Thomas Cook Group plc
6th Floor South
Brettenham House
Lancaster Place
London WC2E 7EN
www.thomascookgroup.com
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Design and production:
Black Sun Plc (London)
+44 (0) 20 7736 0011
Photos: Thomas Cook
Printed by St Ives Westerham Press on
Tauro Offset and Hello Silk manufactured
by paper mills certifi ed to the ISO14001
environmental standard using pulps
bleached without the use of chlorine.
Thomas Cook Group plc Annual Report & Accounts 2010
OUR WORLD OF
OPPORTUNITY
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VISIT US AT:
www.thomascookgroup.com
At a glance
04 Our Group overview
An overview of the Group including
what we do and our business
segments.
06 Our Group Chief
Executive Offi cer reviews
the year
Manny Fontenla-Novoa discusses
our progress during the year.
10 Our market place
Details on the travel market place
and future trends.
12 Our strategy
A review of our Group strategy and
progress against it.
15 Our strategy in action
http://www.thomascookgroup.com
The Thomas Cook Group website provides news and
details of the Group’s activities, plus links to our
customer sites and up-to-date information, including:
• corporate news
• presentations
• share price data
• historic Annual & Sustainability Reports
• half-year results and interim management statements
• news alerts
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STRENGTHENING
OUR BUSINESS
AND INVESTING
FOR GROWTH
Today, we are one of the world’s leading travel
groups, with a focused strategy, a portfolio
of market-leading brands, a fl exible business
model and a team of around 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.
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Contents
Directors’ Report - Business Review
The Group’s fi nancial and operational performance,
our strategy, KPIs and key risks
Financial Statements
Audited fi nancial information for the Group and key
information for shareholders
02 Our highlights for 2010
03 Chairman’s statement
04 Group overview
06 Group Chief Executive
Offi cer’s statement
10 Market review
12 Strategic review
15 Strategy in action
24 Principal risks &
uncertainties
26 Operating review
38 Sustainability
42 Financial review
Directors’ Report - Corporate Governance
The members of the Board and the Group Executive
Board and details of the Group’s governance and
Directors’ remuneration
46 Board of Directors
48 Group Executive Board
49 Corporate governance
report
59 Remuneration report
70 Other disclosures
72 Independent
auditors’ report
73 Group income
statement
74 Group statement
of comprehensive
income
75 Group cash fl ow
statement
76 Group balance sheet
78 Group statement of
changes in equity
79 Notes to the fi nancial
statements
120 Company balance
sheet
121 Company cash fl ow
statement
122 Company statement
of changes in equity
123 Notes to the Company
fi nancial statements
130 Appendix 1 – Key
performance
indicators defi nitions
131 Shareholder
information
Thomas Cook Group plc Annual Report & Accounts 2010
1
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Our highlights from 2010
A ROBUST
PERFORMANCE
Robust fi nancial performance in a challenging year
– Revenue down 4% to £8,890m (5% decrease at constant currency) due to planned winter capacity
cuts and a softer summer trading environment
– Adjusted underlying operating profi t2 was £391m (2009 restated: £415m), only 6% down in a very
tough year
– Substantial increase in profi ts from Central Europe and Airlines Germany not enough to offset
UK decline
Outlook
– Well positioned to make progress in the current fi nancial year
Our fi nancial highlights1
Revenue
£8,890.1m -4.1%
10000
8000
6000
4000
2000
0
Adjusted underlying
profit from operations2
£391.4m -5.7%
500
Underlying operating
profit margin %3
4.1%
5
400
300
200
100
0
4
3
2
1
0
2009
2010
2009
2010
2009
2010
Dividend per share
10.75p
15
10
5
0
Adjusted underlying
basic EPS4
22.8p -8.8%
30
24
18
12
6
0
Operating cash flow
£299.4m +68.1%
300
200
100
0
2009
2010
2009
2010
2009
2010
1 The Group statutory fi nancial statements for the year ended 30 September 2010 and prior year comparatives are set out on pages 73 to 119.
2 Underlying profi t from operations is defi ned as earnings before interest and tax, and has been adjusted to exclude all separately disclosed items. It also excludes our share of the results of associates
and joint ventures. Adjusted underlying profi t from operations is stated before the margin impact of the volcanic ash cloud.
3 The underlying operating profi t margin is the underlying profi t from operations (as above) divided by the external revenue.
4 Adjusted underlying basic earnings per share is calculated as net profi t after tax, but before all separately disclosed items and the margin impact of the volcanic ash cloud, divided by the weighted
average number of shares in issue during the period.
2
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Directors’ Report
Chairman’s statement
PROGRESS
ON STRATEGIC
INITIATIVES
Our management team has made robust
and encouraging progress during the year,
despite a weak economic climate and other
challenging conditions.
Total dividend
10.75p
2009: 10.75p
The Group results were impacted by
the challenging economic and trading
environment but, despite this, the Group
delivered a signifi cant improvement in
cash fl ow performance and the adjusted
underlying profi t from operations was only
down 6% on the prior year.
The progress made against a number of
strategic initiatives, such as destination
management, airline synergies and the
setting up of an Online Travel Agent, coupled
with our successful refi nancing in May, will
serve us well in our drive to grow shareholder
value. The Board believes that the decisive
actions taken to reinforce our UK segment
will place that business in a stronger position
for the future.
With a trusted brand portfolio and a proven
ability to manage our business, we will
continue to meet the needs of our customers
in the future.
DIVIDEND
The Board is recommending a fi nal dividend
of 7.0 pence per share, which when combined
with the interim dividend of 3.75 pence per
share paid on 8 October 2010, makes a total
dividend for the year of 10.75 pence per
share. Whilst we are committed to optimising
value for our shareholders and understand
the importance of dividends to them, our
recommendation to maintain the same level
of dividend refl ects last year’s performance
in a challenging operating environment. The
total dividend for the year represents a payout
of 47% of adjusted diluted earnings per
share and is in line with our policy of paying
between 40% and 50% of adjusted earnings
by way of dividend.
Once approved, the fi nal dividend will be
payable on 7 April 2011 to holders of relevant
shares registered on 18 March 2011.
THE BOARD
The Board has made solid progress in its
fi rst year of leading a fully independent
Company. We are committed to high standards
of corporate governance and we are fully
compliant with the Combined Code on
Corporate Governance. We recently conducted
our annual Board evaluation, the output of
which will help further develop Board and
Committee effectiveness.
During the year, we strengthened our Board
with a number of non-executive and executive
appointments. Peter Middleton and Dawn
Airey joined the Board as Independent Non-
Executive Directors on 30 November 2009 and
12 April 2010 respectively. On 6 November
2009, Sam Weihagen, Chief Executive Offi cer,
Northern Europe, took on the additional role
of Deputy to the Group Chief Executive Offi cer
and joined the Board as an Executive Director.
Paul Hollingworth joined the Board on 1
January 2010 as Group Chief Financial Offi cer.
Peter Marks, the Group Chief Executive
of The Co-operative Group, will join the
Board upon completion of the UK Retail
joint venture with The Co-operative Group
and Midlands Co-operative. Each of our
new Directors brings a wealth of welcome
experience to the Board’s deliberations.
Jürgen Büser stepped down from the Board as
Group Chief Financial Offi cer on 29 November
2009 and, having recovered well following a
period of ill health, returned to the business to
take up the role of Group Strategy Director on
the Group Executive Board. Nigel Northridge,
one of our Non-Executive Directors, resigned
from the Board on 25 March 2010, to pursue
broader responsibilities within his portfolio of
non-executive directorships.
On behalf of the Board, I would like to
thank Jürgen and Nigel for their contribution
to the Group.
At the forthcoming AGM, I will be standing for
re-election for a further year. The Nominations
Committee, under the leadership of the Senior
Independent Director, is in the early stages
of a process to identify my successor with the
aim of making an announcement during the
course of the year.
EXECUTIVE TEAM
Manny Fontenla-Novoa and his executive
team have together made robust and
encouraging progress in a challenging
marketplace. The Board would like to
thank them and confi rm our confi dence
in their ability to address the challenges
that lie ahead.
EMPLOYEES
Our employees remain central to the future
success of the Group. There can be no better
example of dedication to customer service
than their response to the closure of airspace
due to the volcanic ash cloud. With sound
values and a range of skills and experience,
we believe they are our key differentiator in a
highly competitive global 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, the actions
taken in the UK and the progress against a
wide range of strategic initiatives, the Board
is confi dent that the Group is well positioned
to make progress in the current year.
Michael Beckett
Chairman
30 November 2010
Thomas Cook Group plc Annual Report & Accounts 2010
3
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Directors’ Report
GROUP OVERVIEW
Thomas Cook Group plc is one of the world’s leading leisure travel
groups with sales of £8.9 billion and 22.5 million customers.
We operate under six geographic segments in 21 countries, and
are number one or number two in our core markets.
UK including Ireland,
India and Middle East
We operate under the iconic
Thomas Cook brand
Central Europe
West & East Europe
Strong brand
awareness and an
improving retail
position
Brand strength in
all markets
Financial highlights
Financial highlights
Financial highlights
Revenue*
£3,143.4m
2009: £3,098.0m
Percentage of Group revenue
35.3%
Adjusted underlying profi t from
operations**
£123.9m
2009: £162.0m
Operating profi t margin***
3.4%
2009: 5.2%
Revenue*
£1,973.4m
2009: £2,147.1m
Percentage of Group revenue
22.2%
Adjusted underlying profi t from
operations**
£60.9m
2009: £50.4m
Operating profi t margin***
3.0%
2009: 2.3%
Revenue*
£1,698.4m
2009: £1,853.2m
Percentage of Group revenue
19.1%
Adjusted underlying profi t from
operations**
£86.7m
2009: £85.7m
Operating profi t margin***
4.8%
2009: 4.6%
Contribution to the Group1
Contribution to the Group1
Contribution to the Group1
28.8%
14.2%
20.2%
Key facts
Key facts
Key facts
• 7.8 million2 passengers
• 1,011 retail3 outlets
• 41 aircraft
• controlled distribution 72.0%
• internet distribution 32.6%
• 3.6 million passengers
• 1,321 retail outlets
• controlled distribution 23.7%
• internet distribution 7.2%
• 3.1 million passengers
• 1,105 retail outlets
• 7 aircraft
• controlled distribution 56.9%
• internet distribution 21.4%
See Appendix 1 on page 130 for key.
1 The contribution to the Group has been based on the adjusted underlying profi t from operations fi gure of £429.2m, which excludes
4
Thomas Cook Group plc Annual Report & Accounts 2010
corporate costs of £37.8m.
2 Includes 1.1m passengers in India and Egypt.
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What we offer
Mainstream travel
Independent travel
Travel-related fi nancial services
Mainstream travel is primarily the sale
of charter holiday packages where two or
more components of travel, such as fl ights,
hotels, transfers and in-resort support,
are bundled together in advance and
sold to customers.
+
Independent travel is a key area of growth.
Independent travel is where consumers
build up the individual components of
their own trip either by themselves or
with the help of an agent. We are building
our position both in retail and wholesale
independent travel.
+
Travel-related fi nancial services broadly
fall into the categories of travel money,
travel assurance and travel fi nance
products. They are typically high margin
products and are sold alongside other
holiday components.
Northern Europe
North America
Airlines Germany
Leading market
position and
number 1 brands
Strong position in
independent
travel
Strong, profi table
stand alone airline
Financial highlights
Financial highlights
Financial highlights
Revenue*
£1,014.0m
2009: £1,059.3m
Percentage of Group revenue
11.4%
Adjusted underlying profi t from
operations**
£93.9m
2009: £86.6m
Operating profi t margin***
9.0%
2009: 8.2%
Revenue*
£352.5m
2009: £370.4m
Percentage of Group revenue
4.0%
Adjusted underlying profi t from
operations**
£9.7m
2009: £17.9m
Operating profi t margin***
2.6%
2009: 4.8%
Revenue*
£996.2m
2009: £1,061.2m
Percentage of Group revenue4
8.0%
Adjusted underlying profi t from
operations**
£54.1m
2009: £47.4m
Operating profi t margin***
5.1%
2009: 4.5%
Contribution to the Group1
Contribution to the Group1
Contribution to the Group1
21.9%
2.3%
12.6%
Key facts
Key facts
Key facts
• 1.4 million passengers
• 11 retail outlets
• 11 aircraft
• controlled distribution 84.4%
• internet distribution 60.7%
• 1.1 million passengers
• 48 retail outlets
• controlled distribution 14.3%
• internet distribution 36.7%
• 5.7 million5 passengers
• 34 aircraft
• Approximately one-third of seats
sold in-house
3 Includes 224 retail outlets in India and Egypt.
4 The percentage of Group revenue for Airlines Germany has been calculated using the external revenue fi gure of £708.4 million.
5 Includes in-house passengers of 2m.
Thomas Cook Group plc Annual Report & Accounts 2010
5
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Directors’ Report
Group Chief Executive Offi cer’s statement
RESPONDING
TO THE
CHALLENGE
We recognised at the outset that
2009/10 would be demanding
given the uncertain economic
outlook and, accordingly, we
took early action to deal with the
challenges. While we made good
progress in many of our operating
segments and delivered a strong
improvement in operating cash
fl ow, trading in the UK was even
tougher than anticipated. I am
confi dent that the actions we
have now taken to reinforce
the UK business, together with
continued progress on our
strategic initiatives, leave us well
positioned to make progress in
the current year.
Manny Fontenla-Novoa
Group Chief Executive Offi cer
6
Thomas Cook Group plc Annual Report & Accounts 2010
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GROUP RESULTS
Group revenue for the 12 months ended
30 September 2010 was £8,890m (2009:
£9,269m), down 4% (5% on a constant
currency basis), mainly refl ecting planned
capacity reductions in our winter 2009/10
mainstream travel programme and lost sales
as a result of the volcanic ash cloud incident.
Adjusted underlying profi t from operations
was £391m (2009: £415m). This was the
result of reduced capacity and the impact of
weaker Sterling on fl ying and accommodation
costs, which was partially mitigated by cost
initiatives in accommodation purchasing,
airline operations and general overheads.
Despite the challenging conditions, our
Central Europe and Airlines Germany
businesses recorded much improved results
of £61m (2009 restated: £50m) and £54m
(2009: £47m) respectively. These mainly
resulted from product and effi ciency
improvements in both businesses and
reduced depreciation charges in Airlines
Germany. The Northern Europe profi t of
£94m (2009 restated: £87m) was also up and
West & East Europe, which reported a profi t
of £87m (2009 restated: £86m), did well
considering the diffi cult economic conditions
in some of their markets.
The UK segment faced a challenging year,
in part due to signifi cant foreign exchange
headwinds and softer demand over the
summer and, as a result, adjusted underlying
operating profi t was £124m, down 24% on
last year. Continued mainstream overcapacity
in the Canadian market impacted North
America’s profi ts which fell to £10m
(2009 restated: £18m).
Reducing exceptional costs is a key area of
focus for the Group. Excluding volcanic ash
costs of £53m, other exceptional charges fell
from £217m to £132m as the integration
costs associated with the MyTravel merger
fell away. Further detail can be found in the
Financial Review on pages 42 to 45 and in
note 6 to the Group fi nancial statements.
The net interest charge for the year remained
broadly fl at at £116m.
Overall, the Group delivered a statutory profi t
before tax of £42m compared with £45m last
year, and the reported profi t after tax was
£3m (2009 restated: £9m).
The adjusted underlying earnings per share
was 22.8p (2009 restated: 25.0p). The basic
loss per share was 0.3p (2009 restated
earnings per share: 0.8p).
STRONG CASHFLOW PERFORMANCE
During the year, there has been a concerted
effort across the Group to produce a
sustainable improvement in cash fl ow. This
has largely been delivered through improved
working capital management by raising
customer deposit levels, accelerating holiday
balance payments and harmonising supplier
payment terms. This has been partly offset by
increased hotelier deposits required in some
cases and a reduction in creditors.
As a result of this, and despite the diffi cult
trading environment, the Group achieved a
signifi cant improvement in cash fl ow, with
a £121m increase in operating cash fl ow
to £299m.
The Group cash outfl ow (before changes
in debt) was reduced to £117m compared
with an outfl ow of £314m in the prior year.
Group net debt at year end was £804m
and headroom on banking facilities at
30 September 2010 was £846m.
SUCCESSFUL REFINANCING
During the year, we successfully replaced
our previous bank facility with new funding.
The new arrangements, which amount
to £1,700m in total, comprise a £1,050m
banking facility and £650m of bonds (Sterling
equivalent). Taken together, they provide the
Group with a simpler borrowing framework,
longer and varied maturities and greater
fl exibility and funding going forward.
VOLCANIC ASH IMPACT AND
OUR RESPONSE
The volcanic ash cloud from Iceland closed
the majority of airspace above Northern
Europe for almost six days in April, and it
then took up to fi ve days before the vast
majority of our customers had been returned
home. Further isolated closures in April and
May impacted individual markets.
I am extremely proud of the way in which
all our people at Thomas Cook pulled
together to respond to this crisis. The scale
of the event was vast, involving c.180,000
customers stranded in resort, c.190,000
customers unable to depart on holiday
and over 1,000 cancelled fl ights. Our well-
rehearsed emergency procedures sprung
into action and the team led a professional
operation to reassure and assist customers,
while simultaneously working with industry
colleagues and the aviation authorities to
coordinate a return to normal fl ying.
The letters of thanks and praise that we
received from customers are testament to
the dedication of our people and the event
highlighted again the added security of
booking a package holiday.
UK RESTRUCTURING AND HIGH STREET
TRAVEL MERGER
Given the challenges experienced in the UK,
and the uncertain outlook, we undertook a
comprehensive review of the UK cost base
and the structure of our UK operations
towards the fi nancial year end.
This review has resulted in a re-organisation
of the UK into three divisions (Mainstream,
Independent and Retail) to reduce complexity
and give greater accountability and visibility
of operations.
Adjusted underlying profi t
from operations
The closure of European airspace in
April 2010 had a signifi cant impact
on the operations of the Thomas Cook
Group. As well as incurring £52.9m
of direct exceptional costs to
manage the welfare and repatriate
our customers stranded in resort,
management estimates that the lost
margin from not being able to operate
our fl ight programme during this time
was £29.2m. Given the uniqueness
of this incident and the distortion
management believes the margin
loss causes to our results, we have
excluded this margin impact from
the underlying profi t from operations
that we discuss in both the Group
Chief Executive Offi cer’s Statement and
the Operating and Financial Reviews.
We refer to this profi t measure as
“Adjusted underlying profi t from
operations”. Unadjusted numbers have
been provided in the statutory income
statement and related notes.
Customer service
UK
76%
(2009: 76%)
Central Europe
71%
(2009: 72%)
Northern Europe
72%
(2009: 72%)
Airlines Germany
73%
(2009: 74%)
West & East Europe
79%
(2009: 79%)
North America
93%
(2009: 91%)
Source: Standardised customer satisfaction measure based on
mainstream customer surveys in each of our source markets.
Thomas Cook Group plc Annual Report & Accounts 2010
7
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Directors’ Report
Group Chief Executive Offi cer’s
statement continued
As a result of the restructuring, we expect
to generate annualised overhead savings
of £40m to £50m through the reduction of
over 500 managerial and support roles; the
renegotiation of supplier costs and reduction
in buying requirements; and by consolidating
and upgrading our IT infrastructure. These,
and other savings, will be achieved in full
in the fi nancial year ending 30 September
2012, helping to mitigate input cost pressures
and any further deterioration in the trading
environment. We estimate that at least £30m
of savings will be achieved in the current year
and that the cost of approximately £20m to
implement all of the planned savings will be
incurred in the current year.
The UK business will also benefi t from our
plan to merge our UK high street travel
and foreign exchange business with that
of The Co-operative Group and Midlands
Co-operative. This will create the UK’s largest
high street travel network with around
1,300 shops.
This deal represents the last signifi cant
consolidation opportunity in UK travel,
combining two of the industry’s strongest
and most complementary travel brands and
distribution networks to reach out to a wider
customer base than either company could
achieve independently.
It will unlock annualised synergies within
the merged entity of £35m at a one-off cost
of £30m and further upstream synergies in
Thomas Cook from additional mainstream
and independent product sales of £10m.
Thomas Cook will own 66.5% of the merged
entity, The Co-operative Group will own
30% and Midlands Co-operative will own
3.5%. Whilst the merger is still subject to
competition clearance, we are working
with the relevant authorities to achieve an
expedited clearance.
We believe that the restructuring, combined
with the merger with The Co-operatives,
will greatly strengthen our UK business
going forward.
CONFIDENCE IN OUR STRATEGY
Despite the challenging trading conditions
this year, we remain confi dent that the global
travel market will return to growth and that
our strategy is the right one to capture that
growth and deliver value to our shareholders.
“OUR STRATEGY IS FOCUSED ON STRENGTHENING OUR
MAINSTREAM, PACKAGE HOLIDAY AND FINANCIAL SERVICES
BUSINESSES AND INVESTING IN AREAS OF FUTURE GROWTH,
PRIMARILY INDEPENDENT TRAVEL AND NEW MARKETS”
Our Group Executive Board
From left to right:
Back row: Jürgen Büser, Pete Constanti, Thomas Döring, Paul Hollingworth, Ralf Teckentrup and Paul Wood.
Front row: Ian Derbyshire, Peter Fankhauser, Michael Friisdahl, Manny Fontenla-Novoa, Sam Weihagen and Derek Woodward.
see pages 46 to 48 for full biographies
8
Thomas Cook Group plc Annual Report & Accounts 2010
Our strategy is focused on strengthening our
mainstream, package holiday and fi nancial
services businesses and investing in areas of
future growth, primarily independent travel
and new markets.
During the year, we began work on a number
of strategic initiatives that, we believe, have
the potential to raise the Group operating
profi t margin by a further 100 to 150 basis
points over the medium term.
The progress on our key strategic initiatives is
highlighted below and a full Strategic Review
is set out on pages 12 to 14.
Mainstream travel
The strategy for our Mainstream travel
business is to improve product mix, whilst
reducing operating costs, thus driving
improvement in margin. During the year, we
made good progress on a number of fronts.
In relation to costs, we established a new
Group Destination Management function
with direct control over more than £1bn of
accommodation spend and average Group
accommodation costs as a percentage of
sales reduced year-on-year by 120 basis
points to 32.5%. On aviation, by working
together across our segments, our airlines
delivered £19m incremental airline synergies
from fuel effi ciency improvements and joint
tendering. In addition, good cost reductions
were achieved in all of our operating
segments, assisted by Group Procurement.
In terms of product mix, we improved
our share of differentiated and exclusive
products in all major markets and, through
the acquisition of Öger Tours, we have
strengthened our offering to Turkey from
Germany. We also increased controlled and
online distribution to 52% (2009: 51%) and
23% (2009: 22%) respectively.
Thomas Cook Group operates a fl eet of 93
aircraft with an average age of 12 years. The
Group has identifi ed signifi cant operational
savings, particularly from maintenance
and improved fuel effi ciency, that can be
achieved by renewing and harmonising its
71 narrow body aircraft within a common
fl eet. Following a comprehensive review, the
Group has selected the Airbus 320 family of
aircraft. Accordingly, the Group will begin a
fi ve-year narrow body aircraft replacement
programme, starting in December 2012 and
phased in line with the planned retirement
of the existing fl eet. The replacement
programme will deliver optimum fl exibility
by sourcing new narrow body aircraft
through a combination of fi rm and fl exible
orders direct with the manufacturer and
though accessing the aircraft leasing market.
A review of the wide body fl eet replacement
requirements will be undertaken during the
current year.
As part of the replacement programme,
the Group has reached a memorandum
of understanding with Airbus for 12 new
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Airbus 321 aircraft scheduled to be delivered
in 2014, with a list price of US$96m each,
together with options to purchase further
aircraft from 2015. These aircraft are subject
to substantial price concessions from the list
price. The Group will remain a heavy user
of operating leases and it is anticipated that
directly purchased aircraft will be fi nanced
through sale and leaseback agreements with
third-party lessors.
For the fl eet as a whole, it is estimated
that the reduced running costs of the new
aircraft will more than fi nance the increased
ownership costs. It is not anticipated that the
overall fl eet size will increase as a result. The
Group expects to sign fi nal contracts early in
the New Year.
Travel-related fi nancial services
Travel-related fi nancial services contributed
14% of Group adjusted underlying operating
profi t. In the UK, we increased our share of
the foreign exchange market from 13% to
15% and became the number one global
provider of cash passports supplied by
Travelex, tapping into the rising popularity
of pre-paid currency cards. Additionally,
we boosted our online travel insurance
capability by acquiring Essential Travel.
Independent travel and Online
Travel Agent (OTA)
Our objective with independent travel is to
grow both the top and bottom line, largely
through the development of our European
Online Travel Agent (OTA).
In the year, we saw independent travel’s
share of Group sales grow from 25% to 27%
and passengers grow by 5%.
Signifi cantly, we established the OTA
organisation under the leadership of Thomas
Döring, attracting high calibre people
from well known internet companies and
delivered sales with a gross booking value
of £1bn, an increase of 22% on the previous
year. This is a vital area for the Group and our
fi rst priority is to optimise sales of our own
package holidays through the e-commerce
channel. We are also developing plans to
broaden our offering of city breaks and
accommodation with benefi ts expected to
fl ow over the next two to three years.
US$10m in cash. The joint venture will
include Intourist’s outbound, domestic and
inbound tour operating operations as well
as its travel retail network. The joint venture
provides Thomas Cook with an entry into the
fast-growing Russian market with a strong
local partner. Subject to anti-trust clearance
in Russia and certain other conditions, the
joint venture is expected to complete in or
before February 2011.
SUSTAINABLE FUTURE
To secure our future success for the long term
we need to address the long-term challenges
facing the travel industry. We have made
progress during the year in all areas of our
sustainability strategy including maintaining
a committed and engaged workforce,
providing a great holiday experience for
customers whilst ensuring their security
and safety, improving fuel effi ciency and
monitoring the carbon emissions from
our aircraft and encouraging sustainable
practices within our supply chain. A full
report on our progress is provided on pages
38 to 41.
PROUD OF OUR PEOPLE
During the year, we welcomed Paul
Hollingworth as Group Chief Financial Offi cer.
Paul’s appointment has strengthened the
leadership team signifi cantly and we have
benefi ted from his previous experience as
Chief Financial Offi cer of a number of major
UK listed companies.
The Group Executive Board has continued
to show strong leadership and we made a
number of changes that enable us to manage
more effectively going forward. In November
2009, Jürgen Büser, having recovered well
following a period of ill health, returned to
the business to take up the role of Group
Strategy Director. Pete Constanti, previously
Chief Executive Offi cer, Mainstream Travel
UK, was appointed to the new Group role of
Chief Executive Offi cer, Group Destination
Management, and Ian Derbyshire, previously
Chief Executive Offi cer, Independent Travel
UK, was appointed Chief Executive Offi cer, UK.
In May 2010, Thomas Döring, Chief Executive
Offi cer, West & East Europe, expanded his
role, taking on additional responsibility for
spearheading our OTA initiative.
Emerging markets
As a Group, we continue to see large potential
opportunity in new, particularly emerging
markets, where travel and GDP growth rates
far outstrip our existing markets. We already
operate in India, Egypt and Eastern Europe
and, in 2010, 1.3m customers travelled with
us from these markets.
Ludger Heuberg , Chief Executive Offi cer,
Group Operations, who provided interim
support as Acting Group Chief Financial
Offi cer, and Alexis Coles-Barrasso, Group
Director PR & Communications, stepped
down to pursue other opportunities. I would
like to thank them both for their valued
input over the years.
On 25 November 2010, Thomas Cook
reached agreement to form a joint venture
with VAO Intourist, one of Russia’s most
renowned travel companies. Thomas Cook
will acquire a 50.1% stake in the joint venture
for a consideration of US$45m, comprising
US$35m in new Thomas Cook shares and
As part of the UK restructuring, we had
to part with a number of our colleagues
following the year end. The downsizing in no
way refl ects upon their ability or passion for
the business and they go with our gratitude
and best wishes for the future.
Next stop: London 2012
Back in 1896 Thomas Cook escorted
UK customers to the fi rst modern
Olympic Games in Athens. As an
offi cial supporter of the London 2012
Olympic and Paralympic Games,
Thomas Cook will be selling short
breaks, including offi cial event tickets
and accommodation, to the London
2012 Games.
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I would also like to personally thank all our
people for their hard work and commitment
to the Group over the last year. It has been
challenging at times and the effort and
energy they have shown has been invaluable.
CURRENT TRADING AND OUTLOOK
Our business has proved its resilience in
challenging times.
As we enter the current year, although the
UK environment remains uncertain, we are
encouraged by a better market environment
in our major Continental and Scandinavian
markets. Winter bookings are off to a good
start and, although early in the cycle,
summer bookings are developing well.
We have taken further actions to simplify
and streamline our UK business which
will result in signifi cant cost savings on an
annualised basis, helping to mitigate input
cost pressures and any further deterioration
in the trading environment.
We are confi dent that the actions we have
now taken to reinforce the UK business,
together with continued progress on our
strategic initiatives, leave us well positioned
to make progress in the current year.
Manny Fontenla-Novoa
Group Chief Executive Offi cer
30 November 2010
Thomas Cook Group plc Annual Report & Accounts 2010
9
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Directors’ Report
Market review
POSITIONED
WELL FOR
GROWTH
As the economic climate improves, forecasters
expect the international tourism market
to return to growth. The rate of recovery is
expected to vary across markets, with some
economies emerging more confi dently from
recession than others.
MACRO ENVIRONMENT AND
INTERNATIONAL TOURISM
International tourism is closely correlated
to economic growth and has enjoyed strong
and sustained growth for most of the last
three decades. Indeed, the overwhelming
trend has been for international leisure
travel to outpace the general economy.
The global fi nancial crisis in 2008 and
the subsequent contraction in GDP and
employment across many economies,
combined with fuel and currency volatility,
has restrained growth in recent years
(Figure 1).
Over the last 12 months, we have started to
see the economic indicators stabilise and
begin to show signs of recovery in many of
our major source markets in Continental
and Northern Europe. This gives us some
confi dence that volumes in these markets
will return to growth in the current fi nancial
year. The UK economy remains fragile and,
in this source market, we have taken cost
cutting and consolidation measures to
prepare ourselves for another potentially
diffi cult year.
CORE MARKET TRENDS
Thomas Cook’s top ten current source
markets comprise the UK, Germany, France,
the Netherlands, Belgium, the four Nordic
countries and Canada. Together these markets
account for 33%, or £274bn (Figure 2), of the
total global leisure travel market. Our market
segment, the travel intermediary segment,
which is made up of travel agents and tour
operators, totalled some £96bn in 2009 and is
expected to grow by an average of 2.8% each
year in real terms to reach £110bn by 2014
(Figures 3 and 4).
Within the travel intermediary market,
expectations are that the package holiday
will remain a mainstay of the market.
Growth will be higher in independent travel
and online bookings will grow faster than
offl ine for both mainstream and independent
products. Our strategy is designed to capture
value from each of these key trends.
Mainstream vs Independent
In 2009, mainstream package holidays
comprised £29bn or 30% of the total
intermediary market (Figure 4). Customers
continue to fi nd the value, convenience
and protection offered via the package
holiday attractive, with modest but further
real growth of around 2.1% per annum
forecast to 2014.
Independent travel, where customers
put together their own fl ight, transfer and
accommodation arrangements is large
and growing fast. Comprising £63bn of the
intermediary market in 2009, independent
travel is forecast to grow by 3.2% per
annum to 2014.
Online growth
In terms of distribution, the shift towards
online continues, with internet estimated to
increase its share of total market sales from
25% to 31% (Figure 5).
10 Thomas Cook Group plc Annual Report & Accounts 2010
Although the dynamic nature of independent
travel makes the online environment ideal
for travel research and purchases, package
customers too are increasingly alive to the
convenience of online.
Consumer preferences
Our research demonstrates that consumers
continue to prioritise a main holiday abroad
and that they are looking for both quality
and value.
These preferences have fuelled demand
for medium haul holidays to destinations
outside of the Eurozone, especially to Turkey
and Egypt. All inclusive holidays, which give
customers greater budget certainty, have also
continued their rise.
EMERGING MARKET GROWTH
While our top ten source markets comprise
approximately 33% of the world leisure travel
market today, the BRIC economies currently
account for only 9% (Figure 2). Travel growth
rates in these emerging economies, however,
far outstrip growth in our established source
markets, supported by higher than average
GDP growth rates and an increasingly
affl uent population. For example, between
2008 and 2012, outbound travel in Russia is
expected to grow 15 to 20% on average each
year with an equivalent growth rate of 10 to
15% in China.
New markets and particularly the emerging
economies offer a huge potential growth
opportunity for Thomas Cook. We have
already established positions in India,
Egypt and Eastern Europe and continue to
look for entry opportunities where we can
leverage our expertise and capture value for
shareholders at the right price. In November
2010, we announced our plans to enter
the Russian market in a joint venture with
VAO Intourist.
Q&A
AN INTERVIEW WITH
MANNY FONTENLA-NOVOA,
GROUP CHIEF EXECUTIVE
OFFICER, DISCUSSING SOME
OF THE CHALLENGES AND
TRENDS AFFECTING THE
TRAVEL MARKET:
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The global travel market
The following graphs illustrate the global leisure travel market. They highlight historic growth in leisure travel relative to GDP
growth and the current size of the world leisure travel market.
Figure 1:
World GDP growth and international tourist arrivals 1980-2009
Figure 2:
World leisure travel market 2009
350
300
250
200
150
100
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
Intl. tourist arrivals
Real world GDP
22.1%
8
£820bn
7
6
3.0%
8.4%
5
8.7%
4
25.8%
1
2
4.8%
3
2.8%
24.4%
1 UK, Belgium,
France, Germany,
the Netherlands
2 Nordics
3 Canada
4 Other Europe
5 BRICS
6 US
7 Japan
8 Rest of World
Thomas Cook core markets1
Other markets
Note: Numbers indexed to year 1980.
Source: UNWTO World Tourism Barometer, IMF World Economic Outlook.
Source: UNWTO, Euromonitor, Thomas Cook management
analysis and estimates.
Travel intermediary market: core market1 trends
Thomas Cook operates in the travel intermediary segment of the leisure travel market. The following graphs illustrate the size
of the intermediary market in our core markets1 and the relative growth of independent travel and online bookings.
Figure 3:
Overall travel market 2009
Figure 4:
Mainstream v Independent
Figure 5:
Online growth
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Financial
Services
£4bn
Travel
intermediaries
£96bn
£96bn
£4bn
£110bn +2.8%2
£5bn (+1.1%)2
£110bn +2.8%2
£5bn (1.1%)2
£96bn
£4bn
Online
£24bn
Online
£34bn (7.3%)2
There are two distinct
segments in the
leisure travel market:
direct suppliers and
travel intermediaries.
Direct suppliers are
the airlines, hotels
and cruise companies
that sell directly to
the customer. Thomas
Cook operates in the
travel intermediary
segment, made up of
travel agents and tour
operators.
Source: Euromonitor.
Direct
suppliers
£178bn
Total
£274bn
Independent
travel
£63bn
Mainstream
travel
£29bn
1 Top ten source markets today comprising UK, Germany, France, Belgium, the Netherlands,
the four Nordic countries and Canada.
2 Real Compound Annual Growth Rate 2009 – 2014.
Q What would happen if the
Icelandic volcano erupted
again?
A – We can be reasonably
confi dent that there wouldn’t
be the same level of disruption.
At the onset of the volcanic ash
incident, the aviation authorities
had very limited experience of
how to maintain safe fl ying in
such an environment. Working
closely together, the industry
now has a much greater
understanding of the challenge
and the aviation authorities
have agreed zoning procedures
that enable safe fl ying to
continue in unaffected areas.
Q If online distribution is growing
so fast, why increase your
exposure to the high street in
the UK through the merger with
The Co-operative Group and
Midlands Co-operative?
A – We’re participating in the
online growth trend through
the development of our
Online Travel Agent (OTA).
However, offl ine distribution
remains an important channel
for both traditional, package
holiday sales and more fl exible,
independent travel products.
Industry data shows that offl ine
distribution could continue to
account for up to 70% of total
sales in 2014. We therefore need
Independent
travel
£63bn
Independent
travel
£73bn (+3.2%)2
Mainstream
travel
£29bn
Mainstream
travel
£32bn (+2.1%)2
Offline
£68bn
Offline
£72bn (1.1%)2
2009
2014
2009
2014
The mainstream travel market will
continue to grow in real terms;
however, independent travel will
drive the majority of growth.
Online growth is predicted to
be faster than offl ine growth in
mainstream and independent.
to maintain a strong but
highly effi cient high street
network. The deal with The
Co-operatives enables us to
do that by improving the
reach of our network while
reducing our costs.
or incentivise more effi cient
fl ying. We continue to target
high aircraft utilisation, fuel
and operating effi ciency, all
of which help keep the cost
of fl ying as low as possible
to support demand.
Q What impact do you think the
new air passenger duties in
Germany and the UK will have
on demand?
A – Taxes increase the cost of
fl ying and this can obviously
reduce demand. We are
particularly disappointed as the
tax increases purport to support
the green agenda when in fact
they will do nothing to increase
Thomas Cook Group plc Annual Report & Accounts 2010 11
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Directors’ Report
Strategic review
DELIVERING AGAINST
OUR STRATEGY
Our strategy has continued to serve us well
and offers plenty of opportunity for growth.
OVERVIEW OF STRATEGY
Inspired by the vision “We go further to
make dreams come true,” our strategy has
remained clear and constant, focused around
strengthening our existing businesses and
investing for future growth.
During the year, we began work on a number
of strategic initiatives that have the potential
to deliver revenue growth and lift the Group
operating profi t margin by 100 to 150 basis
points over the medium term.
Our strategic initiatives focus on delivering
against our growth drivers; maximising value
in mainstream travel and fi nancial services
and investing in areas of future growth,
primarily independent travel and emerging
markets. In parallel, we continue to look for
opportunities that can accelerate our journey
by capturing growth and value through
mergers and acquisitions.
1 MAINSTREAM TRAVEL
The strategy for our mainstream business
is to improve product mix, whilst reducing
costs, thus driving an improvement in
margin. During the year, we made good
progress in managing our accommodation
and aviation costs. We also continued
to introduce new differentiated product
concepts and drive distribution gains.
Cost effi ciencies
Accommodation and non-fuel aviation
costs are £2.9bn and £2.5bn respectively,
so a relatively modest saving can have a big
impact on our performance. Our approach
is to leverage our Group buying scale in both
these areas, co-ordinating action across all
segments to deliver benefi t.
Group destination management
At the outset of this year, we targeted a
signifi cant reduction in accommodation costs
to support demand in the diffi cult economic
climate and mitigate currency-related
infl ation resulting from Sterling weakness.
A new Group Destination Management
function was set up to co-ordinate strategy
and hotelier negotiations with our top 75
12 Thomas Cook Group plc Annual Report & Accounts 2010
hotel partners and in our fastest-growing
destinations of Turkey and Egypt. With
direct control of more than £1bn of
accommodation spend, the new function
has been instrumental in reducing Group
accommodation costs as a percentage of
sales by 120 basis points to 32.5%. The new
function will also support more exclusive
access to hotel properties and consolidate
inbound agency relationships and in-
destination support staff across the Group.
Airline synergies
On aviation, we began implementation of
an ambitious synergy plan to unlock savings
of £35m per annum. By working more
closely together, our airlines had delivered
£19m of incremental savings during the year
through a combination of fuel effi ciency
measures and improved purchasing of fuel,
crew accommodation, ground handling and
maintenance services. Plans are in place to
purchase catering and rotables support more
effectively which will deliver the balance of
savings in this, and the following, fi nancial
years.
Product mix and trading margin gains
Product mix is a key factor in driving
margins and we have already made good
progress by recalibrating our programmes
towards medium haul destinations, all
inclusive resorts and more 4 and 5 star
holidays. As part of this, we also work to
increase the proportion of differentiated,
unique-concept holidays and exclusive
hotels we offer.
This year, the French market had particular
success with a new concept, Club Jumbo.
Club Jumbo turns the perceived pricing
model for package holidays on its head,
offering low prices to early bookers and
increasing prices close to departure. With
its lively entertainment programme,
this new concept attracted a total of
30,000 customers, 5% of the total French
customer base, taking more than 60% of
bookings online.
Overall, our West & East Europe segment
increased sales of differentiated and
exclusive product from 41% to 45%, the UK
segment from 32% to 35% and Central Europe
from 24% to 28%.
Distribution gains
During the year, the Group increased in-
house distribution of mainstream product to
52% (2009: 51%) and online distribution to
23% (2009: 22%)
2 TRAVEL-RELATED FINANCIAL SERVICES
Our key objective in fi nancial services is to
drive sales through cross selling of foreign
exchange and travel insurance products. In
the period, fi nancial services contributed
around 14% of Group adjusted underlying
operating profi t. In the UK, we increased our
share of the retail foreign exchange market
from 13% to 15% and established ourselves
as the number one global provider of cash
passports supplied by Travelex, with a 150%
increase in sales.
3 INDEPENDENT TRAVEL
Our objective with independent travel is to
grow both the top and bottom line, largely
through the development of our European
Online Travel Agent (OTA). During the year,
independent travel continued to grow
strongly, increasing to 27% of Group revenue
from 25% last year, with passengers up by 5%.
Online Travel Agent (OTA)
Unlike the US, the European OTA market
remains relatively fragmented and Thomas
Cook has the opportunity to achieve a top
three market position. Accordingly, we
are targeting gross bookings with a value
of around £3.5bn over the medium term
(although sales will be accounted for on a net
commission basis).
We already have many of the capabilities
to succeed as an OTA: a strong travel brand,
a large customer base, an existing online
platform, in-house expertise and market-
leading sun inventory.
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Vision
Strategic objectives
Strengthening our business and investing for growth
Strengthen our existing businesses
Invest in future growth
Growth drivers
1 Maximise value of
mainstream travel
2 Become the leading
travel-related fi nancial
services provider
3 Become a leading
independent travel
provider
Group revenue
71%
2009: 74%
Key objectives
• Drive average selling price
and trading margin growth
• Deliver accommodation,
aviation and operating
cost savings
• Improve share of in-house
distribution and increase
online distribution
Group revenue
1.7%
2009: 1.6%
Key objectives
• Grow foreign exchange
sales and market share
• Launch new products
• Improve cross-sell rates
Group revenue
27%
2009: 25%
Key objectives
• Establish thomascook.com
as a leading online
travel brand
• Build growth of wholesale
independent travel products
• Grow scheduled holidays
4 Capture growth and
value through mergers
& acquisitions and
partnerships
Contributor to all
other growth drivers
Key objectives
• Capitalise on consolidation
opportunities in current
markets
• Leverage expertise to capture
growth in emerging markets
Product
Technology
Customer insight
Brands
Financial rigour
Enablers
People and the PROUD Values
P
Pioneering
our future
R
Results
orientated
O
Obsessed with
customer service
U
United as
one team
D
Driving robust
decisions
During the year, we brought those capabilities
together in a central OTA organisation,
headquartered in London, and gave that
organisation responsibility for driving forward
our main OTA and branded tour operator sites
in the UK, Germany, France, the Netherlands
and Belgium. The new structure combines
regional directors with responsibility for
delivering the online plan for each of the fi ve
markets with a strong central organisation,
spanning key commercial, infrastructure and
business support functions. Comprising some
180 employees in total, the new organisation
brings together specialists from within
Thomas Cook with new talent from across
the online industry.
