Group’s share of losses in an associate or joint venture equals
or exceeds its interest in the associate or joint venture, including any other unsecured receivables, gains on transactions between the Group and its
associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provided
evidence of an impairment of the asset transferred.

Other non-current asset investments
The fair value of investments in equity instruments that do not have a quoted market price in an active market are measured using an appropriate
valuation technique. Where a fair value cannot be reliably measured, the investment is 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 identiﬁable 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. For the purposes of assessing impairment, assets are grouped at the lowest level
for which there are separately identiﬁable cash ﬂows into cash-generating units. The allocation of goodwill is made to those cash-generating units
that are expected to beneﬁt from the business combination in which the goodwill arose. The Group allocates goodwill to each segment in which it
operates. On disposal of a subsidiary, joint venture or associate, the attributable amount of goodwill is included in the determination of the proﬁt
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
indeﬁnite 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 indeﬁnite life

Customer relationships

Computer software

1 to 12 years

3 to 10 years

Other acquired intangible assets are assessed separately and useful lives established according to the particular circumstances.

Indeﬁnite-lived intangible assets principally comprise those trademarks for which there is no foreseeable limit to the period over which they are
expected to generate net cash inﬂows. These are considered to have an indeﬁnite life given the strength and durability of our brands and the level
of marketing support. The nature of the industry we operate is such that brand obsolescence is not common, if appropriately supported by
advertising and marketing spend.

Intangible assets with indeﬁnite 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
Except for investment property, 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

Thomas Cook Group plc
Annual Report & Accounts 2009

69

Directors’ Report – Business Review
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Financial Statements

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 and investment property, 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 ﬁxed assets

3 to 15 years

Estimated residual values and useful lives are reviewed annually.

Investment property comprises land and buildings which are held for long-term rental yields and capital growth. It is carried at fair value, with
changes in fair value recognised in the income statement. Investment property is valued annually by external qualiﬁed professional valuers in
the countries concerned. In the event of a material change in market conditions between the valuation date and balance sheet date, an internal
valuation is performed and adjustments made to reﬂect any material changes in fair value.

Non-current assets held for sale
The Group classiﬁes 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 classiﬁed 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 classiﬁcation.

Non-current assets classiﬁed 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 ﬁnance leased engines, auxiliary power units and airframes is capitalised and then amortised over
between two and ten years until the next scheduled major overhaul, except where the maintenance of engines and auxiliary power units is
carried out under ﬁxed 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 ﬂown 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
Proﬁt or loss from operations includes the results from operating activities of the Group, before its share of the results of associates and joint ventures.

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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 and the
subsequent acquisitions made. The amortisation of these intangible assets is signiﬁcant and the Group’s management consider that it should be
disclosed separately to enable a full understanding of the Group’s results.

Finance income and costs
Finance income comprises interest income on funds invested, expected return on pension plan assets, changes in the fair value of held for trading
ﬁnancial instruments and the movement in forward points on outstanding foreign currency cash ﬂow hedges.

Finance cost comprises interest cost on borrowings and ﬁnance leases, unwind of the discount on provisions, expected return on pension plan
liabilities, changes in the fair value of held for trading ﬁnancial instruments and the movement in forward points on outstanding foreign currency
cash ﬂow hedges.

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 proﬁts 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. The deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than
business combination that at the time of the transaction does not affect either accounting or taxable proﬁt or loss.

Deferred tax assets are assessed at each balance sheet date and are only recognised to the extent that their recovery against future taxable proﬁts is probable.

70

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

2. Accounting policies continued
Pensions
Pension costs charged against proﬁts in respect of the Group’s deﬁned 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 deﬁned beneﬁt 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 (calculated using the projected unit credit method) 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
sterling. The balance sheets of such entities are translated at period end exchange rates.

The resulting exchange differences are recorded 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
recorded in the income statement.

When a foreign entity is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement
as part of the gain or loss on sale.

Leases
Leases under which substantially all of the risks and rewards of ownership are transferred to the Group are ﬁnance leases. All other leases are
operating leases.

Assets held under ﬁnance leases are recognised at the lower of the fair value of the asset and the present value of minimum lease payments 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 ﬁnance 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 ﬁnancial instruments
Derivatives are recognised at their fair value. When a derivative does not qualify for hedge accounting as a cash ﬂow hedge, changes in fair value
are recognised immediately in the income statement. When a derivative qualiﬁes for hedge accounting as a cash ﬂow 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-ﬁnancial asset or a non-
ﬁnancial 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 ﬂow 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 proﬁt or loss.

When a derivative qualiﬁes for hedge accounting as a fair value hedge, changes in fair value of the derivative are recognised in the income
statement when the offsetting changes in the fair value of the hedged asset or liability, attributable to the hedged risk, occur.

Non-derivative ﬁnancial 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 ﬁnancial asset or when the contractual rights expire. Financial liabilities are derecognised when
the obligation is discharged, cancelled or expires. The measurement of particular ﬁnancial 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. An allowance for irrecoverable amounts is established when there is objective evidence that the
Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of allowance is the difference
between the asset’s carrying amount and the present value of estimated future cash ﬂows.

Available-for-sale ﬁnancial assets
Available-for-sale ﬁnancial 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 ﬁnancial 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 classiﬁed 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 outﬂow 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.

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Directors’ Report – Corporate Governance
Financial Statements

Termination beneﬁts
Termination beneﬁts are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee
accepts voluntary redundancy in exchange for these beneﬁts. The Group recognises termination beneﬁts when it is demonstrably committed to
either terminating the employment of current employees, according to a detailed formal plan without possibility of withdrawal, or providing
termination beneﬁts as a result of an offer made to encourage voluntary redundancy.

Share-based payments
The Group issues equity-settled 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.

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 classiﬁcation requirements for insurance contracts are classiﬁed as reinsurance contracts held.

The beneﬁts 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
signiﬁcant effect on the amounts recognised in the ﬁnancial statements.

Residual values of tangible ﬁxed 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 indeﬁnite life
Judgements have been made in respect of the amounts of future operating cash ﬂows 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 indeﬁnite
life in relation to those businesses.

Special purpose entities
The nature of the relationship with certain special purpose entities 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 signiﬁcant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁnancial year are discussed below.

Impairment of goodwill and intangible assets with an indeﬁnite life
Determining whether goodwill or intangible assets with an indeﬁnite 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 ﬂows expected
to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

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 ﬂeet.

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 proﬁtability.

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 proﬁtability.

Retirement beneﬁts
The consolidated ﬁnancial statements include costs in relation to, and provision for, retirement beneﬁt obligations. The costs and the present value
of any related pension assets and liabilities depend on such factors as life expectancy of the members, the salary progression of current employees,
the returns that plan assets generate and the discount rate used to calculate the present value of the liabilities. The Group uses previous experience
and impartial actuarial advice to select the values of critical estimates. The estimates, and the effect of variances in key estimates, are disclosed in
note 37.

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72

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

3. Segmental information
For management purposes, the Group is currently organised into ﬁve 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 Corporate.

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 30 September 2009

Revenue
Segment sales
Inter-segment sales
Total revenue

Result
Proﬁt/(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
Loss on disposal of associate
Net investment income
Finance income
Finance costs
Proﬁt before tax
Tax
Proﬁt for the year

Other information
Capital additions
Depreciation
Amortisation of intangible assets
Impairment of intangible assets

UK and
Ireland
£m

Continental
Europe
£m

Northern
Europe
£m

North
America
£m

Airlines
Germany
£m

Corporate
£m

Total
£m

3,117.2
(19.2)
3,098.0

4,014.6
(14.3)
4,000.3

1,061.6
(2.3)
1,059.3

370.4
–
370.4

1,061.2
(320.4)
740.8

–
–
–

9,625.0
(356.2)
9,268.8

162.2
(88.8)
(14.2)
59.2

127.0
(64.6)
(0.5)
61.9

86.4
(7.3)
(18.9)
60.2

17.9
(22.8)
(1.2)
(6.1)

47.4
(3.4)
–
44.0

(26.0)
(29.0)
–
(55.0)

63.4
47.7
24.3
–

22.8
11.1
5.3
0.8

10.3
9.2
19.5
–

5.0
1.0
2.0
–

63.1
74.8
0.3
–

33.4
1.4
5.8
17.2

414.9
(215.9)
(34.8)
164.2
(3.8)
(2.2)
1.4
51.2
(154.7)
56.1
(37.8)
18.3

198.0
145.2
57.2
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Thomas Cook Group plc
Annual Report & Accounts 2009

73

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Primary segments – management structure

Year ended 30 September 2009

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 ﬁnance leases
Total liabilities

Inter-segment sales are charged at prevailing market prices.

UK and
Ireland
£m

Continental
Europe
£m

Northern
Europe
£m

North
America
£m

Airlines
Germany
£m

Corporate
£m

Total
£m

3,833.0

1,869.3

1,659.2

318.8

876.9

3,763.3

2,643.6

1,289.2

917.3

270.1

617.6

2,939.1

12,320.5
(5,761.2)
6,559.3
36.0
476.0
7,071.3

8,676.9
(4,750.7)
3,926.2
192.4
1,225.5
5,344.1

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.

Capital additions comprise additions to property, plant and equipment (note 14) and other intangible assets (note 13).

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2
4

74

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

3. Segmental information continued

Eleven months ended 30 September 2008 (restated)

Revenue
Segment sales
Inter-segment sales
Total revenue

Result
Proﬁt/(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
Proﬁt on disposal of associates
Net investment income
Finance income
Finance costs
Proﬁt before tax
Tax
Proﬁt for the period

Other information
Capital additions
Depreciation
Amortisation of intangible assets
Impairment of property, plant & equipment
Impairment of intangible assets

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 ﬁnance leases
Total liabilities

UK and
Ireland
£m

Continental
Europe
£m

Northern
Europe
£m

North
America
£m

Airlines
Germany
£m

Corporate
£m

Total
£m

2,836.6
(6.3)
2,830.3

3,403.4
(25.6)
3,377.8

910.0
(2.7)
907.3

365.2
–
365.2

896.1
(265.2)
630.9

–
–
–

8,411.3
(299.8)
8,111.5

144.3
(114.7)
(14.2)
15.4

103.1
(33.1)
(1.2)
68.8

79.8
(0.2)
(27.8)
51.8

14.7
(5.2)
(5.9)
3.6

40.1
(2.6)
–
37.5

(18.6)
(23.8)
–
(42.4)

47.9
28.3
21.6
–
3.5

26.4
9.1
5.0
1.3
1.0

8.3
6.9
28.2
–
–

3.9
0.4
6.3
–
–

32.5
65.0
0.1
–
–

24.3
1.0
5.2
–
1.0

3,661.9

1,684.5

1,486.1

316.8

1,029.4

2,944.2

2,243.9

1,209.4

816.6

254.7

613.7

3,020.2

363.4
(179.6)
(49.1)
134.7
(1.6)
–
0.5
68.4
(153.6)
48.4
(4.8)
43.6

143.3
110.7
66.4
1.3
5.5

11,122.9
(4,497.1)
6,625.8
42.7
353.0
7,021.5

8,158.5
(4,497.1)
3,661.4
168.7
1,183.0
5,013.1

Thomas Cook Group plc
Annual Report & Accounts 2009

4. Personnel expenses

Wages and salaries
Social security costs
Share-based payments – equity settled
Deﬁned beneﬁt pension costs (see note 37)
Other pension costs (see note 37)

The average number of employees of the Group during the period was:

UK and Ireland
Continental Europe
Northern Europe
North America
Airlines Germany
Corporate

75

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Directors’ Report – Corporate Governance
Financial Statements

2009
£m

925.4
115.1
8.3
17.9
20.1
1,086.8

2009
Number

16,916
6,760
2,723
1,220
2,342
167
30,128

2008
£m

759.9
96.8
3.1
20.0
16.5
896.3

2008
Number

16,738
7,186
2,744
1,432
2,179
170
30,449

Disclosures of Directors’ remuneration, share options, long term incentive schemes, pension contributions and pension entitlements required by the
Companies Act 2006 and those speciﬁed for audit by the Financial Services Authority are on pages 59 and 60 within the Remuneration report and form
part of these audited ﬁnancial statements. Disclosures in respect of remuneration of key management personnel are included in note 38.

5. Net 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

2009
£m

176.7
156.2
90.8
68.0
45.5
51.7
41.8
14.3
11.9
5.7
72.4
735.0

2008
£m

159.7
120.2
94.6
66.6
38.3
41.6
23.2
15.5
12.1
8.5
81.5
661.8

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76

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

6. Exceptional items

Property costs, redundancy and other costs incurred in integrating the Thomas Cook and MyTravel businesses
Property costs, redundancy and other costs incurred in other business integrations and reorganisations*
Disposal of property, plant and equipment
Impairment of assets
Other expenses incurred as a result of the merger
Fuel-related exceptionals
Other exceptional operating events**
Exceptional items included within operating proﬁt

Exceptional items have been included in the income statement as follows:
Cost of providing tourism services
Personnel expenses
Depreciation and amortisation
Net operating expenses
Loss on disposal of businesses and property, plant and equipment

Share of associates’ exceptional items
Loss on disposal of associate

Exceptional ﬁnance income/(costs)
Loss on revaluation of trading securities
Impact of ﬁnancial market volatility

2009
£m

(56.6)
(112.8)
(3.9)
–
–
(20.7)
(21.9)
(215.9)

(58.7)
(59.7)
(9.2)
(84.4)
(3.9)
(215.9)

(2.2)
(2.2)

(10.6)
11.4
0.8

2008
£m

(106.7)
(46.4)
(1.7)
(2.5)
(14.8)
–
(7.5)
(179.6)

(13.0)
(47.0)
(0.4)
(117.5)
(1.7)
(179.6)

–
–

(13.9)
(12.9)
(26.8)

Total exceptional items

(217.3)

(206.4)

* The £112.8m above relates to the integration of other acquisitions made last year and this, and other restructuring projects that have been undertaken across the Thomas Cook Group.

The restructuring projects largely reﬂect changes made to underlying business processes and systems in the UK, Germany, the Western Europe markets and Canada to improve efﬁciency
and cost leadership across the Group.

** Other exceptional operating items of £21.9m include aborted acquisition costs and losses resulting from other exceptional operating events that are not expected to recur.

Net exceptional ﬁnance income in the year was £0.8m (2008: cost of £26.8m). The net cost in 2008 included £12.9m relating to the exceptional
element of the phasing impact of marking to market the forward points on our foreign currency hedging, which arose in September 2008 as a
result of the global banking crisis. In 2009, £11.4m of this unwound, but was offset by £10.6m of additional revaluation losses on trading securities.
The Group has now disposed of all of its trading securities.

7. Finance income

Income from loans included in ﬁnancial assets
Other interest and similar income
Expected return on pension plan assets
Fair value gains on derivative ﬁnancial instruments

2009
£m

1.0
11.1
38.4
0.7
51.2

2008
£m

1.0
23.3
41.9
2.2
68.4

Thomas Cook Group plc
Annual Report & Accounts 2009

8. Finance costs

Interest payable
Finance costs in respect of ﬁnance leases
Interest cost on pension plan liabilities
Forward points on future hedging contracts
Other ﬁnance costs (including discounting charges)

Loss on revaluation of trading securities (note 6)
Impact of ﬁnancial market volatility (note 6)

77

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Directors’ Report – Corporate Governance
Financial Statements

2009
£m

85.3
22.5
50.1
(10.0)
7.6
155.5
10.6
(11.4)
154.7

2008
£m

40.9
22.2
41.9
12.8
9.0
126.8
13.9
12.9
153.6

The forward points on future hedging contracts are included within ﬁnance costs. This resulted in a pre-exceptional gain in 2009 of £10.0m (2008:
loss of £12.8m).

9. Proﬁt before tax

Proﬁt before tax for the period has been arrived at after charging/(crediting):
Exceptional operating items (see note 6)
Including: Impairment of property, plant and equipment

Impairment of intangible assets

Depreciation of property, plant and equipment – owned assets

– held under ﬁnance leases

Amortisation of intangible assets
Amortisation of business combination intangibles
Cost of inventories recognised as expense
Loss on disposal of associate
Operating lease rentals payable – hire of aircraft and aircraft spares

– other

Net foreign exchange gains
Personnel expenses (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 ﬁnancial 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
All other services
Total non-audit fees

Total fees

2009
£m

215.9
–
18.0
111.6
33.6
22.4
34.8
26.8
2.2
101.9
93.3
(57.6)
1,086.8
3.6

2009
£m

0.2

2.0
2.2

0.3
0.3
–
0.2
0.5
0.1
1.4

3.6

2008
£m

179.6
1.3
5.5
76.5
34.2
17.3
49.1
36.9
–
97.6
67.1
(10.8)
896.3
4.7

2008
£m

0.2

1.6
1.8

0.5
0.7
0.2
0.1
1.3
0.1
2.9

4.7

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In addition to the above, £56,000 (2008: £56,000) has been incurred in respect of the audits of the Group pension schemes.

