ANNUAL REPORT & ACCOUNTS 2015
CUSTOMER AT OUR HEART
CONTINUING THE
TR ANSFORMATION
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
1
CONTINUING THE
TRANSFORMATION
Thomas Cook is the oldest and best loved name in travel.
With sales of £7.8 billion and 20 million customers each year,
the very essence of our business is to deliver inspiring
personal journeys that make our customers
return year-on-year.
Our customers’ experience must be placed at the heart
of our transformation, and our business model and strategy
are focused on doing just that…
Read more about
booking on page 8
Read more about
departure on page 34
Read more about
in-destination on page 46
Read more about
returning home on page 54
Overview
Our brand architecture
Our resources
Financial highlights
Chairman’s statement
Strategic report
Governance
4
5
5
10
Chief Executive’s review
Our business model
Market overview
Our strategic objectives
Financial review
Risk management
People
Corporate social responsibility
& sustainability
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19
25
28
36
56
60
62
Chairman’s governance statement
Board of Directors
Corporate governance report
Annual statement by Chair of
Remuneration Committee
Directors’ remuneration policy
Annual report on
Directors’ remuneration
Other disclosures
68
70
73
88
90
96
105
Financial statements
Independent auditors’ report
Group income statement
Group statement of other
comprehensive income
Group cash flow statement
Group balance sheet
Group statement
of changes in equity
Notes to the financial statements
Company balance sheet
Company cash flow statement
Company statement
of changes in equity
Notes to the Company
financial statements
Five year record
Shareholder information
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116
117
118
119
121
122
169
170
171
172
180
182
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THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
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overview
CUSTOMER AT OUR HE ART
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OVERVIE W
OUR BR AND ARCHITECTURE
CORPOR ATE BR AND
ALIGNED REGIONAL HEROES
ENDORSED BR ANDS
INDIVIDUAL BR ANDS
City Escapes
OUR HOTEL BR ANDS
More details on our hotel brands can be found on page 47
Read more about brand strength on page 23
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
5
OUR RESOURCES
Retail outlets
3,110
Aircraft
91
Employees
21,813
Departed customers
20.0m
Revenue by Segment* £m
Underlying EBIT by Segment** £m
FINANCIAL HIGHLIGHTS
£2,457m
UK and Ireland
£3,449m
Continental Europe
£1,057m
Northern Europe
£1,257m
Airlines Germany
£119m
UK and Ireland
£71m
Continental Europe
£96m
Northern Europe
£56m
Airlines Germany
* Includes £386 million of internal revenue.
** Includes corporate costs of £32 million.
The term “underlying” refers to trading results that are adjusted for separately disclosed items that are significant in understanding the ongoing results of the Group. Separately disclosed items are included
on the face of the income statement and are detailed in Note 7 to the Group financial statements.
Read more about our financials on page 36
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OVERVIE W
OUR BUSINESS BY REGION
WHERE WE OPERATE
Thomas Cook Group plc is one of the world’s leading leisure
travel groups with sales of £7.8 billion in the year ended
30 September 2015. Thomas Cook is supported by 21,813 employees
and operates from 15 source markets; it is number one or two
(by revenue) in all its core markets. Thomas Cook Group plc’s
shares are listed on the London Stock Exchange (TCG).
Employees by Segment
9,262
UK and Ireland
6,473
Continental Europe
3,089
Northern Europe
2,989
Airlines Germany
KEY FACTS:
Customers: 6,109k
Retail outlets: 830
Aircraft: 32
Employees
9,262†
UK AND IREL AND
CONTINENTAL EUROPE
Further expansion of new products together with successful
implementation of operational actions and continued cost-out,
delivered an underlying EBIT margin of 4.8% in FY15.
Competitive market conditions in Germany resulted in a reduction
of underlying EBIT to £71 million, £19 million lower than last year on a
like-for-like basis.
Revenue
Gross margin %
Underlying EBIT
Underlying EBIT %
† Includes 277 corporate employees.
2015
£2,457m
26.7%
£119m
4.8%
2014
£2,585m
26.1%
£89m
3.5%
2014 Like-for-like
£2,458m
26.6%
£84m
3.4%
Revenue
Gross margin %
Underlying EBIT
Underlying EBIT %
2015
£3,449m
13.5%
£71m
2.1%
2014
£3,958m
14.2%
£102m
2.6%
2014 Like-for-like
£3,554m
14.2%
£90m
2.5%
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
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NORTHERN EUROPE
AIRLINES GERMANY
CONTINENTAL EUROPE
KEY FACTS:
Customers: 1,698k
Retail outlets: 6
Aircraft: 11
Employees
3,089
KEY FACTS:
Customers: 7,713k*
Aircraft: 42
Employees
2,989
UK AND IREL AND
KEY FACTS:
Customers: 7,061k
Retail outlets: 2,274
Aircraft: 6
Employees
6,473
AIRLINES GERMANY
NORTHERN EUROPE
Strong profit performance in Airlines Germany due to increased long
haul flying programme as a result of strategic decision to increase
customer choice.
Revenue
Gross margin %
Underlying EBIT
Underlying EBIT %
* Includes 2,593 million in-house customers.
2015
£1,257m
28.4%
£56m
4.5%
2014
£1,299m
27.8%
£50m
3.8%
2014 Like-for-like
£1,145m
28.7%
£47m
4.1%
Despite a challenging operating environment, Northern Europe
reported an underlying EBIT result of £96 million, an improvement of
£18 million on last year on a like-for-like basis, demonstrating strong
differentiation of its product offering in its source markets.
Revenue
Gross margin %
Underlying EBIT
Underlying EBIT %
2015
£1,057m
27.9%
£96m
9.1%
2014
£1,153m
27.4%
£101m
8.7%
2014 Like-for-like
£998m
27.0%
£78m
7.8%
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Booking
Departure
In-destination
Returning home
BOOKING WITH THOMAS COOK
booking is fast, easy
and in a way that best
suits our customers.
Across our source markets, customers can book in a way that best suits them,
as our Customer Relationship Management (“CRM”) platform empowers us
with accurate and relevant information every time.
BOOKING IN UK AND GERMANY
60 to 80 %
w e l c o m e
of all bookings in
the UK and Germany
are made through
travel agencies,
where frequent retail
training helps to
constantly improve
our customers’
booking experience.
Read more about how we are transforming booking on page 22
BOOKING IN NORTHERN EUROPE
BOOK
HERE
76%
of bookings are made online – before
departure, customers can manage
their booking details, learn more about
their destination and book excursions
and additional services through
our customer mobile app and our
“myaccount” website.
CUSTOMER REL ATIONSHIP MANAGEMENT (CRM)
CRM enables us to react
and respond to customers’
ideas and feedback at
every stage of their journey.
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OVERVIE W
CHAIRMAN’S STATEMENT
FR ANK MEYSMAN
CHAIRMAN
»A customer-centric,
dynamic organisation
will be the backbone
of our future success.«
Underlying EPS
FY15
8.9p
SHAREHOLDER VALUE
Profit after tax
Profit after tax of £19 million, an increase of £134 million
(FY14: loss after tax £115 million)
£19m
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
11
Dear Shareholder
The year behind us was one of real progress for Thomas Cook.
Over the 12 months, we drove a number of very positive achievements
in the execution of our strategy, including the successful transition
of leadership of the Group to Peter Fankhauser, the launch of our
new operating model, and the strengthening of both our business
partnerships and our financial footing. However, at the same time
the year was shaped by external events, which affected a number
of important destinations for holidaymakers and the European travel
industry as a whole.
Taking into account these circumstances, I think it is fair to say that
the results we are presenting to you represent a positive step on
the transformation journey of our Company, but do not yet achieve
the standards we set for ourselves or expect that we are capable
of delivering.
As part of our plan to make our capital structure more efficient, we
signed a new £800 million financing facility in May, which provided
a revolving credit facility, and a bonding and guarantee facility,
maturing in May 2019. This replaced our £470 million facility, which
would have expired in May 2017. The success of the actions taken
over the last three years has led to improved financial performance
across the Group, which in turn has meant that the opportunities to
improve Thomas Cook’s liquidity and capital structure have increased.
This was demonstrated by the strong support we received in January
for a six-and-a-half-year, €400 million Eurobond to replace the
2015 bond.
our own-brand hotels, supporting the improvement and further
development of our differentiated hotel offering. Good progress is
already being made on the establishment of the investment vehicle,
recruitment of a fund management team and development of a solid
pipeline of potential acquisition opportunities.
These strategic achievements have made us more resilient as
a company and more able to absorb the impact of unusual or
unexpected activity in the market. The potential “Grexit” – the
possible exit of Greece from the Eurozone – is one example of such
unusual activity, as endless political debates, together with currency
fluctuations and a level of civil unrest, caused temporary uncertainty
amongst many Continental European customers. The unexpected
scale of the refugee crisis has also required close consideration
and action. The all-too-often tragic scenes broadcast worldwide of
families arriving on the beaches of some of the Greek islands and
Turkey, and the sheer number of refugees entering Western European
countries, have affected our customers’ choice of holiday destination
and impacted trading, particularly in Germany. Though events such
as these have a financial impact on the Company, we appreciate
that there will always be external factors that influence the market
and, therefore, our business. We are now in a position that we can
manage and work to mitigate the impact of such events; whilst doing
so, we have also ensured that we continue to listen to our customers.
To support our customers who are looking to contribute to the
relief effort providing aid to the refugees, our Group Airlines enabled
customers travelling to some of the impacted destinations to carry
an amount of additional luggage free of charge.
In March, we announced our partnership with the Chinese investment
group Fosun and their acquisition of 4.8% of the Company through
a subscription to new equity. We welcomed Fosun not only as
a new supportive shareholder, but more importantly as a key
business partner. Since our announcement, we have established a
joint venture in China to develop domestic, inbound and outbound
tourism activities for the Chinese market under Thomas Cook brands.
The joint venture will be based in the China (Shanghai) Pilot Free Trade
Zone. We have also agreed with Fosun to establish a hotel investment
vehicle to acquire hotel and resort properties in key destinations for
Thomas Cook holidaymakers. This should enable us to better utilise
The shocking terrorist attack in Tunisia created a very different
challenge for us and the industry as a whole. I am extremely proud
of the way we looked after our customers in the wake of this horrific
event, demonstrating our core value of keeping our customers at our
heart. We were able to react to the situation very quickly and we
successfully repatriated 15,000 of our customers from Tunisia to their
home countries within a matter of days. Our teams on the ground and
across the airlines, together with those in our contact centres and
retail stores, worked tirelessly to ensure that we took care of those
of our customers who wanted to come home, and rebooked holidays
for our customers who were still to travel.
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OVERVIE W
CHAIRMAN’S STATEMENT CONTINUED
» We are currently
undertaking a
programme of work
to ensure that our
entire organisation...
operates with a focus
on our customer«
The hard work of our Group Airlines’ teams has been recognised
across the industry and we are proud to have received five awards in
the last year, including “Most Popular Airline”, awarded to Condor by
the German Institute for Service and Quality resulting from a German
customer survey, and “Europe’s Leading Charter Airline Winner 2015”,
awarded to our UK Airline by the World Travel Awards and voted for by
UK charter airline customers. I would like to thank Christoph Debus,
our Chief Airlines and Hotels Officer, and his team for their significant
efforts and achievements this year.
We are currently undertaking a programme of work to ensure that
our entire organisation, whether in a customer-facing role or one of
our corporate offices, operates with a focus on our customer; our
decision making at all levels will always take account of the customer
perspective. As part of this programme of work, we appointed former
Sainsbury’s CEO Justin King to lead a review of all of our business
practices relating to our customers. His findings form part of our
strategy to further transform Thomas Cook into a truly customer-
focused and customer-centric business. Furthermore, to demonstrate
our ongoing commitment to the health, safety and welfare of our
customers when travelling on holiday, we have established a charity
promoting safer tourism, the Safer Tourism Foundation.
Our vision is to be the best-loved holiday company, delighting our
customers, our people and our shareholders. To achieve our vision
we need each and every one of our people to perform their role
to the best of their ability, putting our customers at the heart of
everything they do. We are realistic in our expectations that we
cannot control external factors, and, given the number of customers
who holiday with us every year, there will always be challenges to
contend with. However, by putting our customers at our heart, we
are acknowledging the duty of care we owe to each customer who
has chosen to travel on holiday with us, and we are demonstrating
the amount we value the trust placed in us, to provide our customers
with the best weeks of their year.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
13
One year ago I explained that with the appointment of Peter
Fankhauser as our new Group CEO we would be entering the next
phase of our transformation. Under Peter’s strong leadership, our
focus is now to implement and execute our strategy for profitable
growth. The Board members and I are extremely pleased with all that
Peter has achieved this year and we look forward to working with
him over the next year, as we continue on the transformation journey.
The introduction of our New Operating Model (“NUMO”), together
with a new three-year business plan, describe how we are going
to transform Thomas Cook further, for the benefit of our customers,
our people and our Shareholders. Peter has a highly experienced
committed Management Team in place and is evolving horizontal
leadership structures to ensure that across the Group the business
delivers the same goals, tracking against the same KPIs. I would
also like to thank Michael Healy and his team for their excellent
work and the critical role they have played in enabling this year’s
achievements. All of our people continue to work extremely hard and
demonstrate their commitment to our Company on a daily basis, even
when faced with setbacks and the frustration of our year-end results
not reflecting the extent of their work. The Board members and I
recognise this level of effort and we are extremely appreciative of it.
We have a strong and diverse Board in place with a good mixture
of different high-profile personalities, with the right motivation,
experience and skills. Carl Symon stepped down at the end of this
year and we thank him for his service to the Company and the
valuable contributions he made to the Board as Senior Independent
Director. We are in the process of recruiting a new Non-Executive
Director to add to our high-calibre team of Directors, as they support
the Company on its transformation journey, and help to handle and
overcome any future challenges. More detail of the changes made to
the Board over the last year are set out in my corporate governance
statement on page 68.
This year has shown that the Group is more resilient than ever
before and that we have a clear strategy for the future, which the
Management Team will continue to execute. We are committed to
delivering against our targets and to exceeding the expectations
of stakeholders. The implementation of our NUMO will allow us to
improve the experiences of our customers even further, with a
focus on the development of our own hotel and resorts product.
A customer-centric, dynamic organisation will be the backbone
of our future success and, as demonstrated by the results of our
group-wide employee engagement survey “Every Voice”, will be
delivered by an engaged workforce, who are proud to be a part
of the Thomas Cook Group.
I am particularly pleased that external as well as internal appreciation
of Thomas Cook has increased. Indeed at the end of the fiscal year, an
increased percentage of our customers have told us that they would
recommend Thomas Cook as a holiday company to their family and
friends. These internal and external views of our Company support
our positive progress. The Board is confident that the Management
Team, under Peter Fankhauser’s leadership, will complete this critical
next stage of Thomas Cook’s strategy successfully, and generate
profitable growth together with an increased loyal customer base.
We believe that customer focus and long-term profitability go
hand in hand and, in my fourth year as Chairman, I am extremely
pleased that we are now entering our 175th year, and we do so
as a profit-making company.
FR ANK MEYSMAN
CHAIRMAN
24 November 2015
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THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
15
strategic
report
TR ANSFORMING FOR GROW TH
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STR ATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW
PETER FANKHAUSER
CHIEF E XECUTIVE OFFICER
»Our transformation has
entered its next stage as
we develop Thomas Cook
into an organisation
that places customers
at its heart.«
FINANCIAL HIGHLIGHTS
Delivering improved financial results
Delivering a stronger balance sheet
Delivering more operational cash flow
Underlying EBIT
£310m
Net debt
£139m
Delivering stronger margins
Underlying gross margin
22.6%
Cash conversion
75%
Delivering more cost-out and
profit improvement benefits
Cumulative cost out
£510m
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
17
Dear Shareholder
Let me begin with some personal remarks about the past year. It has
been the first financial year in my new role as the CEO of Thomas
Cook and it has been a year full of both challenges and opportunities.
While the last few years were focused on securing the business,
successfully finalising our turnaround and laying the foundation for
our strategy, my focus now is to execute our strategy for profitable
growth and fully implement the transformation process in our
business. Now is the time that our strategy for profitable growth
becomes reality. Our transformation has entered its next stage as
we develop Thomas Cook into an organisation that places customers
at its heart.
You are no doubt aware that we’ve faced some recent criticism,
particularly in the UK, for events in which we should have provided
a higher degree of care and support to our customers. Following the
inquest into the tragic deaths of Bobby and Christi Shepherd whilst
staying at a hotel booked through Thomas Cook in 2006, it became
clear that the Company had failed to treat the children’s family
as it should have done. In the last few months, I have worked to
build a relationship with the family and am very grateful for their
continued engagement, working with us to develop and implement
new initiatives putting the customer at our heart. I gave my personal
commitment that Thomas Cook will do the right thing in the future,
which we began with an independent review of our customer service
and welfare, conducted by former Sainsbury’s CEO Justin King.
His review gave us some very helpful insights into the areas where
we need to improve and I am committed to delivering world-class
quality and service.
Continuing on this journey, we have established the Safer Tourism
Foundation, a charity which aims to improve the safety of holiday
makers travelling abroad, with a particular focus on the dangers of
carbon monoxide. Thomas Cook will underwrite the first £1 million
to be raised for the Safer Tourism Foundation and we acknowledge
the substantial donation of former CEO Harriet Green towards
this amount.
Our mantra of placing the customer at our heart underpins every
element of our business. As a holiday company, our aspiration is
to provide the best possible holiday experience to our customers,
exceeding their expectations, exciting them and being passionate
about the most important weeks of their year. We are responsible for
the well-being of 20 million people every year. This is a tremendous
responsibility of which we are acutely aware.
Delivering world-class quality for our customers means we must
maintain even tighter control over all parts of the customer journey.
Hotels and flights are the pillars of every holiday and they are key
to the customer experience. Therefore, we have invested more than
£100 million to refurbish the cabins of our entire fleet of aircraft.
State-of-the-art in-flight entertainment and a luxurious business
class on long haul flights are already delighting our guests during
their time on board. In addition, since FY13 we have added 21 brand
new Airbus A321 aircraft to our fleet. For our customers, we know
that their holiday experience begins when they board one of our
aircraft. Having launched more than 200 own-brand hotels in just
over two years, our priority is now to refine the customer experience,
elevating it to the best possible quality, and driving up occupancy
rates in these key properties.
Thomas Cook’s answer to the radical changes in the industry is our
New Operating Model, a set of initiatives designed to improve the
way we do business. It is all about making the best use of our assets
and capacity, developing the holiday offering, enhancing the omni-
channel proposition and generating operating efficiencies. We will
grow through improved quality, better products and services for
customers, and more efficient structures operating with less costs,
in an integrated and harmonised way.
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STR ATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW CONTINUED
»The past year has also
seen a significant
strategic development
for Thomas Cook on our
journey to becoming
a global travel group.«
The transformation of Thomas Cook will see the Company become a
global travel group steered by horizontal functions with strong local
market organisations that are close to the customer. We have already
begun to establish three horizontal platforms across all markets that
will provide the local businesses with the right product categories:
differentiated, complementary and specialist holidays.
The business will now focus more on our core, own-brand and
partner hotels, which we refer to as differentiated holidays.
We will concentrate on circa 2,500 hotels as our core product. We are
working towards this at a Group level to ensure alignment within all
local markets. Each local market will be able to put all its power into
selling quality holidays at the right price to delight our customers.
In addition to this core differentiated product, we will build a totally
flexible complementary offer of hotels, sourced automatically and
distributed primarily via our IT systems. To compete with new
technology-driven competitors, we need the breadth and variety
of a wide range of products that are quality assured, but offered for
the lowest possible total cost.
In between these two platforms – differentiated and complementary
– sits our specialist business for premium holidays and long haul.
Long haul is one of our real success stories, with constant growth
over recent years. Our airline has increased its long haul offering
significantly and added new routes to the network.
We have made tremendous progress especially in the UK where
our business performance has improved significantly, despite
external events. Last winter at the beginning of our financial year,
we re-launched our premium brand Signature, creating a single
brand that offers the best product range across all product types
and destinations. We’ve developed an offering that “goes the extra
mile” through choice, flexibility, depth of product expertise and magic
moments throughout the customer journey. This initiative is already
paying off, with increased booking figures and higher margins.
The past year has also seen a significant strategic development
for Thomas Cook on our journey to becoming a global travel group,
through our new partnership with the Chinese investment group
Fosun. A team of our employees has already moved to Shanghai, China
to lead the launch of our joint venture developing domestic, inbound
and outbound tourism activities for the Chinese market under
Thomas Cook brands.
In closing, I would like to focus on our employees. I am extremely
proud of our team and would like to thank each one of our employees
for their continued hard work and commitment to our Company.
This year we conducted our third full employee engagement survey
across the Group and I am very happy to report that our overall Core
Index score for employee engagement has increased by 4% from last
year’s score (which also showed an increase of 4% on the previous
year). Our Senior Management Team recognise the importance of
employee engagement and we are each committed to continuing this
positive trend. We will move forwards together, with the customer at
our heart, and an awareness throughout the Group that each one of
us must support and personally demonstrate this core value in all we
do at Thomas Cook.
Though we appreciate there is more to do, to deliver the value to
our Shareholders that they are expecting of us and that we have
the potential to achieve, the past year marks a significant positive
milestone on our journey, as it is the first year since 2010 that we
are able to report our results as a profit-making company after
tax. In 2016, we celebrate the 175th anniversary of Thomas Cook’s
first package trip, the birth of the modern travel business and
our Company. We have a great heritage and with the customer
at our heart, we will create a great future; a stronger Thomas
Cook, that delights our customers, our employees and of course
our Shareholders.
PETER FANKHAUSER
CHIEF E XECUTIVE OFFICER
24 November 2015
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
19
OUR BUSINESS MODEL
HOW VALUE IS CREATED
We create value by providing our customers with great
holidays and a high level of personal service, built on
strong customer relationships and underpinned by
industry-leading consumer brands.
Q: How does Thomas Cook
create value through its
business model?
A: We offer our customers an
integrated, end-to-end travel
experience, underpinned
by the strength of the
Thomas Cook brands
A: We help make sense of the
overwhelming choice of travel
products available to customers
A: We differentiate ourselves
from competitors by offering
high levels of service and
support throughout the
customer journey
A: We offer quality and
financial assurance
SERVICE AND ASSUR ANCE
1
Supply of hotel beds
and airline seats
2
Production and marketing
of travel packages,
components and ancillaries
3
Omni-channel distribution
Third-party
In-house
Brands, services and
product/package portfolio
Third-party
In-house
5
Shareholder value
Innovation
4
Customer value
Q: What makes hotel partners
and other suppliers want to
work with Thomas Cook?
Q: How does Thomas
Cook sustain its
competitive advantage?
A: Our distribution strength
A: We develop new holiday concepts
A: Our industry expertise and
market intelligence
and services in response to
customer needs, preferences
and industry trends
A: Our deep supplier relationships,
dedicated service agents and
field support
A: We invest in our core brands,
and in our processes and
technology infrastructure
Q: Why do customers buy from
Thomas Cook and why do they
continue to do so? Where does
Thomas Cook’s competitive
advantage come from?
A: Product range and choice
A: Value for money
A: Service and assurance
A: Brand strength
A: We are proud innovators
in our industry
SERVICE AND ASSUR ANCE
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OUR BUSINESS MODEL CONTINUED
1
SUPPLY OF HOTEL BEDS AND AIRLINE SEATS
Sourcing good quality hotels and flights efficiently and economically
is key to our business. This includes investing in hotel and flight
capacity and utilising it well, balancing risk and non-risk capacity,
and flexing allocations of this capacity within the Group to maximise
profits. We source our hotels and flights both from our in-house
operations and third-parties. Our in-house operations, through which
we can better control product quality and typically make higher
margins, are at the core of our holiday offering. Given our strong
position in the market, we are able to leverage our Group buying
power to take measured risks in inventory and balance these risks
against customer demand.
THOMAS COOK HOTELS & RESORTS
Our Hotels & Resorts unit is dedicated to sourcing and managing
our own-brand hotel portfolio, through which we deliver consistent
quality-controlled holiday experiences to our customers. It is
responsible for approximately 200 own-brand hotels, located across 18
destination countries, ensuring that they operate smoothly and to our
brand standards, and overseeing investments and upgrades. As well
as strategic planning and pioneering new hotel formats, the Hotels
& Resorts unit is also responsible for the strong positioning of our
existing in-house brands Sunwing, Sunprime, Sentido, Sunconnect,
Smartline, and the recently launched Casa Cook, within the Group and
among customers. The Group favours an asset-light approach to hotel
management, with most own-brand hotels operated under franchise
agreements. In order to further develop customer awareness of our
own-hotel brands, our Hotels & Resorts unit intends selectively to sell
capacity directly to customers, as well as through our tour operators.
THOMAS COOK AIRLINES
Our in-house airlines enable our tour operators to benefit from
guaranteed capacity and seat rates, as well as operating profitable
seat-only businesses on numerous routes in their own right.
Our airlines operate under the Thomas Cook brand in the UK, Belgium
and Scandinavia, and the Condor brand in Germany. By balancing
their use of in-house flight capacity with flights provided by
third-parties, our tour operators are able to flex their risk business
according to demand, while at the same time taking advantage of
flexible seat sourcing at competitive spot prices from third-party
carriers. Our airlines provide just over half of the Group’s total flight
volume, with the remainder being supplied by third-parties. We have
significantly upgraded our fleet over recent years, purchasing a total
of 25 brand new Airbus A321 aircraft (21 of which we have already
taken delivery of, with the remaining four entering service in summer
2016), and investing over £100 million to refurbish cabins in the rest
of the fleet such that by spring next year 95% of our fleet will either
be refurbished or new.
Investment in own-brand hotels for summer 2015
Investment in airlines with a customer focus
1
2
25
New aircraft purchased
3
4
5
209
Own-brand hotels
1. No change
2. Major refurbishments
3. Minor refurbishments
4. Brand implementations
5. New builds
70
58
55
21
5
60
New cabin interiors so far
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
21
2
PRODUCTION AND MARKETING OF TR AVEL PACK AGES, COMPONENTS AND ANCILL ARIES
We offer a broad range of holiday experiences and travel products
in order to meet the needs of a wide array of customer segments.
Our product offering includes core differentiated and exclusive
holidays to a closely managed portfolio of own-brand hotels and
selected partner hotels chosen on the basis of quality and high
standards of service, complemented by a broad range of other
hotels and flights to offer customers range, choice and flexibility.
Our flexible business model allows customers to select either fully
packaged holidays, or individual travel components, in line with their
preferences. Ancillary products such as travel insurance, airline
seat selection and car hire, allow our customers to personalise their
holiday, purchasing everything they need for their holiday from a
single supplier.
PACK AGE HOLIDAYS
Pre-packaged or classic package holidays combine two or more
components of a holiday (typically a flight and a hotel at a minimum)
and are sold as a single product to the end consumer. Usually these
components are sourced from pre-allocated charter flight and
hotel inventory (charter risk), giving the tour operator certainty
over availability and pricing. The classic package remains popular
and economical for core sun and beach holidays, and is one of the
largest and most popular holiday segments in Western Europe.
Package holidays offer our customers convenience and value,
together with the care and support of our staff throughout the
holiday experience.
In addition to classic packages, we also offer dynamic packages,
which allow customers to tailor their holidays in line with their
individual requirements – destination, duration, quality and price are
all customisable. We source these holiday components from a range
of third-party providers, package them with other services, and resell
them to the end consumer directly or via a third-party travel agent
Making ancillaries tangible
with a mark-up or commission. There has been a significant growth
in the amount of dynamically packaged holidays sold in the last few
years, and this will remain a key strategic focus.
COMPONENTS
The sale and marketing of components is an important part of our
business, providing a flexible offering to our customers in order to
meet their requirements. This also allows our Hotels & Resorts unit
and airlines to better manage yields and occupancy, especially in the
shoulder and low seasons.