Signifi cant progress was made in enhancing
the presentation and streamlining the
booking path on our main websites and, in
the current year, we will upgrade the invisible
but crucial technology platform. This will
enable us to increase the inventory and
improve the presentation we offer to our
customers. In parallel with the technology
upgrade, we are also focused on building up
our city hotel inventory to complement our
current strength in sun and beach hotels.
Taken together, the sites within the scope of
the OTA delivered gross bookings with a value
of £1bn in the fi nancial year just ended, an
increase of 22% on the previous year.
In its initial stages, the results of the OTA will
continue to be reported within our existing
segments but we will give more visibility to
its performance over time.
4 MERGERS & ACQUISITIONS (M&A)
Through M&A and partnerships, our objective
is to capitalise on consolidation opportunities
in our current markets and leverage our
expertise to capture growth opportunities
in emerging markets.
Consolidation opportunities in
current markets
During the year and following the year
end, we have announced three transactions
in our existing markets.
In the UK, we announced the merger
of our high street retail travel and foreign
exchange network with that of The
Co-operative Group and Midlands
Co-operative. On completion, the merger
will create the UK’s largest high street
travel network with over 1,300 stores.
By bringing together two complementary
brands and geographic networks, the
merged entity will reach more customers
than either company could achieve
independently. It is planned to unlock
synergies of at least £35m in the merged
entity and a further £10m upstream
synergies within Thomas Cook from
additional sales of our mainstream and
Thomas Cook Group plc Annual Report & Accounts 2010 13
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Directors’ Report
Strategic review
continued
independent travel products. Thomas
Cook will hold 66.5% of the merged entity,
The Co-operative Group will hold 30% and
Midlands Co-operative will hold 3.5%. Whilst
the merger is still subject to competition
clearance, we are working with the relevant
authorities to achieve an expedited clearance.
In Germany, we acquired Öger Tours, a tour
operator specialising in package holidays to
Turkey. This acquisition, which completed
in October 2010, strengthens our position as
the second largest travel group in Germany
and further increases our presence in Turkey,
a strategically important destination for the
entire Group. Today, Öger Tours carries some
400,000 passengers. By bringing Öger into
the Thomas Cook family, we estimate we
can generate synergies in excess of €8m per
annum through operational savings, more
in-house fl ying with Condor and combined
accommodation purchasing.
Finally, in fi nancial services, we boosted our
capability by acquiring Essential Travel, a
leading provider of online travel insurance
and ancillary products in the UK.
Growth in emerging markets
Alongside these transactions in our
established markets, in November 2010 we
reached agreement to enter the fast-growing
Russian travel market in a joint venture with
VAO Intourist, one of Russia’s oldest and
most renowned travel companies. The joint
venture will include Intourist’s outbound,
domestic and inbound tour operating
operations as well as its retail travel network.
It will focus on expansion in Russia and the
other CIS countries.
The Russian market has strong demand for
beach and family holidays, particularly to
Turkey and Egypt. Over six million Russians
went on overseas, packaged holidays last year
and the market is expected to grow strongly
in the coming years given increasing wealth
amongst Russia’s population of 142 million
and strong economic growth driven by the
natural resources sector.
Thomas Cook will initially acquire a 50.1%
stake in the new joint venture company,
for a maximum consideration of US$45m.
The joint venture is conditional upon
anti-trust clearance in Russia and certain
other conditions and is expected
to complete in or before February 2011.
14 Thomas Cook Group plc Annual Report & Accounts 2010
Key performance indicators
In order to measure progress against our strategy, the Board and senior
management team monitor a range of key performance indicators.
Growth driver 1 – Mainstream travel
Group Destination Management
Aim To leverage Group buying power, reducing
accommodation costs as well as protecting and
enhancing the product portfolio
Progress Accommodation costs reduced from
33.7% to 32.5% of Group revenue
Airline synergies
Aim Deliver £35m annualised savings in Group
aviation costs (non-fuel) and ongoing effi ciency
Progress £19m incremental annualised savings
achieved in year ended 30 September 2010
Group revenue %
2010
2009
0
32.5
33.7
Annualised savings £m
2010
2009
2
0
21
52
51
Controlled distribution
Aim Increase in-house distribution of mainstream
travel products
Progress In-house sales of mainstream travel
products increased to 52%
Share of in-house distribution %
2010
2009
0
Growth driver 2 - Travel-related fi nancial services
Financial services
Aim Protect and grow fi nancial services
contribution to Group profi t
Progress Travel-related fi nancial services
increased to around 14% of Group adjusted
underlying profi t from operations
Group profit %
2010
2009
0
Growth driver 3 - Independent travel
Independent travel
Aim Increase independent travel sales as a
proportion of Group revenue
Progress Independent travel sales increased
to 27% of Group revenue
Group revenue %
2010
2009
0
xx
14
13
27
25
Online Travel Agent (OTA)
Aim Develop a top three position in the European
OTA market, targeting gross bookings with a value
of around £3.5bn
Progress Central OTA established, delivering gross
bookings with a value of £1bn
Gross bookings value £m
2010
2009
0
1,046
857
Group fi nancial results
Group operating profi t margin (underlying)
Aim Increase Group operating profi t margin by
100 to 150 basis points over the medium term
Progress Margin fell to 4.1% principally as a result
of diffi cult trading in the UK segment
Group operating profit margin %
2010
4.1
2009
0
4.5
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STRATEGY IN ACTION
16 Customer satisfaction
Looking after our customers is essential in realising our strategy and we achieve
this by implementing our vision of going further to make dreams come true
18 Online travel agency
e-Commerce is an increasingly important channel for our
business and one of our key drivers for growth
20 Destination management
We have established a new Group Destination Management function to help
maximise the value of mainstream travel
22 Airline synergies
We are strengthening our aviation services
by improving fuel effi ciency and consolidating suppliers
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Thomas Cook Group plc Annual Report & Accounts 2010 15
STRATEGY IN ACTION
CUSTOMER SATISFACTION
LOOKING AFTER OUR
CUSTOMERS
We have continued to meet and exceed customer expectations
in spite of the challenging year and the complications with the
volcanic ash cloud.
16 Thomas Cook Group plc Annual Report & Accounts 2010
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THE VOLCANIC ASH CLOUD:
OUR RESPONSE TO CUSTOMERS
• we immediately invoked our tried and tested emergency
procedures and set up specialised incident rooms from
which to organise our response to the crisis
• communication with our customers was paramount in
this ever-changing situation and we set up telephone
hotlines as well as continuously updating our websites
• we employed a variety of alternative methods of
transport to repatriate stranded customers, chartering
coaches and even a cruise ship to get people home
• all 180,000 stranded customers arrived home within
fi ve days of the airspace being reopened
• feedback from customers was hugely positive with a
large number taking the time to write to thank us
Thanks to the commitment of our international team and our
strong supplier relationships all over the world, Thomas Cook
customers were well looked after during this diffi cult time.
Moreover, the Group was back operating its full tour operating
programme within 36 hours of the ban being lifted and we were
able to repatriate all of our customers who were stranded overseas
within fi ve days of the airspace reopening.
The Spring of 2010 saw unprecedented disruption and travel chaos
resulting from the widespread closure of airspace over many
European countries when the Eyjafjallajökull volcano in Iceland
erupted. Clouds of ash reached heights of more than 30,000 feet and
understandably there was uncertainty on an international level as to
how these exceptional conditions could affect aircraft.
The initial uninterrupted shutdown over much of northern Europe
lasted for almost six days, from 15 April to 20 April, and was followed
by further intermittent, isolated closures in April and May.
The airspace closures meant 180,000 Thomas Cook customers were
stranded in resort and a further 190,000 customers were unable to
depart on holiday.
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Thomas Cook Group plc Annual Report & Accounts 2010 17
STRATEGY IN ACTION
PROGRESS AGAINST OUR ONLINE TRAVEL AGENCY INITIATIVE
• central OTA organisation, headquartered in London,
staffed and up and running
• OTA organisation leads development of main OTA and
branded tour operator sites in UK, Germany, France,
the Netherlands and Belgium
• improvements made to existing sites to increase visitor
numbers and sales conversion rates
• technology upgrade path agreed to enhance sites for
the future
• action taken to enhance city hotel inventory
• gross booking value of c.£1bn, growth of 22% on prior year
THOMAS COOK CAN
CREATE A UNIQUE
MARKET POSITION
customer view
One
One
All
proposition
travel needs
18 Thomas Cook Group plc Annual Report & Accounts 2010
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ONLINE TRAVEL AGENCY
CREATING A
TOP THREE
EUROPEAN
ONLINE TRAVEL
AGENT
Alongside our more established
sales channels, e-Commerce is an
increasingly important channel for
our business and one of our key
drivers for growth.
During the year, we announced our ambitious plans to develop a full service
Online Travel Agent (OTA), where our ultimate aim is to achieve a top three
position in Europe, rivalling the likes of the current market leaders Expedia
and Opodo.
The OTA is a major strategic objective for the Group as we see potential for
transactions with a gross booking value of c. £3.5bn and signifi cant profi t.
Unlike the American market, which is already dominated by two main
players, the European OTA landscape is relatively fragmented and
growing fast.
We already have many of the capabilities to succeed; a strong brand,
a large customer base, an existing online presence and market leading
sun inventory. Our OTA team is building our portfolio of city hotels and
enhancing our technology platform, both key to being successful in
this market.
As one of the world’s best known and most trusted travel brands, we’re
uniquely placed to become a truly leading site. This is one of the most
exciting and revolutionary developments in our recent history.
Targeting transactions with
c. £3.5bn*
gross booking value
* sales to be accounted for on a net commission basis.
Thomas Cook Group plc Annual Report & Accounts 2010 19
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STRATEGY IN ACTION
DESTINATION MANAGEMENT
LEVERAGING OUR GROUP
BUYING POWER
Historically, operations in our destinations have been performed
by source-market teams in each of the local markets. We’ve now
introduced a more centralised approach to unlock value.
20 Thomas Cook Group plc Annual Report & Accounts 2010
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As an international travel group transporting customers to more
than 40 countries worldwide, Thomas Cook has an unrivalled
opportunity to make the most of the scale of its business by
working together across its markets.
During the year, we made real progress in the establishment of a
Group Destination Management function, which aims to leverage
our Group buying power and standardise customer service in our
resorts around the world.
Most signifi cantly, the new function will take the lead in
coordinating strategy and hotelier negotiations with the Group’s
key international hotel chains and in our fastest growing
destinations of Turkey and Egypt. Not only is this approach
designed to reduce accommodation costs, but to support top
line growth by negotiating exclusivity on properties that are
in demand from our customers.
In addition, Group Destination Management will streamline the
number of incoming agents we work with in each of our key
destinations and introduce a single management structure to
coordinate in-resort customer service and sales from across most
of the Group. The function will also build a central accommodation
content database that our source markets can share.
UNLOCK VALUE THROUGH GREATER
GROUP COORDINATION
Market-leading customer service will continue to be at the
forefront of everything we do.
Our Group-wide approach to destination management will:
• create and embed a ‘united as one team’ overseas culture
• deliver consistently high standards of customer service
in resort
• capitalise on market strengths and further share
best practice
• increase in-resort revenue
• remove duplication and drive greater effi ciency
• minimise costs
Average Group accommodation costs
reduced 120
basis points
to 32.5% of sales
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Thomas Cook Group plc Annual Report & Accounts 2010 21
STRATEGY IN ACTION
AIRLINE SYNERGIES
REALISING
BENEFITS
FROM OUR
INTERNATIONAL
AIRLINES
Working together, our airlines
are achieving signifi cant savings
by improving fuel effi ciency and
consolidating suppliers.
Thomas Cook Group operates a fl eet of 93 aircraft, carrying 17 million
passengers each year and employing 6,800 people. The fl eet is split into
four airlines: the UK airline, the German airline fl ying under the Condor
brand, the Scandinavian and Belgian airlines.
By joining forces to share best practice and leverage their combined
buying power, the airlines identifi ed £35m of annual savings that
could be made in aviation operating costs. By the end of the year,
£19m of incremental savings within that target had been achieved.
These savings come on top of the £34m of synergies already
achieved prior to 2009.
Total airline synergies
+103%
£35m
£34m
Annual synergies already
achieved prior to 20091
Additional annual synergies
identified by project
£69m
Total
1 Synergies realised in catering (£5m), handling (£8m), maintenance (£6m),
aircraft and passenger insurance (£5m) and by seasonal optimisation of aircraft (£10m).
22 Thomas Cook Group plc Annual Report & Accounts 2010
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AIRLINE SYNERGY MEASURES
Of the many synergy measures identifi ed, several were
implemented successfully during the year. The top eight will,
on completion, have delivered over 60% of the targeted savings.
These mainly comprise:
• joint tender for in-fl ight catering
• joint negotiations for ground handling contracts
• joint tender for rotables and rotables support1
• fuel effi ciency improvements
• joint tender for departure control system
1 Spare parts which are not consumed, but repaired and returned to stock
for re-use.
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Thomas Cook Group plc Annual Report & Accounts 2010 23
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
pages 57 to 58.
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
Pressure on volumes
and margins
• Signifi cant capacity reductions through our actions to maintain margins
• Flexible and asset-light business model:
– Approximately 5% of our hotel capacity is committed at the beginning of the
Fall in demand for traditional
package tours and competition
from internet distributors and
low-cost airlines
Reduction of revenue
and pressure on margins
summer season
– Around 90% of our UK tour operator fl ying requirements are undertaken by our own
fl eet, allowing further fl exibility 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
• Tight cost discipline throughout the organisation with ability to cut costs further
if necessary. Cost synergies identifi ed between our various airlines
• Effi ciency improvements, such as automated yield management systems
Further information can be found on pages 6 to 37
• Strategy to establish Thomas Cook as a leading provider of independent travel and
fi nancial services
• Continue to grow our position in the independent sector
• Improvement of our online capabilities across the Group and targeting signifi cant long-
term growth in the European online travel agency market
• Shift to higher margin all inclusive resorts
• Ensuring our own in-house airlines remain cost competitive
• Focus on medium haul destinations that are not as economically viable for low-cost airlines
• Continued focus on expanding into new emerging markets
Further information can be found on pages 6 to 37
Environmental concerns
Damage to the Company’s
brand and reputation
• Focus on environmental concerns. Development and approval of a sustainability strategy
by the Health, Safety & Environmental Committee
• Full sustainability programme as detailed in the Sustainability Report
A major health and safety
incident
Signifi cant impact on
reputation as a trusted
brand would lead to
reduction in bookings
• Health and safety management embedded in each business with central
coordinating function complemented by destination audits
• Group health and safety strategy in place, developed and approved by the Health, Safety &
Environmental Committee
Further information can be found on pages 38 to 41 and in the full online Sustainability Report
which can be found, from February 2011, on www.thomascookgroup.com/sustainability
Loss of, or diffi culty in replacing,
senior talent
Unplanned loss of critical
talent from key positions
adversely impacting
business performance
both in the short and
medium term
Further information can be found on pages 38 to 41 and in the full online Sustainability Report
which can be found, from February 2011, on www.thomascookgroup.com/sustainability
• Regular succession and talent reviews within each business segment
• Identifi cation 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 pages 38 and 40
24 Thomas Cook Group plc Annual Report & Accounts 2010
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Operational and strategic risks continued
Risk
Impact
Mitigation
Business interruption
Performance failure by
outsourced partners
Natural catastrophe including
closure of airspace
Business disruption and
loss of profi ts
Business disruption and
loss of profi ts
Loss of business and risk
of loss of life or injury
to customers and/or
employees as a result of
natural disasters
• Established business continuity plan now in place with several tests carried out
during the year
• Business continuity plan and service level agreements in place
• Tried and tested emergency procedures in place to react quickly to the situation, including
evacuation if necessary
• Ability to switch to other markets and change capacity at short notice
Further information can be found on pages 7, 16 and 17
Financial risks
Risk
Impact
Mitigation
Com modity risk: fuel, foreign
currency and interest rate risks
Costs incurred may not be
recovered from customers
• Actively managed Board-approved hedging and treasury policies
Liquidity and counterparty
credit risks
Tax risk
Pension liabilities
Brochure prices do not
refl ect actual cost of travel
Interest cost uncertainties
Group is unable to meet
its fi nancial commitments
as they fall due
Inability to utilise losses
resulting in higher
taxation charges
Size of defi cit may restrict
investments in the
business
Further information can be found on pages 42 to 45,
and in Note 23 to the Financial Statements
• Actively managed Board-approved treasury policy
• New £1.7bn refi nancing agreed in May 2010 increased maturity profi le and diversifi ed
funding sources
• Focus on cash management throughout the organisation and regular review of counterparties
Further information can be found on pages 42 to 45,
and in Note 23 to the Financial Statements
• Compliance with Board-approved tax policy
• Regular monitoring of forecasts and high risk areas
Further information can be found in Note 25 to the Financial Statements
• Broadly diversifi ed pension fund with limited exposure to single asset classes
• Pension scheme assets and liabilities are closely monitored
• Agreed timescales for funding any defi cit
• Our UK defi ned benefi t schemes are under review
Further information can be found in Note 35 to the Financial Statements
Breakdown in internal controls
Inability to operate, loss
of profi t
• System of internal control in place, which is continually monitored
• Internal audit function
Further information can be found in the Corporate Governance Report on pages 49 to 58
Other risks
Risk
Impact
Mitigation
Political, military, terrorist,
security and health risks in
source markets and key tourist
destinations
Competition law and anti-trust
Legal and regulatory risks,
especially in respect of airline
operating licences, insurance
and fi nancial services sectors,
and legislative impacts
Reduction of revenue
and loss of profi t
• Ongoing monitoring by management
• Flexible and asset-light business model provides ability to switch to other markets and
change capacity at short notice
• Awareness of competition law raised across the Group with specifi c training programme for
senior management
• Internal audits monitor procedures and report fi ndings
• Active legal and regulatory management programme in place
• Ongoing programme to review airline operations and safety processes
Non-compliance with
competition laws could
result in substantial fi nes
and loss of reputation
Inability to obtain
operating and/or
route licences leading,
ultimately, to cessation
of operation. Increased
regulation will add extra
costs to holidays
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Thomas Cook Group plc Annual Report & Accounts 2010 25
Directors’ Report
Operating review
K
U
UK at a glance
Financial highlights1
Revenue*
£3,143.4m +1.5%
4000
3000
2000
1000
0
“2010 was a challenging year for Thomas
Cook UK. Through a combination of
continuing improvements in product mix,
savings achieved by restructuring and the
synergies that will be realised through our
high street distribution merger with the
travel business of The Co-operatives, we
are confi dent we have taken the correct
action to ensure the segment returns to
profi table growth.”
Ian Derbyshire
Chief Executive Offi cer,
UK
Adjusted underlying profit
from operations**
£123.9m -23.5%
Underlying operating
profit margin***
3.4% (2009: 5.2%)
5
150
100
50
0
4
3
2
1
0
2009
2010
2009
2010
2009
2010
1 The Group statutory fi nancial statements for the year ended 30 September 2010 and prior year comparatives are set out on pages 73 to 119.
See Appendix 1 on page 130 for key.
Key performance indicators
Mass market risk
Passengers†
Capacity††
Average selling price#
Load factor†††
Brochure mix##
Controlled distribution‡‡
Internet distribution‡‡
Product mix
Medium haul
4 and 5 star
All inclusive
Exclusive and differentiated
Brands
Mainstream
FY10
FY09
Change
-5.4%
-4.9%
+4.3%
-0.4%
+11.6%
+3.4%
+8.7%
FY08
65%
41%
31%
–
72.0%
32.6%
69.6%
30.0%
FY10
75%
47%
50%
35%
FY09
72%
44%
41%
32%
Distribution
Independent
26
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MARKET DYNAMICS
The UK economy began a slow
recovery from recession and the
market was characterised by
demand softness. Euro and US Dollar
denominated accommodation and
fl ying costs were adversely affected by
weak Sterling.
The volcanic ash cloud and resultant closure
of airspace had a signifi cant impact on the
April fl ying programme, but also a knock-on
effect on demand throughout the summer
season. Lost sales as a result of the volcanic
ash cloud are estimated to be around £55m
with margin adversely affected by £16.4m.
The direct costs of the volcanic ash cloud
incident, which have been included within
exceptional operating items, were £24.3m.
SEGMENT PERFORMANCE
The UK has experienced a tough year against
a diffi cult market and economic backdrop,
with adjusted underlying operating profi t
falling to £123.9m (2009 restated: £162.0m)
and underlying operating margin down to
3.4% (2009: 5.2%).
The volcanic ash cloud, good early summer
weather across much of the UK, and the
uncertain economic outlook meant that
summer trading was softer than expected
and the increases we achieved in selling
prices were not suffi cient to compensate for
other trading challenges.
The performance of our independent
businesses during the year has been mixed.
Gold Medal and Hotels4U have traded
reasonably, but other areas have found
conditions diffi cult.
Our businesses in India and Egypt (which are
included in the UK segment for reporting
purposes) ended the year well, showing signs
of recovery from the global recession that
impacted in the prior year and the fi rst half
of this year.
Our share of controlled distribution grew by
3.4% in the year to 72.0%. The main driver
for this increase was our share of internet
distribution which grew by 8.7% to 32.6%.
In anticipation of the diffi cult trading
conditions, management reduced the overall
capacity on sale by 4.9%, with winter down
13% and summer held reasonably fl at in
light of signifi cant capacity reductions in the
previous summer.
Despite the reduced capacity and the
impact of the volcanic ash cloud, revenue
was slightly up year-on-year as a result of
higher selling prices in both the Mainstream
and Independent businesses and the full
year effect of acquisitions made this year
and last year (mainly Essential Travel and
Gold Medal).
One such challenge was the weakness
of Sterling which management estimate
led to an increase in our foreign currency
denominated costs, mainly fuel, aircraft lease
costs and accommodation costs, of around
£160m year-on-year. Just over half of this
was compensated for by lower underlying
Dollar fuel prices and our successful supplier
negotiations, most notably with hoteliers.
In addition, we realised £10m of airline
synergies which helped to partly offset some
of the trading downside.
Future drivers of margin improvement
• Mainstream product mix improvements
• Yield management improvements
• Independent product volume growth
• UK restructuring and continued focus on cost reduction
• Synergies resulting from the high street travel retail merger
with The Co-operatives
Over 42,000 customers enjoyed one of our Aquamania holidays, a new
product concept featuring 15 fabulous hotels each with its own integrated
water park.
Thomas Cook Group plc Annual Report & Accounts 2010 27
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“Central Europe delivered a strong
performance, improving both underlying
operating profi t and margin. The result
benefi ted from last year’s restructuring.”
Peter Fankhauser
Chief Executive Offi cer,
Central Europe
Central Europe at a glance
Financial highlights1
Revenue*
£1,973.4m -8.1%
Adjusted underlying profit
from operations**
£60.9m +20.8%
Underlying operating
profit margin***
3.0% (2009: 2.3%)
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40
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2009
2010
2009
2010
2009
2010
1 The Group statutory fi nancial statements for the year ended 30 September 2010 and prior year comparatives are set out on pages 73 to 119.
See Appendix 1 on page 130 for key.
Key performance indicators
Mass market
Passengers†
Flight inclusive
Non-fl ight inclusive
Average selling price#
Controlled distribution‡‡
Internet distribution‡‡
Brands
FY10
FY09
Change
-1.0%
+2.2%
-7.3%
-4.5%
-3.3%
-2.7%
23.7%
7.2%
24.5%
7.4%
Directors’ Report
Operating review
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MARKET DYNAMICS
The German economic environment
improved markedly through the year,
with GDP and consumer sentiment
showing good growth and helping to
lift demand in the second half.
SEGMENT PERFORMANCE
Our Central European segment has delivered
a good result this year and experienced strong
trading in the late summer months. The
adjusted underlying profi t from operations
was £60.9m (2009 restated: £50.4m), up 21%
on the prior year. The underlying margin also
improved signifi cantly, from 2.3% to 3.0%.
The overall margin we achieved in Germany
(including Airlines Germany) improved from
3.4% to 4.1%.
Currency-adjusted revenue was down 7%
year-on-year largely as a result of lower
non-fl ight inclusive passengers and lower
selling prices, particularly in the fl ight-
inclusive mainstream business, refl ecting
lower hotel and fl ight costs. Our dynamic
packaging business successfully grew volume
at increased prices.
Lost sales as a result of the volcanic ash
cloud are estimated to be around £13m
with margin adversely affected by £2.3m.
The direct costs of the volcanic ash cloud
incident, which have been included within
exceptional operating items, were £5.6m.
Despite lower revenue, underlying gross
profi t, excluding the impact of volcanic
ash and changes in translation rates, was
broadly fl at year-on-year as we successfully
negotiated with suppliers to reduce hotel
and fl ying costs and improved our utilisation
of purchased fl ight capacity.
The overall improvement in adjusted
underlying profi t from operations of £10.5m
(which includes £1.2m adverse impact from
exchange translation) is therefore largely
attributable to savings in overhead costs,
Turkey continues to grow in popularity as a holiday destination for customers of our Central Europe
segment. This year, we strengthened our offering to Turkey through the acquisition of the Turkish
specialist tour operator, Öger Tours.
following the restructuring programmes we
undertook last year and our continued focus
on driving down costs.
Controlled distribution fell slightly in the year
to 23.7% as sales through in-house shops
were adversely impacted by the collapse of
Arcandor which resulted in the closure of the
Neckermann Technik Center shops and many
of the Karstadt shops, with the remaining
Karstadt shops no longer being under our
control. Our proportion of internet sales
stayed broadly similar to last year, at 7.2%.
Future drivers of margin
improvement
• Strong brand awareness
• Continued fl exibility in capacity and
destination
• Continued focus on differentiated
product
• Growth in dynamic packaging
• Integration of Öger Tours acquisition
and further market consolidation
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Thomas Cook Group plc Annual Report & Accounts 2010 29
“Despite the challenging economic backdrop,
the West & East markets delivered a strong
fi nancial performance, improving underlying
operating profi t and margin. This was
achieved through a combination of product
innovation, careful capacity management
and cost savings resulting from last
year’s restructuring.”
Thomas Döring
Chief Executive Offi cer,
e-Commerce and West & East Europe
West & East Europe at a glance
Financial highlights1
Revenue*
£1,698.4m -8.4%
Adjusted underlying profit
from operations**
£86.7m +1.2%
Underlying operating
profit margin***
4.8% (2009: 4.6%)
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2010
2009
2010
2009
2010
1 The Group statutory fi nancial statements for the year ended 30 September 2010 and prior year comparatives are set out on pages 73 to 119.
See Appendix 1 on page 130 for key.
Key performance indicators
Mass market
Passengers†
Flight inclusive
Non-fl ight inclusive
Average selling price#
Controlled distribution‡‡
Internet distribution‡‡
Brands
FY10
FY09
Change
-6.3%
-4.7%
-8.7%
-0.8%
56.9%
21.4%
51.1%
15.7%
+11.4%
+36.3%
Directors’ Report
Operating review
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MARKET DYNAMICS
In the West European markets, the
economic environment in France and
the Netherlands improved towards
the end of the year, although Belgium
remains challenging. The East
European markets are now beginning
to show signs of improvement.
SEGMENT PERFORMANCE
Our West & East European segment has
delivered a robust performance this year
despite the diffi cult economic conditions
that prevail in some of their markets. The
adjusted underlying profi t from operations,
at £86.7m (2009 restated: £85.7m), increased
by £1.0m and the underlying margin
improved from 4.6% to 4.8%.
Currency-adjusted revenue was down 7%
year-on-year as a result of lower volumes and
selling prices. In France, we made a strong
recovery from the slow fi rst half trading
performance with a volume increase in short
haul in the second half. We ended the year
with volumes 5% down and selling prices fl at.
Volumes were down 13% in Belgium where
recovery from the global recession has been
slower than in many European markets,
and selling prices were up slightly. In the
Netherlands, passenger numbers increased
year-on-year by 4% but selling prices were
down 3%. In Poland, the largest of the
Eastern markets, passengers were down 9%,
but selling prices were strong, up 7%.
Lost sales as a result of the volcanic ash
cloud are estimated to be around £21m
with margin adversely affected by £4.7m.
The direct costs of the volcanic ash cloud
incident, which have been included within
exceptional operating items, were £14.0m.
Adjusted underlying profi t from operations
was £1.0m higher than the prior year.
However, this includes an adverse exchange
translation impact of £5.5m. Adjusting for
this, the profi t increased by £6.5m, largely as
a result of savings in overhead costs following
the extensive restructuring programmes
we have undertaken across all the Western
markets. These restructuring programmes
and our continued focus on driving down
costs resulted in approximately £24m of
overhead savings year-on-year.
Following a concerted effort, the West &
East segment has experienced strong growth
in the year in exclusive and differentiated
products and controlled and internet
distribution. Controlled distribution now
stands at 56.9%, whereas the proportion
of sales through the internet grew by some
36.3% to 21.4%.
Future drivers of margin
improvement
• Strong brand awareness
• Continued fl exibility in capacity and
destination
• Continued focus on differentiated and
exclusive product
• Consolidation of retail and tour
operating share in France following
JetTours acquisition
• Focus on cost effi ciency
The earlier you book, the less you pay! That’s the central promise of our new concept, Club Jumbo.
Spanning fi ve clubs across four countries, with a streamlined online booking platform, Club Jumbo
attracted 30,000 customers in its fi rst year of operation.
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Thomas Cook Group plc Annual Report & Accounts 2010 31
“We operate in Sweden, Denmark, Norway
and Finland. This year, the segment
delivered a solid result, with operating profi t
and margin improvement. This was achieved
by optimising our vertically integrated model
and continuing to focus on our exclusive and
differentiated product.”
Sam Weihagen
Chief Executive Offi cer, Northern Europe & Deputy
to the Group Chief Executive Offi cer
Northern Europe at a glance
Financial highlights1
Revenue*
£1,014.0m -4.3%
Adjusted underlying profit
from operations**
£93.9m +8.4%
Underlying operating
profit margin***
9.0% (2009: 8.2%)
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1 The Group statutory fi nancial statements for the year ended 30 September 2010 and prior year comparatives are set out on pages 73 to 119.
See Appendix 1 on page 130 for key.
Key performance indicators
Mass market risk
Passengers†
Capacity††
Average selling price#
Load factor†††
Brochure mix##
Controlled distribution‡‡
Internet distribution‡‡
Brands
FY10
FY09
Change
-4.1%
-3.8%
+2.9%
-0.3%
-4.6%
+2.1%
+12.2%
84.4%
60.7%
82.7%
54.1%
Directors’ Report
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Improvements to our Ving website have been instrumental in
increasing internet distribution by a further 12.2% to 60.7%.
However, a continued cost focus together
with a favourable exchange translation effect
(from SEK to Sterling) of £6.6m ensured the
adjusted underlying profi t from operations
improved by £7.3m.
Northern Europe continues to lead the
Group with regards controlled and internet
distribution and has, yet again, experienced
strong growth in this key area. Controlled
distribution now accounts for some 84.4% of
sales, up from 82.7%, and the proportion of
internet sales grew 12.2% to 60.7%.
Drivers of margin
improvement
• Leading market position
• Strong brand awareness
• Vertically integrated model
• High proportion of unique
concept hotels
• Strong in-house and internet
distribution
• On board tax free sales
• Cost effi cient aircraft
MARKET DYNAMICS
Demand for summer holidays was
affected by unseasonably warm
weather and the volcanic ash cloud
in key booking months. Consumer
sentiment has been resilient in most
markets and continues to improve
in Sweden and Norway. Recovery is
slower in Denmark.
SEGMENT PERFORMANCE
Our Northern European segment has
delivered another strong result this year,
despite a slow start to the year. The adjusted
underlying profi t from operations was
£93.9m (2009 restated: £86.6m), up 8%
on the prior year. The underlying profi t
margin, which remains industry-leading,
also improved from 8.2% to 9.0%.
Currency-adjusted revenue was down 3%
year-on-year largely as a result of capacity
reductions. Average selling prices in local
currencies were up 3% year-on-year.
Lost sales as a result of the volcanic ash cloud
are estimated to be around £7m with margin
adversely affected by £2.2m. The direct costs
of the volcanic ash cloud incident, which
have been included within exceptional
operating items, were £5.9m.
Underlying gross profi t, excluding the impact
of volcanic ash and changes in translation
rates, was slightly down year-on-year as
underlying rate reductions in hotel and
fl ying costs were not quite enough to offset
the adverse impact of foreign currency
on those hotel and fl ying costs and the
reduced volumes.
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Thomas Cook Group plc Annual Report & Accounts 2010 33
“Profi ts in our North America business,
which operates predominantly in
Canada, were adversely affected by
the impact of continued overcapacity
in the mainstream package holiday
market. The independent businesses
performed reasonably well.”
Michael Friisdahl
Chief Executive Offi cer,
North America
North America at a glance
Financial highlights1
Revenue*
£352.5m -4.8%
Adjusted underlying profit
from operations**
£9.7m -45.8%
Underlying operating
profit margin***
2.6% (2009: 4.8%)
400
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2009
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2009
2010
2009
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1 The Group statutory fi nancial statements for the year ended 30 September 2010 and prior year comparatives are set out on pages 73 to 119.
See Appendix 1 on page 130 for key.
Key performance indicators
Mass market risk
Passengers†
Capacity††
Average selling price#
Load factor†††
Brochure mix##
Controlled distribution‡‡
Internet distribution2‡‡
FY10
FY09
Change
-2.7%
-1.8%
-8.5%
-1.0%
+2.2%
+1.4%
-3.7%
14.3%
36.7%
14.1%
38.1%
2 Internet distribution percentage includes independent travel bookings.
Brands
Mainstream
Distribution
Independent
Directors’ Report
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the economic climate, but greater product
diversifi cation and lower volatility meant that
the impact was much less than that felt in
the Mainstream sector.
Overhead cost savings stemming from the
restructuring and integration programmes we
undertook in the previous years ensured that
some of the margin deterioration was offset.
However, as a result of the deterioration
in trading performance, management is
conducting a further review of the cost base
and organisation structure with the intention
of substantially reducing overheads.
Controlled distribution in our Mainstream
business has remained broadly similar to the
prior year at 14.3%. Whilst our share of total
sales over the internet fell slightly to 36.7%,
we anticipate a reversal of this trend when
we launch our new website in January.
Future drivers of margin
improvement
• Grow independent volumes and reduce
reliance on mainstream
• Increase in-house distribution of
holiday products
• Reduce mainstream fl ying costs by
working together with new aircraft seat
supplier
• Continue to grow contribution from
fi nancial services
TravelGenie, our dynamic packaging engine, continues to revolutionise the booking process,
offering travel agents and consumers more choice at the best possible price. TravelGenie has
exceeded all expectations and now accounts for more than 20% of our independent tour sales.
Thomas Cook Group plc Annual Report & Accounts 2010 35
MARKET DYNAMICS
The Canadian economy has been
relatively resilient throughout the
economic downturn and consumers
continue to show strong interest
in leisure travel. However, there
is substantial overcapacity in the
mainstream market which is why our
focus is on the growing independent
travel sector.
SEGMENT PERFORMANCE
Our North American segment has endured
a challenging year, with continued over-
capacity in the Mainstream market severely
impacting margins. Despite these challenges,
however, we were able to achieve an
adjusted underlying profi t from operations
of £9.7m (2009: £17.9m). The underlying
margin was 2.6% (2009: 4.8%).
Currency-adjusted revenue was down 14%
year-on-year. This reduction largely refl ects
lower average selling prices achieved, mainly
in the Mainstream business, together with
a reduction in tour operator capacity. In
addition, the disposal of Alumni Holidays in
the prior year accounted for 3% of the year-
on-year revenue reduction. Lost sales as a
result of the volcanic ash cloud are estimated
to be around £1m with margin adversely
affected by £0.6m.
The underlying gross profi t decreased year-
on-year in our Mainstream business as rate
reductions achieved on hotel and lower fuel
costs were not suffi cient to offset the impact
of reduced capacity, lower average selling
prices and the adverse impact of foreign
currency on hotel costs. The collapse of our
largest aircraft seat provider, Skyservice,
also had a detrimental impact on the
Mainstream business.
The Independent business, which now
accounts for more than 70% of passengers
in the North America segment, performed
reasonably well in the year. Some price
pressure was experienced as a result of
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“Condor is a strong stand-alone airline.
In a highly competitive market, Condor
was profi table for a sixth successive year
through a combination of successful
capacity management, a well-managed
long haul programme and further
comprehensive cost savings.”
Ralf Teckentrup
Chief Executive Offi cer,
Airlines Germany
Airlines Germany at a glance
Financial highlights1
Revenue*
£996.2m -6.1%
Adjusted underlying profit
from operations**
£54.1m +14.1%
Underlying operating
profit margin***
5.1% (2009: 4.5%)
1200
1000
800
600
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200
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40
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1 The Group statutory fi nancial statements for the year ended 30 September 2010 and prior year comparatives are set out on pages 73 to 119.
See Appendix 1 on page 130 for key.
Key performance indicators
Revenue
Revenue – external*
Revenue – internal*
Total revenue*
Capacity††
Yield###
Seat load factor†††
Sold seats‡‡‡
Thomas Cook tour operators
3rd party tour operators
External seats only
Total sold seats
Sold seats‡‡‡
Europe (excl.cities)
Long haul
Total sold seats
Brands
FY10
FY09
Change
£708.4m
£287.8m
£996.2m
£740.8m
£320.4m
£1,061.2m
-4.4%
-10.2%
-6.1%
-1.9%
-5.8%
+1.9%
-1.7%
+2.8%
-2.8%
-0.6%
-0.5%
-0.7%
-0.6%
Directors’ Report
Operating review
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Condor achieved greater effi ciency in its fuel costs by switching its fuel supply arrangements at all major
German airports.
At the gross margin level, we benefi ted
from lower Dollar-denominated fuel costs.
However, this benefi t was not suffi cient to
offset all of the adverse yield variance, due to
the nature of our hedging strategy compared
to some of the competition. In addition,
the underlying Dollar fuel price benefi t
was reduced substantially by the adverse
translation impact as the Euro weakened
against the Dollar.
This gross margin downside was, however,
more than offset by a £14m year-on-year
benefi t achieved as a result of a Condor-
specifi c cost saving programme that
commenced in 2009; £7m of benefi t from
the Group-wide airline synergies programme;
and a net reduction of £12m in depreciation
costs, largely as a result of a Group-
wide review and re-alignment of aircraft
depreciation estimates, which was partly
offset by a £5m decrease in deferred income
related to aircraft. As a result, the adjusted
underlying profi t from operations in the year
increased by £6.7m (despite a £1.8m adverse
impact from exchange translation).
Drivers of margin
improvement
• Signifi cantly increased load factors
• High productivity in the summer season
• Strong long haul sales
• Ongoing effi ciency programmes
• Elimination of unprofi table routes
MARKET DYNAMICS
In the fi rst half, competitors who were
not as extensively hedged benefi ted
from lower fuel costs resulting in
lower market yields. As the year
progressed, Condor’s relative cost
position and the German economic
environment improved, lifting
demand and yields.
SEGMENT PERFORMANCE
Our Airlines Germany segment has delivered
a good set of results this year and, in
line with our German tour operator, has
experienced strong trading in the late
summer months. The adjusted underlying
profi t from operations was £54.1m (2009:
£47.4m), up 14% on the prior year. The
underlying margin also improved, from
4.5% to 5.1%.
Currency-adjusted total revenue was down
5% year-on-year. Revenue was adverse due
to lower seat prices achieved, especially from
internal and third-party tour operators, due
to reduced fuel surcharges and competitive
pricing in the market. In addition, in
anticipation of tough market conditions,
particularly in winter, we reduced our share
of more expensive long haul fl ying. In
the mainstream business, total seats sold
increased slightly year-on-year, with lower
in-house volume being more than offset by
increased third-party tour operator sales.
As a consequence of the overall capacity
reduction and the increased tour operator
allotments, volumes in the Independent seat-
only business were down 3% year-on-year.
Utilisation of the aircraft fl eet was improved
signifi cantly, leading to an increase in the
seat load factor of 2%.
Lost sales as a result of the volcanic ash cloud
are estimated to be around £7m with margin
adversely affected by £3.0m. The direct costs
of the volcanic ash cloud incident, which
have been included within exceptional
operating items, were £3.1m.
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Thomas Cook Group plc Annual Report & Accounts 2010 37
Directors’ Report
Sustainability
CONTINUING TO
INVEST IN OUR FUTURE
Longevity is one of our key business
objectives and to be a successful business
today we need to be economically,
environmentally and socially sustainable.
For the Thomas Cook Group, that means
addressing a wide range of long-term
challenges, including maintaining a
committed and engaged workforce,
providing a great holiday experience for
customers whilst ensuring their security
and safety, improving fuel effi ciency and
monitoring the carbon emissions from
our planes; and encouraging sustainable
practices within a global supply chain.
When Thomas Cook created
the fi rst package holiday
nearly 170 years ago in
1841, he did so with a sense of social
responsibility. His determination to
improve the lives of working people
by giving them opportunities to
learn through travel was pioneering.
Today, the business of being a
socially responsible travel company
is more complex.
Our achievements in 2010 include our
UK airline becoming the country’s fi rst
to receive accreditation to the ISO 14001
international standard for environmental
management. This accomplishment
is testimony to Thomas Cook Airlines’
investment in improving environmental
performance across every area of its
operations, from onboard recycling to
saving energy in the hangar. We also rolled
out our employee Sharesave scheme to
the Group, giving everyone who works
with us the opportunity to share in our
success. In addition, we maintained our
commitment to the Travelife Sustainability
System for hotels and other tourism
companies: more hotels have been audited
against the Travelife criteria.