A description of the work of the Audit Committee is set out in the Corporate Governance report on pages 47 and 48 and includes an explanation
of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.

78

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

10. Tax

Analysis of tax charge in the period
Current tax
UK

corporation tax (credit)/charge for the period
reimbursements in respect of prior periods

Overseas

corporation tax charge for the period
(reimbursements)/income in respect of prior periods

Total current tax
Deferred tax

tax charge/(credit) for the period
adjustments in respect of prior periods

Total deferred tax

Total tax charge

Tax reconciliation
Proﬁt before tax
Expected tax charge at the UK corporation tax rate of 28% (2008: 28.91%)
Impact of changes in tax rates
Income not liable for tax
Expenses not deductible for tax purposes
Losses for which tax relief is not available
Difference in rates of tax suffered on overseas earnings
Utilisation of tax losses not previously recognised
Recognition of timing differences not previously recognised
Income tax charges/(credits) in respect of prior periods
Other
Tax charge

2009
£m

(2.5)
(1.4)
(3.9)
27.3
(4.6)
22.7
18.8

9.2
9.8
19.0

37.8

56.1
15.7
–
(14.6)
5.6
30.6
1.7
(1.7)
(2.9)
3.8
(0.4)
37.8

2008
£m

2.7
(1.2)
1.5
41.1
4.5
45.6
47.1

(25.9)
(16.4)
(42.3)

4.8

48.4
14.0
0.9
(6.7)
6.9
4.4
(6.7)
(1.5)
2.7
(13.1)
3.9
4.8

In addition to the amount charged to the income statement, deferred tax relating to actuarial losses on pension schemes and the fair value of
derivative ﬁnancial instruments of £120.3m has been credited directly in equity (2008: charge of £21.2m).

UK corporation tax is calculated at 28% (2008: 28.91%) of the estimated assessable proﬁt for the period. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.

Surplus losses not recognised in deferred tax of £679.9m (2008: £531.0m) are available in the UK and Germany for offset against future proﬁts.

Thomas Cook Group plc
Annual Report & Accounts 2009

11. Dividends

Interim dividend paid of 3.75 pence per share (2008: 3.25 pence)
Proposed ﬁnal dividend for the period of 7.0 pence per share (2008: 6.5 pence)

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Financial Statements

2009
£m

31.6
60.1
91.7

2008
£m

29.4
55.8
85.2

The proposed ﬁnal dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these
ﬁnancial statements.

12. 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 5.1m shares held by the employee share ownership trusts (2008: 2.6m).

Basic and diluted earnings per share

Net proﬁt 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 earnings per share
Diluted earnings per share

Pro forma pre exceptional basic and diluted earnings per share
Pre exceptional net proﬁt 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 earnings per share
Diluted earnings per share

2009
£m

15.8

millions

853.7
5.2
858.9

pence

1.9
1.8

2009
£m

225.3

millions

853.7
5.2
858.9

pence

26.4
26.2

2008
restated
£m

43.9

millions

947.6
0.5
948.1

Restated
pence

4.6
4.6

2008***
£m

229.0

millions

949.9
0.5
950.4

pence

24.1
24.1

*

Pro forma pre exceptional net proﬁt attributable to equity holders of the parent is derived from the pre exceptional proﬁt before tax for the 12 months to September 2009 of £308.2m
(12 months to September 2008: £309.3m) and deducting a notional tax charge of £82.9m (2008: £80.3m).

** Awards of shares under the Thomas Cook Performance Share Plan and Buy As You Earn Scheme will be satisﬁed by shares held in trust and therefore are potentially dilutive.
The remainder of the share schemes will be satisﬁed by the purchase of existing shares in the market and will therefore not result in any dilution of earnings per share.

*** The pro forma pre exceptional basis and diluted earnings per share for 2008 is for the 12 months ended 30 September 2008.

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80

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

13. Intangible assets

Goodwill
Business combination intangible assets
Other

Goodwill

Cost

At 1 November 2007
Additions (restated)
Exchange differences
At 30 September 2008
Additions (note 16)
Exchange differences
At 30 September 2009

Accumulated impairment losses
At 1 November 2007
Exchange differences
At 30 September 2008
Exchange differences
At 30 September 2009

Carrying amount
At 30 September 2009
At 30 September 2008

The carrying value of goodwill analysed by business segment is as follows:

UK and Ireland
Northern Europe
Continental Europe
North America
Airlines Germany

2009
£m

3,187.9
409.3
177.9
3,775.1

2009
£m

2,104.8
690.9
203.7
165.6
22.9
3,187.9

2008
restated
£m

2,931.5
372.7
133.9
3,438.1

£m

2,569.4
302.3
161.1
3,032.8
48.0
224.4
3,305.2

88.0
13.3
101.3
16.0
117.3

3,187.9
2,931.5

2008
restated
£m

1,954.6
627.8
178.5
150.6
20.0
2,931.5

In accordance with accounting standards, the Group annually tests the carrying value of goodwill for impairment. At 30 September 2009, 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 ﬂows derived from those assets, using cash ﬂow projections discounted at a pre-tax rate of 9% to 13% (2008: 10% to 13%) reﬂecting speciﬁc
risks relating to the relevant cash generating units.

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 ﬂow forecasts derived from the most recently approved annual budgets
and three year plans of the relevant businesses. The cash ﬂow forecasts reﬂect the risk associated with each asset. Cash ﬂow 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.

There were no impairment losses recognised on goodwill during the year (2008: £nil) and no reasonable change to the assumptions would lead to
a material impairment.

Thomas Cook Group plc
Annual Report & Accounts 2009

81

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Directors’ Report – Corporate Governance
Financial Statements

Brands and
customer
relationships
£m

Order
backlog
£m

Computer
software
£m

304.8
83.2
13.4
401.4
47.4
(2.4)
29.1
475.5

9.5
28.6
3.5
0.6
42.2
30.0
3.7
75.9

399.6
359.2

34.0
3.5
3.0
40.5
0.2
–
0.4
41.1

19.6
17.4
–
2.3
39.3
1.4
0.3
41.0

0.1
1.2

12.5
–
0.9
13.4
–
–
1.4
14.8

1.0
3.1
–
0.1
4.2
3.4
0.7
8.3

6.5
9.2

Other
£m

–
3.3
(0.2)
3.1
–
–
–
3.1

–
–
–
–
–
–
–
–

3.1
3.1

Total
£m

351.3
90.0
17.1
458.4
47.6
(2.4)
30.9
534.5

30.1
49.1
3.5
3.0
85.7
34.8
4.7
125.2

409.3
372.7

13. Intangible assets continued
Business combination intangibles

Cost
At 1 November 2007
Additions (restated)
Exchange differences
At 30 September 2008
Additions (note 16)
Disposal of subsidiaries
Exchange differences
At 30 September 2009

Amortisation
At 1 November 2007
Charge for the period (restated)
Impairment losses
Exchange differences
At 30 September 2008
Charge for the year
Exchange differences
At 30 September 2009

Carrying amount
At 30 September 2009
At 30 September 2008

The initial valuation of business combination intangibles is based on applicable projected future cash ﬂows discounted at an appropriate discount
rate. Customer relationships are being amortised over periods of 1 to 15 years and computer software over a period of four years. Order backlog
has been amortised over the period from acquisition to departure. Other includes the fair value attributed to a foreign exchange licence from the
acquisition of Thomas Cook India, which is being amortised over 25 years.

Indeﬁnite–lived intangible assets principally comprise those trademarks for which there is no foreseeable limit to the period over which they are
expected to generate net cash inﬂows. These are considered to have an indeﬁnite life, given the strength and durability of our brands and the level of
marketing support. The nature of the industry we operate in is such that brand obsolescence is not common, if appropriately supported by advertising
and marketing spend. The Group annually tests the carrying value of indeﬁnite lived intangibles for impairment on a value in use basis consistent with
that disclosed for goodwill on page 80.

The carrying value of brands with an indeﬁnite life analysed by business segment is as follows:

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Northern Europe
UK and Ireland
Continental Europe (restated)
North America (restated)

2009
£m

127.2
70.6
23.6
21.8
243.2

2008
£m

115.5
70.6
20.5
22.1
228.7

82

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

13. Intangible assets continued
Other intangible assets

Cost
At 1 November 2007
Additions
Acquisitions (restated)
Exchange differences
Reclassiﬁcation
Disposals
At 30 September 2008
Additions
Acquisitions (note 16)
Exchange differences
Disposals
At 30 September 2009

Amortisation
At 1 November 2007
Charge for the period
Impairment losses
Exchange differences
Transfer from non-current assets held for sale
Disposals
At 30 September 2008
Charge for the year
Impairment losses
Exchange differences
Disposals
At 30 September 2009

Carrying amount
At 30 September 2009
At 30 September 2008

Concessions and
computer software

Purchased
£m

Internally
generated
£m

Other

Purchased
£m

164.2
44.8
7.1
15.7
(54.8)
(1.4)
175.6
36.1
–
27.6
(0.9)
238.4

97.0
6.9
1.0
10.9
(36.3)
(0.9)
78.6
7.4
18.0
14.9
(0.4)
118.5

119.9
97.0

29.9
15.4
1.1
4.1
54.8
(3.5)
101.8
30.2
0.5
6.6
(5.0)
134.1

16.7
10.0
1.0
2.6
36.3
(1.5)
65.1
13.4
–
3.7
(1.2)
81.0

53.1
36.7

0.6
–
0.1
–
–
–
0.7
2.2
3.8
0.3
–
7.0

0.1
0.4
–
–
–
–
0.5
1.6
–
–
–
2.1

4.9
0.2

Total
£m

194.7
60.2
8.3
19.8
–
(4.9)
278.1
68.5
4.3
34.5
(5.9)
379.5

113.8
17.3
2.0
13.5
–
(2.4)
144.2
22.4
18.0
18.6
(1.6)
201.6

177.9
133.9

Computer software is amortised on a straight-line basis over its estimated useful life of between three and ten years.

In the prior year, as a result of the integration of Thomas Cook and MyTravel, the Directors reviewed the classiﬁcation of intangible ﬁxed assets and as a
consequence certain reclassiﬁcations were made to more appropriately reﬂect the nature of the asset.

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 ten years, and other items over their estimated useful lives of between three and ﬁve years.

Thomas Cook Group plc
Annual Report & Accounts 2009

83

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Directors’ Report – Corporate Governance
Financial Statements

14. Property, plant and equipment

Cost
At 1 November 2007
Additions
Acquisitions (restated)
Exchange differences
Transfer from non-current assets held for sale
Reclassiﬁcation
Disposals
At 30 September 2008
Additions
Acquisitions (note 16)
Exchange differences
Disposals
At 30 September 2009

Accumulated depreciation and impairment
At 1 November 2007
Charge for the period
Provision for impairment
Exchange differences
Reclassiﬁcation
Disposals
At 30 September 2008
Charge for the year
Exchange differences
Disposals
At 30 September 2009

Carrying amount
At 30 September 2009
At 30 September 2008

Aircraft and
aircraft spares
£m

Investment
property
£m

Freehold land
and buildings
£m

Short
leaseholds
£m

Other
ﬁxed assets
£m

Other property, plant and equipment

1,247.1
42.2
–
165.7
–
8.8
(22.1)
1,441.7
86.5
–
194.1
(8.9)
1,713.4

680.0
78.8
–
105.0
7.1
(14.0)
856.9
105.1
129.4
(6.3)
1,085.1

–
–
–
1.6
14.1
–
–
15.7
–
–
2.3
–
18.0

–
–
–
–
–
–
–
–
–
–
–

187.3
1.0
4.1
25.4
–
(4.5)
(0.1)
213.2
0.9
–
31.2
(1.5)
243.8

44.7
5.9
–
7.5
(3.3)
–
54.8
7.2
10.0
(1.0)
71.0

628.3
584.8

18.0
15.7

172.8
158.4

130.5
10.0
1.3
7.4
–
35.0
(12.1)
172.1
14.8
0.5
11.7
(12.1)
187.0

75.4
8.8
–
3.1
30.1
(9.6)
107.8
11.1
7.6
(9.9)
116.6

70.4
64.3

202.5
29.9
8.3
23.9
–
(39.3)
(7.4)
217.9
27.3
1.4
35.9
(21.8)
260.7

132.0
17.2
1.3
17.4
(33.9)
(5.7)
128.3
21.8
24.9
(18.2)
156.8

103.9
89.6

Freehold land with a cost of £38.7m (2008: £34.7m) has not been depreciated.

The cost of property, plant and equipment stated above does not include capitalised interest.

Total
£m

520.3
40.9
13.7
56.7
–
(8.8)
(19.6)
603.2
43.0
1.9
78.8
(35.4)
691.5

252.1
31.9
1.3
28.0
(7.1)
(15.3)
290.9
40.1
42.5
(29.1)
344.4

347.1
312.3

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In the prior period, as a result of the integration of Thomas Cook and MyTravel, the Directors reviewed the classiﬁcation of tangible ﬁxed assets and
as a consequence certain reclassiﬁcations were made to more appropriately reﬂect the nature of the asset.

The net book value of aircraft and aircraft spares includes £170.5m (2008: £267.3m) in respect of assets held under ﬁnance leases.

The net book value of other property, plant and equipment includes £15.8m (2008: £13.0m) in respect of assets held under ﬁnance lease.

Capital commitments

Capital expenditure contracted but not provided for in the accounts

2009
£m

127.8

2008
£m

53.4

The 2009 capital commitments include £60.7m in relation to two aircraft that are currently held under operating leases which will come on
balance sheet during 2010.

84

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

15. Non-current asset investments

Cost
At 1 October 2008
Disposals
Share of result of associates and joint ventures after tax
Dividend from associate
Interest received
Additional loan investment
Exchange differences
At 30 September 2009

Amounts written off or provided
At 1 October 2008
Exchange differences
At 30 September 2009

Carrying amount
At 30 September 2009
At 30 September 2008

Other investments

Associates and
joint ventures
undertakings
£m

Available-for-sale
ﬁnancial assets
£m

Loans &
receivables
£m

Total other
investments
£m

70.3
(12.3)
(3.8)
(0.3)
–
3.7
10.2
67.8

27.6
4.2
31.8

36.0
42.7

17.0
(9.8)
–
–
–
–
2.3
9.5

2.2
0.2
2.4

7.1
14.8

14.6
–
–
–
(2.1)
0.7
–
13.2

–
–
–

13.2
14.6

31.6
(9.8)
–
–
(2.1)
0.7
2.3
22.7

2.2
0.2
2.4

20.3
29.4

Associates
Investments in associated undertakings at 30 September 2009 included a 40% interest in Activos Turisticos 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% interest in Oasis Company SAE, a hotel company in Egypt.

During the year the Group disposed of its 19.99% interest in Aqua Sol, a quoted hotel group based in Cyprus, for total consideration of £5.6m
of which £1.5m was received in cash. The Group recognised a net loss on disposal of £2.2m.

Joint venture
The Group’s joint venture entity is Thomas Cook Personal Finance Limited. This is a joint venture arrangement with Barclays Bank, the Group’s
share being 50%.

Summarised ﬁnancial information in respect of the associates and joint ventures is as follows:

Total assets
Total liabilities
Net (liabilities)/assets
Group’s share of net (liabilities)/assets
Revenue
(Loss)/ proﬁt for the period
Group’s share of associates and joint ventures (loss)/proﬁt for the period

Joint venture
2009
£m

Associates
2009
£m

Joint venture
2008
£m

Associates
2008
£m

114.0
(133.4)
(19.4)
(9.7)
4.2
(7.4)
(3.7)

248.9
(116.5)
132.4
42.2
125.2
2.3
(0.1)

86.1
(98.3)
(12.2)
(6.1)
(0.8)
(7.8)
(3.9)

267.8
(115.6)
152.2
44.6
146.8
5.8
2.3

The ﬁnancial statements of Activos Turisticos S.A. are made up to 31 October each year. The ﬁnancial statements of the other associated
undertakings are made up to 31 December each year, being their ﬁnancial reporting date. For the purposes of applying the equity method
of accounting for 2009, the ﬁnancial statements of these undertakings for the year ended 31 December 2008 have been used together with
management accounts for the period from 1 January 2009 to 30 September 2009.

Other investments
Loans and receivables include £13.2m in respect of the Group’s investment, as a member of Airline Group, in the UK National Air Trafﬁc Services
(NATS). The investment comprises ordinary shares and loan notes carrying interest at 8% and 11% in the Airline Group.