ANCILL ARIES
Regardless of the type of holiday experience or travel product our
customers buy, ancillaries are key both to completing the customer
proposition and allowing customers to take a “one-stop shop”
approach to their travel buying, whilst providing us with a valuable
source of incremental revenue and margin. We aim to offer a basic
package that consists of only a hotel and flight (in some markets
a hotel, transfer and flight), and allow customers to tailor-make
their perfect holiday through the addition of modular ancillaries in
order to meet all of their requirements. Ancillary products include
travel or booking insurance, airline meals and seat selection, extra
luggage, private transfers, room upgrades and excursions whilst
in resort. We have also developed other, more innovative ancillaries,
such as the ability for some of our Scandinavian customers flying
with Thomas Cook Airlines to check in their luggage for their return
journey at the hotel rather than at the airport, and the ability to
pre-book specific hotel rooms in some of our differentiated hotels.
Airshoppen is our catalogue-based pre-flight shopping business,
which has been successfully developed in Scandinavia and is now
being expanded into other markets.
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OUR BUSINESS MODEL CONTINUED
3
OMNI- CHANNEL DISTRIBUTION
We believe in being accessible to our customers – both physically and
online. Our omni-channel approach means that our customers can
now access our products and services either via any web-connected
device, phone or in person at one of our stores. We also place
significant importance on direct or controlled distribution, through
which we distribute product directly to customers, enabling us to
build direct relationships with them, as well as reducing our cost to
serve. Recognising the value of the travel distribution trade, we also
sell via third-party distributors in order to broaden our reach.
OMNI- CHANNEL APPROACH
Developing our websites to offer a better online experience is critical
to our omni-channel philosophy. We have developed OneWeb, our
international web platform, which has now fully replaced all legacy
front-end systems for thomascook.com in the UK, and is in the
process of being introduced into the Netherlands on thomascook.nl.
OneWeb has led to a significant uplift in conversion in the UK across
each device type, through a greatly improved user experience.
Using a common codebase deployed across multiple markets,
OneWeb will enable us to deliver new website functionality and
innovations rapidly across the Group. In mobile, we have made
significant progress creating responsive websites and mobile
applications, and usage trends are very encouraging.
In stores, as well as developing new concept and next generation
stores to test new features and technologies, we have also
introduced new ways of working for our Travel Advisors to allow them
to spend more time with our customers, focusing on performance
briefs at the start of each shift and management observation and
coaching. Tablets and Wi-Fi have also now been rolled out to many
of our stores.
Our contact centres also sell directly to customers, as well as
providing sales and customer support at any customer touchpoint
on the customer journey. A holiday is one of the most cherished
purchases of the year for our customers, and we recognise this
importance by ensuring that our support is tailored to each
individual caller and delivered through personal contact rather
than an automated computer system. Our contact centre service is
available out of hours and complements our web and retail offering.
This supports the growth of our digital organisation and our omni-
channel strategy.
DIRECT DISTRIBUTION
Direct, or controlled, distribution is a key strategic advantage,
allowing us to form direct relationships with our customers, as well
as reducing distribution costs. Our model has some local adaptations
within each of our markets in this respect. In the UK, Northern
Europe and Belgium, we enjoy a high level of controlled distribution
through our own websites, call centres and, in the case of the UK and
Belgium, our stores. In Germany, however, the majority of our travel
products and services are sold through third-party travel agents.
Online is a key means to increase our controlled distribution, and
we are placing considerable emphasis on further developing this
channel across our markets. We are very aware that a large portion
of our market continues to value the face-to-face service offered
by our Travel Advisers – for these market segments our focus is on
continuously improving the in-store experience whilst introducing
new technology to support the sales process.
Controlled distribution
49%
33%
UK and Ireland
Continental
Europe
Northern
Europe
16%
13%
Our Web
Our Retail
76%
15%
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
23
4
CUSTOMER VALUE
CUSTOMER SERVICE AND EXPERIENCE
We aim to create value by putting customers at the heart of our
business. Our customer service is present at many different
touchpoints during the holiday experience, including in-store, online,
at the airport, on our aircraft and in-destination, and we aim to
provide high-quality seamless advice and support from the time of
booking, through to the holiday itself, and upon the return home.
Recognising the importance of customer service and trust to our
overall proposition, we have introduced four promises to underpin our
customer relationships. These promises focus on our reliability and
trust, the quality of our holidays, the transparency of the information
we provide, and our customer service. They include our innovative
24-hour hotel satisfaction guarantee, which offers customers at many
of our hotels means of redress if we cannot resolve an issue or problem
within 24 hours*. Our four customer promises are shown below.
Unlike online and offline travel agents and many other tour operators,
we operate a significant in-destination services organisation, which
employs around 2,500 efficient and customer-oriented staff in the
summer. Their role includes providing customer service and support
to customers at their hotel, managing quality, and providing leisure
and entertainment services for guests. We believe this is a key
differentiator for Thomas Cook.
Our experience, flexibility across platforms, destinations and deep
sector expertise helps ensure that the level of service our customers
receive – via the internet or face-to-face, at home or in-resort – is
truly differentiated from the competition.
QUALIT Y AND ASSUR ANCE
We have developed a high level of trust with our customers.
Our product inventory is quality assured, taking into account
customer and third-party reviews. For our high-volume destinations,
we have engaged SGS, a specialist third-party auditor, to carry out
professional checks to ensure that a high standard is maintained.
An active health and safety assurance process is also in place across
our entire product range.
BR AND STRENGTH
Thomas Cook is one of the leading leisure travel brands in the
industry, given our 174-year heritage.
The Thomas Cook master brand is supported by a number of
very strong local brands across our source markets, including
Neckermann, JetTours, Ving, Spies, and Tjäreborg which are integrated
with the Thomas Cook Group through the Sunny Heart logo.
We recognise that trust and consistency are two of the most
important drivers of conversion across our source markets and so we
strive to ensure that these values are deeply embedded in our brands.
Customer promises
This table shows
our four customer
promises that will be
used in our UK tour
operator business.
These promises
will be tailored for
use in each of our
source markets.
* Terms and conditions apply.
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OUR BUSINESS MODEL CONTINUED
5
SHAREHOLDER VALUE
SUSTAINABLE AND PROFITABLE GROW TH
We believe that our strong business model, combined with our
strategy to further develop and strengthen our business through
our New Operating Model (see page 29), will enable us to deliver
sustainable and profitable growth in the future. In particular, our
twin focus of: improving our customer proposition by creating and
marketing more differentiated products underpinned by an improved
customer service; and generating increased operating efficiencies
by changing the way we work, will lead to continuing improvements
in our financial position.
CASH GENER ATION AND STRENGTHENING OF
BAL ANCE SHEET
Following the successful recapitalisation of the business in FY13,
a key element of our corporate strategy has been and remains
cash flow generation and the retention of a greater proportion of
our earnings for reinvestment in the business, debt reduction or
distribution to Shareholders. We have made significant progress in
this area, with the Group consistently achieving significantly higher
levels of cash conversion than in FY12 (see page 50).
In January 2015, we strengthened the balance sheet with a
€400 million bond due in 2021, refinancing the €400 million bond
which matured in June 2015. In March 2015, we raised a further
£92 million through an issue of new equity to Fosun, in order to
underpin our strategic partnership. In May 2015, we refinanced our
bank facilities, increasing the total facilities amount to £800 million
and extending the maturity to May 2019.
HOW WE DISTRIBUTE THOSE RETURNS
As we embark on the second phase of our transformation, our focus
remains on ensuring a sustainable, profitable outlook for the Group,
our employees and many stakeholders.
In particular, our strategy of profitable growth and cash generation
positions the business to deliver value to Shareholders in three
main areas:
> share price appreciation;
> debt reduction; and
> dividend payments.
In view of the progress we have made and the projected benefits
we believe are deliverable as part of our profitable growth strategy,
we expect to pay a dividend from FY16 profits in early FY17.
Our policy will be to target a payout ratio of between 20% and 30%
of net profit each year. We believe this represents an appropriate
balance between debt reduction and providing a return to
shareholders. A final dividend will be declared with the full year
results announcement each year, starting with the announcement
of our FY16 results, in a year’s time. In view of the seasonality of the
Group’s profit profile, it is not our intention to pay interim dividends
for the foreseeable future. The Board will review the policy annually
as we reduce debt, to determine the scope to increase the payout
ratio in the future.
Alongside making dividend payments, the reduction of fixed-term
debt remains a priority for the Group, and we intend to continue
to move towards a more efficient capital structure, with reduced
interest costs.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
25
MARKET OVERVIEW
WHERE OUR MARKET IS TODAY
The Travel & Tourism industry is again expected to outperform the wider
economy in 2015, and register positive growth for the sixth successive
year. Global growth is expected to be 2.8% in 2015, while direct travel
& tourism GDP growth is forecast at 3.7%. This represents a continuation
of the pattern seen over recent years, where the strengthening of
the world economy following the financial crisis of 2008/09 has been
accompanied by accelerated growth in travel and tourism. The UNWTO is
forecasting average growth rate of 3.8% per year in international tourism
arrivals between 2010 and 2020.
ECONOMIC ENVIRONMENT
The global economy is expected to achieve moderate growth of 2.8%
in 2015 overall, with the recovery in high-income countries, including
those in which our source markets are based, expected to gather
momentum. Growth in developing markets is expected to slow, as
a result of tighter financial conditions and lower commodity prices.
Within our source markets, the UK is showing the strongest economic
growth, with GDP expected to rise by 2.6% in 2015. Lower oil prices,
robust job creation and rising wages continue to bolster consumer
spending, which coupled with the strong Pound is leading to
increased demand for international travel. Growth in the Eurozone
is weaker than the UK, at an estimated 1.5% for 2015, although it is
accelerating from recent levels, supported by a weakening Euro,
declining oil prices, record low interest rates and an improvement in
bank credit supply conditions. In China, while structural adjustments
and policy efforts to address financial vulnerabilities continue, growth
is expected to decline modestly to 7.1% in 2015.
Our markets have also been affected by geopolitical events, with
the terrorist attack in Tunisia in June affecting that destination
in particular, the threat of a Greek exit from the Euro impacting
demand to Greece for a period in July, and more recently events
in Egypt leading to the near-cessation of travel to Sharm-el-Sheikh.
Nevertheless, Europe’s tourism market has seen an overall rise
in international tourist arrivals of 4% for the year-to-date, as at
June 2015.
International tourist arrivals (m)
+4%
in first 8 months of 2015
+4.2%
+4.7%
+6.5% +1.9%
–4.0%
+6.5%
+4.1%
+5.1%
+7.3% +0.0% +2.9% –1.7%
+5.7%
5.8%
+10.1%
+6.5% +4.2% +3.0% +3.7%
+3.8%
1,200
1,000
800
600
400
200
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
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MARKET OVERVIEW CONTINUED
REGUL ATORY AND POLITICAL ENVIRONMENT
Consumer protection is a constant and increasing area of focus
at the EU level. Within the framework of regulations and standards
in each of our source markets, we offer our package customers
the assurance of financial protection including the reimbursement
of travel costs in the event of insolvency or bankruptcy of a tour
operator. The European Package Travel Directive (“PTD”) places various
disclosure and liability obligations upon us as marketers of travel
packages. The reconsideration of this directive started at the EU
level in July 2013 and concluded in Autumn 2015. The proposed revision
is intended to enhance consumer protection rights and to create
a more level playing field among travel businesses. The changes
created by the reforms will take effect in 2017/18. The UK Government
has announced that it will, once the PTD is finalised, reconsider the
industry’s ATOL consumer protection regime.
The airline industry is heavily regulated principally for safety reasons.
It also faces increasing levels of taxation and the enhanced protection
of consumer rights. European airlines, including our own, are subject
to air passenger rights legislation whereby airlines may be required to
pay compensation to passengers whose flights are delayed by more
than three hours. This legislation is also in the process of revision
within the EU, but progress has been interrupted by a sovereignty
dispute between Spain and the UK regarding the applicability of
this legislation to Gibraltar. During this period, the original EU law
(Regulation 261) has continued to be modified by the courts in various
EU countries such that its original scope and application has been
much increased.
In this respect, two examples are of note. One is where the courts in
the UK have established that claims for compensation are permissible
in instances of technical fault, even though the original drafting of the
EU legislation recognised that technical faults were an area for which
compensation would normally not be payable. The Court of Justice of
the European Union have confirmed this principle, which means that
compensation will now generally be payable for all delays caused
by technical faults to aircraft, irrespective of the cause throughout
Europe. In another UK case it was established that compensation
claims for delayed flights are valid even if the flight took place up
to six years ago, and again, this finding is inconsistent with the
application elsewhere in the EU.
Since its introduction, this legislation has impacted the airline
industry significantly. We continue to engage in lobbying governments
in the interests both of our industry and our customers, and to
remind them of the importance of travel and tourism as a source
of employment and driver of growth.
Our holiday programmes are also influenced by national and political
events, and the responses of governments to them. We follow such
governmental travel advice closely and are generally able to change
our flying programme and hotel capacity to alternative destinations
at short notice in order to continue to meet our customers’
expectations. Most notably, the tragic events in Tunisia in June 2015
have led to the UK Government warning against non-essential travel
to that country, resulting in the withdrawal of our programme from
the UK.
KEY INDUSTRY TRENDS
A number of mega-trends continue to influence and steer the leisure
travel market.
HOTELS AND RESORTS
In order to protect their business model, all major tour operators
(selling package holidays) have developed their product offering to
include a more well defined hotel portfolio. This hotel offering includes
exclusive hotels that are only sold by a single tour operator, and
differentiated hotels that have been specifically designed to appeal to
a target market. Tour operators have been developing their own-brand
hotels to follow, and benefit from the momentum behind, this trend.
Thomas Cook identified this trend early on and we have worked to
develop our own hotel brands, since first creating the SunWing brand
more than 40 years ago. Today the Thomas Cook Group offers more
than 200 hotels across our five hotels brands (SENTIDO, SmartLine,
SunConnect, SunPrime and SunWing) with a total of 41,000 rooms
available each day. Our new brand, Casa Cook, is due to open in
summer 2016. Our own hotel brands and assets form a core part of
our strategy and operating model, and by maximising utilisation we
will be able to grow our portfolio profitably. Through the creation of
our hotel investment fund and with the support of our investors,
we will strengthen our hotel portfolio and be in control of our assets,
which will in turn allow us to more easily manage the quality of
our products and maximise returns.
THE EVER- GROWING COMPLEXIT Y OF
DIGITAL CHANNELS
For Thomas Cook, the trends we see in digital offer many exciting
opportunities, some of which we are actively responding to already
and others which are still in development. As has been the case for
a number of years, the growth of mobility continues to be an exciting
and critical trend in the travel industry which can be seen in a
number of customer behaviours. Customers are using mobile devices
(smartphones, tablets, etc.) to not only research and share travel
ideas, but also to make bookings. Thomas Cook does not only look
at mobile, but at the wider concept of mobility. We continue to invest
in our Group platform to optimise our booking experience across
all devices and also in our Companion App to broaden the services
we offer customers post-booking and whilst they are on holiday.
This trend will continue to grow as customers become increasingly
confident with such devices, bandwidth continues to expand
(allowing richer content) and usability insight grows.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
27
% OF TR AFFIC BY DEVICE, 2014 -2015
52%
Desktop
23%
Tablet
25%
Mobile
Within these market developments, Thomas Cook, which operates
its own Group Airlines but also purchases approximately 50% of its
air capacity from third-parties, is able to sustain its strong market
position. The close coordination with our own tour operator ensures
strong load factors on our flights where 46% of the airlines’ revenue
is generated by our own tour operator. In parallel, we expand into
third-party sales channels, driven by substantial growth of seat-only
sales through higher web share ratios and better conversion rates
on our new and improved websites in many of our markets. We offer
our customers a competitive product, driven by a comprehensive
fleet renewal. Nearly 90% of our fleet are either new or have been
completely refurbished over the past two years. Our airlines are now
managed to optimise our competitive cost position by bundling our
volumes in joint contract negotiations. An integrated perspective on
our sales enabled us to introduce new flights to popular destinations
for our customers. Our airlines achieved a competitive on-time
performance of 82.2% during 2014-15.
At the tour operator interface, Thomas Cook’s strong market
position enables us to differentiate our services further.
Our dynamic packaging engine allows customers to customise
individual components of their travel, backed by our quality
assurance guarantee.
A related trend, which is extremely relevant to Thomas Cook,
is the desire by customers to move between channels as they
consider and make their travel decisions. As an omni-channel
retailer, we are very close to all the challenges and opportunities
this brings. Critical to success is the ability to allow customers to
begin, continue and complete their engagement with Thomas Cook
through whatever channel they choose – whether this is digital or
face-to-face. Thomas Cook has embraced this trend with digital teams
working hand-in-hand with colleagues in retail teams to enhance
our customer experience. We have a number of digital initiatives in
place and in development to make the transitions between channels
as simple as possible for our customer (for example, MyAccount
and DreamCapture). Additionally, we work hard to create enhanced
in-store experiences for customers through digital innovations such
as the Thomas Cook Virtual Holiday experience which we have now
extended to our brochures.
Whilst there are many other trends (including social media, wearables,
ancillaries, rich content), too many to cover fully here, it is exciting
that despite numerous technological advances, our customers
continue to embrace our relationship in new ways as we enter
our 175th year of business.
LOW- COST AIR TR AVEL
Low-cost airlines are continuing to grow dramatically across
Europe. Fleet sizes of the leading low-cost carriers are expected
to grow significantly over the coming years. These airlines are also
moving up the value chain and becoming integrated tour operators,
thereby increasing their offering to consumers substantially. In 2015,
excess air travel capacity led to further increasing pressure on the
industry as a whole. Combined with the growing threat of online
disruptors, consumer power to drive competitive prices remains
at an all-time high.
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STR ATEGIC REPORT
OUR STR ATEGIC OBJECTIVES
OUR FOUR KEY STRATEGIC PILLARS
Our strategy is to grow profitably, by providing our customers
with a broad range of high-quality differentiated and flexible
holiday experiences, supported by world-class customer
service. Recognising that the hotel and flight is key to any
holiday experience, we are putting our own portfolio of
own-brand hotels and flights at the centre of our customer
proposition, complemented by a wide range of third-party
products. In order to realise our strategy, we have outlined four
main strategic objectives as seen below. We believe that these
strategic pillars will enable us to generate resilient revenue
growth, improve profitability, increase cash flows and deliver
further shareholder value.
1
OWN-BR AND HOTELS AND FLIGHTS
Maximise value from our own-brand hotels and aircraft
2
OUR HOLIDAY OFFERING
Focus on differentiated holidays, complemented by a broad range of flexible hotels and flights
3
OMNI- CHANNEL AND CUSTOMER
Enhance our omni-channel proposition and web efficiency
4
EFFICIENCIES
Simplify operations and remove duplication
CUSTOMER AT OUR HEART
We firmly believe that providing consistently excellent
customer experiences is the key to the long-term growth and
success of our business. With more satisfied customers, we
can increase customer retention rates and loyalty, driving top
line growth through an increased customer lifetime value,
and margin growth through lower customer acquisition costs.
We have therefore launched a major programme to ensure we
put the customer back at the heart of our business.
This programme includes key initiatives such as reviewing
and improving customer service levels across the Group,
introducing a customer charter and satisfaction guarantee,
further empowering front line staff to delight our customers,
and embedding Net Promoter Score (NPS) improvement targets
into our reward framework.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
29
NEW OPERATING MODEL TO DRIVE
TRANSFORMATION
Our New Operating Model (“NUMO”) is a programme of key
initiatives that will enable us to implement our strategy
in a clear and structured way over the next three years.
Through NUMO, we can create a future to be proud of with our
customers truly at the heart of our business.
STR ATEGIC PILL ARS
KEY NUMO INITIATIVES
BENEFITS
1
OWN-BR AND HOTELS AND FLIGHTS
See more on page 30
2
OUR HOLIDAY OFFERING
See more on page 31
3
OMNI- CHANNEL AND CUSTOMER
See more on page 32
4
EFFICIENCIES
See more on page 33
Hotels & Resorts unit
Grow own-brand hotel occupancy
and improve yield
In-house airline
Optimise mix (package vs seat only)
and yielding
Differentiated holidays
Grow sales to fewer, higher margin,
quality hotels
Complementary products
Develop low-cost model
Online and retail
Improve omni-channel
effectiveness and efficiency
CRM and ancillaries
Increase ancillary sales
through improved CRM
“One Tour Operator”
Align and integrate
tour operator processes
Cost-out continuation
Generate further efficiencies
through cost-out
These initiatives aim to generate significant, sustainable, long-term
profit growth, including revenue growth through a better quality
proposition that attracts more customers at higher price points, and
margin improvements through better yielding and cost efficiencies.
> Cash conversion in excess of 70% per year, based on a revised
definition of cash conversion, being the percentage of underlying
profit before tax that is converted into free cash flow
> Fixed-term debt reduction of at least £300 million over the next
We believe the New Operating Model will enable Thomas Cook to
achieve the following, between FY15 and FY18:
> Revenue growth at least in line with the European leisure travel
market, which is estimated to grow, on average, at between 2%
and 3% per year
> Annual EBIT benefits of between £100 million and £120 million
by FY18, with one-off implementation costs totalling approximately
£100 million, of which £25 million was incurred in FY15
three years
We expect these benefits to be generated by business improvement
initiatives which focus on the areas below are embedded in our
strategy as described on the following pages. Further details were
provided at our analyst presentation on 25 November 2015, a copy
of which is available at www.thomascookgroup.com
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STR ATEGIC REPORT
OUR STR ATEGIC OBJECTIVES CONTINUED
1
OWN-BR AND HOTELS AND FLIGHTS
WHAT NEXT?
Having launched approximately 200 own-brand hotels in just over
two years, our priority is now to refine the customer experience and
drive occupancy rates in these key properties. Our Hotel & Resorts
division will manage this initiative as we expand this area of the
business, assuming responsibility for further key hotel relationships
and development projects across the Group.
Our airlines will take delivery of a further four brand new Airbus A321
aircraft next summer, completing our single aisle fleet replacement
programme. At the same time we will continue to look for
opportunities to further profitably grow our seat-only business, refine
the customer experience and generate further benefits from the
recent integration of our four airlines into a single airline platform.
OUR AIM
As a customer-centric business, we aim to provide an industry-
leading consumer experience with our own-brand hotels and flights
firmly placed at the forefront. We are developing our Hotels & Resorts
division into a hotel management company that controls and develops
our core hotel offering and managing our Group Airlines business to
ensure that our aircraft offer the very latest in customer comfort and
reliability, while delivering maximum occupancy for both.
OUR PROGRESS IN 2015
Through our Hotels & Resorts division we added 72 own-brand hotels
in FY15, taking the total to 209 for the summer 15 season. We worked
with the owners of these hotels over the winter to completely
refurbish or rebuild around a quarter of them, implementing quality
measures across the portfolio which are consistently monitored
and managed. As a result, bookings of our own-brand hotel brands
(Sunwing, Sunprime, Sentido, SunConnect and Smartline) rose
by 41% last year. This reflects growing customer demand for our
differentiated holiday products and we continue to drive occupancy
growth among these hotels.
Since FY13 we have taken delivery of 21 brand new Airbus A321 aircraft
and fully refurbished cabins in 60 existing aircraft as part of a
£100 million investment programme. We have now either replaced or
fully refurbished around 90% of our fleet, resulting in a significantly
upgraded flying experience, increased customer satisfaction and
greater operational efficiency.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
31
2
OUR HOLIDAY OFFERING
OUR AIM
Our product strategy is to focus the customer proposition on
differentiated holidays, which offer a better quality customer
experience. Our differentiated holiday product consists of a
portfolio of own-brand and quality-controlled hotels, and includes
specialist holidays that focus on more niche and tailored product.
These products drive higher average selling prices, margin and,
ultimately, higher customer loyalty and retention. This holiday offering
is supplemented by a wide range of complementary products that
give customers greater flexibility and choice when choosing their
next destination.
OUR PROGRESS IN 2015
We have identified a core portfolio of approximately 2,500 hotels
which form the basis of our differentiated holidays. Factors that
distinguish these hotels include a higher level of in-resort service and
our innovative 24-hour customer guarantee, whereby we will rectify
a customer issue within 24 hours of being notified, and promise to
compensate the customer if we fail to do so. In specialist holidays,
we grew our presence in the long haul market significantly, with
double-digit capacity and like-for-like revenue growth.
We also launched Thomas Cook Signature as our brand for premium,
tailor-made holidays – resulting in an uplift in UK premium holiday
bookings of 10% year-on-year. We continued to promote our
complementary products, including the launch of Thomas Cook City
Escapes in the UK which offers competitive pricing on our widest
choice of city destinations covering 31,000 hotels in over 2,000
destinations around the world.
WHAT NEXT?
We are building common platforms for each of our product categories,
which will enable us to benefit from more efficient sourcing of
holiday product and optimise our yield management processes
across the Group. Our wide range of complementary product will be
sourced from a low-cost, digital production hub. We plan to migrate
approximately 10,000 low-volume hotels that are traditionally sourced
onto this platform.
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STR ATEGIC REPORT
OUR STR ATEGIC OBJECTIVES CONTINUED
3
OMNI- CHANNEL AND CUSTOMER
WHAT NEXT?
We are continuing to optimise our websites, and in particular to
develop features that enable us to offer increasingly personalised
services to customers via our online platforms. We are also in the
process of rolling out OneWeb to the Netherlands and intend over
time to introduce it to our other Continental European markets.
We plan to review our call centre procedures and technologies, with
the aim of bringing them onto a single platform based on improved,
harmonised business processes. We will also aim to grow our share
of controlled distribution, particularly in Germany, in order to develop
closer and more direct customer relationships. We also intend to
sharpen our focus on ancillary sales to complement the holiday
experience, in particular through improved CRM services.
OUR AIM
As a full service tour operator, we have close personal contact
with many of our customers throughout their holiday experience.
Our objective is to further develop these customer relationships to
make customer interactions with us as seamless as possible through
better technology, an omni-channel proposition and to improve
customer service, relations and loyalty.
OUR PROGRESS IN 2015
Our online customer experience has seen significant improvements
over the year, as a result of the investment we have made to develop
our international web platform OneWeb, with conversion uplifts of
10% for desktop, 16% for tablet and 67% for mobile devices. Our focus
on mobile has been enabled by our dedicated Mobile Development
Team based in Stockholm. Amongst other things, the team launched
a successful digital companion app into the Scandinavian and UK
markets, following on from the success of our TravelGuide app in
Germany over the last three years. These apps allow customers to
search for holidays, manage their bookings, make balance payments,
help to know their destinations better and book excursions and
ancillaries. In the UK, the new web journey has been fully integrated
into our retail stores, enabling us to recognise and serve customers
seamlessly across all channels.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
33
4
EFFICIENCIES
WHAT NEXT?
Having made the required organisational changes, we will continue to
embed our One Tour Operator initiative, harmonising IT platforms and
business processes, and removing as much duplication as possible
between our source markets. At the same time we will continue to
pursue every opportunity to minimise cost and complexity throughout
our business.
OUR AIM
Continuing to build a more efficient and effective business is
key to Thomas Cook’s ongoing transformation and development.
Although we have made excellent progress in reducing costs to
date, we believe there remains opportunity for significant further
efficiencies, while still improving customer satisfaction and welfare.
This will be achieved by reducing duplication between markets,
and by better integrating processes and functions.
OUR PROGRESS IN 2015
Our Cost-out and Profit Improvement programme continued to deliver
significant benefits in 2015, achieving £110 million of further cost
savings, in addition to the £400 million of cumulative savings achieved
in the previous three years. These savings were generated from a
variety of measures which created efficiencies across the Group,
but particularly in the UK and in our airline, where our initiatives to
transition what previously was four airlines to “one airline system”
has generated significant benefits.
Mirroring the initiative with our airlines, and as part of our New
Operating Model, we are pursuing a “One Tour Operator” initiative that
seeks to integrate our tour operations across the Group, consolidating
our processes, simplifying our structure and making us more
efficient and effective. On 1 October 2015, we implemented a new
organisational structure to support this, creating horizontal functions
to steer the business, with strong local market organisations that are
close to the customer.