Particularly close to my heart is the support
we can give to those less fortunate than
ourselves. I continue to chair the Board
of Trustees of the Thomas Cook Children’s
Charity and insist that our Company pays
all administration costs so that every penny
donated goes directly to help children. When
the devastating earthquake hit Haiti in
January, we donated space on our planes to
the Disasters Emergency Committee, fl ying
out surgical teams, medical kits and portable
water supply equipment. We also provided
fi nancial support from customer donations
to Just A Drop, a charity who developed a
specifi c project helping displaced families
in Haiti return to their homes.
Tourism today is very different from
when Thomas Cook started out, but his
socially responsible spirit lives on in our
company; and I believe our commitment to
sustainability makes us a stronger business
helping us to ensure that the Thomas Cook
Group is still here in another 170 years’ time.
Manny Fontenla-Novoa
Group Chief Executive Offi cer
A SINGLE GROUP CULTURE
Our people strive to deliver the highest
standards of service as expected by our
customers. It is therefore our people
which mark us out as different from our
competitors. By embedding our vision and
values in our people strategy and people
processes, we have created a single culture
across the Group which supports our people
to make a real difference to the success of
our business.
Our vision and values
Our vision “We go further to make dreams
come true”, is embedded amongst our people
through promotion of the PROUD values, a
set of fi ve values which are the cornerstone
of the actions of our people. We embed these
values through the PROUD awards, which
reward individuals or teams who have really
gone further to make dreams come true for
our business and our customers. Our values
are reinforced in all our people processes.
In this way, we have developed a single group
culture, which is shared by our 31,000 people
across the 21 countries in which we operate.
The PROUD values
P
Pioneering our future
R
Results orientated
O
Obsessed with customer service
U
United as one team
D
Driving robust decisions
For more information, please see our sustainability
report Travel the World without Costing the Earth
which is published annually and sets out our
policies, focus areas, activities and performance. To
conserve resources, this will be available only online
in February 2011 at www.thomascookgroup.com/
sustainability. Our annual sustainability report is
aligned with the Global Reporting Initiative’s (GRI)
G3 Sustainability Reporting Guidelines and meets
level B requirements.
38 Thomas Cook Group plc Annual Report & Accounts 2010
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PERFORMANCE
The following table shows performance to date against our 2010 targets. Further detail on progress, together with targets for 2011, will be
included in our online sustainability report to be published on our website in February 2011 at www.thomascookgroup.com/sustainability
Target
Progress
Comments
Employees
Relaunch and increase uptake of Group-wide all-
employee Sharesave Scheme
Further increase employee engagement index score
within each segment
Establish succession plans for the senior leadership
population
Sharesave offer launched. 23% of UK employees and 10%
of non-UK employees are now participants in either the
2008 or 2010 scheme or both
Engagement score has increased year-on-year
An in-depth review has been conducted and succession
plans are in place, with the next formal review in
April 2011
Customers
Redesign and update sustainable tourism microsite to
involve our customers
Achieved, website was nominated for a sustainability
award in early 2010
Ensure 51% of retail employees complete the
maketravelgreener.com training package
Training package developed and ready - delivery planned
for 2011
Health & safety
Environment
Continue to share best practice in health and safety so as
to create greater consistency across the Group. Progress
the Group strategy for employee safety and introduce a
Group-wide health and safety system to enable consistent
reporting across all divisions
UK Group and retail premises to reduce electricity and gas
consumption by 3%, and to establish baseline fi gures for
waste and water so as to set targets for FY 2010/11
Engage at least two other segments of the Group in our
activities to promote UN World Environment Day (Thomas
Cook World Environment Week)
Reduce CO2 emissions from Group airlines by 0.7% by
the end of FY 2009/10, excluding the impact of fl eet
replacement
Expand the onboard recycling programme in the UK
to include all inbound long haul fl ights
Conduct a mapping exercise to identify which Scope 3
CO2 emissions (indirect emissions other than those
resulting from electricity consumption) are relevant
and measurable for Thomas Cook Group
Establish a Group environmental database for assessing
our impacts across the Group and setting reduction
targets; implement across all segments
A set of preferred practices in health & safety have been
rolled out across all markets and all properties are audited
against these standards
Smart meters now being installed to ensure we have
accurate and timely information moving forward
Worked with Thomas Cook Northern Europe in
Sunwing properties
On target
Already achieved
On target
Have met with suppliers and prepared a business case
for review
Investigate options and establish external verifi cation
of environmental data and our sustainability report
Options have been examined and a decision taken not
to pursue this yet
Suppliers / Community
51% of UK mainstream customers to be staying in
accommodation audited against Travelife criteria
Currently at 41% which represents over 1m customers
25% of UK mainstream ski customers to be staying in
accommodation audited against Travelife criteria
Achieved. 30% of ski customers staying in Travelife
audited properties
Establish Travelife as the supply chain management tool
of choice for all Group business segments
Used by UK, Belgium, Northern Europe and being
considered by Germany
At least 30 excursions showcasing animals to be audited
Achieved
Incorporate sustainability criteria into UK and Group
purchasing process
Achieved within UK, planned for Group in 2011
Raise £250,000 for the Travel Foundation
Achieved
Publish a policy on Sustainable Tourism
Achieved, published in February 2010
Raise £900,000 for the Thomas Cook Children’s Charity
On target to achieve £1m over 12 months
Support and engage with End Child Prostitution, Child
Pornography and the Traffi cking of Children for Sexual
Purposes (ECPAT) in developing a training tool for the
tourism industry and pilot within one business area in
the UK
Supported and piloted the training tool and are working
towards creation of child protection (sex tourism) policy
and appropriate training
achieved
partly achieved
not achieved
Thomas Cook Group plc Annual Report & Accounts 2010 39
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Our people strategy
–
– guiding principles
• We believe that engaging and motivating
our 31,000 people will give us a greater
and more sustainable competitive
advantage than anything else we do.
• Providing all our people with inspiring
and visible leadership, strategic
direction, and effective performance-
based reward and recognition are
amongst the top priorities of the senior
management team.
• Our Vision and Values provide clarity
on our ambitions for the business, and
defi ne the way we work together, as
one Group, to achieve our goals.
• We believe our top 100 managers (the
key leadership group) are critical to our
success. We focus particular attention
on personal development, succession
planning and incentives for this group.
• We track the success of our people
strategy via a number of feedback
mechanisms, including an annual
Group-wide employee engagement
survey, and act on what we learn.
Our people processes
We embed the PROUD values through all our
people processes.
Recruitment and retention: We aim to recruit
and retain exceptional people who subscribe
to our values.
Learning and development: We invest
appropriately to ensure our people maximise
their potential and contribution to our
business. For example, in the UK, our
Academy is a learning environment which
provides access to a variety of development
and learning activities (both online and face-
to-face) to assist our people to go further in
their career with Thomas Cook.
Performance review: We have robust
performance review processes embedded
across the Group which are underpinned
by our values, and guide how we coach our
people to get the best from themselves
and others.
Reward: Our people share in our success.
We recognise and reward both the
achievement of results and the manner
in which they are accomplished. Certain
parts of the business, specifi cally UK and
India, also reward individual performance
which is in line with the PROUD values.
Through participation in our international
share plan, Sharesave, all employees have
the opportunity to share in potential
long-term rewards linked to the growth
in our share price.
40 Thomas Cook Group plc Annual Report & Accounts 2010
Employee communication and
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 Offi cer
visits the business segments throughout the
year and communicates regularly to update
Group employees on the Company’s progress
and performance.
Regular communications within the segments
keep our people up-to-date 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.
Employee engagement survey
We want to ensure that Thomas Cook
remains a great place to work and there’s
nobody better placed to tell us how we’re
doing than our people. For the third year,
we have conducted a Group-wide employee
engagement survey run by Expert Training
Systems (ETS), an independent specialist
third-party.
The survey gives everyone across Thomas Cook
and our family of brands the opportunity to
share their open and honest views on how
they feel about working for the Company,
what we’re doing well and how they believe
we could improve.
The feedback from the survey shapes our
action plans for change over the coming year.
• annual survey – results and action plans
shared with our people
• standard set of questions across all
segments, focusing on people engagement
• 24,224 responses (76% of employees)
• results benchmarked internationally
• Group result for 2009 of 3.83 out of
5 which ETS class as excellent¹
• employee satisfaction has increased year-
on-year since the Group was created three
years ago
• identifi ed areas for action are business
segment specifi c
Inspiring and visible leadership
In 2010, we conducted a comprehensive
review of Group talent and succession
covering the top 100 executive positions in the
Group. This gave the Group Executive Board
the opportunity to assess the strength of the
talent pipeline across our key leadership
positions, and work together to identify our
rising talent so we can give them development
opportunities across our segments. This
process will be repeated early in 2011.
The Group has established a series of
Leadership Behaviours which clearly
articulate what it takes to be a great leader
in Thomas Cook. The behaviours, which are
1 Source: ETS ECHO employee engagment survey FY09
designed for the ‘top 100’, are underpinned
by the PROUD values and ensure that leaders
are assessed and developed to a common
standard, no matter where they are in the
Group. Executive development is supported
through a broad range of activities including
secondments, coaching, mentoring and
international business school programmes.
Our Executive reward offering provides a
direct link between performance and reward.
Short-term incentive plans are underpinned
by stretching fi nancial and personal objectives
and longer-term share-based plans are
dependent on Group fi nancial performance
and shareholder return. These incentives are
designed to attract, retain and reward the
strongest performers in the industry. See the
Remuneration report on pages 59 to 69 for
further information.
Employment policies
Thomas Cook Group is committed to treating
everyone fairly and reasonably according
to their individual merits and abilities
measured against our justifi able 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 refl ect
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.
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CUSTOMERS
Through our vision, “We go further to
make dreams come true”, we demonstrate
our commitment to the highest levels of
customer service. We measure our success
through local customer satisfaction surveys:
for further information see page 7. The
unique set of circumstances caused by the
volcanic ash cloud enabled us to demonstrate
the lengths we go to look after our customers
as set out on pages 7, 16 and 17.
HEALTH & SAFETY
We made good progress against our Group
health and safety objectives during the year.
We implemented ‘Thomas Cook Preferred
Practice’, a programme of continuous
improvement in health & safety requiring
the global co-ordination of information and
reporting systems with some local policies and
decision-making. Supplier hotels must sign
up to these standards and all properties were
audited against them in 2010. Our reporting
of incidents has improved which allows us to
pick up trends, anticipate issues and cascade
that knowledge across our destinations.
ENVIRONMENT
We realise that the main impact of our
business on the environment comes from
aviation and therefore we continue to focus
our efforts on increasing effi ciency, more
effective environmental management and
the reduction of emissions from our aircraft.
As reported in our Operating Review on pages
26 to 37, Thomas Cook airlines achieve some
of the highest load factors in the industry
meaning that each aircraft departs with a
high occupancy. On a per passenger basis,
Thomas Cook airlines are already relatively
effi cient. However, over the past year, a
number of environmental and fuel saving
initiatives have been implemented across our
Group airlines.
The installation of extensions known as
winglets to the wings of three of the UK’s
B767-300 aircraft and on nine of Condor’s
B767-300 Boeing fl eet during 2010 has
generated fuel savings of 5%, through
improved aerodynamics and reduced drag.
The UK airline has further demonstrated
its commitment to the environment
by achieving a certifi ed environmental
management system to the international
standard ISO14001. It is the fi rst airline in the
UK to achieve this standard and has enabled
the airline to identify, control and improve
its environmental impact and performance
through set objectives and targets. Thomas
Cook Northern Europe’s airline is also
implementing ISO14001 and is aiming to
become certifi ed before the end of 2010.
Other environmental initiatives include
eco-labels being placed on every UK aircraft
by the boarding doors to show passengers
the impact of their fl ight in emissions and
noise, as well as onboard recycling.
The Group is continuing to collect and
analyse data on emissions in preparation
for the potential introduction of mandatory
carbon reporting in 2012. The UK
business is also affected by the Carbon
Reduction Commitment Energy Effi ciency
Scheme (CRC) and is developing a carbon
management strategy to meet these further
legislative requirements.
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For the second year, Thomas Cook Group
responded to the Carbon Disclosure Project.
This voluntary reporting scheme, which is
backed by 534 investors representing US$64
trillion of funds under management, requires
respondents to report on their climate
change governance and strategy, risks and
opportunities and their greenhouse gas
emission footprint.
SUPPLY CHAIN MANAGEMENT
Thomas Cook UK adopted the Travelife
Sustainability System in 2007 as a means
of engaging in sustainable supply chain
management with accommodation providers
in destinations. Since then, our team of
trained Travelife auditors has assessed
our highest volume properties against the
environmental and social criteria. In 2010,
we now have over 41% of our UK mainstream
customers staying in hotels audited against
Travelife. Of these, 18% of passengers are
staying in hotels which have achieved award
level status of Bronze, Silver or Gold.
We are now focusing on building a united
approach to developing sustainable supply
chain management in destinations, as
Thomas Cook Belgium and Northern Europe
are also members of the Travelife system.
By rolling this out across the Group, we hope
to create a consistent set of standards, create
better partnerships with our suppliers and
raise awareness of sustainability, enabling
customers to make a more informed choice
at the time of booking.
THOMAS COOK CHILDREN’S CHARITY
MAKING DREAMS COME TRUE FOR SICK AND DISADVANTAGED CHILDREN
Funds for the Thomas Cook Children’s Charity are raised through customer donations,
when booking a holiday and by donating unwanted coins on return fl ights, together with
employee fundraising. The UK provides administration services for the charity free of charge
meaning that all income directly benefi ts sick and disadvantaged children. Funds raised
amounted to £1,015,783 in 2009/2010.
Successful grants have included:
• in Cancun, Mexico funds were used to build a Kindergarten for disadvantaged
children with running water and toilets - facilities the children had not had before;
• computers, wide HD screens and fl ight simulator software installed in 10 children’s
hospices across the UK to provide children with the pleasure of fl ying a virtual plane;
• a project in Kenya giving blind and visually impaired children the chance to lead
a normal life; and
• a cottage hospital in Goa for abandoned street children.
Working with one of its charity partners, Happy Days Children’s Charity, funds enabled
more than 2,000 sick and disadvantaged children to experience a day trip or a holiday.
The charity also purchased two mini buses for its second charity partner CHICKS (Country
Holidays for Inner-City Kids).
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Thomas Cook Group plc Annual Report & Accounts 2010 41
Directors’ Report
Financial review
ROBUST FINANCIAL
PERFORMANCE IN A
CHALLENGING YEAR
During the year, there has been a concerted
effort across the Group to produce a
sustainable improvement in cash fl ow.
As a result of this, and despite the diffi cult
trading environment, the Group achieved
a £121m increase in operating cash fl ow.
FINANCIAL RESULTS AND PERFORMANCE REVIEW
Revenue
Adjusted underlying profi t from operations1
Lost margin from volcanic ash cloud
Underlying profi t from operations1
Underlying operating profi t margin %2
Adjusted underlying profi t before tax3
Statutory profi t before tax
Adjusted underlying basic EPS (p)4
Statutory basic (L)/EPS (p)
Dividend per share (p)
Operating cash fl ow
Net debt
Year ended
30 September
2010
£m
8,890.1
*
Restated
Year ended
30 September
2009
£m
9,268.8
Year-on-year
change
%
-4.1
391.4
(29.2)
362.2
4.1%
277.0
41.7
22.8
(0.3)
10.75
299.4
(803.6)
415.1
–
415.1
4.5%
294.9
45.1
25.0
0.8
10.75
178.1
(675.3)
-5.7
-12.7
-6.1
-7.5
-8.8
+68.1
-19.0
* Figures restated for new accounting standards and resultant changes in accounting policies, and restatements of prior period acquisitions.
See below for further information.
1 Underlying profi t from operations is defi ned as earnings before interest and tax, and has been adjusted to exclude all separately disclosed
items. It also excludes our share of the results of associates and joint venture. Adjusted underlying profi t from operations is stated before
the margin impact of the volcanic ash cloud (VAC).
2 The underlying operating profi t margin is the underlying profi t from operations (as above) divided by the external revenue.
3 The adjusted underlying profi t before tax is stated before all separately disclosed items (2010: £(206.1)m; 2009: £(249.8)m) and the margin
impact of VAC of £29.2m. Further details of the separately disclosed items are given in the statutory income statement on page 73 and note
6 to the fi nancial statements on page 91.
4 Adjusted underlying basic earnings per share is calculated as net profi t after tax, but before all separately disclosed items and the margin
impact of the volcanic ash cloud, divided by the weighted average number of shares in issue during the year.
BASIS OF PREPARATION
The fi nancial information included in the
Directors’ Report refl ects audited statutory
information for Thomas Cook Group plc and
has been prepared in accordance with the
accounting policies set out in Note 2 to the
fi nancial statements on pages 79 to 87. The
notable changes from the Annual Report &
Accounts 2009 are:
42 Thomas Cook Group plc Annual Report & Accounts 2010
• During the year, the Group implemented
the amendments to IAS 38 – Intangible
assets. As a result of the implementation
of this amendment, the Group policy
with regards the recognition of brochure
production costs has changed to one of
immediate write off when the brochures
are ready for distribution. This has resulted
Paul Hollingworth
Group Chief Financial Offi cer
in a prior year adjustment increasing the
2009 underlying operating profi t by £0.2m.
• During the year, the Group also adopted
the amendments to IAS 39 – Eligible
hedged items. As a result of the
implementation of this amendment, the
Group policy with regards the time value
element of option costs has changed
to one of immediate recognition in the
income statement. This has resulted in
the following pre-tax adjustments for the
year: 2010: credit of £2.0m; 2009: charge
of £8.1m. This item has been separately
disclosed in the income statement.
To improve consistency further in this area,
the forward points on our foreign exchange
hedging, which were previously shown in
the underlying net fi nance charges, have
also been separately disclosed. This has
resulted in the following amounts being
reclassifi ed from net fi nance charges to
IAS 39 fair value re-measurement for the
year: 2010: credit of £7.3m; 2009: credit
of £10.0m.
• During the year, the Group also adopted
IFRS 8 – Segmental reporting. As a result
of this adoption, the previously presented
‘Continental Europe’ segment has been
split into two separate segments, being
‘Central Europe’ and ‘West & East Europe’
refl ecting the revised management and
reporting structure in these geographic
regions. The prior year segmental analysis
has been restated accordingly.
• During the year, the Group also
implemented IFRS 3 Revised - Business
combinations. As a result of this adoption,
£5.7m of acquisition costs related to the
acquisitions concluded in the year or likely
to be concluded in the foreseeable future
were expensed to the income statement.
These costs have been separately disclosed
as part of exceptional operating items.
TH017_p38_45.indd 42
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23/12/2010 19:34
• During the year, further new or
Separately disclosed items
amended standards and interpretations
have been adopted by the Group.
Their adoption has not had a signifi cant
impact on the amounts reported in the
fi nancial statements.
In addition to the above, changes have
also been made to the prior year fi nancial
information to refl ect adjustments to
the accounting for certain prior period
acquisitions. Further details of these
changes are given in notes 2 and 15 to
the fi nancial statements.
INCOME STATEMENT HIGHLIGHTS
Revenue and profi t from operations
The Group has reported a robust set of results
given the uncertain economic environment
and the signifi cant adverse impact of weak
Sterling on our UK business.
Group revenue for the year decreased by
4% to £8,890.1m, (5% reduction at constant
currency). The decrease year-on-year mainly
refl ects a planned reduction in winter capacity
in anticipation of challenging market and
economic conditions. Trading in April 2010
(the last month of the winter season) was also
severely disrupted by the closure of airspace
over much of Europe as a result of the
volcanic ash cloud. Management estimates
the lost revenue associated with the volcanic
ash cloud to be around £100m. Summer
capacity was broadly fl at across our markets.
The Group adjusted underlying profi t from
operations was £391.4m, a reduction of
£23.7m on the prior year. Trading conditions
remained extremely tough throughout
the year in all our markets, but the UK
and North America were particularly badly
affected. The effect of the weaker Sterling
against Euro and Dollar on input costs
in our UK segment, as well as the impact
of the weaker Euro against Dollar in our
Continental European airline businesses also
meant that Group input costs increased by
£269m. Some of the increases were passed
through to customers and a signifi cant
amount was mitigated by rate reductions
achieved through negotiations with suppliers
and lower underlying fuel costs. However,
these were not enough to prevent some
margin decline.
As a mitigation measure, we have continued
to take actions to address our cost base.
As well as the savings in underlying
accommodation costs realised following
negotiations with hoteliers, the airline
synergies programme has delivered £19m
of incremental benefi ts in the current year,
and restructuring and other cost initiatives
in all segments contributed a further £75m
of year-on-year cost reductions.
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30 September
2010
£m
Restated
Year ended
30 September
2009
£m
Year-on-year
reduction/
(increase)
£m
(166.3)
2.0
(30.9)
(195.2)
(215.9)
(8.1)
(34.4)
(258.4)
49.6
10.1
3.5
63.2
–
(2.2)
2.2
(18.2)
7.3
(10.9)
0.8
10.0
10.8
(19.0)
(2.7)
(21.7)
Affecting profi t from operations
Exceptional operating items
IAS 39 fair value re-measurement
Amortisation of business combination intangibles
Affecting income from associates and JV
Loss on disposal of associate
Affecting net fi nance charges
Exceptional fi nance charges
IAS 39 fair value re-measurement
Total
(206.1)
(249.8)
43.7
Separately disclosed items
Separately disclosed items consist of
exceptional operating and fi nance items, IAS
39 fair value re-measurement, profi t/loss on
disposal of associate and the amortisation
of business combination intangibles. These
are costs or profi ts that have arisen in the
year which management believes are not the
result of normal operating performance. They
are therefore disclosed separately to give a
fairer view of the year-on-year comparison of
underlying trading performance.
The table above summarises the separately
disclosed items which have been included in
the full year accounts.
Exceptional operating items
Net exceptional operating items in the
year amounted to £166.3m, a reduction of
£49.6m on the prior year despite the impact
of the volcanic ash cloud (cost of £52.9m).
The direct costs associated with the volcanic
ash cloud in April amounted to £52.9m and
included additional accommodation and
subsistence costs for customers stranded in
resort and the costs of customer repatriation
when the airspace was eventually re-opened.
Of the remaining £113.4m of exceptional
operating items, £26.0m relates to the
impairment of assets and establishment
of onerous lease provisions in Hi Hotels, a
Spanish hotel chain operating 19 properties
in the Balearics. On 31 March 2010,
Skyservice, a Canadian airline that provided
fl ying capacity to our Canadian tour operator
was placed in court-appointed receivership.
As a result of the collapse of Skyservice, we
suffered signifi cant disruption to our fl ying
programme in April, the last month of the
high season for our Canadian tour operator.
The direct costs of the disruption, together
with the write down of certain receivables
from Skyservice, amounted to £15.3m.
Of the remaining exceptional operating
costs of £72.1m, £35.4m relates to
the continuation of the restructuring
programmes we commenced and reported
on in 2009 and a further £23.3m relates
to the fi nal element of the fuel-related
exceptional items which will not recur in
future. The remaining operating exceptional
items, amounting to £13.4m, include
acquisition costs relating to the purchase of
Öger Tours in Germany and the joint venture
agreement with The Co-operative Group and
Midlands Co-operative, and the net impact
of some aircraft-related items.
IAS 39 fair value re-measurement
The Group has adopted the amendment to
IAS 39 for the fi rst time in the 2010 fi nancial
accounts. As part of the provisions of the
amendment, the time value element of
options used for hedging the Group’s fuel and
foreign currency exposure must be written
off to the income statement as incurred. As
this is purely a timing issue and can give rise
to signifi cant, unpredictable gains and losses
in the income statement, management has
decided to separately disclose the impact
in the income statement to assist readers
of the accounts in better understanding
the underlying business development.
For consistency we have also reclassifi ed
the timing effect of marking to market the
forward points on our foreign currency
hedging to this category.
As a result of the above changes, we have
separately disclosed a gain of £2.0m in
the operating result and a gain of £7.3m
in net fi nance charges in the current year.
Thomas Cook Group plc Annual Report & Accounts 2010 43
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Directors’ Report
Financial review
continued
The prior year comparatives have also been
restated to include a loss of £8.1m separately
disclosed in the operating result. In addition,
£10.0m of forward point gains which were
included in the net fi nance charges in 2009
have been reclassifi ed to IAS 39 fair value
re-measurement.
Amortisation of business combination
intangibles
During the year, we incurred non-cash costs
of £30.9m (2009 restated: £34.4m) in relation
to the amortisation of business combination
intangibles. £21.7m of the amortisation
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.
Exceptional fi nance charges
As noted in the Group Chief Executive
Offi cer’s statement, during the year, we
successfully replaced our previous bank
facility (£1,300m) with new funding. As a
result of the refi nancing, unamortised set-up
and related costs of the previous facilities,
which were due to expire in May 2011, had
to be immediately expensed to the income
statement. Due to the size and nature of
this write-off, management has included
this as a separately disclosed exceptional
fi nance charge.
Income from associates and joint
venture
Our share of the results of associates
and joint venture was a profi t of £3.2m
(2009: loss of £3.8m). The improvement
year-on-year largely refl ects a signifi cant
reduction in our share of the losses in our
Barclaycard joint venture. In addition,
following improvements in the underlying
performance of our Central Europe hotel
associates, we also booked a net reversal
on impairment of £2.0m.
Net investment (loss)/income
The net investment loss in the year was
£1.5m (2009: income of £1.4m). The
reduction year-on-year refl ects a partial write
down of the carrying value of one of our
Central Europe hotel participations.
Net fi nance costs
Net fi nance costs (excluding separately
disclosed items) in the year amounted to
£116.1m (2009 restated: £117.8m). The
small reduction year-on-year refl ects lower
interest rates applicable to our cash and debt
in the fi rst half of the year, which has been
partly offset by higher net interest payable
in relation to the Group’s defi ned benefi t
pension schemes.
44 Thomas Cook Group plc Annual Report & Accounts 2010
Tax
The tax charge for the year was £38.9m
(2009 restated: £35.6m). Excluding the effect
of adjustments to tax provisions made in
respect of previous years, separately disclosed
items, and the margin impact of the volcanic
ash cloud, this represents an effective tax rate
of 27.6% on the adjusted underlying profi t
for the year.
Cash tax paid was £24.7m, which is lower
than the income statement tax charge as
a result of being able to utilise the losses
available in the UK and Germany. Total
losses available to carry forward in the
Group at 30 September 2010 were £1.8bn.
As at 30 September 2010, deferred tax assets
were recognised in respect of £0.9bn
of this amount.
Earnings per share and dividends
The adjusted underlying basic earnings per
share was 22.8 pence (2009 restated: 25.0
pence). Basic loss per share was 0.3 pence
(2009 restated earnings per share: 0.8 pence).
The Board is recommending a fi nal dividend
of 7.0 pence per share which brings the total
dividend per share for the full year to 10.75
pence, unchanged from the previous year.
The fi nal dividend, if approved, will be paid
on 7 April 2011 to shareholders who are on
the register as at 18 March 2011.
CASH AND LIQUIDITY
The Group’s operating cash fl ow performance
has improved signifi cantly this year following
a co-ordinated effort across the Group to
improve working capital management
by raising deposit levels and accelerating
holiday balance payments. This was partly
offset by a reduction in creditors and an
increase in hotelier deposits during the year
as the Group sought to secure more exclusive
properties. Nevertheless, operating cash
fl ow was improved by £121.3m to £299.4m
and within this, working capital improved
by some £124.3m, such that we reported
a working capital outfl ow of only £30.3m
in the year.
Net expenditure on fi xed assets and
intangibles increased by £78.9m to £266.1m.
However, £66.2m relates to payments made
to acquire two aircraft which were previously
on operating leases. The main reason for
the remainder of the increase was the
investments we have made, and continue
to make, into the launch of the Group’s
OTA proposition and our IT programme.
Expenditure on business acquisitions was
£27.2m (2009: £71.2m). The outfl ow in the
year includes the acquisition of Essential
Travel and scheduled payments made under
the Gold Medal and Hotels4U acquisitions.
The net cash outfl ow on interest was £59.1m
(2009: £87.1m). The reduction year-on-year
is a result of the timing of interest payments
with respect to the bonds which results
in only one annual payment being made.
The fi rst interest payments on the bonds are
due to be paid in April 2011. The outfl ow in
respect of dividend payments was £59.7m
(2009: £87.4m). The reduction year-on-year
is a result of a change made to the interim
dividend payment date to October 2010
(paid in September in the previous year).
Net debt (being cash less borrowings,
overdrafts and fi nance leases) at
30 September 2010 was £803.6m
(30 September 2009: £675.3m). This
comprised £339.6m of cash, £1,062.7m
of borrowings and overdrafts, and £80.5m
of fi nance lease liabilities.
As noted in the Group Chief Executive
Offi cer’s statement, during the year, we
successfully replaced our previous bank
facility (£1,300m) with new funding totalling
£1,700m. Headroom under the new banking
facilities at 30 September 2010 was £846m.
SEGMENTAL PERFORMANCE REVIEW
Segmental performance presented in the
table on page 45 is based on underlying
fi nancial performance before separately
disclosed items. To assist readers, the
segmental underlying profi t from operations
has also been presented excluding the
estimated margin impact of the volcanic
ash cloud and the segmental narrative in
the Operating Review on pages 26 to 37 is
provided on this adjusted underlying basis.
TREASURY ACTIVITIES
The Group’s Treasury Department has primary
responsibility for treasury activities and these
are reported regularly to the Board. The
Group Treasury function is subject to periodic
independent reviews and audits, which are
then presented to the Audit Committee.
Treasury policies
The Group is subject to fi nancial risks in
respect of changes in fuel prices, foreign
exchange rates and interest rates. It is also
exposed to counterparty credit risk and
availability of credit facilities within its
business operations. To manage these risks,
the Board has approved clearly defi ned
treasury policies covering hedging activities,
responsibilities and controls. The policies
are reviewed regularly to ensure that they
remain appropriate for the underlying
commercial risks. The policies also defi ne
which fi nancial instruments can be used
by the Group to hedge these risks. The
use of derivative fi nancial instruments for
speculative purposes is strictly prohibited.
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SEGMENTAL PERFORMANCE REVIEW
External revenue
UK1
Central Europe
West & East Europe
Northern Europe
North America
Airlines Germany
Corporate
Group
Underlying profi t from operations2
UK
Central Europe
West & East Europe
Northern Europe
North America
Airlines Germany
Corporate
Group
Adjusted underlying profi t from operations
UK
Central Europe
West & East Europe
Northern Europe
North America
Airlines Germany
Corporate
Group
Year ended
30 September
2010
£m
Restated
Year ended
30 September
2009
£m
Year on year
change
%
3,143.4
1,973.4
1,698.4
1,014.0
352.5
708.4
–
3,098.0
2,147.1
1,853.2
1,059.3
370.4
740.8
–
8,890.1
9,268.8
+1.5
-8.1
-8.4
-4.3
-4.8
-4.4
–
-4.1
Year ended
30 September
2010
£m
Restated
Year ended
30 September
2009
£m
Year on year
change
%
107.5
58.6
82.0
91.7
9.1
51.1
(37.8)
162.0
50.4
85.7
86.6
17.9
47.4
(34.9)
-33.6
+16.3
-4.3
+5.9
-49.2
+7.8
-8.3
362.2
415.1
-12.7
123.9
60.9
86.7
93.9
9.7
54.1
(37.8)
162.0
50.4
85.7
86.6
17.9
47.4
(34.9)
-23.5
+20.8
+1.2
+8.4
-45.8
+14.1
-8.3
391.4
415.1
-5.7
1 The UK segment includes our operating businesses in the UK, Ireland, India and Egypt.
2 Underlying profi t from operations is defi ned as earnings before interest and tax, and has been adjusted to exclude all separately disclosed
items. It also excludes our share of the results of associates and joint venture. Adjusted underlying profi t from operations is stated before
the margin impact of the volcanic ash cloud.
Management of liquidity risk
and fi nancing
Group Treasury’s primary objective is to
ensure that the Group is able to meet its
fi nancial commitments as they fall due. This
involves preparing a prudent, medium-term
cashfl ow forecast using the annual budget
and three-year plan and ensuring that the
Group has suffi cient cash and headroom
under its committed facilities to provide
against any unexpected cashfl ows. In
addition, a rolling 13-week cashfl ow forecast
is used to manage the Group’s short-term
cash and borrowing positions. At the year
end, the Group had undrawn committed
debt facilities available to it of £846m
(2009: £667m*).
Borrowing facilities
In April 2010, the Group issued a €400m
bond maturing in June 2015 and a £300m
bond maturing in June 2017. Proceeds of
these issues were used to repay debt drawn
under the existing bank facilities. In May
2010, the Group entered into a £1,050m
committed bank facilities agreement with
a number of banks, maturing in May 2013.
The previous bank facilities were cancelled.
The new facilities comprise a £200m term
loan, repayable in annual instalments of
£50m commencing October 2011, and a
revolving credit facility of £850m to support
the seasonal liquidity requirements and the
general corporate purposes of the Group. At
the year end, the average remaining maturity
of the bond and committed bank facilities
was 3.7 years (2009: 1.8 years).
Guarantee facilities
In addition to debt facilities, the Group has
a requirement for guarantee and bonding
facilities, principally for consumer protection
guarantees. In May 2010, the Group entered
into a total of £200m of new committed
guarantee facilities with seven banks and,
at the same date, the previous committed
guarantee facilities totalling €200m (£174m)
were cancelled. The new guarantee facilities
mature in May 2012.
Counterparty credit risk
The Group deposits surplus cash with
approved banks and fi nancial institutions
with strong credit ratings. Each counterparty
has a credit limit authorised by the Board
and the credit risk is reduced by spreading
the deposits and derivative contracts across
a number of counterparties. At the year end,
the Group reported total cash of £340m
(2009: £550m).
* 2009 includes the aircraft refi nancing facility which became
available on 1 October 2009.
TH017_p38_45.indd 45
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Thomas Cook Group plc Annual Report & Accounts 2010 45
Directors’ Report
Board of Directors
MICHAEL BECKETT (74)
Title: Non-Executive Chairman
Appointment: March 2007
Skills & experience: Michael was appointed
Chairman in September 2009 prior to
which he was Deputy Chairman and Senior
Independent Director. Previous roles include
Chairman of MyTravel Group plc (2004 -
2007), Chairman of Coalcorp Mining Inc.,
London Clubs International plc, Ashanti
Goldfi elds Company Ltd, Clarkson plc and MD
of Consolidated Gold Fields plc.
External appointments: Non-Executive
Chairman of Endeavour Financial
Corporation, Non-Executive Director of Crew
Gold Corporation, Northam Platinum Ltd,
Orica Ltd, The Egypt Trust, Mvelaphanda
Resources Ltd, Petroamerica Oil Corp. and
International Hotel Investments plc.
DAWN AIREY (50)
Title: Independent Non-Executive Director
Appointment: April 2010
Skills & experience: Dawn has over 25 years’
experience within the media industry and
has held senior positions at some of the UK’s
leading media companies. She is currently
President of CLT-UFA UK Television Ltd within
the RTL Group. Until August 2010, she was
the Chair and Chief Executive Offi cer of Five
TV, after joining the company from her role
as MD, Global Content at ITV plc. Between
2004 and 2008, she was also an Independent
Non-Executive Director of easyJet plc.
External appointments: Non-Executive
Director of Lovefi lm International Ltd and
Chair of the Grierson Trust. Dawn also sits on
the Board of the British Library.
46 Thomas Cook Group plc Annual Report & Accounts 2010
MANNY FONTENLA-NOVOA (56)
Title: Group Chief Executive Offi cer
Appointment: March 2007
Skills & experience: Manny joined the
Company in 1996 upon the acquisition of
Sunworld, which was then the UK’s fourth
largest tour operator. He was a founding
director of Sunworld and has over 30 years’
experience in the travel industry.
External appointments: Director of Hispano
Alemana de Management Hotelero S.A.
PAUL HOLLINGWORTH (50)
Title: Group Chief Financial Offi cer
Appointment: January 2010
Skills & experience: Prior to joining Thomas
Cook as Group Chief Financial Offi cer, Paul
was Chief Financial Offi cer of Mondi Group.
He was previously Group Finance Director
of BPB plc and prior to that Group Finance
Director of De La Rue plc and Ransomes plc.
External appointments: Non-Executive
Director of Electrocomponents plc.
DAVID ALLVEY (65)
Title: Independent Non-Executive Director
Appointment: March 2007
Skills & experience: David 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 Chief Operating
Offi cer of Zurich Financial Services AG.
External appointments: Chairman of Costain
Group PLC and Arena Coventry Ltd; Senior
Independent Director of Intertek Group plc,
William Hill plc, Friends Provident Holdings
(UK) Ltd and Friends Provident Group plc.
ROGER BURNELL (60)
Title: Senior Independent Director
Appointment: March 2007
Skills & experience: Roger was appointed
Senior Independent Director on 4 August
2010 after joining the Company as Non-
Executive Director in March 2007. He was also
a Non-Executive Director of MyTravel Group
plc from April 2003. Before joining MyTravel,
he was Chief Operating Offi cer and a Director
of Thomson Travel Group plc.
External appointments: Non-Executive
Director of Coventry Building Society.
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SAM WEIHAGEN (60)
Title: Chief Executive Offi cer, Northern
Europe & Deputy to the Group Chief
Executive Offi cer
Appointment: November 2009
Skills & experience: Sam has 35 years’
experience in the travel industry. He was
appointed Deputy to the Group Chief
Executive Offi cer in November 2009 and has
held the role of CEO, 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.
External appointments: Chairman of the
Tour Operating Federation in Sweden.
Committee Memberships
AUDIT COMMITTEE
David Allvey (Chairman)
Roger Burnell
Bo Lerenius
REMUNERATION COMMITTEE
Peter Middleton (Chairman)
Roger Burnell
Bo Lerenius
HEALTH, SAFETY &
ENVIRONMENTAL COMMITTEE
Roger Burnell (Chairman)
Dawn Airey
David Allvey
Manny Fontenla-Novoa
NOMINATIONS COMMITTEE
Michael Beckett (Chairman)
Dawn Airey
David Allvey
Roger Burnell
Bo Lerenius
Peter Middleton
BO LERENIUS (63)
Title: Independent Non-Executive Director
Appointment: July 2007
Skills & experience: Between 1985 and 1992
Bo was Group President and Chief Executive
of Swedish listed building materials group,
Ernstromgruppen. From 1992 to 1999 he
was Chief Executive and subsequently Vice
Chairman of Stena Line, following which
he was Group Chief Executive of Associated
British Ports Holdings Plc until 2007.
External appointments: Chairman of Mouchel
plc, Non-Executive Director of G4S plc
and Land Securities Group plc. Honorary
Vice President of the Swedish Chamber of
Commerce for the UK. He is also an adviser
to the infrastructure fund of Swedish venture
capital group, EQT.
PETER MIDDLETON (70)
Title: Independent Non-Executive Director
Appointment: November 2009
Skills & experience: Peter has extensive
experience across the global travel and
fi nance industries having been CEO of
Thomas Cook between 1987 and 1992, CEO
of Lloyds of London between 1992 and 1995
and CEO of Salomon Brothers International
Ltd between 1995 and 1998. Since 2000,
Peter has been Chairman of a number of
small listed and private companies in a range
of industries.
External appointments: None.
On 30 November 2010, it was agreed
that Peter Marks, Group Chief Executive
of The Co-operative Group, will join the
Board, as a Non-Executive Director, upon
the completion of the UK retail joint
venture with The Co-operative Group
and Midlands Co-operative.
Thomas Cook Group plc Annual Report & Accounts 2010 47
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DEREK WOODWARD (52)
Title: Group Company Secretary
Skills & experience: Derek joined the Company
as Group Company Secretary 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.
Directors’ Report
Group Executive Board
MANNY FONTENLA-NOVOA (56)
Title: Group Chief Executive Offi cer
Skills & experience: Please see Directors’
biographies on pages 46 and 47.
PAUL HOLLINGWORTH (50)
Title: Group Chief Financial Offi cer
Skills & experience: Please see Directors’
biographies on pages 46 and 47.
SAM WEIHAGEN (60)
Title: Chief Executive Offi cer Northern Europe
& Deputy to the Group Chief Executive Offi cer
Skills & experience: Please see Directors’
biographies on pages 46 and 47.
DR JÜRGEN BÜSER (44)
Title: Group Strategy Director
Skills & experience: Prior to being appointed
to his current role in November 2009,
Jürgen was Group Chief Financial Offi cer
from July 2008, prior to which he was
Chief Financial Offi cer 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 fi rm Booz Allen & Hamilton and
Westdeutsche Landesbank.
PETE CONSTANTI (44)
Title: Chief Executive Offi cer, Group
Destination Management
Skills & experience: Pete joined the
Company in 1996. Until November 2009
he was Chief Executive Offi cer, Mainstream
Travel, UK & Ireland. Pete comes from a
strong tour operating background and
has 27 years of travel industry experience,
previously working for ILG and Sunworld
where he was HR Director.
IAN DERBYSHIRE (42)
Title: Chief Executive Offi cer, UK
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 Offi cer,
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-operative Travel. Ian has
26 years of experience in the travel industry.
DR THOMAS DÖRING (41)
Title: Chief Executive Offi cer, e-Commerce
and West & East Europe
Skills & experience: Thomas joined the
Company in 2001 and has been responsible
for the Western and Eastern European
markets since 2006. In addition, Thomas was
appointed CEO, e-Commerce in May 2010 to
lead the development of the Online Travel
Agent (OTA). 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 (50)
Title: Chief Executive Offi cer, 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
Offi cer of LTU Group in Düsseldorf.
MICHAEL FRIISDAHL (48)
Title: Chief Executive Offi cer, North America
Skills & experience: Michael joined MyTravel
North America as President in 2000 and was
appointed Chief Executive Offi cer, North
America in 2005. He has 27 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.
RALF TECKENTRUP (53)
Title: Chief Executive Offi cer, 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 (40)
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
over 20 years’ experience in human resources
and employee reward.
48 Thomas Cook Group plc Annual Report & Accounts 2010
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Directors’ Report
Corporate governance report
Dear Shareholder
The Board of Directors of Thomas Cook Group plc recognises
the importance of applying the highest standards of corporate
governance. This enables effective and effi cient decision making
and gives a structural aid for the Directors to discharge their duty
to promote the success of the Company for the benefi t of
its shareholders.
The Board is committed to the principles of corporate
governance in the Combined Code on Corporate Governance (‘the
Code’) and the UK Corporate Governance Code (the ‘new Code’).
In the fi rst full year of leading a fully independent company, the
Board has embraced the standards expected of a UK listed plc.