Available-for-sale ﬁnancial assets include £5.8m in respect of a 24.9% interest in Aldiana GmbH, a German tour operator. Aldiana is not accounted
for under the equity method as the Group does not have signiﬁcant inﬂuence over its activities. During the year, the Group disposed of its 10%
interest in L’tur Tourismus AG, a German package tour operator.

During the year ended 30 September 2009, the Group recognised interest on ﬁxed asset investments of £1.4m (2008: £0.5m).

There is no active market for the available-for-sale ﬁnancial assets, consequently they are recorded at cost.

Thomas Cook Group plc
Annual Report & Accounts 2009

85

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

16. Subsidiaries and acquisitions
A list of the signiﬁcant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given
in note 17 to the Company’s separate ﬁnancial 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 three (2008: twelve) SPEs that own four (2008: eleven) aircraft operated by the Group on operating leases. In addition, during
the year the operations of the German airline have been placed in a holding company in which the Group owns a 50.0023% direct interest. All
risks and rewards continue to be held by the Group and under accounting standards the entity should be interpreted as 100% controlled and
fully consolidated by the Group.

Acquisitions made during the current year
Gold Medal
On 7 April 2009, the Group acquired a 50.01% economic interest (60% of the ordinary share capital) in Gold Medal International Limited, one of the
UK’s largest independent travel groups, consisting of an air and hotel consolidator, online booking site and luxury tour operator. For accounting
purposes the Group is deemed to have acquired 100% of Gold Medal.

The purchase price was £65.6m of which £22.0m has been paid in cash and an estimated balance of £43.6m has been recognised in relation to
the value of the options in place for the Group to purchase the remaining shareholding or for the vendor to sell it to the Group.

Details of the net assets acquired are set out in the table below:

Net assets acquired
Intangible assets
Property, plant and equipment
Trade and other receivables
Tax asset
Cash and cash equivalents
Trade and other payables
Deferred tax asset/(liability)

Goodwill
Total consideration

Satisﬁed by: cash and attributable costs

contingent consideration

Carrying amount
before business
combination
£m

Fair value
adjustment
£m

Amount
recognised at
acquisition date
£m

0.5
1.8
42.6
1.2
24.0
(81.9)
1.1
(10.7)

44.2
–
–
–
–
–
(12.4)
31.8

44.7
1.8
42.6
1.2
24.0
(81.9)
(11.3)
21.1
45.9
67.0

23.4
43.6
67.0

The purchase price of each asset component of the acquisition represents its provisional fair value, based on management’s best estimates.

The acquired business contributed revenue of £59.5m and net proﬁt of £4.6m to the Group for the period from acquisition to 30 September 2009.

Other
During the year, the Group concluded a number of smaller acquisitions, namely:

• 21 October 2008, 100% of Airtrack Services Limited;
• 2 February 2009, the net assets of Med Hotels Limited and its subsidiaries; and
• 1 March 2009, the lease rights and customer base of 36 Voyages Wasteels shops.

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86

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

16. Subsidiaries and acquisitions continued
Details of the net assets acquired are set out in the table below:

Net assets acquired
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables

Goodwill
Negative goodwill
Total consideration

Satisﬁed by: cash and attributable costs

contingent consideration
recovery of receivable, previously written off

Carrying amount
before business
combination
£m

Fair value
adjustment
£m

Amount
recognised at
acquisition date
£m

1.0
0.1
19.1
0.3
(18.5)
2.0

6.2
–
–
–
–
6.2

7.2
0.1
19.1
0.3
(18.5)
8.2
1.7
(3.0)
6.9

5.0
0.6
1.3
6.9

The purchase price of each asset component of the acquisition represents its provisional fair value, based on management’s best estimates.

The acquired businesses contributed revenue of £6.4m and net loss of £0.2m to the Group for the period from acquisition to 30 September 2009.

Lufthansa payment
During the year, the Group paid £71.8m for Lufthansa AG’s 24.9% holding of Condor. As prior to acquiring Lufthansa AG’s share, Condor was 100%
consolidated by the Group, this payment is in effect settlement of deferred consideration.

India
Due to a rights issue by Thomas Cook India in January 2009 the Group’s share in the company increased from 74.9% to 77.63%.

The rights issue has had the following impact on the balance sheet:

Goodwill
Minority Interest

Satisﬁed by: Cash received from minority shareholders

Pro forma revenue and net proﬁt
If all of the acquisitions had occurred on 1 October 2008, for the year ended 30 September 2009 they would have contributed £154.1m to
consolidated revenue and a loss of £0.7m to consolidated net proﬁt, before accounting for £4.9m of amortisation of business combination
intangibles. Pro forma revenue and net proﬁt are based on available management information.

Net cash outﬂow from acquisitions

Net cash outﬂow from acquisitions
Cash consideration for shares (including acquisition costs)
Cash and cash equivalents net of overdraft acquired
Total consideration

Gold Medal
£m

(23.4)
24.0
0.6

Other
£m

(5.0)
0.3
(4.7)

Lufthansa
£m

(71.8)
–
(71.8)

India
£m

4.7
–
4.7

£m

0.4
(5.1)
(4.7)

(4.7)

Total
£m

(95.5)
24.3
(71.2)

Changes to the prior period acquisitions
During the year the fair value adjustments related to the Jet Tours and TriWest Travel Holdings acquisitions were ﬁnalised. In accordance with IFRS 3, the
fair value adjustments have been recognised from the date of acquisition and the comparative ﬁgures have been restated.

Thomas Cook Group plc
Annual Report & Accounts 2009

87

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Jet Tours
The restatement has had the following impact on the Group balance sheet as at the date of acquisition (4 August 2008) and as at 30 September 2008:

Balance sheet
Intangible assets

Goodwill
Other intangible assets

Property, plant and equipment
Trade and other receivables – current
Trade and other payables – current
Short-term provisions
Long-term provisions
Deferred tax asset

Income statement – for the eleven months ended 30 September 2008
Depreciation and amortisation
Tax

At the date
of acquisition
£m

As at
30 September
2008
£m

(15.9)
22.0
(0.5)
(1.5)
(0.3)
(1.1)
(1.8)
(0.9)
–

(16.1)
21.1
(0.5)
(1.5)
(0.3)
(1.1)
(1.8)
(0.6)
(0.8)

(1.1)
0.3
(0.8)

TriWest Travel Holdings
The restatement has had the following impact on the Group balance sheet as at the date of acquisition (1 August 2008) and as at 30 September 2008:

Balance sheet
Intangible assets

Goodwill
Other intangible assets

Trade and other payables – non-current
Deferred tax liability

17. Inventories

Goods held for resale
Raw materials and supplies

At the date
of acquisition
£m

As at
30 September
2008
£m

(3.9)
4.5
0.8
(1.4)
–

2009
£m

16.0
11.0
27.0

(4.2)
4.9
0.8
(1.5)
–

2008
£m

19.5
4.7
24.2

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88

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

18. Trade and other receivables

Non-current assets
Deposits and prepayments
Loans
Securities
Trade receivables
Amount owed by associates, participations and joint ventures
Other receivables

Current assets
Trade receivables
Amounts owed by associates and joint ventures
Amounts owed by other related parties
Deposits and prepayments
Loans
Securities
Other taxes
Other receivables

2009
£m

89.1
11.2
4.1
0.1
–
9.3
113.8

394.3
6.4
1.3
401.2
4.7
–
38.5
85.2
931.6

2008
£m

87.2
10.1
3.8
0.1
2.1
23.1
126.4

323.5
10.4
11.7
349.5
19.9
129.2
40.2
131.6
1,016.0

The average credit period taken on invoicing of leisure travel services is 14 days (2008: 11 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 credit worthiness 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 1 to 24 months in advance. The Group’s current policy is that deposits and prepayments will
normally only be made for periods of up to twelve 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 £65.0m (2008: £63.3m) of deposits on aircraft lease arrangements which are
primarily attributable to the UK Airline.

Securities include money market securities amounting to £4.0m (2008: £3.7m) purchased as collateral against liabilities arising from part-time
retirement contracts at Thomas Cook AG, which are classiﬁed as available for sale ﬁnancial assets.

In the prior period, current asset securities of £129.2m consisted of a managed investment fund established to optimise the utilisation of the
Group’s surplus liquidity. The fund was classiﬁed as held-for-trading investments and consisted of corporate and government bonds. These
securities were disposed of during the current year.

In the prior period, loans included advances of £2.1m to two hotel companies in which the Group had a participating interest. These loans were
interest bearing at rates based on Euribor and were unsecured. The advances were settled in full during the year.

The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there is an
identiﬁed loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash ﬂows. Allowances for doubtful
debts in respect of trade receivable balances are managed in the business units where the debts arise and are based on local management experience.
Factors that are considered include the age of the debt, previous experience with the counterparty and local trading conditions. Trade receivables
arise from individual customers as well as businesses in the travel sector. The Directors do not consider there to be signiﬁcant concentration of
credit risk relating to trade and other receivables.

Movement in allowances for doubtful receivables

At beginning of period
Additional provision
Exchange differences
Acquisitions (restated)
Receivables written off
Unused amounts released
At end of period

2009
£m

49.8
25.9
6.2
–
(13.1)
(7.6)
61.2

2008
£m

51.0
11.8
4.8
3.1
(16.7)
(4.2)
49.8

Thomas Cook Group plc
Annual Report & Accounts 2009

89

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

At the period end, trade and other receivables of £234.7m (2008: £182.0m) were past due but not impaired. The analysis of the age of these
ﬁnancial assets is set out below.

Ageing analysis of overdue trade and other receivables

Less than one month overdue
Between one and three months overdue
Between three and twelve months overdue
More than twelve months overdue

Trade and other receivables are not subject to restrictions on title and no collateral is held as security.

The Directors consider that the carrying amounts of trade and other receivables approximates their fair values.

19. Cash and cash equivalents

Cash at bank and in hand
Term deposits with a maturity of less than three months

2009
£m

102.1
60.1
49.9
22.6
234.7

2009
£m

303.2
247.0
550.2

2008
£m

89.4
33.6
42.8
16.2
182.0

2008
£m

472.3
289.0
761.3

Cash and cash equivalents largely comprise bank balances denominated in sterling, euro and other currencies for the purpose of settling current
liabilities as well as balances arising from agency collection on behalf of the Group’s travel agencies.

Included within the above balances is an amount of £46.2m (2008: £56.4m) 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 £13.6m (2008: £55.0m) of cash held by White
Horse Insurance Ireland Limited, the Group’s captive insurance company, and £0.4m (2008: £15.7m) held in other securities. These balances are
considered to be restricted.

The Directors consider that the carrying amount of these assets approximates to their fair value.

20. Trade and other payables

Current liabilities
Trade payables
Amounts owed to associated undertakings and participations
Amounts owed to other related parties
Social security and other taxes
Accruals and deferred income (restated)
Other payables

Non-current liabilities
Accruals and deferred income
Other payables (restated)

The Directors consider that the carrying amount of trade and other payables approximates to their fair value.

The average credit period taken for trade purchases is 57 days (2008: 45 days).

2009
£m

2008
£m

1,052.1
5.6
2.8
42.2
668.2
133.8
1,904.7

9.9
7.2
17.1

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850.1
3.9
1.5
40.2
769.7
190.6
1,856.0

29.8
6.3
36.1

90

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

21. Borrowings

Short-term borrowings
Unsecured bank loans and other borrowings
Unsecured bank overdrafts

Current portion of long-term borrowings

Long-term borrowings
Bank loans – repayable within one year

– repayable between one and ﬁve years
– repayable after ﬁve years

Less: amounts due for settlement within one year shown under current liabilities
Amount due for settlement after one year

Borrowings by class

Group committed credit facility
Aircraft related bank loans
Other bank borrowings

Current
£m

498.6
55.3
65.2
619.1

2009

Non-current
£m

227.9
37.8
55.2
320.9

2009
£m

401.8
43.2
445.0
174.1
619.1

174.1
305.4
15.5
495.0

(174.1)
320.9

Current
£m

218.1
69.9
68.0
356.0

2008
£m

198.8
13.8
212.6
143.4
356.0

143.4
399.1
17.0
559.5

(143.4)
416.1

2008

Non-current
£m

338.4
43.8
33.9
416.1

In May 2008, the Group entered into a €1.8bn committed credit facility maturing in May 2011. The facility comprises term loan, revolving credit
and bonding facilities. €320m of the revolving credit facilities were originally made available for the Group in respect of the proposed transaction
between Condor and Air Berlin. During the year, the Group entered into an agreement with its lenders to change the designation of this portion of
the facility to enable it to be used to meet the aircraft reﬁnancing needs of the Group. This re-designation became effective on 1 October 2009 and
the facilities were fully available to the Group from this date.

Amounts are repayable under the term loan facility at ﬁxed intervals with a ﬁnal bullet payment at maturity. As at 30 September 2009, the Group
had repaid a total of €75m of term loans.

The Directors consider that the fair value of the Group’s borrowings with a carrying value of £940.0m is £943.9m (2008: carrying value £772.1m;
fair value £770.0m). The fair values quoted were determined on the basis of the interest rates for the corresponding terms to maturity or
repayment as at the period end. For items maturing in less than one year, the Directors feel that the fair value is equal to the carrying amount.

Borrowing facilities
As at 30 September 2009, the Group had undrawn committed debt, guarantee and bonding facilities of £463.2m (2008: £558.7m).

22. Obligations under ﬁnance leases

Amounts payable under ﬁnance leases:
Within one year
Between one and ﬁve years
After ﬁve years

Less: future ﬁnance charges
Present value of lease obligations

Minimum lease payments
2009
£m

2008
£m

246.7
37.1
23.7
307.5
(22.0)
285.5

197.7
229.1
22.6
449.4
(38.5)
410.9

Present value of
minimum lease payments

2009
£m

237.8
33.0
14.7
285.5
–
285.5

2008
£m

182.6
215.1
13.2
410.9
–
410.9

Less: amount due for settlement within 12 months (shown under current liabilities)
Amount due for settlement after 12 months

(237.8)
47.7

(182.6)
228.3

Thomas Cook Group plc
Annual Report & Accounts 2009

The currency analysis of amounts payable under ﬁnance leases is:

Euro
US dollar
Indian rupee

91

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

2009
£m

193.4
92.0
0.1
285.5

2008
£m

302.5
108.4
–
410.9

Finance leases principally relate to aircraft and aircraft spares.

No arrangements have been entered into for contingent rental payments.

The Directors consider that the fair value of the Group’s ﬁnance lease obligations with a carrying value of £285.5m was £294.5m at 30 September 2009
(2008: carrying value £410.9m; fair value £409.1m). The fair values quoted were determined on the basis of the interest rates for the corresponding
terms to repayment as at the period end.

The Group’s obligations under ﬁnance leases are secured by the lessors’ rights over the leased assets.

Sub-lease rentals receivable
During the year, two aircraft (2008: two aircraft) held under ﬁnance leases were sub-let on operating leases for the whole or part of the period.
Details of income receivable under operating sub-leases are provided in note 34.

23. Financial instruments
Carrying values of ﬁnancial assets and liabilities
The carrying values of the Group’s ﬁnancial assets and liabilities as at 30 September 2009 and 30 September 2008 are as set out below.

At 30 September 2009

Non-current asset investments
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Obligations under ﬁnance leases
Derivative ﬁnancial instruments

At 30 September 2008

Non-current asset investments
Trade and other receivables (restated)
Cash and cash equivalents
Trade and other payables
Borrowings
Obligations under ﬁnance leases
Derivative ﬁnancial instruments

Derivative
instruments
in designated
hedging
relationships
£m

–
–
–
–
–
–
(130.1)
(130.1)

Derivative
instruments
in designated
hedging
relationships
£m

–
–
–
–
–
–
68.8
68.8

Held for
trading
£m

–
–
–
–
–
–
(0.9)
(0.9)

Held for
trading
£m

–
128.8
–
–
–
–
7.2
136.0

Loans &
receivables
£m

13.2
590.1
550.2
–
–
–
–
1,153.5

Loans &
receivables
£m

14.6
613.7
761.3
–
–
–
–
1,389.6

Available-
for-sale
£m

Financial
liabilities at
amortised cost
£m

7.1
4.1
–
–
–
–
–
11.2

–
–
–
(1,739.0)
(940.0)
(285.5)
–
(2,964.5)

Available-
for-sale
£m

Financial
liabilities at
amortised cost
£m

F
i
n
a
n
c
i
a
l

S
t
a
t
e
m
e
n
t
s
p
6
1
-
1
2
4

14.8
3.8
–
–
–
–
–
18.6

–
–
–
(1,733.0)
(772.1)
(410.9)
–
(2,916.0)

92

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

23. Financial instruments continued
Derivative ﬁnancial instruments
The fair values of derivative ﬁnancial instruments as at 30 September 2009 were:

At 1 November 2007
Fair values of derivatives at acquisition
Movement in fair value during the period
At 1 October 2008
Movement in fair value during the year
At 30 September 2009

Non-current assets
Current assets
Current liabilities
Non-current liabilities

Interest
rate swaps
£m

(4.1)
–
(1.1)
(5.2)
(15.9)
(21.1)

Currency
contracts
£m

(90.5)
(0.5)
211.2
120.2
(125.4)
(5.2)

Fuel
contracts
£m

54.8
–
(93.8)
(39.0)
(65.8)
(104.8)

2009
£m

4.9
133.9
(251.1)
(18.8)
(131.1)

Total
£m

(39.8)
(0.5)
116.3
76.0
(207.1)
(131.1)

2008
£m

55.6
261.6
(174.3)
(66.9)
76.0

The Group uses derivative instruments to hedge against signiﬁcant future transactions and cash ﬂows denominated in foreign currencies. The
Group enters into a variety of foreign currency forward contracts and options in the management of its exchange rate exposures.