»we will continue to
embed our One Tour
Operator initiative,
harmonising IT platforms
and business processes«
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Booking
Departure
In-destination
Returning home
DEPARTURE WITH THOMAS COOK
holidays
really do begin
on board.
Altogether our Group airlines carry 17 million passengers
every year. Across our fleet of 91 aircraft, customers can fly
with us to over 100 destinations worldwide. We’ve recently
upgraded and refurbished our fleet and purchased 25 new
aircraft. Our new Premium Cabins guarantee more legroom,
signature in-flight meals along with complimentary drinks
and state-of-the-art, on-demand entertainment systems.
Our Economy Cabins have brand new, ergonomically designed
seats, ensuring comfort is our priority for all customers.
PASSENGERS PER YEAR
AIRSHOPPEN
17million
Customers can buy
boutique products
on our website, we
deliver their order
direct to their seats.
Read more about how we are transforming our fleet on page 30
NEW PREMIUM CABINS
More legroom,
signature in-flight meals,
complimentary drinks,
entertainment systems.
DESTINATIONS
AIRCR AFTS
a fleet of
91 aircraft
25
new
100
worldwide
destinations
35
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STR ATEGIC REPORT
FINANCIAL REVIEW
STRONGER, LEANER AND
POISED FOR GROWTH
MICHAEL HEALY
CHIEF FINANCIAL OFFICER
»We are financially
stronger, reporting
a bottom line profit with
a strengthened balance
sheet from our successful
financing activities.«
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
37
FINANCIAL RESULTS AND PERFORMANCE REVIEW GROUP
£m (unless otherwise stated)
Revenue
Gross profit
Gross Margin (%)
Operating expenses
Underlying(i) profit from operations (Underlying EBIT)
EBIT Separately Disclosed Items
Profit/from operations (EBIT)
Associated Undertakings
Net finance charges (underlying)
Separately disclosed finance charges
Profit/(loss) before tax
Tax
Profit/(loss) after tax
Basic EPS
Underlying EPS
Free cash flow(iii)
Net debt
Year ended
30 September
2015
Year ended
30 September
2014
Change
£m
Like-for-like change(ii)
£m
7,834
1,774
22.6%
(1,464)
310
(99)
211
8
(141)
(28)
50
(31)
19
1.6p
8.9p
161
(139)
8,588
1,916
22.3%
(1,593)
323
(271)
52
2
(143)
(25)
(114)
(1)
(115)
(8.2)p
11.3p
116
(326)
(754)
(142)
0.3%
129
(13)
172
159
6
2
(3)
164
(30)
134
9.8p
(2.4)p
45
187
86
20
0.0%
10
30
172
202
6
2
(3)
207
(30)
177
156(iv)
Notes:
(i) ‘Underlying’ refers to trading results that are adjusted for separately disclosed items that are significant in understanding the ongoing results of the Group. Separately disclosed items are detailed in Note 7.
(ii) ‘Like-for-like’ change adjusts for the impact of disposals, foreign exchange translation, fuel and other. The detailed like-for-like adjustments are shown on page 38.
(iii) Free cash flow is cash from operating activities less capital expenditure and interest paid.
(iv) ‘Like-for-like’ net debt adjusts the prior year comparative for foreign exchange translation, the impact of changing finance lease arrangements, new equity investment and disposal proceeds.
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STR ATEGIC REPORT
FINANCIAL REVIEW CONTINUED
LIKE-FOR-LIKE ANALYSIS
Certain items, such as the normal translational effect of foreign
exchange movements, affect the comparability of the underlying
performance between financial years. Accordingly, to assist in
understanding the impact of those factors, and to better present
year-on-year trading progression, ‘Like-for-like’ comparisons with
FY14 are presented in addition to the change in reported numbers.
The ‘Like-for-like’ adjustments to the Group’s FY14 results and the
resulting year-on-year movements are as follows:
FY14 Reported (Continuing)
Impact of Currency Movements
Disposals/store closures
Reduced fuel cost
Year Ended September 2014
‘Like-for-like’
Revenue
£m
Gross
margin
%
Operating
expenses
£m
8,588
(641)
(98)
(101)
22.3%
0.1%
(0.1)%
0.3%
(1,593)
97
22
–
EBIT
£m
323
(38)
(5)
–
7,748
22.6%
(1,474)
280
Year Ended September 2015 Reported
Like-for-like Change (£’m)
Like-for-like Change (%)
7,834
86
1.1%
22.6%
n/a
FLAT
(1,464)
10
0.6%
310
30
10.7%
OVERVIEW
The comments below are based on like-for-like comparisons unless
otherwise stated, as Management believes this provides a clearer
view of ongoing business performance.
Our FY15 financial performance delivered continued growth in like-
for-like underlying Group EBIT which, combined with a significant
reduction in Separately Disclosed Items, led to a reported profit after
tax of £19 million, a like-for-like improvement of £177 million compared
to the prior year. This is the first time in five years that the Group has
reported a bottom-line profit.
Group revenue grew by £86 million (1%) on a like-for-like basis, whilst
underlying EBIT increased by £30 million on a like-for-like basis to
£310 million. We achieved higher profitability through an improved
product mix and efficiencies and through delivery of our Cost Out
and Profit Improvement programme.
Free cash flow for the year was £161 million (FY14: £116 million), which
benefited from an improved working capital position. In addition,
we issued 73.1 million new shares to Fosun, representing 4.8% of
the enlarged issued ordinary share capital of the Company, for
£91.8 million as part of a strategic partnership announced in March
2015). This resulted in net cash inflow for the year of £247 million
(FY14: £107 million).
As a consequence of the Group’s improved cash flow, and after
reflecting non-cash changes such as foreign currency translation,
Group net debt reduced to £139 million at September 2015 from
£326 million at the end of FY14.
During FY15 we continued to strengthen the Group’s financial position
through further improvements to our capital structure and by
increasing access to liquidity. See page 49 for further details.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
39
REVENUE
Group revenue increased by £86 million (1%) on a like-for-like basis.
This reflects a £263 million increase in sales of holidays to own-
brand hotels and other new products, partially offset by the effect
of disruption in Tunisia of £130 million and a net reduction in other
revenue of £47 million. The strong growth in own-brand products
reflects the continued focus on differentiated holidays which
yield higher margins, improved customer retention and better
ancillary sales.
The main components of the like-for-like revenue movement are:
Revenue £m
263
7,748
(130)
(47)
7,834
FY14 like-for-like
revenue
Own brand hotels
and other new products
Tunisia
Other
FY15
revenue
GROSS MARGIN
On a like-for-like basis, FY15 gross margin is in line with last year,
maintaining a cumulative improvement of 160 basis points since FY12.
An improved product mix and higher margin ancillary products
contributed a gross margin improvement of 70 basis points.
Gross margin also continued to benefit from our Cost Out and
Profit Improvement initiatives, which contributed a 60 basis
point improvement, mainly due to efficiencies within our airlines.
These improvements were offset by hotel bed cost inflation which
lowered gross margin by 100 basis points, and increases in non-fuel
flying costs which impacted gross margin by 30 basis points.
These components of the like-for-like movement in gross margin are
outlined below:
Gross margin £m
0.7%
22.6%
0.6%
22.6%
(0.3)%
(1.0)%
Revenue by segment £m
FY14 like-for-like
gross margin
Product/
yield mix
Bed cost
inflation
Profit
improvement
Non-fuel
flying costs
FY15 gross
margin
£2,457m £3,449m
UK and Ireland
Continental Europe
£1,057m £1,257m
Northern Europe
Airlines Germany
£(386)m
£7,834m
Corporate*
Group
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STR ATEGIC REPORT
FINANCIAL REVIEW CONTINUED
OPER ATING EXPENSES/OVERHEADS
Operating expenses for FY15 of £1,464 million represent a year-on-year
like-for-like decrease of £10 million (1%), mainly due to the Group’s Cost
Out initiatives. In total, cash operating costs were £23 million (2%)
lower than last year on a like-for-like basis, offset by a £13 million
increase in depreciation which reflects the higher level of investment
in IT and our airlines in recent years.
UNDERLYING EBIT
Group underlying EBIT increased by £30 million on a like-for-like basis
to £310 million in FY15. The growth in underlying EBIT is primarily due
to improved margins through the expansion of our own-brand and
differentiated holidays, the addition of profitable long haul routes
in our airlines and the continuing delivery of our Cost Out and Profit
Improvement measures.
£m
Personnel Costs
Net Operating
Expenses
SubTotal
Depreciation
Total
Year ended
30 Sep 2015
Year ended
30 Sep 2014
Change
Year ended
30 Sep 2014
like-for-like
Like-for-like
change
(859)
(913)
54
(845)
(431)
(1,290)
(174)
(1,464)
(507)
(1,420)
(173)
(1,593)
76
130
(1)
129
(468)
(1,313)
(161)
(1,474)
(14)
37
23
(13)
10
Overall, gross profit improved by £20 million, as an underlying margin
benefit of £42 million was partially offset by market disruption in
Tunisia, which cost approximately £22 million.
Overheads were £10 million lower than last year, mainly due to further
Cost Out benefits of £61 million in FY15, offset by the re-investment
of £19 million through further Strategic Operating investments and
a higher depreciation charge (£13 million), mainly associated with
the recent investment in our airline fleet.
Underlying EBIT £m
323
(5)
61
42
280
(22)
(38)
(19)
310
(32)
* As a result of inter-company eliminations.
Disposals
/store
closures
Impact of
currency
movements
FY14 like-
for-like
EBIT
FY14
headline
EBIT
Gross
profit
excluding
Tunisia
Underlying EBIT £m
Disruption
in Tunisia
Overhead
cost-out
Strategic
Opex
investment
Depreciation
and other
FY15
EBIT
£119m
UK and Ireland
£71m
Continental Europe
£96m £56m
Northern Europe
Airlines Germany
£(32)m
Corporate
£310m
Group
6_Segmental_Review_p40_p53_v60.indd 40
06/01/2016 13:12
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
41
SOURCES OF GROW TH IN UNDERLYING EBIT
In FY15 the Group reported an improvement in underlying EBIT
of £30 million on a like-for-like basis with all segments reporting
improved results, with the exception of Continental Europe.
Gross margin %
26.7%
The adjustments to reflect year-on-year growth in like-for-like EBIT
on a segmental basis are summarised as:
13.5%
27.9%
28.4%
22.6%
Underlying EBIT
reconciliation (£m)
United
Kingdom
Continental
Europe
Northern
Europe
Airlines
Germany Corporate
Group
FY14 Reported
Disposals/Store
Closures
Impact of Currency
Movements
Accounting changes
FY14 Like-for-like
FY15 Reported
Like-for-like change
of which Gross
Margin
of which Overhead
89
(5)
–
–
84
119
35
4
31
102
–
(10)
(2)
90
71
(19)
(39)
20
101
–
(23)
–
78
96
18
27
(9)
50
–
(5)
2
47
56
9
29
(20)
(19)
323
–
(5)
–
–
(19)
(32)
(13)
(1)
(12)
(38)
–
280
310
30
20
10
Reported performance by segment for FY15 is as follows:
£m
United
Kingdom
Continental
Europe
Northern
Europe
Airlines
Germany Corporate
Group
Revenue
Gross Margin %
Underlying EBIT
2,457
26.7%
119
3,449
13.5%
71
1,057
27.9%
96
1,257
28.4%
56
(386)*
n/a
(32)
7,834
22.6%
310
* As a result of intercompany eliminations.
The financial performance of each segment is considered in the
following pages:
United
Kingdom
Continental
Europe
Northern
Europe
Airlines
Germany
Group
Like-for-like EBIT growth £m
£(19)m
£(13)m
£18m
£9m
£35m
£30m
UK and Ireland
Airlines Germany
Continental Europe
Northern Europe
Corporate
Group
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STR ATEGIC REPORT
FINANCIAL REVIEW CONTINUED
UNITED KINGDOM AND IREL AND
Revenue
2,457
Gross margin
26.7%
EBIT
119
EBIT margin (%)
4.8%
Departed customers (000’s)
6,109
FY15
FY14
Change
FY14
like-for-like
Like-for-like
change
Revenue
Gross margin
Underlying EBIT
Underlying EBIT
margin (%)
Departed customers
(000’s)
2,457
26.7%
119
2,585
26.1%
89
(128)
0.6%
30
2,458
26.6%
84
4.8%
3.5%
1.3%
3.4%
6,109
6,170
(61)
6,153
(1)
0.1%
35
1.4%
(44)
Our UK business delivered a strong performance during FY15,
with underlying EBIT growing by £35 million on a like-for-like basis
to £119 million, representing a 140 basis point increase in EBIT
margin to 4.8%. This was delivered through increased sales of
our own-brand hotels, further long haul expansion in the airline,
successful implementation of operational actions and continued
Cost Out initiatives. FY15 underlying EBIT was adversely impacted
by £11 million due to disruption in Tunisia and benefited from the
release of maintenance provisions in the UK airline of £10 million
(flat year-on-year).
Revenue of £2,457 million was £1 million lower than prior year on a
like-for-like basis (£128 million lower on a headline basis). The business
significantly expanded its Winter programme, with an increase in
both new and existing long haul destinations, with a corresponding
increase in both Seat Only revenue and increased package holiday
sales. However, this growth was offset by the disruption to the
Summer programme with the cancellations of holidays to Tunisia.
Gross margin increased by 10 basis points on a like-for-like basis
to 26.7%. This reflects the continuing benefits of improvements
in product quality, with a higher proportion of customers staying
in our own-brand hotels and increasing operating efficiencies
in our UK airline.
Our OneWeb platform, which was launched in FY14, has increased the
booking conversion rates across all device types. With a 16% increase
in conversion on tablets, and 67% increase on mobile devices,
OneWeb is proving particularly effective at converting customer
interest on these rapidly growing platforms.
Our UK business has been significantly transformed over the past
three years by removing unprofitable sales, improving product quality
and by implementing cost efficiencies. As a result, the business is
now better positioned for profitable growth.
» Our UK business has
been significantly
transformed over the
past three years by
removing unprofitable
sales, improving
product quality and
by implementing
cost efficiencies.«
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
43
CONTINENTAL EUROPE
Revenue
3,449
Gross margin
13.5%
EBIT
71
EBIT margin (%)
2.1%
Departed customers (000’s)
7,061
FY15
FY14
Change
FY14
like-for-like
Like-for-like
change
Revenue
Gross margin
Underlying EBIT
Underlying EBIT
margin (%)
Departed customers
(000’s)
3,449
13.5%
71
3,958
14.2%
102
(509)
(0.7)%
(31)
3,554
14.2%
90
(105)
(0.7)%
(19)
2.1%
2.6%
(0.5)%
2.5%
(0.4)%
7,061
7,458
(397)
7,399
(329)
Revenue and underlying EBIT performance by key market within
Continental Europe is set out below:
Revenue and EBIT by market
Revenue (£m)
FY15
FY14
Change
FY14
like-for-like
Like-for-like
change
Germany
Russia
France
Other continental
markets
Total
EBIT by market
2,059
144
265
981
3,449
2,449
181
329
999
3,958
(390)
(37)
(64)
(18)
(509)
2,066
163
298
1,027
3,554
(7)
(19)
(33)
(46)
(105)
Underlying EBIT (£m)
FY15
FY14
Change
FY14
like-for-like
Like-for-like
change
Germany
Russia
France
Other continental
markets
Total
52
1
(14)
32
71
77
(3)
(9)
37
102
(25)
4
(5)
(5)
(31)
70
(3)
(8)
31
90
(18)
4
(6)
1
(19)
Continental Europe delivered an underlying EBIT result of £71 million,
£19 million lower than last year on a like-for-like basis. The reduction in
EBIT is primarily related to margin pressure as a result of overcapacity
affecting our German business together with weakening consumer
confidence. This has led to an EBIT decline of £18 million on a like-for-
like basis in Germany. In response, we have strengthened our German
management team, improved third-party agency relationships, further
increased our focus on differentiated product and own-brand hotels,
and we plan to strengthen our omni-channel approach with a new
web platform to launch during H1 2016. We believe these measures,
along with a continued focus on customer value in priority to headline
pricing, will help to offset a competitive trading environment.
Overall revenue was £105 million (3%) lower than last year on a like-
for-like basis, due primarily to planned capacity reductions in France
and Russia to reflect local market conditions.
Our French business saw its operating loss widen by £6 million
to £14 million on the back of a continued weaker French consumer
demand generally and lower customer demand to North African
destinations in particular.
Through a reduction in risk capacity, our Russian business continued
to focus on profitable business which, together with further cost
savings, saw the business report a profit of £1 million in FY15, an
improvement of £4 million on the FY14 result. This is first time the
business has been profitable since it was acquired.
Our other Continental markets performed well, despite competitive
market conditions. The Benelux region reported an EBIT result which
was in line with last year on a like-for-like basis, whilst our Eastern
European businesses in Poland, Hungary and the Czech Republic
recorded year-on-year growth totalling £1 million.
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STR ATEGIC REPORT
FINANCIAL REVIEW CONTINUED
» Despite a competitive
environment in the
Nordics, our business
remains the market
leader in terms of
number of passengers
and profitability.«
NORTHERN EUROPE
Revenue
Gross margin
EBIT
1,057
27.9%
96
EBIT margin (%)
9.1%
Departed customers (000’s)
1,698
FY15
FY14
Change
FY14
like-for-like
Like-for-like
change
Revenue
Gross margin
Underlying EBIT
Underlying EBIT
margin (%)
Departed customers
(000’s)
1,057
27.9%
96
1,153
27.4%
101
(96)
0.5%
(5)
998
27.0%
78
59
0.9%
18
9.1%
8.7%
0.4%
7.8%
1.3%
1,698
1,511
187
1,702
(4)
Our Northern Europe business reported an EBIT result of £96 million
for FY15, £18 million better than last year on a like-for-like basis,
as it further increased its industry leading EBIT margin to over 9%.
Despite a competitive environment in the Nordics, our business
remains the market leader in terms of number of passengers and
profitability. Through an improved yield management performance,
the business was well positioned to take advantage of poor weather
in the early part of the Summer, to deliver an exceptionally strong
trading performance in the “lates” market in the fourth quarter.
FY15 EBIT also benefited from a revision to aircraft maintenance
provisions of circa £4 million during the year.
Revenue of £1,057 million was £59 million higher on a like-for-like
basis, demonstrating the strong differentiation of its product offering,
which retains unrivalled popularity with customers in its source
markets, together with strong ancillary sales.
Gross Margin of 27.9% was 90 basis points higher than FY14 on a
like-for-like basis. Load factors in excess of 99% and strong average
selling prices led to high margins for classic packages, complemented
with further sales of dynamic packages and higher ancillary sales
reflecting effective online distribution, powerful brands and a focus
on customer relationship management.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
45
AIRLINES GERMANY
CORPOR ATE
Revenue
Gross margin
EBIT
1,257
28.4%
56
EBIT margin (%)
Departed customers (000’s)
4.5%
7,713
Revenue
Gross margin
Underlying EBIT
Underlying EBIT
margin (%)
Departed customers
(000’s)
FY15
FY14
Change
FY14
like-for-like
Like-for-like
change
FY15
FY14
Change
FY14
like-for-like
Like-for-like
change
1,257
28.4%
56
1,299
27.8%
50
(42)
0.6%
6
1,145
28.7%
47
112
(0.3)%
9
Operating expenses
Foreign exchange
EBIT
(32)
0
(32)
(20)
1
(19)
(12)
(1)
(13)
(20)
1
(19)
(12)
(1)
(13)
4.5%
3.8%
0.7%
4.1%
0.4%
7,713
7,196
517
7,263
450
Corporate operating expenses were £13 million higher than last year
on a like-for-like basis at £32 million (FY14: £19 million). As we reported
in our FY14 announcement, the Corporate result in FY14 benefited by
£12 million from revised provisions for employee share incentive plans
and other remuneration schemes which were not repeated in FY15.
Condor, our German airline, again performed strongly in a competitive
market to report EBIT of £56 million in FY15, £9 million higher than last
year on a like-for-like basis.
Revenues increased by £112 million on a like-for-like basis, driven
by profitable growth of our long haul business. Long haul revenues
increased by 14.5%, with Seat Capacity up 9% compared to last year.
Despite an increase in capacity, load factors improved further to
89.6% from 88.4% in FY14. Yields were up 3.6%, driven by strong sales
for our fully refurbished business class cabin.
In the short/medium haul market, capacity increased by 7.1%, driven
by the increased earning capacity of our aircraft following the cabin
refurbishments. Load factors increased by 1.1 percentage points to
91.6%, but yields declined by 4% as a consequence of the reduction in
fuel market prices and intense competitive pressures in this market.
EBIT margin of 4.5% was 40 basis points higher than last year on a
like-for-like basis, as a strong long haul business, fuel price reductions
and the continuation of our Profit Improvement Programme more
than compensated for short/medium haul market pressures, currency
effects from the decline of the Euro against the US Dollar, and
increased aircraft, landing and overflight costs.
Our Profit Improvement Programme also focused on ancillary
sales with the successful introduction of our Airshoppen concept
in Germany. As a consequence, ancillary revenue per customer
increased by 5%.
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46
Booking
Departure
In-destination
Returning home
IN-DESTINATION WITH THOMAS COOK
hassle-free
holiday.
Concept hotel customers can enjoy an experience catered
exactly for their needs. Our in-destination teams work
tirelessly to put the customer at the heart of everything they
do. Connected Consultants are available 24/7, by phone, online,
text and social media. Responding to queries and questions,
they make sure customers get the information and support
they need for a hassle-free holiday. Our Reps are the face
of Thomas Cook in-destination. Their local knowledge and
endless enthusiasm inspires customers of all ages, delivering
a holiday never to be forgotten. To support our Reps, our newly
introduced case handling system allows them to manage
customer demands consistently, encouraging any requests
or issues to be handled on the spot.
IN-DESTINATION TEAMS
QUALIT Y MANAGERS
In-destination teams
put the customer at
the heart of everything
they do – they are
available through our
Connected service.
24
7
43
quality managers
across our
destinations –
listening to our
customers and
identifying ideas
for improvement.
Read more about how we are transforming our hotels on page 30
THOMAS COOK HOTELS & RESORTS
THOMAS COOK HOTELS & RESORTS
Lollo & Bernie visited
p
81 Thomas Cook Group
family hotels this year
(in 2016 they will visit
s
more than 100 Thomas
Cook Group family
zing
hotels). Creating amazing
holiday memories for
lts!
both children and adults!
FOCUS ON:
FAMILIES WHO
KNOW WHAT
PREMIUM
SHOULD BE.
FOCUS ON:
COUPLES WHO
WANT 4/5* HOTELS
IN PREMIUM
LOCATIONS. KIDS
ARE WELCOME
BUT WE FOCUS
OUR SERVICE
ON ADULTS.
FOCUS ON:
COUPLES AND
FRIENDS WHO
WANT TO BE TAKEN
CARE OF IN THE
PRIVACY OF A
4/5* HOTEL.
FOCUS ON:
WORKING SINGLES,
COUPLES AND
GROUPS OF
FRIENDS WHO
HAVE PLANS BUT
ARE LOOKING
FOR FUNCTIONAL
ACCOMMODATION.
FOCUS ON:
FAMILIES WITH
INDEPENDENT
YOUNG KIDS AND
TEENS LOOKING
FOR A SIMPLE BUT
GREAT VALUE-
FOR-MONEY CLUB
EXPERIENCE.
FOCUS ON:
YOUNG MODERN
TRAVELLERS WHO
LOVE FASHION AND
DESIGN AND ARE
SEARCHING FOR
A HEALTHY WORK-
LIFE BALANCE.
47
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STR ATEGIC REPORT
FINANCIAL REVIEW CONTINUED
NET FINANCE COSTS
Group net finance costs for the year decreased by £2 million to
£151 million (FY14: £153 million). This consisted of net interest charges
before aircraft financing of £134 million (FY14: £132 million) and aircraft
financing charges totalling £17 million (FY14: £21 million).
SEPAR ATELY DISCLOSED ITEMS
Net Separately Disclosed Items (SDIs) for FY15 were a £120 million
charge, a reduction of £176 million compared to the prior year
(FY14: £296 million). This breaks down into a cash SDI impact of
£69 million (FY14: £119 million) and non-cash impact of £51 million
(FY14: £177 million).
Cash(i)
£m
Non-
cash
£m
FY15
Total
£m
Cash(i)
£m
Non-
cash
£m
FY14
Total
£m
(51)
(1)
(52)
(109)
(1)
(110)
–
–
(5)
(13)
(69)
–
–
(69)
18
–
(30)
(17)
(30)
7
(28)
(51)
18
–
(35)
(30)
(99)
7
(28)
(120)
–
–
(5)
(5)
(119)
–
–
(119)
–
(57)
(74)
(20)
(152)
–
(25)
(177)
–
(57)
(79)
(25)
(271)
–
(25)
(296)
Restructuring
Reassessment of
contingent consideration
Asset valuations
Onerous contracts
and legal disputes
Other
EBIT related items
Profit on disposal of
associated undertaking
Finance related charges
Total
(i) Cash items encompasses both current year cash flows, and cash effects which have not been
realised before the end of the period.
Further information is included within Note 7.
TA X ATION
The overall tax charge in the year increased to £31 million from
a £1 million charge in FY14 as summarised below. Current tax of
£27 million is £10 million higher than last year due to increased
charges for our profitable businesses in Northern Europe and
Continental Europe, while the change in deferred tax reflects the
recognition of deferred tax assets in FY14 in respect of carried
forward tax losses in our UK business.
Current tax
Deferred tax
Total tax charge
Total cash tax
FY15
£m
(27)
(4)
(31)
(18)
FY14
£m
(17)
16
(1)
(32)
Further information is included within Note 9.
OPER ATING LEASE CHARGES
Operating lease charges of £205 million have increased by £20m since
FY14, as analysed below:
Included within EBIT:
Aircraft operating lease charges
Retail operating lease charges
Hotel operating lease charges
Total
FY15
£m
FY14
£m
135
44
26
205
106
49
30
185
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
49
EARNINGS PER SHARE
Underlying earnings per share, before separately disclosed items, was
8.9 pence, a year-on-year reduction of 2.4 pence (FY14: 11.3 pence).
SUMMARY CASH FLOW STATEMENT (i)
FY15
£m
310
174
484
139
(18)
(20)
585
(98)
(201)
(125)
161
92
(6)
247
(326)
247
(60)
(139)
FY14
£m
323
173
496
3
(32)
(22)
445
(43)
(156)
(130)
116
–
(9)
107
(421)
107
(12)
(326)
Underlying EBIT
Depreciation
EBITDA
Working capital
Tax
Pensions and other
Operating cash flow
Exceptional items(ii)
Capital expenditure
Net interest paid
Free cash flow(iii)
New Equity
Other
Net cash flow
Opening net debt
Net cash flow
Other movements in net debt(iv)
Closing net debt
Profit/(loss) after tax (£m)
Exceptionals
Attributable to minority interest (£m)
Exceptional tax
Adjusted profit/(loss) after tax (£m)
FY15
FY14
19
120
4
(11)
132
(115)
296
(3)
(15)
163
Weighted average number of shares (m)
1,487
1,440
Earnings per share (pence)
8.9
11.3
The basic profit per share for the year was 1.6 pence, delivering
a year-on-year improvement of 9.8 pence (FY14: loss 8.2 pence).
Further information is included within Note 11.
LIQUIDIT Y AND CAPITAL STRUCTURE
During FY15 we continued to strengthen the Group’s financial
position through further improvements to our capital structure
and by increasing our access to liquidity through larger bank
financing facilities.
In January 2015 we gained strong support for a new 7-year,
€400 million Eurobond to refinance a Eurobond bond of the same
size which matured in June 2015, which further extended the debt
profile of the business. In May 2015 we signed a new £800 million
financing facility, which includes a £500 million revolving credit
facility (RCF), and a £300 million committed bonding and guarantee
facility. This agreement increased the size of the committed facilities
available to the Group from £470 million to £800 million and further
extended the maturity of those facilities to May 2019.
The larger RCF is better aligned to our seasonal working capital swing
and will help to create a more efficient capital structure over time.