During the year, the Board has made considerable progress
against the targets that it set itself as a result of the 2009 Board
evaluation. In the year ahead, the Board will track progress
against the actions that it has set following the output from our
recent evaluation. All of this is fully described in the governance
report, but some areas are worthy of comment here:
• the Board has been strengthened during the year by
the appointment of Dawn Airey and Peter Middleton
as Non-Executive Directors, and Sam Weihagen and
Paul Hollingworth as Executive Directors. In the current year,
Peter Marks, Group Chief Executive of The Co-operative Group,
will join the Board upon completion of the UK retail joint
venture with The Co-operative Group and Midlands
Co-operative;
• Roger Burnell has been appointed as the Senior
Independent Director;
• during the course of the year ahead, Roger Burnell will lead
the Nominations Committee through a process to fi nd my
successor in time for an induction and orderly handover ahead
of my intended retirement at the 2012 AGM; and
• the Board has spent considerable time on executive succession
and, in addition to focused discussion on that subject, has
also orchestrated ongoing exposure to members of the Group
Executive Board and their senior management teams, during
debate on strategic and operational matters.
Each of the Board’s Committees has made progress in their areas
of responsibility as described in the report below.
In line with our usual practice, I will engage with our major
shareholders to discuss these developments and to address
any questions ahead of and at the AGM on 11 February 2011.
Michael Beckett
Chairman
30 November 2010
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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 2010.
The only area of non compliance with the Code’s provisions during
the fi nancial year was in respect of the period up to 4 August 2010
when the Board had not appointed a Senior Independent Director.
This is explained in the relevant section on page 51.
The Company will report against the new Code in the Annual Report
& Accounts 2011.
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, 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 specifi cally responsible for:
• development and approval of the Group’s strategy and its
budgetary and business plans;
• approval of signifi cant investments and capital expenditure;
• approval of annual and half-year results and interim
management statements, accounting policies, and subject to
shareholder approval, the appointment and remuneration of
the external auditors;
• approval of interim, and recommendation of fi nal, 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.
At its meetings during the year, the Board discharged its
responsibilities as listed above. In particular, the Board reviewed:
• the operational performance of each of the Group’s segments.
Performance and strategy is continually monitored and reviewed
by the Board and periodic updates are presented by the segment
Chief Executive Offi cers and their senior management teams;
• the development of the strategy for the new Online Travel Agent
and periodic updates of performance against targets;
• fi nancial performance, treasury metrics and the Group’s
annual budget;
• cash fl ow performance;
• the Group’s fi nancing arrangements, leading to the new banking
facility and the launch of the Sterling and Euro denominated
corporate bonds;
• external fi nancial and narrative reporting, and investor feedback;
• M&A opportunities and proposals;
• the Group’s IT strategy and transformation programme and other
major IT projects;
• the Group’s taxation strategy and policies, including the
management of related risk;
• the Group’s fuel hedging strategy and policy and other
treasury policies;
Thomas Cook Group plc Annual Report & Accounts 2010 49
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04/01/2011 11:20
Directors’ Report
Corporate governance report
continued
• succession plans in respect of the Executive Directors and
members of the Group Executive Board;
• Board and Committee evaluation and the formulation of
changes to improve effectiveness;
• the effectiveness of the Group’s system of internal control;
• the Group’s emergency procedures and their effectiveness in
response to the situation created by the airspace closure due
to the volcanic ash cloud;
• the Group’s governance arrangements in response to developing
legal and governance proposals and requirements, including the
additional requirements of the new Code;
• the Group’s competition law policy and associated employee
education and training programme; and
• the Directors’ confl icts of interest register.
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 eight scheduled and fi ve 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. 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 suffi cient 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
Name
Michael Beckett1
Manny Fontenla-Novoa
Dawn Airey2
David Allvey
Roger Burnell
Paul Hollingworth3
Bo Lerenius
Peter Middleton4
Sam Weihagen5
Board
8/8
8/8
4/4
7/8
7/8
6/6
8/8
6/6
7/7
Nominations
Committee
5/7
–
4/4
6/6
6/6
–
7/7
5/5
–
Audit
Committee
–
–
–
6/6
6/6
–
6/6
–
–
Remuneration
Committee
–
–
–
–
7/7
–
7/7
3/3
–
Health, Safety &
Environmental
Committee
–
5/5
–
5/5
5/5
–
–
–
–
Notes
1 Two of the Nominations Committee meetings dealt with Chairman succession and therefore Michael Beckett did not attend.
2 Dawn Airey joined the Board on 12 April 2010. She was appointed to the Health, Safety & Environmental Committee on 23 September 2010.
3 Paul Hollingworth joined the Board on 1 January 2010.
4 Peter Middleton joined the Board on 30 November 2009. He was appointed to the Remuneration Committee and replaced Nigel Northridge as Chairman of that Committee on 25 March 2010.
5 Sam Weihagen joined the Board on 6 November 2009.
Former Directors who served during the year
Name
Jürgen Büser1
Nigel Northridge2
Notes
1 Jürgen Büser stepped down from the Board on 29 November 2009.
2 Nigel Northridge resigned on 25 March 2010.
Board
0/2
4/4
Nominations
Committee
–
3/3
Audit
Committee
–
–
Remuneration
Committee
–
5/5
Health, Safety &
Environmental
Committee
–
–
50 Thomas Cook Group plc Annual Report & Accounts 2010
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BOARD COMPOSITION
As at 30 September 2010, the Board comprised the Chairman,
three Executive Directors and fi ve Independent Non-Executive
Directors. Biographical details of those Directors can be found
on pages 46 and 47.
Board composition
The search, selection and appointment process in respect of both
the new Group Chief Financial Offi cer and new Independent
Non-Executive Directors is fully described in the section on the
Nominations Committee on page 55.
Ludger Heuberg carried out the role of Acting Group Chief Financial
Offi cer in the period up to 31 December 2009. Ludger Heuberg had
previously been the Group’s Chief Financial Offi cer between June
2007 and June 2008 and was a member of the Group Executive Board.
During the period he was Acting Group Chief Financial Offi cer, he was
not a Director of the Company.
Board tenure
(cid:132) Chairman
(cid:132) Independent
Non-Executive Directors
(cid:132) Executive Directors
THE CHAIRMAN
Michael Beckett was the Chairman of the Company throughout the year.
The roles of the Chairman and Group Chief Executive Offi cer 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 SENIOR INDEPENDENT DIRECTOR
Roger Burnell was appointed Senior Independent Director on 4
August 2010 and, as such, is available to shareholders should they
have concerns that cannot be resolved through the normal channels
involving the Executive Directors or the Chairman. As reported last
year, a number of governance changes were made in September
2009 upon the termination of the Relationship Agreement with
Arcandor AG, which had previously held a majority shareholding
in the Company. The decision was taken at that time to defer the
appointment of a Senior Independent Director until such time as
the Board had been strengthened and had settled into leading
a fully fl oated, independent Company. This decision to defer the
appointment of a Senior Independent Director resulted in the
Company not being in compliance with provision A.3.3 of the
Code for the period 1 October 2009 until 4 August 2010.
CHANGES TO THE BOARD
Changes to the Board during the year were as follows: Sam Weihagen,
Chief Executive Offi cer, Northern Europe, was appointed as a Director
and as Deputy to the Group Chief Executive Offi cer on 6 November
2009; Paul Hollingworth was appointed to the Board as Group Chief
Financial Offi cer on 1 January 2010. He replaced Jürgen Büser who
stepped down from the Board and the position of Group Chief
Financial Offi cer on 29 November 2009, following a period of ill
health. Nigel Northridge resigned from the Board as an Independent
Non-Executive Director on 25 March 2010.
In order to strengthen the Board, a process commenced at the start
of the year to appoint two additional Independent Non-Executive
Directors. This process resulted in Peter Middleton and Dawn Airey
being appointed to the Board on 30 November 2009 and 12 April
2010 respectively. Peter Marks, Group Chief Executive of The
Co-operative Group, will join the Board upon completion of the
UK retail joint venture with The Co-operative Group and Midlands
Co-operative.
(cid:132) < 1 year
(cid:132) 1 – 4 years
(cid:132) > 4 years
Tenure includes previous directorships of MyTravel Group plc and Thomas Cook AG.
DIRECTOR INDEPENDENCE
At its September 2010 Board meeting, as part of its annual review
of corporate governance against the Code, the Board considered the
independence of the Non-Executive Directors against the criteria
specifi ed in the Code and determined that Dawn Airey, David
Allvey, Roger Burnell, Bo Lerenius, and Peter Middleton remained
independent. The Board recognises that Peter Marks, as Group Chief
Executive of The Co-operative Group, which will be a partner in the UK
retail joint venture (announced in October 2010), is not independent.
The Board reached its determination of independence in respect
of Peter Middleton, notwithstanding the receipt by him of a pension
of £60,500 per year from the Thomas Cook Pension Plan, a defi ned
benefi t pension scheme. This pension is fully funded and accrued
in the period 1987 to 1992 when he was CEO of Thomas Cook.
The Board recognises that being in receipt of a pension from the
Group’s pension scheme gives rise to a potential confl ict, which it
has authorised as permitted by the Company’s Articles of Association,
subject to the condition that he does not participate in any discussion
or decision regarding any of the Group’s pension schemes. The Board
believes that Peter Middleton is independent in all other respects
and also believes that this condition is suffi cient to maintain
his independence.
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 fi rst Annual
General Meeting (‘AGM’) following their appointment to the Board and
thereafter are subject to re-election every third AGM. 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, Michael
Beckett and Bo Lerenius will be proposed for re-election; and Dawn
Airey and Peter Marks will be proposed for election by shareholders
at the 2011 AGM.
Thomas Cook Group plc Annual Report & Accounts 2010 51
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Directors’ Report
Corporate governance report
continued
Michael Beckett has signalled his intention to retire at the 2012 AGM
and the Nominations Committee, under the leadership of the Senior
Independent Director, has initiated a process to fi nd his successor in
time for an orderly handover and induction. This is further explained
in the Nominations Committee section on page 55.
OPERATION OF THE BOARD
Senior executives below Board level attended relevant parts of
Board meetings in order to make presentations on their areas of
responsibility. This gives the Board access to a broader group of
executives and helps the Directors make assessments of the Group’s
succession plans.
In addition to the papers circulated prior to each meeting, Directors
were provided between meetings with relevant information on
matters affecting the business. Such updates were carried out by
a variety of methods, including conference calls amongst the full
Board or between the Chairman and the Non-Executive Directors,
and by way of the Group Company Secretary circulating papers and
updates on relevant issues. The Chairman has held meetings with
the Non-Executive Directors without the Executive Directors present.
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 fl ow 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 Remuneration Committee. The
Deputy Group Secretary acts as secretary to the Health, Safety &
Environmental Committee.
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 Offi cers’ liability insurance.
BOARD EVALUATION
The Board recognises the benefi t of a thorough evaluation process
as a useful tool to highlight issues, track progress against targets and
to determine and shape the focus of Board attention in the future.
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 Chairman. 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 and dynamics;
• knowledge and information;
• agenda and time management;
• Board support;
• strategic development and oversight;
• delegation of authority;
• risk management;
• corporate responsibility;
• human resource management;
• executive remuneration;
• performance of Executive and Non-Executive Directors;
• committee structure and performance; and
• priorities for change.
52 Thomas Cook Group plc Annual Report & Accounts 2010
Board evaluation process
Detailed questionnaire
Effectiveness report
(Compiled by the Group Company Secretary and agreed
with the Chairman)
Discussed at September Board meeting
Priorities and improvements agreed
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.
The report also highlighted the achievements against the objectives
that had been agreed by the Board a year earlier following the
conduct of the 2009 evaluation. This report was developed and
agreed with the Chairman and circulated to the Board for debate
at the September 2010 Board meeting.
The results of the evaluation concluded that the operation of the
Board and its Committees had improved during the year and
considerable progress had been made against the previously set
targets including Board composition, the ongoing programme of
strategic presentations and debate, the Board’s exposure to members
of the Group Executive Board (which helped build an understanding
of succession plans) and improvement of regular Board reports,
including shareholder feedback and monthly fi nancial reports
following the appointment of the new Group Chief Financial Offi cer.
The evaluation also recognised a small number of issues that arose
and had been remedied during the year. Whilst recognising that
progress had been made, the evaluation highlighted a small number
of areas that the Board felt should be given additional focus in the
year ahead, including succession, strategy and risk management.
The Board debated the output from the evaluation 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 fi nancial year will cover the same areas as listed above
and will be designed to track progress against the agreed actions
set in 2010.
The Non-Executive Directors, under the leadership of the Senior
Independent Director, conducted a performance evaluation
of the Chairman. This was carried out in accordance with the
Code and involved a similar process to that described above.
The Independent Non-Executive Directors met separately to discuss
the evaluation and feedback was given to the Chairman by the
Senior Independent Director.
The Company’s performance management system applies
to management at all levels across the Group. The individual
performance of the Executive Directors is reviewed by the
Remuneration Committee.
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DIRECTORS’ CONFLICTS OF INTEREST
From 1 October 2008, the Companies Act codifi ed the Directors’ duty
to avoid a situation in which they have, or can have, an interest that
confl icts, or possibly may confl ict, 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.
The Board has established a set of guiding principles on managing
confl icts and has agreed a process to identify and authorise confl icts.
As part of that process, it has also agreed that the Nominations
Committee should review the authorised confl icts every six months,
or more frequently if a new potential confl ict situation materialises.
The Nominations Committee and Board applied the above principles
and process throughout the year to 30 September 2010 and confi rm that
these have operated effectively. When authorising a potential confl ict
in respect of Peter Middleton, the Board specifi ed a condition that he
should not participate in any discussion or decision regarding any of the
Group’s pension schemes. The potential confl ict is more fully described in
the section on Director independence on page 51.
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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, 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, both at Board and
Committee meetings and by way of attendance at external conferences
and seminars. 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 and business environment in each of
the segments;
• a briefi ng on competition law and the Group’s competition
compliance and employee education programme;
• briefi ngs on the fi nal implementation of the Companies Act
2006, the Financial Reporting Council’s review of the Combined
Code on Corporate Governance and the impact on the Company’s
governance arrangements following the planned introduction of
the new Code; and
• a briefi ng on the development of carbon emissions legislation in
each source market.
THE GROUP GOVERNANCE STRUCTURE
The Board has delegated authority to its Committees on specifi c aspects of management and control of the Group. The papers in respect of
the Audit, Remuneration, Nominations, Health Safety & Environmental, and Disclosure Committees are circulated to all the Non-Executive
Directors, regardless of Committee membership. Matters discussed and agreed at those Committees, the Group Executive Board and the
Finance & Administration Committee are reported to the next Board meeting.
Thomas Cook Group plc
Board of Directors
Group
Executive Board
Audit
Committee
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
Non-Executive Directors only
(cid:132) Executive Directors and Non-Executive Directors
(cid:132) Executive Directors and/or other senior executives only
GROUP EXECUTIVE BOARD
The Group Chief Executive Offi cer chairs the Group Executive Board which
meets at least eight times a year to oversee the strategic development
and operational management of the Group’s businesses. The Group
Chief Financial Offi cer and the Deputy to the Group Chief Executive
Offi cer 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 48.
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Thomas Cook Group plc Annual Report & Accounts 2010 53
Directors’ Report
Corporate governance report
continued
COMMITTEES OF THE BOARD
Audit Committee
David Allvey
Chairman
Meetings: Six
Members
David Allvey (Chairman)*
Roger Burnell
Bo Lerenius
Meetings also regularly attended by
Michael Beckett (Chairman)
Manny Fontenla-Novoa (Group Chief Executive Offi cer)
Paul Hollingworth (Group Chief Financial Offi cer)
Derek Woodward (Group Company Secretary)
PricewaterhouseCoopers LLP (‘PwC’)
Ernst & Young LLP (‘E&Y’)
* David Allvey is considered by the Board to have recent and relevant fi nancial
experience as required by the Code.
Composition of the Committee
There have been no changes to the composition of the Committee
during the year.
Role of the Committee
The Board has delegated to the Committee responsibility for
overseeing the fi nancial reporting, internal risk management and
control functions and for making recommendations to the Board
in relation to the appointment of the Company’s internal and
external auditors.
In accordance with its terms of reference, the Committee, which
reports its fi ndings 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
signifi cant fi nancial reporting judgements contained in them;
• review the Company’s internal fi nancial controls and 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.
To enable it to carry out its duties and responsibilities effectively,
the Committee relies on information and support from management
across the business.
The full terms of reference of the Committee are available on
www.thomascookgroup.com or from the Group Company Secretary
at the registered offi ce.
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 full and half-year results (including accounting issues
and judgements) and the interim management statements
issued during the year;
• information in support of the statements in relation to going
concern and disclosure of information to the auditors;
• the Group’s system of internal control, receiving reports from
management, the external auditors and the internal auditors
(see section headed ‘risk management and internal control’ on page 57);
• the reports from audits conducted by the internal auditors;
• the annual work plan for each of the internal and external auditors;
• the Group’s main risks and mitigating actions;
• the Group’s business continuity plans and the work plan and
timetable for further development;
• the Group’s taxation strategy and policies, including the
management of related risk;
• the prevention, detection and reporting of fraud;
• security in relation to IT and retail shops;
• the performance of the internal auditors, leading to the
re-appointment of E&Y as the Group’s internal auditors;
• proposals for engaging the external auditors to carry out
non-audit related work (see below); and
• the Committee’s work plan for the year ahead and a review
of historic activity against the Committee’s terms of reference.
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. The
Committee is pleased to report that for a third successive year there
has been a signifi cant reduction to the amount of non-audit fees paid
to the external auditors. An analysis of the fees earned by the Group’s
auditors for audit and non-audit services is disclosed in Note 8 to
the fi nancial statements. PwC were re-appointed by shareholders
at the AGM held on 25 March 2010. Upon the recommendation
of the Audit Committee, PwC will be proposed for re-election by
shareholders at the AGM to be held on 11 February 2011. PwC have
confi rmed their independence as auditors of the Company in a
letter addressed to the Directors.
54 Thomas Cook Group plc Annual Report & Accounts 2010
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Nominations Committee
Michael Beckett
Chairman
Meetings: Seven
Members
Michael Beckett (Chairman)
Dawn Airey
David Allvey
Roger Burnell
Bo Lerenius
Peter Middleton
Meetings also attended by
Manny Fontenla-Novoa (Group Chief Executive Offi cer)
Derek Woodward (Group Company Secretary)
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
required for such appointments. The Committee is also responsible for
reviewing, at least every six months, or more frequently if required, the
Directors’ potential confl icts and for making recommendations to the
Board in respect of authorising such matters.
The full terms of reference of the Committee are available on
www.thomascookgroup.com or from the Group Company Secretary
at the registered offi ce.
Composition of the Committee
The Chairman and all of the Independent Non-Executive Directors
are members of the Committee. Peter Middleton and Dawn Airey
were appointed members of the Committee on being appointed
to the Board on 30 November 2009 and 12 April 2010 respectively.
Nigel Northridge left the Committee upon his resignation from the
Board on 25 March 2010.
Board appointments
Appointments to the Board are made on merit and against objective
criteria. This process is led by the Committee which, after evaluating
the balance of skills, knowledge and experience of each Director,
makes recommendations to the Board.
Principal activities during the year
At its meetings during the year, the Committee discharged its
responsibilities as listed above and in particular:
• recommended the appointment of Sam Weihagen to the Board
as Deputy to the Group Chief Executive Offi cer;
• monitored the process in respect of the search and selection of a
new Group Chief Financial Offi cer, leading to a recommendation
for the appointment of Paul Hollingworth;
• considered the re-appointment of the Directors subject to
retirement by rotation, before making a recommendation to
the Board regarding their re-election;
• commenced and monitored the process to recruit additional
Non-Executive Directors, leading to recommendations for the
appointments of Peter Middleton and Dawn Airey;
• recommended the appointment of Roger Burnell as the Senior
Independent Director;
• considered the process and indicative timing in relation to
the succession of Michael Beckett as Chairman; and
• considered Directors’ potential confl icts (see page 53).
Chairman succession
Michael Beckett has indicated that he will retire from offi ce at
the AGM in 2012. The Committee has considered the process
to appoint his successor in line with the Code, which it will
commence after the AGM in 2011 with a view to ensure that
there will be suffi cient time for induction of the Chairman
elect and a smooth succession into the role.
Appointment process
In respect of the appointment of a new Group Chief Financial
Offi cer, the Committee engaged Spencer Stuart (an external search
fi rm) and the Chairman of the Audit Committee was also involved
with the interviews of the short-listed candidates. 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 fi rms and other
sources. The conditional appointment of Peter Marks has been
monitored and recommended by the Committee but was brought
about due to the proposed retail joint venture with The Co-operative
Group and Midlands Co-operative and, as such, an external search
agent was not used. The process to identify and appoint a new
Chairman will be conducted by the Committee under the leadership
of the Senior Independent Director. An external search and selection
fi rm will be appointed to assist the Committee with this appointment.
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Thomas Cook Group plc Annual Report & Accounts 2010 55
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 offi ce.
Principal activities during the year
At its meetings during the year, the Committee discharged its
responsibilities as listed above and in particular:
• reviewed and agreed the Group’s sustainability report for 2009;
• monitored implementation of the Group-wide strategy for health
and safety including the introduction of approved Group preferred
practice across all markets;
• reviewed the Group-wide approach to sustainability and agreed
an implementation plan;
• reviewed current and future legislative requirements in relation
to climate change and carbon reporting;
• considered the risks of water-borne illness in destination markets
and actions to mitigate these;
• reviewed the Group’s emergency procedures, particularly in the
light of the closure of airspace due to the volcanic ash cloud;
• considered the business risks of water scarcity in destination
markets; and
• monitored progress in relation to the Group’s programme of
government affairs.
The Group’s 2009 sustainability report is available on
www.thomascookgroup.com/sustainability and contains the
Group’s health, safety and environmental policies, an explanation
of how Thomas Cook manages sustainability and progress against
targets. The 2010 sustainability report will be available on
www.thomascookgroup.com in February 2011.
A summary of the approach, and Group’s performance in relation,
to sustainability is contained on pages 38 to 41 of the Directors’
Report – Business Review.
Directors’ Report
Corporate governance report
continued
Remuneration Committee
Peter Middleton
Chairman
Meetings: Seven
Members
Peter Middleton (Chairman)
Roger Burnell
Bo Lerenius
Meetings also attended by
David Allvey (Chairman, Audit Committee)
Michael Beckett (Chairman)
Manny Fontenla-Novoa (Group Chief Executive Offi cer)
Paul Wood (Group Director, Human Resources)
Derek Woodward (Group Company Secretary)
A report detailing the composition, responsibilities and work carried
out by the 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 59 to 69.
Composition of the Committee
All members of the Committee are Independent Non-Executive
Directors. During the year, Nigel Northridge was Chairman of the
Committee until his resignation from the Board on 25 March 2010.
On the same day, Peter Middleton was appointed a member and
succeeded Nigel Northridge as Chairman.
Health, Safety & Environmental Committee
Roger Burnell
Chairman
Meetings: Five
Members
Roger Burnell (Chairman)
Dawn Airey
David Allvey
Manny Fontenla-Novoa
Meetings also attended by
Michael Beckett (Chairman)
Executives and Senior Managers with responsibility for health,
safety and environmental matters
Derek Woodward (Group Company Secretary)
Stephanie Mackie (Deputy Group Company Secretary)
Composition of the Committee
Dawn Airey was appointed as a member of the Committee on
23 September 2010.
56 Thomas Cook Group plc Annual Report & Accounts 2010
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Finance & Administration Committee
To facilitate swift and effi cient 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 identifi ed parameters,
in relation to day-to-day fi nancing 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 Offi cer, who is the Chairman,
the Group Chief Financial Offi cer and the Group Company Secretary.
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 Offi cer, the Group Chief
Financial Offi cer and the Investor Relations team. The programme
included the presentation of preliminary and half-year results and
a strategy day, which can be accessed on the Thomas Cook Group
website at www.thomascookgroup.com along with fi nancial reports,
interim management statements, investor presentations 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 and the Chairman of the Remuneration Committee
met a number of major institutional shareholders during the year
to discuss the Group’s remuneration policy and proposed changes
to the performance targets for the Group’s executive long-term
incentive plans. The Chairman met separately with a number of
major institutional shareholders to discuss governance arrangements
and to gain a fi rst-hand understanding of any issues or concerns they
may have had.
At its 2008 AGM, a resolution was passed allowing the Company to use
its website and email as the primary means of communication with
its shareholders. This arrangement provides signifi cant benefi ts 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
corporate website was upgraded during the year and contains
information for shareholders, including share price information and
news releases. It 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 and risk management 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 (the ‘Turnbull Guidance’) and has approved the framework and the standards implemented. Such a system is designed to manage rather
than eliminate the risk of failure to achieve business objectives and can provide only reasonable, but not absolute, assurance against material
misstatement or loss. The Board has delegated responsibility for the implementation of the Group risk management policy to the Group Risk
Management Committee (‘GMRC’), which is chaired by the Group Chief Financial Offi cer and comprises senior executives from across the Group.
Board
• Ultimate responsibility
Audit Committee
Group Executive Board
Group Risk Management Committee
Responsibilities
• supervising a thorough and regular evaluation of the nature
and extent of the risks to which the Company is exposed;
• reviewing the corporate risk profi le and recommending
risk management strategies; and
• supervising and assessing the overall effectiveness
of the risk management process.
report into and support
1
2
3
4
5
6
UK Risk Management
Committee
Central Europe Risk
Management Committee
West & East Europe Risk
Management Committee
Northern Europe Risk
Management Committee
North America Risk
Management Committee
Airlines Germany Risk
Management Committee
Risk identifi cation & reporting
Each of the six segments has a risk management committee, which
meets regularly. 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. In addition, a central risk register is maintained and
updated by risk owners. The GRMC prepares a half-yearly risk report
for the attention of the Audit Committee based on the feedback from
the segment risk management committees and also a top down
review of the risk register.
The report and the risk register identify the principal risks to the
business and assess the adequacy of controls and procedures in place
to mitigate the likelihood and the impact of these risks. There are also
Thomas Cook Group plc Annual Report & Accounts 2010 57
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Directors’ Report
Corporate governance report
continued
reports to the GRMC by specifi c risk owners on the effectiveness of
actions taken to mitigate 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 GMRC and makes recommendations to
improve risk management and internal control. This process of risk
identifi cation, measurement and reporting provides a comprehensive
ongoing assessment of the signifi cant 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 Guidance. 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 24 to 25 of the Directors’ Report -
Business Review.
Whistleblowing
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 confi dence through the appropriate channels.
Code of ethics
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 confl icts 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.
The Group code of ethics has been further reinforced during the year
by the introduction of a disclosure of interests and benefi ts policy,
which applies to Senior Executives in the Group. This supplements
similar policies that are in place in each of the segments.
Review of Group system of internal control
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 identifi cation and evaluation of
risk management and internal control processes which has been in
place throughout the year and remains in place up to the date of the
fi nancial statements. This includes the process by which management
prepares consolidated accounts. The work conducted by management
and described on pages 57 to 58 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 confi rm that necessary actions have been,
or are being, taken to remedy any signifi cant failings or weaknesses
identifi ed from that review.
58 Thomas Cook Group plc Annual Report & Accounts 2010
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 fi nancial 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 fi nancial statements
in accordance with applicable law and regulations. Company law
requires the Directors to prepare fi nancial statements for each
fi nancial year. Under that law, the Directors have prepared the
Group and the Company fi nancial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union. The fi nancial 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 profi t or loss of the Group for that period.
In preparing those fi nancial 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 fi nancial statements comply with IFRSs as adopted by
the European Union.
The Directors confi rm that they have complied with the above
requirements in preparing the fi nancial statements.
The Directors are responsible for keeping proper accounting records
that disclose with reasonable accuracy at any time the fi nancial
position of the Company and the Group, and for ensuring that the
fi nancial statements and the Directors’ Remuneration Report comply
with the Companies Act 2006 and, as regards the Group fi nancial
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 fi nancial statements may differ
from legislation in other jurisdictions.
DISCLOSURE OF INFORMATION TO AUDITORS
Each of the Directors who held offi ce at the date of approval of
this Directors’ report confi rms that: so far as they are aware, there
is no relevant audit information of which the Company’s auditors
are unaware; and that they have taken all steps that they ought to
have taken as a Director to make them 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 offi ce at the date of this report,
whose names and responsibilities are listed on pages 46 and 47
confi rm that, to the best of their knowledge:
• the Group fi nancial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, fi nancial position and profi t of the
Group; and
• the Directors’ Report contained on pages 3 to 71 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.
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Directors’ Report
Remuneration report
Dear Shareholder
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year to 30 September 2010. 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 during the year.
As the Chairman and the Group Chief Executive Offi cer indicated
in their statements, the current economic climate and a number
of other signifi cant challenges during the year created a very
diffi cult operating environment. Despite this, many of our
segments have delivered increased fi nancial results and there
has been a strong improvement in cash fl ow. Also, management
have taken positive actions to reinforce our UK business and have
continued to progress a number of strategic initiatives.
Against this diffi cult backdrop, we must still attract, retain
and motivate high calibre senior executives to manage the
businesses and deliver against our strategy. With this objective,
the Committee made changes to the short-term and long-term
incentive targets within the structure of the remuneration policy,
which itself remains unchanged.
Part of the annual bonus arrangement for the year was
structured to drive improvements to cash generation. In view
of the success of this targeted approach, we are incentivising a
reduction in exceptional items as well as a further improvement
to cash generation for the year just started.
In November 2009, the Committee conducted a review of the
long-term incentive performance targets to ensure that they
were in line with the Group’s strategic and fi nancial plans and
that they were suffi ciently stretching. Following that review and
a thorough consultation with shareholders, new targets were
adopted at the 2010 AGM before being applied to awards made
during the year.
During the consultation referred to above, shareholders were
informed that the EPS targets for the 2008 and 2009 awards
under the Performance Share Plan and Co-Investment Plan
were misjudged and unachievable. In line with shareholder
feedback, the Committee has not exercised any discretion and,
unfortunately, I have to confi rm that despite a compound
annual growth rate in EPS over the three years to September
2010 of 10.1%, the Company has not met the original EPS target
in respect of the 2008 awards. Therefore, these elements of
management’s compensation packages have lapsed.
The Committee is mindful of shareholders’ views in relation
to executive base pay and has agreed for the second consecutive
year that our Executive Directors will not receive
an increase to their base salaries in the year ahead.
I was appointed Chairman of the Committee in March 2010
and since then I have met with major shareholders and their
representative bodies to discuss remuneration issues. The
Committee continues to be committed to the principles of good
governance as set out in the Combined Code and will continue
our programme of engagement in the future.
The Board will be submitting this Report for approval by
shareholders at our Annual General Meeting on Friday
11 February 2011.
Peter Middleton
Chairman, Remuneration Committee
30 November 2010
INFORMATION NOT SUBJECT TO AUDIT
Composition of the Committee
The following Independent Non-Executive Directors are members
of the Remuneration Committee (the ‘Committee’):
• reviewing and determining, on behalf of the Board, the
remuneration and incentive packages of the Executive Directors
to ensure that they are appropriately rewarded for their individual
contributions to Thomas Cook’s overall performance; and
Peter Middleton (Chairman)
Roger Burnell
Bo Lerenius
During the fi nancial year to 30 September 2010 (the ‘Year’),
Nigel Northridge was Chairman of the Committee until his resignation
from the Board on 25 March 2010. On the same day, Peter Middleton
was appointed as member of the Committee and succeeded
Nigel Northridge as Chairman.
Committee responsibilities
The responsibilities of the Committee include:
• making recommendations to the Board on the Company’s
framework of executive remuneration and its cost;
• 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 offi ce.
Principal activities during the year
The Committee held seven meetings during the Year. Attendance at
those meetings is disclosed on page 50 of the Corporate Governance
Report. Matters discussed by the Committee during the Year included:
• the Group’s remuneration policy;
• key trends in executive remuneration;
• the market competitiveness of the remuneration packages for
Executive Directors and the appropriateness of comparative criteria
used for the purpose of pay benchmarking;
Thomas Cook Group plc Annual Report & Accounts 2010 59
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Directors’ Report
Remuneration report
continued
• reward arrangements for the newly appointed Group Chief Financial
Offi cer and the Deputy to the Group Chief Executive Offi cer;
• achievement of the annual bonus targets for Executive Directors
environment for the recruitment, retention and incentivisation of
high quality Executive Directors and senior executives, it must offer
signifi cant rewards for excellent performance.
in respect of the previous fi nancial year;
• the structure and targets of the annual bonus arrangements
The Committee has therefore set its remuneration policy applying
the following principles:
for the Year;
• review of the performance targets attached to the long-term
incentive schemes;
• the granting of awards under the Thomas Cook Group plc 2007
Performance Share Plan (‘PSP’) and the Thomas Cook Group plc
2008 Co-Investment Plan (‘COIP’);
• vesting of awards made in 2007 under the PSP;
• treatment of executive incentive arrangements following the
volcanic ash cloud;
• pension provision for the Executive Directors;
• appointment of new remuneration advisers; and
• institutional shareholder and governance body pre-AGM voting
recommendations.
Committee evaluation
The Committee evaluated its own performance, which took place at
the time of the Board evaluation, details of which are on page 52.
Committee’s advisers
The Committee invites individuals to attend meetings as it deems
benefi cial to assist it in reviewing matters for consideration. During
the Year, these individuals included the Chairman of the Company,
the Group Chief Executive Offi cer, the Group Director, Human
Resources and the Group Company Secretary. The Chairman of the
Audit Committee also usually attends meetings to ensure that there is
coordination on risk and accounting issues.
No Director or senior executive is present at meetings when his or her
own remuneration arrangements are being discussed.
In the performance of its duties, the Committee seeks assistance from
external advisers, where necessary, to ensure it is suitably advised. During
the Year, Kepler Associates (‘Kepler’) and Hewitt New Bridge Street (‘HNBS’)
provided advice to the Committee in the following areas:
• trends in executive remuneration;
• achievement of long-term incentive performance targets, in
respect of the 2007 PSP Award;
• review of current and introduction of new long-term incentive
performance targets;
• pension provision in respect of the Executive Directors; and
• the benchmarking of salaries and benefi ts for Executive Directors.
Linklaters LLP (‘Linklaters’) provided advice specifi cally relating to
the vesting of the award made in 2007 under the PSP and the AGM
resolution in respect of the change in long-term incentive performance
targets. Linklaters are not appointed by the Committee as advisers.
Neither Kepler nor HNBS advise the Company in any other capacity.
Linklaters act as legal advisers to the Trustee and the Company in
respect of the Thomas Cook Pension Plan and to the Company in
respect of the Group’s share plans.
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. In developing its remuneration policy, the
Committee has had regard to the fact that the Group has signifi cant
international operations and, in order to compete in the global
60 Thomas Cook Group plc Annual Report & Accounts 2010
• the Group’s objective is to deliver fi nancial 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 proven
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); and
• the proportion between fi xed and variable remuneration will
typically be targeted at 30% fi xed and 70% variable – see the 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 fi xed
elements of remuneration shall be set in line with the median of a
specifi ed 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 Offi cer in September 2008, details of which are given below.
The remuneration of Executive Directors is highly geared towards
performance with the proportion of ‘at risk’ pay increasing
disproportionately according to:
• the level of personal performance; and
• the seniority of the Executive Director and his/her ability to
infl uence results.
The performance related portion of remuneration rewards short-term
and long-term performance separately, with the potential level of
payment being heavily weighted in favour of the long term.
In benchmarking the remuneration of Executive Directors, the
Remuneration Committee looks at pay levels at other travel and
leisure sector companies and takes a broader view by considering pay
at other companies of a similar size to Thomas Cook. Where specialist
functions are concerned, the Committee may have reference to other
comparator groups as it considers appropriate.
The relative importance of the fi xed 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 2010;
(b) value of benefi ts provided in the Year;
(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;
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(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 62):
• 0.5:1 at target performance;
• 3.5:1 at maximum performance.
Remuneration arrangements
The remuneration of the Executive Directors in respect of the Year
is set out in the audited section of this report.
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
For the Year, the remuneration of the Executive Directors comprised
base salary, annual bonus, participation in the PSP and the COIP,
other benefi ts including the provision of pensions, private health
insurance, disability cover, personal accident cover, death in service
benefi t and a car allowance. The only component of executive
remuneration which is pensionable is base salary.
The remuneration arrangements for Sam Weihagen, Deputy to the
Group Chief Executive Offi cer, (appointed 6 November 2009), and
Paul Hollingworth, the new Group Chief Financial Offi cer, (appointed
on 1 January 2010), were set by the Committee in line with the
remuneration policy, having regard also for market rates of pay
for these positions.
During the Year, the Committee considered whether the current
remuneration structures were likely to drive unacceptable behaviours
or attitudes to risk on the part of Executives Directors. The Committee
concluded that it was satisfi ed with the current remuneration
structure, policy and performance targets in relation to risk.
Base salary
In accordance with the Group’s remuneration policy, the base salary of
Executive Directors refl ects 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 Offi cer was increased in September
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2008 to the upper quartile of the comparator group. This recognised
his appointment as sole Group Chief Executive Offi cer (from June to
December 2007 he was joint Chief Executive Offi cer) and operational,
fi nancial and strategic achievements. At the time of awarding this
increase, the Committee agreed that the Group Chief Executive Offi cer’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
Offi cer in November 2009 and agreed that it should remain at its
current level. A review of market rates of base salary was conducted in
November 2009 prior to the appointment of Sam Weihagen as Deputy
to the Group Chief Executive Offi cer and agreeing to appoint Paul
Hollingworth as Group Chief Financial Offi cer.
The Committee reviewed the base salaries for all of the Executive
Directors in November 2010 and agreed that they should remain
at their current level. They will be reviewed again in 2011.
The annual rates of base salary, as at 30 November 2010, for the
Executive Directors are shown in the table below:
Name
Manny Fontenla-Novoa
Paul Hollingworth1
Sam Weihagen2
2010
£000
850
480
SEK 000
5,600
2009
£000
850
–
–
1 Paul Hollingworth was appointed on 1 January 2010.
2 Sam Weihagen was appointed on 6 November 2009. He receives a base salary of 5.6 million Swedish
Krona per annum. As at 30 September 2010, this equated to a base salary of £496,000.
Annual bonus
The Committee believes that it is important to incentivise Executive
Directors on a short-term basis with an annual cash bonus, earned
on the attainment of stretching performance targets. These targets
are set by the Committee at the start of the fi nancial year and are
individually tailored for each Executive Director. 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 in respect of the Year:
(i) 50% was linked to the attainment of Group fi nancial targets and
is earned on a pro rata basis by reference to the achievement of
those targets;
(ii) 25% was linked to the attainment of quarterly Group cumulative
free cash fl ow targets; and
(iii) 25% was linked to the attainment of individual and other
non-fi nancial criteria which included targets in the areas of
strategy, customer satisfaction, employee engagement, executive
succession planning, government affairs, corporate refi nancing
and health and safety.
The Committee determines the extent to which it considers the objectives
have been met and the annual bonus payable. For the Year, the Committee
also took account of the signifi cant progress against a number of strategic
initiatives and awarded the following percentages of the maximum bonus
achievable:
Name
Manny Fontenla-Novoa
Paul Hollingworth
Sam Weihagen
Percentage of maximum bonus awarded
80
80
80
Thomas Cook Group plc Annual Report & Accounts 2010 61
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Directors’ Report
Remuneration report
continued
It is intended that the annual bonus for the year ended 30 September
2011 will be structured in the following way:
(i) 50% to be linked to Group fi nancial targets, including 12.5%
linked to the reduction in exceptional items;
(ii) 25% to be linked to the attainment of quarterly Group cumulative
free cash fl ow targets; and
(iii) 25% to be linked to the attainment of individual and
non-fi nancial objectives.
Pensions
The Committee believes that the Executive Directors should be
provided with competitive post-retirement benefi ts. In respect
of Manny Fontenla-Novoa and Paul Hollingworth, the Company
contributes each year into a pension scheme or other arrangement
for each of them to an amount equivalent to 25% of base salary.
The Company also contributes to a defi ned benefi t pension scheme
in respect of Sam Weihagen. Under his pension arrangement, Sam
Weihagen is entitled to a bridging pension payable between the ages
of 60 and 65 of 70% of his fi nal salary and a lifetime pension payable
from 65 of 30% of his fi nal salary less the Swedish state pension.
From age 60, when the Company’s contributions to the above pension
ceased, Sam Weihagen was paid a salary supplement of 25% of his
base pay. Since reaching age 60, Sam Weihagen has not drawn any of
his bridging pension, which will be subject to actuarial adjustment
once it is drawn. The table on page 69 discloses these arrangements.
Long-term incentive plans
The Committee believes that infl uencing long-term performance and
the close alignment of Executive Directors’ remuneration with the
interests of shareholders is an important element of the Company’s
remuneration policy. Therefore, the following two share-based
long-term incentive plans, both of which have been approved by
shareholders, have been designed to reward and retain Executive
Directors and key senior executives over the longer term whilst also
aligning with the interests of the Company’s shareholders.
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 target has been
met. Unless there are exceptional circumstances, awards are made
annually within 42 days of the Company’s annual fi nancial results
being announced. No award can be made under either plan later
than ten years after the anniversary of the adoption date and options
are not exercisable later than ten years after the date of the award.
Neither plan has a performance target retest provision.
Thomas Cook Group plc 2007 Performance Share Plan (‘PSP’)
During the Year, PSP awards equal to the following percentages of
base salary were made to the Executive Directors:
Name
Manny Fontenla-Novoa
Paul Hollingworth1
Sam Weihagen
Percentage of base salary
175
200
150
1 As an exception to the remuneration policy the Committee agreed that Paul Hollingworth would
receive an award equal to 200% of base salary for the fi rst two years following his appointment.
Thereafter, his awards will revert to 150% of base salary.
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 2011 on the same basis as above.
Thomas Cook Group plc 2008 Co-Investment Plan (‘COIP’)
Under the COIP, Executive Directors and key executives 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
62 Thomas Cook Group plc Annual Report & Accounts 2010
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
invest 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
performance period subject to the satisfaction of the performance
target. 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. The number of Lodged Shares held by each Executive
Director and the percentage of base salary that represents (based on
a market value of 171.8p as at 30 September 2010) is detailed below:
Name
Manny Fontenla-Novoa
Paul Hollingworth1
Sam Weihagen
Number of Lodged
Shares held
850,802
Percentage
of base salary
172
83,568
89,010
30
31
1 Paul Hollingworth invested £150,000 and £40,000 in February and May respectively of his own funds into
the COIP as he did not qualify for a bonus payment, having only joined the Company on 1 January 2010.
Review of performance conditions attached to long-term
incentive plans
In November 2009, the Committee conducted a detailed review
of the performance targets attached to the PSP and COIP awards.