The instruments used are primarily denominated in the currencies of the Group’s principal markets and the currency exposures in those markets,
predominantly euro, US dollar and sterling, and are typically established for periods of twelve to twenty-four months in advance of a season to
which the expected cash exposures pertain.

The Group undertakes hedging transactions to limit the risk of unfavourable changes in the jet fuel prices and to reduce the weighted average cost
of fuel. As at 30 September 2009, the Group had put in place hedging transactions for fuel out to February 2011. The Group uses a combination of
ﬁxed price swap contracts in either crude oil, gas oil and kerosene and net purchased collars in crude oil to hedge against its fuel price risk.

The Group is also subject to risks arising from interest rate movements in connection with the ﬁnancing of aircraft and other assets. Interest rate swaps
and cross currency swaps are designated as cash ﬂow hedges of the interest rate and the euro, US dollar and sterling currency risk on such borrowings.
Interest rate currency swaps are reported within interest rate derivatives. The maturities of interest rate derivatives extend out to May 2014.

The fair values of the Group’s derivative ﬁnancial 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 ﬂow hedges deferred in equity at period end

2009
£m

(130.1)

2008
£m

68.8

During the year, a gain of £24.6m (2008: £177.8m) was transferred from the hedging reserve to the income statement following recognition of the
hedged transactions. The amount included in each line item in the income statement is shown below. In addition, a gain of £21.4m was recognised
in the income statement in respect of the ineffective portion of cash ﬂow hedges (2008: £25.7m loss).

Cost of providing tourism services
Finance costs

2009
£m

24.6
21.4
46.0

2008
£m

177.8
(25.7)
152.1

Thomas Cook Group plc
Annual Report & Accounts 2009

93

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

24. Financial risk
The Group is subject to risks related to changes in interest rates, exchange rates, fuel prices, counterparty credit and liquidity within the framework
of its business operations.

Interest rate risk
The Group is subject to risks arising from interest rate movements in connection with its bank debt, aircraft ﬁnancing and cash investments.
Interest rate swaps and interest rate collars are used to manage these risks and are usually designated as cash ﬂow hedges of the interest rate.

Currency risk
The Group has activities in a large number of countries and is therefore subject to the risk of exchange rate ﬂuctuations. Currency risks arise in
connection with the sourcing of services from destinations outside the source market. In addition, US dollar exposure arises on the procurement
of fuel and operating supplies for aircraft, as well as investments in aircraft.

The Group requires subsidiaries to identify and appropriately hedge all trading exposures in line with established policies.

The Group uses currency forwards, currency swaps and plain vanilla currency options to manage currency risks and these are usually designated
as cash ﬂow hedges of forecast future transactions.

Fuel price risk
Exposure to fuel price risk arises due to ﬂying costs for the Group’s aircraft. Fuel price contracts are entered into to manage the risk of adverse
changes in the price of fuel. The Group’s policy is to hedge up to 80% of the fuel requirement for the ﬂight schedule concerned, with all fuel
exposures hedged between 6 and 18 months prior to consumption. Hedging is implemented with a combination of ﬁxed price contracts (swaps)
and net purchased options, either in crude oil, gas oil or kerosene.

The market risks that the Group is subject to have been identiﬁed as interest rate risk, exchange rate risk and fuel price risk. The impact of
reasonably possible changes in these risk variables on the Group, based on the period end holdings of ﬁnancial instruments have been calculated
and are set out in the tables below. In each case it has been assumed that all other variables remain constant. As explained in note 23, fuel price
risk is hedged through the use of a combination of derivative instruments. For the purpose of illustrating sensitivity, the price of the underlying
commodity in each instrument has been assumed to change by 20%.

Interest rate risk

1% (2008: 1%) increase in interest rates
0.25% (2008: 1%) decrease in interest rates

Exchange rate risk

5% strengthening of euro
5% weakening of euro
5% strengthening of US dollar
5% weakening of US dollar

Fuel price risk

20% increase in fuel price
20% decrease in fuel price

2009

2008

Impact on proﬁt
before tax
£m

Impact on
equity
£m

Impact on proﬁt
before tax
£m

Impact on
equity
£m

(2.2)
0.5

–
–

0.7
(0.7)

–
–

2009

2008

Impact on proﬁt
before tax
£m

Impact on
equity
£m

Impact on proﬁt
before tax
£m

Impact on
equity
£m

8.8
(10.7)
10.0
(9.2)

30.5
(30.2)
63.6
(57.3)

(1.4)
(2.6)
(7.4)
2.3

2009

2008

Impact on proﬁt
before tax
£m

Impact on
equity
£m

Impact on proﬁt
before tax
£m

3.6
(3.5)

62.4
(63.0)

–
–

37.2
(28.8)
75.2
(67.7)

Impact on
equity
£m

150.0
(138.1)

F
i
n
a
n
c
i
a
l

S
t
a
t
e
m
e
n
t
s
p
6
1
-
1
2
4

Liquidity risk
The liquidity position of the Group is signiﬁcantly inﬂuenced by the booking and payment pattern of customers. As a result, liquidity is at its lowest
in the winter months and at its highest in the summer months. The Group manages the seasonal nature of its liquidity by making use of its bank
revolving credit facility.

Short-term liquidity is primarily invested in bank deposits and, to a lesser extent, in securities having at least an investment grade rating.

Financial liabilities are analysed below based on the time between the period end and their contractual maturity. The amounts shown are
estimates of the undiscounted future cash ﬂows and will differ from both carrying value and fair value.

At 30 September 2009

Trade and other payables
Borrowings
Obligations under ﬁnance leases
Derivative ﬁnancial instruments – payable

– receivable

Amount due

in less than
3 months
£m

between
3 and 12 months
£m

between
1 and 5 years
£m

in more than
5 years
£m

1,628.5
423.9
65.6
1,015.4
(964.1)
2,169.3

100.7
200.3
181.1
1,552.0
(1,397.6)
636.5

7.7
324.1
37.1
69.6
(62.3)
376.2

2.2
18.0
23.7
–
–
43.9

Total
£m

1,739.1
966.3
307.5
2,637.0
(2,424.0)
3,225.9

94

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

24. Financial risk continued

At 30 September 2008

Trade and other payables
Borrowings
Obligations under ﬁnance leases
Derivative ﬁnancial instruments – payable

– receivable

Amount due

in less than
3 months
£m

between
3 and 12 months
£m

between
1 and 5 years
£m

in more than
5 years
£m

1,641.4
50.4
69.7
366.1
(222.2)
1,905.4

80.8
345.6
128.0
442.9
(386.9)
610.4

8.8
441.8
229.1
176.3
(137.0)
719.0

–
18.1
22.6
–
–
40.7

Total
£m

1,731.0
855.9
449.4
985.3
(746.1)
3,275.5

Estimated undiscounted future cash ﬂows are disclosed above in respect of derivatives with a negative fair value at the period end. These cash
ﬂows include amounts in respect of fuel derivatives which are based on the period end fair values. Estimated cash ﬂows relating to fuel option
derivatives have all been reported in the ‘amount due in less than three months’ category. Trade and other payables includes non-ﬁnancial
liabilities of £186.8m (2008: £161.6m) which have not been analysed above.

Counterparty credit risk
The Group is exposed to credit risk in relation to deposits, derivatives with a positive fair value and trade and other receivables. The maximum
exposure in respect of each of these items at the balance sheet date is their carrying value. The Group assesses its counterparty exposure in relation
to the investment of surplus cash, fuel contracts, foreign exchange and interest rate hedging contracts and undrawn credit facilities. The Group uses
published credit ratings, credit default swap prices and share price performance in the previous 30 day period to assess counterparty strength and
therefore to deﬁne the credit limit for each counterparty. The Group’s approach to credit risk in respect of trade and other receivables is explained
in Note 18.

25. Insurance
Management of insurance risk

Incidental to its main business, the Group, through its subsidiary White Horse Insurance Ireland Limited, issues contracts that transfer signiﬁcant
insurance risk and that are classiﬁed as insurance contracts. As a general guideline, the Group deﬁnes as signiﬁcant insurance risk the possibility
of having to compensate the policyholder if a speciﬁed 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 speciﬁc 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 Continental Europe.

When estimating the cost of claims outstanding at the period 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 ﬁnancial statements.

The Group operates a reinsurance policy approved by the White Horse Insurance Ireland Ltd board which ensures that reinsurers have a ﬁnancial
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.

Income and expenses arising directly from insurance contracts

Revenue
Net earned premium income
Deposit Interest
Other Income

Expenses
Claims incurred
Other operating expenses

2009
£m

7.9
0.5
0.4
8.8

11.4
2.3
13.7

2008
£m

7.8
2.5
–
10.3

14.4
2.0
16.4

Thomas Cook Group plc
Annual Report & Accounts 2009

95

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Assets and liabilities arising directly from insurance contracts

Assets
Receivables arising out of direct insurance operations
Prepayments

Liabilities
Deferred income arising from unearned premiums
Claims accruals
Insurance premium tax payable
Other creditors
Accruals and deferred income

Reconciliation of movement in insurance liabilities

At 1 October 2008
Net earned premium income
Premiums written
Claims incurred
Claims paid
At 30 September 2009

2009
£m

2.3
0.2
2.5

2.2
6.8
0.4
0.1
0.8
10.3

Deferred income
arising from
unearned
premiums
£m

1.7
(7.9)
8.4
–
–
2.2

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 periods:

At 1 November 2007
IFRS 5 transfer
(Charge)/credit to income
Charge/(credit) to equity
Acquisitions (restated)
Exchange differences
At 30 September 2008 (restated)
(Charge)/credit to income
Charge to equity
Acquisitions
Exchange differences
At 30 September 2009

Aircraft
ﬁnance
leases
£m

39.7
–
(12.1)
–
–
9.9
37.5
(12.3)
–
–
0.6
25.8

Retirement
beneﬁt
obligations
£m

Fair value
of ﬁnancial
instruments
£m

Other
temporary
differences
£m

27.9
–
(4.6)
4.2
–
3.4
30.9
0.3
50.5
–
(0.5)
81.2

2.0
–
(0.3)
(25.4)
–
0.8
(22.9)
(11.8)
69.8
–
0.5
35.6

(51.2)
1.6
41.3
–
(13.3)
(7.9)
(29.5)
7.6
–
(11.3)
(4.5)
(37.7)

Tax
losses
£m

192.3
–
18.0
–
–
2.4
212.7
(2.8)
–
–
5.5
215.4

2008
£m

1.8
0.1
1.9

1.7
10.4
0.3
0.4
0.7
13.5

Claims
accruals
£m

10.4
–
–
11.4
(15.0)
6.8

Total
£m

210.7
1.6
42.3
(21.2)
(13.3)
8.6
228.7
(19.0)
120.3
(11.3)
1.6
320.3

F
i
n
a
n
c
i
a
l

S
t
a
t
e
m
e
n
t
s
p
6
1
-
1
2
4

Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for ﬁnancial reporting purposes:

Deferred tax liabilities
Deferred tax assets

2009
£m

(111.5)
431.8
320.3

2008
£m

(99.3)
328.0
228.7

96

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

26. Deferred tax continued
At the balance sheet date, the Group had unused tax losses of £1,441.0m (2008: £1,327.9m) available for offset against future proﬁts. Deferred tax assets
have only been recognised where there is sufﬁcient probability that there will be future taxable proﬁts against which the assets may be recovered. The
increase in recognised tax losses in the period relates to non-recurring exceptional costs. The UK and German businesses generated taxable proﬁts before
exceptional items which support the recognition of losses in these territories. No deferred tax asset has been recognised in respect of tax losses
of £679.9m (2008: £531.0m) due to the unpredictability of future proﬁt streams.

Other temporary differences on which deferred tax has been provided, primarily relate to the difference in book to tax value on qualifying tax assets,
provisions for which tax relief was not originally available and fair value accounting on properties acquired as part of the merger. In addition, the Group
had unused other short term timing differences in respect of which no deferred tax asset has been recognised amounting to £59.0m (2008: £34.0m), also
due to the unpredictability of future proﬁt streams.

Deferred tax liabilities were offset against the corresponding deferred tax assets where both items fell within the responsibility of the same tax authority.
The deferred tax assets and liabilities at the period end, without taking into consideration the offsetting balances within the same jurisdiction are
£445.4m and £125.1 respectively. Finance Act 2009 introduced new rules in relation to the UK taxation of dividend income. Under the new rules, no
UK tax liability is expected to arise on the dividend income from undistributed proﬁts of subsidiaries. The new rules were effective from 1 July 2009.
As a result, no deferred tax liability is expected on the undistributed proﬁts of subsidiaries at the balance sheet date. In the prior period, the aggregate
amount of temporary differences associated with undistributed earnings of subsidiaries for which no deferred tax liabilities was recognised was
£295.2m. No liability was recognised in respect of these differences because the Group was in a position to control the timing of the reversal of
the temporary differences and it was probable that such differences would not reverse in the foreseeable future.

27. Provisions

At 1 October 2008 (restated)
Additional provisions in year
Unused amounts released in year
Unwinding of discount
Utilisation of provisions
Exchange differences
At 30 September 2009

Included in current liabilities
Included in non-current liabilities
At 30 September 2009

Included in current liabilities
Included in non-current liabilities
At 30 September 2008

Aircraft
maintenance
provisions
£m

Other
provisions
£m

164.1
66.9
(3.9)
–
(40.4)
22.4
209.1

66.1
143.0
209.1

65.2
98.9
164.1

255.0
129.8
(19.2)
7.6
(105.3)
23.4
291.3

140.0
151.3
291.3

119.8
135.2
255.0

Total
£m

419.1
196.7
(23.1)
7.6
(145.7)
45.8
500.4

206.1
294.3
500.4

185.0
234.1
419.1

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 ten years (see note 2).

Other provisions relate to provisions for off-market lease provisions, onerous contracts, contingent consideration 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 off-market lease provisions that are expected to be utilised over the term of those
contracts which extend up to ten years from the balance sheet date and contingent consideration arising on acquisitions.

28. Non-current assets classiﬁed as held for sale
In March 2009 the Group gained legal title to a hotel property in Mexico as settlement of an outstanding loan for £9.1m. This property is being
actively marketed for sale and is expected to be disposed within the next ﬁnancial year and has therefore been classiﬁed as held for sale. There are
no items recognised as held for sale at the prior period end.

Thomas Cook Group plc
Annual Report & Accounts 2009

97

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

29. Consolidated statement of changes in equity

At 1 November 2007
Total recognised income
and expense for the period
Equity credit in respect of
share-based payments
Issue of equity shares
net of expenses
Acquisition of minority interests
Exchange difference on
minority interest
Share buy back
Purchase of own shares
Disposal of own shares
Dividends paid
Net change directly in equity
Total movements
At 30 September 2008 (restated)
Total recognised income
and expense for the year
Equity credit in respect of
share-based payments
Acquisition of minority interests
Exchange difference on
minority interest
Share buy back
Purchase of own shares
Dividends paid
Net change directly in equity
Total movements
At 30 September 2009

Share
capital
£m

66.1

Share
premium
£m

6.8

–

–

0.1
–

–
(6.4)
–
–
–
(6.3)
(6.3)
59.8

–

–
–

–
(2.1)
–
–
(2.1)
(2.1)
57.7

–

–

2.1
–

–
–
–
–
–
2.1
2.1
8.9

–

–
–

–
–
–
–
–
–
8.9

Capital
redemption
reserve
£m

–

–

–

–
–

–
6.4
–
–
–
6.4
6.4
6.4

–

–
–

–
2.1
–
–
2.1
2.1
8.5

Hedging and
translation
reserves
£m

Merger
reserve
£m

Retained
earnings/
(deﬁcit)
£m

Attributable
to equity
holders of
the parent
£m

Minority
interest
£m

Total
£m

15.9

1,984.2

44.2

2,112.3

8.3

2,120.6

198.9

–

–
–

–
–
–
–
–
–
198.9
214.8

(78.7)

–
–

–
–
–
–
–
(78.7)
136.1

–

–

–
–

–
–
–
–
–
–
–
1,984.2

–

–
–

–
–
–
–
–
–
1,984.2

31.8

230.7

(0.3)

230.4

3.1

–
–

–
(266.3)
–
–
(78.2)
(341.4)
(309.6)
(265.4)

3.1

2.2
–

–
(266.3)
(8.3)
0.2
(78.2)
(347.3)
(116.6)
1,995.7

(103.1)

(181.8)

8.3
–

–
(26.4)
–
(87.4)
(105.5)
(208.6)
(474.0)

8.3
–

–
(26.4)
(0.1)
(87.4)
(105.6)
(287.4)
1,708.3

–

–
6.2

0.4
–
–
–
(1.9)
4.7
4.4
12.7

2.5

–
5.1

(1.4)
–
–
–
3.7
6.2
18.9

3.1

2.2
6.2

0.4
(266.3)
(8.3)
0.2
(80.1)
(342.6)
(112.2)
2,008.4

(179.3)

8.3
5.1

(1.4)
(26.4)
(0.1)
(87.4)
(101.9)
(281.2)
1,727.2

Own
shares
£m

(4.9)

–

–

–
–

–
–
(8.3)
0.2
–
(8.1)
(8.1)
(13.0)

–

–
–

–
–
(0.1)
–
(0.1)
(0.1)
(13.1)

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.