The new facilities also removed certain restrictive terms from our
previous facility documentation, and now permits the resumption
of dividend payments. This reflects an improving trend in our credit
standing from ‘B-‘ with a ‘negative outlook’ in July 2012 to ‘B’ with a
‘stable outlook’ as at September 2015, which we expect to improve
further over the medium term.
(i) The Group uses three non-statutory cash flow measures to manage the business. Operating cash
flow is net cash from operating activities excluding interest income, aircraft related costs and the
cash effect of separately disclosed items impacting EBIT. Free Cash flow is cash from operating
activities less capital expenditure and interest paid. In FY14 Free Cash flow also includes the
net cash received on disposals. Net cash flow is the net (decrease)/increase in cash and cash
equivalents excluding the net movement in borrowings, finance lease repayments and facility
set-up fees.
(ii) Exceptional items include net cash from disposals of £20 million in FY15 and £78 million in FY14.
(iii) Free cash flow is cash from operating activities less capital expenditure and interest paid.
(iv) Represents retranslation of foreign currency debt items and amortisation of capitalised fees.
Free cash flow for the year was £161 million (FY14: £116 million)
helped by improved working capital, offset by greater investment in
capital expenditure and restructuring costs. In addition, new equity
was issued to Fosun as part of a strategic partnership announced
in March 2015, which resulted in net cash flow for the year of
£247 million (FY14: £107 million).
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STR ATEGIC REPORT
FINANCIAL REVIEW CONTINUED
NET DEBT
The Group sources debt and finance facilities from a combination of
the international capital markets and its relationship banking group.
During the year, the Group reduced net debt from £326 million to
£139 million.
The composition and maturity of the Group’s net debt is
summarised below:
2015 Euro Bond
2017 GBP Bond
2020 Euro Bond
2021 Euro Bond
Commercial Paper
Revolving Credit Facility
Finance Leases
Aircraft related borrowings
Other external debt
Arrangement fees
Total debt
Cash (net of overdraft)
Net debt
30 Sept.
2015
£m
30 Sept.
2014
£m
Movement
£m
–
(299)
(388)
(295)
(155)
–
(183)
(99)
(47)
26
(1,440)
1,301
(139)
(310)
(297)
(408)
–
(82)
–
(181)
(79)
(13)
25
(1,345)
1,019
(326)
310
(2)
20
(295)
(73)
–
(2)
(20)
(34)
1
(95)
282
187
Maturity
Jun-15
Jun-17
Jun-20
Jun-21
Various
May-19
Various
Various
Various
n/a
The Group’s £800 million Committed Facilities comprises a Revolving
Credit Facility of £500 million, of which £46.6 million was drawn
at 30 September 2015, and a £300 million bonding and guarantee
facility of which £247.2 million was drawn at 30 September 2015
(2014 £126.0 million). The Revolving Credit Facility is shown as nil in
the above table as the drawn element (£46.6 million) relates to a
drawdown of the ancillary facilities of the RCF, which has been used
solely for bonding and is thus net debt neutral. These facilities mature
in May 2019.
Separately disclosed items
Prior year (paid in FY15)
Prior year EU261 (paid in FY15)
Current year(i)
Total Exceptional items
FY15
£m
(40)
(16)
(42)
(98)
FY14
£m
(34)
–
(9)
(43)
(i) Exceptional items include net cash from disposals of £20 million in FY15 and £78 million in FY14.
The Group uses a measure of cash conversion which reflects the
amount of cash flow retained by the business, which can be used
for investment in capital expenditure, debt repayment or payment of
dividends. On this basis, cash conversion has improved to 75% in FY15
(FY14: 55%). As part of the New Operating Model, the Group intends to
use a revised measure of cash conversion from FY16 onwards.
Operating Cash flow(i)
Net Interest
Cash Exceptionals
Converted Cash
EBITDA
Cash conversion
FY15
FY14
585
(125)
(98)
362
484
75%
445
(130)
(43)
272
496
55%(ii)
(i) Operating Cash flow defined as net cash from operating activities before net interest payments
exceptional cash costs.
(ii) Cash conversion for FY14 has been restated to be consistent with the FY15 presentation;
FY14 reported cash conversion was 62%
NET ASSETS
The Group’s balance sheet at 30 September 2015 is set out
on page 119. During the year the Group’s net asset value
increased by £83 million to £368 million at 30 September 2015
(September 2014: £285 million), analysed as follows:
Net assets £m
170
(31)
89
368
(8)
285
(120)
(17)
Opening
net assets
PBT
pre-
exceptional
Taxes
Non-
recurring
items
Balance
sheet
revaluations
Issue of
shares (net
of costs)
Other
Closing
net assets
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
51
TREASURY MANAGEMENT
The Group’s funding, liquidity and exposure to foreign currencies,
interest rates, commodity prices and financial credit risk are
managed by a centralised Treasury function and are conducted
within a framework of Board-approved policies and guidelines.
HEDGING OF FUEL AND FOREIGN EXCHANGE
The objective of the Group’s hedging policy is to smooth fluctuations
in the price of Jet Fuel and foreign currencies, in order to provide
greater certainty for planning purposes. The proportion of our
exposures that have been hedged are shown in the table below.
The principal aim of Treasury activities is to reduce volatility by
hedging, which provides a degree of certainty to the operating
segments, and to ensure a sufficient level of liquidity headroom
at all times.
The successful execution of policy is intended to support a
sustainable low risk growth strategy, enable the Group to meet its
financial commitments as they fall due, and enhance the Group’s
credit rating over the medium term.
CREDIT R ATING
The Group has maintained its ‘B’ ratings from both Standard & Poor’s
and Fitch, who commented on the significant progress made in
the transformation of the Group, particularly in relation to our cost
reduction programme.
Corporate ratings
2015
2014
Rating
Outlook
Rating
Outlook
Standard and Poor’s
Fitch
B
B
Stable
Stable
B
B
Positive
Positive
CASH MANAGEMENT
Due to the seasonality of the Group’s business cycle and cash
flows, a substantial amount of surplus cash accumulates during the
Summer months. Efficient use and tight control of cash throughout
the Group is facilitated by the use of cash pooling arrangements and
the net surplus cash is invested by Treasury in high quality, short-
term liquid instruments consistent with Board-approved policy, which
is designed to mitigate counterparty credit risk. Yield is maximised
within the terms of the policy but returns in general remain low given
the low interest rate environment in the UK, the US and Europe.
A small portion of the Group’s cash is restricted in overseas
jurisdictions primarily due to legal or regulatory requirements.
Such cash does not form part of the liquidity headroom calculation.
Euro
US Dollar
Jet Fuel
As at 28 October 2015.
Winter 15/16
Summer 16
Winter 16/17
95%
95%
91%
75%
84%
90%
34%
50%
82%
As Jet Fuel is priced in US Dollars, our net fuel costs are influenced
by both the fuel price and the movements in the US Dollar against
our base currencies.
While net fuel costs reduced by around £100 million in FY15 compared
to last year, these benefits were partly absorbed by higher dollar-
denominated non-fuel flying costs, and partly passed on to our
customers through lower prices. For FY16, we currently estimate
that our net fuel costs will fall by a further £100 million, although our
prudent assumption is that we do not expect to retain these benefits.
The Group does not hedge the translation of overseas profits into
Sterling, and as a result of currency movements during the year,
reported profits in FY15 were lower by £38 million.
The average and period end exchange rates relevant to the Group
were as follows:
GBP/Euro
GBP/US Dollar
GBP/SEK
Average rate
Period end rate
FY15
FY14
FY15
FY14
1.35
1.55
12.60
1.22
1.66
10.98
1.35
1.51
12.66
1.29
1.62
11.72
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STR ATEGIC REPORT
FINANCIAL REVIEW CONTINUED
FY16 Hedging of fuel and foreign exchange
US Dollar
Euro
Jet fuel
50%
34%
84%
95%
95%
75%
91%
90%
82%
Winter 15/16
Summer 16
Winter 16/17
As at 31 October 2015.
GBP vs EURO, US Dollar and SEK
11.72
1.62
1.29
12.66
1.35
1.51
Oct-14
Jan-15
Apr-15
Jul-15
Sep-15
GBP/USD
GBP/SEK
GBP/EURO
TARGETS AND KEY PERFORMANCE INDICATORS –
FY13 TO FY15
Since March 2013, we have reported our progress against a set of
targets and KPIs that were intended to measure our progress in
implementing our strategy between FY13 and FY15. The table below
shows our achievements over this period:
Financial year ended 30 September
FY12
FY13
FY14
FY15
FY15
Actual
Target
Targets
New product revenue
Web penetration(i)
Wave 1 cost-out/profit
improvement (run-rate)
KPIs
Sales growth
Underlying gross margin
improvement(iii)
UK underlying EBIT margin
Cash conversion(iv)
N/A
34%
£94m £280m £543m >£700m
>50%
40%
36%
38%
£60m £194m £400m £510m >£500m
N/A
N/A
(2.1%)
(1.2)%
>3.5%(ii)
N/A
0.1%
11%
0.8%
2.2%
48%
1.5%
3.5%
55%(v)
1.6%
4.8%
75%
>1.5%
>5%
>70%
Notes:
(i) Measured on a last 12 months (LTM) departed basis.
(ii) Compound annual growth rate from FY13 to FY15 including new product revenue.
(iii) Underlying gross margin, adjusted for disposals and shop closures to make all periods from FY12 –
FY15 like-for-like.
(iv) Cash conversion ratio is defined as free cash flow after exceptional items and before capital
expenditure as a percentage of EBITDA.
(v) Cash conversion for FY14 has been restated to be consistent with the FY15 presentation; FY14
reported cash conversion was 62%.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
53
Our overarching aim over the last three years has been to put the
Group on a more stable foundation by sustainably growing profits.
Accordingly, we have made good progress on our profit improvement
targets, but those targets not directly linked to profit improvement
have not been met.
The Group achieved its underlying gross margin improvement target
for FY15 one year early, supported by our Cost Out programme, which
has consistently exceeded targets. We have also made good progress
in growing our UK EBIT margin, coming close to our 5% target for FY15,
compared to zero in FY12. In cash conversion, we achieved 75% in FY15,
ahead of our target of 70%.
We made good progress in growing New Product revenues from our
higher margin own-brand and partner hotels, generating incremental
revenue of £543 million between FY12 and FY15 (despite the sales
impact of Tunisia). However, we did not meet our £700 million target
overall as a result of a strategic decision to sell fewer lower margin
City and commodity hotels in order to focus on profits.
Consistent with our previous disclosure, we did not meet our full year
sales growth and web penetration targets, as we chose to remove
certain low or nil profit business lines in order to focus on profits and
to reduce business risk.
The table below shows our Cost Out and Profit performance,
compared to our targets.
UK turnaround
Group-wide cost-out
– Integrated air travel strategy
– Organisational structure
– Product, infrastructure,
technology, and other
Total targeted benefits(i)
Expected costs to achieve(ii)
– Income statement(iii)
– Cash flow:
– Operating expenditure
– Capital expenditure
FY 12
£m
FY 13
£m
FY 14
£m
FY 15
£m
FY 15
Target
£m
60
–
–
–
–
60
36
30
–
124
70
27
30
13
194
47
29
8
140
260
100
91
69
400
30
33
21
140
370
148
118
104
510
24
37
34
140
360
134
111
115
500
11
24
31
Notes:
(i) Run rate.
(ii) One-off costs.
(iii) One-off costs in the income statement are included in separately disclosed items.
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Booking
Departure
In-destination
Returning home
RETURNING HOME WITH THOMAS COOK
holidays
don’t have to
end at home.
We inspire new holiday choices by providing tailored information
on destinations customers might want to travel to next.
HOLIDAY SURVEY
A welcome home email,
including a short Holiday
Survey, gives customers
the opportunity to tell
us what they loved plus
anything we could do to
make their next trip with
us even better.
WELCOME HOME
Read more about how we are transforming our CRM on page 32
Y INSPIR ATION
HOLIDAY INSPIR ATION
Our Customer
Services team is on
hand to respond to
any post-holiday
queries.
MER SERVICES
CUSTOMER SERVICES
Customer feedback from the Holiday
Survey is used across the Group,
helping us to continuously improve
our products and work to always
put the customer at our heart.
SURVEY
55
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STR ATEGIC REPORT
RISK MANAGEMENT
EMBEDDING A CULTURE
OF RISK MANAGEMENT
OUR RISK MANAGEMENT STR ATEGY
The Board is responsible for maintaining the Group’s risk management
and internal control systems, with a mandate that includes defining
risk appetite and monitoring risk exposures and mitigations to ensure
that the nature and extent of risks taken by the Group are aligned
with its strategic objectives.
RISK APPETITE
The Board has undertaken a detailed exercise to consider the risk
appetite in a number of key areas for the business. The results of
this review indicate the relative appetite of the Board across the risk
factors and behaviours. It is evident that this represents a view at
a point in time and changes in light of the economic environment,
strategy and performance of the business will impact this evaluation.
The Board are aligned on the relative risks and have agreed the
appetite for risk taking for digital delivery and product risk categories
is entrepreneurial. This position aligns with the strategic aims of the
transformation programme and targets set for the business.
The Board seeks to minimise all health, safety and reputational risks.
In all other aspects, the Board takes a balanced view on risk taking.
It is the intent of the Board to use the results of this review to
support its ongoing decision making and as the basis for a review
annually in the light of the changes to the economic environment,
strategic progress and performance of the business.
OUR APPROACH TO RISK MANAGEMENT
Operating in a dynamic and continually volatile environment requires
a flexible and responsive risk management process that can match
the pace of change and provide management with a concise view
of the Group’s risk profile at any point in time. We continue to
focus on further embedding a culture of risk management that will
contribute towards effective strategy execution, ensuring both risk
and opportunities are identified and managed to deliver long-term
value creation.
During 2015, we focused on enhancing our dual track approach to risk
management consisting of top down oversight from the Board and
senior management, and bottom up risk management embedded in
the day-to-day activities of the Group.
TOP DOWN OVERSIGHT
The Risk Matters Group (“RMG”) and the broader risk management
framework have been designed to ensure the scope of coverage
includes transformational/strategic, operational, financial and legal
risks within a single framework. Chaired by the Chief Risk Officer,
the purpose of the RMG is to provide leadership, direction and
oversight with regard to the Group’s overall risk framework, appetite,
and relevant risk policies, processes and controls. The RMG meets
on a quarterly basis, and reviews the Group Risk Dashboard, key
risk indicators and the Group’s principal risks, All business areas
are represented through attendance by senior executives ensuring
an appropriate level of insight and validation. The chair of the Audit
Committee regularly attends the meetings of the RMG. The RMG
reports to the Audit Committee and the CEO of the Group.
BOTTOM UP ASSESSMENTS
Our investment in risk management software ensures that risk
registers are regularly updated and reviewed through a Group-wide
programme of risk workshops. Each major business unit has a
quarterly risk committee attended by the risk owners representing
all areas of the business, as well as the Group Enterprise Risk and
Audit Team. The risk committees analyse key business unit risks and
ensure implementation of risk mitigation plans. Where appropriate,
significant risks identified at business unit level are escalated and
discussed within the RMG.
THE AUDIT COMMITTEE
The Audit Committee considers risk exposure against risk appetite by
profiling key risks in respect of their potential impact and likelihood
of occurrence, after consideration of mitigating and controlling
actions that are in place. During the year, the Audit Committee has
reviewed both top down and bottom up risk analyses and the Board
has undertaken a detailed exercise to consider its risk appetite.
The aim of these activities has resulted in an Annual Audit Plan, which
will enable a risk-based approach to the ongoing internal audit and
assurance programme. The report of the Audit Committee can be
found on page 79.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
57
TOP DOWN
Oversight and assessment
of risk exposures at the
corporate level
THE RISK MANAGEMENT FR AMEWORK
THE BOARD
Overall responsibility for the
risk management system
Sets strategic objectives and
defines risk appetite
Receives and reviews Audit
Committee reports on risk
governance
AUDIT COMMITTEE
GROUP EXECUTIVE COUNCIL
(including CEO & CFO)
> Supports the Board in monitoring risk exposure
> Maintains executive oversight of the Group’s key
against risk appetite
> Monitors the risk management process
risks and mitigation
RISK MATTERS GROUP
> Sets the risk management
> Considers emerging risks
> Provides oversight and challenge
process
for risk mitigation plans
BOTTOM UP
Identification and assessment
of risk exposures at Segment
and function level
> Group-wide risk identification,
assessment and monitoring
> Maintenance of risk registers
OPER ATIONAL LEVEL
> Risk awareness and culture
embedded across the Group
> Implementation of risk mitigation
plans and controls
OUR PRIORITIES FOR 2016
The Group Enterprise Risk and Audit Team will continue to support
the business through facilitation of risk workshops for all areas of
the Group, working with risk owners to enhance risk governance
and improving the risk culture across our organisation. We anticipate
ongoing development and greater sophistication of bottom up risk
data, with further focus on mitigation strategies for the Group’s
principal risks.
The Business Plan includes analysis of the Group’s income statement,
balance sheet, cash flows, KPIs and debt covenants outlook.
Where appropriate, this analysis is subject to sensitivity testing
which involves flexing a number of the main assumptions underlying
the Business Plan and evaluating the potential impact of the Group’s
principal risks actually occurring, both individually and in unison
and the mitigating actions available to the Group over the relevant
timeframe if such risks did arise.
VIABILIT Y STATEMENT
The Directors have assessed the prospects of the Company in
accordance with provision C2.2 of the 2014 UK Corporate Governance
Code. The Board approved the Thomas Cook Group three-year
business plan, which covers the period to 30 September 2018
(the “Business Plan”). This Business Plan has been used as the basis
for the going concern assessment, goodwill impairment reviews and
other estimates made during the financial year. The Business Plan
contains the most up-to-date management information and provides
a sufficient level of detail to support these assessments.
The Directors believe a three-year period is appropriate to consider
viability as this is typically the longest duration the Group contracts
with hotels and the timeframe over which the Directors believe
they can accurately forecast the benefits arising from the New
Operating Model.
Sensitivity testing included assessing the impact of not delivering:
the online aspects of our strategy in the UK; competitive pricing in
our source markets; and, the effect of reduced customer demand
to certain destinations.
The principal risks with a direct link to the viability statement have
been indicated in the table overleaf. Based on the results of this
analysis, the Directors have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities as they
fall due over the three-year period of their assessment.
ASSESSMENT OF THE PRINCIPAL RISKS
The Group’s risk management system works effectively in assessing
the Group’s risk appetite and has supported a robust assessment
by the Directors of the principal risks facing the Group. The principal
risks are reviewed throughout the year and these are discussed
with the Board quarterly. This includes all relevant principal risks that
could threaten Thomas Cook’s business model, future performance,
solvency or liquidity.
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STR ATEGIC REPORT
RISK MANAGEMENT CONTINUED
OUR PRINCIPAL RISKS AND UNCERTAINTIES
The table below lists the principal risks and uncertainties as determined by the Board that may affect the Group and highlights the
mitigating actions that are being taken. The content of the table, however, is not intended to be an exhaustive list of all the risks
and uncertainties that may arise.
Principal risks
Mitigation
1
Our New Operating Model
(NUMO), the next phase of our
transformation, fails to deliver
our strategic and operational
targets.
2 Failure to align our products
and services to customer
preferences may have
an adverse impact on
our ability to improve our
customers’ experience
of Thomas Cook holidays*.
3 Failure to achieve growth in our
digital distribution channel may
have an adverse impact on our
market share, profitability and
future growth*.
4 Failure to recruit or to retain
the right people at the right
time will lead to a lack of
capability or capacity to enable
the implementation of our
business strategy.
5 IT architecture is unable
to support the needs of
the business.
> Bi-weekly status reports on each project submitted to the Senior
Management Team.
> Monthly Group Transformation Review meetings attended by senior
management including CEO and CFO, during which progress and issues
are discussed and addressed.
> Financial benefits and KPIs are incorporated in the FY16 – FY18
business plan and delivery is tracked as part of the business
review process.
> Ongoing monitoring of our hotel portfolio has allowed us to focus
on the continuous improvement of our product offering, taking into
account feedback from our customers.
> Our “One Tour Operator” initiative will harmonise processes, remove
duplication and adopt same ways of working behind the scenes with
suppliers and in the back-office. This will ensure that we have the right
products and services in place to grow and improve our customers’
experience across all markets.
> Our strategy includes a focus on developing best in class ancillaries
which will improve our customers’ holiday experience.
> There has been significant investment into the refurbishment of
our hotel brands.
> The Hotel Investment Fund will accelerate our focus on improving
our product portfolio.
> We have made major investments within our Group airlines through
cabin refurbishment, purchase of new aircraft and addition of
new routes.
> We have made significant investment in our One Web platform, which
has led to improvements in functionality and resulted in higher
conversion rates and online bookings.
> As part of our new operating model, the “Omni-channel” initiative will
ensure a seamless digital experience for our customers both in stores
and online.
> Our Group Ecommerce Team has regular dialogues with management
within our source markets to maintain oversight and provide
digital support.
> Our new Companion App allows our customers to obtain information
about their holiday, manage payments, and book excursions while
in-destination.
> Our performance management system was implemented in 2014
and tracks the performance and potential of all our employees.
> Our high potential talent is identified and nurtured through an
Executive Development programme and our Emerging Talent
programme is currently being developed.
> Reward schemes are regularly evaluated to drive and reward
performance and to ensure retention of key talent.
> As part of succession planning, the top 130 positions have been
assessed and 42 critical positions have been identified.
> Our annual engagement survey allows us to assess employee
motivation and commitment and identify actions we need to
implement to enable talent retention.
> The first phase of our IT transformation has been successfully
completed and the second phase is proceeding as planned.
> Our simplified and automated service delivery process ensures
requests from the business are addressed in a timely manner.
> Weekly reviews between business unit IT Heads to prevent any
IT issues across the business.
> IT works closely with the business to ensure NUMO initiatives
have the appropriate level of support.
* Principal risk with a direct link to the viability statement.
Opportunities
To deliver a best in class
operating model which will
provide a competitive advantage
in our market.
Diverse product portfolio enabling
us to match product offerings to
change in customer preferences
and demand.
Flexible distribution model
that fully meets the needs
of our customers.
Aligned to customer
technology innovation.
Employing the best people to
continuously develop and evolve
strategy and ensure ongoing
efficiency and operation of
the business.
To develop a modern, future proof
IT Operating Model.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
59
Principal risks
Mitigation
6 Information security and cyber
threats are currently a priority
across all industries and remain
a key Government agenda item.
The Group recognises that we
have high risk exposure in this
area and has added this as a
new principal risk.
7 A decision or a course of action
is perceived negatively by the
media, investors and/or general
public, which in turn impacts
the corporate reputation of the
Group and its share price*.
Opportunities
To become thought leaders in
developing a strategy to combat
emerging cyber threats.
> Our Information Security Steering Group has been established to
provide oversight of the cyber risk framework and ensure appropriate
mitigations are in place.
> Our Security Improvement programme is underway and aims to provide
the following mitigations:
— Group Security Policies
— Security Awareness Training
— Detect and Respond Monitoring Service for websites, data
centres and critical systems
— Vulnerability Management service to test website and
system security
> As part of our risk management process, we identify all events that
may have a potential reputational impact to the Group and ensure that
controls are in place to manage these risks.
Promotion of the business and
enhancement of brand value
through positive media attention.
> We have a clear plan in place to respond to the potential reputational
consequences of an event which includes close cooperation between
investor relations, public relations, HR and legal teams to identify and
prepare responses to incidents and potential issues. The plan has
been strengthened this year based on the lessons learnt during the
Corfu Inquest.
> We monitor stakeholder and governmental reactions to ensure we
respond to emerging political and regulatory developments.
8 Cash generation limits the
ability to strategically manage
debt repayment and/or dividend
payment*.
> We proactively monitor our short, medium and long-term cash
requirements and liquidity headroom.
> Our cost-out and profit improvement initiatives are successfully
contributing to cash availability.
Sufficient cash to implement
optimal financing strategies.
9 Due to the nature of its
business, the Group will
always be exposed to a risk
of a health and safety incident
that may impact our customers
or colleagues together with
associated reputational
damage.
10 Increasing security threats
and general socio/political
uncertainties negatively impacting
our key markets and reduce
the demand for travel related
products*.
> We continue to monitor all opportunities to manage liquidity
requirements and maintain an adequate level of contingency as well
as seeking to lower the average cost of debt over the medium term.
> We operate a robust safety management system (SMS) to ensure the
implementation of our Health and Safety Policies and procedures.
> The Group Health, Safety, and Security team implement the SMS,
which is further supported by a reputable external specialist (SGS).
> The Group regularly reviews and updates its safety and security
training programmes to ensure they continue to reflect best practice.
> Our Health and Safety Audit programme, which is delivered by
external specialists, measures standards and includes a clear
escalation and decision process. The programme also includes
a robust follow-up process.
> The assessment of Health and Safety risks is inbuilt into daily
management routines and is monitored by a structure of health and
safety committees that are in turn overseen by a corporate Health,
Safety & Environmental Committee with Board level oversight.
The report of the Health, Safety & Environmental Committee can
be found on page 83.
> Our flexible business model allows us to align our committed capacity
to fluctuating demand.
> As part of our destination strategy, we continue to add new destinations
to our portfolio, thereby mitigating the effect of factors which may
negatively impact demand for travel to certain regions.
> We actively monitor the socio/political landscape to ensure we have
an early indication of emerging risk and are available to respond in
an appropriate and timely manner.
> We have a dedicated Crisis Management Team who have the requisite
resource and skills to ensure that adequate emergency response is
provided to ensure the welfare of our customers.
> All of our senior management regularly participate in crisis
management scenarios.
To provide class leading health and
safety programmes for the benefit
of our customers and employees.
To deliver proactive capability to
pre-emptively manage emerging
geopolitical uncertainties.
11
Failure to comply with regulatory,
legislative and corporate social
responsibility requirements in the
legal jurisdictions where Thomas
Cook operates.
> We have a dedicated Legal Team to ensure full compliance with formal
regulatory requirements which monitors all current and emerging
regulatory developments in our source markets. The team receives
regular training to provide awareness of critical changes in relevant
legislation or case law.
Instilling values and positively
influencing all of our key
stakeholders.
> Our Code of Conduct is backed by a comprehensive training programme
to ensure that it is fully embedded across the Group.
> Our Legal Risk Database enables communication and timely analysis
of all risks related to regulatory, legislative and corporate social
responsibility requirements.
* Principal risk with a direct link to the viability statement.
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STR ATEGIC REPORT
PEOPLE
INSPIRING AND
DEVELOPING OUR TALENT
Having the right people, in the right roles, focused on the right
priorities is key to the execution of our profitable growth strategy;
both in terms of supporting our New Operating Model and to ensure
that we keep our customers at the heart of all we do. Embedding a
high performing and customer centric culture is pivotal to drive the
change we need to see and remains a key focus as we aspire to be
the world’s best-loved holiday company.
VALUES AND WAYS OF WORKING
Our Code of Conduct expresses our core values and beliefs – what
we do and who we are. These principles provide a solid and unified
framework across the Group, guiding our behaviours and how
we conduct ourselves at work. Awareness is raised through the
induction process and as part of annual performance reviews, when
employees are asked to remind themselves of the Code and confirm
they have read and understood how it applies to their role and what
we can expect of each other.
COMMUNICATING AND ENGAGING WITH
OUR EMPLOYEES
Regular, effective, two-way communication and collaboration is
important at any time, but never more so than during transformation
and change. Employee engagement is driven through understanding
and we target different employee groups through a number of
communication forums and channels:
> Our Thomas Cook Leadership Council (“TCLC”) comprises our top
150 senior leaders and is used as a forum for informing, engaging
and involving our leaders in our transformation. The TCLC meets
two to three times a year and the sessions, which are increasingly
participative and collaborative, are designed around strategy
execution, planning and calls to action as we move forward with
our New Operating Model. Feedback tells us that these sessions
inspire and engage members, providing a forum for alignment
of strategic goals and sharing best practice.
> Regular digital communications and face-to-face all employee
“town halls” take place across all parts of the Group, hosted by
the local leadership, where plans and progress are discussed.
Participation and feedback is encouraged to ensure communication
is two-way.