This was to ensure that they were in line with the Group’s strategic
and fi nancial plans, that they were suffi ciently stretching and that
they also provided realistic incentives for executives. As a result of
the review, the Committee concluded that the performance targets
did not satisfy the above criteria and consulted with the Company’s
major shareholders and their representative bodies regarding the
following proposals:
• to change the Earnings Per Share (‘EPS’) target for both the PSP
and the COIP from an absolute target stated in pence for each cycle
to a standard compound annual growth rate in EPS of 6% to 14%
over the three-year period. The Committee believed that changing
the way the target is measured would improve the credibility with
participants because a new rate would not have to be set for each
cycle of awards;
• to introduce a Total Shareholder Return (‘TSR’) component to the
COIP. This would mean that both plans would have a performance
target which is 50% EPS and 50% TSR;
• to introduce a second TSR comparator group, for both the PSP
and the COIP, consisting of a tailored peer group of international
travel operators. This would be equally balanced with the
previously used comparator group based on the 50 companies
at the bottom of the FTSE 100 and the 50 companies at the top
of the FTSE 250. The Committee believed that the introduction of
this second TSR comparator group would improve the relevance
of the performance target to participants; and
• the Return On Invested Capital (‘ROIC’) measure would remain in
respect of the COIP.
Following the consultation, the Board decided that it was appropriate,
in view of the new methodology being proposed, to seek shareholder
approval for the new performance targets, even though it was not
required. A resolution put to the AGM on 25 March 2010 to approve
the new performance targets was passed with 99.8% of the vote.
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Year of Award
Vesting criteria
Performance targets over three-year period
Performance Share Plan
2007, 2008 and 2009
50% – Total Shareholder Return
ranked against the comparator group
50% – Earnings Per Share
2010
50% – Total Shareholder Return ranked equally
against the following comparator groups:
• the 50 companies at the bottom of the
FTSE 100 and the 50 companies at the top
of the FTSE 250; and
• sector specifi c comparator group.
(see page 64)
50% – Earnings Per Share
Co-Investment Plan
2008 and 2009
100% – Earnings Per Share
2010
50% – Earnings Per Share
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 quartile.
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 award but the EPS target is 28 pence to 33 pence.
January and June 2009 awards: The same vesting schedule
applies as for the July 2007 award but the EPS target is
35 pence to 40 pence.
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 quartile.
Each comparator group determines 25% of the award.
Full vesting for EPS growth of 14% or greater. Zero vesting for
EPS growth of less than 6%. Vesting will increase on a straight
line basis from 25% to 100% of the EPS linked part of the award
for EPS growth between 6% and 14%.
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 the ROIC ratchet (see below).
January, June and August 2009 awards: The same vesting
schedule applies as for the June 2008 awards but the EPS target
is 35 pence to 40 pence.
Vesting of up to 2.5 Matching Shares for EPS growth of 14% or
greater. Zero vesting for EPS growth of less than 6%. Vesting will
increase on a straight line basis from 25% to 100% of the EPS
linked part of the award for EPS growth between 6% and 14%.
50% – Total Shareholder Return ranked equally
against the following comparator groups:
• the 50 companies at the bottom of the FTSE
100 and the 50 companies at the top of the
FTSE 250; and
Vesting of up to 2.5 Matching Shares 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 quartile. Each comparator group determines 25%
of the award.
• sector specifi c comparator group.
(see page 64)
2008, 2009 and 2010
Return On Invested Capital achievement
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 (EPS and TSR
performance for the 2010 award) (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%.
This will increase the matching ratio to 3.5 Matching Shares for
every one Lodged Share.
Thomas Cook Group plc Annual Report & Accounts 2010 63
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Directors’ Report
Remuneration report
continued
Selection of long-term incentive performance conditions
A further explanation of each performance target element is
given below:
• TSR in relation to the PSP and COIP: TSR has been chosen by the
Committee as it is considered by the Committee to be aligned
with shareholder interests. The TSR element is divided into two
comparator groups:
– PSP 2007, 2008, 2009 and PSP and COIP 2010: the fi rst
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; and
– PSP and COIP 2010: the second comparator group consists of a
tailored peer group of international travel operators (see details
opposite). The Committee believes that this second comparator
group improves the relevance of the performance target to
participants.
The constituent members of both of the comparator groups are
determined on the date the awards are made. At the end of the
performance period, TSR calculations will be performed by the
Company’s external advisers using the 90 day average share price
at the start and end of the performance period.
• EPS in relation to the PSP and COIP: EPS was chosen as it is
regarded as a good refl ector of business performance.
– PSP and COIP 2007, 2008 and 2009: 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.
– PSP and COIP 2010: the EPS target was set as a compound
annual compound growth rate over a three-year period.
EPS will be derived from the income statement for the last
fi nancial year ending prior to the end of the performance period.
• ROIC in relation to the COIP: ROIC was chosen to measure the
effi ciency 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
profi t 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.
It is currently intended that further awards will be made in
January 2011 with the same performance targets used in 2010
attached to them.
Details of the performance targets attached to each PSP and COIP
award are detailed in the table on page 63.
The sector specifi c comparator group applied to the 2010 PSP and
COIP awards consists of the following companies:
Company name
Accor SA
Air France-KLM SA
Avis Europe plc
Carnival Corp
easyJet plc
Country of
main listing
France
France
UK
US
UK
Company name
Air Berlin PLC
Country of
main listing
Germany
Avis Budget Group Inc
British Airways Plc
US
UK
Deutsche Lufthansa AG
Germany
Expedia Inc
US
Flight Centre Limited
Australia
Hogg Robinson Group plc UK
Holidaybreak plc
UK
Kuoni Reisen Holding AG Switzerland
Intercontinental Hotels
Group PLC
Millennium & Copthorne
Hotels plc
UK
UK
Priceline.com Inc
US
Royal Caribbean Cruises LtdUS
Ryanair Holdings plc
Ireland
Transat A.T. Inc
Tui Travel PLC
Canada
UK
SAS AB
Trigano SA
Sweden
France
Committee action in respect of the 2007 PSP Award
The PSP award made in July 2007, reached the end of its three-year
performance period during the Year. In relation to the EPS element
of the award, the Committee wanted to ensure that EPS was
calculated on a like-for-like basis at the beginning and at the end of
the performance period. Accordingly, the Committee used its power,
allowed under the PSP rules, to adjust the EPS fi gure for the year
ended 30 September 2009 in so far as it applied to the 2007 PSP
award vesting as the earnings had been adversely affected by:
• the decision (approved by the Board) to fully draw the fi nancing
facility in October 2008 to avoid the risks from the market
interruption caused by the Lehman Brothers insolvency and the
subsequent banking crisis;
• the decision (approved by the Board) to only invest liquidity
overnight to avoid bank insolvencies; and
• a net interest charge arising from the mismatch of assumed interest
received on pension asset and interest paid on pension liabilities.
This item is non-cash and beyond management control in the
short-term.
The Committee also determined that the adjusted EPS fi gure would
be the starting fi gure for the EPS element of the 2010 PSP and COIP
performance targets.
The result was that the EPS element of the performance target vested
at 98%. The participants were permitted to exercise the EPS element in
March 2010 as the level of performance had already been agreed by
the Committee. To the extent that the EPS element of the award was
exercised prior to 12 July 2010, the participants were required to retain
the resulting shares (after the sale of suffi cient shares to cover the
income tax and social security contributions arising on the exercise)
until 12 July 2010, the third anniversary of the date of award.
In relation to the TSR element of the award, the Committee agreed
that the volcanic ash cloud (further information on the VAC can be
found on page 7) was an exceptional event and had a distorting effect
on the share price. Therefore, having received advice from external
advisers, the Committee agreed that it was appropriate to end the TSR
measurement period on 15 April 2010 (the fi rst date when UK and
European airspace was closed). Accordingly, the TSR element of the
2007 award vested at 37%. This meant that the total level of vesting
for the 2007 PSP award was 67.5%.
Participants were not allowed to exercise the TSR element of the 2007
PSP award prior to 12 July 2010, the third anniversary of the date of
award. From that date to the date of this report, the Company has been
64 Thomas Cook Group plc Annual Report & Accounts 2010
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in a prohibited period then a close period. Therefore, at the date of this
report, participants, including Executive Directors, have not been able
to exercise the TSR element of their 2007 PSP award nor have they been
able to sell the net number of shares received from the early exercise of
the EPS element of the award.
2008 PSP and COIP awards
During the consultation referred to above, shareholders were informed
that the EPS targets for the 2008 and 2009 awards under the PSP
and COIP Awards were misjudged and unachievable. In line with
shareholder feedback, the Committee has not exercised any discretion
and, unfortunately, despite a compound annual growth rate in EPS over
the three years to September 2010 of 10.1%, the Company has not met
the original EPS target in respect of the 2008 awards. Therefore these
elements of management’s compensation packages have lapsed.
Change of control and other circumstances
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 where the
Committee has used its discretion, 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 plans in the method best suited to the interests of
the Company, either by acquiring shares in the market or, subject
to institutional shareholder 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 2010, 4,282,801 shares were held
in the Thomas Cook Group plc 2007 Employee Benefi t Trust, which
represents 17% of share incentive awards held on that date and
0.5% 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 plan
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 Benefi t Trust
and did not vote at the AGM held in March 2010.
Pay and conditions across the Group
The Group operates in a signifi cant number of different countries and
has many employees who do a diverse range of jobs. Therefore, it is
diffi cult to take into account pay and employment conditions across
the Group specifi cally when setting the remuneration of the Executive
Directors. However:
• all employees, including the Directors, are paid by reference to the
market rate;
• quality performance is rewarded through a number of performance
related bonus schemes across the Group;
• the Group offers internal promotion opportunities;
• the Group offers employment conditions which are commensurate
with a large UK listed company including high standards of health
and safety and equal opportunity policies;
• the Group offers a range of benefi ts depending on employee
location including pension, fl exible benefi ts, paid annual leave and
healthcare insurance; and
• the Company believes that share plans are important to align the
interests of employees and shareholders. Therefore, the Company
offers the following two employee share plans:
– Sharesave operates in 21 countries and offers employees, including
the Executive Directors, the opportunity to purchase shares at a
discount to the market value on the invitation date; and
– The Buy As You Earn Scheme is open to all UK-based employees
who have been employed for at least six months, including
UK-based Executive Directors. 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.
Service contracts
Each of the Executive Directors, who served during the Year, has a
service contract with the Company or one of its subsidiary companies.
The date of the service contract and notice period for each Executive
Director are set out below:
Name
Current Directors
Manny Fontenla-Novoa
Paul Hollingworth
Sam Weihagen
Former Directors
Jürgen Büser
Date of contract
30 January 2008
12 November 2009
May 1994
1 July 2008
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
refl ect 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 benefi ts 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 justifi cation for a further appointment.
Paul Hollingworth, Group Chief Financial Offi cer, is a non-executive
director of Electrocomponents plc. For the period from his
appointment as a Director of the Company to the end of the Year he
received a fee of £39,375 from Electrocomponents plc, which he is
allowed to retain.
Non-Executive Directors
The Committee is responsible for determining the fees for the Chairman
of the Company. The fees for the other Non-Executive Directors are set
by the Board. No Director votes on his or her own remuneration.
Thomas Cook Group plc Annual Report & Accounts 2010 65
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Directors’ Report
Remuneration report
continued
The Non-Executive Directors’ fees were reviewed during the Year. The fees
were benchmarked against other companies in the FTSE 350 and following
the review, it was agreed that no increase in the fees should be made,
but a further review will take place in 2011. Non-Executive Directors do
not participate in any bonus plans, are not eligible to participate in any
long-term incentive plans and no pension contributions are made on
their behalf.
The annual rates of Non-Executive Director fees are shown in the
table below.
Position
Chairman
Non-Executive Director
Additional fee for the Chair of the Audit Committee
Additional fee for the Chair of the Remuneration
Committee
Additional fee for the Chair of the Health, Safety &
Environmental Committee
Annual fees
£000
250
60
20
20
10
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
Date of letter
of appointment
Expiry date Notice period
Michael Beckett
13 June 2007
N/A
6 months
Dawn Airey
1 April 2010
1 April 2013
6 months
David Allvey
22 November 2010
10 April 2012
6 months
Roger Burnell
22 November 2010
10 April 2012
6 months
Bo Lerenius
22 November 2010
30 June 2013
6 months
Peter Middleton
30 November 2009 30 November 2012
6 months
Former Directors
Nigel Northridge1
1 August 2008
See note
N/A
1 Nigel Northridge resigned as an Independent Non-Executive Director on 25 March 2010.
The fees paid to the Chairman and the Non-Executive Directors in
respect of the Year are set out in the audited section of this report.
Performance graph
The graph below shows the TSR for holders of Thomas Cook Group plc €0.10 ordinary shares for the period since listing on 19 June 2007,
measured against the FTSE All Share Travel & Leisure Index. This index was chosen as a comparator because the Company has been a constituent
of it throughout the period since listing. The calculation of TSR follows the provisions of the Regulations and is broadly the change in market
price together with reinvestment of dividend income. This graph shows the spot value of £100 invested in Thomas Cook Group plc on 19 June
2007 compared with the value of £100 invested in the FTSE All Share Travel & Leisure Index. The intermediate points are the spot values on the
Company’s Financial Year ends.
110
100
90
80
70
60
50
40
30
)
£
(
e
u
l
a
V
FTSE All Share Travel & Leisure Index
19/6/07
30/9/07
30/9/08
30/9/09
30/9/10
Thomas Cook Group plc
INFORMATION SUBJECT TO AUDIT
Directors’ interests in shares
The following table shows the benefi cial interests of the Directors who held offi ce at the end of the Year in the €0.10 ordinary shares of the Company:
Directors as at 30 September 2010
Executive Directors
Manny Fontenla-Novoa1
Paul Hollingworth1
Sam Weihagen1
Non-Executive Directors
Michael Beckett
Dawn Airey
David Allvey
Roger Burnell
Bo Lerenius
Peter Middleton
Ordinary shares at
30 September 2010
Ordinary shares at
1 October 2009
or on appointment
932,728
83,568
89,680
45,000
10,000
–
3,692
20,000
1,000
642,353
–
11,064
24,999
–
–
3,692
10,000
1,000
1 The holdings of the Executive Directors include shares held as Lodged Shares under the COIP: 850,802 held by Manny Fontenla-Novoa, 83,568 held by Paul Hollingworth and 89,010 held by Sam Weihagen.
66 Thomas Cook Group plc Annual Report & Accounts 2010
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Share options and share awards under long-term incentive plans
The following tables show in respect of each person who served as a Director at any time during the 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 of the Year (or on the date of appointment) and at the end
of the Year (or on the date of resignation). Holdings relate to the COIP and PSP. Where a Director is awarded an option, it is awarded as ‘nil cost’.
The following table gives details of PSP awards held by Executive Directors who served during the Year:
Number of
shares subject
of a share
option or award
283,784
Share price
used to
calculate award
(pence)
333
Number
of share
options/awards
exercised
139,054
Number
of share
options/awards
lapsed
92,230
Date of
exercise
17 March 2010
Share price on
date of exercise
(pence)
243
Total as at 30
September 2010
or on date of
resignation
52,500
Name
Manny Fontenla-Novoa
Date of
award
12 July 2007
11 March 2008
9 January 2009
12 February 2010
Paul Hollingworth
12 February 2010
Sam Weihagen
Jürgen Büser
12 July 2007
11 March 2008
9 January 2009
12 February 2010
12 July 2007
11 March 2008
389,576
791,223
637,044
411,134
90,945
121,588
227,394
315,979
56,306
88,339
9 January 2009
339,096
283
188
234
234
333
283
188
234
333
283
188
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
29,558
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
389,576
791,223
637,044
411,134
61,387
121,588
227,394
315,979
56,306
88,339
339,096
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During the period Jürgen Büser was a Director, none of his awards were exercised or lapsed.
Manny Fontenla-Novoa exercised options over 139,054 ordinary shares on 17 March 2010. On the same day, he sold 57,128 shares at a price
of 243.0642p, to cover income tax liability and NICs and commission costs. The total gain on exercise was £337,990. He retained the remaining
81,926 shares after exercise.
Date of Award
12 July 2007
11 March 2008
9 January 2009
12 February 2010
Earliest exercisable date
12 July 2010
11 March 2011
9 January 2012
12 February 2013
Expiration date
12 July 2017
11 March 2018
9 January 2019
12 February 2020
For UK participants £30,000 of awards can be made and held under a HMRC approved Company Share Option Sub-Plan (‘CSOSP’). The following
table gives details of awards made under the CSOSP in conjunction with the PSP:
Date of award
Manny Fontenla-Novoa
Paul Hollingworth
Jürgen Büser
Option price (pence)
Earliest exercisable date
Expiration date
Total held at
30 September 2010
or on date of
resignation
15,957
12,847
15,957
9 January 2009
15,957
12 February 2010
–
–
15,957
188
12,847
–
234
9 January 2012
12 February 2013
9 January 2019
12 February 2020
At the date of exercise, to the extent that there is a gain on the HMRC approved options, PSP options will be forfeited to the same value.
Vesting of awards made under the PSP in 2007, 2008 and 2009 (including the HMRC approved options) is dependent on 50% Total Shareholder
Return ranked against the FTSE 50 to 150 comparator group and 50% growth in Earnings Per Share. Between the end of the Year and the date of
this report, it became apparent that the EPS target in respect of the 2008 PSP award had not been achieved. Therefore, the EPS element of this
award has lapsed. Vesting of awards made under the PSP in 2010 (including the HMRC approved options) is dependent on 25% TSR ranked against
the FTSE 50 to 150 comparator group, 25% TSR ranked against the sector specifi c comparator group and 50% growth in Earnings Per Share. Further
information on the performance conditions is detailed on page 63.
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Thomas Cook Group plc Annual Report & Accounts 2010 67
Directors’ Report
Remuneration report
continued
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 included in the Directors’ interests in shares table on page 66:
Name
Manny Fontenla-Novoa
Date of
award
25 June 2008
12 January 2009
13 August 2009
12 February 2010
21 May 2010
Paul Hollingworth
12 February 2010
Sam Weihagen
Jürgen Büser
21 May 2010
12 January 2009
12 February 2010
21 May 2010
25 June 2008
12 January 2009
* During the period Jürgen Büser was Director, none of his awards lapsed.
Total number
of Matching
Shares awarded
591,535
1,091,275
318,174
1,099,052
350,269
222,435
70,052
36,379
205,156
70,000
73,941
454,699
Number
lapsed during
the year
–
*
472,500
–
–
–
–
–
–
–
–
–
–
Total held at
30 September 2010
or on date
of resignation
591,535
End of
vesting period
25 June 2011
Expiration
date
25 June 2018
618,775
318,174
12 January 2012
12 January 2019
13 August 2012
13 August 2019
1,099,052
12 February 2013
12 February 2020
350,269
222,435
70,052
36,379
21 May 2013
21 May 2020
12 February 2013
12 February 2020
21 May 2013
21 May 2020
12 January 2012
12 January 2019
205,156
12 February 2013
12 February 2020
70,000
73,941
21 May 2013
25 June 2011
21 May 2020
25 June 2018
454,699
12 January 2012
12 January 2019
On 11 February 2010, Manny Fontenla-Novoa reallocated 135,000 Lodged Shares from his 2009 COIP award to his 2010 award. Accordingly, the
corresponding award of 472,500 options granted in 2009 to provide the Matching Share element for those Lodged Shares lapsed. The reallocated
Lodged Shares were those bought on a voluntary basis in 2009. The mandatory element (267,700 Lodged Shares acquired with bonus paid in
excess of 100% of base salary) remains invested in the COIP in respect of the 2009 award.
Vesting of Matching Shares awarded under the COIP in 2008 and 2009 is dependent on growth in EPS and Return on Invested Capital
achievement. Between the end of the Year and the date of this report, it became apparent that the EPS target in respect of the 2008 COIP award
had not been achieved. Therefore, the Matching Shares in respect of the 2008 award have lapsed. Vesting of Matching Shares awarded under the
COIP in 2010 is dependant on growth in EPS, TSR ranked against the comparator groups and Return on Invested Capital achievement. Further
information on the performance conditions is detailed on page 63.
The following table gives details of the awards held by the Executive Directors under the Sharesave Scheme:
Name
Manny Fontenla-Novoa
Date of
award
22 June 2010
Option price
(pence)
181
Number of
options awarded
4,972
Date from which
the option may
be exercised
1 August 2013
Date on which the
option expires
31 January 2014
None of the Directors of the Company held any interest in any other securities of Thomas Cook Group plc during the Year. In the period between
30 September 2010 and 30 November 2010, there were no changes in the Directors’ interests referred to above.
The mid-market price of the Company’s ordinary shares at the close of business on 30 September 2010 was 171.8p and the range during the
Year was 272.0p to 171.7p. These mid-market prices are as quoted on the London Stock Exchange.
68 Thomas Cook Group plc Annual Report & Accounts 2010
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Directors’ remuneration
Details of the remuneration of the Directors for services to the Company for the Year are disclosed below.
Name
Executive Directors
Manny Fontenla-Novoa
Paul Hollingworth4
Sam Weihagen5
Non-Executive Directors
Michael Beckett
Dawn Airey
David Allvey
Roger Burnell
Bo Lerenius
Peter Middleton6
Past Executive Directors7
Jürgen Büser
Past Non-Executive Directors7
Nigel Northridge
Total
Base
salary/fees
£000
850
360
454
250
28
80
70
60
60
71
40
Annual
bonus
payments
£000
1
1,190
504
636
–
–
–
–
–
–
–
–
2,323
2,330
Pay in
lieu of
pension
£000
2
185
90
17
–
–
–
–
–
–
13
–
305
Total
emoluments
2010
£000
Total
emoluments
2009
£000
3
Benefi ts
£000
47
20
10
–
–
–
–
–
–
5
–
82
2,272
974
1,117
250
28
80
70
60
60
89
40
5,040
2,365
–
–
250
–
80
60
60
–
841
60
3,716
1 Annual bonus entitlement: Up to 175% of salary for each of the Executive Directors, with 75% paid by reference to fi nancial 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 62 for details.
2 The pay in lieu of pension which is paid as a salary supplement to Manny Fontenla-Novoa, Paul Hollingworth, Sam Weihagen and Jürgen Büser is treated as a separate non-salary benefi t and is excluded from the
calculation of bonus entitlement and share plan award calculations.
3 Benefi ts received by the Executive Directors include a car allowance, petrol, private medical insurance or cash payment in lieu of medical cover and life assurance.
4 Paul Hollingworth joined the Board on 1 January 2010.
5 Sam Weihagen is paid in Swedish Krona. His emoluments have been converted into Sterling at the average exchange rate for the Year of 11.3.
6 Peter Middleton also receives a pension of £60,500 per year from the Thomas Cook Defi ned Benefi t Pension Scheme. This pension is fully funded and accrued in the period 1987 to 1992 when he was CEO of
Thomas Cook. For the period since his appointment on 30 November 2009, he received £50,584. See page 51 of the Corporate governance report for further information.
7 The following Directors left offi ce on the dates shown: Jürgen Büser (29 November 2009) and Nigel Northridge (25 March 2010). No Director received any payment for loss of offi ce.
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. Manny Fontenla-Novoa and Jürgen Büser are active members of the Thomas Cook Pension Plan, a defi ned benefi t
pension scheme. For salary above that which is pensionable Manny Fontenla-Novoa and Jürgen Büser were paid the balance as a salary supplement.
Paul Hollingworth is paid 25% of his base salary as a salary supplement. The Company also contributes to a defi ned benefi t pension scheme in respect
of Sam Weihagen. Under his pension arrangement, Sam Weihagen is entitled to a bridging pension payable between the ages of 60 and 64 of 70%
of his fi nal salary and a lifetime pension payable from 65 of 30% of his fi nal salary less the Swedish state pension. From age 60, when the Company’s
contributions to the above pension ceased, Sam Weihagen was paid a salary supplement of 25% of his base pay. Since reaching age 60, Sam Weihagen
has not drawn any of his bridging pension, which will be subject to actuarial adjustment once it is drawn. The table below discloses these arrangements.
The pay in lieu of pension salary supplements paid to the Executive Directors are disclosed in the Directors’ remuneration table above.
Accrued pension at
30 Sep 2010
£ pa
25,560
Increase in accrued
pension during
2010
£ pa
2,810
Increase in accrued
pension during
2010 (net of
infl ation)
£ pa
2,810
Transfer value of
accrued pension at
30 Sep 2010
£
480,138
Transfer value of
accrued pension at
1 Oct 2009
£
400,961
Director’s
contribution
during 2010
£
6,656
Increase in transfer
value during 2010
net of Director’s
contribution
£
72,521
7,000
175
175
80,981
78,005
547
2,429
370,872
62,604
61,579
1,807,771
1,640,899
142,100
39,527
38,880
2,354,862
1,399,431
–
–
365,162
648,120
Manny Fontenla-Novoa
Jürgen Büser1
Sam Weihagen2 (pension
payable from 60-64)
Sam Weihagen2 (pension
payable from 65 onwards)
1 The fi gures detailed above in respect of Jürgen Büser’s membership of the Thomas Cook Pension Plan relate to the period 1 October to 29 November 2009, when he stepped down from the Board.
2 The fi gures detailed above in respect of Sam Weihagen’s pension relate to the period from 6 November 2009, when he was appointed to the Board, to 30 September 2010. Sam Weihagen’s pension is accrued for
in Swedish Krona. Amounts have been converted into Sterling, using the exchange rate on 6 November 2010 (10.7), the exchange rate on 30 September 2010 (10.6) or the average for the year (11.3).
This report on remuneration has been approved by the Board of Directors and signed on its behalf by:
Peter Middleton
Chairman, Remuneration Committee
30 November 2010
Thomas Cook Group plc Annual Report & Accounts 2010 69
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Directors’ Report
Other disclosures
SHARE CAPITAL
The Company has the following two classes of shares in issue:
Class of share
Ordinary shares of €0.10 each
Deferred shares of £1 each
Number of
shares in issue
858,292,947
50,000
The ordinary shares carry the right to the profi ts of the Company
available for distribution and to the return of capital on a winding
up of the Company. The ordinary shares 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
Offi cial List of the London Stock Exchange. The deferred shares carry
no right to the profi ts 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
The Company currently does not have authority to purchase its own shares.
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 benefi t 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 defi ned (see below). The Directors may require relevant
members or other persons to provide them with information to
enable them to determine whether shares are, or are to be treated
as, Relevant Shares. If such information is not provided then the
Directors will be able, at their discretion, to determine that shares to
which their enquiries relate be treated as Relevant Shares. Registered
shareholders will also be obliged to notify the Company if they are
aware either (a) that any share 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 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 specifi es, 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 specifi es, also require the recipient to dispose
of the Affected Shares (so that the Relevant Shares will then cease
to be Affected Shares) within 21 days or such longer period as the
Directors may determine. The Directors are also given the power to
sell such Affected Shares themselves where there is non-compliance
with an Affected Share Notice at the best price reasonably
obtainable at the relevant time on behalf of the shareholder.
In deciding which shares are to be dealt with as Affected Shares
the Directors, in their sole opinion, will determine which Relevant
Shares may give rise to the fact of risk of an Intervening Act occurring
and, subject to any such determination, will have regard to the
chronological order in which particulars of Relevant Shares have been,
or are to be, entered in the Separate Register unless to do so would in
the sole opinion of the Directors be inequitable. If there is a change
in any applicable law or the Company or any subsidiary receives
any direction, notice or requirement from any state or regulatory
authority, which, in either case, necessitates such action to overcome,
prevent or avoid an Intervening Act, then the Directors may either:
• 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 specifi ed.
As at 30 September 2010, 146,755 ordinary shares (0.017%) were held
on the Separate Register.
70 Thomas Cook Group plc Annual Report & Accounts 2010
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MAJOR SHAREHOLDINGS
As at 26 November 2010, the Company had been notifi ed, in
accordance with rule 5 of the Disclosure Rules and Transparency Rules
of the UK Listing Authority, of the following major shareholdings in
the ordinary share capital of the Company:
Name
AXA S.A.
Lloyds Banking Group plc
BlackRock, Inc.
Standard Life Investments Ltd
Legal & General Group plc
Number of
shares held
85,369,991
77,191,766
42,919,060
42,857,459
26,098,414
Percentage of
issued capital (%)
9.95
8.99
5.00
4.99
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 2011 Annual General Meeting.
REGISTERED OFFICE
Following approval by the Board, the Company’s registered offi ce
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 3 to 71 has been approved by
the Board and signed on its behalf by:
Derek Woodward
Group Company Secretary
30 November 2010
REGISTERED OFFICE
6th Floor South
Brettenham House
Lancaster Place
London WC2E 7EN
REGISTERED NUMBER
6091951
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
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 certifi ed, 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 notifi able 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.
PROVISIONS ON CHANGE OF CONTROL
The Company has a £1.05bn Group Banking 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) 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 Company has issued a €400m fi ve-year Euro bond and a £300m
seven-year Sterling bond. Under the terms of the bonds, if a Put Event
occurs, each Noteholder has the option to require the Company to
redeem the Notes.
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
fi nancial year (2009: nil).
CHARITABLE DONATIONS
The Company did not give money for charitable purposes within the
United Kingdom during the fi nancial year (2009: nil). However, the
Company’s charitable activities are described on pages 38 to 41.
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 2010, the Company had no trade creditors (2009: nil).
TH017_p70_71.indd 71
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Thomas Cook Group plc Annual Report & Accounts 2010 71
Independent auditors’ report to the members of Thomas Cook Group plc
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 fi nancial 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 specifi ed 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 specifi ed for our review.
John Minards (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
30 November 2010
We have audited the fi nancial statements of Thomas Cook Group
plc for the year ended 30 September 2010, which comprise the
Group income statement, the Group statement of comprehensive
income, the Group and Company cash fl ow statement, the Group
and Company balance sheet, the Group and Company statement
of changes in equity and the related notes. The fi nancial 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
fi nancial 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 fi nancial
statements and for being satisfi ed that they give a true and fair view.
Our responsibility is to audit the fi nancial 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 Chapter 3
of Part 16 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 fi nancial statements
An audit involves obtaining evidence about the amounts and
disclosures in the fi nancial statements suffi cient to give reasonable
assurance that the fi nancial 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 signifi cant accounting estimates made by the Directors; and the
overall presentation of the fi nancial statements.
Opinion on fi nancial statements
In our opinion:
• the fi nancial 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
2010 and of the Group’s profi t and Group’s and parent company’s
cash fl ows for the year then ended;
• the Group fi nancial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
• the parent company fi nancial 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 fi nancial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group fi nancial 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 fi nancial year
for which the fi nancial statements are prepared is consistent with
the fi nancial statements.
72 Thomas Cook Group plc Annual Report & Accounts 2010
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Financial Statements
Group income statement
For the year ended 30 September 2010
Revenue
Cost of providing tourism services
Gross profi t
Personnel expenses
Depreciation and amortisation
Net operating expenses
Loss on disposal of assets
Amortisation of business combination
intangibles
Profi t from operations
Share of results of associates and joint
venture
Loss on disposal of associate
Net investment (loss)/income
Finance income
Finance costs
Profi t before tax
Tax
Profi t for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
(Loss)/profi t per share (pence)
Basic
Diluted
notes
3
4
12/13
5
6
12
3
14
6
14
7
7
8
9
11
11
Year ended 30 September 2010
Restated
Year ended 30 September 2009
Underlying
results
£m
9,268.8
(7,017.8)
2,251.0
(1,027.1)
(158.4)
(650.4)
–
–
415.1
(3.8)
–
1.4
51.2
(169.0)
294.9
Separately
disclosed items
(note 6)
£m
–
(66.8)
(66.8)
(59.7)
(9.2)
(84.4)
(3.9)
(34.4)
(258.4)
–
(2.2)
–
21.4
(10.6)
(249.8)
Underlying
results
£m
8,890.1
(6,746.5)
2,143.6
(1,052.8)
(152.8)
(575.8)
–
–
362.2
3.2
–
(1.5)
44.8
(160.9)
247.8
Separately
disclosed items
(note 6)
£m
–
(80.9)
(80.9)
(12.8)
–
(68.8)
(1.8)
(30.9)
(195.2)
–
–
–
7.3
(18.2)
(206.1)
Total
£m
8,890.1
(6,827.4)
2,062.7
(1,065.6)
(152.8)
(644.6)
(1.8)
(30.9)
167.0
3.2
–
(1.5)
52.1
(179.1)
41.7
(38.9)
2.8
(2.6)
5.4
2.8
(0.3)
(0.3)
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Total
£m
9,268.8
(7,084.6)
2,184.2
(1,086.8)
(167.6)
(734.8)
(3.9)
(34.4)
156.7
(3.8)
(2.2)
1.4
72.6
(179.6)
45.1
(35.6)
9.5
7.0
2.5
9.5
0.8
0.8
All revenue and results arose from continuing operations.
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Thomas Cook Group plc Annual Report & Accounts 2010 73
Financial Statements
Group statement of comprehensive income
For the year ended 30 September 2010
Profi t for the year
Other comprehensive income and expense
Acquisition costs accounted for under IFRS 3
Foreign exchange translation gains
Actuarial losses on defi ned benefi t pension schemes
Tax on actuarial losses
Movement in asset cap on defi ned benefi t pension schemes
Transfer of translation losses to profi t or loss on disposal
Fair value gains and losses
Gains/(losses) deferred for the year
Tax on gains/(losses) deferred for the year
Losses/(gains) transferred to the income statement
Tax on losses/(gains) transferred to the income statement
Total comprehensive income/(expense) for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income/(expense) for the year
Year ended
30 September
2010
£m
2.8
Restated
Year ended
30 September
2009
£m
9.5
notes
29
35
9
35
29
29
9
29
9
(0.7)
64.1
(58.2)
16.4
–
–
62.6
(18.2)
69.4
(20.1)
118.1
112.7
5.4
118.1
–
86.2
(170.1)
50.5
0.7
4.5
(188.6)
55.2
(42.6)
12.2
(182.5)
(185.0)
2.5
(182.5)
74 Thomas Cook Group plc Annual Report & Accounts 2010
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Group cash fl ow statement
For the year ended 30 September 2010
Cash fl ows 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 fi nancial assets
Purchase of subsidiaries (net of cash acquired)
Purchase of tangible and fi nancial assets
Purchase of intangible assets
Movement on non-current fi nancial assets
Additional loan investment
Disposal of short-term securities
Movement on short-term securities
Net cash used in investing activities
Financing activities
Interest paid
Dividends paid
Draw down of borrowings
Repayment of borrowings
Payment of facility set-up fees
Repayment of fi nance lease obligations
Purchase of own shares
Net cash used in fi nancing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
Liquid assets
Bank overdrafts
Cash and cash equivalents at end of year
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Year ended
30 September
2010
£m
Year ended
30 September
2009
£m
324.1
(24.7)
299.4
–
–
7.8
–
(27.2)
(196.1)
(77.8)
3.7
(1.2)
–
(0.3)
(291.1)
(65.1)
(59.7)
1,118.0
(959.5)
(20.5)
(197.4)
–
(184.2)
(175.9)
507.0
(14.3)
316.8
339.6
(22.8)
316.8
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
notes
30
15
10
18
20
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Thomas Cook Group plc Annual Report & Accounts 2010 75
Financial Statements
Group balance sheet
At 30 September 2010
Non-current assets
Intangible assets
Property, plant and equipment – aircraft and aircraft spares
– investment property
– other
Investments in associates and joint venture
Other investments
Deferred tax assets
Tax assets
Trade and other receivables
Pension assets
Derivative fi nancial instruments
Current assets
Inventories
Tax assets
Trade and other receivables
Derivative fi nancial instruments
Cash and cash equivalents
Non-current assets held for sale
Total assets
Current liabilities
Retirement benefi t obligations
Trade and other payables
Borrowings
Obligations under fi nance leases
Tax liabilities
Revenue received in advance
Short-term provisions
Derivative fi nancial instruments
30 September
2010
£m
notes
Restated
30 September
2009
£m
12
13
13
13
14
14
25
17
22
16
17
22
18
27
35
19
20
21
26
22
3,828.9
655.2
17.0
336.1
38.6
18.7
383.2
5.5
136.6
–
6.6
5,426.4
32.1
33.9
972.9
85.2
339.6
1,463.7
10.5
6,900.6
(6.7)
(1,821.2)
(106.3)
(16.0)
(93.2)
(1,056.4)
(204.5)
(80.7)
(3,385.0)
3,769.7
628.3
18.0
347.1
36.0
20.3
433.5
5.6
113.4
–
4.9
5,376.8
27.0
38.6
925.9
133.9
550.2
1,675.6
9.1
7,061.5
(4.8)
(1,903.8)
(619.1)
(237.8)
(80.9)
(861.8)
(228.9)
(251.1)
(4,188.2)
Restated
1 October
2008
£m
3,437.3
584.8
15.7
312.3
42.7
29.4
329.7
9.9
126.0
0.4
55.6
4,943.8
24.2
15.1
1,010.3
261.6
761.3
2,072.5
–
7,016.3
(9.0)
(1,855.1)
(356.0)
(182.6)
(69.4)
(917.5)
(185.1)
(174.3)
(3,749.0)
76 Thomas Cook Group plc Annual Report & Accounts 2010
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t
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m
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n
t
s
30 September
2010
£m
notes
Restated
30 September
2009
£m
35
19
20
21
25
26
22
28
29
(407.8)
(21.5)
(956.4)
(64.5)
(0.9)
(88.2)
(212.8)
(20.8)
(1,772.9)
(5,157.9)
1,742.7
57.7
8.9
1,984.2
299.5
8.5
(626.9)
(13.3)
1,718.6
24.1
1,742.7
(366.3)
(17.1)
(320.9)
(47.7)
(1.2)
(110.0)
(271.7)
(18.8)
(1,153.7)
(5,341.9)
1,719.6
57.7
8.9
1,984.2
141.7
8.5
(487.2)
(13.1)
1,700.7
18.9
1,719.6
Restated
1 October
2008
£m
(181.6)
(36.1)
(416.1)
(228.3)
(0.9)
(99.6)
(233.8)
(66.9)
(1,263.3)
(5,012.3)
2,004.0
59.8
8.9
1,984.2
214.8
6.4
(269.8)
(13.0)
1,991.3
12.7
2,004.0
Non-current liabilities
Retirement benefi t obligations
Trade and other payables
Long-term borrowings
Obligations under fi nance leases
Revenue received in advance
Deferred tax liabilities
Long-term provisions
Derivative fi nancial instruments
Total liabilities
Net assets
Equity
Called-up share capital
Share premium account
Merger reserve
Hedging and translation reserves
Capital redemption reserve
Retained earnings defi cit
Investment in own shares
Equity attributable to equity holders of the parent
Non-controlling interests
Total equity
These fi nancial statements were approved by the Board of Directors on 30 November 2010.
Signed on behalf of the Board
Paul Hollingworth
Group Chief Financial Offi cer
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Thomas Cook Group plc Annual Report & Accounts 2010 77
Financial Statements
Group statement of changes in equity
For the year ended 30 September 2010
Opening balance at 1 October 2008
IAS 38 Brochure costs
Acquisition accounting
As restated
Profi t for the year
Other comprehensive income/(expense):
Foreign exchange translation gains
Actuarial losses on defi ned benefi t pension schemes
(net of tax)
Movement in asset cap on defi ned benefi t pension schemes
Transfer of translation losses to profi t or loss on disposal
Fair value gains and losses:
Losses deferred for the year (net of tax)
Gains transferred to the income statement (net of tax)
Total comprehensive (expense)/income for the year
Equity credit in respect of share-based payments
Exchange difference on non-controlling interest
Acquisition of non-controlling interest
Share buy back
Purchase of own shares
Dividends
At 30 September 2009
(Loss)/profi t for the year
Other comprehensive income/(expense):
Acquisition costs accounted for under IFRS 3
Foreign exchange translation gains
Actuarial losses on defi ned benefi t pension schemes
(net of tax)
Fair value gains and losses:
Gains deferred for the year (net of tax)
Losses transferred to the income statement (net of tax)
Total comprehensive income/(expense) for the year
Equity credit in respect of share-based payments
Recognition of put option to non-controlling interest
Exchange difference on non-controlling interests
Purchase of own shares
Dividends
At 30 September 2010
Share capital
& share
premium
£m
68.7
–
–
68.7
Other
reserves
£m
1,977.6
–
–
1,977.6
Restated
Translation
& hedging
reserve
£m
214.8
–
–
214.8
Restated
Retained
earnings/
(defi cit)
£m
(265.4)
(3.4)
(1.0)
(269.8)
Restated
Attributable
to equity
holders of
the parent
£m
1,995.7
(3.4)
(1.0)
1,991.3
Non-
controlling
interest
£m
12.7
–
–
12.7
Restated
Total
£m
2,008.4
(3.4)
(1.0)
2,004.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.1)
–
–
66.6
–
–
–
–
–
–
2.1
(0.1)
–
1,979.6
–
–
–
–
–
–
–
–
–
7.0
7.0
2.5
9.5
86.2
–
86.2
–
–
4.5
(133.4)
(30.4)
(73.1)
–
–
–
–
–
–
141.7
(119.6)
0.7
–
–
–
(111.9)
8.3
–
–
(26.4)
–
(87.4)
(487.2)
(119.6)
0.7
4.5
(133.4)
(30.4)
(185.0)
8.3
–
–
(26.4)
(0.1)
(87.4)
1,700.7
–
–
–
–
–
–
2.5
–
(1.4)
5.1
–
–
–
18.9
86.2
(119.6)
0.7
4.5
(133.4)
(30.4)
(182.5)
8.3
(1.4)
5.1
(26.4)
(0.1)
(87.4)
1,719.6
–
(2.6)
(2.6)
5.4
2.8
–
64.1
(0.7)
–
(0.7)
64.1
–
(41.8)
(41.8)
–
–
–
(0.7)
64.1
(41.8)
–
–
–
–
–
–
–
–
66.6
–
–
–
–
–
–
(0.2)
–
1,979.4
44.4
49.3
157.8
–
–
–
–
–
299.5
–
–
(45.1)
8.1
(11.0)
–
–
(91.7)
(626.9)
44.4
49.3
112.7
8.1
(11.0)
–
(0.2)
(91.7)
1,718.6
–
–
5.4
–
–
(0.2)
–
–
24.1
44.4
49.3
118.1
8.1
(11.0)
(0.2)
(0.2)
(91.7)
1,742.7
Other reserves consist of the merger reserve, the capital redemption reserve and own shares held.
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 note 28.
Details of changes in hedging and translation reserves are set out in note 29.
The put option of £11.0m recognised during the year was issued to the non-controlling interest of a subsidiary undertaking during the year
ended 31 October 2007. This is not considered material for restatement of comparative information.