The capital redemption reserve was created as a consequence of the share buy back. Further details of the share buy back are included in notes 30
and 38.

Details of changes in hedging and translation reserves are set out in note 31.

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Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

30. Called-up share capital

Authorised (as at 30 September 2009)
50,000 deferred shares of £1 each (2008: 50,000)
2,000,000,000 ordinary shares of €0.10 each (2008: 2,000,000,000)
Allotted, called-up and fully paid
858,292,947 ordinary shares of €0.10 each (2008: 879,541,536)
Allotted, called-up and partly paid
50,000 deferred shares of £1 each, 25p paid (2008: 50,000)

2009
£m

0.1
135.2

57.7

–

2008
£m

0.1
135.2

59.8

–

Contingent rights to the allotment of shares
As at 30 September 2009 options to subscribe for ordinary shares were outstanding with respect to the Thomas Cook Group plc 2007 Performance
Share Plan, the Thomas Cook Group plc 2008 Co-Investment Plan and the Thomas Cook Group plc 2008 Save As You Earn Scheme. For further
details refer to note 36. On exercise, the awards of shares under the plan will be satisﬁed by either purchases in the market of existing shares
or, subject to institutional guidelines, issuing new shares.

Own shares held in trust
Shares of the Company are held under trust by Halifax EES Trustees International Limited and Equinity Share Plan Trustees Limited in connection
with the Thomas Cook Group plc 2007 Performance Share Plan and Buy As You Earn Scheme respectively. 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 30 September 2009 by Halifax EES Trustees International Limited and Equiniti Share Plan Trustees Limited was
5,090,822 (2008: 5,049,795) and 37,963 (2008: 4,506) respectively. The cumulative cost of acquisition of these shares was £13.2m (2008: £13.1m)
and the market value at 30 September 2009 was £11.9m (2008: £11.2m). Shares held by the trust have been excluded from the weighted average
number of shares used in the calculation of earnings per share.

Share buy back
During the year, the Group had purchased a total of 12,934,387 shares for cancellation, at a total cost of £26.4 million, excluding commission and
other related costs.

Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for
shareholders and beneﬁts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders,
sell assets to reduce debt or issue new shares.

The capital structure of the Group consists of debt, cash and cash equivalents (as shown in note 33) together with equity attributable to equity holders of
the parent (as shown in the Group balance sheet). At the balance sheet date the Group had total capital of £2,383.6m (2008: £2,288.2m, restated).

31. Hedging and translation reserves

At 1 November 2007
Exchange differences on translation of overseas operations
Valuation gains/(losses) taken to equity
Transfer to proﬁt or loss
Tax relating to valuation losses and transfers
At 30 September 2008
Exchange differences on translation of overseas operations
Valuation losses taken to equity
Transfer to proﬁt or loss
Tax relating to valuation losses and transfers
At 30 September 2009

Hedging
reserve
£m

(24.6)
–
281.4
(177.8)
(25.4)
53.6
–
(213.7)
(24.6)
69.8
(114.9)

Available-for-sale
investments
£m

Translation
reserve
£m

(0.2)
–
(0.9)
–
–
(1.1)
–
(1.1)
–
–
(2.2)

40.7
121.6
–
–
–
162.3
86.4
–
4.5
–
253.2

Total
£m

15.9
121.6
280.5
(177.8)
(25.4)
214.8
86.4
(214.8)
(20.1)
69.8
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Thomas Cook Group plc
Annual Report & Accounts 2009

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Directors’ Report – Corporate Governance
Financial Statements

32. Notes to the cash ﬂow statement

Proﬁt before tax
Adjustments for:
Finance income
Finance costs
Net investment income
Loss on disposal of associate
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
(Proﬁt)/loss on disposal of businesses and property, plant and equipment
Loss on disposal of intangible assets
Share based payments
Other non-cash items
(Decrease)/increase in provisions
Income received from other non-current investments
Additional pension contributions
Interest received
Operating cash ﬂows before movements in working capital
Increase in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Cash generated by operations
Income taxes paid
Net cash from operating activities

2009
£m

56.1

(51.2)
154.7
(1.4)
2.2
3.8
145.2
–
22.4
18.0
34.8
(0.4)
4.3
8.3
(19.6)
(17.6)
1.4
(17.4)
15.5
359.1
(1.1)
110.0
(263.3)
204.7
(26.6)
178.1

2008
£m

48.4

(68.4)
153.6
(0.5)
–
1.6
110.7
1.3
17.3
5.5
49.1
1.7
–
3.1
(32.7)
0.5
0.4
(17.4)
27.2
301.4
(4.7)
(121.6)
245.8
420.9
(63.7)
357.2

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.

33. Net debt

Liquidity
Cash and cash equivalents
Trading securities

Current debt
Bank overdrafts
Short term borrowings
Current portion of long-term borrowing
Obligations under ﬁnance leases

Non-current debt
Long-term borrowings
Obligations under ﬁnance leases

Total debt
Net debt

At
1 October
2008
£m

761.3
129.2
890.5

(13.8)
(198.8)
(143.4)
(182.6)
(538.6)

(416.1)
(228.3)
(644.4)
(1,183.0)
(292.5)

Cash
ﬂow
£m

(284.2)
(125.3)
(409.5)

(26.2)
(37.7)
17.1
174.4
127.6

(32.4)
–
(32.4)
95.2
(314.3)

Other
non-cash
changes
£m

Exchange
movements
£m

At
30 September
2009
£m

–
(10.6)
(10.6)

–
(129.5)
(36.0)
(205.0)
(370.5)

165.5
205.0
370.5
–
(10.6)

73.1
6.7
79.8

(3.2)
(35.8)
(11.8)
(24.6)
(75.4)

(37.9)
(24.4)
(62.3)
(137.7)
(57.9)

550.2
–
550.2

(43.2)
(401.8)
(174.1)
(237.8)
(856.9)

(320.9)
(47.7)
(368.6)
(1,225.5)
(675.3)

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Annual Report & Accounts 2009

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 ﬁve years
After ﬁve years

Property
and other
2009
£m

Aircraft and
aircraft spares
2009
£m

111.8
290.4
153.4
555.6

128.4
267.2
10.7
406.3

Total
2009
£m

240.2
557.6
164.1
961.9

Property
and other
2008
£m

98.1
276.2
185.0
559.3

Aircraft and
aircraft spares
2008
£m

117.3
302.3
31.5
451.1

Total
2008
£m

215.4
578.5
216.5
1,010.4

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 5 years and aircraft leases for an average term of 10 years. The prior year
‘Property and other’ commitment has been restated to include the gross amount of certain property leases over which off market lease provisions
are held.

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 ﬁve years
After ﬁve years

Rental income earned during the period was:

Property
2009
£m

Aircraft
2009
£m

1.8
6.4
2.4
10.6

2.2

1.7
–
–
1.7

5.4

Total
2009
£m

3.5
6.4
2.4
12.3

7.6

Property
2008
£m

0.3
1.2
–
1.5

1.6

Aircraft
2008
£m

3.8
1.5
–
5.3

7.2

Total
2008
£m

4.1
2.7
–
6.8

8.8

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 7.7 years for property (2008: 2.6 years) and 7 months for
aircraft (2008: 12 months).

At 30 September 2009 one aircraft (2008: two) sub-let is held by the Group on a ﬁnance lease. This aircraft had an aggregate cost and a carrying
value of £15.5m (2008: £20.3m). There were no impairment provisions relating to these aircraft and the depreciation charge for the year was £nil
(2008: £0.1).

35. Contingent liabilities

Contingent liabilities

2009
£m

136.1

2008
£m

116.0

Contingent liabilities primarily comprise guarantees, letters of credit and other contingent liabilities, including contingent liabilities related to structured
aircraft leases all of which arise in the ordinary course of business. The amounts disclosed above represents the Group’s contractual exposure.

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. In the United Kingdom there is a fund mechanism whereby travel companies are
required to collect and remit a small charge for each protected customer upon booking. Customer rights in relation to Thomas Cook Group in
Germany, Belgium and Austria are guaranteed via an insolvency insurance system, in 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.

Thomas Cook Group plc
Annual Report & Accounts 2009

101

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Directors’ Report – Corporate Governance
Financial Statements

36. Share-based payments
The Company operates ﬁve equity-settled share-based payment schemes, as outlined below. The total expense recognised during the year in respect of
equity-settled share-based payment transactions was £8.3m (2008: £3.1m).

The Thomas Cook Group plc 2007 Performance Share Plan (PSP) and the HM Revenue & Customs Approved Company Share Option Sub-Plan (CSOSP)
Executive Directors and senior executives of the Company and its subsidiaries are granted options to acquire, or contingent share awards of, the
ordinary shares of the Company. The awards will vest if performance targets for adjusted 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 ten years after the date
of grant.

The Thomas Cook Group plc 2008 Co-Investment Plan (COIP)
Executive Directors and senior executives may be required to purchase the Company’s shares using a proportion of their net bonus (Lodged Shares).
For each Lodged Share purchased participants may receive up to 3.5 Matching Shares if performance targets for EPS and return on invested capital
(ROIC) are met during the three years following the date of grant. Subject to vesting conditions, the options or contingent share awards are
exercisable up to ten years after the date of grant.

The Thomas Cook Group plc 2008 Save As You Earn Scheme (SAYE)
Eligible employees were offered options to purchase shares in the Company by entering into a three or four year savings contract. The option
exercise price was set at a 20% discount to the market price at the offer date. Options are exercisable during the six months after the end of the
savings contract.

The Thomas Cook Group plc 2008 HM Revenue & Customs Approved Buy As You Earn Scheme (BAYE)
Eligible UK tax paying employees are offered the opportunity to purchase shares in the Company by deduction from their monthly gross pay. For
every ten shares an employee buys in this way, the Company will purchase one matching share on their behalf. At 30 September 2009, 37,963
matching shares had been purchased (2008: 4,506).

The movements in options and awards during the year and prior period were:

Outstanding at beginning of year
Granted
Exercised
Cancelled
Forfeited
Outstanding at end of year
Exercisable at end of year

PSP

COIP

SAYE

2009

6,574,186
9,810,081
–
–
(1,358,491)
15,025,776
–

985,046
3,944,088
–
–
(298,283)
4,630,851
–

3,327,150
100,562
(27)
(218,224)
(54,349)
3,155,112
–

Exercise price (£)
Average remaining contractual life (years)

nil
8.9

nil
9.3

The weighted average share price at the date of exercise for the options exercised during the year was £2.31.

Outstanding at beginning of period
Granted
Exercised
Forfeited
Outstanding at end of period
Exercisable at end of period

Exercise price (£)
Average remaining contractual life (years)

PSP

2,869,648
4,304,331
(83,333)
(516,460)
6,574,186
–

nil
9.2

The weighted average share price at the date of exercise for the options exercised during the prior period was £2.40.

2.14
2.3

2008
COIP

–
985,046
–
–
985,046
–

nil
9.8

CSOSP

–
926,889
–
–
(47,871)
879,018
–

1.91
9.3

SAYE

–
3,349,444
–
(22,294)
3,327,150
–

2.15
3.3

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Annual Report & Accounts 2009

Notes to the ﬁnancial statements continued

36. Share-based payments continued
The fair value of options and awards subject to EPS and ROIC performance targets was determined by the use of Black-Scholes models and the fair
value of options subject to TSR performance targets was determined by the use of Monte Carlo simulations. For options and awards granted during
the period the key inputs to the models were:

Weighted average share price at measurement date
Weighted average exercise price
Expected volatility
Expected volatility of comparator group
Expected correlation with comparator group
Weighted average option life (years)
Weighted average risk-free rate
Expected dividend yield
Weighted average fair value at date of grant

Share price at measurement date
Exercise price
Expected volatility
Expected volatility of comparator group
Expected correlation with comparator group
Option life (years)
Risk free rate
Expected dividend yield
Weighted average fair value at date of grant

CSOSP

£1.91
£1.91
44%
n/a
n/a
3
2.0%
7%
£1.28

PSP

£1.95
nil
44%
24%-83%
34%
3
2.0%
7%
£1.31

PSP

£2.80
nil
34%
16%-55%
25%
3
3.9%
5%
£1.91

2009
COIP

£1.96
nil
44%
n/a
n/a
3
2.0%
7%
£1.60

2008
COIP

£2.37
nil
34%
n/a
n/a
3
5.2%
5%
£2.04

SAYE

£2.12
£1.88
44%
n/a
n/a
4.3
4.1%
7%
£0.54

SAYE

£2.41
£2.15
34%
n/a
n/a
3.3
5.5%
5%
£0.59

Expected volatility has been based on the historic volatility of the Company’s shares and the shares of other companies in the same or related sectors.

37. Retirement beneﬁt schemes
Pension schemes for the employees of the Thomas Cook Group consist of deﬁned contribution plans and deﬁned beneﬁt plans, with the deﬁned
beneﬁt plans being both funded and unfunded. The obligations arising from deﬁned contribution plans are satisﬁed by contribution payments to
both private and state-run insurance providers.

Unfunded deﬁned beneﬁt pension obligations
Unfunded deﬁned beneﬁt 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 £179.0m (2008: £138.9m) 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 ﬂight crews were additionally entitled to a transitional provision for the period between the termination of their in-
ﬂight employment and the time they became eligible for a state-run or company pension. In both cases, the beneﬁt commitment depended on the
ﬁnal salaries of the employees concerned prior to the termination of their in-ﬂight employment (ﬁnal 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 classiﬁed as unfunded deﬁned beneﬁt obligations and classiﬁed as such in these
ﬁnancial statements.

The Condor Group deﬁned beneﬁt plans have been closed to new entrants (with the exception of pilots) since 2004.

There are additional unfunded deﬁned beneﬁt 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 beneﬁts are accounted for as part of liabilities for retirement beneﬁt obligations in the balance sheet.

Thomas Cook Group plc
Annual Report & Accounts 2009

103

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

The following weighted average actuarial assumptions were made for the purpose of determining the unfunded deﬁned beneﬁt obligations:

Discount rate for scheme liabilities
Expected rate of salary increases
Future pension increases

2009
%

5.68%
1.93%
1.66%

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 30 September 2009. These assume a life expectancy for members currently aged 60 of 22.4 years
for men and 27.0 years for women.

Amounts recognised in income statement in respect of these deﬁned beneﬁt schemes are as follows:

Current service cost
Past service cost
Curtailment gain
Interest cost on scheme liabilities
Total included in income statement

2009
£m

7.1
–
(0.9)
11.2
17.4

2008
%

6.16%
2.98%
2.34%

2008
£m

7.3
(0.3)
(1.3)
8.5
14.2

Service costs have been included in personnel expenses in the income statement and the unwinding of the discount rate of the expected
retirement beneﬁt obligations has been included in ﬁnance costs. Actuarial gains and losses have been reported in the statement of recognised
income and expense.