> Our collaborative intranet, “HeartBeat”, launched in 2014 and has
been revamped during 2015 to support our changing organisation,
and to increase and improve collaboration across the Group.
The new attractive and vibrant site encourages our people to work
together, collaborate and share. It provides a channel for socialising
as well as sharing important news and information consistently
through a variety of digital methods including news articles, blogs,
and videos.
ENGAGEMENT SURVEY
Change within Thomas Cook continues at pace. During these times,
feedback is more important than ever so each year we ask employees
to tell us how we are performing as a company and an employer.
In September 2015, we ran our third annual Group-wide employee
engagement survey – Every Voice.
More than three-quarters of our people completed the survey
(76%) this year, a one percentage point increase on last year,
with almost 7,500 comments shared with us and read by Peter
Fankhauser. This volume of responses tells us that our people want
to contribute to the development of the Company and be part of our
positive change.
The Group’s overall Core Index score, which is a measure of employee
engagement with the Company, improved by four percentage points
to 72% with a positive shift in most geographical segments and
business functions. This follows a four percentage point increase
in 2014, so a clear pattern of year-on-year improvement.
One of our biggest improvements this year was the understanding
and engagement with the Company’s Strategy and Objectives, which
improved by six percentage points to 72%. This is excellent progress
and a clear indicator that we are taking our people with us in our
journey and that they have a better understanding of where we’re
going and what we need to achieve together.
Results are cascaded throughout the organisation and action
plans are developed collaboratively at a segment and departmental
level to ensure that we act upon the findings and that our people
feel involved and engaged in making a positive difference.
RECOGNISING PERFORMANCE
Improving our business performance and driving profitable growth
requires focus, commitment and engagement from our people.
Strategic objectives are cascaded down through the organisation
to drive successful execution and provide focus through effective
use of personal objectives.
Embedding a high performance culture is enabled by our
Group-wide online performance and development system, MyPAD
(My Performance, Aspirations, Development). During 2015, we have
enhanced MyPAD from a user perspective and have continued to
develop our leaders and managers to ensure effective review
meetings take place at least twice a year.
We have continued throughout 2015 to place great emphasis on pay
for performance through our employee incentive plans. These plans
provide our employees with awareness on how their performance
impacts on the success of the Company.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
61
We remain committed to operating a performance share plan
for our executives and senior leaders across the Group, who can
impact and influence results, aligning their interests with those
of our Shareholders.
Our Apprenticeship programme makes brilliant career opportunities
available to school leavers by opening doors to a hugely exciting
industry with enough variation to fill their entire career if they
so choose.
We reward and celebrate employee successes through “From The
Heart”, our online recognition scheme, which is underpinned by our
Group values.
TALENT DEVELOPMENT AND
SUCCESSION PL ANNING
We continue to strengthen our leadership capability by attracting
high-quality talent via external appointments and by developing
our internal capability. In 2015, we conducted our first Group-wide
Talent and Succession Review using a consistent methodology and
approach, holding separate sessions with our Group Management
Committee (“GMC”) and PLC Board. This process has enabled us to gain
a better understanding of our talent pools deeper in the organisation
and strengthen our leadership pipeline. We have delivered our second
Executive Development programme for a further 50 senior leaders
during 2015.
Our Emerging Talent programme focuses on fast tracking newly
identified talent to create a leadership pipeline for senior roles,
and we will deliver two aspects of this programme in 2016.
APPRENTICESHIPS
In the UK, we are proud to achieve an “Outstanding” rating across
all areas in the recent Ofsted inspection of our Retail Apprenticeship
programme. This unprecedented result in travel apprenticeships puts
the Company at the forefront of UK businesses recognised for an
incredibly successful work-based learning Apprenticeship programme
for school leavers. Each year, more than 200 new school leavers are
introduced into the business to complete a two-year programme
which leads to an NVQ Diploma in Travel Services; a Technical
Certificate in Travel Geography and Functional Skills Qualification
in Maths and English.
Within Thomas Cook Germany we continue to invest in internships
and apprenticeships. During the year, we gave 120 interns their first
experiences of working in the travel industry through our university
programme “Talent Circle”. During 2015, 26 people joined us, moving
from our dual education programme into our travel agencies and
our German Head Office, They will finish their apprenticeship after
three years with a Chamber of Commerce certificate or a Bachelor’s
degree. We are really proud of the 80 apprentices we have on
board. This brings our total number of internships to over 200 from
different universities, many of them remaining with Thomas Cook
after completing their studies. For the dual education programme, we
recruit nearly 70% into our business. All of them are well educated,
highly motivated and committed to Thomas Cook. Both programmes
are a valuable investment in Thomas Cook’s future.
DIVERSIT Y AND INCLUSION
As a global organisation our focus on delivering world class customer
service is supported by a strong customer centric, international
culture with diverse and mobile leaders. We believe diversity can
open up new ways of thinking, will help us reach out to be closer
to all of our customers and will drive profitable growth.
We continue to focus on making strategic appointments at a senior
level to strengthen our diversity. Our Code of Conduct, Values,
Leadership Behaviours and recruitment and selection practices
ensure we treat people fairly and free from any discrimination.
To support this further we launched Group-wide Diversity Principles in
2015. We are committed to creating an inclusive working environment
in which each employee is able to fulfil their potential and maximise
their contribution through training, career development and fair
promotion regardless of personal characteristics.
The graphs below show the split at different levels within the
organisation as at 30 September 2015:
Plc Board
GMC
TCLC
TC Group
GENDER DIVERSIT Y
63%
Male
38%
Female
92%
Male
8%
Female
77 %
Male
23%
Female
31%
Male
69%
Female
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STR ATEGIC REPORT
CORPOR ATE SOCIAL RESPONSIBILIT Y & SUSTAINABILIT Y
COMMITTED TO MAKING TOURISM
MORE SUSTAINABLE
Thomas Cook provides boundless opportunities for people to enjoy
new experiences, discover new cultures and create fantastic
memories. We believe that responsible tourism is capable of
generating positive economic and social development whilst
minimising environmental impact. At Thomas Cook, we are committed
to making all holidays more sustainable.
Our vision for sustainability is simple. For us it is how we meet
our needs today and contribute to the future of our business, the
environment and the people and communities with whom we work.
In this way we aim to create a strong and robust business that will
operate responsibly, generating benefit for the communities with
which we work over the longer term.
HOW WE MANAGE SUSTAINABILIT Y
We see sustainability as the responsibility of every employee and an
activity that requires strong leadership, beginning with the Group
CEO Peter Fankhauser. The Board retains responsibility for the long-
term success of the Group and the Health, Safety & Environmental
Committee has oversight of the consistent policy for managing health,
safety and environmental matters. The Committee met four times
during the year and information on activities of the Committee during
the year can be found on page 83.
OUR SUSTAINABILIT Y STR ATEGY
We recognise that the sustainability landscape has changed
dramatically since our last sustainability strategy was launched
in 2010. This, along with the changing role of the travel and tourism
industry and social and geopolitical changes since 2010 have
prompted us to review how we manage sustainability and our
long-term ambitions.
In 2015, Thomas Cook undertook a materiality review, to reassess
both what is important to the business and stakeholders, as
well as what the main impacts and risk areas were in respect
of sustainability. This review gave a new perspective to what the
material impacts are for Thomas Cook as an organisation and now
drives our efforts to deliver the most benefit to the communities
with which we work and to reduce our environmental impact.
Sustainability at Thomas Cook is now split into three focus areas:
People, Planet and Responsible Business. Each of these areas
is explored over the following pages and further detail can be
found in our 2015 Sustainability Report, which is available at
thomascookgroup.com/sustainability.
FULL SUSTAINABILIT Y REPORT
O V E R V I E W
P E O P L E
P L A N E T
R E S P O N S I B L E B U S I N E S S
SUSTAINABILIT Y AT OUR HEART
C O N T I N U I N G T H E
T R A N S F O R M AT I O N
View and download the full Sustainability report here: thomascookgroup.com/sustainability-report
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
63
PEOPLE
PEOPLE 2020 TARGETS
» We will engage and
support our employees
and the communities
where we live
and work.«
We aim to:
Destination Communities
> Support at least one sustainable community project in each
of the main regions we operate in
Home Communities
> Conduct at least three local community projects around key
Head Office locations
Child Protection
> Implement the Group Child Protection strategy
Supply chain
> Get 90% of our suppliers (including central purchasing,
hotel contracting and agency contracting) to sign up to
and comply with our Supplier Code of Conduct
Thomas Cook has a long tradition of social commitment and
charitable activity. We work to create thriving communities where
our employees live and work, as well as where our customers travel.
By collaborating with industry partners, supporting destinations and
investing in communities, we are ensuring a high-quality service for
residents and visitors alike.
Our Code of Conduct covers all values material to our business,
including how we operate sustainably by engaging with the
communities in which we work and to which our customers travel,
through to protecting the children who travel with us, and live in
the destinations we operate in. The Code of Conduct represents a
commitment we each make and a philosophy that is embedded within
every aspect of our behaviours and fundamental to how we deliver
holidays to our customers in a responsible way.
Child safety and protection is an important issue for our business
and we remain fully committed to the UN Convention on the Rights of
the Child. We believe it is our responsibility to promote and safeguard
children’s welfare and are committed to “The Code” (an industry-
driven international code of conduct). The Thomas Cook Children’s
Charity aims to improve children’s lives by working with partner
organisations. Its remit gives particular emphasis to the provision
of safe clean drinking water, improving education, well-being and
healthcare facilities. The Thomas Cook Children’s Charity has raised
over £5 million in the last five years through customer donations,
payroll giving and staff fundraising initiatives. It engages staff at all
levels and covers all activities, no matter how small or big, to create
benefits for their local communities.
During the year, the Company also established the Safer Tourism
Foundation, which aims to improve the safety of holiday makers
travelling abroad with a particular focus on the dangers of carbon
monoxide. The Company agreed to underwrite the first £1,000,000 to
be raised for the Safer Tourism Foundation and acknowledges the
kind donation of its former CEO, Harriet Green, of 580,375 Ordinary
Shares in the Company to support the Safer Tourism Foundation as
part of that initial £1,000,000 fundraising.
MANAGING HUMAN RIGHTS IMPACTS
We understand Thomas Cook’s business impacts individuals and
communities around the world. Thomas Cook operates a Human
Rights policy across all operations and we are working with NGOs and
other partners within the tourism industry to better understand and
mitigate our impacts upon individuals and communities.
Thomas Cook Group is committed to ensuring that there is no slavery
or human trafficking in its business or supply chain. To this end, we
will be undertaking a review of our existing supply chains and putting
in place appropriate measures to ensure transparency in our supply
chain in line with the Modern Slavery Act 2015.
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STR ATEGIC REPORT
CORPOR ATE SOCIAL RESPONSIBILIT Y & SUSTAINABILIT Y CONTINUED
PL ANET
PL ANET 2020 TARGETS
» We will protect and
conserve the planet’s
natural resources.«
We aim to:
Offices/Retail
> Reduce electricity consumption by 60%
> Obtain 50% of our electricity from renewable sources
> Reduce paper usage by 60%
> Purchase all of our paper from sustainable sources
Hotels
> Implement a local sourcing policy for food and beverages
at all own-brand hotels
Airlines
> Reduce on-board waste
> Achieve a 12% increase in fuel efficiency, as compared
to 2008
The environmental impact of the travel industry is considerable, with
around 5% of all global carbon emissions coming from the travel and
tourism sector.
At Thomas Cook, we run one of the most efficient airlines in the
industry, with only 71.5g CO2 per passenger kilometre, compared
with an average for the five largest European airlines of 93.11g CO2
per passenger kilometre. We are working to make our airline more
efficient, and collaborating with the rest of the airline industry to
share best practice. We are also investing in the next generation
of aircraft to provide better performance and customer experience.
We work with and support the International Civil Aviation
Organisation, whose aim is to produce a successor to the EU
Emissions Trading Scheme by 2020.
In 2015, we have continued to invest in our airline fleet, with a full
refresh of the interiors of the vast majority of our existing planes as
well as the purchase of new aircraft. Each of our upgraded aircraft
delivers greater comfort and a superior experience for passengers,
whilst reducing weight to achieve greater fuel efficiency.
Our efforts to reduce our environmental impact go beyond reducing
fuel usage and carbon emissions. We also work hard to reduce the
use of water in our facilities around the world, to use sustainable
products and materials wherever possible, to reduce our production
of waste and to produce our own renewable energy, such as our
extensive solar PV panel installation at Copenhagen airport. We work
with colleagues across the tourism and airline industry to make the
most of technological developments to decrease energy use and to
share best practice.
Greenhouse gas emissions
Total Scope 1 – Direct emissions
Total Scope 2 – Indirect emissions
Total emissions
Total emissions/£million turnover
2015
Tonnes of CO2
equivalent
2014
Tonnes of CO2
equivalent
4,013,671
22,172
4,035,843
0.00054
3,969,957
32,539
4,002,496
0.00043
We have reported on all the emission sources required under
the Companies Act 2006 (Strategic report and Directors’ reports)
Regulations 2013. These sources fall within our consolidated financial
statements. We only have responsibility for the emission sources that
are included in our consolidated financial statements.
We have used the GHG Protocol Corporate Accounting and Reporting
Standard (revised edition), data from EU Emission Trading Scheme and
emission factors from the UK Government GHG Conversion Factors
Guidance 2015.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
65
RESPONSIBLE BUSINESS
Sustainability is driving and shaping our new culture and is at the
heart of our customer-centric long-term strategy. For us this means
having the best people, products and processes in place to create
and sustain a thriving business.
This means we need to examine every part of our operations,
to deliver financial, social and environmental progress.
LOCAL ECONOMIC IMPACT
Two years ago we launched an exciting range of excursions so
that customers could immerse themselves in the culture of a
destination and create lasting memories of their holiday. These Local
Label excursions are designed to bring a place, its people and their
traditions to life: celebrating authentic food and drink, sharing
personal stories with local people, and contributing to the protection
of ancient sites or natural habitats. Local Label excursions are a
key tool in helping us promote local employment and economic
development in-destination and ensuring that the benefit of tourism
is experienced by local communities.
ANIMAL WELFARE
Our customers demonstrate strong demand for visits to animal
attractions and wildlife-viewing opportunities whilst on holiday.
We recognise that these activities can have a positive socio-economic
benefit and can help to promote biodiversity and education initiatives.
We are also acutely aware of the welfare of animals impacted by
tourism. Our Group Animal Welfare Policy commits us to upholding
minimum standards of welfare for animals whose lives are impacted
by tourism, and to protecting animals from neglect and cruelty.
We work closely with the UK’s travel industry association, ABTA,
other industry partners and animal welfare NGOs worldwide to
reduce the negative impact on animals.
We continue to address animal welfare in our supply chain with
a view to reducing the animal-related activities offered in each
destination. By focusing on a select number of animal attractions,
we can have greater oversight to ensure each product is more
enjoyable for customers as well as having a positive impact on
animal welfare and local development.
RESPONSIBLE BUSINESS 2020 TARGETS
» We will bring cost
savings through
resource reductions
in order to create
long-term value.«
We aim to:
Destinations
> Have at least one Local Label excursion in every
staffed destination
Hotels
> Have at least 20% of our customers stay in accommodation
certified with a GSTC recognised sustainability certification
> Reduce water volumes to an average of 350 litres per guest
per night at all Concept hotel accommodation
> Reduce electricity consumption measured per customer
at all Concept hotel accommodation
Customers
> Be recognised as green and responsible business by
our customers
> To measure and improve our hotel & accommodation and
health & safety independent audit performance scores
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governance
CRE ATING STRONG FOUNDATIONS
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GOVERNANCE
CHAIRMAN’S GOVERNANCE STATEMENT
FR ANK MEYSMAN
CHAIRMAN
»We intend to achieve
market best practice
standards for
compliance across all
areas of our business.«
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
69
Dear Shareholder
Good corporate governance is crucial in creating a strong foundation
from which our Company can operate and the following report sets
out the key governance activities we have undertaken over the
course of the last year.
The Board oversaw the successful transition to our new Group
CEO Peter Fankhauser. As we embark on the next stage of our
transformation and strategy execution, it is essential that we have
a Board equipped with the right motivation, skills and experience
to succeed and to ensure that the entire Group develops and
delivers together.
We identified Peter during the succession planning process as an
extremely capable successor to Harriet Green and felt that Peter’s
proven track record in the Thomas Cook UK business, together with
his extensive knowledge and experience of the travel industry, made
him the right choice to take the Company into the next stage of the
transformation. The increased responsibilities that Peter took on in
his role as Group COO served to prepare him for a smooth transition
into the role of Group CEO. Peter is now leading the transformation
and execution of our strategy, which focuses on profitable growth,
by providing our customers with a broad range of high-quality
differentiated and flexible holiday experiences, backed up by world-
class customer service. Recognising that the hotel and flight is key to
any holiday experience, we are putting our own portfolio of controlled
hotels and flights at the centre of our customer proposition,
complemented by a broad range of products supplied by third-parties.
We recognise that succession planning is an ongoing process
and therefore in July the Board oversaw a Group-wide talent and
succession review, covering the most critical 130 roles in the
Company. The review identified both talented individuals to be
developed and any gaps in our succession planning that need to be
addressed, which will enable us to ensure the continuation of high-
calibre senior management and Board for the Thomas Cook Group.
This year has seen additional change at the Board level, as Carl
Symon, our Senior Independent Non-Executive Director, stepped
down at the end of the year. I am delighted that Dawn Airey has
agreed to take on the position of Senior Independent Director and we
have engaged an external search consultant to assist in recruiting
a new Non-Executive Director. I am confident that we have a strong
and diverse Board in place with a good mixture of high-profile
personalities, with the right motivation, experience and skills to
support the Company on its transformation journey, and help to
handle and overcome any future challenges. We held an internal
review of our Board’s performance this year and continue to keep
the composition of the Board under close review.
We continue to adapt our internal governance policies and procedures
to ensure that decision making best reflects the improvements in
our organisational structure and ways of working, as they evolve
and change through the execution of our strategy. The Board fully
supports the New Operating Model being introduced by Peter and
his Management Team. Further details of these changes are provided
on page 78.
In recognition of our core value of keeping our customers at our heart
in everything we do, the Board undertook a number of activities
during the year to enhance their understanding of and exposure to
the customer experience. The Board experienced various stages of
the customer journey and spent more time than in any previous year
getting to know our products and our people. I received extremely
positive feedback from my colleagues on the Board and also many
of our people who contributed to the experience for us. Given this
success, we intend to hold similar activities over the course of the
next year.
I am pleased with the progress we have made in respect of
governance this year, but at the same time recognise that we cannot
be complacent. I will continue to work with the Board and Group
Company Secretary to ensure continuous improvements are made
in this important area and a compliance culture is embedded across
the Thomas Cook Group, reflecting the standard of behaviours and
decision making expected of us. We intend to achieve market best
practice standards for compliance across all areas of our business
and to demonstrate this culture through the behaviours of each and
every one of our employees.
FR ANK MEYSMAN
CHAIRMAN
24 November 2015
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GOVERNANCE
BOARD OF DIRECTORS
EXPERIENCE
AND DIVERSITY
The Board is chaired by Non-Executive Chairman,
Frank Meysman. In addition to the Chairman,
the Board currently includes two Executive
Directors and five Non-Executive Directors.
Each of the committees of the Board is chaired
by a Non-Executive Director.
1
4
7
2
5
8
3
6
9
BOARD COMPOSITION
1
Chairman
5
Independent Non-Executive Directors
2
Executive Directors
BOARD TENURE
4
0–3 years
4
>3 years
5
Male
3
Female
GENDER DIVERSIT Y
NATIONALIT Y MIX OF BOARD MEMBERS
3
2
British
Belgian
1
1
Swiss
Dutch
1
Turkish
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
71
1 . FR ANK MEYSMAN
NON - E XECUTIVE CHAIRMAN
Appointment: October 2011
Committee memberships: Chairman of Nominations Committee
Skills & experience
Frank Meysman was appointed Chairman Designate of the Company on
1 October 2011 and became Chairman on 1 December 2011. He enjoyed a
successful executive career in dynamic global brand companies, including
Procter & Gamble between 1977 and 1986, Douwe Egberts between 1986
and 1990, and the Sara Lee Corporation between 1990 and 2003 where,
from 1997, he was Executive Vice President and a member of the Board of
Directors. Since leaving Sara Lee, Frank has been a Non-Executive Director,
including Chairman, of a number of public and private international
companies. In April 2014 he won, as Chairman, in the “Quoted Company –
Official List” category at the Non-Executive Director Awards 2014.
Other appointments
Chairman of JBC N.V. He is also an Independent Representative Director
of Picanol N.V., Warehouses De Pauw (WDP) and Spadel S.A.
4. DAWN AIREY
INDEPENDENT NON - E XECUTIVE DIRECTOR
AND SENIOR INDEPENDENT DIRECTOR
Appointment: April 2010
Committee memberships: Member of Health, Safety & Environmental
Committee, Remuneration Committee and Audit Committee
Skills & experience
Dawn Airey was appointed as an Independent Non-Executive Director on
12 April 2010 and Senior Independent Director on 1 October 2015. She has
over 29 years of experience in the media industry and has held senior
positions at some of the UK’s leading media companies. She previously
held the roles of Senior Vice President of Yahoo! EMEA, and President of
CLT-UFA UK Television Limited within the RTL Group. Prior to this, she was
Chair and Chief Executive Officer of Five TV, after joining the company
from her role as Managing Director, Global Content at ITV plc. Between
2004 and 2008, she was also a Non-Executive Director of easyJet plc.
Other appointments
Chief Executive Officer of Getty Images and Chair of the National
Youth Theatre.
5. ANNET ARIS
INDEPENDENT NON - E XECUTIVE DIRECTOR
Appointment: July 2014
Committee memberships: Member of Health, Safety & Environmental
Committee and Remuneration Committee
Skills & experience
Annet Aris was appointed as an Independent Non-Executive Director
on 1 July 2014. She is Adjunct Professor of Strategy at INSEAD in France,
a position she has held since 2003, where her focus is on the digital
transformation of industries and companies. Before that she was a
partner of McKinsey & Company in Germany where she was one of the
leaders of its Travel and Transportation, and later, its Media practice.
Other appointments
Various non-executive roles in Germany, the Netherlands and Finland,
including: Board member and Chair of the Nomination and Remuneration
Committees of ASR Netherlands N.V.; Board member of Jungheinrich AG;
Board member and member of the Audit and Compensation Committees
of ProSiebenSat1 AG; and Board member of the Technology and Strategy
Committee and the Remuneration Committee of ASML N.V.
2 . DR PETER FANKHAUSER
CHIEF E XECUTIVE OFFICER
Appointment: November 2014
Committee memberships: Member of Health, Safety & Environmental
Committee and Nominations Committee
Skills & experience
Peter Fankhauser has held a number of senior roles in the Thomas Cook
Group over the last 13 years. In recognition of his success in turning
around the UK business as CEO for UK & Continental Europe, he was
promoted to Chief Operating Officer in November 2013. Peter has over
twenty-five years of experience in the travel market. Before joining
Thomas Cook he was responsible for managing and growing the European
division and overseas business of Kuoni and successfully turned around
LTU, the third largest Tour Operator at the time, in Germany.
3. MICHAEL HEALY
CHIEF FINANCIAL OFFICER
Appointment: July 2012
Skills & experience
Michael Healy joined the Company on 14 May 2012 and became Chief
Financial Officer on 1 July 2012. Prior to this, he was Group Finance Director
of Kwik Fit Group, where he played a key role in implementing a business
development plan to reduce risk in a highly levered business. Michael has
considerable international experience across a broad range of industries
and was previously Chief Operating Officer and Finance Director of
the Hong Kong-listed First Pacific Company Limited and subsequently
Chief Financial Officer of ebookers plc. He is a member of the Institute
of Chartered Accountants of Scotland. In March 2014, Michael won the
accolade of “Finance Director of the Year” at both the Business Finance
Awards and the UK Stock Market Awards.
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GOVERNANCE
BOARD OF DIRECTORS CONTINUED
6. EMRE BERKIN
INDEPENDENT NON - E XECUTIVE DIRECTOR
8. MARTINE VERLUY TEN
INDEPENDENT NON - E XECUTIVE DIRECTOR
Appointment: May 2011
Committee memberships: Chairman of Audit Committee and member
of Nominations Committee
Skills & experience
Martine Verluyten was appointed as an Independent Non-Executive
Director on 9 May 2011. She has significant international financial and
IT expertise and has held a number of senior finance positions across
the telecommunications, electronics and materials sectors. Between
2006 and 2011, she was Chief Financial Officer of Umicore, a Brussels-
based materials technology group, and from 2000 to 2006 she was
Group Controller and subsequently Chief Financial Officer of the mobile
telephone operator, Mobistar. She also held the position of Chair to the
Audit Committee of the Flemish Region in Belgium.
Other appointments
Non-Executive Director of 3i Group plc, Supervisory Board member and
chair of the Audit Committee of STMicroelectronics N.V. and Independent
Director of Group Bruxelles Lambert.
9. ALICE MARSDEN
GROUP COMPANY SECRETARY
Appointment: September 2015
Skills & experience
Alice Marsden joined the Company in January 2014 as Group Senior Legal
Counsel and has since taken on the roles of Group Company Secretary
(from September 2015) and Head of Legal for the UK&I and Group. Prior to
joining the Company, Alice was a senior associate at Latham & Watkins,
a top tier global law firm. During her time at Latham & Watkins, Alice
provided external legal support to the Thomas Cook Group and gained
valuable business experience during a client secondment to a leading
investment company in the UAE.
Appointment: November 2012
Committee memberships: Chairman of Health, Safety & Environmental
Committee, and member of Nominations Committee and
Remuneration Committee
Skills & experience
Emre Berkin was appointed as an Independent Non-Executive Director
on 1 November 2012 and was appointed as Chairman of the Health, Safety
& Environmental Committee on 20 February 2014. He has considerable
experience across the technology sector and international markets
and, being based in Turkey, he has vital knowledge of one of the key
destinations for millions of our customers. Between 1993 and 2006,
he held a number of senior positions at Microsoft, latterly as Chairman,
Middle East & Africa and Vice-President, Europe, Middle East & Africa,
where he led all aspects of Microsoft’s business in 79 countries.
Other appointments
Non-Executive Director to a number of companies, including Pegasus
Airlines, Turkey’s leading low-cost carrier, listed on the Istanbul Stock
Exchange, and a broad range of technology companies.
7. WARREN TUCKER
INDEPENDENT NON - E XECUTIVE DIRECTOR
Appointment: October 2013
Committee memberships: Chairman of Remuneration Committee,
and member of Audit Committee and Nominations Committee
Skills & experience
Warren Tucker was appointed as an Independent Non-Executive Director
on 3 October 2013 and became Chairman of the Remuneration Committee
on 20 February 2014. He has significant experience in the travel industry,
international business and strategic transformations. He was, from 2003
until May 2013, Chief Financial Officer of Cobham plc. He is a chartered
accountant and has previously held senior finance positions at British
Airways plc and Cable & Wireless plc and as Non-Executive Chairman of
PayPoint plc.
Other appointments
Non-Executive Director of Reckitt Benckiser Group plc. Independent
Non-Executive Director, Chair of the Audit Committee and member of the
Compliance Committee of Survitec Limited. Independent Non-Executive
Director and Chair of the Audit & Risk Committee of the UK Foreign &
Commonwealth Office.
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CORPOR ATE GOVERNANCE REPORT
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
73
RESPONSIBILITIES OF THE BOARD
The Board is specifically responsible for:
> guiding the Group’s strategic aims, leading to its approval of
the Group’s strategy and its budgetary and business plans;
> approval of significant investments and capital expenditure;
> approval of annual, half-year, and quarterly results
announcements, accounting policies and, subject to
Shareholder approval, the appointment and remuneration
of the external auditors;
> approval of the Group’s dividend policy and the payment of interim
and the recommendation of final dividends;
> changes to the Group’s capital structure and the issue of
any securities;
> establishing and maintaining the Group’s risk appetite, system
of internal control, governance and approval authorities;
> monitoring executive performance and succession planning; and
> reviewing standards of ethics and policy in relation to health,
safety, environment, social and community responsibilities.