78 Thomas Cook Group plc Annual Report & Accounts 2010
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Notes to the fi nancial 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 offi ce is 6th Floor South, Brettenham House, Lancaster Place, London,
WC2E 7EN. The principal activities of the Group are discussed in the Directors’ Report – Business Review on pages 3 to 45.
These consolidated fi nancial statements were approved for issue by the Board of Directors on 30 November 2010.
2 Accounting policies
These fi nancial statements have been prepared in accordance with IFRS and IFRIC interpretations and with those parts of the Companies Act
2006 applicable to groups reporting under IFRS. The fi nancial statements have also been prepared in accordance with IFRS adopted for use in
the European Union and therefore comply with Article 4 of the EU IAS Regulation.
The fi nancial statements have been prepared under the historical cost convention, except for revaluation of certain fi nancial instruments and
investment property.
The principal accounting policies applied in the preparation of the fi nancial information presented in this document are set out below. These
policies have been applied consistently to the periods presented unless otherwise stated.
Basis of preparation
During the year, a restatement of prior year comparatives was required due to adjustments to the accounting for certain prior year acquisitions.
The business combination intangibles, deferred tax liability and deferred and contingent consideration related to the Gold Medal acquisition
have been revised. Refer to note 15 for the restated balance sheet as at the date of acquisition of Gold Medal.
In addition, the prior year income statement and balance sheet have been restated to refl ect the unwinding of the discount on contingent and
deferred consideration for the acquisition of Gold Medal and Hotels4U, which was previously omitted. In accordance with IAS 8 “Accounting
policies, changes in accounting estimates and errors” the year ended 30 September 2009 has been restated.
The unwinding of the discount on contingent on deferred consideration has had the following impact on the prior year income statement and
balance sheet:
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Loss for the year
Loss attributable to equity holders of the parent
Decrease in total equity
Basic loss per share
Diluted loss per share
Year ended
30 September 2009
£m
(3.5)
(3.5)
(4.5)
(0.4)p
(0.4)p
The prior year operating lease disclosures have been restated to include arrangements previously omitted. Refer to note 8 and 32 for the
restated disclosures.
Adoption of new or amended standards and interpretations in the current year
In the current year, the following new or amended standards have been adopted and have affected the amounts reported or the disclosure and
presentation in these fi nancial statements:
IAS 1 Revised
IAS 38 Amendment
“Presentation of Financial Statements” is effective for annual reporting periods commencing on or after 1 January
2009. The amendments require a number of presentational changes, including the introduction of a statement of
comprehensive income and the requirement to present a statement of changes in equity as a primary statement. The
statement of comprehensive income represents all items of recognised income and expense in either one statement or
two linked statements. Management has elected to present two statements.
“Intangible assets” is effective for annual reporting periods commencing on or after 1 January 2009. The amendment
requires advertising or promotional expenditure to be expensed when the Group has the right to access the goods or
has received the service. In particular, brochure costs are to be expensed as and when the brochures are available to be
sent to customers or retail outlets. Under the previous policy, brochure costs were expensed when delivered to the retail
outlets or customer. The comparative fi gures have been restated to refl ect the change in accounting policy. Adoption of
the standard has had the following impact:
Profi t for the year
Profi t attributable to equity holders of the parent
Decrease in total equity
Basic earnings per share
Diluted earnings per share
Year ended
30 September 2010
£m
2.5
2.5
(0.9)
0.3p
0.3p
Year ended
30 September 2009
£m
0.1
0.1
(3.4)
Nil p
Nil p
Thomas Cook Group plc Annual Report & Accounts 2010 79
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Financial Statements
Notes to the fi nancial statements continued
2 Accounting policies continued
IAS 39 Amendment
“Eligible hedged items” is effective for annual reporting periods commencing on or after 1 July 2009. The amendment
prohibits the time value component of derivative options being designated as an effective hedge. The comparative
fi gures have been restated to refl ect the change in accounting policy and the movement in time value recognised in
the income statement in the current and prior year is included as a separately disclosed item under the description
“IAS 39 fair value re-measurement”. Adoption of the standard has had the following impact:
Profi t/(loss) for the year
Profi t/(loss) attributable to equity holders of the parent
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Year ended
30 September 2010
£m
1.4
1.4
0.2p
0.2p
Year ended
30 September 2009
£m
(5.8)
(5.8)
(0.7)p
(0.7)p
IFRS 3 Revised
“Business combinations” is effective prospectively for business combinations with acquisition dates on or after the
beginning of the fi rst annual reporting period commencing on or after 1 July 2009. The amendment changes the
way in which step acquisitions are to be accounted for and requires acquisition costs to be expensed in the income
statement and adjustments to contingent consideration to be recognised in the income statement after a specifi ed
period. Furthermore, in accordance with the transition requirements, the recognition of deferred tax assets from past
acquisitions is refl ected in the income statement, and not in goodwill. The impact on the current year from adopting
the amendment principally relates to the recognition of deferred tax assets from the Thomas Cook/MyTravel merger
and expensing acquisition costs related to acquisitions concluded in the current year or likely to be concluded in the
foreseeable future. These acquisition costs are included as separately disclosed items in the income statement, under
the description “Exceptional operating items”. Adoption of the standard has had the following impact:
Loss for the year
Loss attributable to equity holders of the parent
Decrease in total equity
Basic loss per share
Diluted loss per share
Year ended
30 September 2010
£m
(5.0)
(5.0)
(5.7)
(0.6)p
(0.6)p
IFRS 8
“Operating segments” is effective for annual reporting periods commencing on or after 1 January 2009. The standard
requires reporting segments to be identifi ed based on the information used by management to run the business.
As a result, the Group’s reportable segments have changed. In particular, the segment previously referred to as
“Continental Europe” has been split into two segments, “Central Europe” and “West & East Europe”. The reportable
segments of the Group now consist of six geographic operating divisions – UK, Central Europe, West & East Europe,
Northern Europe, North America and Airlines Germany. We also report Corporate, which consists of certain residual
businesses and corporate functions. These reportable segments are consistent with how information is presented to
the Group Chief Executive (chief operating decision maker) for the purpose of resource allocation and assessment
of performance.
IFRS 7 Amendment
“Financial instruments: disclosure” is effective for annual reporting periods commencing on or after 1 July 2009. The
amendment requires enhanced disclosure for fair value and measurement risk. The amendment has had an impact
on the disclosures in note 22.
In the current year, the following new or amended standards and interpretations have also been adopted. Their adoption has not had a
signifi cant impact on the amounts reported or the disclosure and presentation in these fi nancial statements, but may impact the accounting
or the disclosure and presentation for future transactions and arrangements.
IAS 23 Revised
“Borrowing costs” is effective for annual reporting periods commencing on or after 1 January 2009. The amendment
requires the capitalisation of borrowing costs related to assets requiring a substantial amount of time to be ready for
their intended purpose.
IAS 28 Amendment
“Investment in associates” and amendment to IAS 31 “Interest in joint ventures” (with consequential amendments
to IAS 32 “Financial instruments: presentation” and IFRS 7 “Financial instruments: disclosure”) are effective for annual
reporting periods commencing on or after 1 January 2009. The amendments change the disclosure requirements
for investments in associates or joint ventures accounted for under IAS 39 “Financial instruments: recognition and
measurement” and clarifi es the allocation of losses from impairing an investment in associate.
80 Thomas Cook Group plc Annual Report & Accounts 2010
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IAS 27 Revised
“Consolidated and separate fi nancial statements” is effective for annual reporting periods commencing on or after
1 July 2009. The amendment gives entities the option to recognise on a transaction-by-transaction basis non-controlling
interests (previously known as minority interest) at the value of their proportion of identifi able assets and liabilities or
at full fair value.
IFRS 2 Amendment
“Share-based payments” is effective for annual reporting periods commencing on or after 1 January 2009. The
amendment provides a defi nition of vesting conditions and specifi es the accounting treatment for non-vesting
conditions.
IAS 32 Amendment
“Financial instruments: presentation” is effective for annual reporting periods commencing on or after 1 January 2009.
The amendment clarifi es the treatment of puttable fi nancial instruments, whereby puttable instruments meeting
certain criteria are treated as equity as opposed to fi nancial liabilities.
IFRIC 13
IFRIC 14
“Customer loyalty programmes” is effective for annual reporting periods commencing on or after 1 January 2009. The
interpretation explains how entities who grant loyalty award credits to customers should account for their obligations.
“IAS 19 – The limit on a defi ned benefi t asset, minimum funding requirements and their interaction” is effective
for annual reporting periods commencing on or after 1 January 2009. The interpretation provides guidance on the
amount of pension scheme surpluses that can be recognised as a defi ned benefi t asset and when minimum funding
requirements may give rise to additional liabilities.
Other changes – IAS 39 fair value re-measurement
During the year, it was decided to separately disclose the movement in forward points on foreign exchange cash fl ow hedging contracts and time
value of options. Both items are subject to market fl uctuations and unwind when the options or forward contracts mature, and therefore are not
considered to be part of the Group’s underlying performance.
The prior year comparatives have been restated to refl ect this change.
Change in accounting estimates
During the year, the Group conducted a review of the estimated useful economic lives of its aircraft. This has resulted in a change in the
expected useful lives of aircraft from 12-20 years to 18 years.
The change in estimate has been implemented as of 1 April 2010 and has resulted in a decrease in depreciation in the current year of £15.6m,
the benefi t of which will be offset by increased depreciation in future periods.
New or amended standards and interpretations in issue but not yet effective
The following new standards, amendments to standards and interpretations that are expected to impact the Group, which have not been
applied in these fi nancial statements, were in issue, but are not yet effective:
IAS 24 Amendment
“Related parties” is effective for annual reporting periods commencing on or after 1 January 2011. The amendment
clarifi es the defi nition of related parties.
IFRS 2 Amendment
“Share-based payments” is effective for annual reporting periods commencing on or after 1 January 2010.
This amendment clarifi es the scope and accounting for Group cash-settled share-based payments.
IAS 32 Amendment
“Classifi cation of rights” is effective for annual reporting periods commencing on or after 1 February 2010.
The amendment clarifi es the treatment of rights, options or warrants issued to acquire a fi xed number of
an entity’s own equity instruments for a fi xed amount of consideration.
IFRS 9
“Financial Instruments” is effective for annual reporting periods commencing on or after 1 January 2013.
The standard will eventually replace IAS 39 but currently only details the requirements for recognition and
measurement of fi nancial assets.
IFRIC 14 Amendment
“Prepayments of a minimum funding requirement” is effective for annual reporting periods commencing on or
after 1 January 2011. The amendment remedies one of the consequences of IFRIC 14, whereby an entity under
certain circumstances is not allowed to recognise an asset for the prepayment of a minimum funding requirement.
Management is currently assessing the impact of adopting these new or amended standards and interpretations.
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Thomas Cook Group plc Annual Report & Accounts 2010 81
Financial Statements
Notes to the fi nancial statements continued
2 Accounting policies continued
Basis of consolidation
The Group’s fi nancial statements consolidate those of the Company and its subsidiary undertakings. The results of subsidiaries acquired, or
disposed of, are consolidated for the periods from, or to, the date on which control passed. Subsidiaries are entities controlled by the Company.
Control is achieved where the Company has the power to govern the fi nancial and operating policies of an investee entity so as to obtain
benefi ts from its activities.
Acquisitions are accounted for under the purchase method. Where a transaction is a business combination amongst entities under common
control, the requirements of IFRS 3(R) 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, contingent consideration
arrangements entered into, and liabilities incurred or assumed at the date of exchange. Directly attributable transaction costs are expensed as
incurred. Identifi able assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. When the ownership of an acquired company is less than 100%, the non-controlling interest is measured as
the proportion of the recognised net assets attributable to the non-controlling interest. The excess of the cost of acquisition over the fair value
of the Group’s share of identifi able net assets acquired is recorded as goodwill.
Where audited fi nancial accounts are not coterminous with those of the Group, the fi nancial information is 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 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 (2009: three) SPEs that own four (2009: four) aircraft operated by the Group on operating leases. In addition,
during the prior year the operations of the German airline were 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, in accordance with accounting standards, the entity has been treated
as being 100% controlled and fully consolidated by the Group.
Associates and joint ventures
Entities, other than subsidiaries, over which the Group exerts signifi cant infl uence, but not control or joint control, are associates. Entities
which the Group jointly controls with one or more other party under a contractual arrangement are joint ventures.
The Group’s share of the results of associates and joint ventures is included in the Group income statement using the equity accounting
method. Investments in associates and joint ventures are included in the Group balance sheet at cost, as adjusted for post-acquisition changes
in the Group’s share of the net assets of the entity, and including any goodwill identifi ed on acquisition, net of any accumulated impairment
loss. When the Group’s shares of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including
any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf
of the associate or joint venture. Unrealised 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.
Intangible assets – goodwill
Goodwill arising on an acquisition represents any excess of the fair value of the consideration given over the fair value of the identifi able assets
and liabilities acquired. Goodwill is recognised as an asset, and is reviewed for impairment at least annually. Any impairment is recognised
immediately in the Group’s income statement and is not subsequently reversed. For the purposes of assessing impairment, assets are grouped
at the lowest levels for which there are separately identifi able cash fl ows (cash-generating units). The allocation of goodwill is made to those
cash-generating units that are expected to benefi t 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 profi t or loss
on disposal.
Intangible assets – other
Intangible assets, other than goodwill, are carried on the Group’s balance sheet at cost less accumulated amortisation. Intangible assets with
indefi nite useful lives are not amortised. For all other intangible assets, amortisation is charged on a straight-line basis over the asset’s useful
life, as follows:
Brands
Customer relationships
Computer software
10 years to indefi nite life
1 to 15 years
3 to 10 years
Other acquired intangible assets are assessed separately and useful lives established according to the particular circumstances.
82 Thomas Cook Group plc Annual Report & Accounts 2010
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Indefi nite-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 infl ows. These are considered to have an indefi nite 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.
Intangible assets with indefi nite useful lives are tested for impairment at least annually by comparing their carrying amount to their recoverable
amount. All other intangible assets are assessed at each reporting date for indications of impairment. If such indications exist, the recoverable
amount is estimated and compared to the carrying amount. If the recoverable amount is less than the carrying amount, the carrying amount is
reduced to the recoverable amount and the impairment loss is recognised immediately in the income statement.
Property, plant and equipment
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 of operating in the manner intended by management are charged to the income statement as incurred.
Depreciation on property, plant and equipment, other than freehold land, upon which no depreciation is provided, is calculated on a straight-
line basis and aims to write down their cost to their estimated residual value over their expected useful lives as follows:
Freehold buildings
Leasehold properties
Aircraft
Aircraft spares
Other fi xed assets
40 to 50 years
Shorter of remaining lease period and 40 years
18 years (or remaining lease period if shorter)
5 to 15 years (or remaining lease period if shorter)
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 qualifi ed 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 refl ect any material changes in fair value.
Non-current assets held for sale
The Group classifi es non-current assets as held for sale if their carrying amount will be recovered principally through a sale transaction rather
than through continuing use. To be classifi ed as held for sale, the assets must be available for immediate sale in their present condition subject
only to terms that are usual and customary for the sale of such assets, and their sale must be highly probable. Sale is considered to be highly
probable when management are committed to a plan to sell the assets and an active programme to locate a buyer and complete the plan has
been initiated at a price that is reasonable in relation to their current fair value, and there is an expectation that the sale will be completed
within one year from the date of classifi cation.
Non-current assets classifi ed as held for sale are carried on the Group’s balance sheet at the lower of their carrying amount and fair value less
costs to sell.
Aircraft overhaul and maintenance costs
The cost of major overhauls of owned and fi nance leased engines, auxiliary power units and airframes is capitalised and then amortised over
between two and ten years until the next scheduled major overhaul, except where the maintenance of engines and auxiliary power units is
carried out under fi xed rate contracts, in which case the cost is spread over the period of the contract. Provision is made for the future costs
of major overhauls of operating leased engines, auxiliary power units and airframes by making appropriate charges to the income statement,
calculated by reference to hours fl own and/or the expired lease period, as a consequence of obligations placed upon the Group under the terms
of certain 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.
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Thomas Cook Group plc Annual Report & Accounts 2010 83
Financial Statements
Notes to the fi nancial statements continued
2 Accounting policies continued
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. The costs
attributable to producing brochures are expensed when the brochures are available to be sent to customers or retail outlets. 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 and separately disclosed items
Profi t or loss from operations includes the results from operating activities of the Group, before its share of the results of associates and
joint ventures.
The Group separately discloses in the income statement: exceptional items; amortisation of business combination intangibles; and IAS 39 fair
value re-measurement.
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
other business combinations made in subsequent years. The amortisation of these intangible assets is signifi cant and the Group’s management
consider that it should be disclosed separately to enable a full understanding of the Group’s results.
IAS 39 fair value re-measurement includes movements in forward points related to foreign exchange forward contracts and time value of options
in cash fl ow hedging relationships. Both items are subject to market fl uctuations and unwind when the options or forward contracts mature and
therefore are not considered to be part of the Group’s underlying performance.
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 interest-related derivatives and the movement in forward points on outstanding foreign exchange forward contracts in cash fl ow
hedging relationships.
Finance costs comprise interest costs on borrowings and fi nance leases, unwind of the discount on provisions, interest cost on pension plan
liabilities, changes in the fair value of held for trading interest-related derivatives and the movement in forward points on outstanding foreign
exchange forward contracts in cash fl ow hedging relationships.
The movement in forward points on outstanding foreign exchange forward contracts in cash fl ow hedging relationships is included as a separately
disclosed item in the income statement under the description “IAS 39 fair value re-measurement”.
Tax
Tax represents the sum of tax currently payable and deferred tax. Tax is recognised in the income statement unless it relates to an item
recognised directly in equity, in which case the associated tax is also recognised directly in equity.
Tax currently payable is provided on taxable profi ts based on the tax rates and laws that have been enacted or substantively enacted at the
balance sheet date. Provision is made for deferred tax so as to recognise all temporary differences which have originated but not reversed
at the balance sheet date that result in an obligation to pay more tax, or a right to pay less tax, in the future, except as set out below. This is
calculated on a non-discounted basis by reference to the average tax rates that are expected to apply in the relevant jurisdictions and for the
periods in which the temporary differences are expected to reverse. The deferred tax is not accounted for if it arises from the initial recognition
of an asset or liability in a transaction other than a business combination that at the time of the transaction does not affect either accounting
or taxable profi t 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
profi ts is probable. Deferred tax liabilities are recognised for the temporary differences of overseas subsidiaries, joint ventures and associates
unless the Group is able to control the timing of the distribution of those earnings and it is probable that they will not be distributed in the
foreseeable future.
84 Thomas Cook Group plc Annual Report & Accounts 2010
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Pensions
Pension costs charged against profi ts in respect of the Group’s defi ned contribution schemes represent the amount of the contributions
payable to the schemes in respect of the accounting period.
The Group also operates a number of defi ned benefi t schemes. The pension liabilities recognised on the balance sheet in respect of these
schemes represent the difference between the present value of the Group’s obligations under the schemes (calculated using the projected
unit credit method) 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 comprehensive income and expense. The current service cost, representing benefi ts accruing over the year, is included in the
income statement as a personnel expense. The unwinding of the discount rate on the scheme liabilities and the expected return on scheme
assets are presented as fi nance costs and fi nance income respectively. Past service costs are recognised immediately in the income statement
in personnel expenses.
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 risk and rewards of ownership are transferred to the Group are fi nance leases. All other leases
are operating leases.
Assets held under fi nance leases are recognised at the lower of the fair value of the asset and the present value of the 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 fi nance lease payments represents a constant proportion of the capital balance outstanding and is charged to the
income statement over the period of the lease.
Operating lease rentals are charged to the income statement on a straight-line basis over the lease term.
Borrowing costs
The Group capitalises borrowing costs directly attributable to the acquisition, construction or production of qualifying assets requiring a
substantial amount of time to be ready for the intended purpose.
Derivative fi nancial instruments
Derivatives are recognised at their fair value. When a derivative does not qualify for hedge accounting as a cash fl ow hedge, changes in fair
value are recognised immediately in the income statement. When a derivative qualifi es for hedge accounting as a cash fl ow hedge, changes
in fair value that are determined to be an effective hedge are recognised directly in the hedging reserve, except to the extent that it relates to
movements in forward points on forward contracts and time value of options. Any ineffective portion of the change in fair value is recognised
immediately in the income statement along with the forward points and time value.
If a hedged transaction subsequently results in the recognition of a non-fi nancial asset or a non-fi nancial liability, the associated cumulative
gain or loss is removed from the hedging reserve and is included in the initial cost or other carrying amount of the asset or liability. For all other
cash fl ow hedges, the associated cumulative gain or loss is removed from the hedging reserve and recognised in the income statement in the
same period, or periods, during which the hedged forecast transaction affects the income statement.
When a derivative qualifi es for hedge accounting as a fair value hedge, changes in fair value of the derivative are recognised in the income
statement when the offsetting changes in the fair value of the hedged asset or liability, attributable to the hedged risk, occur.
Non-derivative fi nancial instruments
Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets
are derecognised when the Group transfers the fi nancial asset or when the contractual rights expire. Financial liabilities are derecognised when
the obligation is discharged, cancelled or expires. The measurement of particular fi nancial assets and liabilities is set out below:
Trade and other receivables
Trade and other 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 fl ows.
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Thomas Cook Group plc Annual Report & Accounts 2010 85
Financial Statements
Notes to the fi nancial statements continued
2 Accounting policies continued
Available-for-sale fi nancial assets
Available-for-sale fi nancial assets are recognised and subsequently recorded at their fair value. Gains or losses (except for impairment losses and
foreign exchange gains and losses) are recognised directly in equity until the fi nancial asset is derecognised. At this point, the cumulative gain or
loss previously recognised in equity is recognised in the income statement. Any impairment losses, foreign exchange gains or losses or dividends
receivable are recognised in the income statement.
Held for trading investments
Short-term investments are classifi ed as held for trading and are recognised and subsequently recorded at their fair value. Gains or losses are
recognised in the income statement.
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.
Trade and other payables
Trade and other payables are initially recognised at their fair value and subsequently recorded at amortised cost using the effective
interest method.
Borrowings
Interest bearing borrowings are initially recognised at their fair value net of any directly attributable transaction costs. They are subsequently
recorded at amortised cost using the effective interest method.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, if it is probable that an outfl ow of resources will
be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Provisions are recognised 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.
Termination benefi ts
Termination benefi ts 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 benefi ts. The Group recognises termination benefi ts 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 benefi ts 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.
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 the income statement 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 classifi cation requirements for insurance contracts, are classifi ed as reinsurance contracts held. The benefi ts to which
the Group is entitled under its reinsurance contracts held are recognised as receivables from reinsurers. The Group assesses its reinsurance assets
for impairment on an annual basis.
Receivables and payables are recognised when due. These include amounts due to and from insurance policyholders.
86 Thomas Cook Group plc Annual Report & Accounts 2010
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Critical judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, described above, management has made the following judgements that have
the most signifi cant effect on the amounts recognised in the fi nancial statements.
Residual values of tangible fi xed assets
Judgements have been made in respect of the residual values and useful economic lives of aircraft included in property, plant and equipment.
Those judgements determine the amount of depreciation charged in the income statement.
Recoverable amounts of goodwill and intangible assets with an indefi nite life
Judgements have been made in respect of the amounts of future operating cash fl ows to be generated by certain of the Group’s businesses in
order to assess whether there has been any impairment of the amounts included in the balance sheet for goodwill or intangible assets with an
indefi nite life in relation to those businesses.
Special purpose entities
The nature of the relationship with certain 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 signifi cant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below.
Impairment of goodwill and intangible assets with an indefi nite life
Determining whether goodwill or intangible assets with an indefi nite life are impaired requires an estimation of the value in use of the
cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash fl ows
expected to arise from the cash-generating unit at 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 fl eet.
Tax
The Group operates in many tax regimes and the tax implications of its operations are complex. It can take several years for tax liabilities to be
agreed with the relevant authorities. Tax assets and liabilities represent management’s estimates of tax that will be payable or recoverable in the
future and may be dependent on estimates of future profi tability.
In addition, estimates have been made in respect of the probable future utilisation of tax losses, and deferred tax assets have been recognised
as a result. The recoverability of these assets is dependent on the agreement of the losses with the relevant authorities and the estimates of
future profi tability.
Retirement benefi ts
The consolidated fi nancial statements include costs in relation to, and provision for, retirement benefi t 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 35.
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Thomas Cook Group plc Annual Report & Accounts 2010 87
Financial Statements
Notes to the fi nancial statements continued
Segmental information
3
For management purposes, the Group is currently organised into six geographic operating divisions: UK, Central Europe, West & East 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:
UK
£m
Central
Europe
£m
West & East
Europe
£m
Northern
Europe
£m
North
America
£m
Airlines
Germany
£m
Corporate
£m
Total
£m
3,150.5
(7.1)
3,143.4
2,024.0
(50.6)
1,973.4
1,707.8
(9.4)
1,698.4
1,016.6
(2.6)
1,014.0
352.5
–
352.5
996.2
(287.8)
708.4
–
–
–
9,247.6
(357.5)
8,890.1
107.5
(93.7)
(3.3)
(9.4)
1.1
58.6
(8.8)
–
–
49.8
82.0
(29.4)
(2.1)
(0.5)
50.0
91.7
3.2
0.7
(20.3)
75.3
9.1
(17.5)
0.1
(0.7)
(9.0)
51.1
(13.9)
6.6
–
43.8
(37.8)
(6.2)
–
–
(44.0)
Year ended 30 September 2010
Revenue
Segment sales
Inter-segment sales
Total revenue
Result
Underlying operating profi t/(loss) from operations
Exceptional operating items
IAS 39 fair value re-measurement
Amortisation of business combination intangibles
Segment result
Share of results of associates and joint venture
Net investment loss
Finance income
Finance costs
Profi t before tax
Tax
Profi t for the year
Other information
362.2
(166.3)
2.0
(30.9)
167.0
3.2
(1.5)
52.1
(179.1)
41.7
(38.9)
2.8
285.7
125.4
27.4
30.9
14.8
Capital additions
Depreciation
Amortisation of intangible assets
Amortisation of business combination intangibles
Impairment of property, plant & equipment
79.9
41.6
12.2
9.4
14.8
22.7
6.1
4.9
–
–
22.3
3.8
5.6
0.5
–
72.9
10.0
0.8
20.3
–
4.4
1.5
1.4
0.7
–
68.0
62.3
0.4
–
–
15.5
0.1
2.1
–
–
Balance sheet
Assets
Segment assets
Inter-segment eliminations
Investments in associates and joint ventures
Tax and deferred tax assets
Total assets
Liabilities
Segment liabilities
Inter-segment eliminations
Tax and deferred tax liabilities
Borrowings and obligations under fi nance leases
Total liabilities
3,752.1
1,410.1
1,036.4
1,765.0
370.6
756.9
2,646.0
835.9
702.2
892.0
308.0
571.2
4,332.6 13,423.7
(6,984.3)
6,439.4
38.6
422.6
6,900.6
4,185.2 10,140.5
(6,307.2)
3,833.3
181.4
1,143.2
5,157.9
Inter-segment sales are charged at prevailing market prices. Segment assets consist primarily of goodwill, other intangible assets, property, plant
and equipment, trade and other receivables and cash and cash equivalents.
Segment liabilities comprise trade and other payables, revenue received in advance and provisions.
Capital additions comprise additions to other intangible assets (note 12) and property, plant and equipment (note 13).
88 Thomas Cook Group plc Annual Report & Accounts 2010
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415.1
(215.9)
(8.1)
(34.4)
156.7
(3.8)
(2.2)
1.4
72.6
(179.6)
45.1
(35.6)
9.5
198.0
145.2
22.4
34.4
18.0
The entity is domiciled in the UK. Revenue from external customers in the UK was £2,941.8m (2009: £2,884.9m) which is derived from the
‘UK’ segmental revenue shown above but excluding external revenue in India, Egypt, Ireland and Spain-domiciled companies, which would
otherwise be included in the UK segment. Revenue from external customers in Germany was £2,511.2m (2009: £2,669.2m).
The total of non-current assets, other than fi nancial instruments and deferred tax (there are no employment benefi ts assets or rights arising
under insurance contracts), located in the UK was £2,346.7m (2009: £2,366.2m).
UK
£m
Central
Europe
£m
West & East
Europe
£m
Northern
Europe
£m
North
America
£m
Airlines
Germany
£m
Corporate
£m
Total
£m
3,117.2
(19.2)
3,098.0
2,191.0
(43.9)
2,147.1
1,860.0
(6.8)
1,853.2
1,061.6
(2.3)
1,059.3
370.4
–
370.4
1,061.2
(320.4)
740.8
–
–
–
9,661.4
(392.6)
9,268.8
162.0
(88.8)
(0.6)
(13.8)
58.8
50.4
(21.9)
–
–
28.5
85.7
(42.7)
(0.3)
(0.5)
42.2
86.6
(7.3)
(0.7)
(18.9)
59.7
17.9
(22.8)
(0.1)
(1.2)
(6.2)
47.4
(3.4)
(6.4)
–
37.6
(34.9)
(29.0)
–
–
(63.9)
Year ended 30 September 2009 (restated)
Revenue
Segment sales
Inter-segment sales
Total revenue
Result
Underlying profi t/(loss) from operations
Exceptional operating items
IAS 39 fair value re-measurement
Amortisation of business combination intangibles
Segment result
Share of results of associates and joint venture
Loss on disposal of associate
Net investment income
Finance income
Finance costs
Profi t before tax
Tax
Profi t for the year
Other information
Capital additions
Depreciation
Amortisation of intangible assets
Amortisation of business combination intangibles
Impairment of intangible assets
63.4
47.7
10.1
13.8
–
2.6
6.9
0.9
–
–
20.2
4.2
3.9
0.5
0.8
10.3
9.2
0.6
18.9
–
5.0
1.0
0.8
1.2
–
63.1
74.8
0.3
–
–
33.4
1.4
5.8
–
17.2
Balance sheet
Assets
Segment assets
Inter-segment eliminations
Investments in associates and joint ventures
Tax and deferred tax assets
Total assets
Liabilities
Segment liabilities
Inter-segment eliminations
Tax and deferred tax liabilities
Borrowings and obligations under fi nance leases
Total liabilities
3,824.9
841.8
1,031.8
1,659.2
318.8
876.9
3,931.6 12,485.0
(5,937.2)
6,547.8
36.0
477.7
7,061.5
2,641.6
620.7
674.1
916.3
269.9
617.2
2,938.1
8,677.9
(4,752.4)
3,925.5
190.9
1,225.5
5,341.9
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Thomas Cook Group plc Annual Report & Accounts 2010 89
Financial Statements
Notes to the fi nancial statements continued
4 Personnel expenses
Wages and salaries
Social security costs
Share-based payments – equity settled (see note 34)
Defi ned benefi t pension costs (see note 35)
Defi ned contribution pension costs (see note 35)
The average number of employees of the Group during the year was:
UK
Central Europe
West & East Europe
Northern Europe
North America
Airlines Germany
Corporate
2010
£m
902.0
112.9
8.1
22.3
20.3
1,065.6
2010
Number
17,686
3,608
3,217
2,680
1,092
2,363
101
30,747
2009
£m
925.4
115.1
8.3
17.9
20.1
1,086.8
Restated
2009
Number
18,116
3,644
3,271
2,723
1,220
2,342
167
31,483
Disclosures of Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension entitlements required by
the Companies Act 2006 and those specifi ed for audit by the Financial Services Authority are on pages 66 to 69 within the Remuneration report
and form part of these audited fi nancial statements.
Disclosures in respect of remuneration of key management personnel are included in note 36.
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
2010
£m
164.8
143.8
84.1
63.9
42.8
46.9
13.7
14.8
10.6
2.5
56.7
644.6
Restated
2009
£m
176.5
156.2
90.8
68.0
45.5
51.7
41.8
14.3
11.9
5.7
72.4
734.8
90 Thomas Cook Group plc Annual Report & Accounts 2010
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6
Separately disclosed items
Exceptional operating items
Direct costs of volcanic ash cloud
Property costs, redundancy and other costs incurred in business integrations and reorganisations
Asset impairment and onerous lease provisions in Hi Hotels
Costs and write downs associated with Skyservice liquidation
Aircraft-related exceptional items
Fuel-related exceptional items
Loss on disposal of assets
Property costs, redundancy and other costs incurred in integrating the Thomas Cook and MyTravel businesses
Other exceptional operating items
Total exceptional operating items
Share of associates’ exceptional items
Loss on disposal of associate
Exceptional fi nance (costs)/income
Loss on revaluation of trading securities
Reversal of prior year impact of fi nancial markets volatility
Write off of unamortised bank facility set-up and related costs
Total exceptional items
IAS 39 fair value re-measurement
Time value component of option contracts
Included within cost of providing tourism services
Forward points on foreign exchange cash fl ow hedging contracts
Included within fi nance income and costs
Amortisation of business combination intangibles
Total separately disclosed items
B
u
s
i
n
e
s
s
R
e
v
i
e
w
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2010
£m
(52.9)
(35.4)
(26.0)
(15.3)
(3.9)
(23.3)
(1.8)
–
(7.7)
(166.3)
–
–
–
–
(18.2)
(18.2)
(184.5)
2.0
2.0
7.3
7.3
(30.9)
(206.1)
Restated
2009
£m
–
(112.8)
–
–
–
(20.7)
(3.9)
(56.6)
(21.9)
(215.9)
(2.2)
(2.2)
(10.6)
11.4
–
0.8
(217.3)
(8.1)
(8.1)
10.0
10.0
(34.4)
(249.8)
The direct costs associated with the volcanic ash cloud in April 2010 amounted to £52.9m and included additional accommodation and
subsistence costs for customers stranded in resort and the costs of customer repatriation when the airspace was eventually re-opened.
The £35.4m (2009: £112.8m) relates to the integration of acquisitions and other restructuring projects that have been undertaken across the
Thomas Cook Group. The restructuring projects largely refl ect changes made to underlying business processes and systems in the UK, Germany,
the Western Europe markets and Canada to improve effi ciency and cost leadership across the Group.
The £26.0m asset impairment and onerous lease provisions in Hi Hotels relates to the long-term hotel operating leases within Hi Hotels
(acquired as part of the MyTravel Group), which were entered into at a time when market conditions in the Spanish holiday destinations
were very favourable. The emergence of alternative holiday destinations, the strong Euro and the global recession have resulted in signifi cant
margin pressure in the Spanish destinations such that many of the leases are now considered to be onerous. We continue to pursue arbitration
proceedings with the owner of the hotels which will potentially result in a reduction in the hotel rental costs. However, it remains too early to
predict whether these proceedings will be successful. Of the £26.0m, £14.8m relates to fi xed assets impairment and is disclosed in note 13.
On 31 March 2010, Skyservice, a Canadian airline that provided fl ying capacity to our Canadian tour operator was placed in court-appointed
receivership. As a result of the collapse of Skyservice, we suffered signifi cant disruption to our fl ying programme in April, the last month of
the high season for our Canadian tour operator. The direct costs of the disruption, together with the write down of certain receivables from
Skyservice, amounted to £15.3m.
The run-off of fuel-related exceptional items amounted to £23.3m (2009: £20.7m). These items were specifi c to our fuel hedging for 2009
and 2010 and, as such, are not expected to recur in future years.
Other exceptional operating items of £7.7m (2009: £21.9m) include acquisition costs and losses resulting from other exceptional operating
events that are not expected to recur in future years.
Thomas Cook Group plc Annual Report & Accounts 2010 91
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Financial Statements
Notes to the fi nancial statements continued
Separately disclosed items continued
6
Exceptional operating 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 assets
Total exceptional operating items
7 Finance income and costs
Underlying fi nance income
Income from loans included in fi nancial assets
Other interest and similar income
Expected return on pension plan assets (note 35)
Fair value gains on derivative fi nancial instruments
Underlying fi nance costs
Interest payable
Finance costs in respect of fi nance leases
Interest cost on pension plan liabilities (note 35)
Discounting of provisions (note 26)
Exceptional fi nance (costs)/income
Loss on revaluation of trading securities
Impact of fi nancial markets volatility
Write off of unamortised bank facility set-up and related costs
IAS 39 fair value re-measurement
Forward points on foreign exchange cash fl ow hedging contracts
8 Profi t before tax
Profi t before tax for the year 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 fi nance 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 next page)
92 Thomas Cook Group plc Annual Report & Accounts 2010
2010
£m
(82.9)
(12.8)
–
(68.8)
(1.8)
(166.3)
2010
£m
0.7
5.3
37.9
0.9
44.8
(80.9)
(12.7)
(54.8)
(12.5)
(160.9)
–
–
(18.2)
(18.2)
Restated
2009
£m
(58.7)
(59.7)
(9.2)
(84.4)
(3.9)
(215.9)
Restated
2009
£m
1.0
11.1
38.4
0.7
51.2
(85.3)
(22.5)
(50.1)
(11.1)
(169.0)
(10.6)
11.4
–
0.8
7.3
10.0
2010
£m
166.3
14.8
–
74.7
50.7
27.4
30.9
41.0
–
134.0
127.8
(16.3)
1,065.6
2.9
Restated
2009
£m
215.9
–
18.0
111.6
33.6
22.4
34.4
26.8
2.2
101.9
118.0
(57.6)
1,086.8
3.6
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A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below:
PricewaterhouseCoopers LLP
Fees payable to the Company’s auditors for the audit of the Company’s fi nancial statements
Fees payable to the Company’s auditors and their associates for the audit of the Company’s subsidiaries
pursuant to legislation
Total audit fees
Other services pursuant to legislation
Tax services
Valuation and actuarial services
Recruitment and remuneration services
All other services
Total non-audit fees
Total fees
B
u
s
i
n
e
s
s
R
e
v
i
e
w
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2009
£m
0.2
2.0
2.2
0.3
0.3
0.2
0.5
0.1
1.4
3.6
2010
£m
0.2
2.0
2.2
0.3
0.1
0.1
–
0.2
0.7
2.9
In addition to the above, £56,000 (2009: £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 page 54 and includes an explanation of how
auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.
9 Tax
Analysis of tax charge
Current tax
UK
corporation tax charge/(credit) for the year
adjustments in respect of prior periods
Overseas
corporation tax charge for the year
adjustments in respect of prior periods
tax (credit)/charge for the year
adjustments in respect of prior periods
Total current tax
Deferred tax
Total deferred tax
Total tax charge
Tax reconciliation
Profi t before tax
Expected tax charge at the UK corporation tax rate of 28% (2009: 28%)
Impact of changes in tax rates (note 25)
Income not liable for tax
Expenses not deductible for tax purposes
Losses and other timing differences 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 losses and other timing differences not previously recognised
Income tax charge in respect of prior periods
Other
Tax charge
2010
£m
1.6
–
1.6
32.5
5.1
37.6
39.2
(1.1)
0.8
(0.3)
38.9
41.7
11.7
8.6
(13.9)
6.3
50.9
(0.2)
(6.3)
(24.9)
5.9
0.8
38.9
Restated
2009
£m
(2.5)
(1.4)
(3.9)
27.3
(4.6)
22.7
18.8
7.0
9.8
16.8
35.6
45.1
12.6
–
(14.6)
5.6
31.5
1.8
(1.7)
(2.9)
3.8
(0.5)
35.6
In addition to the amount charged to the income statement, deferred tax relating to actuarial losses on pension schemes and the fair value
of derivative fi nancial instruments of £21.9m has been charged directly to equity (2009: credit of £117.9m). UK corporation tax is calculated
at 28% (2009: 28%) of the estimated assessable profi t for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions.
Surplus losses not recognised in deferred tax of £888.2m (2009: £679.9m) are available in the UK and Germany for offset against future profi ts.
Thomas Cook Group plc Annual Report & Accounts 2010 93
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Financial Statements
Notes to the fi nancial statements continued
10 Dividends
The following dividends have been deducted from equity in the year:
Final dividend paid for 2009 of 7p per share (2008: 6.5p)
Interim dividend for 2010 of 3.75p per share (2009: 3.75p)
2010
£m
59.7
32.0
91.7
2009
£m
55.8
31.6
87.4
The interim dividend for 2010 was paid to shareholders in October 2010.
Subsequent to the balance sheet date, the Directors have proposed a fi nal dividend in respect of the year ended 30 September 2010 of 7p per
share which, subject to approval by shareholders at the Annual General Meeting, will be paid on 7 April 2011, to holders of relevant shares
registered on 18 March 2011. The fi nal proposed dividend amounts to £59.8m and will, subject to shareholder approval, be recognised in the
consolidated fi nancial statements for the year ending 30 September 2011. The fi nal dividend of 7p per share, together with the interim dividend
of 3.75p per share, makes a total dividend of 10.75p per share relating to the year ended 30 September 2010.
11 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 4.5m shares held by the employee share ownership trusts (2009: 5.1m).
Basic and diluted (loss)/earnings per share
Net (loss)/profi t attributable to equity holders of the parent
Weighted average number of shares for basic (loss)/earnings per share
Effect of dilutive potential ordinary shares – share options*
Weighted average number of shares for diluted (loss)/earnings per share
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Adjusted underlying basic and diluted earnings per share
Adjusted underlying net profi t attributable to equity holders of the parent**
Weighted average number of shares for basic earnings per share
Effect of dilutive potential ordinary shares – share options*
Weighted average number of shares for diluted earnings per share
Adjusted underlying basic earnings per share
Adjusted underlying diluted earnings per share
2010
£m
(2.6)
millions
853.8
–
853.8
pence
(0.3)
(0.3)
2010
£m
195.1
millions
853.8
0.8
854.6
pence
22.8
22.8
Restated
2009
£m
7.0
millions
853.7
5.2
858.9
Restated
pence
0.8
0.8
Restated
2009
£m
213.1
millions
853.7
5.2
858.9
pence
25.0
24.8
* Awards of shares under the Thomas Cook Performance Share Plan, Buy As You Earn Scheme and the Co-Investment Plan will be satisfi ed by shares held in trust and therefore are
potentially dilutive. The remainder of the share schemes will be satisfi ed by the purchase of existing shares in the market and will therefore not result in any dilution of earnings
per share.
** Adjusted underlying net profi t attributable to equity holders of the parent is derived from the underlying profi t before tax for the year ended 30 September 2010 adjusted for
management’s estimate of the impact of the volcanic ash cloud, of £391.4m (2009: £415.1m), and deducting a notional tax charge of £76.5m (2009: £79.3m).