Changes in the present value of unfunded pension obligations were as follows:

At beginning of period
Current service cost
Past service cost
Interest cost
Beneﬁts paid
Settlements
Curtailments
Actuarial losses/(gains)
Acquisitions
Transfers
Exchange difference
At end of period

2009
£m

163.8
7.1
–
11.2
(5.1)
(5.2)
(0.9)
13.0
–
0.3
24.7
208.9

2008
£m

162.3
7.3
(0.3)
8.5
(3.5)
(7.8)
(1.3)
(23.6)
0.7
–
21.5
163.8

Funded deﬁned beneﬁt pension obligations
The pension entitlements of employees of Thomas Cook UK and employees in Norway are provided through funded deﬁned beneﬁt 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 qualiﬁed actuaries in each country. The fair value of the pension assets
in each scheme at the period end is compared with the present value of the retirement beneﬁt obligations and the net difference reported as a pension
asset or retirement beneﬁt 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 deﬁned beneﬁt pension obligations have been determined on the basis of assumptions relevant to each country. The weighted averages of
these were:

Discount rate for scheme liabilities
Inﬂation rate
Expected return on scheme assets
Expected rate of salary increases
Future pension increases

2009
%

5.49%
3.48%
6.53%
4.72%
3.48%

2008
%

6.40%
3.40%
6.98%
4.33%
3.40%

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Notes to the ﬁnancial statements continued

37. Retirement beneﬁt schemes continued
The Thomas Cook UK Pension Plan accounts for approximately 98% (2008: 90%) of the total funded deﬁned beneﬁt obligation and the mortality
assumptions used in arriving at the present value of those obligations at 30 September 2009 are based on a life expectancy for members currently
aged 60 of 26.8 years for men and 27.9 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 deﬁned contribution scheme.

Amounts recognised in income in respect of these deﬁned beneﬁt schemes are as follows:

Current service cost
Gain on settlements
Curtailment gain
Expected return on scheme assets
Interest cost on scheme liabilities
Total included in income statement

2009
£m

14.1
(0.4)
(2.0)
(38.4)
38.9
12.2

2008
£m

14.3
–
–
(41.9)
33.4
5.8

Service costs have been included in personnel expenses in the income statement and the unwinding of the discount rate of the expected
retirement beneﬁt obligations has been included in ﬁnance costs. The expected return on scheme assets has been included in ﬁnance income.

The actual return on scheme assets was £24.8m (2008: £(75.1)m).

Actuarial gains and losses have been reported in the statement of recognised income and expense.

Changes in the present value of funded deﬁned beneﬁt obligations were as follows:

At beginning of period
Current service cost
Settlements
Interest cost
Beneﬁts paid
Acquisitions
Curtailments
Expenses paid
Contributions paid by plan participants
Actuarial losses/(gains)
Exchange difference
At end of period

Changes in the fair value of scheme assets were as follows:

At beginning of period
Expected return on scheme assets
Contributions from the sponsoring companies
Contributions paid by plan participants
Actuarial losses
Beneﬁts paid
Settlements
Expenses paid
Acquisitions
Exchange difference
At end of period

2009
£m

607.4
14.1
(5.9)
38.9
(17.8)
–
(2.0)
(2.0)
3.8
143.5
4.1
784.1

2009
£m

581.7
38.4
33.4
3.8
(13.6)
(17.8)
(5.5)
(2.0)
–
3.5
621.9

2008
£m

648.1
14.3
–
33.4
(14.5)
1.2
–
–
3.6
(77.1)
(1.6)
607.4

2008
£m

635.2
41.9
33.0
3.6
(117.0)
(14.5)
–
–
0.7
(1.2)
581.7

Thomas Cook Group plc
Annual Report & Accounts 2009

105

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Following the 2008 actuarial valuation of the Thomas Cook UK pension plan, a 6 yearRecovery Plan has been agreed with the pension trustees to
fund the actuarial deﬁcit. Thomas Cook UK will make payments totalling £16m during the year ended 30 September 2010, and quarterly payments
during the four years thereafter totalling £89.56m, with the last payment from the company being made in June 2014. The Group is expected to
make aggregate contributions to its funded deﬁned beneﬁt schemes of £30.8m during the year commencing 1 October 2009.

The fair value of scheme assets at the balance sheet date is analysed as follows:

Equities
Property
Fixed interest gilts
Hedge funds
Other
At end of period

2009
Long-term
rate of return
%

7.6
6.1
4.3
7.6
7.3

2008
Long-term
rate of return
%

7.4
6.3
5.2
7.4
7.4

2009
£m

277.9
62.5
182.4
49.5
49.6
621.9

2008
£m

246.8
72.0
173.1
52.0
37.8
581.7

The scheme assets do not include any of the Group’s own ﬁnancial 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.

The amount included in the balance sheet arising from the Group’s obligations in respect of its deﬁned beneﬁt pension schemes is as follows:

Present value of funded deﬁned beneﬁt obligations
Fair value of scheme assets
Asset cap
Deﬁcit on funded retirement beneﬁt obligations
Present value of unfunded deﬁned beneﬁt obligations
Scheme deﬁcits recognised in the balance sheet

This amount is presented as follows:
Non-current assets
Current liabilities
Non-current liabilities

2009
£m

784.1
(621.9)
–
162.2
208.9
371.1

–
4.8
366.3
371.1

2008
£m

607.4
(581.7)
0.7
26.4
163.8
190.2

(0.4)
9.0
181.6
190.2

The cumulative net actuarial losses recognised in the statement of recognised income and expense at 30 September 2009 were £305.7m (2008: £135.6m).

The history of the experience gains and losses of the schemes is as follows:

Present value of deﬁned beneﬁt obligations
Fair value of scheme assets
Scheme deﬁcits

Experience adjustments on scheme liabilities
Experience adjustments on scheme assets

2009
£m

993.0
(621.9)
371.1

(7.7)
(13.7)

2008
£m

771.2
(581.7)
189.5

2.7
(116.6)

2007
£m

810.4
(635.2)
175.2

2.0
11.2

2006
£m

791.0
(513.0)
278.0

(34.0)
21.8

2005
£m

729.9
(368.7)
361.2

(101.8)
25.0

Deﬁned contribution schemes
There are a number of deﬁned contribution schemes in the Group, the principal scheme being the Thomas Cook UK DC Pension Scheme which is
open to all UK employees. The total charge for the year in respect of this and other deﬁned contribution schemes, including liabilities in respect
of insured beneﬁts relating to workers’ compensation arrangements, amounted to £20.1m (2008: £16.5m).

The assets of these schemes are held separately from those of the Group in funds under the control of trustees.

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2
4

106

Thomas Cook Group plc
Annual Report & Accounts 2009

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 ﬁnancial statements.

On 1 October 2008, Thomas Cook Group plc was 52.8% owned by Arcandor. During the ﬁrst six months of the current year the Group bought back
6,831,425 shares for £14.0m from Arcandor. This transaction was part of the share buy-back programme and was at arms length. On 10 September
2009, 43.9% of Thomas Cook Group plc, which was held by Arcandor and its subsidiaries, was placed on the stock market at 240p. In early October,
the remaining shares held as pledge against an Arcandor convertible bond were delivered to bondholders. Following these developments, 100% of
the Group’s share capital can now be traded freely on the London Stock Exchange.

As a result, Arcandor controlled a majority of the ordinary share capital of the Company during the prior year and during the current year prior to
the disposal of shares and is therefore regarded as a related party in both years.

Trading transactions
During the period, 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*

Arcandor

2009
£m

12.8
(35.4)
0.2
–
7.7
(1.3)
20.7**
(4.4)
(5.6)

2008
£m

34.2
(30.2)
0.1
–
5.6
(1.5)
23.0
(4.4)
(3.9)

2009
£m

0.6
(7.8)
–
–
0.2
–
3.4
(2.1)
(2.8)

2008
£m

0.8
(14.4)
0.6
(0.1)
2.6
–
11.7
–
(17.9)***

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 signiﬁcant equity participation but which are not considered to be associates or joint ventures.

** Amounts owed by related parties includes £9.9m (2008: £6.1m) which for statutory purposes is reported as part of the Associate investment.

*** In the prior year £16.4m of the amount owed to Arcandor was included within borrowings (£0.4m short-term and £16.0m long-term)

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
speciﬁed 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 59 and 60.

In the year, Ludger Heuberg has been acting as Chief Financial Ofﬁcer to the Group, in the absence of Jürgen Büser. As a result, for 2009 we have
included his remuneration in the table below.

Short-term employee beneﬁts
Post-employment beneﬁts
Share-based payments

2009
£m

5.6
0.2
2.2
8.0

2008
£m

13.1
0.2
0.6
13.9

39. Subsequent events
No events have occurred between the balance sheet date and date of approval by the Board of Directors that would have a material impact on
these ﬁnancial statements.

Thomas Cook Group plc
Annual Report & Accounts 2009

Company balance sheet

At 30 September 2009

Non-current assets
Property plant and equipment
Investments in subsidiaries
Deferred tax asset

Current assets
Trade and other receivables
Cash and cash equivalents

Total assets

Current liabilities
Trade and other payables
Total liabilities
Net assets

Equity
Called-up share capital
Share premium account
Merger reserve
Capital redemption reserve
Translation reserve
Retained earnings surplus
Investment in own shares
Total equity

These ﬁnancial statements were approved by the Board of Directors on 29 November 2009.

Signed on behalf of the Board

Manny Fontenla-Novoa
Director

Notes 1 to 17 form part of these ﬁnancial statements.

107

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

30 September
2009
£m

30 September
2008
£m

1.0
4,293.5
1.1
4,295.6

575.5
–
575.5
4,871.1

(284.3)
(284.3)
4,586.8

57.7
8.9
3,051.3
8.5
1,126.3
347.2
(13.1)
4,586.8

–
3,730.8
–
3,730.8

161.9
1.7
163.6
3,894.4

(173.8)
(173.8)
3,720.6

59.8
8.9
3,051.3
6.4
564.8
42.4
(13.0)
3,720.6

notes

5
6
11

7
8

9

12/13
13
13
13
13
13
13

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108

Thomas Cook Group plc
Annual Report & Accounts 2009

Company statement of recognised income and expense

For the year ended 30 September 2009

Exchange differences from translating accounts into sterling
Tax on items taken directly to equity
Net income recognised directly in equity

Proﬁt for the period

notes

Year ended

11 months ended
30 September 2009 30 September 2008
£m

£m

561.5
–
561.5

410.3

467.0
–
467.0

315.9

782.9

Total recognised income and expense for the period

13

971.8

Company cash ﬂow statement

For the year ended 30 September 2009

Cash ﬂows from operating activities
Proﬁt before tax
Dividend received
Finance income
Finance expense
Depreciation of property, plant and equipment
Share-based payments
Change in debtors
Change in creditors
Net cash (used in)/from operating activities

Investing activities
Dividends received
Purchase of tangible assets
Net cash from investing activities

Financing activities
Purchase of own shares
Net cash used in ﬁnancing activities

Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period

Liquid assets
Cash and cash equivalents at end of period

Year ended

11 months ended
30 September 2009 30 September 2008
£m

£m

408.9
(435.5)
(1.8)
6.1
0.1
2.9
8.9
9.8
(0.6)

47.1
(1.1)
46.0

(47.1)
(47.1)

(1.7)
1.7
–
–

–
–

307.5
(339.4)
(3.9)
1.6
–
3.1
(3.2)
36.0
1.7

247.8
–
247.8

(247.8)
(247.8)

1.7
–
–
1.7

1.7
1.7

Thomas Cook Group plc
Annual Report & Accounts 2009

109

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

Notes to the Company ﬁnancial statements

1. Accounting policies
The accounting policies applied in the preparation of these Company ﬁnancial statements are the same as those set out in note 2 to the Group
ﬁnancial statements with the addition of the following:

Investments
Investments in subsidiaries are stated at cost less provision for impairment.

These policies have been applied consistently to the periods presented.

The functional currency of the Company is euro, however, the Directors have decided to adopt sterling as the presentational currency to be in
line with the consolidated accounts.

2. Proﬁt for the period
As permitted by section 408(3) of the Companies Act 2006, the Company has elected not to present its own income statement for the period.

The proﬁt after tax of the Company amounted to £410.3m (2008: £315.9m).

The auditors’ remuneration for audit services to the Company was £0.2m (2008: £0.2m).

3. Personnel expenses

Wages and salaries
Social security costs
Share-based payments – equity settled

The average number of employees of the Company during the period was:

Employees are based in the United Kingdom and Germany.

2009
£m

20.1
2.0
2.9
25.0

2009
Number

98

2008
£m

22.0
1.3
1.0
24.3

2008
Number

92

Disclosures of individual Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension entitlements
required by the Companies Act 2006 and speciﬁed for audit by the Financial Services Authority are on pages 53 to 60 within the Remuneration
report and form part of these audited accounts.

The employees of the Company are members of the Group pension schemes as detailed in note 37 of the Group ﬁnancial statements.

4. Dividends
The details of the Company’s dividend are disclosed in note 11 to the Group ﬁnancial statements.

5. Property, plant and equipment

Other ﬁxed assets

Cost
Additions
At 30 September 2009

Accumulated depreciation and impairment
Charge for the year
At 30 September 2009

Carrying amount at 30 September 2009

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£m

1.1
1.1

0.1
0.1

1.0

110

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the Company ﬁnancial statements continued

6.

Investments in subsidiaries

Cost and net book value
At 31 October 2007
Additions
Disposals – intra-group
Exchange difference
At 30 September 2008
Additions
Exchange difference
At 30 September 2009

A list of the Company’s principal subsidiary undertakings is shown in note 17 to the ﬁnancial statements.

The additions in the current year relate to share-based payment charges related to subsidiaries’ employees.

7. Trade and other receivables

Amounts owed by subsidiary undertakings
Other receivables
Deposits and prepayments

£m

3,265.5
1,678.2
(1,673.8)
460.9
3,730.8
5.1
557.6
4,293.5

2008
£m

160.5
0.8
0.6
161.9

2009
£m

573.8
1.4
0.3
575.5

Amounts owed by subsidiary undertakings are repayable on demand. The average interest on overdue amounts owed by subsidiary undertakings is
1.8% (2008: 5.8%). The Directors consider the fair value to be equal to the book value.

8. Cash and cash equivalents

Cash at bank and in hand

9. Trade and other payables

Amounts owed to subsidiary undertakings
Social security and other taxes
Accruals

2009
£m

–

2009
£m

268.4
1.9
14.0
284.3

2008
£m

1.7

2008
£m

136.4
–
37.4
173.8

The average interest on overdue amounts owed to subsidiary undertakings is 1.1% (2008: 5.8%).

Amounts owing to subsidiary undertakings are repayable on demand. The Directors consider the fair value to be equal to the book value.

10. Financial risk
The Company’s ﬁnancial instruments comprise amounts due to/from subsidiary undertakings, cash and cash equivalents, and other payables and
receivables. The Company’s approach to the management of ﬁnancial risks is discussed on pages 37 to 39. The Company believes the value of its
ﬁnancial assets to be fully recoverable.

The carrying value of the Company’s ﬁnancial instruments is exposed to movements in foreign currency exchange rates (primarily sterling). The
Company estimates that a 5% strengthening in sterling would increase proﬁt before tax by £1.1m (2008: £2.2m), while a 5% decrease in the value
of sterling would decrease proﬁt before tax by £1.1m (2008: £2.2m).

The carrying value of the Company’s ﬁnancial instruments is exposed to movements in interest rates. The Company estimates that a 1% increase
in interest rates would decrease proﬁt before tax by £2.0m, while a 1% decrease in interest rates would increase proﬁt before tax by £2.0m.

Thomas Cook Group plc
Annual Report & Accounts 2009

111

Directors’ Report – Business Review
Directors’ Report – Corporate Governance
Financial Statements

The maturity of contracted cash ﬂows on the Company’s trade and other payables are as follows:

Not later than one year

No later than one year

Sterling

(39.1)

Sterling

(108.3)

2009
£m
Euro

(246.6)

2008
£m
Euro

(71.2)

Total

(285.7)

Total

(179.5)

All cash ﬂow projections shown above are on an undiscounted basis. Any cash ﬂows based on a ﬂoating rate are calculated using interest rates as
set as the date of the last rate reset.

11. Deferred tax asset

At 30 September 2008
Credit to income statement
At 30 September 2009

£m

–
1.1
1.1

The deferred tax asset relates to a share-based payments temporary difference.

At the balance sheet date, the Company had other short term timing differences of £1.1m (2008: £nil) available for offset against future proﬁts.

There are no amounts of unprovided deferred tax.

12. 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 to the Group ﬁnancial statements in
this report.

Details of share options granted by the Company are set out in note 36 to the Group ﬁnancial statements.