COMPLIANCE WITH THE UK CORPOR ATE
GOVERNANCE CODE
This report sets out how the Company applied the principles of
the UK Corporate Governance Code (“the Code”) and the extent to
which the Company complied with the provisions of the Code in the
year to 30 September 2015. Throughout the year the Company fully
complied with the provisions of the Code, except for a period between
1 October 2014 and 31 December 2014, in respect of Provision B.3.3, in
relation to Executive Directors taking on more than one non-executive
directorship in a FTSE 100 company (the Code can be read in full at
www.frc.org.uk).
Whist serving as Chief Executive Officer, Harriet Green also served
as a Non-Executive Director of BAE Systems plc and Emerson Electric
Co. Both roles were held prior to Harriet’s appointment as CEO. On her
appointment, the Board agreed that she should continue to serve
on both boards, being satisfied that she would devote sufficient
time and energy to the Company and that being a Non-Executive
Director was of mutual benefit to both Harriet and the Company.
Following Harriet’s departure from the Board on 31 December 2014,
the Company is now compliant in respect of this provision.
THE GROUP’S BUSINESS MODEL AND STR ATEGY
The Group’s business model and strategy are summarised on pages
19 to 33 of the Strategic report.
THE BOARD OF DIRECTORS
The Board is responsible for the long-term success of the Group and
for ensuring that there is a framework of effective controls, which
enables risk to be assessed and managed. At each Board meeting,
the CEO presents a comprehensive update on the transformation,
strategy and business issues across the Group and the CFO presents
a detailed analysis of the financial performance, both at Group
and segment level. Senior executives below Board level attend
relevant parts of Board and Committee 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.
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GOVERNANCE
CORPOR ATE GOVERNANCE REPORT CONTINUED
BOARD ACTIVIT Y DURING THE YEAR
The Board, its Committees and Management continued to focus on delivering
the Company’s strategy for the next stage of transformation, which included
the development of the New Operating Model. In pursuit of the Company’s
strategic goals, the Board considered and approved entering into the strategic
partnership with Fosun and the re-financing of the Company’s banking facilities
to create a more efficient capital structure. The Board also spent time looking
at the Company’s IT function.
The Board held a number of unscheduled meetings where it considered matters
in respect of the inquest and reaction to the tragic deaths of Bobby and Christi
Shepherd whilst staying at a hotel booked through Thomas Cook in 2006.
In response to the issues raised, the Board oversaw the appointment of
Justin King to conduct an independent review of the Group’s customer health,
safety, welfare and crisis management practices. The Board also received
a number of reports and reviews on the topics of in-resort Health and Safety
and customer complaints.
As detailed on page 76, the Board held one of its meetings in Stockholm,
the main offices of the Northern Europe business and another in Majorca,
which is a key destination for our customers.
In addition to the matters described above, the Board also reviewed the following matters:
The composition of the Board
and succession planning
Progress and developments in respect
of the transformation and strategy
The Group’s financial plan, financial
performance and reporting
Risk and mitigation matters, including a review
of the Board’s risk appetite
The revised organisational structure and delegation
of authority
Key corporate governance developments
The effectiveness of the Board and
its Committees
Results of our employee engagement survey
Feedback from institutional investors
BOARD MEETINGS AND ATTENDANCE
The table below shows the attendance record of the individual
Directors at scheduled Board meetings and relevant Committee
meetings. In addition to the scheduled meetings set out below, the
Directors also attended several unscheduled Board and Committee
meetings, in respect of business matters that the Chairman and
CEO decided should be considered by the Board or relevant Committee
prior to the next scheduled meeting.
The Chairman and each Non-Executive Director have provided
assurance to the Board that they remain fully committed to their
respective roles and can dedicate sufficient time to meet what
is expected of them.
Name
Current Directors
Frank Meysman
Peter Fankhauser
Michael Healy
Dawn Airey
Annet Aris
Emre Berkin
Warren Tucker
Martine Verluyten
Former Directors
Harriet Green*
Carl Symon*
Board
Nominations
Committee
Audit
Committee
Remuneration
Committee
Health, Safety &
Environmental
Committee
6/6
5/5
6/6
6/6
6/6
6/6
6/6
6/6
1/1
6/6
2/2
1/1
–
–
–
2/2
2/2
2/2
1/1
1/2
–
–
–
–
–
–
5/5
5/5
–
3/5
–
–
–
4/4
4/4
4/4
4/4
–
–
3/4
–
3/3
–
4/4
3/4
4/4
–
–
1/1
–
Notes:
* Harriet Green and Carl Symon resigned from the Board on 31 December 2014 and 30 September 2015 respectively.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
75
BOARD COMPOSITION
As at 25 November 2015, the Board comprised the Chairman,
two Executive Directors and five Independent Non-Executive
Directors. Biographical details of all Directors can be found
on pages 71 and 72 and on the Company’s corporate website
at www.thomascookgroup.com.
THE CHAIRMAN
Frank Meysman was the Chairman throughout the year. The roles of
the Chairman and CEO are separate and distinct. There is a Board-
approved Division of Responsibilities, which clearly sets out in writing
their respective responsibilities. This document can be found on the
Company’s corporate website at www.thomascookgroup.com.
THE SENIOR INDEPENDENT DIRECTOR
Dawn Airey took over the role of Senior Independent Director from
Carl Symon on 1 October 2015. The Senior Independent Director is
available to Shareholders should they have concerns that cannot
be resolved through the normal channels involving the Executive
Directors or the Chairman.
CHANGES TO THE BOARD
The following changes to the Board occurred during the year:
> Peter Fankhauser (Chief Executive Officer) was appointed on
26 November 2014;
> Harriet Green (Chief Executive Officer) resigned from the position
of CEO with effect from the 26 November 2014 and resigned
as a Director with effect from 31 December 2014; and
> Carl Symon (Non-Executive Director) resigned with effect
from 30 September 2015.
CHANGES TO THE COMMITTEES
In view of the changes to the membership of the Board as
detailed above, there were also changes to the membership of
the Committees during the year. These are detailed in the relevant
Committee sections on pages 79, 82 and 83.
BOARD INDUCTION AND TR AINING
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 where the Directors
receive a thorough briefing on the business and meet with the
Management Team; and, the receipt of presentations on other key
business areas and relevant documentation. Individual induction
requirements are monitored by the Chairman, with the support of the
Group Company Secretary, to ensure that new and recently appointed
Directors gain sufficient knowledge about the Group to enable them
to contribute to the Board’s deliberations as swiftly as possible.
New Directors also go on a destination visit during which time they
meet with in-destination staff and are taken through every aspect
of the customer experience. The induction content and process has
evolved significantly as we build on the experience of inducting
each new Director. We are now using that experience for the benefit
of our longer-serving Directors, by giving them the opportunity to
accompany and participate in any aspect that they feel would further
enhance their knowledge and understanding of the Group.
During the year, Peter Fankhauser was appointed as CEO. Peter had
previously held senior roles in the Thomas Cook Group for many
years including COO, which meant that he came to the role with
in-depth knowledge of the business and working relationships with
Management and the Board. Therefore, his induction activity was
tailored to reflect this.
At Board meetings and, where appropriate, Committee meetings,
the Directors receive updates and presentations on developments
and changes to the business, and to the legislative and regulatory
environments. In addition to the benefit of the training given, these
programmes also increase the exposure of senior talent to the Board
and gives the Board presence across the Group. Board training,
strategy support presentations, and major business updates given
during the year included the following topics:
> In-resort Health and Safety and the customer experience;
> The IT function;
> The Northern Europe business;
> The Airline market; and
> Corporate Governance developments.
Emre Berkin on a Health & Safety inspection at
the Sunprime Waterfront Hotel in Majorca.
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GOVERNANCE
CORPOR ATE GOVERNANCE REPORT CONTINUED
The Board has a programme for holding some of its meetings at the
business Segments, where, in addition to its normal business, the
Board will focus on the strategy and operations of that Segment and
meet with local management and staff. In March 2015, the Board held
its meeting in Stockholm, the main offices of the Northern Europe
Business, where it received presentations on, and met management
and staff of, that business.
In September 2015, the Board held its meeting in one of the Group’s
key destinations – Majorca. The Board visited a number of the Group’s
Concept and partner hotels and received tours of the facilities.
The Board met the local destination management team, hotel owners,
hotel management and key individuals from the local community.
The Chairman of the Health, Safety & Environmental Committee
also attended a demonstration of a Health and Safety audit of one
of the Group’s hotels conducted by our third-party expert provider,
SGS. The visit enabled the Board to gain a deeper understanding of
the Thomas Cook customer experience which is a key focus of the
Company’s strategy.
DIRECTOR INDEPENDENCE
At its September 2015 Board meeting, the Board considered the
independence of the Non-Executive Directors against the criteria
specified in the Code and determined that each was independent.
DIRECTORS’ CONFLICTS OF INTEREST
From 1 October 2008, the Companies Act codified the Directors’ duty
to avoid a situation in which they have, or can have, an interest that
conflicts, or possibly may conflict, with the interests of the Company.
A Director will not be in breach of that duty if the relevant matter has
been authorised in accordance with the Articles of Association by the
other Directors.
The Board has established a set of guiding principles on managing
conflicts and has agreed a process to identify and authorise conflicts.
As part of that process, it has also agreed that the Nominations
Committee should review the authorised conflicts every six months,
or more frequently if a new potential conflict arises for an existing
Director. The Nominations Committee reviews the interests of
candidates prior to making recommendations for the appointment
of new Directors. The Nominations Committee and Board applied the
above principles and process throughout the year to 30 September
2015 and confirm that these have operated effectively.
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 AGM held in February 2015, each of the Directors was submitted
for election/re-election. The Board has agreed that the Directors
will continue to be subject to annual election in the future. Non-
Executive Directors are initially appointed for a three-year term,
subject to annual re-election by Shareholders, and rigorous review by
the Nominations Committee; each Non-Executive Director can serve
up to a maximum of three such terms.
OPER ATION OF THE BOARD
Throughout the year, a fully encrypted electronic portal system was
operated, which enabled Board and Committee papers to be delivered
securely to the Directors. This enabled fast and secure distribution
of information that was accessed using electronic tablets.
The CEO kept the Board updated on matters affecting the business
between meetings.
In accordance with its Articles, the Company has granted third-party
indemnities, to the extent permitted by law, to each Director and the
Group Company Secretary, which were in force during the financial
year and up to the date of signing this report. The Company also
maintains Directors’ and Officers’ liability insurance.
GROUP COMPANY SECRETARY
The Group Company Secretary, who is appointed by the Board, is
responsible for advising and supporting the Chairman and the Board
on corporate governance matters as well as ensuring that there is
a smooth flow of information to enable effective decision making.
All Directors have access to the advice and services of the Group
Company Secretary and the Group General Counsel, and through
them, 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 and its Committees.
During the year, Derek Woodward stepped down as Group Company
Secretary with effect from 5 February 2015. Carolyn Gibson was
appointed to the position on 5 February 2015 and served until
10 September 2015 when Alice Marsden was appointed to the position.
Biographical details of the Group Company Secretary can be found
on page 72.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
77
BOARD EVALUATION
The Board recognises the benefit of a thorough Board and Committee
evaluation process, leading to action to improve its effectiveness.
improvement. The Board has agreed an action plan, which is being
monitored by the Chairman, with the support of the Group Company
Secretary, and progress reported regularly to the Board. Progress will
be disclosed in the 2016 Governance report.
Following the comprehensive independent external Board evaluation
carried out in 2014, the Chairman felt that an internal evaluation
would be appropriate and sufficient in assessing the Board’s
effectiveness for 2015. The evaluation was conducted by the
Group Company Secretary and took the form of a questionnaire
which required Directors to score certain aspects of the Board’s
performance and provide comments. The Board was also invited to
give feedback to the Chairman verbally where desired.
The results of the evaluation were collated and analysed and
indicated an improvement in all areas of the Board’s operation over
the previous year, whilst making recommendations for further
Separately, the Non-Executive Directors, under the leadership of
the Senior Independent Director and with input from the Executive
Directors, conducted an evaluation of the Chairman. The outputs
from that evaluation were debated by the Board in the absence
of the Chairman and feedback was given to him 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 separately
by the Chairman and the Remuneration Committee.
Outputs from 2014 evaluation
Agreed action in 2014 and delivered in 2014/15
Further develop the Induction programme for newly appointed Directors to
create a common platform of understanding of the Company’s challenges,
assets and key performance indicators.
The Board should continue with its ongoing visits to the business
segments to ensure the Board develops and maintains a good knowledge
of the businesses, is visible to the operations and has access to a broad
group of executives.
The Board should develop the right balance between challenge and
support for the transformation work and clarifying the long-term vision
and strategy of the Company. The aim should be to ensure that all Board
members fully understand the ongoing transformation and the importance
of the successful execution of each element, leading to a sustainable
future for the Company.
The existing Induction programme was developed.
The Board visited the head offices of the Northern Europe Business in
Stockholm and the key destination of Majorca in 2015. More information
on the visit can be found on page 76.
The Board agreed the balance, which was built into the Board programme
for 2015. A number of strategy presentations and discussions were
carried out.
Outputs from 2015 evaluation
Agreed action in 2015
The Board should spend further time on succession planning
and talent review.
Following the development of the Non-Executive Director induction
process, the ongoing training of Non-Executive Directors should be
reviewed to ensure all Non-Executive Directors continue to have the
necessary knowledge that they need to fulfil their role.
A Group-wide talent and Succession review was carried out and the
results presented at the July Board meeting. More information on
the review is given on page 61.
The topic will form a regular item on the agenda.
The Chairman and Group Company Secretary will review Non-Executive
Director requirements and address any training needs.
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GOVERNANCE
CORPOR ATE GOVERNANCE REPORT CONTINUED
THE BOARD AND ITS PRIMARY COMMITTEES
BOARD
Chairman, CEO, CFO and five
Non-Executive Directors.
The Board has a schedule of matters reserved for its approval and has a formal structure of delegated authority, whereby specified
aspects of management and control of the Group have been delegated to the CEO, and the Board’s Committees. In addition, the Board
has agreed the terms of reference for the Audit, Remuneration, Nominations, Disclosure, and Health, Safety & Environmental Committees
and the Division of Responsibilities between the Chairman and the CEO.
AUDIT COMMITTEE
NOMINATIONS COMMITTEE
Three Independent
Non-Executive Directors.
Chairman, CEO, and three
Independent Non-Executive
Directors who are the Chairs
of the Audit, Remuneration
and HSE Committees.
HEALTH, SAFET Y
& ENVIRONMENTAL
COMMITTEE
CEO and three Independent
Non-Executive Directors.
REMUNER ATION COMMITTEE
Four Independent
Non-Executive Directors.
Committee report on page 79
Committee report on page 82
Committee report on page 83
Committee report on page 88
FINANCE & ADMINISTR ATION COMMITTEE
DISCLOSURE COMMITTEE
CEO, CFO and Group General Counsel
To facilitate swift and efficient operational Management decisions,
the Committee has delegated authority within clearly identified parameters
in relation to day-to-day financing and administrative matters. A schedule
of decisions taken by the Committee is reported to the next Board Meeting.
CEO, appointed as Chairman, CFO, Group General Counsel and
Group Company Secretary. Other attendees include senior managers
from Group Finance and Investor Relations.
The Committee meets regularly during the year to consider the Group’s
disclosure obligations and to review all results announcements
prior to release.
GROUP MANAGEMENT COMMITTEE
Functional and Segment leaders
Meets on a monthly basis to consider and approve key business matters, including matters exceeding the delegated authority of the CEO and his
direct reports. The GMC is also responsible for cascading information to the Thomas Cook Leadership Council (“TCLC”) and engages in Risk and Audit
monitoring of the business. Further information of the role of TCLC can be found on page 60.
During the year, the governance structure of the organisation
was revised and streamlined with the introduction of the Group
Management Committee. The new structure is designed to enable
swift and efficient decision making under NUMO.
The schedule of matters reserved, the terms of reference of each of
the Board’s Committees and the Division of Responsibilities between
the Chairman and the CEO, are available on the Company’s website at
www.thomascookgroup.com. The powers of the Directors are set out
in the Company’s Articles of Association (which are available on the
Company’s website). The Directors were authorised at the 2015
AGM to allot shares equal to approximately one-third of the Company’s
issued share capital as at 8 January 2015 or two-thirds in respect
of a rights issue. The Directors were also given the power to allot
Ordinary Shares for cash (up to a limit representing approximately
5% of the Company’s issued share capital at 8 January 2015) without
first offering them to existing shareholders in proportion to their
existing holdings.
The papers in respect of the Audit, Remuneration, Nominations and
Health, Safety & Environmental Committees are circulated to all the
Non-Executive Directors, regardless of Committee membership.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
79
ROLE OF THE COMMITTEE
The Board has delegated to the Committee responsibility for
overseeing the financial 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.
The Committee, which reports its findings to the Board,
is authorised to:
> monitor the integrity of the annual and half-year results and
quarterly results statements, including a review of the significant
financial reporting judgements contained in them;
> review the Company’s internal financial 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 its 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 receives information and support from management
across the business. The terms of reference of the Committee are
available at www.thomascookgroup.com or from the Group Company
Secretary at the registered office.
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Chairman
Martine Verluyten*
Scheduled Meetings
Five
Other members
Warren Tucker*
Dawn Airey
Directors’ biographies
On pages 70 to 72
Meetings also regularly attended by:
The Chairman and the other Non-Executive Directors, Peter Fankhauser
(CEO), Michael Healy (CFO), Craig Stoehr (Group General Counsel and Head
of M&A), Lee Bradley (Chief Risk Officer), Alice Marsden (Group Company
Secretary), Bill Scott (Group Financial Controller) and PwC.
Composition of the Committee
Carl Symon resigned from the Committee on 30 September 2015. Dawn
Airey was appointed to the Committee with effect from 1 October 2015.
Committee activities
The Committee reviewed:
Financial:
> The full and half-year results (including accounting issues and
judgements) and the quarterly results statements issued during
the year; and the processes underpinning the preparation of those
documents
> Information in support of the statements in relation to going concern,
viability, fair, balanced and understandable presentation, and disclosure
of information to the auditors
> The annual work plan for each of the internal and external auditors
Governance:
> The Committee’s own work plan for the year and a review of historic
activity against the Committee’s terms of reference
> The effectiveness of the Group Enterprise Risk and Audit function
> The effectiveness of the external audit process
> The Group’s compliance programmes
> The Company’s internal financial controls
> The Group’s Viability Statement
* Martine Verluyten and Warren Tucker are considered by the Board to have recent and relevant
financial experience, as required by the Code.
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GOVERNANCE
CORPOR ATE GOVERNANCE REPORT CONTINUED
PRINCIPAL ACTIVITIES DURING THE YEAR
The main focus of the Audit Committee during the year has been to
support and oversee the continuing improvement, led by executive
management, of the Group’s risk management and internal control
arrangements. In that regard, the Committee has reviewed and
commented on regular risk and audit reports prepared by the
Chief Risk Officer (see below), which summarised matters for the
Committee’s attention. In addition, the Committee received formal
reports from Group Finance which set out the principal accounting
and disclosure matters for the Committee’s consideration before
approving the Group half-year and full year results announcements.
These activities, together with regular reports from the external
auditors, have supported the Audit Committee in providing its advice
to the Board in respect of the effectiveness of internal control (see
section headed “Risk management and internal control” on page 84.
The Committee has noted enhancements in risk management
capability supported by a greater risk awareness and culture
embedded throughout the Group.
The Committee is supported in its work by the Risk Matters Group,
which is comprised of relevant representatives of the Senior
Management Team and the Chairman of the Audit Committee. At the
end of two of its meetings during the year, the Committee (and also
those Non-Executive Directors who are not on the Committee) met
with the Chief Risk Officer and the external auditors in the absence
of management.
EXTERNAL AUDITOR
Non-Audit fees
The current policy requires all material non-audit work carried out
by the external auditors to be pre-authorised by the Committee
in order to ensure that the provision of non-audit services does
not impair the external auditors’ independence or objectivity.
The policy, which is appended as a schedule to the Audit Committee’s
terms of reference, is published on the Company’s website at
www.thomascookgroup.com. An analysis of the fees earned by
the Group’s auditors for audit and non-audit services is disclosed
in Note 6 to the financial statements.
Effectiveness and Independence
PwC were appointed as the sole auditors to the Group in 2008 and
since that date have complied with the partner rotation requirement
set out in the Ethical Standards for auditors; Paul Cragg, a Partner
of PwC, was appointed Senior Statutory Auditor in February 2013.
PwC were re-appointed as the Company’s auditors by Shareholders
at the AGM held on 23 February 2015. PwC have confirmed their
independence as auditors of the Company in a letter addressed
to the Directors.
In November each year, the Audit Committee reviews the
effectiveness of the external audit process. This includes reviewing
comprehensive papers from both Management and the external
auditors, which set out the planning and execution of the conduct
of the audit. The Audit Committee holds a meeting with the external
auditors in the absence of Management to discuss further. Upon the
recommendation of the Audit Committee, PwC will be proposed for
re-election by Shareholders at the AGM to be held on 23 February
2016. In reaching its decision to propose PwC for re-election, the Audit
Committee took into account the effectiveness of the external audit
process, the length of tenure of PwC as auditors and the objectivity
and independence of the external auditor. The Company intends to
carry out a formal tender process for the audit of the financial year
ending 30 September 2017.
LEE BR ADLEY
CHIEF RISK OFFICER
Responsibilities:
Managing the Risk Management, Health and Safety, Security and Internal
Audit functions, Lee reports to the Chair of the Audit Committee and the
Chair of the Health and Safety Committee.
Skills and experience:
Lee joined Thomas Cook in 2012 and brought with him a deep knowledge
and extensive experience of embedding the culture and practices
of sound risk management, gained from working in numerous listed
companies operating in multiple sectors. Lee has previously worked for
Manchester Airport PLC, Kwik Fit Group and Thames Water PLC.
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THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
81
COMMITTEE ACTIVITIES
The Committee is authorised to monitor the integrity of the annual,
half-year results and quarterly results statements, including a
review of the significant financial reporting judgements contained
in them. In May and November each year, the Committee reviews
a comprehensive paper prepared by the Group Financial Controller,
which set out the Group’s accounting policies and basis of preparation.
In this context the Committee considers the following areas:
> key disclosure considerations, including going concern and the
viability statement;
> separately disclosed items and like-for-like analysis;
> matters arising in the preparation of the Group accounts; and
> the impact of new accounting developments.
Significant issues in relation to the financial statements
considered by the Committee
Going Concern and Viability: Consideration of longer-term viability
through assessment of ongoing solvency of liquidity.
Impairment and deferred tax: In view of the Group’s losses in recent
years, the Committee considered whether there was a need to impair
certain asset values, including goodwill and the reasonableness of the
Group’s recognition of deferred tax assets.
Separately disclosed items: The Group has an established policy of
separately disclosing items that are either exceptional or detract from
the reader’s understanding of the underlying performance of the Group.
The Audit Committee also reviewed a paper prepared by the external
auditors, which included significant reporting and accounting
matters. Both papers were reviewed and discussed by the Audit
Committee. The Committee pays particular attention to matters that
it considers to be important by virtue of their impact on the Group
results and remuneration of senior management, or the level of
complexity, judgement or estimation in their application in preparation
of the Group’s financial statements. The significant issues considered
by the Audit Committee are shown in the table below:
How the issue was addressed by the Committee
The Committee considered papers prepared by Management and concluded
that Management’s recommendation to prepare accounts on a going
concern basis was appropriate.
The Committee considered a paper presenting Management’s intended
approach and having taken input from the auditors, agreed with
Management’s proposals.
The Committee considered Management’s presentation of separately
disclosed items and in particular items relating to the Group’s
transformation and certain non-cash finance allocations. Having
considered the matter, the Committee agreed to adopt Management’s
proposed presentation.
New Operating Model (NUMO): The structural changes envisaged to the
Group’s Tour Operator businesses by NUMO are significant, with costs
required to implement the new model.
The Committee reviewed the principal areas impacted by NUMO and
the related accounting treatment for costs incurred as part of the
structural changes.
Aircraft leases and maintenance provisions: The Group has significant
liabilities in respect of aircraft leases and related maintenance obligations.
Accounting treatment in this area can be subjective.
Control environment: The Group is currently engaged in transformation
encompassing most aspects of its activities. The transformation requires
evolution of several aspects of the Group’s financial reporting and control
environment and processes.
The Committee considered the Group’s accounting for aircraft leases and
maintenance provisions to ensure that the treatment is appropriate.
The Committee considered the broader risks associated with this
transformation as well as focusing on the operation of the Group’s control
environment during the transformation period. The Committee considered
papers prepared by Management that highlighted the development
requirements and plans within finance and a report by Management on
the operation of financial and non-financial controls throughout the year.
Auditor rotation: The Group is required to comply with developing
regulatory requirements in respect of Auditor rotation.
The Committee considered a paper prepared by Management which
proposed a formal audit tender process commencing in December 2015.
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GOVERNANCE
CORPOR ATE GOVERNANCE REPORT CONTINUED
NOMINATIONS COMMITTEE
Chairman
Frank Meysman
Scheduled Meetings
Two
Other members
Emre Berkin, Peter Fankhauser, Warren Tucker and Martine Verluyten
Directors’ biographies
on pages 70 to 72
Meetings also regularly attended by:
The other Non-Executive Directors, Alice Marsden (Group Company
Secretary) and Craig Stoehr (Group General Counsel and Head of M&A).
Composition of the Committee
A majority of the members of the Committee are Independent Non-
Executive Directors. Peter Fankhauser was appointed to the Committee
on 26 November 2015. Harriet Green and Carl Symon stepped down from
the Committee on 31 December 2014 and 30 September 2015 respectively.
Committee activities
> Considered succession planning of Executive and Non-Executive
Directors;
> Considered and recommended the appointment of Peter Fankhauser
as CEO;
> Considered and recommended the appointment of Alice Marsden
as Group Company Secretary;
> Considered the re-appointment of the Directors before making a
recommendation to the Board regarding their re-election at the
2015 AGM;
> Considered and recommended the re-appointment of Emre Berkin
following completion of his initial three-year term;
> Considered the overall composition and balance of the Board and
engaged external search consultants to identify an individual to replace
Carl Symon; and
> Considered Directors’ potential conflicts of interests and independence.
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 its 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 conflicts of interest and
for making recommendations to the Board in respect of authorising
such matters.
The full terms of reference of the Committee are available at
www.thomascookgroup.com or from the Group Company Secretary
at the registered office.
PRINCIPAL ACTIVITIES DURING THE YEAR
The main issue considered by the Committee was the transition to
a new Chief Executive Officer in November 2014. Peter Fankhauser
had previously been identified in the succession planning process
as a suitable successor to Harriet Green. The Committee concluded
that Peter Fankhauser had the right knowledge, skills and experience
to take the Company through the next stage of the transformation,
and recommended his appointment to the Board.
BOARD APPOINTMENTS POLICY
The Board appointments policy reinforces the Board’s principle that
appointments are made on merit, in line with its current and future
requirements, and reflect the UK listing and international activity
of the Group. The policy also recognises the benefits of diversity,
including gender diversity. The appointment during the course of
the year was in line with that policy and has reinforced the diverse
composition of the Board. A table illustrating the diversity of the
Board is shown on page 70. The Board endorses the aims of the
Davies’ report entitled “Women on Boards”. The Board’s gender
diversity at 38% female is in excess of Lord Davies’ new target of
33%. The Chairman is a member of the 30% Club, which has the aim
of promoting the achievement of 30% women on FTSE 100 Boards
by the end of 2015. A copy of the Group’s Board appointments policy
can be found on our website at www.thomascookgroup.com.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
83
HEALTH,
SAFET Y & ENVIRONMENTAL COMMITTEE
Chairman
Emre Berkin
Scheduled Meetings
Four
Other members
Dawn Airey, Annet Aris and Peter Fankhauser
Directors’ biographies
on pages 70 to 72
Meetings also regularly attended by:
The other Non-Executive Directors, Lee Bradley (Chief Risk Officer), Peter
Welsh (Group Head of Health, Safety & Security), Steve Solomon (Director,
Group Aviation Safety, Compliance and Security), Alice Marsden (Group
Company Secretary) and Craig Stoehr (Group General Counsel and Head
of M&A).