94 Thomas Cook Group plc Annual Report & Accounts 2010
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12 Intangible assets
Goodwill
Business combination intangible assets
Other
Goodwill
Cost
At 1 October 2008
Additions (restated)
Exchange differences
At 30 September 2009 (restated)
Additions
Reassessment of goodwill (note 15)
Exchange differences
At 30 September 2010
Accumulated impairment losses
At 1 October 2008
Exchange differences
At 30 September 2009
Exchange differences
At 30 September 2010
Carrying amount
At 30 September 2010
At 30 September 2009 (restated)
The carrying value of goodwill is analysed by business segment as follows:
UK
Central Europe
West & East Europe
Northern Europe
North America
Airlines Germany
B
u
s
i
n
e
s
s
R
e
v
i
e
w
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
D
i
r
e
c
t
o
r
s
’
R
e
p
o
r
t
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
2010
£m
3,216.3
384.3
228.3
3,828.9
2010
£m
2,094.7
61.4
132.6
731.1
174.8
21.7
3,216.3
Restated
2009
£m
3,188.6
403.2
177.9
3,769.7
£m
3,032.0
49.5
224.4
3,305.9
15.2
(1.5)
7.6
3,327.2
101.3
16.0
117.3
(6.4)
110.9
3,216.3
3,188.6
Restated
2009
£m
2,105.6
63.5
140.1
690.9
165.6
22.9
3,188.6
In accordance with accounting standards, the Group annually tests the carrying value of goodwill for impairment. At 30 September 2010, the
review was undertaken on a value in use basis, assessing whether the carrying value of goodwill was supported by the net present value of
future cash fl ows derived from those assets, using cash fl ow projections discounted at pre-tax rate of 10% to 12% (2009: 9% to 13%) and 10%
(2009: 9% to 10%) for the UK and other segments respectively, refl ecting specifi c risks relating to the relevant cash-generating units. The UK
segment includes India and Egypt, which are discounted at a higher rate than the remainder of the UK segment.
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 year. The Group prepares cash fl ow forecasts derived from the most recently approved annual budgets
and three year plans of the relevant businesses. The cash fl ow forecasts refl ect the risk associated with each asset. Cash fl ow forecasts for years
beyond the three year plan period are extrapolated based on estimated growth rates which do not exceed the average long-term growth rates
for the relevant markets.
There were no impairment losses recognised on goodwill during the year (2009: £nil) and no reasonable change to the assumptions would lead
to a material impairment.
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Thomas Cook Group plc Annual Report & Accounts 2010 95
Financial Statements
Notes to the fi nancial statements continued
12 Intangible assets continued
Business combination intangibles
Cost
At 1 October 2008
Additions (restated)
Disposal of subsidiaries
Exchange differences
At 30 September 2009 (restated)
Exchange differences
At 30 September 2010
Amortisation
At 1 October 2008
Charge for the year (restated)
Exchange differences
At 30 September 2009 (restated)
Charge for the year
Exchange differences
At 30 September 2010
Carrying amount
At 30 September 2010
At 30 September 2009
Brands and
customer
relationships
£m
Order
backlog
£m
Computer
software
£m
Other
£m
401.4
40.9
(2.4)
29.1
469.0
15.0
484.0
42.2
29.6
3.7
75.5
27.1
3.5
106.1
377.9
393.5
40.5
0.2
–
0.4
41.1
(0.1)
41.0
39.3
1.4
0.3
41.0
0.1
(0.1)
41.0
–
0.1
13.4
–
–
1.4
14.8
0.9
15.7
4.2
3.4
0.7
8.3
3.6
0.9
12.8
2.9
6.5
3.1
–
–
–
3.1
0.5
3.6
–
–
–
–
0.1
–
0.1
3.5
3.1
Total
£m
458.4
41.1
(2.4)
30.9
528.0
16.3
544.3
85.7
34.4
4.7
124.8
30.9
4.3
160.0
384.3
403.2
The initial valuation of business combination intangibles is based on applicable projected future cash fl ows 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 4 years. Order
backlog has been amortised over the period from acquisition to departure. Other includes fair value attributed to a foreign exchange licence
from the acquisition of Thomas Cook India, which is being amortised over 25 years.
Indefi nite-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 infl ows. These are considered to have an indefi nite 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 indefi nite-lived intangibles for impairment on a value in use
basis consistent with that disclosed for goodwill earlier in this note.
The carrying value of brands with an indefi nite life is analysed by business segment as follows:
UK
West & East Europe
Northern Europe
North America
2010
£m
70.6
23.4
134.6
22.3
250.9
2009
£m
70.6
23.6
127.2
21.8
243.2
96 Thomas Cook Group plc Annual Report & Accounts 2010
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Other intangible assets
Cost
At 1 October 2008
Additions
Acquisitions
Disposals
Exchange differences
At 30 September 2009
Additions
Disposals
Exchange differences
At 30 September 2010
Amortisation
At 1 October 2008
Charge for the year
Impairment losses
Disposals
Exchange differences
At 30 September 2009
Charge for the year
Disposals
Exchange differences
At 30 September 2010
Carrying amount
At 30 September 2010
At 30 September 2009
B
u
s
i
n
e
s
s
R
e
v
i
e
w
D
i
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e
c
t
o
r
s
’
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p
o
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t
D
i
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c
t
o
r
s
’
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p
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C
o
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p
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a
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G
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n
a
n
c
e
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Computer software and concessions
Other
Purchased
£m
Internally
generated
£m
Purchased
£m
175.6
36.1
–
(0.9)
27.6
238.4
28.2
(6.2)
(11.6)
248.8
78.6
7.4
18.0
(0.4)
14.9
118.5
10.4
(5.5)
(5.7)
117.7
131.1
119.9
101.8
30.2
0.5
(5.0)
6.6
134.1
43.5
(0.6)
(1.9)
175.1
65.1
13.4
–
(1.2)
3.7
81.0
16.4
(0.3)
(1.5)
95.6
79.5
53.1
0.7
2.2
3.8
–
0.3
7.0
13.1
–
0.3
20.4
0.5
1.6
–
–
–
2.1
0.6
–
–
2.7
17.7
4.9
Total
£m
278.1
68.5
4.3
(5.9)
34.5
379.5
84.8
(6.8)
(13.2)
444.3
144.2
22.4
18.0
(1.6)
18.6
201.6
27.4
(5.8)
(7.2)
216.0
228.3
177.9
Computer software is amortised on a straight-line basis over its estimated useful life of between three and ten years. Concessions include the
value of licences granted to the Group, as well as copyrights and trademarks and similar items. Licences are amortised over the period of the
licence, up to a maximum of ten years. Other items are amortised over their estimated useful lives of between three and fi ve years.
TH017_Accounts_p73-130.indd 97
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Thomas Cook Group plc Annual Report & Accounts 2010 97
Financial Statements
Notes to the fi nancial statements continued
13 Property, plant and equipment
Cost
At 1 October 2008
Additions
Acquisitions
Disposals
Exchange differences
At 30 September 2009
Additions
Acquisitions (note 15)
Disposals
Exchange differences
At 30 September 2010
Accumulated depreciation and impairment
At 1 October 2008
Charge for the year
Disposals
Exchange differences
At 30 September 2009
Charge for the year
Provision for impairment (note 6)
Disposals
Exchange differences
At 30 September 2010
Carrying amount
At 30 September 2010
At 30 September 2009
Aircraft and
aircraft spares
£m
Investment
property
£m
Freehold land
and buildings
£m
Short
leaseholds
£m
Other
fi xed assets
£m
Other property, plant and equipment
1,441.7
86.5
–
(8.9)
194.1
1,713.4
154.2
–
(51.7)
(76.1)
1,739.8
856.9
105.1
(6.3)
129.4
1,085.1
98.3
–
(45.7)
(53.1)
1,084.6
15.7
–
–
–
2.3
18.0
–
–
–
(1.0)
17.0
–
–
–
–
–
–
–
–
–
–
213.2
0.9
–
(1.5)
31.2
243.8
10.5
–
(2.7)
(12.3)
239.3
54.8
7.2
(1.0)
10.0
71.0
6.3
–
(2.5)
(4.3)
70.5
655.2
628.3
17.0
18.0
168.8
172.8
172.1
14.8
0.5
(12.1)
11.7
187.0
10.7
–
(4.7)
(4.0)
189.0
107.8
11.1
(9.9)
7.6
116.6
10.3
–
(3.1)
(2.5)
121.3
67.7
70.4
217.9
27.3
1.4
(21.8)
35.9
260.7
25.5
0.1
(9.3)
(10.9)
266.1
128.3
21.8
(18.2)
24.9
156.8
10.5
14.8
(8.4)
(7.2)
166.5
99.6
103.9
Other
Total
£m
603.2
43.0
1.9
(35.4)
78.8
691.5
46.7
0.1
(16.7)
(27.2)
694.4
290.9
40.1
(29.1)
42.5
344.4
27.1
14.8
(14.0)
(14.0)
358.3
336.1
347.1
Freehold land with a cost of £37.5m (2009: £38.7m) has not been depreciated.
The net book value of aircraft and aircraft spares includes £111.8m (2009: £170.5m) in respect of assets held under fi nance leases.
The net book value of other property, plant and equipment includes £14.1m (2009: £15.8m) in respect of assets held under fi nance lease.
The valuation of investment property during the year resulted in no material change to the carrying value of the asset.
Capital commitments
Capital expenditure contracted but not provided for in the accounts
2010
£m
38.9
2009
£m
127.8
98 Thomas Cook Group plc Annual Report & Accounts 2010
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14 Non-current asset investments
Cost
At 1 October 2009
Disposals
Group’s share of associates’ and joint venture’s profi t for the year
Additional loan investment
Exchange differences
At 30 September 2010
Amounts written off or provided
At 1 October 2009
Impairment (reversals)/losses
Exchange differences
At 30 September 2010
Carrying amount
At 30 September 2010
At 30 September 2009
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Other Investments
Associates and
joint venture
£m
Available-for-sale
fi nancial assets
£m
Loans &
receivables
£m
Total other
investments
£m
67.8
–
1.2
1.2
(3.4)
66.8
31.8
(2.0)
(1.6)
28.2
38.6
36.0
9.5
(0.1)
–
–
(0.6)
8.8
2.4
1.7
(0.1)
4.0
4.8
7.1
13.2
–
–
0.7
–
13.9
–
–
–
–
13.9
13.2
22.7
(0.1)
–
0.7
(0.6)
22.7
2.4
1.7
(0.1)
4.0
18.7
20.3
Associates
Investments in associates at 30 September 2010 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 reversed impairment losses of £2.9m in respect of its 25% interest in Hotelera Adeje S.L. and recognised impairment
losses of £0.9m in respect of its 25% interest in COPLAY 95 S.L, both hotel companies. The net impairment reversal of £2.0m has been included
in “Share of results of associates and joint venture” in the income statement.
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 fi nancial information in respect of the associates and joint venture is as follows:
Total assets
Total liabilities
Net (liabilities)/assets
Group’s share of net (liabilities)/assets
Revenue
(Loss)/profi t for the year
Group’s share of associates’ and joint venture’s (loss)/profi t for the year
Net impairment reversals recognised by the Group
Group’s share of result of associates and joint venture after tax
2010
Joint venture
£m
99.6
(121.6)
(22.0)
(11.0)
7.6
(2.4)
(1.2)
–
(1.2)
2010
Associates
£m
248.6
(117.8)
130.8
41.6
142.5
6.5
2.4
2.0
4.4
2009
Joint venture
£m
114.0
(133.4)
(19.4)
(9.7)
4.2
(7.4)
(3.7)
–
(3.7)
2009
Associates
£m
248.9
(116.5)
132.4
42.2
125.2
2.3
(0.1)
–
(0.1)
The fi nancial statements of the associates are made up to 31 December each year, being their fi nancial reporting date. For the purposes of
applying the equity method of accounting for 2010, the fi nancial statements of these undertakings for the year ended 31 December 2009 have
been used together with management accounts for the period from 1 January 2010 to 30 September 2010.
Other investments
Available-for-sale fi nancial assets include £3.7m in respect of a 24.9% interest in Aldiana GmbH, a German tour operator. During the year, the
Group recognised an impairment loss of £1.7m on its investment in Aldiana. This is shown in Net Investment Income in the income statement.
Aldiana is not accounted for under the equity method as the Group does not have signifi cant infl uence over its activities.
During the year ended 30 September 2010, the Group recognised interest on other fi xed asset investments of £0.2m (2009: £1.4m). There is no
active market for the available-for-sale fi nancial assets, consequently they are recorded at cost.
Loans and receivables of £13.9m are in respect of the Group’s investment, as a member of Airline Group, in the UK National Air Traffi c Services
(NATS). The investment comprises ordinary shares accruing interest at 8% in the Airline Group.
TH017_Accounts_p73-130.indd 99
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Thomas Cook Group plc Annual Report & Accounts 2010 99
Financial Statements
Notes to the fi nancial statements continued
15 Subsidiaries and acquisitions
A list of the signifi cant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest, is given
in note 17 to the Company’s separate fi nancial statements. All of the subsidiary undertakings have been consolidated in the Group accounts.
Interpretation guidance included within SIC Interpretation 12 ‘Consolidation – Special Purpose Entities’ indicates that certain special purpose
entities (SPEs), which are involved in aircraft leasing arrangements with the Group, should be interpreted as being controlled by the Group,
and therefore subject to consolidation, even though the Group has no direct or indirect equity interest in those entities. As a consequence,
the Group has consolidated three (2009: three) SPEs that own four (2009: four) aircraft operated by the Group on operating leases. In addition,
during the prior year the operations of the German airline were 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, in accordance with accounting standards, the entity has been treated
as being 100% controlled and fully consolidated by the Group.
Acquisitions made during the year
During the year, the Group concluded two acquisitions, as follows:
• 30 April 2010, 100% of Think W3 Ltd (trading as Essential Travel); and
• 5 July 2010, the remaining 51% of Thomas Cook Services (Cyprus) Ltd, a business formerly accounted for as an associate.
Details of the net assets acquired are set out in the table below:
Net assets acquired
Property, plant and equipment
Investments
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Tax liability
Goodwill
Total consideration
Satisfi ed by:
Cash
Deferred consideration
Contingent consideration
Amount
recognised at
acquisition date
£m
0.1
1.1
0.7
1.0
(2.6)
(0.3)
–
15.2
15.2
4.2
1.1
9.9
15.2
The purchase price of each asset component of the acquisition represents its provisional fair value, based on management’s best estimates.
The amount indicated above for trade and other receivables represents the fair value of the acquired receivables and is equal to the gross
contractual cash fl ows, all of which is expected to be recoverable.
The acquired businesses contributed revenue of £1.5m and net profi t of £0.6m to the Group for the period from acquisition to 30 September 2010.
If the acquisitions had occurred on 1 October 2009, they would have contributed £2.9m to consolidated revenue and £1.2m to consolidated
net profi t.
The provisional goodwill of £15.2m refl ects anticipated benefi ts from gaining control of the Thomas Cook brand in Cyprus and increased market
share in the case of Essential Travel.
Changes to the prior period acquisitions
Triwest
During the year, management reassessed the contingent consideration attributable to the Triwest Travel Holdings Limited acquisition based on
the fi nancial performance during the year. This has resulted in a £1.5m reduction in contingent consideration and goodwill.
Gold Medal
During the year, the fair value adjustments related to the Gold Medal acquisition were fi nalised and the contingent and deferred consideration
was amended for changes in the expected timing and amount of cash fl ows. As these changes have been made within 12 months of the
acquisition date, in accordance with IFRS 3 (issued 2004) ‘Business Combinations’, the fair value adjustments and the adjustments to the
contingent and deferred consideration have been recognised from the date of acquisition and the comparative fi gures have been restated.
100 Thomas Cook Group plc Annual Report & Accounts 2010
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B
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The restatement has had the following impact as at the date of acquisition (7 April 2009) and as at 30 September 2009:
At date of
acquisition
£m
At
30 September
2009
£m
Balance sheet
Increase in goodwill
Decrease in other intangible assets
Decrease in provisions
Decrease in deferred tax liability
Income statement
Decrease in depreciation and amortisation
Increase in tax
Net cash outfl ow from acquisitions
1.5
(6.5)
3.2
1.8
–
Current year
acquisitions
£m
Gold Medal
£m
Hotels4U
£m
Net cash outfl ow from acquisitions
Cash consideration for shares
Payment of contingent and deferred consideration
Cash and cash equivalents acquired (net of overdraft)
Total consideration
(4.2)
–
1.0
(3.2)
–
(19.9)
–
(19.9)
16 Inventories
Goods held for resale
Raw materials and supplies
17 Trade and other receivables
Non-current assets
Trade receivables
Other receivables
Deposits and prepayments
Loans
Securities
Current assets
Trade receivables
Other receivables
Amounts owed by associates and joint ventures
Amounts owed by other related parties
Deposits and prepayments
Loans
Other taxes
–
(4.1)
–
(4.1)
2010
£m
13.2
18.9
32.1
2010
£m
0.1
7.8
124.0
2.0
2.7
136.6
351.7
88.2
2.8
–
461.8
27.0
41.4
972.9
1.5
(6.1)
3.2
1.7
0.3
(0.4)
0.1
(0.3)
Total
£m
(4.2)
(24.0)
1.0
(27.2)
2009
£m
16.0
11.0
27.0
Restated
2009
£m
0.1
8.9
89.1
11.2
4.1
113.4
394.3
79.5
6.4
1.3
401.2
4.7
38.5
925.9
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Thomas Cook Group plc Annual Report & Accounts 2010 101
Financial Statements
Notes to the fi nancial statements continued
17 Trade and other receivables continued
The average credit period taken on invoicing of leisure travel services is 13 days (2009: 14 days). No interest is charged on the receivables. The
credit risk in respect of direct receivables from customers is limited as payment is required in full before the services are provided. In the case
of travel services sold by third-party agents, the credit risk depends on the creditworthiness of those third parties, but this risk is also limited
because of the relatively short period of credit.
Deposits and prepayments include amounts paid in advance to suppliers of hotel and other services in order to guarantee the provision of those
supplies. The Group’s current policy is that deposits and prepayments will normally be made for periods of up to two years in advance. There
is a credit risk in respect of the continued operation of those suppliers during those periods. Deposits and prepayments also include £47.5m
(2009: £65.0m) of deposits on aircraft lease arrangements which are primarily attributable to the UK airline.
Securities include money market securities amounting to £2.7m (2009: £4.0m) purchased as collateral against liabilities arising from part-time
retirement contracts at Thomas Cook AG, which are classifi ed as available-for-sale fi nancial assets.
The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there
is an identifi ed loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash fl ows.
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 signifi cant concentration of credit risk relating to trade and other receivables.
Movement in allowances for doubtful receivables
At beginning of year
Additional provision
Exchange differences
Acquisitions
Receivables written off
Unused amounts released
At end of year
At the year end, trade and other receivables of £173.3m (2009: £234.7m) were past due but not impaired.
The analysis of the age of these fi nancial assets is set out below:
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 approximate to their fair values.
18 Cash and cash equivalents
Cash at bank and in hand
Term deposits with a maturity of less than three months
2010
£m
61.2
8.8
(2.5)
(0.1)
(1.7)
(9.9)
55.8
2010
£m
91.4
38.0
23.2
20.7
173.3
2010
£m
289.9
49.7
339.6
2009
£m
49.8
25.9
6.2
–
(13.1)
(7.6)
61.2
2009
£m
102.1
60.1
49.9
22.6
234.7
2009
£m
303.2
247.0
550.2
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 balance are the following amounts considered to be restricted:
• £46.3m (2009: £46.2m) held within escrow accounts in Canada, Switzerland and the UK in respect of local regulatory requirements;
• £17.1m (2009: £13.6m) of cash held by White Horse Insurance Ireland Limited, the Group’s captive insurance company; and
• £11.1m (2009: £5.7m) of cash held in countries where exchange control restrictions are in force (India, Egypt, Tunisia and Morocco),
net of cash available to repay local debt in those countries.
The Directors consider that the carrying amounts of these assets approximate to their fair value.
102 Thomas Cook Group plc Annual Report & Accounts 2010
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19 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
Other payables
Non-current liabilities
Accruals and deferred income
Other payables
The average credit period taken for trade purchases is 55 days (2009: 57 days).
The Directors consider that the carrying amounts of trade and other payables approximate to their fair value.
20 Borrowings
Short-term borrowings
Unsecured bank loans and other borrowings
Unsecured bank overdrafts
Current portion of long-term borrowings
Long-term borrowings
Bank loans and bonds – repayable within one year
– repayable between one and fi ve years
– repayable after fi ve years
Less: amount due for settlement within one year shown under current liabilities
Amount due for settlement after one year
Borrowings by class
Group committed credit facility (including transaction costs)
Aircraft-related bank loans
Other bank borrowings
Issued bonds (including transaction costs)
2010
Current
£m
–
32.0
74.3
–
106.3
Non-current
£m
185.9
93.5
41.9
635.1
956.4
B
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2010
£m
1,007.6
7.0
–
54.6
569.2
182.8
1,821.2
9.1
12.4
21.5
2010
£m
44.2
22.8
67.0
39.3
106.3
39.3
650.4
306.0
995.7
(39.3)
956.4
2009
Current
£m
498.6
55.3
65.2
–
619.1
Restated
2009
£m
1,051.3
5.6
2.8
42.2
668.2
133.7
1,903.8
9.9
7.2
17.1
2009
£m
401.8
43.2
445.0
174.1
619.1
174.1
305.4
15.5
495.0
(174.1)
320.9
Non-current
£m
227.9
37.8
55.2
–
320.9
In April 2010, the Group issued a €400m bond with an annual coupon of 6.75% maturing in June 2015 and a £300m bond with an annual
coupon of 7.75% maturing in June 2017. Proceeds of these issues were used to repay debt drawn under the existing bank facilities.
In May 2010, the Group entered into a new committed bank facilities agreement with a number of banks, totalling £1,050m maturing in
May 2013. The previous bank facilities were cancelled. The new facilities comprise a £200 million term loan, repayable in annual instalments
of £50m commencing October 2011, and a revolving credit facility of £850 million. As at September 2010, the £200m term loan was drawn
down and £4.2m was drawn under the revolving credit facility.
The Directors consider that the fair value of the Group’s borrowings with a carrying value of £1,062.7m is £1,081.6m (2009: carrying value
£940.0m; fair value £943.9m). The fair values quoted were determined on the basis of the interest rates for the corresponding terms to maturity
or repayment as at the year 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 2010, the Group had undrawn committed debt facilities of £846m (2009: £374m). Whilst these facilities have certain
fi nancial covenants they are not expected to prevent full utilisation of the facilities if required. The Group has complied with its covenants
throughout the year.
Thomas Cook Group plc Annual Report & Accounts 2010 103
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Financial Statements
Notes to the fi nancial statements continued
21 Obligations under fi nance leases
Amounts payable under fi nance leases:
Within one year
Between one and fi ve years
After fi ve years
Less: future fi nance charges
Present value of lease obligations
Less: amount due for settlement within 12 months
(shown under current liabilities)
Amount due for settlement after 12 months
The currency analysis of amounts payable under fi nance leases is:
Euro
US Dollar
Indian Rupee
Minimum lease payments
Present value of
minimum lease payments
2010
£m
19.4
54.5
25.4
99.3
(18.8)
80.5
2009
£m
246.7
37.1
23.7
307.5
(22.0)
285.5
2010
£m
16.0
47.0
17.5
80.5
–
80.5
(16.0)
64.5
2010
£m
16.6
63.5
0.4
80.5
2009
£m
237.8
33.0
14.7
285.5
–
285.5
(237.8)
47.7
2010
£m
193.4
92.0
0.1
285.5
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 fi nance lease obligations with a carrying value of £80.5m was £82.0m at 30 September 2010
(2009: carrying value £285.5m; fair value £294.5m). The fair values quoted were determined on the basis of the interest rates for the corresponding
terms to repayment as at the year end.
The Group’s obligations under fi nance leases are secured by the lessors’ rights over the leased assets.
Sub-lease rentals receivable
During the year, two aircraft (2009: two) held under fi nance leases were sub-let on operating leases for the whole or part of the year.
22 Financial instruments
Carrying values of fi nancial assets and liabilities
The carrying values of the Group’s fi nancial assets and liabilities as at 30 September 2010 and 30 September 2009 are as set out below.
At 30 September 2010
Non-current asset investments
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Obligations under fi nance leases
Derivative fi nancial instruments
Derivative
instruments
in designated
hedging
relationships
£m
–
–
–
–
–
–
(12.4)
(12.4)
Held
for trading
£m
–
–
–
–
–
–
2.7
2.7
Loans &
receivables
£m
13.9
571.8
339.6
–
–
–
–
925.3
Available-
for-sale
£m
4.8
2.7
–
–
–
–
–
7.5
Financial
liabilities at
amortised cost
£m
–
–
–
1,634.0
(1,062.7)
(80.5)
–
490.8
104 Thomas Cook Group plc Annual Report & Accounts 2010
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At 30 September 2009
Non-current asset investments
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Obligations under fi nance leases
Derivative fi nancial instruments
Held
for trading
£m
–
–
–
–
–
–
(0.9)
(0.9)
Derivative fi nancial instruments
The fair values of derivative fi nancial instruments as at 30 September 2010 were:
At 1 October 2008
Movement in fair value during the year
At 1 October 2009
Movement in fair value during the year
At 30 September 2010
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Fair value hierarchy
Derivative
instruments
in designated
hedging
relationships
£m
–
–
–
–
–
–
(130.1)
(130.1)
Interest
rate swaps
£m
(5.2)
(15.9)
(21.1)
12.0
(9.1)
Loans &
receivables
£m
13.2
590.1
550.2
–
–
–
–
1,153.5
Currency
contracts
£m
120.2
(125.4)
(5.2)
(27.4)
(32.6)
B
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t
a
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m
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n
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Available-
for-sale
£m
7.1
4.1
–
–
–
–
–
11.2
Fuel
contracts
£m
(39.0)
(65.8)
(104.8)
136.8
32.0
2010
£m
6.6
85.2
(80.7)
(20.8)
(9.7)
Financial
liabilities at
amortised cost
£m
–
–
–
(1,739.0)
(940.0)
(285.5)
–
(2,964.5)
Total
£m
76.0
(207.1)
(131.1)
121.4
(9.7)
2009
£m
4.9
133.9
(251.1)
(18.8)
(131.1)
The fair value of the Group’s fi nancial instruments are disclosed in hierarchy levels depending on the valuation method applied. The different
methods are defi ned as follows:
Level 1: valued using unadjusted quoted prices in active markets for identical fi nancial instruments
Level 2: valued using techniques based on information that can be obtained from observable market data
Level 3: valued using techniques incorporating information other than observable market data as at least one input to the valuation cannot be
based on observable market data
The fair value of the Group’s fi nancial assets and liabilities at 30 September 2010 are set out below:
Financial assets
Currency contracts
Fuel contracts
Securities
Financial liabilities
Currency contracts
Fuel contracts
Interest rate swaps
At 30 September 2010
Level 1
£m
–
–
–
–
–
–
–
Level 2
£m
52.4
39.4
2.7
(85.0)
(7.4)
(9.1)
(7.0)
Level 3
£m
–
–
–
–
–
–
–
Total
£m
52.4
39.4
2.7
(85.0)
(7.4)
(9.1)
(7.0)
TH017_Accounts_p73-130.indd 105
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Thomas Cook Group plc Annual Report & Accounts 2010 105
Financial Statements
Notes to the fi nancial statements continued
22 Financial instruments continued
The Group uses derivative instruments to hedge against signifi cant future transactions and cash fl ows 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.
Currency hedges are entered into between 12 to 24 months in advance of a tourist season and denominated in the underlying exposure currencies.
The Group undertakes hedging transactions to mitigate the risk of unfavourable changes in the prices. As at 30 September 2010, the Group
had in place hedging transactions for fuel out to April 2012.
The Group is also subject to risks arising from interest rate movements in connection with the fi nancing of aircraft and other assets. Interest rate
swaps and cross currency interest rate swaps are designated as cash fl ow hedges of the interest rate and the Euro, US Dollar and Sterling currency
risk on such borrowings. The Group also holds a collar which is designated as held for trading. Cross currency interest rate swaps are reported
within interest rate derivatives. The maturities of interest rate derivatives extend out to February 2017.
The fair values of the Group’s derivative fi nancial instruments set out above have been determined by reference to prices available from the
markets in which the instruments are traded.
During the year, a loss of £69.4m (2009 restated: £42.6m gain) 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 £7.3m was recognised in the income statement in respect of the forward points on foreign exchange cash fl ow hedging contracts
(2009: £21.4m gain) and a gain of £2.0m in respect of the movement in the time value of options in cash fl ow hedging relationships
(2009: £8.1m loss).
Cost of providing tourism services
– release from hedge reserve
– time value on options
Finance income: forward points on foreign exchange cash fl ow hedging contracts
2010
£m
(69.4)
2.0
7.3
(60.1)
Restated
2009
£m
42.6
(8.1)
21.4
55.9
23 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 fi nancing and cash investments.
Interest rate swaps and interest rate collars are used to manage these risks and are usually designated as cash fl ow 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 fl uctuations. 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 fl ow hedges of forecast future transactions.
Fuel price risk
Exposure to fuel price risk arises due to fl ying costs for the Group’s aircraft. Commodity derivatives are entered into to manage the risk of adverse
changes in the price of fuel. The Group’s policy is to hedge a minimum of 80% of the fuel requirement for the fl ight schedule concerned, with a
maximum hedge tenor of 24 months prior to consumption. Hedging is implemented with a combination of fi xed price contracts (swaps) and net
purchased options and are usually designated as cash fl ow hedges.
The market risks that the Group is subject to have been identifi ed 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 fi nancial 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 at 30 September
2010, the sensitivity of these risks to the defi ned scenario changes are set out below:
Interest rate risk
1% (2009: 1%) increase in interest rates
0.25% (2009: 0.25%) decrease in interest rates
106 Thomas Cook Group plc Annual Report & Accounts 2010
2010
Impact on
profi t before tax
£m
(4.6)
1.1
Impact on
equity
£m
–
–
2009
Impact on
profi t before tax
£m
(2.2)
0.5
Impact on
equity
£m
–
–
TH017_Accounts_p73-130.indd 106
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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
2010
Impact on
profi t before tax
£m
21.2
(23.8)
2.6
(2.5)
2010
Impact on
profi t before tax
£m
(2.7)
(12.2)
Impact on
equity
£m
26.6
(26.5)
64.3
(58.1)
2009
Impact on
profi t before tax
£m
8.8
(10.7)
10.0
(9.2)
Restated
2009
Impact on
equity
£m
105.3
(83.4)
Impact on
profi t before tax
£m
7.5
(10.2)
Impact on
equity
£m
30.5
(30.2)
63.6
(57.3)
Impact on
equity
£m
58.5
(56.3)
B
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i
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s
s
R
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v
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D
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F
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a
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Liquidity risk
The liquidity position of the Group is signifi cantly infl uenced 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.
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 fl ows and will differ from both carrying value and fair value.
At 30 September 2010
Trade and other payables
Borrowings
Obligations under fi nance leases
Derivative fi nancial instruments:
– payable
– receivable
At 30 September 2009
Trade and other payables
Borrowings
Obligations under fi nance leases
Derivative fi nancial instruments:
– payable
– receivable
Amount due
in less than
3 months
£m
1,505.5
22.8
4.4
between
3 and 12 months
£m
118.0
89.0
15.0
between
1 and 5 years
£m
8.2
797.0
54.6
in more than
5 years
£m
2.3
468.5
25.4
1,589.0
(1,589.1)
1,532.6
2,223.0
(2,185.4)
259.6
568.0
(550.6)
877.2
0.1
–
496.3
Amount due
in less than
3 months
£m
1,628.5
423.9
65.6
between
3 and 12 months
£m
100.7
200.3
181.1
between
1 and 5 years
£m
7.7
324.1
37.1
in more than
5 years
£m
2.2
18.0
23.7
1,015.4
(964.1)
2,169.3
1,552.0
(1,397.6)
636.5
69.6
(62.3)
376.2
–
–
43.9
Total
£m
1,634.0
1,377.3
99.4
4,380.1
(4,325.1)
3,165.7
Total
£m
1,739.1
966.3
307.5
2,637.0
(2,424.0)
3,225.9
Estimated undiscounted future cash fl ows are disclosed above in respect of derivatives with a negative fair value at the year end. These cash
fl ows include amounts in respect of fuel derivatives which are based on the year end fair values. Estimated cash fl ows relating to fuel option
derivatives have all been reported in the “amount due in less than three months” category. Trade and other payables include non-fi nancial
liabilities of £208.2m (2009: £186.8m) 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 defi ne the credit limit for each counterparty.
The Group’s approach to credit risk in respect of trade and other receivables is explained in Note 17.
TH017_Accounts_p73-130.indd 107
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Thomas Cook Group plc Annual Report & Accounts 2010 107
Financial Statements
Notes to the fi nancial statements continued
24 Insurance
Management of insurance risk
Incidental to its main business, the Group, through its subsidiary White Horse Insurance Ireland Limited, issues contracts that transfer signifi cant
insurance risk and that are classifi ed as insurance contracts. As a general guideline, the Group defi nes as signifi cant insurance risk, the possibility
of having to compensate the policyholder if a specifi ed uncertain future event adversely affects the policyholder.
Business written includes standard commercial risks for the Group and travel insurance for both Group and non-Group customers.
The principal nature of travel insurance risks is one of short-term, low value and high volume. Underwriting performance is monitored on
an ongoing basis and pricing reviewed annually for each individual contract. Exposure is capped by specifi c limits within the insurance policy
and by using reinsurance contracts for any claims in excess of these retention limits. Commercial policies with the Group are subject to policy
excesses and single event and aggregate limits.
Insurance risk is spread across several European countries where the Group operates including the UK, Ireland and Continental Europe.
When estimating the cost of claims outstanding at the year end, the principal assumption underlying the estimates is the Group’s past
development pattern. This includes assumptions in respect of historic claims costs, average claims handling expenses and market developments.
The Group also uses an independent actuary to review its liabilities to ensure that the carrying values are adequate. Any changes to these
variables are not expected to have a material effect on the Group fi nancial statements.
The Group operates a reinsurance policy approved by the White Horse Insurance Ireland Ltd Board of Directors which ensures that reinsurers
have a fi nancial stability rating of B+ (A M Best) or above. The Group has assessed these credit ratings as being satisfactory in diminishing the
Group’s exposure to the credit risk of its insurance receivables.
Income and expenses arising directly from insurance contracts
Revenue
Net earned premium income
Deposit interest
Other income
Expenses
Claims incurred
Other operating expenses
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 2009
Net earned premium income
Premiums written
Claims incurred
Claims paid
At 30 September 2010
108 Thomas Cook Group plc Annual Report & Accounts 2010
2010
£m
9.3
0.1
–
9.4
16.1
1.0
17.1
2010
£m
4.8
0.1
4.9
2.2
8.9
1.7
0.4
0.9
14.1
Deferred
income arising
from unearned
premiums
£m
2.2
(9.3)
9.3
–
–
2.2
2009
£m
7.9
0.5
0.4
8.8
11.4
2.3
13.7
2009
£m
2.3
0.2
2.5
2.2
6.8
0.4
0.1
0.8
10.3
Claims
accruals
£m
6.8
–
–
16.1
(14.0)
8.9
TH017_Accounts_p73-130.indd 108
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B
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p
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C
o
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p
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F
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25 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 October 2008 (restated)
(Charge)/credit to income (restated)
Credit to equity (restated)
Acquisitions (restated)
Exchange differences (restated)
At 30 September 2009 (restated)
(Charge)/credit to income
Credit/(charge) to equity
Reclassifi cations
Exchange differences
At 30 September 2010
Aircraft
fi nance
leases
£m
37.5
(12.3)
–
–
0.6
25.8
(28.6)
–
–
1.1
(1.7)
Retirement
benefi t
obligations
£m
30.9
0.3
50.5
–
(0.5)
81.2
(14.5)
16.4
(7.5)
(5.4)
70.2
Fair value
of fi nancial
instruments
£m
(22.9)
(9.4)
67.4
–
0.5
35.6
(0.9)
(38.3)
1.4
7.7
5.5
Other
temporary
differences
£m
(28.1)
7.4
–
(9.5)
(4.3)
(34.5)
2.4
–
5.0
(7.9)
(35.0)
Tax losses
£m
212.7
(2.8)
–
–
5.5
215.4
41.8
–
1.1
(2.3)
256.0
Total
£m
230.1
(16.8)
117.9
(9.5)
1.8
323.5
0.2
(21.9)
–
(6.8)
295.0
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for fi nancial reporting purposes:
Deferred tax liabilities
Deferred tax assets
2010
£m
(88.2)
383.2
295.0
Restated
2009
£m
(110.0)
433.5
323.3
At the balance sheet date, the Group had unused tax losses of £1,820m (2009: £1,441m) available for offset against future profi ts. Deferred tax
assets have only been recognised where there is suffi cient probability that there will be future taxable profi ts against which the assets may be
recovered. The increase in recognised tax losses in the year relates to non-recurring exceptional costs. The UK and German businesses generated
taxable profi ts 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 £888.2m (2009: £679.9m) due to the unpredictability of future profi t 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 temporary differences in respect of which no deferred tax asset has been recognised amounting
to £186.1m (2009: £59.0m), also due to the unpredictability of future profi t streams.
Deferred tax liabilities were offset against the corresponding deferred tax assets where both items fell within the responsibility of the same
tax authority.
The deferred tax assets and liabilities at the year end, without taking into consideration the offsetting balances within the same jurisdiction
are £458.9m and £163.9m respectively.
The 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 profi ts of subsidiaries. The new rules were effective from 1 July 2009. As a
result, no deferred tax liability is expected on the undistributed profi ts of subsidiaries at the balance sheet date (2009: nil).
A number of changes to the UK corporation tax system were announced in the June 2010 Budget Statement. The Finance (No 2) Act 2010
included legislation to reduce the main rate of corporation tax from 28% to 27% from 1 April 2011 and the effect of this change has been
to reduce the deferred tax assets by £8.6m as at 30 September 2010.
The proposed reduction of the main rate of corporation tax in the UK by 1% per year to 24% by 1 April 2014 are expected to be enacted separately
each year. The overall effect of the further changes from 27% to 24%, if these applied to the deferred tax balance at 30 September 2010, would be
to reduce the deferred tax asset by approximately £25.2m.
TH017_Accounts_p73-130.indd 109
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Thomas Cook Group plc Annual Report & Accounts 2010 109
Financial Statements
Notes to the fi nancial statements continued
26 Provisions
At 1 October 2009
Additional provisions in the year
Unused amounts released in the year
Reclassifi cation to borrowings
Unwinding of discount
Utilisation of provisions
Exchange differences
At 30 September 2010
Included in current liabilities
Included in non-current liabilities
At 30 September 2010
Included in current liabilities
Included in non-current liabilities
At 30 September 2009
Aircraft
maintenance
provisions
£m
209.1
57.7
(16.1)
–
–
(48.0)
2.1
204.8
87.1
117.7
204.8
66.1
143.0
209.1
Restated
Other
provisions
£m
291.5
76.9
(14.9)
(22.1)
12.5
(125.0)
(6.4)
212.5
117.4
95.1
212.5
162.8
128.7
291.5
Restated
Total
£m
500.6
134.6
(31.0)
(22.1)
12.5
(173.0)
(4.3)
417.3
204.5
212.8
417.3
228.9
271.7
500.6
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 accounting policies for more details).
Other provisions relate to provisions for off-market leases, onerous contracts, deferred and 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 deferred and contingent consideration arising on acquisitions.
During the year, £22.1m of deferred and contingent consideration on the Gold Medal acquisition was converted to a loan note, and has
accordingly been reclassifi ed to borrowings.
The unused amounts released in the year of £31.0m includes £11.7m of maintenance reserves in Northern Europe following the acquisition
of two aircraft which were previously accounted for as operating leases. This release has been treated as an exceptional item in the
income statement.
27 Non-current assets classifi ed as held for sale
In the prior year the Group gained legal title to a hotel property in Mexico as settlement of an outstanding loan for CAD 16.6m. The carrying
amount at 30 September 2010 is £10.5m (2009: £9.1m). This property is being actively marketed for sale and is expected to be disposed of
within the next fi nancial year and has therefore been classifi ed as held for sale.
110 Thomas Cook Group plc Annual Report & Accounts 2010
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28 Called-up share capital
Allotted, called-up and fully paid
858,292,947 ordinary shares of €0.10 each (2009: 858,292,947)
Allotted, called-up and partly paid
50,000 deferred shares of £1 each, 25p paid (2009: 50,000)
2010
£m
57.7
–
2009
£m
57.7
–
Contingent rights to the allotment of shares
As at 30 September 2010, 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 34. On exercise, the awards of shares under the plan will be satisfi ed 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 EES Trustees International Limited in respect of the Thomas Cook Group plc 2007 Performance
Share Plan and the Thomas Cook Group plc 2008 Co-Investment Plan and are held by Equiniti Share Plan Trustees Limited in connection with
the Thomas Cook Group plc Buy As You Earn Scheme. 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 2010 by EES Trustees International Limited and Equiniti Share Plan Trustees Limited was 4,282,801
(2009: 5,090,822) and 69,602 (2009: 37,963) respectively. The cumulative cost of acquisition of these shares was £13.3m (2009: £13.1m) and the
market value at 30 September 2010 was £7.5m (2009: £11.9m). 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
In the prior year the Group purchased 12,934,387 shares for cancellation. No shares were acquired in the year ended 30 September 2010.
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 benefi ts 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 31) and 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 £2,522.2m (2009 restated: £2,376.0m).
29 Hedging and translation reserves
At 1 October 2008
Foreign exchange translation gains
Transfer of translation losses to profi t or loss on disposal
Fair value losses deferred for the year
Fair value gains transferred to the income statement
Tax on fair value gains and losses and transfers
At 30 September 2009 (restated)
Foreign exchange translation gains
Fair value gains deferred for the year
Fair value losses transferred to the income statement
Tax on fair value gains and losses and transfers
At 30 September 2010
Restated
Hedging
reserve
£m
53.6
–
–
(187.5)
(42.6)
67.4
(109.1)
–
62.1
69.4
(38.8)
(16.4)
Available
for sale
investments
£m
(1.1)
–
–
(1.1)
–
–
(2.2)
–
0.5
–
0.5
(1.2)
Restated
Translation
reserve
£m
162.3
86.2
4.5
–
–
–
253.0
64.1
–
–
–
317.1
Restated
Total
£m
214.8
86.2
4.5
(188.6)
(42.6)
67.4
141.7
64.1
62.6
69.4
(38.3)
299.5
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Thomas Cook Group plc Annual Report & Accounts 2010 111
Financial Statements
Notes to the fi nancial statements continued
30 Note to the cash fl ow statement
Profi t before tax
Adjustments for:
Finance income
Finance costs
Net investment loss/(income)
Loss on disposal of associate
Share of results of associates and joint venture
Depreciation of property, plant and equipment
Amortisation of intangible assets
Amortisation of business combination intangibles
Impairment of assets
Loss on disposal of 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 fl ows before movements in working capital
Increase in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Cash generated by operations
Income taxes paid
Net cash from operating activities
2010
£m
41.7
(52.1)
179.1
1.5
–
(3.2)
125.4
27.4
30.9
14.8
1.8
8.1
38.8
(50.1)
0.3
(16.0)
6.0
354.4
(9.4)
(85.6)
64.7
324.1
(24.7)
299.4
Restated
2009
£m
45.1
(72.6)
179.6
(1.4)
2.2
3.8
145.2
22.4
34.4
18.0
3.9
8.3
(11.5)
(17.6)
1.4
(17.4)
15.5
359.3
(1.1)
109.5
(263.0)
204.7
(26.6)
178.1
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.