13. Statement of changes in equity

Share
capital
£m

Share
premium
£m

Capital
redemption
reserve
£m

At 1 October 2007
Total recognised income and expense for the period
Issue of equity shares net of expenses
Equity credit in respect of share-based payments
Share buyback
Disposal of own shares
Dividends paid
Purchase of own shares
At 30 September 2008

Total recognised income and expense for the year
Equity credit in respect of share-based payments
Share buyback
Purchase of own shares
Dividends paid
At 30 September 2009

66.1
–
0.1
–
(6.4)
–
–
–
59.8

–
–
(2.1)
–
–
57.7

6.8
–
2.1
–
–
–
–
–
8.9

–
–
–
–
–
8.9

–
–
–
–
6.4
–
–
–
6.4

–
–
2.1
–
–
8.5

Own
shares
£m

(4.9)
–
–
–
–
0.2
–
(8.3)
(13.0)

–
–
–
(0.1)
–
(13.1)

Translation
reserve
£m

97.8
467.0
–
–
–
–
–
–
564.8

561.5
–
–
–
–
1,126.3

Merger
reserve
£m

3,051.3

–
–
–
–
–
–
3,051.3

–
–
–
–
–
3,051.3

Retained
earnings
£m

67.9
315.9
–
3.1
(266.3)
–
(78.2)
–
42.4

410.3
8.3
(26.4)
–
(87.4)
347.2

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4

Total
£m

3,285.0
782.9
2.2
3.1
(266.3)
0.2
(78.2)
(8.3)
3,720.6

971.8
8.3
(26.4)
(0.1)
(87.4)
4,586.8

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.

The share premium arises in connection with the issue of ordinary shares of the Company following the exercise of MyTravel executive share options.

At 30 September 2009, the Company had distributable reserves of £347.2m (2008: £42.4m).

Details of the own shares held are set out in note 30 to the Group ﬁnancial statements.

112

Thomas Cook Group plc
Annual Report & Accounts 2009

Notes to the Company ﬁnancial statements continued

14. Operating lease arrangements
At the balance sheet date, the Company had outstanding commitments for future minimum lease payments, related to property, under non-
cancellable operating leases, which fall due as follows:

Within one year
Later than one year and less than ﬁve years
After ﬁve years

2009
£m

0.6
2.4
2.5
5.5

2008
£m

1.0
2.4
3.1
6.5

15. Contingent liabilities
At 30 September 2009, the Company had contingent liabilities in respect of counter-guarantees for bank funding, letters of credit and guarantees
of amounts owed by subsidiaries amounting to £1,162.1m (2008: £766.2m). This predominately relates to a guarantee on the drawndown portion
of the Group credit facility (detailed in note 21 of the Group ﬁnancial statements).

Also included are guarantees related to aircraft ﬁnance lease commitments, estimated based on the current book value of the ﬁnance lease
liabilities £96.8m (2008: £56.1m).

The Company complies with all the standards relevant to consumer protection and formal requirements in respect of package tour contracts and
has all the necessary licences. In the UK 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 a fund mechanism, whereby travel
companies are required to collect and remit a small charge for each protected customer upon booking.

16. Related party transactions
Subsidiaries
The Company transacts and has outstanding balances with its subsidiaries. The Company enters into loans with its subsidiaries at both ﬁxed
and ﬂoating rates of interest on a commercial basis. Hence, the Company incurs interest expense and earns interest income on these loans.
The Company also received dividend income from its subsidiaries during the year.

Transactions with subsidiaries
Interest receivable
Interest payable
Management fees and other expenses
Dividend income received

Year-end balances arising on transactions with subsidiaries
Loans receivable
Interest receivable
Other receivables
Loans payable
Interest payable
Other payables

2009
£m

1.6
(6.1)
10.8
435.5

549.7
0.3
23.8
(241.2)
(0.2)
(27.0)

2008
£m

3.9
(0.5)
8.1
339.4

135.7
0.8
24.0
(10.9)
–
(125.5)

Arcandor
On 1 October 2008, Thomas Cook Group plc was 52.8% owned by Arcandor. During the ﬁrst six months of the current year, the Group bought back
6,831,425 shares for £14.0m from Arcandor. This transaction was part of the share buy-back programme and was at arms length. On 10 September
2009, 43.9% of Thomas Cook Group plc, which was held by Arcandor and its subsidiaries, were placed on the stock market at 240p. In early October,
the remaining shares held as pledge against an Arcandor convertible bond were delivered to bondholders. Following these developments, 100% of
the Group’s share capital can now be traded freely on the London Stock Exchange.

During the period, the Company incurred no expenses (2008: £0.2m) in respect of goods and services provided by Arcandor. At the period end the
Company had amounts payable to the parent of £0.2m (2008: £0.2m).

All transactions are considered to have been made at market prices.

Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Company, is set out in note 38 of the Group ﬁnancial statements.

Thomas Cook Group plc
Annual Report & Accounts 2009

113

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Directors’ Report – Corporate Governance
Financial Statements

17. Principal subsidiaries, associates and joint ventures undertakings

Country of
incorporation
and operation

Proportion
held by
Company (%)

Proportion
held by
Group (%)

Direct subsidiaries
Thomas Cook Investments (2) Limited
Thomas Cook AG

Indirect subsidiaries
Continental Europe
Bucher Reisen GmbH
Dos Delﬁ nos-Sociedade Immob. Tourist Lda.
Gesellschaft fur Reise-Vetriebssysteme mbH
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 Slovakia s.r.o.
Neckermann Urlaubswelt GmbH & Co. KG
NUR Neckermann Utazas Szolgas Szolgaltato Kft
SATEE GmbH
Thomas Cook Airlines Belgium NV
Thomas Cook Austria AG
Thomas Cook Belgium NV
Thomas Cook Destinations GmbH
Thomas Cook Nederland BV
Thomas Cook Reisburo Groep B.V.
Thomas Cook Retail Belgium NV
Thomas Cook SAS
Thomas Cook Service AG
Thomas Cook s.r.o.
Thomas Cook Vertriebs GmbH
Urlaubshop GmbH
Viajes Iberoservice España, S.L.

German Airlines
Condor Berlin GmbH
Condor Flugdienst GmbH
Condor Technik GmbH

England
Germany

100
100

Germany
Portugal
Germany
Spain
Turkey
Spain
Poland
Slovakia
Germany
Hungary
Germany
Belgium
Austria
Belgium
Germany
Netherlands
Netherlands
Belgium
France
Switzerland
Czech Republic
Germany
Germany
Spain

Germany
Germany
Germany

100
100

100
100
100
80.75
100
51
100
60
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
65

50.0023
50.0023
50.0023

F
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Annual Report & Accounts 2009

Notes to the Company ﬁnancial statements continued

17. Principal subsidiaries, associates and joint ventures undertakings continued

Country of
incorporation
and operation

Proportion
held by
Company (%)

Proportion
held by
Group (%)

UK and Ireland
Airline Network plc
Airtours Holidays Transport Limited
Airtrack Services Limited
Capitol Holdings Limited
Elegant Resorts Limited
Falcon Istioploiki Hellas S.A.
Gold Medal International Limited
Gold Medal Travel Group plc
Hotels4U.com Limited
Jeropatur-Viagens e Turismo Ltda
MyTravel 330 Leasing Limited
MyTravel UK Limited
Neilsen Turizm Danismanlik VE Ticaret Ltd STI
Neilson Active Holidays Limited
Neilson Hellas A.E.
O.A. Yacht Charter S.A.
Praznik D.O.O. ZA Turizam
Resorts Mallorca Hotels International S.L.
Thomas Cook (India) Limited
Thomas Cook Aircraft Engineering Limited
Thomas Cook Airlines Limited
Thomas Cook Overseas Limited
Thomas Cook Retail Limited
Thomas Cook Tour Operations Limited
Thomas Cook TV Limited
Thomas Cook USA Travel Services Limited
thomascook.com Limited
White Horse Administration Services Ltd
White Horse Insurance Ireland Limited

Northern Europe
Hoteles Sunwing S.A.
MyTravel Denmark A/S
Oy Tjareborg AB
Sunwing Ekerum AB
Thomas Cook Airlines Scandinavia A/S
Thomas Cook Northern Europe AB
Ving Norge A/S
Ving Sverige AB

North America
Thomas Cook Canada Inc.
Thomas Cook USA Holdings Inc.

England
England
England
Ireland
England
Greece
England
England
England
Portugal
Cayman Islands
England
Turkey
England
Greece
Greece
Croatia
Spain
India
England
England
England
England
England
England
England
England
Ireland
Ireland

Spain
Denmark
Finland
Sweden
Denmark
Sweden
Norway
Sweden

Canada
USA

60
100
100
100
100
100
60
60
100
100
100
100
100
100
100
95
100
100
77.63
100
100
100
100
100
100
100
100
100
100

100
100
100
100
100
100
100
100

100
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Annual Report & Accounts 2009

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Financial Statements

Country of
incorporation
and operation

Proportion
held by
Company (%)

Proportion
held by
Group (%)

Corporate
“Eurocenter” Beteiligungs-und Reisevermittlung GmbH
Airtours Channel Islands Limited
Airtours Finance Limited
Blue Sea Overseas Investments Limited
GUT Reisen GmbH
MyTravel Group plc
Parkway Limited Partnership (No. 1) L.P.
Sandbrook Overseas Investments Limited
Sandbrook UK Investments Limited
TC Touristik GmbH
Thomas Cook Continental Holdings Limited
Thomas Cook Group Treasury Limited
Thomas Cook Group UK Limited
Thomas Cook Investments (1) Limited
Thomas Cook Investments (3) Limited
Thomas Cook Treasury Limited

Associates
Activos Turisticos S.A.
COPLAY 95 S.L.
Hispano Alemana de Management Hotelero S.A.
Hotelera Adeje, S.A.
Oasis Company SAE

Joint venture
Thomas Cook Personal Finance Limited

Germany
Jersey
Guernsey
England
Germany
England
Guernsey
England
England
Germany
England
England
England
England
Jersey
England

Spain
Spain
Spain
Spain
Egypt

England

100
100
100
100
100
100
100
100
100
50.0023
100
100
100
100
60
100

40
25
40
25
25.1

50

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Annual Report & Accounts 2009

Appendix 1 – Audited statutory information
with unaudited pro forma comparatives
Group income statement

For the year ended 30 September 2009

Audited
Year ended 30 September 2009

Pre-exceptional
items and
amortisation
of business
combination
intangibles
£m

9,268.8
(7,017.8)
2,251.0
(1,027.1)
(158.4)

–
(650.6)

–
414.9

(3.8)
–
1.4
51.2
(155.5)
308.2

notes

2

2

4
4

Exceptional
items and
amortisation
of business
combination
intangibles
(note 3)
£m

–
(58.7)
(58.7)
(59.7)
(9.2)

(34.8)
(84.4)

(3.9)
(250.7)

–
(2.2)
–
–
0.8
(252.1)

Revenue
Cost of providing tourism services
Gross proﬁt
Personnel expenses
Depreciation and amortisation
Amortisation of business
combination intangibles
Net operating expenses
Loss on disposal of businesses and
property, plant and equipment
Proﬁt from operations

Share of results of associates and joint ventures
Loss on disposal of associate
Net investment income
Finance income
Finance costs
Proﬁt before tax
Tax
Proﬁt for the period
Attributable to:
Equity holders of the parent
Minority interests

Adjusted earnings per share (pence)
Basic
Diluted

All revenue and results arose from continuing operations.

Total
£m

9,268.8
(7,076.5)
2,192.3
(1,086.8)
(167.6)

(34.8)
(735.0)

(3.9)
164.2

(3.8)
(2.2)
1.4
51.2
(154.7)
56.1
(37.8)
18.3

15.8
2.5
18.3

26.4
26.2

Pro forma
Year ended 30 September 2008
Restated
Exceptional
items and
amortisation
of business
combination
intangibles
(note 3)
£m

Pre-exceptional
items and
amortisation
of business
combination
intangibles
£m

8,754.2
(6,709.8)
2,044.4
(940.1)
(140.1)

–
(598.3)

–
365.9

0.2
–
1.4
80.6
(138.8)
309.3

–
(14.5)
(14.5)
(59.0)
(0.4)

(53.5)
(130.3)

(1.1)
(258.8)

–
–
–
–
(26.8)
(285.6)

Total
£m

8,754.2
(6,724.3)
2,029.9
(999.1)
(140.5)

(53.5)
(728.6)

(1.1)
107.1

0.2
–
1.4
80.6
(165.6)
23.7
(13.1)
10.6

10.8
(0.2)
10.6

24.1
24.1

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Annual Report & Accounts 2009

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Financial Statements

Group statement of net assets

At 30 September 2009

Non-current assets
Intangible assets
Property, plant and equipment – aircraft and aircraft spares

– investment property
– other

Investments in associates and joint ventures
Other investments
Deferred tax assets
Tax assets
Trade and other receivables
Pension assets
Derivative ﬁnancial instruments

Current assets
Inventories
Tax assets
Trade and other receivables
Derivative ﬁnancial instruments
Cash and cash equivalents

Non-current assets held for sale
Total assets

Current liabilities
Retirement beneﬁt obligations
Trade and other payables
Borrowings
Obligations under ﬁnance leases
Tax liabilities
Revenue received in advance
Short-term provisions
Derivative ﬁnancial instruments

Non-current liabilities
Retirement beneﬁt obligations
Trade and other payables
Long-term borrowings
Obligations under ﬁnance leases
Revenue received in advance
Deferred tax liabilities
Long-term provisions
Derivative ﬁnancial instruments

Total liabilities
Net assets

Audited
2009
£m

3,775.1
628.3
18.0
347.1
36.0
20.3
431.8
5.6
113.8
–
4.9
5,380.9

27.0
38.6
931.6
133.9
550.2
1,681.3
9.1
7,071.3

(4.8)
(1,904.7)
(619.1)
(237.8)
(80.9)
(861.8)
(206.1)
(251.1)
(4,166.3)

(366.3)
(17.1)
(320.9)
(47.7)
(1.2)
(111.5)
(294.3)
(18.8)
(1,177.8)
(5,344.1)
1,727.2

Pro forma
2008
Restated
£m

3,438.1
584.8
15.7
312.3
42.7
29.4
328.0
9.9
126.4
0.4
55.6
4,943.3

24.2
15.1
1,016.0
261.6
761.3
2,078.2
–
7,021.5

(9.0)
(1,856.0)
(356.0)
(182.6)
(69.4)
(917.5)
(185.0)
(174.3)
(3,749.8)

(181.6)
(36.1)
(416.1)
(228.3)
(0.9)
(99.3)
(234.1)
(66.9)
(1,263.3)
(5,013.1)
2,008.4

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Group cash ﬂow statement

For the year ended 30 September 2009

Cash ﬂows from operating activities
Cash generated by operations
Income taxes paid
Net cash from operating activities

Investing activities
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 disposal of available for sale ﬁnancial assets
Purchase of subsidiaries (net of cash acquired)
Purchase of tangible and ﬁnancial assets
Purchase of intangible assets
Purchase of non-current ﬁnancial assets
Additional loan investment
Disposal of short-term securities
Net cash used in investing activities

Financing activities
Interest paid
Dividends paid
Dividends paid to minority shareholders
Draw down of borrowings
Repayment of borrowings
Repayment of ﬁnance lease obligations
Purchase of own shares
Proceeds from issue of ordinary shares
Net cash (used in)/from ﬁnancing activities

Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period

Liquid assets
Bank overdrafts
Cash and cash equivalents at end of period

notes

5

Audited
2009
£m

204.7
(26.6)
178.1

1.1
1.5
12.3
9.0
(71.2)
(131.0)
(68.5)
(4.8)
(3.7)
125.3
(130.0)

(102.6)
(87.4)
–
181.9
(128.9)
(174.4)
(47.1)
–
(358.5)

(310.4)
747.5
69.9
507.0

550.2
(43.2)
507.0

Pro forma
2008
£m

293.9
(73.7)
220.2

–
–
18.6
–
(296.4)
(90.5)
(69.0)
–
–
75.9
(361.4)

(58.1)
(78.2)
(1.9)
732.2
(228.6)
(91.8)
(247.8)
2.3
28.1

(113.1)
813.2
47.4
747.5

761.3
(13.8)
747.5

Thomas Cook Group plc
Annual Report & Accounts 2009

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Financial Statements

Notes to the ﬁnancial information

1. Basis of preparation
The ﬁnancial information contained in this appendix is pro forma and unaudited and does not constitute full statutory accounts within the
meaning of Section 434 of the Companies Act 2006. The information has been prepared using the accounting policies and basis of preparation
set out in note 2 to the Group ﬁnancial statements.

2. Segmental analysis

Twelve months to 30 September 2009

Revenue
Segment sales
Inter-segment sales
Total revenue

UK and
Ireland
£m

Continental
Europe
£m

Northern
Europe
£m

North
America
£m

Airlines
Germany
£m

Corporate
£m

Total
£m

3,117.2
(19.2)
3,098.0

4,014.6
(14.3)
4,000.3

1,061.6
(2.3)
1,059.3

370.4
–
370.4

1,061.2
(320.4)
740.8

–
–
–

9,625.0
(356.2)
9,268.8

Proﬁt/(loss) from operations before exceptional items

162.2

127.0

86.4

17.9

47.4

(26.0)

414.9

Twelve months to 30 September 2008 (restated)

UK and
Ireland
£m

Continental
Europe
£m

Northern
Europe
£m

North
America
£m

Airlines
Germany
£m

Corporate
£m

Total
£m

Revenue
Segment sales
Inter-segment sales
Total revenue

3,104.4
(7.1)
3,097.3

3,646.9
(26.5)
3,620.4

974.9
(3.3)
971.6

384.2
–
384.2

978.2
(297.5)
680.7

–
–
–

9,088.6
(334.4)
8,754.2

Proﬁt/(loss) from operations before exceptional items

143.4

106.3

86.2

6.0

45.4

(21.4)

365.9

Inter-segment sales are charged at prevailing market prices.