Composition of the Committee
Harriet Green stepped down from the Committee on 31 December 2014
and Peter Fankhauser was appointed on 26 November 2014.
Committee activities
> Reviewed and monitored outcomes of Third-Party Audit Supplier reports
> Reviewed customer and employee accident reports at each meeting
> Continued development of the Group’s health and safety
improvement plan
> Group Airline safety and reports from the Group Aviation Safety
Management Board
> Government Affairs updates
> Sustainability updates
> Approval of the Group’s sustainability report
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 at
www.thomascookgroup.com or from the Group Company Secretary
at the registered office.
PRINCIPAL ACTIVITIES DURING THE YEAR
During the year, customer safety was a particular focus for the
Committee and a number of activities were undertaken to deepen the
Committee’s knowledge and understanding in this area. In September,
the Chairman of the Committee joined the Company’s specialist
external third-party audit provider (“SGS”) on a Health and Safety
inspection of one of the Group’s hotels and the Board received a
detailed presentation on the topic. During the year, the Committee
reviewed, monitored and oversaw a number of improvements and
activities in this area including:
> The evaluation of the performance of the Third-Party Audit Supplier
(SGS) following completion of its first full year of service provision;
> The re-organisation and continued development of the Group Health,
Safety & Security Team to ensure the development of policy and
procedures across the Group and provide the requisite support
for its effective implementation;
> The continued alignment of the Group with the technical standards
promulgated by the Federation of Tour Operators (“FTO”);
> The increased monitoring of transportation, accommodation and
excursion suppliers to drive improvements in their performance
with a view to increasing the standards customers experience;
> The introduction of a new electronic reporting programme
designed to effectively report incidents and accidents enabling
timely investigation and implementation of remedial actions
where necessary;
> Improving the training of the Group’s employees through the
provision of new e-learning content; and
> The active engagement with the FTO in responding to the European
Commission’s Green Paper on Safety of Tourism Accommodation
Services and making an individual submission in support of
legislation proposed to improve safety standards across Europe.
The Committee also considered a number of matters in respect of
employee safety and oversaw a number of developments in this
area including the implementation of a new cloud based IT system
to improve the monitoring of employee workplace safety.
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GOVERNANCE
CORPOR ATE GOVERNANCE REPORT CONTINUED
SHAREHOLDER COMMUNICATION
AND ENGAGEMENT
The Board promotes open communication with shareholders. This is
formalised within the framework of an ongoing investor relations
programme conducted by the CEO, the CFO and the Investor Relations
Team. The programme includes the presentation of preliminary and
half-year results (which can be accessed on the Thomas Cook Group
website) and a large number of meetings with existing shareholders
and potential investors throughout the year. 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.
During the year, both the Chairman of the Board and the Chairman of
the Remuneration Committee had ongoing dialogue with shareholders
in respect of Executive remuneration matters. In December 2014,
they conducted a wide-scale engagement with a large number
of the Company’s major institutional shareholders (representing
approximately 64% of the Company’s share capital) and governance
bodies to: update them in respect of matters concerning the change
in CEO, executive remuneration and governance matters; and, to seek
views on the Group’s proposed award to the Executive Directors
under the Performance Share Plan in 2015. The engagement was
supportive and constructive and the Board and the Remuneration
Committee were briefed on the feedback from the above discussions.
The views expressed by shareholders were taken into account
when finalising executive remuneration arrangements. The Board
were pleased with the overwhelming shareholder support given in
favour of the resolutions at the 2015 AGM in respect of the Group’s
remuneration policy and practice.
Dawn Airey was appointed Senior Independent Director with effect
from 1 October 2015, and will provide an additional channel through
which shareholders can engage with the Board if they so wish.
In respect of its debt investors, the Company maintains regular
dialogue with key relationship banks which includes bi-annual
meetings with presentations, from the Executive Management
Team. During the year, it also held update and review meetings
with Standard & Poor’s and Fitch, the Company’s two credit
rating agencies. The Company hosts a dedicated conference call
for bondholders on a bi-annual basis and during the year the Group
Treasurer also engaged with Bondholders both as a group, and, on a
one-to-one basis, at several Investment-bank sponsored conferences.
Additionally, the Board responds to ad-hoc requests for information
and all shareholders are entitled to attend the Annual General
Meeting. Shareholders are given the opportunity to lodge their votes
by way of proxy and/or to attend such meetings in person where
they have the opportunity to ask questions of the Board including
the chairs of the Board Committees, vote by way of a poll and meet
informally with the Directors to discuss any issues they may wish
to raise.
In line with the authority given at its 2008 AGM, the Company uses
its website and email as the primary means of communication with
its shareholders. This arrangement provides significant benefits for
shareholders and the Company in terms of timeliness of information,
reduced environmental impact and cost. Shareholders may still opt
to receive their communications in a paper format. The Company’s
corporate website contains information for shareholders, including
share price information and news releases. It can be found at
www.thomascookgroup.com.
RISK MANAGEMENT AND INTERNAL CONTROL
During the year, there has been continued progress made in the
area of risk management and internal control. This has been led
with a distinct “tone from the top” set by the Board and the Group
Management Committee. A highly experienced and dedicated
team of risk and audit professionals under the leadership of Lee
Bradley, Chief Risk Officer, has driven a significant improvement
agenda to support Management in this important area. High-calibre
professionals were recruited into key positions in the Group and
Segment Finance Teams, which has enabled the Group to further
enhance its risk management capability across the business, thereby
enhancing the risk management and internal control environments.
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 UK Corporate
Governance Code. The Board has approved the framework and
the standards implemented.
The Board has carried out a robust assessment of the principal
risks facing the Company – including those that would threaten its
business model, future performance, solvency or liquidity. This is
fully described in the Risk management section on pages 56 to 59.
The Group’s internal control and risk management systems are
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.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
85
REVIEW OF SYSTEM OF INTERNAL CONTROL
During the year, the Board, through the work of the Audit Committee,
has conducted a review of the effectiveness of the Group’s system
of internal control. The Board is monitoring the internal control
processes on an ongoing basis, including financial, operational and
compliance controls, under the auspices of the Group Enterprise
Risk and Audit function. Regular reports on control issues are
presented to and discussed with the Audit Committee and there is
a follow-up process in place to ensure audit recommendations are
fully implemented by Management. This work is also complemented,
supported and challenged by the controls assurance work carried
out independently by the external auditors, PwC. The Board has seen
continued improvement and has noted ongoing progress and active
focus in the internal control processes during this year. The Board,
in reviewing the effectiveness of the system of internal control, can
confirm that necessary actions continue to be taken to remedy any
significant failings or weaknesses identified from that review.
GOING CONCERN
Having assessed the principal risks and the other matters discussed
in connection with the viability statement, the Directors considered
it appropriate to adopt the going concern basis of accounting in
preparing the financial statements.
INTERNAL CONTROL AND RISK MANAGEMENT IN
REL ATION TO THE FINANCIAL REPORTING PROCESS
The Group has a thorough assurance process in place in respect of
the preparation, verification and approval of periodic financial reports.
This process includes:
> the involvement of qualified, professional employees with an
appropriate level of experience (both in Group Finance and
throughout the business);
> formal sign-offs from appropriate business segment managing
directors and finance directors;
> comprehensive review and, where appropriate, challenge from
key internal Group functions;
> a transparent process to ensure full disclosure of information
to the external auditors. Engagement of a professional and
experienced firm of external auditors;
> oversight by the Group’s Audit Committee, involving (amongst
other duties):
— a detailed review of key financial reporting judgements which
have been discussed by Management;
— review and, where appropriate, challenge on matters including:
— the consistency of, and any changes to, significant accounting
policies and practices during the year;
— significant adjustments resulting from an external audit;
— the Company’s statement on internal control systems, prior
to endorsement by the Board; and
— the going concern assumption.
The above process, and the review by the Audit Committee of a
comprehensive note that sets out the details of the preparation,
internal verification and approval process for the Annual Report
& Accounts, provides comfort to the Board that the Annual Report
& Accounts, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy.
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GOVERNANCE
CORPOR ATE GOVERNANCE REPORT CONTINUED
CODE OF CONDUCT
The Group’s Code of Conduct, sets out the Group’s Values,
Leadership Behaviours and Ways of Working – how we expect our
employees to conduct themselves in their everyday working life.
It covers areas such as: behaviour towards our customers and our
people; health and safety; reputation management; sustainable
operation; supplier relationships; anti-bribery; conflicts of interest;
competition law; risk management and controls; fraud, theft and
false accounting; IT security; share dealing and our prohibition of
political donations. The Code also includes guidance to employees
about their responsibility to report problems and issues that come
to their attention and the alternative ways of raising such issues
in escalating order – line management, HR, and the Trustline –
see below.
The Code of Conduct is issued to all employees in paper copy and is
also available on the Group’s intranet and website. In addition, the
Group Company Secretary is available for advice on any matter which
may give rise to cause for concern.
To ensure the progress made is fully sustainable and the Code
remains embedded across the organisation, there is a process to
ensure that all new employees receive training as part of their
Induction programme. In view of its importance to the Group, training
is measured through local HR Departments and every employee has
to confirm they have received their training and understand the Code
on an annual basis.
WHISTLEBLOWING
As mentioned above, the Code includes guidance to employees
about their responsibility to report problems and issues that come
to their attention by way of an independently run whistleblowing
helpline called Trustline. Details of the Trustline are published in
the Code of Conduct booklet and also on the Group’s intranet site.
Significant issues brought to Management’s attention through the
Trustline are reported to the Audit Committee.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN
RESPECT OF THE ANNUAL REPORT, THE DIRECTORS’
REMUNER ATION REPORT AND THE FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report,
the Directors’ remuneration report and the financial statements
in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors have prepared the
Group and the Company financial statements in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted by
the European Union. The financial statements are required by law
to give a true and fair view of the state of affairs of the Company
and the Group and of the profit or loss of the Group for that period.
In preparing those financial statements, the Directors are required to:
> select suitable accounting policies and then apply
them consistently;
> make judgements and accounting estimates that are reasonable
and prudent; and
> state that the financial statements comply with IFRSs as adopted
by the European Union.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group, and enable them to
ensure that the financial statements and the Directors’ remuneration
report comply with the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation. They are
also responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
Company’s website, and legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Each of the Directors, who were in office at the date of this report,
whose names and functions are listed on pages 70 to 72, confirm
that, to the best of their knowledge:
> the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of the
Group; and
> the Strategic and Directors’ report contained on pages 16 to 65
includes a fair review of the development and performance of the
business and the position of the Group, together with a description
of the principal risks and uncertainties that it faces.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
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FAIR, BAL ANCED AND UNDERSTANDABLE
The Directors confirm that they consider the Annual Report &
Accounts, taken as a whole, is fair, balanced and understandable and
provides the information necessary for Shareholders to assess the
Company’s position and performance, business model and strategy.
In making this confirmation, the Directors took into account their
knowledge of the business, which is kept up-to-date with regular
reports, updates and business reviews circulated prior to and
discussed at each Board meeting, and supplemented by a variety
of written reports, verbal updates and presentations (including the
training and strategy support presentations detailed on page 75)
given at Board and Committee meetings as well as a regular flow
of information about the business between meetings. The Directors
then took into account the thorough preparation and verification
process in respect of the Annual Report & Accounts, which included
sufficient time for the Directors to review the Annual Report &
Accounts and to feed in their comments to Management before
approving the document.
DISCLOSURE OF INFORMATION TO AUDITORS
Each of the Directors who held office at the date of approval of this
Directors’ report confirms that: so far as he/she is aware, there is
no relevant audit information of which the Company’s auditors are
unaware; and that he/she has taken all steps that he/she ought to
have taken as a Director to make him/her aware of any relevant audit
information and to establish that the Company’s auditors are aware
of that information.
SHARE CAPITAL AND REL ATED DISCLOSURES
Disclosures in relation to the share capital of the Company, including
the Company’s major Shareholders are given in the “Other disclosures”
section on pages 105 to 107.
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GOVERNANCE
DIRECTORS’ REMUNER ATION REPORT
ANNUAL STATEMENT BY CHAIR OF
REMUNERATION COMMITTEE
REMUNER ATION COMMITTEE
Chairman
Warren Tucker
Scheduled Meetings
Four
Other members
Dawn Airey, Annet Aris and Emre Berkin
Directors’ biographies
on pages 70 to 72
Composition of the Committee
All members of the Committee are Independent Non-Executive Directors.
Carl Symon stepped down from the Committee on 30 September 2015.
The Committee’s terms of reference are available on the Governance
page of the Company’s website at www.thomascookgroup.com.
Meetings also regularly attended by:
Frank Meysman (Chairman), Peter Fankhauser (CEO), Martine Verluyten
(Independent Non-Executive Director), Alice Marsden (Group Company
Secretary), Mitul Shah (Deloitte LLP), and members of the HR Leadership
Team as required.
Committee activities:
> Approved remuneration arrangements on the change of Group CEO
> Considered Corporate Governance updates in determining executive
remuneration
> Made recommendations to the Board on executive remuneration
for the financial year
> Approved outcomes for short-term and long-term incentives in line
with the remuneration policy and incentive plans
> Approved the granting of awards under the Company’s long-term
incentive plans
Dear Shareholder
On behalf of the Board, I am pleased to present our Directors’
Remuneration Report for the year ended 30 September 2015.
EXECUTIVE DIRECTOR CHANGES
This year we saw the transition to our new Group CEO Peter
Fankhauser, who was appointed on 26 November 2014. The Committee
worked to formulate appropriate remuneration arrangements for
Peter, in line with the Company’s approved Remuneration Policy,
which it considers provides alignment of Peter’s reward with his
delivery of the execution of the long-term strategy of the Company.
Prior to his appointment as Group CEO, Peter was part of the Thomas
Cook Senior Management Team (and from November 2013 served
as Group Chief Operating Officer) and as such, has already built
up a significant holding of 1,286,776 shares in the Company, which
he continues to build upon. A summary of Peter’s remuneration
arrangements is set out below and further details can be found in
the Directors’ Remuneration Report. Although Peter was appointed
during FY15, we have included the outcome of long-term incentive
awards vesting during the year that were granted to him prior to his
appointment as Group CEO.
During the year, the Committee also considered departure
arrangements for former Group CEO Harriet Green. During her
two years and four months serving as Group CEO at Thomas Cook,
our share price rose from 16.25p (30 July 2012) to 136p (25 November
2014) and therefore, as previously disclosed, a proportion of her 2012
share award vested (pro-rated for time and performance).
OUR PERFORMANCE IN FY15
The travel industry continues to face challenging external pressures
and therefore our Remuneration Policy and performance targets
reflect both the environment in which we operate and the Company’s
strategic goals. As set out in the Strategic report, we have made
progress despite the headwinds of currency exchange rates and
regional instability.
REMUNER ATION OUTCOMES IN FY15
As a result of achievements made during the year in respect of
progress against underlying EBIT and cash conversion targets, payout
has been made under the Group Bonus Plan in respect of these
elements. There is still further progress to be made in respect of
some of our other strategic KPIs, and therefore given the stretching
targets set, the proportion of the bonus relating to web penetration
and new product revenue targets did not payout.
The Committee was focused on ensuring that the outcomes under
the FY15 Group Bonus Plan provided an appropriate balance between
the financial performance of the business and the performance of the
Management and in order to achieve this the Committee made certain
adjustments to the calculation of financial performance.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
89
The performance condition applying to the June 2012 Performance
Share Plan (“PSP”) and Co-Investment Plan (“COIP”) awards, which
was based on absolute share price, was met in full and 100% of the
awarded shares vested in July 2015. The Company’s average share
price over the 60 trading days between 12 June 2014 and 4 September
2014 was 127.44p representing an increase of almost 800% on the
14.3p adjusted share price on the date of the award and significant
value created for shareholders.
The performance period in respect of the September 2012 PSP awards
ended on 30 September 2015 and the shares vested in accordance
with performance achieved. The overall level of vesting for the awards
made to current Executive Directors during FY12 was 70%.
It is considered by the Board that the targets under our Group Bonus
Plan for FY15 remain commercially sensitive at this time and will be
disclosed in our FY16 remuneration report. Targets for the FY14 Group
Bonus Plan are disclosed on page 98. There was no payout under the
FY14 Group Bonus Plan to Executive Directors and other participants
in the Group Bonus Plan.
The table below provides a high level summary of the outcomes for the year and the remuneration arrangements going forward for the
Executive Directors:
Role
Name
Annual salary
Chief Executive Officer
Peter Fankhauser
Chief Financial Officer
Michael Healy
£690,000
(as at appointment in November 2014)
£520,200
(increased from £510,000, +2% effective 1 April 2015)
FY16 max bonus opportunity (one third
deferred into shares for two years)
150% of salary
FY16 PSP award (subject to performance)
150% of salary
FY15 bonus for period
as Executive Director
% of maximum bonus
opportunity earned
69%
£
£604,582
150% of salary
150% of salary
69%
£533,129
LTIP awards vesting
in the year
(June and September
12 PSP and June 12
COIP)
% of maximum
award vesting
June award: 100%
September award: 66.74%
June award: 100%
September award: 62.50%
Number of vested
shares (total)
2,381,198
(granted prior to appointment as CEO)
2,018,730
REMUNER ATION POLICY
During the year, we have not made any changes to our shareholder
approved Remuneration Policy but continue to monitor market and
regulatory developments and are comfortable that our Policy remains
appropriate. We have re-published the approved Remuneration
Policy on pages 90 to 95 to give context to decisions made by the
Committee during the year. Our Remuneration Policy is due to be
presented to shareholders again at our 2017 AGM.
REFLECTING THE VIEWS OF OUR SHAREHOLDERS
At the 2015 AGM, shareholders approved our Directors’ Remuneration
Report, as set out in our 2014 Annual Report, with 99.76% support.
This is an encouraging acknowledgement of the Company’s
progress on performance and our positive, ongoing engagement
with shareholders.
We continue to consult with our key shareholders on remuneration
matters and during the year have talked to shareholders about
performance conditions attaching to our plans, and during the start
of FY16 have been sharing our intended approach for FY16 incentives.
Looking forward, the Committee will be reviewing the executive
remuneration arrangements in 2016 and will be seeking shareholder
approval in 2017 for a new Policy as well as approval for a new
long-term incentive plan (as the current plan is due to expire in 2017).
The Committee is mindful of external market trends and investor
expectations on matters such as further alignment with shareholders
(for example through the use of holding periods, deferral, shareholding
guidelines et cetera) as well as the need to ensure that clawback
provisions are in place for incentive plans. The Committee will
consider these matters as part of the 2016 review and we will
continue to engage with our shareholders as part of this process.
We look forward to receiving your support at the 2016 AGM and
throughout the year ahead.
Finally, I would again like to thank my fellow members of the
Committee and all who have assisted us for their support and
guidance during the past year.
WARREN TUCKER
CHAIRMAN OF THE REMUNER ATION COMMITTEE
24 November 2015
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90
GOVERNANCE
DIRECTORS’ REMUNERATION POLICY
FUTURE POLICY TABLE
Element
Purpose and link to strategic objectives
Operation
Base salary
> Provides fixed remuneration for the role, which
reflects the size and scope of the Executive
Director’s responsibilities.
> Attracts and retains the high-calibre talent
necessary to deliver the business strategy.
> Salaries are paid monthly and are normally reviewed annually.
> Consideration is typically given to a range of factors including:
— size and scope of the Executive Director’s responsibilities;
— performance and experience; and
— typical pay levels for comparable roles in companies of a similar size and complexity in the relevant
market.
Retirement
benefits
Benefits
> To provide competitive post-retirement
benefits or cash allowance equivalent.
> Attracts and retains the high-calibre talent
necessary to deliver the business strategy.
> Payment may be made either into a pension scheme (for example, a defined contribution plan) or
delivered as a cash allowance with Company contributions set as a percentage of basic salary.
> Level of benefit is dependent upon seniority.
> Ensures the overall package is competitive.
> Attracts and retains the high-calibre talent
necessary to deliver the business strategy.
> Provision of a range of benefits by the Company. Such benefits may include those currently provided
to Executive Directors, as disclosed on page 96. These are reviewed annually by the Committee to
ensure that they provide a competitive package and facilitate the delivery of the business strategy.
> The Company reserves the right to deliver benefits to Executive Directors depending on their individual
circumstances, which may include housing, travel, education, healthcare and other allowances.
> In the case of non-UK Executives, the Committee may consider additional allowances in line with
standard practice.
Annual bonus
> Energises and focuses management on
> Measures and targets are set annually and payout levels are determined by the Committee after
Long-term
share-based
incentive plan
rigorous execution of Thomas Cook’s strategy
on an annual basis.
> Rewards annual performance against
challenging annual targets and key
performance indicators which are critical
to the realisation of our business strategy.
> Compulsory deferral into the Company’s
shares provides a link to the creation of
long-term sustainable value, and also a
retention element.
> The claw-back provision enables the Company
the year end based on performance against those targets.
> The Committee has full discretion to amend the bonus payout (upwards or downwards), if in its
judgement any formulaic output does not produce a fair result for either the individual Executive
Director or the Company, taking account of the overall business performance or situation of the
Company.
> Executive Directors must defer one-third of their annual bonus into Company shares which then
vest two years after the cash bonus payment date, subject to continued employment and claw-back
provisions but no additional performance conditions. Regarding the claw-back provisions, unvested
share awards lapse in certain scenarios, as described on page 92.
> Good leaver terms are described in more detail on page 93.
> At the Committee’s discretion, Executive Directors may receive the value of dividend equivalents
to mitigate risk.
during the holding period on the vested shares.
> Energises and focuses management on
> The current Performance Share Plan was approved by shareholders in 2007, and is governed by the
rigorous execution of Thomas Cook’s strategy
over the longer term.
> Rewards sustained performance against
challenging long-term targets and key
performance indicators which are critical
to the realisation of our business strategy.
> Long-term performance targets and
share-based remuneration support the
creation of long-term Shareholder value.
rules of the plan. A summary of the key features is set out below:
— awards may be made in the form of conditional shares or options with vesting dependent upon the
achievement of performance conditions set by the Committee. Vesting of awards will be subject
to a three-year performance period;
— the Committee has full discretion to amend the number of shares that vest (upwards or downwards),
if in its judgement any formulaic output does not produce a fair result for either the individual
Executive Director or the Company, taking account of the overall business performance or situation
of the Company;
— the award will lapse if the participant leaves employment before vesting unless in specific
“good leaver” circumstances. Good leaver terms are described in more detail on page 93;
— the Committee may in the event of a variation of the Company’s share capital adjust or amend
the terms of the awards in accordance with the rules of the plan; and
— if the Company pays any dividends in respect of record dates falling in the period from the award
date to the vesting date, the Committee may consider that the Executive should receive a payment
following delivery of the shares in satisfaction of his award, the value of which is equivalent to the
cash value of the dividends in respect of any shares that vest.
Chairman and
Non-Executive
Director fees
> To reward individuals for fulfilling the
relevant role.
> Attracts and retains individuals with the skills,
experience and knowledge to contribute to an
effective Board.
> 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.
> The fee structure may include:
— a basic fee;
— additional fees for chairmanship of Board committees;
— additional fees for further responsibilities (for example, Senior Independent Directorship); and
— travel and hotel costs that are deemed to be an employment benefit by the relevant tax authority
may also be paid.
The Committee reserves the right to make any remuneration or loss of office payments (including the satisfaction of any outstanding awards of variable remuneration made to Executive Directors), where the
terms of that payment were agreed:
(i) prior to the approval of this policy under their original terms – for these purposes, the terms of a share award are “agreed” at the time it is granted; or
(ii) at a time where the individual was not a Director of the Company, and in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
91
The Remuneration Policy on pages 90 to 95 was approved by
shareholders at the Company’s Annual General Meeting held on
20 February 2014. Accordingly, it had a binding effect on the Company
from that date. As no changes have been made to the Policy during
the year, it is not proposed to submit it to the Annual General Meeting
scheduled to be held on 23 February 2016.
We have re-published the unchanged policy below for reference.
The following sections have been updated to reflect the most
recent position:
> Statement of consideration of Shareholder Views (page 94)
> Illustrative Performance Scenarios (page 95)
The full policy that was approved by Shareholders can be seen in our
2013 Annual Report and Accounts available on our website.
Maximum opportunity
Performance metrics
> Current salaries are disclosed on page 97.
> Increases may be made to salary levels in certain circumstances
as required, for example, to reflect:
— increase in scope of role or responsibility;
— performance in role; and
— an Executive Director being moved to market positioning over time.
> Ordinarily, salary increases will not exceed the average increase
awarded to other employees in the Group.
> Current Company contribution rates are disclosed on page 97.
> Set at a level which the Committee considers is appropriately
positioned against comparable roles in companies of a similar size
and complexity in the relevant market.
> Benefits may include those currently provided to Executive Directors,
as disclosed on page 96, however the Committee reserves the right to
provide such level of benefits as it considers appropriate to support
the ongoing strategy of the Company.
> For maximum performance:
— 150% of salary.
> Under the plan rules, the aggregate value of all awards made within
any 12-month period must not exceed 200% of base salary (or
such other period as the Committee may determine in exceptional
circumstances).
> The normal maximum face value of awards is 150% of salary.
However, the Committee has a discretion to award up to the plan
rules maximum, when it believes the situation warrants a higher
level of award.
> Performance, through our performance management processes, is one of the key considerations
in setting and reviewing salary.
> None.
> None.
> The Committee will have regard to various performance metrics (which will be determined
by the Committee) measured over the relevant financial year, when determining bonuses.
> No less than 70% of the award is based on financial measures and up to 30% of the award may
be based on the achievement of role-specific objectives, which may be financial or non-financial.
> For achievement of a “threshold” performance level (the minimum level of performance that
results in any payment), no more than 20% of the maximum for each element of the bonus
pays out.
> For achievement of a “mid” performance level, no more than 60% of the maximum for each
performance metric in relation to the bonus pays out.
> For achievement of a “maximum” performance level 100% of the maximum pays out.
> The performance measures for the Performance Share Plan will be a combination of financial
measures and share price based measures, measured over at least a three-year performance
period. Normally, the weightings will be as follows:
— at least 50% will be based on financial measures;
— at least 30% will be based on share price based measures; and
— the remaining 20% may be based either on financial or share price based measures
> The Committee will determine more specific performance measures for future awards as the
Company makes progress with its transformation during 2014 and will consult with major
Shareholders ahead of the next award.
> The performance measures may be adjusted, following grant, by the Committee to ensure a
consistent basis of calculation and to provide a fair reflection of the Company’s performance.
> For achievement of a “threshold” performance level (which is the minimum level of performance
that results in any part of an award vesting), no more than 30% of each respective element
of the award will vest.
> For achievement of a “maximum” performance level (which is the highest level of performance
that results in any additional vesting), 100% of each respective element of the award will vest.
> Normally, there will be straight-line vesting for any performance level between “threshold”
and “maximum”.
> The Committee may substitute, vary or waive the performance targets if an event occurs which
causes the Committee to consider that the target is no longer appropriate.
> Set at a level which the Committee (or the Board, as appropriate)
> None.
considers:
— reflects the time commitment and contribution that is expected
from the Chairman and Non-Executive Directors; and
— appropriately positioned against comparable roles in companies
of a similar size and complexity in the relevant market.
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GOVERNANCE
DIRECTORS’ REMUNER ATION POLICY CONTINUED
EXPL ANATORY DETAIL FOR FUTURE POLICY TABLE
Changes made in the year
No changes have been made to the policy during the year.
Explanation of chosen performance measures and the target
setting process
Performance measures have been selected to reflect the targets and
key performance indicators that are critical to the realisation of our
business strategy.
Challenging performance targets are set by the Committee each year
for the annual bonus plan and the PSP. When setting these targets,
the Committee will take into account a number of different reference
points, including the Company’s business plan and consensus analyst
forecasts of the Company’s performance. Full vesting will only occur
for what the Committee considers to be stretching performance.