At 1 October
2009
£m
Cash fl ow
£m
Other non-cash
changes
£m
Exchange
movements
£m
At 30 September
2010
£m
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)
(194.4)
(194.4)
18.5
740.7
–
–
229.4
988.6
(878.7)
–
(32.0)
(910.7)
77.9
(116.5)
–
–
–
(392.5)
(18.5)
153.3
(13.7)
(271.4)
236.3
(3.6)
13.7
246.4
(25.0)
(25.0)
(16.2)
(16.2)
1.9
9.4
–
–
6.1
17.4
10.5
–
1.5
12.0
29.4
13.2
339.6
339.6
(22.8)
(44.2)
(18.5)
(20.8)
(16.0)
(122.3)
(952.8)
(3.6)
(64.5)
(1,020.9)
(1,143.2)
(803.6)
31 Net debt
Liquidity
Cash and cash equivalents
Current debt
Bank overdrafts
Short-term borrowings
Loan note
Current portion of long-term borrowing
Obligations under fi nance leases
Non-current debt
Long-term borrowings
Loan note
Obligations under fi nance leases
Total debt
Net debt
112 Thomas Cook Group plc Annual Report & Accounts 2010
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32 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:
The Group as lessee
Within one year
Later than one and less than fi ve years
After fi ve years
Property
and other
2010
£m
Aircraft and
aircraft spares
2010
£m
112.9
296.3
110.9
520.1
109.4
177.8
–
287.2
Total
2010
£m
222.3
474.1
110.9
807.3
Restated
Property
and other
2009
£m
122.5
311.1
159.8
593.4
Aircraft and
aircraft spares
2009
£m
128.4
267.2
10.7
406.3
Total
2009
£m
250.9
578.3
170.5
999.7
Operating lease payments principally relate to rentals payable for the Group’s retail shop and hotel 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 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:
The Group as lessor
Within one year
Later than one and less than fi ve years
After fi ve years
Rental income earned during the year was:
Property
2010
£m
Aircraft
2010
£m
2.5
6.9
3.2
12.6
3.2
–
–
–
–
5.4
Total
2010
£m
2.5
6.9
3.2
12.6
8.6
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
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 5.9 years for property (2009: 7.7 years) and nil months
for aircraft (2009: 7 months).
At 30 September 2010 no aircraft (2009: one) were sub-let by the Group on fi nance leases.
33 Contingent liabilities
Contingent liabilities
2010
£m
118.8
2009
£m
136.1
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 customers’ 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.
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Thomas Cook Group plc Annual Report & Accounts 2010 113
Financial Statements
Notes to the fi nancial statements continued
34 Share-based payments
The Company operates fi ve 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 £8.1m (2009: £8.3m).
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 nil-cost options to acquire, or contingent share
awards over, the ordinary shares of the Company. Each award will vest three years after the date of award, to the extent the performance
targets have been met. The performance targets for each award are based on adjusted earnings per share (EPS) and total shareholder return
(TSR). Subject to the performance targets being met and the participant still being employed by the Group, 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 key executives purchase the Company’s shares out of their net bonus (Lodged Shares). Participants may, at the end of
the three-year performance period, receive 3.5 Matching Shares (awarded as nil-cost options or contingent share awards) for each Lodged Share
purchased, subject to the achievement of the performance targets. The performance targets for awards made in 2008 and 2009 are based on
adjusted EPS and Return On Invested Capital (ROIC). The performance targets for the 2010 awards are based on adjusted EPS, TSR and ROIC.
Subject to the performance targets being met and the participant still being employed by the Group, the options 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 across the Group 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 10% (2010 grant) or 20% (2008 grant) 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 (Partnership Shares) in the Company by deduction from their
monthly gross pay. For every ten Partnership Shares an employee purchases, the Company purchases one Matching Share on their behalf. Both
Partnership and Matching Shares are held by Equiniti Share Plan Trustees Limited. ‘As at 30 September 2010, 69,604 (2009: 37,963) Matching
Shares were held by the Trustee.
The movements in options and awards during the year and prior year were:
Outstanding at beginning of year
Granted
Exercised
Cancelled
Forfeited
Outstanding at end of year
Exercisable at end of year
Exercise price (£)
Average remaining contractual life (years)
PSP
15,025,776
7,017,596
(846,063)
–
(2,510,582)
18,686,727
587,085
2010
COIP
4,630,851
4,934,780
–
(857,500)
(108,002)
8,600,129
–
SAYE
3,155,112
4,544,329
(705)
(344,819)
(59,365)
7,294,552
–
CSOSP
879,018
12,847
–
–
(95,742)
796,123
–
nil
8.5
nil
8.9
1.81-2.15
2.5
1.88-2.34
8.3
The weighted average share price at the date of exercise for the options exercised during the year ended 30 September 2010 was £2.43.
Outstanding at beginning of year
Granted
Exercised
Cancelled
Forfeited
Outstanding at end of year
Exercisable at end of year
PSP
6,574,186
9,810,081
–
–
(1,358,491)
15,025,776
–
2009
COIP
985,046
3,944,088
–
–
(298,283)
4,630,851
–
SAYE
3,327,150
100,562
(27)
(218,224)
(54,349)
3,155,112
–
CSOSP
–
926,889
–
–
(47,871)
879,018
–
Exercise price (£)
Average remaining contractual life (years)
nil
8.9
nil
9.3
1.88-2.15
2.3
1.88-2.20
9.3
The weighted average share price at the date of exercise for the options exercised during the year ended 30 September 2009 was £2.31.
114 Thomas Cook Group plc Annual Report & Accounts 2010
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The fair value of options and awards subject to adjusted 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 year 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
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
PSP
£2.33
nil
50%
26%-121%
32%
3
2.0%
6%
£1.62
PSP
£1.95
nil
44%
24%–83%
34%
3
2.0%
7%
£1.31
2010
COIP
£2.25
nil
50%
26%-121%
32%
3
1.9%
6%
£1.57
2009
COIP
£1.96
nil
44%
n/a
n/a
3
2.0%
7%
£1.60
SAYE
£2.01
£1.81
50%
n/a
n/a
3.3
1.6%
6%
£0.46
SAYE
£2.12
£1.88
44%
n/a
n/a
4.3
4.1%
7%
£0.54
CSOSP
£2.34
£2.34
50%
26%-121%
32%
3
2.0%
6%
£0.55
CSOSP
£1.91
£1.91
44%
24%-84%
34%
3
2.0%
7%
£0.37
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.
35 Retirement benefi t schemes
Pension schemes for the employees of the Thomas Cook Group consist of defi ned contribution plans and defi ned benefi t plans, with the defi ned
benefi t plans being both funded and unfunded. The obligations arising from defi ned contribution plans are satisfi ed by contribution payments
to both private and state-run insurance providers.
Unfunded defi ned benefi t pension obligations
Unfunded defi ned benefi t pension obligations primarily relate to the Group’s employees in the German businesses of Thomas Cook AG and the
Condor Group. Provisions are established on the basis of commitments made to those employees for old-age and transitional pensions based
on the legal, tax and economic circumstances of the individual countries and on the period of employment and level of remuneration of the
respective employees.
Provisions for pensions and similar obligations totalling £205.6m (2009: £179.0m) were attributable to the pension commitments of the Condor
Group (Condor Flugdienst GmbH and Condor Berlin GmbH). For employees who joined a Condor Group company prior to 1995, the total pension
commitment of the pensions authority of the German federal government and regional states was adjusted and maintained in the form of a
company pension scheme.
The fl ight crews were additionally entitled to a transitional provision for the period between the termination of their in-fl ight employment and
the time they became eligible for a state-run or company pension. In both cases, the benefi t commitment depended on the fi nal salaries of the
employees concerned prior to the termination of their in-fl ight employment (fi nal salary plan). Employees who joined a Condor Group company
from 1995 onwards participate in a company pension scheme under which the pension entitlements are based on the average salaries of those
employees (average salary plan). The Condor Group also has retirement obligations arising from individual commitments and transitional
provisions. In accordance with IAS 19, all these commitments are classifi ed as unfunded defi ned benefi t obligations and classifi ed as such
in these fi nancial statements.
The Condor Group defi ned benefi t plans have been closed to new entrants (with the exception of pilots) since 2004.
There are additional unfunded defi ned benefi t obligations comprising individual commitments to executive staff at Thomas Cook Group
and obligations in respect of past service for employees in Sweden.
The unfunded pension schemes are accounted for as part of liabilities for retirement benefi t obligations in the balance sheet.
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Thomas Cook Group plc Annual Report & Accounts 2010 115
Financial Statements
Notes to the fi nancial statements continued
35 Retirement benefi t schemes continued
The following weighted average actuarial assumptions were made for the purpose of determining the unfunded defi ned benefi t obligations:
Discount rate for scheme liabilities
Expected rate of salary increases
Future pension increases
2010
%
4.70%
1.93%
1.69%
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 2010. These assume a life expectancy for members currently aged 60 of 22.9 years
for men and 27.4 years for women.
Amounts recognised in the income statement in respect of these defi ned benefi t schemes are as follows:
Current service cost
Curtailment gain
Interest cost on scheme liabilities
Total included in income statement
2010
£m
8.1
(2.0)
11.4
17.5
2009
£m
7.1
(0.9)
11.2
17.4
Service costs and curtailment gains have been included in personnel expenses in the income statement and the unwinding of the discount
rate of the expected retirement benefi t obligations has been included in fi nance costs. Actuarial gains and losses have been reported in the
statement of comprehensive income/(expense).
Changes in the present value of unfunded pension obligations were as follows:
At beginning of year
Current service cost
Interest cost
Benefi ts paid
Settlements
Curtailments
Actuarial losses
Transfers
Exchange difference
At end of year
2010
£m
208.9
8.1
11.4
(6.2)
(7.2)
(2.0)
36.5
–
(10.4)
239.1
2009
£m
163.8
7.1
11.2
(5.1)
(5.2)
(0.9)
13.0
0.3
24.7
208.9
Funded defi ned benefi t pension obligations
The pension entitlements of employees of Thomas Cook UK and employees in Norway are provided through funded defi ned benefi t schemes,
where pension contributions are paid over to the schemes and the assets of the schemes are held separately from those of the Group in funds
under the control of trustees. Pension costs are assessed in accordance with the advice of qualifi ed actuaries in each country. The fair value
of the pension assets in each scheme at the year end is compared with the present value of the retirement benefi t obligations and the net
difference reported as a pension asset or retirement benefi t obligation as appropriate. Pension assets are only recognised to the extent that
they will result in reimbursements being made or future payments being reduced.
Funded defi ned benefi t pension obligations have been determined on the basis of assumptions relevant to each country. The weighted averages
of these were:
Discount rate for scheme liabilities
Infl ation rate
Expected return on scheme assets
Expected rate of salary increases
Future pension increases
2010
%
4.97%
3.20%
6.07%
4.68%
3.20%
2009
%
5.49%
3.48%
6.53%
4.72%
3.48%
The Thomas Cook UK Pension Plan accounts for approximately 97% (2009: 98%) of the total funded defi ned benefi t obligations. The mortality
assumptions used in arriving at the present value of those obligations at 30 September 2010 are based on PXA92 (year of birth) tables with
medium cohort improvements and a minimum future longevity improvement per year of 1%, adjusted for recent mortality experience. The
mortality assumptions adopted for the plan liabilities indicate a further life expectancy for members currently aged 60 of 27.5 years for men
and 28.8 years for women.
The Thomas Cook UK Pension Plan has been closed to new entrants since April 2003. Employees who have joined since that date participate in
a new defi ned contribution scheme.
116 Thomas Cook Group plc Annual Report & Accounts 2010
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Amounts recognised in the income statement in respect of these defi ned benefi t 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 the income statement
2010
£m
16.2
–
–
(37.9)
43.4
21.7
2009
£m
14.1
(0.4)
(2.0)
(38.4)
38.9
12.2
Service costs, gains on settlement and curtailment gains have been included in personnel expenses in the income statement and the unwinding
of the discount rate of the expected retirement benefi t obligations has been included in fi nance costs. The expected return on scheme assets has
been included in fi nance income.
The actual return on scheme assets was £66.2m (2009: £24.8m).
Actuarial gains and losses have been reported in the statement of comprehensive income.
Changes in the present value of funded defi ned benefi t obligations were as follows:
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At beginning of year
Current service cost
Settlements
Interest cost
Benefi ts paid
Transfers
Curtailments
Expenses paid
Contributions paid by plan participants
Actuarial losses
Exchange difference
At end of year
Changes in the fair value of scheme assets were as follows:
At beginning of year
Expected return on scheme assets
Contributions from the sponsoring companies
Contributions paid by plan participants
Actuarial gains/(losses)
Benefi ts paid
Transfers
Settlements
Expenses paid
Exchange difference
At end of year
2010
£m
784.1
16.2
–
43.4
(18.7)
2.4
–
(1.5)
3.4
49.9
(0.4)
878.8
2010
£m
621.9
37.9
31.3
3.4
28.2
(18.7)
1.4
–
(1.5)
(0.5)
703.4
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
Following the 2008 actuarial valuation of the Thomas Cook UK pension plan, a 6 year Recovery Plan was agreed with the pension trustees to
fund the actuarial defi cit. In line with that agreement, Thomas Cook UK made payments totalling £16.0m during the year ended 30 September
2010 (2009: £17.4m), and will make quarterly payments during the 3 years thereafter totalling £68.5m, with the last payment from the Company
being made in June 2014. The Group is expected to make aggregate contributions to its funded defi ned benefi t schemes of £40.2m during the
year commencing 1 October 2010.
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Thomas Cook Group plc Annual Report & Accounts 2010 117
Financial Statements
Notes to the fi nancial statements continued
35 Retirement benefi t schemes continued
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 year
2010
Long-term
rate of return
%
7.5
5.9
4.2
7.5
6.7
2009
Long-term
rate of return
%
7.6
6.1
4.3
7.6
7.3
2010
£m
287.6
65.1
202.1
93.4
55.2
703.4
2009
£m
277.9
62.5
182.4
49.5
49.6
621.9
The scheme assets do not include any of the Group’s own fi nancial instruments, nor any property occupied by, or other assets used by, the Group.
The expected rates of return on scheme assets have been calculated as the weighted average rate of return on each asset class. The return on
each asset class is taken as the market rate of return.
The amount included in the balance sheet arising from the Group’s obligations in respect of its defi ned benefi t pension schemes is as follows:
Present value of funded defi ned benefi t obligations
Fair value of scheme assets
Defi cit on funded retirement benefi t obligations
Present value of unfunded defi ned benefi t obligations
Scheme defi cits recognised in the balance sheet
This amount is presented as follows:
Current liabilities
Non-current liabilities
2010
£m
878.8
(703.4)
175.4
239.1
414.5
6.7
407.8
414.5
2009
£m
784.1
(621.9)
162.2
208.9
371.1
4.8
366.3
371.1
The cumulative net actuarial losses recognised in the statement of comprehensive income at 30 September 2010 were £363.9m (2009: £305.7m).
The history of the experience gains and losses of the schemes is as follows:
Present value of defi ned benefi t obligations
Fair value of scheme assets
Scheme defi cits
Experience adjustments on scheme liabilities
Experience adjustments on scheme assets
2010
£m
1,117.9
(703.4)
414.5
(10.1)
27.6
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
Defi ned contribution schemes
There are a number of defi ned 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 defi ned contribution schemes, including liabilities
in respect of insured benefi ts relating to workers’ compensation arrangements, amounted to £20.3m (2009: £20.1m).
The assets of these schemes are held separately from those of the Group in funds under the control of trustees.
36 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 associates and joint venture undertakings are disclosed below. Transactions between the
Company and its subsidiaries and associates are disclosed in the Company’s separate fi nancial statements.
Following the full disposal of its 52.8% shareholding in Thomas Cook Group plc in the prior year, the Group no longer regards Arcandor to be a
related party. There are no material transactions or balances with Arcandor for the year ended 30 September 2010.
118 Thomas Cook Group plc Annual Report & Accounts 2010
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Trading transactions
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
Sale of goods and services
Purchases of goods and services
Interest receivable
Other income
Management fees and other expenses
Amounts owed by related parties
Provisions against amounts owed
Amounts owed to related parties
Associates, joint venture
and participations*
2010
£m
31.6
(35.0)
–
0.6
(1.3)
18.1**
(4.2)
(7.0)
2009
£m
12.8
(35.4)
0.2
7.7
(1.3)
20.7
(4.4)
(5.6)
* Participations are equity investments where the Group has a signifi cant equity participation but which are not considered to be associates or joint ventures.
** Amounts owed by related parties include £11.1m (2009: £9.9m) which for statutory purposes is reported as part of the associate investment.
All transactions are considered to have been made at market prices. Outstanding amounts will normally be settled by cash payment.
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Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories
specifi ed in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part
of the Remuneration report on pages 66 to 69.
Short-term employee benefi ts
Post-employment benefi ts
Share-based payments
2010
£m
5.0
–
0.2
5.2
2009
£m
5.6
0.2
2.2
8.0
37 Subsequent events
Öger Tours
On 1 October 2010, the acquisition of Öger Tours GmbH was concluded after receiving antitrust clearance from the European Commission. Öger Tours
specialises in the sale of package holidays to Turkey from Germany and was acquired for approximately €20m, consisting of cash consideration and
liabilities assumed. As the acquisition was concluded recently it is not practical to provide a breakdown of net assets to be acquired.
The Co-operative Travel
On 8 October 2010, the Group announced that it will merge its UK high street travel agency and foreign exchange business with that of The
Co-operative Group. On 29 October 2010, the Group signed an agreement under which Midlands Co-operative Society will also contribute its
travel agency business. The Group will hold 66.5% of the new company, The Co-operative Group will hold 30% and Midlands Co-operative
Society will hold 3.5%. Both transactions are subject to anti-trust clearance and certain other conditions. Given that the transactions have not
yet completed, it is not practical to provide a breakdown of the net assets to be acquired.
Joint venture in Russia
On 25 November 2010, Thomas Cook announced that it had reached agreement to form a joint venture with VAO Intourist, one of Russia’s most
renowned travel companies. Thomas Cook will initially acquire a 50.1% stake in the new joint venture company for a maximum consideration
of US$45m (subject to an adjustment for net debt and working capital). The initial consideration will be satisfi ed by a cash payment of US$10m,
and by the issue of US$35m of Thomas Cook shares. The joint venture will include Intourist’s outbound, domestic and inbound tour operating
operations as well as its travel retail network. The joint venture provides Thomas Cook with an entry into the fast-growing Russian market which
has strong demand for beach and family holidays, particularly to Turkey and Egypt. The joint venture is conditional upon anti-trust clearance in
Russia and certain other conditions and is expected to complete in, or before, February 2011. Given the timing of the completion of this deal, it
is not practical to provide a breakdown of the net assets to be acquired.
Aircraft fl eet replacement
Thomas Cook Group operates a fl eet of 93 aircraft with an average age of 12 years. The Group has identifi ed signifi cant operational savings,
particularly from maintenance and improved fuel effi ciency, that can be achieved by renewing and harmonising its 71 narrow body aircraft
into a common fl eet. Following a comprehensive review, the Group has selected the Airbus 320 family of aircraft. Accordingly, the Group will
begin a fi ve year narrow body aircraft replacement programme, starting in December 2012 and phased in line with the planned retirement of
the existing fl eet. The replacement programme will deliver optimum fl exibility by sourcing new narrow body aircraft through a combination
of fi rm and fl exible orders direct with the manufacturer and through accessing the aircraft leasing market. A review of the wide body fl eet
replacement requirements will be undertaken during the 2010/11 fi nancial year.
As part of the replacement programme, the Group has reached a memorandum of understanding with Airbus for 12 new Airbus 321 aircraft
scheduled to be delivered in 2014, with a list price of $96 million each, together with options to purchase further aircraft from 2015. These
aircraft are subject to substantial price concessions from the list price. The Group will remain a heavy user of operating leases and it is
anticipated that directly purchased aircraft will be fi nanced through sale and leaseback agreements with third-party lessors.
Thomas Cook Group plc Annual Report & Accounts 2010 119
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Financial Statements
Company balance sheet
At 30 September 2010
Non-current assets
Property, plant and equipment
Investments in subsidiaries
Deferred tax assets
Trade and other receivables
Current assets
Trade and other receivables
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Borrowings
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 fi nancial statements were approved by the Board of Directors on 30 November 2010.
Signed on behalf of the Board
Paul Hollingworth
Group Chief Financial Offi cer
Notes 1 to 17 form part of these fi nancial statements.
notes
5
6
11
7
7
8
9
12
30 September
2010
£m
30 September
2009
£m
1.4
4,073.3
1.6
4.6
4,080.9
859.4
859.4
4,940.3
1.0
4,293.5
1.1
–
4,295.6
575.5
575.5
4,871.1
(110.1)
(284.3)
(635.1)
(745.2)
4,195.1
57.7
8.9
3,051.3
8.5
882.8
199.2
(13.3)
4,195.1
–
(284.3)
4,586.8
57.7
8.9
3,051.3
8.5
1,126.3
347.2
(13.1)
4,586.8
120 Thomas Cook Group plc Annual Report & Accounts 2010
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Company cash fl ow statement
For the year ended 30 September 2010
Cash fl ows from operating activities
(Loss)/profi t before tax
Dividend received
Finance income
Finance expense
Depreciation of property, plant and equipment
Share-based payments
Decrease in receivables
(Decrease)/increase in payables
Net cash from/(used in) operating activities
Investing activities
Dividends received
Purchase of intangible assets
Net cash (used in)/from investing activities
Financing activities
Issue of bonds
Funding advanced to subsidiaries
Purchase of own shares
Net cash used in fi nancing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
Liquid assets
Cash and cash equivalents at end of year
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Year ended
30 September
2010
£m
Year ended
30 September
2009
£m
(64.2)
–
(0.7)
24.9
0.1
2.7
59.0
(21.2)
0.6
–
(0.6)
(0.6)
638.4
(638.4)
–
–
–
–
–
–
–
–
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
–
–
–
–
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Thomas Cook Group plc Annual Report & Accounts 2010 121
Financial Statements
Company statement of changes in equity
For the year ended 30 September 2010
At 1 October 2008
Profi t for the year
Other comprehensive income
Total comprehensive income for the year
Equity credit in respect of share-based
payments
Share buyback
Purchase of own shares
Dividends paid
At 30 September 2009
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Equity credit in respect of share-based
payments
Purchase of own shares
Dividends paid
At 30 September 2010
Share
capital
£m
59.8
–
–
–
(2.1)
–
–
57.7
–
–
–
–
–
–
57.7
Share
premium
£m
8.9
–
–
Merger
reserve
£m
3,051.3
–
–
Capital
redemption
reserve
£m
6.4
–
–
–
–
–
–
8.9
–
–
–
–
–
–
8.9
–
–
–
–
3,051.3
–
–
–
–
–
–
3,051.3
–
2.1
–
–
8.5
–
–
–
–
–
–
8.5
Translation
reserve
£m
564.8
–
561.5
561.5
–
–
–
–
1,126.3
–
(243.5)
(243.5)
–
–
–
882.8
Retained
earnings
£m
42.4
410.3
–
410.3
8.3
(26.4)
–
(87.4)
347.2
(63.7)
(0.7)
(64.4)
8.1
–
(91.7)
199.2
Own
shares
£m
(13.0)
–
–
–
–
–
(0.1)
–
(13.1)
–
–
–
Total
£m
3,720.6
410.3
561.5
971.8
8.3
(26.4)
(0.1)
(87.4)
4,586.8
(63.7)
(244.2)
(307.9)
–
(0.2)
–
(13.3)
8.1
(0.2)
(91.7)
4,195.1
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 arose in connection with the issue of ordinary shares of the Company following the exercise of MyTravel executive
share options.
At 30 September 2010, the Company had distributable reserves of £199.2m (2009: £347.2m).
Details of the own shares held are set out in note 28 to the Group fi nancial statements.
122 Thomas Cook Group plc Annual Report & Accounts 2010
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Notes to the Company fi nancial statements
1 Accounting policies
The accounting policies applied in the preparation of these Company fi nancial statements are the same as those set out in note 2 to the
Group fi nancial 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 Loss for the year
As permitted by section 408(3) of the Companies Act 2006, the Company has elected not to present its own income statement for the year.
The loss after tax of the Company amounted to £63.7m (2009: £410.3m profi t after tax).
The auditors’ remuneration for audit services to the Company was £0.2m (2009: £0.2m).
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3 Personnel expenses
Wages and salaries
Social security costs
Share-based payments – equity settled
Average number of employees of the Company during the year
Employees are based in the United Kingdom and Germany.
2010
£m
21.5
2.5
2.7
26.7
2010
Number
95
2009
£m
20.1
2.0
2.9
25.0
2009
Number
98
Disclosures of individual Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension entitlements
required by the Companies Act 2006 and specifi ed for audit by the Financial Services Authority are on pages 66 to 69 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 35 of the Group fi nancial statements.
4 Dividends
The details of the Company’s dividend are disclosed in note 10 to the Group fi nancial statements.
5 Property, plant and equipment
Other fi xed assets
Cost
At 1 October 2008
Additions
At 30 September 2009
Additions
Exchange differences
At 30 September 2010
Accumulated depreciation and impairment
At 1 October 2008
Charge for the year
At 30 September 2009
Charge for the year
At 30 September 2010
Carrying amount at 30 September 2010
Carrying amount at 30 September 2009
£m
–
1.1
1.1
0.6
(0.1)
1.6
–
0.1
0.1
0.1
0.2
1.4
1.0
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Thomas Cook Group plc Annual Report & Accounts 2010 123
Financial Statements
Notes to the Company fi nancial statements continued
6
Investments in subsidiaries
Cost and net book value
At 1 October 2008
Additions
Exchange difference
At 30 September 2009
Additions
Exchange difference
At 30 September 2010
A list of the Company’s principal subsidiary undertakings is shown in note 17 to the fi nancial statements.
The additions in the current year relate to share-based payment charges related to subsidiaries’ employees.
7 Trade and other receivables
Current
Amounts owed by subsidiary undertakings
Other receivables
Deposits and prepayments
Non-current
Deposits and prepayments
2010
£m
858.1
0.9
0.4
859.4
4.6
4.6
Amounts owed by subsidiary undertakings are repayable on demand. The average interest on overdue amounts owed by subsidiary
undertakings is 0.6% (2009:1.8%). The Directors consider the fair value to be equal to the book value.
Refer to note 9 for an explanation of the year on year movement in amounts owed by subsidiary undertakings.
8 Trade and other payables
Amounts owed to subsidiary undertakings
Social security and other taxes
Other payables
Accruals
2010
£m
40.9
4.7
52.4
12.1
110.1
£m
3,730.8
5.1
557.6
4,293.5
8.9
(229.1)
4,073.3
2009
£m
573.8
1.4
0.3
575.5
–
–
2009
£m
268.4
1.9
–
14.0
284.3
The average interest on overdue amounts owed to subsidiary undertakings is 0% (2009: 1.1%).
Amounts owing to subsidiary undertakings are repayable on demand. The Directors consider the fair value to be equal to the book value.
Refer to note 9 for an explanation of the year on year movement in amounts owed to subsidiary undertakings.
9 Borrowings
During the year, the Company issued a Euro denominated bond and a Sterling denominated bond. Refer to note 20 of the Group fi nancial
statements for further information.
Most of the bond proceeds were passed on to subsidiary undertakings, as a result the amounts owed by and owed to subsidiary undertakings
have increased and decreased respectively during the current year.
124 Thomas Cook Group plc Annual Report & Accounts 2010
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10 Financial risk
The Company’s fi nancial 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 fi nancial risks is discussed on pages 24 to 25. The Company believes the value
of its fi nancial assets to be fully recoverable.
The carrying value of the Company’s fi nancial instruments is exposed to movements in foreign currency exchange rates (primarily Sterling).
The Company estimates that a 5% strengthening in Sterling would increase loss before tax by £14.9m (2009: increase profi t before tax by £1.1m),
while a 5% weakening in Sterling would decrease loss before tax by £14.9m (2009: decrease profi t before tax by £1.1m).
The carrying value of the Company’s fi nancial instruments is exposed to movements in interest rates. The Company estimates that a 0.5%
increase in interest rates would decrease loss before tax by £1.7m (2009: 1% increase in interest rates decrease profi t before tax by £2.0m), while
a 0.5% decrease in interest rates would increase loss before tax by £1.7m (2009: 1% decrease in interest rates increase profi t before tax by £2.0m).
The maturity of contracted cash fl ows on the Company’s fi nancial liabilities is as follows:
At 30 September 2010
Trade and other payables
Borrowings
At 30 September 2009
Trade and other payables
Less than
1 year
£m
110.1
–
110.1
Between
1 and 5 years
£m
–
(455.3)
(455.3)
In more
than 5 years
£m
–
(454.7)
(454.7)
Less than
1 year
£m
(285.7)
Between
1 and 5 years
£m
–
In more
than 5 years
£m
–
Total
£m
110.1
(910.0)
(799.9)
Total
£m
(285.7)
All cash fl ow projections shown above are on an undiscounted basis. Any cash fl ows based on a fl oating rate are calculated using interest rates
as set at the date of the last rate reset.
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11 Deferred tax assets
At 1 October 2008
Credit to income statement
At 30 September 2009
Credit to income statement
At 30 September 2010
2010
£m
–
1.1
1.1
0.5
1.6
The deferred tax asset relates to a share-based payments temporary difference.
At the balance sheet date, the Company had unused tax losses of £28.7m (2009: nil) and other deductible short-term timing differences of
£6.5m (2009: £4.1m) available for offset against future profi ts. No deferred tax asset has been recognised in respect of unused tax losses of
£28.7m (2009: nil) and other deductible short-term timing differences of £0.5m (2009: nil).
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 28 to the Group fi nancial statements
in this report.
13 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 fi ve years
After fi ve years
2010
£m
0.6
2.4
1.9
4.9
2009
£m
0.6
2.4
2.5
5.5
Thomas Cook Group plc Annual Report & Accounts 2010 125
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Financial Statements
Notes to the Company fi nancial statements continued
14 Contingent liabilities
At 30 September 2010, 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 £464.8m (2009: £1,162.1m). This predominantly relates to a guarantee on
the drawndown portion of the Group banking facility (detailed in note 20 of the Group fi nancial statements).
Also included are guarantees related to aircraft fi nance lease commitments, estimated based on the current book value of the fi nance
lease liabilities £79.6m (2009: £96.8m).
The contingent liabilities have decreased since the prior year predominantly due to the bonds issued by the Company during the year.
The bonds have replaced borrowings previously held elsewhere in the Group, which in the prior year had been guaranteed by the Company
and included with contingent liabilities.
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.
15 Related party transactions
Subsidiaries
The Company transacts and has outstanding balances with its subsidiaries. The Company enters into loans with its subsidiaries at both fi xed and
fl oating 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 prior 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
2010
£m
0.7
(3.7)
8.1
–
824.9
0.1
33.1
–
–
(40.9)
2009
£m
1.6
(6.1)
10.8
435.5
549.7
0.3
23.8
(241.2)
(0.2)
(27.0)
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Company, is set out in note 36 of the Group fi nancial statements.
16 Share-based payments
The employees of the Company, include the Directors, collectively participate in all of the Group’s equity-settled share-based payment schemes.
The details relating to these schemes in respect of the Company are identical to those disclosed in note 34 to the Group fi nancial statements and
have therefore not been re-presented here.
The share-based payment charge of £2.7m (2009: £2.9m) is stated net of amounts recharged to subsidiary undertakings.
126 Thomas Cook Group plc Annual Report & Accounts 2010
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17 Principal subsidiaries, associates and joint ventures undertakings
Direct subsidiaries
Thomas Cook Investments (2) Limited
Thomas Cook AG
Indirect subsidiaries
UK
Airline Network plc
Airtours Holidays Transport Limited
Capitol Holdings Limited
Elegant Resorts Limited
Gold Medal International Limited
Gold Medal Travel Group plc
Hotels4U.com Limited
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.
Think W3 Limited
Thomas Cook (India) Limited
Thomas Cook Aircraft Engineering Limited
Thomas Cook Airlines Limited
Thomas Cook Broking Limited
Thomas Cook Overseas Limited
Thomas Cook Retail Limited
Thomas Cook Scheduled Tour Operations Limited
Thomas Cook Services Limited
Thomas Cook Tour Operations Limited
Thomas Cook TV Limited
Thomas Cook USA Travel Services Limited
Thomas Cook Wholesale Limited
thomascook.com Limited
White Horse Administration Services Ltd
White Horse Insurance Ireland Limited
Central Europe
Bucher Reisen GmbH
Gesellschaft fur Reise-Vetriebssysteme mbH
Hoteles y Clubs de Vacaciones S.A.
Neckermann Urlaubswelt GmbH & Co. KG
TC Touristik GmbH
Thomas Cook Austria AG
Thomas Cook Destinations GmbH
Thomas Cook Service AG
Thomas Cook Vertriebs GmbH
Urlaubshop GmbH
Viajes Iberoservice España, S.L.
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Country of
incorporation
and operation
England
Germany
Proportion
held by
Company (%)
Proportion
held by
Group (%)
100
100
100
100
England
England
Ireland
England
England
England
England
Cayman Islands
England
Turkey
England
Greece
Greece
Croatia
Spain
England
India
England
England
England
England
England
England
England
England
England
England
England
England
Ireland
Ireland
Country of
incorporation
and operation
Germany
Germany
Spain
Germany
Germany
Austria
Germany
Switzerland
Germany
Germany
Spain
96.6
100
100
100
96.6
96.6
100
100
100
100
100
100
95
100
100
100
77.63
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Proportion
held by
Company (%)
Proportion
held by
Group (%)
100
100
51
100
50.0023
100
100
100
100
100
65
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Thomas Cook Group plc Annual Report & Accounts 2010 127
Financial Statements
Notes to the Company fi nancial statements continued
17 Principal subsidiaries, associates and joint ventures undertakings continued
Country of
incorporation
and operation
Proportion
held by
Company (%)
Proportion
held by
Group (%)
Indirect subsidiaries
West & East Europe
Neckermann Polska BP Sp. z.o.o.
Neckermann Slovakia s.r.o.
NUR Neckermann Utazas Szolgas Szolgaltato Kft
Thomas Cook Airlines Belgium NV
Thomas Cook Belgium NV
Thomas Cook Nederland BV
Thomas Cook Reisburo Groep B.V.
Thomas Cook Retail Belgium NV
Thomas Cook SAS
Thomas Cook s.r.o.
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.
Airlines Germany
Condor Berlin GmbH*
Condor Flugdienst GmbH*
Condor Technik GmbH*
Poland
Slovakia
Hungary
Belgium
Belgium
Netherlands
Netherlands
Belgium
France
Czech Republic
Spain
Denmark
Finland
Sweden
Denmark
Sweden
Norway
Sweden
Canada
USA
Germany
Germany
Germany
100
60
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
50.0023
50.0023
50.0023
* All risks and rewards continue to be held by the Group and, in accordance with accounting standards, the entity has been treated as being 100% controlled and fully consolidated
by the Group.
128 Thomas Cook Group plc Annual Report & Accounts 2010
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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
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.L.
Oasis Company SAE
Joint venture
Thomas Cook Personal Finance Limited
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Country of
incorporation
and operation
Proportion
held by
Company (%)
Proportion
held by
Group (%)
Germany
Jersey
Guernsey
England
Germany
England
Guernsey
England
England
England
England
England
England
Jersey
England
Spain
Spain
Spain
Spain
Egypt
England
100
100
100
100
100
100
100
100
100
100
100
100
100
96.6
100
40
25
40
25
25.1
50
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Thomas Cook Group plc Annual Report & Accounts 2010 129
Financial Statements
Appendix 1 – Key performance indicators defi nitions
Revenue for the Group and segmental analysis represents
external revenue only, except in the case of the Airlines
Germany segmental key performance analysis where revenue
of £287.8m (2009 £320.4m) largely to the Central Europe
division has been included.
## Brochure mix is defi ned 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 defi ned 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 defi ned 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.
Underlying profi t from operations is defi ned as earnings
before interest and tax, and has been adjusted to exclude all
separately disclosed items. It also excludes our share of the
results of associates and joint ventures. Adjusted underlying
profi t from operations is stated before the margin impact of
the volcanic ash cloud (VAC).
*** Underlying operating profi t margin is the profi t from operations
(as defi ned above) divided by the external revenue, except in
the case of the Airlines Germany segmental key performance
analysis where total revenue has been used as the denominator
to more accurately refl ect the trading performance.
†
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 Central and West & East
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 fi nancial commitment to the product (fl ights
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 fl own.
††† For UK, Northern Europe and North America, load factor is
a measure of how successful the tour operator was at selling
the committed 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
defi nition above) and is the recognised IATA defi nition of load
factor used for airlines. RPK is a measure of the volume of
passengers carried by an airline. One RPK is fl own when
a passenger is carried one kilometre.
#
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 Central
and West & East Europe, average selling price represents the
average selling price (after discounts) achieved per passenger
departed in the period.
130 Thomas Cook Group plc Annual Report & Accounts 2010
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Shareholder information
KEY DATES
Last date for AGM proxy votes to be received
by the Registrar
AGM
Ex-dividend date for 2009/10 fi nal dividend
Final dividend record date
Final dividend payment date
9 February 2011
11 February 2011
16 March 2011
18 March 2011
7 April 2011
Ex-dividend date for 2010/11 interim dividend
7 September 2011
Interim dividend record date
Year end
Interim dividend payment date
9 September 2011
30 September 2011
7 October 2011
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 benefi ts are:
• funds are placed directly into the shareholder’s account on the
payment date, so there is no waiting for the cheque to clear;
• it saves time, as there is no need to pay in each dividend cheque; and
• 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
8 October 2010, to all ordinary shareholders on the register at 5.00pm
on 10 September 2010. The Directors recommend the payment of a
fi nal dividend of 7.0 pence per share, to be paid on 7 April 2011 to
all shareholders on the register at 5.00pm on 18 March 2011.
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)
* Calls to this number cost 8p per minute from a BT landline, other providers’ costs
may vary. Lines are open 8.30am to 5.30pm, Monday to Friday.
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.
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 shareholder reference numbers and request
that they be combined into one account.
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:
• receive notifi cation by email when shareholder documentation is
available on the website; or
• continue to receive shareholder documentation in hard copy.
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.
Shareholders should quote the Company reference number 3174 and
their shareholder reference number (which can be found on their share
certifi cate and dividend documentation), when contacting the Registrar.
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 certifi cate. By registering for this
service shareholders will:
• help reduce paper, print and postage costs;
• help the environment; and
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, 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 benefi t from this service, shareholders should call the
telephone number detailed below:
• be able to manage their shareholding quickly and securely online.
Shareholder booking line: 0844 800 7003
Opening times: 9:00am to 5:30pm Monday – Saturday
Thomas Cook Group plc Annual Report & Accounts 2010 131
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04/01/2011 11:16
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
(international telephone number: +44 (0)121 415 7560) 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 certifi cate(s).
ANALYSIS OF SHAREHOLDERS AS AT 30 SEPTEMBER 2010
Distribution of shares by the type of shareholder
Number
of holdings
Number
of shares
Nominees and institutional investors
1,287
853,789,801
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
15,344
4,503,146
16,631
858,292,947
Number
of holdings
11,034
3,413
722
718
310
220
85
Number
of shares
347,061
787,187
534,731
2,387,419
11,873,255
52,138,567
61,014,984
129
729,209,743
16,631
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
* Calls to this number cost 8p per minute from a BT landline, other providers’ costs may
vary. Lines are open 8.30am to 5.30pm, Monday to Friday.
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 certifi cate
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 “fl ight-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 benefi ts, 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 confi rmation 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 certifi cates are no longer valid and can
be destroyed. Replacement Thomas Cook Group plc share certifi cates
were sent to shareholders, who held shares in certifi cated form, on
or around 19 June 2007. If a replacement certifi cate(s) has not been
received, please contact the Registrar.
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
US or UK shareholders, offering to sell them what often turns out
to be worthless or high risk shares. These operations are commonly
known as ‘boiler rooms’ and the ‘brokers’ can be very persistent
and extremely persuasive. If shareholders receive any 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/ and the matter can be reported to the FSA
by visiting www.moneymadeclear.fsa.gov.uk 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),
which specialises in using such holdings for charitable benefi t.
Find out more about ShareGift at www.sharegift.org or by telephoning
+44 (0)20 7930 3737.
132 Thomas Cook Group plc Annual Report & Accounts 2010
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VISIT US AT:
www.thomascookgroup.com
At a glance
04 Our Group overview
An overview of the Group including
what we do and our business
segments.
06 Our Group Chief
Executive Offi cer reviews
the year
Manny Fontenla-Novoa discusses
our progress during the year.
10 Our market place
Details on the travel market place
and future trends.
12 Our strategy
A review of our Group strategy and
progress against it.
15 Our strategy in action
http://www.thomascookgroup.com
The Thomas Cook Group website provides news and
details of the Group’s activities, plus links to our
customer sites and up-to-date information, including:
• corporate news
• presentations
• share price data
• historic Annual & Sustainability Reports
• half-year results and interim management statements
• news alerts
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Thomas Cook Group plc
6th Floor South
Brettenham House
Lancaster Place
London WC2E 7EN
www.thomascookgroup.com
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Design and production:
Black Sun Plc (London)
+44 (0) 20 7736 0011
Photos: Thomas Cook
Printed by St Ives Westerham Press on
Tauro Offset and Hello Silk manufactured
by paper mills certifi ed to the ISO14001
environmental standard using pulps
bleached without the use of chlorine.
Thomas Cook Group plc Annual Report & Accounts 2010
OUR WORLD OF
OPPORTUNITY
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