3. Exceptional items

Property costs, redundancy and other costs incurred in integrating the Thomas Cook and MyTravel businesses
Property costs, redundancy and other costs incurred in other business integrations and reorganisations
Disposal of property, plant and equipment
Impairment of assets
Other expenses incurred as a result of the merger
Fuel related costs
Other exceptional operating events
Exceptional items included within proﬁt from operations

Share of associates’ exceptional items
Loss on disposal of associate

Exceptional ﬁnance income/(costs)
Loss on revaluation of trading securities
Impact of ﬁnancial market volatility

2009
£m

(56.6)
(112.8)
(3.9)
–
–
(20.7)
(21.9)
(215.9)

(2.2)
(2.2)

(10.6)
11.4
0.8

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£m

(116.3)
(47.1)
(1.1)
(7.7)
(21.7)
–
(11.4)
(205.3)

–
–

(13.9)
(12.9)
(26.8)

Total exceptional items

(217.3)

(232.1)

Net exceptional ﬁnance income in the year was £0.8m (2008: cost of £26.8m). The net cost in 2008 included £12.9m relating to the exceptional
element of the phasing impact of marking to market the forward points on our foreign currency hedging, which arose in September 2008 as a
result of the global banking crisis. In 2009, £11.4m of this unwound, but was offset by £10.6m of additional revaluation losses on trading securities.
The Group has now disposed of all of its trading securities.

120

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Annual Report & Accounts 2009

Notes to the pro forma ﬁnancial information continued

4. Net ﬁnance costs

Finance income

Income from loans included in ﬁnancial assets
Other interest and similar income
Expected return on pension plan assets
Fair value gains on derivative ﬁnancial instruments

Finance costs
Interest payable
Finance costs in respect of ﬁnance leases
Interest cost on pension plan liabilities
Forward points on future hedging contracts
Other ﬁnance costs (including discounting charges)

Exceptional ﬁnance income/(costs)
Loss on revaluation of trading securities
Impact of ﬁnancial market volatility

5. Notes to the cash ﬂow statement

Proﬁt before tax
Adjustments for:
Finance income
Finance costs
Net investment income
Share of results of associates and joint ventures
Loss on disposal of associate
Depreciation of property, plant and equipment and intangibles
Amortisation of business combination intangibles
Impairment of assets
Loss on disposal of businesses, property, plant and equipment and intangible assets
Share-based payments
Other non-cash items
Decrease in provisions
Income received from other non-current investments
Additional pension contributions
Interest received
Operating cash ﬂows before movements in working capital
Movement in working capital
Cash generated by operations
Income taxes paid
Net cash from operating activities

2009
£m

1.0
11.1
38.4
0.7
51.2

(85.3)
(22.5)
(50.1)
10.0
(7.6)
(155.5)

(10.6)
11.4
(154.7)
(103.5)

2009
£m

56.1

(51.2)
154.7
(1.4)
3.8
2.2
167.6
34.8
18.0
3.9
8.3
(19.6)
(17.6)
1.4
(17.4)
15.5
359.1
(154.4)
204.7
(26.6)
178.1

2008
£m

1.0
32.1
45.3
2.2
80.6

(48.4)
(23.7)
(44.9)
(12.8)
(9.0)
(138.8)

(13.9)
(12.9)
(165.6)
(85.0)

2008
£m

23.7

(80.6)
165.6
(1.4)
(0.2)
–
140.5
53.5
7.7
1.1
3.1
(0.8)
(7.6)
0.4
(17.4)
27.2
314.8
(20.9)
293.9
(73.7)
220.2

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.

Thomas Cook Group plc
Annual Report & Accounts 2009

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Financial Statements

6. Net debt

Liquidity
Cash and cash equivalents
Trading securities

Current debt
Bank overdrafts
Short term borrowings
Current portion of long-term borrowing
Obligations under ﬁnance leases

Non-current debt
Long-term borrowings
Obligations under ﬁnance leases

Total debt
Net debt

At
1 October
2008
£m

761.3
129.2
890.5

(13.8)
(198.8)
(143.4)
(182.6)
(538.6)

(416.1)
(228.3)
(644.4)
(1,183.0)
(292.5)

Cash ﬂow
£m

(284.2)
(125.3)
(409.5)

(26.2)
(37.7)
17.1
174.4
127.6

(32.4)
–
(32.4)
95.2
(314.3)

Other
non-cash
changes
£m

Exchange
movements
£m

At
30 September
2009
£m

–
(10.6)
(10.6)

–
(129.5)
(36.0)
(205.0)
(370.5)

165.5
205.0
370.5
–
(10.6)

73.1
6.7
79.8

(3.2)
(35.8)
(11.8)
(24.6)
(75.4)

(37.9)
(24.4)
(62.3)
(137.7)
(57.9)

550.2
–
550.2

(43.2)
(401.8)
(174.1)
(237.8)
(856.9)

(320.9)
(47.7)
(368.6)
(1,225.5)
(675.3)

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Appendix 2 – Keyperformance indicators deﬁnitions

*

**

***

‹

†

Average selling price for UK, Northern Europe and North America
represents the average selling price (after discounts) achieved
per mass market 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.

## Brochure mix is deﬁned as the number of mass market holidays
(excluding accommodation only) sold at brochure prices divided
by the total number of holidays sold (excluding seat only) and is
a measure of how successful a business was at selling holidays
early. Holidays are generally discounted closer to departure.

‡‡

Controlled distribution is deﬁned as the proportion of passengers
booking through our in-house retail shops, call centres and
websites. Internet distribution is a sub-set of controlled
distribution and is deﬁned as the proportion of passengers
booking through in-house websites. Both performance indicators
are calculated on 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 per seat

departed in the period.

Revenue for the Group and segmental analysis represents
external revenue only, except in the case of the Airlines Germany
pro forma segmental key performance analysis where revenue
of £320.4m (2008: £297.5m) largely to the Continental Europe
division has been included.

#

Proﬁt from operations/adjusted EBIT is deﬁned as earnings before
interest and tax, and has been adjusted to exclude exceptional
operating items and amortisation of business combination
intangibles. It also excludes our share of the results of associates
and joint ventures.

The operating proﬁt margin/adjusted EBIT margin is the
proﬁt from operations (as deﬁned 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 reﬂect the
trading performance.

Adjusted earnings per share is calculated as net proﬁt after
tax, but before exceptional items and amortisation of business
combination intangibles, divided by the weighted average
number of shares in issue in the twelve months to September.
Proﬁt after tax has been calculated using a notional tax rate
of 26.9% for 2009 and 26.1% for 2008.

Adjusted dividend cover is calculated by dividing the adjusted
earnings per share (see above) by the full year paid and
proposed dividends.

In the case of pro forma prior year ﬁgures, the ﬁgures reﬂect
the normalised results for the 12 months to 30 September 2008.

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 and transfers
only. For Continental Europe passengers represents all tour
operator passengers departed in the period, excluding those
on which only commission is earned.

Mass Market Risk passengers in UK, Northern Europe and
North America represent those holidays sold where the
business has ﬁnancial commitment to the product (ﬂights
and accommodation) before the customer books. The analysis
excludes accommodation only passengers.

††

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 ﬂown.

††† For UK, Northern Europe and North America, load factor is a

measure of how successful the airline was at selling the available
capacity. This is calculated by dividing the departed mass market
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
deﬁnition above) and is the recognised IATA deﬁnition of load
factor used for airlines. RPK is a measure of the volume of
passengers carried by an airline. One RPK is ﬂown when a
passenger is carried one kilometre.

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Shareholder information

Key dates
Ex-dividend date for 2008/09 ﬁnal dividend
Final dividend record date
Last date for AGM proxy votes
to be received by the Registrar
AGM
Final dividend payment date
Ex-dividend date for 2009/10 interim dividend
Interim dividend record date
Year end
Interim dividend payment date

17 March 2010
19 March 2010

23 March 2010
25 March 2010
8 April 2010
8 September 2010
10 September 2010
30 September 2010
8 October 2010

Dividends
As an alternative to having dividends paid by cheque, shareholders can,
if they wish, have them credited directly into their bank or building
society account on the dividend payment date. The beneﬁts are:

Website
The Company’s corporate website, www.thomascookgroup.com,
provides information including:

• news, updates, press releases and regulatory announcements;

• investor information, including the Annual Report, investor

presentations and share price information;

• biographies of the Board of Directors and the senior executive team;

• the Company’s Articles of Association and the terms of reference

for the Committees of the Board; and

• sustainability reporting.

Electronic communications
At the AGM on 10 April 2008, the Company passed a resolution allowing
the Thomas Cook Group plc website to be used as the primary means
of communication with its shareholders. A consultation card was sent
to shareholders enabling them to choose either to:

• funds are placed directly into the shareholder’s account on the
payment date, so there is no waiting for the cheque to clear;

• receive notiﬁcation by email when shareholder documentation is

available on the website; or

• it saves time, as there is no need to pay in each dividend cheque; and

• continue to receive shareholder documentation in hard copy.

• it avoids the inconvenience and cost of lost, stolen, spoiled or out

of date cheques.

Shareholders wishing to set up a dividend mandate can do so by
completing the dividend mandate form attached to the dividend
cheque or by downloading a dividend mandate form from
www.shareview.co.uk. Alternatively, the appropriate form can be
requested from the Registrar (contact details below).

An interim dividend payment of 3.75 pence per share was paid on
4 September 2009, to all ordinary shareholders on the register at
5.00pm on 7 August 2009. The Directors recommend the payment of
a ﬁnal dividend of 7.0 pence per share, to be paid on 8 April 2010 to
all shareholders on the register at 5.00pm on 19 March 2010.

Share register and shareholder enquiries
The Company’s share register is maintained by Equiniti. Queries
relating to Thomas Cook Group plc shares, should be addressed to:

The Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Tel: 0871 384 2154 (international telephone number: +44 (0)121 415 7047)

Shareholders should quote the Company reference number 3174 and
their account number (which can be found on their share certiﬁcates
and dividend documentation), when contacting the Registrar.

Multiple accounts on the share register
If a shareholder receives two or more sets of the documents concerning
the Annual General Meeting (“AGM”) this means that there is more than
one account in their name on the shareholder register, perhaps because
either the name or the address appear on each account in a slightly
different way. For security reasons Equiniti will not amalgamate the
accounts without the shareholder’s written consent. Therefore, if a
shareholder would like their multiple accounts to be combined they
should write to Equiniti, at the address above, detailing the different
account numbers and request that they be combined into one account.

Shareholders who did not respond were deemed, in accordance with the
Companies Act 2006, to have agreed to receive shareholder documentation
via the Thomas Cook Group plc website. These arrangements for electronic
shareholder communications provide shareholders with the opportunity to
access information in a timely manner and help Thomas Cook Group plc
to reduce both its costs and environmental impact.

Voting electronically
All shareholders can submit their proxy vote for the AGM electronically
at www.sharevote.co.uk. To register their vote shareholders will need
the numbers detailed on their form of proxy.

Alternatively, shareholders who have already registered with Shareview
can submit their proxy vote by logging on to www.shareview.co.uk and
clicking on company meetings.

Shareview
To be able to access information about their shares and other investments
online, shareholders can register with Shareview (www.shareview.co.uk).
Registration is free, shareholders will need their shareholder reference
number which is shown on their form of proxy and share certiﬁcate.
By registering for this service shareholders will:

• help reduce paper, print and postage costs;

• help the environment; and

• be able to manage their shareholding quickly and securely online.

Once registered, whenever shareholder documents are available
shareholders will be sent a link to the appropriate website, where the
documents will be available to view or download. Receiving documents
online does not affect shareholders’ rights in any way.

Holiday booking discount
Shareholders, subject to the restrictions set out below, are entitled to
receive a discount of 10% off the latest retail high street price of any
holiday booked under the following brands: Airtours, Aspro, Club 18-30,
Cresta, Manos, Neilson, Sunset, Sunworld Holidays, Swiss Travel Service,
Thomas Cook, Thomas Cook Style Collection, Thomas Cook Signature
and Thomas Cook Tours. In order to beneﬁt from this service,
shareholders should call the telephone number detailed below:

Shareholder booking line: 0844 800 7003
Opening times: 9:00am to 5:30pm Monday – Saturday

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Thomas Cook Group plc
Annual Report & Accounts 2009

Shareholder information continued

Please note it is not possible to claim the discount through
Thomas Cook stores, other travel agents, Thomas Cook websites
or other telephone numbers.

To qualify, shareholders must hold a minimum of 500 shares, held for a
period of six months prior to making the booking and will need to quote
their shareholder number shown on their share certiﬁcate when booking
their holiday. Shareholders who hold shares through a nominee can claim
this discount, but will be required to show proof of ownership from that
nominee and that those shares continue to be held at the date of booking.

It is not possible to use this discount against “ﬂight-only” bookings and it
does not apply to Air Passenger Duty, fuel charges or any other supplements.
This discount may not be used in conjunction with any other offer.

Preferential foreign exchange rates
In addition to these travel beneﬁts, when buying foreign currency
or travellers cheques in any Thomas Cook or Going Places store,
shareholders are entitled to a commission free transaction and a
preferential exchange rate, subject to the conﬁrmation that they
meet the shareholding criteria set out above.

Thomas Cook AG / MyTravel Group plc merger
Thomas Cook Group plc was formed in June 2007 upon the merger
of Thomas Cook AG and MyTravel Group plc.

MyTravel Group plc shareholders received one Thomas Cook Group plc
ordinary share for every one MyTravel Group plc share previously held.
MyTravel Group plc share certiﬁcates are no longer valid and can be
destroyed. Replacement Thomas Cook Group plc share certiﬁcates were
sent to shareholders, who held shares in certiﬁcated form, on or around
19 June 2007.

Unsolicited telephone calls and correspondence
Shareholders are advised to be wary of any unsolicited advice, offers
to buy shares at a discount, or offers of free reports about the Company.
These are typically from overseas based ‘brokers’ who target UK
shareholders, offering to sell them what often turns out to be worthless
or high risk shares. These operations are so called ‘boiler room’ frauds.
If shareholders receive unsolicited investment advice, they can check
if the person or organisation is properly authorised by the Financial
Services Authority (“FSA”) at www.fsa.gov.uk/register. Details of any
share dealing facilities that the Company endorses will be included in
Company mailings or on our website.

Sharegift
Shareholders with a small number of shares, the value of which make it
uneconomical to sell, may wish to consider donating them to the charity
ShareGift (Registered Charity Number 1052686). Find out more about
ShareGift at www.sharegift.org or by telephoning +44 (0)20 7930 3737.

Shareview dealing
A telephone and internet dealing service has been arranged through
the Registrar to provide a simple way of buying and selling Thomas
Cook Group plc shares for existing and prospective UK based
shareholders. For telephone dealing call 08456 037 037 between
8.00am and 4.30pm, Monday to Friday, or visit the website:
www.shareview.co.uk/dealing. Shareholders will need the shareholder
reference number shown on their share certiﬁcate(s).

Analysis of shareholders as at 30 September 2009

Distribution of shares by the type of shareholder

Nominees and institutional investors
Individuals
Total

Size of shareholding

1-100
101-500
501-1,000
1,001-10,000
10,001-100,000
100,001-500,000
500,001-1,000,000
1,000,001 and above
Total

Number
of holdings

1,279
15,492
16,771

Number
of holdings

11,259
3,515
692
554
295
243
82
131
16,771

Number of shares

854,782,581
3,510,366
858,292,947

Number of shares

356,259
800,627
502,591
1,729,433
11,627,273
57,092,131
56,878,666
729,305,967
858,292,947

Registered ofﬁce
6th Floor South, Brettenham House, Lancaster Place, London WC2E 7EN
Registered Number: 6091951

Shareholder contacts
Shareholder helpline: 0871 384 2154
(international telephone number: +44 (0)121 415 7047)
Website: www.thomascookgroup.com
Registrar’s website: www.shareview.co.uk

Design and production:
Black Sun Plc (London)
+44 (0) 20 7736 0011

Photos: Thomas Cook

Printed by Park Communications on Hello Silk, FSC certiﬁed
paper, and Tauro, from veriﬁed sustainable sources.

www.thomascookgroup.com