Claw-back
As highlighted in the policy table, a claw-back arrangement is in
place. Under this arrangement, the unvested deferred annual bonus
shares may lapse in whole or in part if a claw-back event occurs,
which includes:
> a material adverse misstatement of the Company’s
financial statements;
> the participant or their team having engaged in gross misconduct
or in conduct which resulted in significant losses, as determined
by the Committee; and/or
> the Company having suffered serious reputational damage, as
determined by the Committee, as a result of any action taken by the
participant or his team.
In addition, under the PSP, the Committee has discretion to amend
the final vesting level should any formulaic output not reflect the
overall business performance. This discretion allows the Committee
to decrease or increase the pay-out in the range of 0%–100% of the
number of shares awarded.
Salary, pension and benefits are not subject to claw-back.
Policy for the remuneration of employees generally
Remuneration arrangements are determined throughout the Group
based on the same principle that reward should be achieved for
delivery of our business strategy and should be sufficient to attract
and retain high-calibre talent, without paying more than is necessary.
Thomas Cook has operations based in a number of different
countries and at different levels of seniority, and though based on
the overarching principle above, reward policies vary depending upon
these factors.
APPROACH TO RECRUITMENT REMUNER ATION
When agreeing a remuneration package for the appointment of new
Directors, the Committee will apply the following principles:
> The package will be sufficient to attract and retain the high-calibre
talent necessary to develop and deliver the business strategy.
> The Committee will seek to ensure that no more is paid than
is necessary.
> In the next Annual remuneration report, the Committee will explain
to shareholders the rationale for the relevant arrangements and if
and when the transition to the policy described on pages 90 and 91
will occur.
The following elements may be considered by the Committee for
inclusion in a recruitment package for an Executive Director, in addition
to the policy elements set out in the table on pages 90 and 91:
Element
Approach
Initial
long-term
incentive
award
An initial long-term incentive award may be made, which
may be higher than the maximum PSP opportunity, as set
out on pages 90 and 91.
The Committee will ensure:
> The award is linked to the achievement of appropriate
and challenging performance targets.
> The award will be forfeited if the performance and
continued employment conditions are not achieved.
Initial
annual
bonus
opportunity
The initial annual bonus opportunity may be set higher
than the approved policy.
The Committee will ensure the award is linked to the
achievement of appropriate and challenging performance
targets.
Compensation
for forfeited
awards
Sign on
awards
The terms of any compensation will be determined by
taking into account the terms of any forfeited awards,
including:
> Performance achieved or likely to be achieved.
> The proportion of performance/vesting period remaining.
> The form and timing of the original award.
In certain limited circumstances, for example in order to
compensate for a loss at a previous employer other than
for forfeited awards, the Committee may make a one-off
sign-on award as part of the initial package.
The Committee retains the discretion to determine, based
on the circumstances at the time, whether this would be
in cash or shares, whether or not performance conditions
or an additional holding period would apply.
Notice period The initial notice period may be longer than the Company’s
six-month policy (up to a maximum of 24 months).
However, this will reduce by one month for every month
served, until the Company’s policy position is reached.
Relocation
costs
Where necessary, the Company will pay appropriate
relocation costs, in line with standard practice. The
Committee will seek to ensure that no more is paid than
is necessary.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
93
An enhanced initial notice period, sign-on awards or increased initial
annual bonus or long-term incentive award opportunities would only
be made available in exceptional circumstances.
Under the reporting regulations, Thomas Cook is required to set
out the maximum amount of variable pay which could be paid to a
new Director in respect of their recruitment. In order to provide the
Company with sufficient flexibility in a recruitment scenario, the
Committee has set this figure as 500% of base salary. This covers the
maximum annual bonus and the maximum face value of any long-term
incentive awards.
This level of variable pay would only be available in exceptional
circumstances, and in order to achieve such a level of variable pay,
stretching targets would need to be met, over both one year (for
the annual bonus) and at least three-year (for long-term incentive)
performance periods.
For individuals becoming Executive Directors as a result of an internal
promotion from within Thomas Cook or as a result of an acquisition,
any awards under other arrangements which were made prior to
joining the Board may be allowed to continue under the original
terms, or under a revised basis (such as a roll-over into Thomas Cook
shares) if the Committee determines appropriate.
Fee levels for a new Chairman or new Non-Executive Directors will be
determined in accordance with the policy set out in the future policy
table on pages 90 and 91.
SERVICE CONTR ACTS AND LOSS
OF OFFICE PAYMENTS
Executive Directors
Executive Directors have Company service contracts. For Peter
Fankhauser and Michael Healy, the service contracts provide
for a six-month notice period, from both the Company and the
Executive Director.
If the Company terminates the employment of the Executive Director
with immediate effect, a payment in lieu of notice may be made.
This may include base salary, pension and benefits.
Outstanding awards under the performance-linked elements of the
package will normally lapse if an executive leaves the Company before
the payment or vesting date. However, in “good leaver” scenarios
these may vest.
This may include:
> If the participant leaves during the annual bonus performance
year and before the payment date, a bonus payment in respect
of the year may be made, pro-rated to reflect the portion
of the performance year elapsed, and with reference to
performance achieved.
> If the participant leaves before the end of the holding period, any
unvested deferred bonus shares may vest.
> Outstanding unvested awards under the PSP vest to the extent
determined by the Committee taking into account the period of time
the individual has held the award and performance achieved against
any relevant performance targets.
For reference, “good leaver” scenarios include death, disability, injury,
ill-health, redundancy, retirement, the award holder’s employing
company or business being sold out of the Group, or any other reason
that the Committee determines appropriate.
Other than in the “good leaver” scenarios described, no payouts will
be made under performance-linked elements.
Any “good leaver” awards may vest or be paid out immediately upon
termination or in line with the original vesting or payment date,
depending on when the award was made.
Awards granted under the PSP shall lapse at the time of cessation of
employment unless the Committee has used its discretion to deem
that an individual is a “good leaver”, when the Committee has the
discretion to determine when awards vest and, if relevant, when they
may be exercised. Awards structured as options shall be exercisable
for a period of six months (or 12 months in the case of death) from
vesting unless the Committee determines any other period should
apply. Awards may also vest early if the participant is moved to a
country where their capacity to hold the award or deal in shares
would be restricted or they would suffer a tax disadvantage in
connection with the award.
In the event of a takeover or winding-up of the Company (other
than as part of an internal reorganisation of the Thomas Cook
Group), PSP awards may also vest to the extent determined by the
Committee, taking into account the period elapsed since grant
and the performance achieved against any relevant performance
targets. The awards may also be “rolled over” into new shares of
an acquiring Company.
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GOVERNANCE
DIRECTORS’ REMUNER ATION POLICY CONTINUED
Non-Executive Directors
Non-Executive Directors, including the Chairman, are appointed
pursuant to a letter of appointment. The notice period for the
Chairman is three months, and one month for the other Non-Executive
Directors. All Non-Executive Directors are subject to annual re-election
by Shareholders at the AGM. The Non-Executive Directors’ letters
of appointment continue until the date stated in their appointment
letter unless they are terminated for cause, or on the notice period
stated, or if they are not re-elected at the AGM. The Directors’ service
contracts and letters of appointment are kept for inspection by
Shareholders at the Company’s registered office.
OUTSIDE APPOINTMENTS
The Company recognises the benefits to the individual, and to the
Group, of Executive Directors taking on external appointments as
Non-Executive Directors. Subject to the approval of the Committee an
Executive Director may accept such appointments at other companies
or other similar advisory or consultative roles. The Committee has set
a limit of one external appointment for each Executive Director, to one
FTSE 100 or 250 Company, or an international Company of a similar
size, unless there is justification for a further appointment. The Board
will review the time commitment of all outside appointments and
ensure that it is satisfied that this will not negatively impact upon
the Executive’s time commitment to the performance of Thomas
Cook duties.
The Committee may allow Executive Directors to retain any
fees payable.
STATEMENT OF CONSIDER ATION OF CONDITIONS
ELSEWHERE IN THE COMPANY
When setting the policy for Directors’ remuneration, the Committee
has regard to the pay and employment conditions elsewhere within
the Group. This includes consideration of:
> Salary increases for the general employee population
> Overall spend on annual bonus
> Participation levels in the annual bonus and any long-
term incentives
> Company-wide benefit (including pension) offerings
> Any other relevant factors as determined by the Committee
In order to take into account the views of the general employee
population when formulating Director pay policy, the Committee may
review information provided by the HR function and feedback from
employee engagement surveys.
STATEMENT OF CONSIDER ATION
OF SHAREHOLDER VIEWS
The Company is committed to ongoing engagement and seeks major
shareholder views in advance of proposing significant changes to its
remuneration policies.
In December 2014 our key shareholders were communicated to on
various Executive remuneration matters. Key shareholders were
invited to comment on the FY15 Performance Share Plan including
the level of awards to be made to our Executive Directors, the
performance measures and specific share price and cash conversion
targets for the award.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
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ILLUSTR ATIVE PERFORMANCE SCENARIOS
This section has been updated to illustrate the levels of remuneration that may be received by the current Executive Directors.
Their remuneration is set in accordance with the Directors’ Remuneration Policy which was approved at the February 2014 AGM.
The charts show three scenarios: (a) base salary, benefits and pension, (b) mid and (c) maximum:
CEO – Peter Fankhauser Total remuneration £’000
CFO – Michael Healy Total remuneration £’000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
£927
100%
Base salary,
benefits, pension
£1,858
17%
33%
50%
Mid
£3,342
41%
31%
28%
Maximum
3,500
3,000
2,500
2,000
1,500
1,000
500
0
£675
100%
Base salary,
benefits, pension
£1,377
17%
34%
49%
Mid
£2,495
42%
31%
27%
Maximum
Total fixed
Annual bonus
PSP
Total fixed
Annual bonus
PSP
In developing the scenarios, the following assumptions have been made:
Base salary,
benefits and
pension
Based on what an Executive Director would receive if performance was in line with the following scenario:
Only total fixed pay is received, for example, base salary, benefits and pension. This is calculated as follows:
> Base salary as at 23 November 2015.
> Benefits are based on the amount shown in the single figure table in this year’s Annual Report on remuneration.
> Pension measured by applying cash in lieu rate against base salary as at the date of this report.
CEO
CFO
Base
£690,000
£520,200
Benefits
£29,934
£24,429
Pension
£207,000
£130,050
Total fixed
£926,934
£674,679
Mid
Based on what an Executive Director would receive if performance was in line the Company’s expectations, which would result in the
following scenario:
> Annual bonus pays out at 60% of maximum for mid performance.
> A PSP award with a face value of 150% (in line with the “normal” grant policy) pays out 30% of maximum, being threshold level of vesting.
Maximum
Based on what an Executive Director would receive if performance was in line with the following scenario:
> Full pay-out of annual bonus, for example, 150% of salary.
> A PSP award with a face value of 200% (in line with the “maximum” possible award under the plan rules) pays out at 100% of maximum.
Note:
As required by the regulations, Performance Share Plan awards (and amounts included within the bonus which have been deferred into shares) are set out at face value, with no share price
growth assumptions.
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GOVERNANCE
ANNUAL REPORT ON DIRECTORS’
REMUNERATION
The Remuneration Committee presents its Annual Report on Directors’
remuneration which is set out below. Decisions taken on remuneration
during the year are in line with our remuneration policy which was
approved at our 2014 AGM with 98.9% of all votes cast in favour.
CONSIDER ATION BY THE DIRECTORS OF MATTERS
REL ATING TO DIRECTORS’ REMUNER ATION
The Committee invites individuals to attend meetings, as it deems
beneficial, to assist it in reviewing matters for consideration.
Other individuals who have provided advice to the Committee during
the year include the Chairman of the Board, Group General Counsel,
Group Head of Reward and Performance, the Group Company
Secretary and a representative from Deloitte LLP, the Committee’s
external Remuneration Committee Advisor. Warren Tucker is also
a member of the Audit Committee and, as such, ensures there is
coordination in respect of risk and accounting issues. No Director
or senior executive is present at the meeting when their own
remuneration arrangements are discussed.
EXTERNAL ADVISERS
Deloitte LLP (“Deloitte”) have continued this year as advisers to the
Remuneration Committee providing the Committee with objective and
independent advice on executive remuneration matters. Deloitte is one
of the founding members of the Remuneration Consultants Group and
adhere to their Code of Conduct in its dealings with the Committee.
The Committee is satisfied that the advice provided by Deloitte is
objective and independent. The Committee is also comfortable that
the Deloitte engagement partner and team, that provide remuneration
advice to the Committee, do not have connections with Thomas Cook
that may impair their independence. Total fees paid to Deloitte in
relation to advice to the Committee amounted to £179,650 (charged
on a time plus expenses basis). Other practices of Deloitte, separate
from the executive remuneration practice, have provided consulting
services in relation to systems and organisational design projects and
general tax and internal audit advice to the Company during the year.
During the year, Alithos provided assistance to the Committee
regarding the calculation of the level of vesting in relation to the share
price condition for the June 2012 PSP and COIP awards, and September
2012 PSP award for which the total fees were £1,100 (based on the
number of awards for which calculations were performed and the
reports produced). Alithos was selected by the Company as a service
provider, and the Committee is satisfied that the advice is independent
and objective. Alithos provided no other services to the Company.
SINGLE FIGURE OF TOTAL REMUNER ATION (AUDITED)
The following table sets out the single figure of total remuneration for Directors for the financial years ending 30 September 2014 and 2015:
Executive Directors
Peter Fankhauser1
Michael Healy
Non-Executive Directors
Frank Meysman
Dawn Airey
Annet Aris
Emre Berkin
Warren Tucker
Martine Verluyten
Former Executive Directors
Harriet Green2
Former Non-Executive
Directors
Carl Symon3
Salary/fees
Benefits4
Group Bonus Plan5
£’000
FY15
£’000
FY14
£’000
FY15
£’000
FY14
£’000
FY15
£’000
FY14
£’000
FY15
PSP/COIP6
£’000
FY14
585
515
275
60
60
70
80
80
–
505
275
60
15
66
72
80
174
687
70
66
30
24
58
3
5
6
5
4
22
3
–
24
41
3
3
8
7
5
153
–
605
533
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,8678
2,433
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Pension7
£’000
FY14
£’000
FY15
Total
£’000
FY14
–
126
4,262
3,635
–
–
–
–
–
–
333
63
65
76
85
84
–
655
316
63
18
74
79
85
£’000
FY15
175
129
–
–
–
–
–
–
52
206
248
1,046
–
–
73
66
Notes:
1 Peter Fankhauser was appointed to the Board with effect from 26 November 2014. His base salary,
benefits, and pension are shown for the period he served as an Executive Director. His FY15 annual
bonus shown relates to the period he served as an Executive Director.
2 Harriet Green ceased to be Group CEO on 26 November 2014 and stepped down as Director on
31 December 2014. Her base salary, benefits, and pension are shown for the period she served as
an Executive Director. Details of payments made to Harriet after leaving are shown on page 99.
As previously disclosed, a proportion of Harriet Green’s 2012 PSP award vested following her
departure. 4,115,721 shares vested under this award.
3 Carl Symon stepped down as a Non-Executive Director on 30 September 2015.
4 Executive benefits includes car allowance, private medical insurance, life assurance, income
protection (Harriet Green only) and expenses which are chargeable to UK income tax. Non-executive
benefits relates only to travel and accommodation expenses which are chargeable to UK income tax
(or would be if the individual were resident in the UK).
5 One-third of the bonus will be deferred as shares under the Deferred Bonus Plan.
6 Reflects the value of: the June 2012 PSP and COIP awards which vested in July 2015; and, the September
2012 PSP awards which vested in November 2015. In line with regulations, the market value of the
September PSP awards is estimated using the three month average closing share price ending
30 September 2015 being 1.181p. The valuation of the September 2012 PSP awards will be restated in
next year’s Annual Report on Remuneration when the actual value will be available. No dividends were
paid during the period and therefore no dividends or dividend equivalents were added.
7 Peter receives a pension allowance of 30% of salary as shown in the table above. Under the
grandfathering provisions of our remuneration and appointment policies, Peter’s German pension
provision has been frozen at the level accrued to 26 November 2014 circa €175k per annum. Under the
terms of the pension, this is payable from age 60 or, if terminated without good cause between the
age of 55 to 60, from termination.
8 The value of the share award shown for Peter Fankhauser reflects the full award which was granted
to Peter prior to his appointment as Group CEO.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
97
ADDITIONAL DISCLOSURES REL ATING
TO THE SINGLE FIGURE TABLE (AUDITED)
Further information in respect of the salary, benefits, pension,
annual bonus and PSP amounts included in the previous table
are given below:
The Board considers the FY15 targets under the Group Bonus Plan
to be commercially sensitive and in line with the approach taken in
prior years, will disclose these targets retrospectively in next year’s
report. The table below sets out details of performance measures
and achievement against these for Executive Directors.
Salary
The table below shows Peter Fankhauser and Michael Healy’s salaries
during FY15.
Measures
Salary on
appointment
26 November 2014
Salary at
30 September 2015
Percentage
increase*
Peter Fankhauser
£690,000
£690,000
0.0%
Core
Salary at
30 September 2014
Michael Healy
£510,000
£520,200
2.0%
* Increase effective from 1 April 2015.
Role-specific
Weighting
Performance
achieved
Resulting level1
of award (of
max %
opportunity)
Group underlying EBIT
(constant currency)2
Group cash
conversion
New product
revenue (gross)
Group web
penetration
Group cost out
Group gross margin
improvement
Organisation, people
and strategy
25%
25%
10%
10%
10%
10%
£380m
85%
£681m
40%
>£500m3
22.6%
10%
Achieved
20%
25%
0%
0%
10%
4%
10%
69%
The pay increase awarded to Michael Healy was in line with the
amount awarded across the Group at the 2015 annual pay review.
Pensions (audited)
Currently, both Peter Fankhauser and Michael Healy receive their
pension contributions as a cash allowance of an amount equivalent
to 30% and 25% of annual base salary respectively.
Group Bonus Plan (audited)
FY15 Group Bonus Plan
For the year, the maximum Group Bonus Plan award opportunity for
both the CEO and CFO was 150% of salary, one-third of which would be
deferred as shares for two years, subject to malus (claw-back before
the vesting date), as described on page 92.
As described, progress has been made against our strategic targets
during the financial year, and to reflect achievement against these
targets, for Executive Directors the level of payout against the plan
will be 69% of the maximum bonus opportunity. Included within those
targets, the Committee also set two financial hurdles which were
both required to be met in full before pay-out could be made under
any measure. The financial hurdles for FY15 were Group underlying
EBIT and cash conversion, which were both satisfied.
Total level of award as a % of maximum opportunity:
Notes:
1 The Committee was focused on ensuring that the outcomes under the FY15 Group Bonus Plan
provided an appropriate balance between the financial performance of the business and the
performance of Management and in order to achieve this balance the Committee made certain
adjustments to the calculation of financial performance.
2 As disclosed in prior years, bonus targets in relation to Group underlying EBIT are set on a fixed
currency basis at the beginning of the performance period, therefore the achievement used for
bonus purposes is different from the achievement stated earlier in the report.
3 Adjusted to £510m at actual exchange rates.
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GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNER ATION CONTINUED
FY14 Group Bonus Plan
As disclosed in the FY14 remuneration report, the two Group hurdles of Group underlying EBIT and Group cash conversion were not met for the
FY14 plan therefore no payments were made to participants including Executive Directors. Retrospective disclosure of performance against
targets, in line with our commitments to shareholders are set out below, as the Board considers these are no longer commercially sensitive:
Threshold (20% of maximum award)
Stretch (100% of maximum award)
FY14 Outcome
Group underlying EBIT
Group cash conversion
Group web penetration
Group new products
£326.2m
45%
40%
£675m
£367.5m
55%
42%
£750m
£322.9m
40%
38%
£373m
Performance Share Plan (“PSP”) and Co-Investment Plan (“COIP”) 2012 awards
The June 2012 PSP and COIP awards vested in full in July 2015. A subsequent award which was made in September 2012 vested in accordance
with performance achieved as set out below. The performance conditions under the PSP awards are spread over both PSP awards made in 2012,
taking into consideration that the June 2012 PSP award had a share price condition only. The overall weightings are detailed in the below table:
Performance condition
Group CEO
weightings
(% of 2012 awards)
Group CFO
weightings
(% of 2012 awards)
Threshold level of
vesting (30%)
Maximum level of
vesting (100%)
Outcome
Level of
vesting
June 2012
PSP award
September 2012
PSP award
Share price (highest 60 day average
in final year of performance period:
12/06/14 – 12/06/15
Share price (highest 60 day average
in final year of performance period:
28/09/14 – 28/09/15
FY15 Group underlying EBIT
FY15 Group cash conversion
10%
35%
30%
25%
100%
20%
25%
30%
25%
100%
26.01p
26.01p
£381m
55%
86.69p
86.69p
£476m
65%
127.44p
121.39p
£310m
71%
100%
100%
0%
100%
70%
Performance condition
Group CEO
weightings
(% of 2012 awards)
Group CFO
weightings
(% of 2012 awards)
Threshold level of
vesting (30%)
Maximum level of
vesting (100%)
Outcome
Level of
vesting
June 2012
COIP award
Share price (highest 60 day average
in final year of performance period:
12/06/14 – 12/06/15
100%
n/a
26.01p
86.69p
127.44p
100%
100%
This resulted in the number of shares vesting for each Director as set out below:
Director
Date of Grant
Vesting Date
Number of Shares Under Award
Number of Shares Vested
Peter Fankhauser
PSP Award
COIP Award
PSP Award
Michael Healy
PSP Award
PSP Award
12/06/2012
12/06/2012
28/09/2012
12/06/2012
28/09/2012
09/07/2015
09/07/2015
07/12/2015
09/07/2015
07/12/2015
283,049
362,469
2,600,850
576,780
2,307,120
283,049
362,469
1,735,680
576,780
1,441,950
Notes on Group underlying EBIT and Group Cash Conversion Outcomes:
The outcomes for Group underlying EBIT and Group cash conversion differ from those stated above in relation to the FY15 Group Bonus Plan,
as no adjustments for currency, or other circumstances have been made for the purposes of PSP.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
99
Scheme interests awarded during the financial year (audited)
A PSP award was made to Peter Fankhauser and Michael Healy equating to a face value of 150% of salary. The award is within our approved
Remuneration Policy and aims to align the performance of our Executive Directors with those of our shareholders. Details of the performance
conditions can be found on page 104. The date of the awards was delayed from December 2014, due to the Company being in a close period.
Director
Type of Award
Plan
Date of award
Number of shares
awarded
Face value
of award1
Share price used to
calculate award2
Number of shares received if
minimum performance achieved3
Peter Fankhauser
Michael Healy
Conditional Share Award PSP
Conditional Share Award PSP
12/03/2015
12/03/2015
720,752
532,729
150%
150%
143.6p
143.6p
216,226
159,819
Notes:
1 Expressed as a % of salary at the time of award.
2 The share price used to calculate the award was 143.6p being the average closing share price of the three days prior to grant.
3 Minimum performance is equal to 30% of maximum award.
Payments to past Directors
As previously disclosed, Harriet Green stepped down from the Board
on 31 December 2014 and continued to be paid her full salary and
contractual benefits (including the cash allowance in lieu of employer
pension contributions) up to and including her termination date of
30 June 2015. Payments received by Harriet during this period in
relation to salary and cash pension allowance were £451,282.
As previously disclosed, Harriet Green’s September 2012 PSP award
was pro-rated for time and performance and was treated in line
with the leaver provisions of the Plan. She received 4,115,721 shares
(representing 57.2% of the original grant after taking account of
prorating for time (91.7%) and performance (62.4%)) on 30 June 2015
and the value of the shares at the time of vesting was £5,630,306.
Harriet’s September 2013 PSP award lapsed in full.
Loss of office payments
There were no loss of office payments made to past Directors during
the year.
Current Executive Director service contracts
The dates of the service contracts for Peter Fankhauser and
Michael Healy are 23 February 2015 and 8 May 2012 respectively.
The service contracts are available for inspection at the Company’s
registered office.
NON-EXECUTIVE DIRECTORS
The Chairman is paid a single, consolidated fee of £275,000.
The Non-Executive Directors are paid a basic fee, plus additional
fees for chairmanship of Board Committees.
The annual rates of Non-Executive Director fees are shown in the
table below:
Position
Non-Executive Director
Additional fee for the Chairman of the Audit Committee
Additional fee for the Chairman of the Remuneration Committee
Additional fee for the Senior Independent Director
Additional fee for the Chairman of the Health,
Safety & Environmental Committee
Annual fees
£’000
60
20
20
10
10
Each of the Non-Executive Directors has been appointed pursuant
to a letter of appointment, which is available for inspection at the
Company’s registered office. 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:
Director
Frank Meysman
Dawn Airey
Annet Aris
Emre Berkin
Warren Tucker
Martine Verluyten
Date of latest
letter of
appointment
Expiry date
Notice period
27 March 2013
27 March 2013
30 April 2014
N/A
11 April 2016
30 June 2017
27 March 2013 30 October 2018
2 October 2016
3 October 2013
7 May 2017
8 May 2014
3 months
1 month
1 month
1 month
1 month
1 month
EXTERNAL APPOINTMENTS
As set out in the Policy report, the Company recognises the benefits
of Executive Directors taking on external appointments as Non-
Executive Directors, subject to the limitations set out in the Policy
report and to Committee approval. During Harriet Green’s time as
a Director of the Company, she served as a Non-Executive Director
of BAE Systems plc and Emerson Electric Co. For the period from
1 October 2014 until 31 December 2014, she received fees of £18,750
and $33,833 respectively which she retained.
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GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNER ATION CONTINUED
Statutory graph
The graph below shows the total shareholder return (“TSR”) for
holders of Thomas Cook Group plc €0.10 Ordinary Shares (€0.01
Ordinary Shares from 3 June 2013) for the seven-year period since
30 September 2008, measured against the FTSE 250 Index and the
FTSE All Share Travel & Leisure Index. These indices were chosen as
relevant comparators, as the Company is a member of both indices,
with one reflecting a broad equity index and the other being specific
to the travel sector. The calculation of TSR is in accordance with
the relevant remuneration regulations and is broadly the change
in market price together with reinvestment of dividend income.
This graph shows the value of £100 invested in Thomas Cook Group
plc on 30 September 2008 compared with the value of £100 invested
in the FTSE 250 Index and the FTSE All Share Travel & Leisure Index.
The intermediate points are the values at the Company’s financial
year ends.
Total Shareholder return £
250
200
150
100
50
0
Thomas Cook
FTSE 250
FTSE All Share Travel & Leisure Index
30 Sept 08
30 Sept 09
30 Sept 10
30 Sept 11
30 Sept 12
30 Sept 13
30 Sept 14
30 Sept 15
The graph above shows the TSR for Thomas Cook Group plc since 30 September 2008.
The TSR for the Company from 30 September 2012 to 30 September 2013 was 966%; to 30 September 2014 was 789% and to 30 September 2015
was 741%. The Group underlying EBIT (see page 180) for the financial year to 30 September 2012 was £126m, for 30 September 2013 was £172m,
for 30 September 2014 was £280m, for 30 September 2015 was £310m.
The table below shows the pattern of remuneration of the Chief Executive Officer during this period. Note that the single figures for FY15
include the full PSP and COIP awards that Peter Fankhauser received upon vesting.
CEO
FY09
FY10
FY11
FY 12
FY13
FY14
FY15
CEO Single figure
of remuneration
Group Bonus Plan payout
(as % maximum opportunity)
PSP vesting (as % of
maximum opportunity)
Peter Fankhauser1
Harriet Green2
Sam Weihagen3
Manny Fontenla-Novoa4
Peter Fankhauser
Harriet Green
Sam Weihagen
Manny Fontenla-Novoa
Peter Fankhauser
Harriet Green
Sam Weihagen
Manny Fontenla-Novoa
–
–
–
£2.996m
–
–
–
96%
–
–
68%
–
–
–
£2.322m
–
–
–
80%
–
–
–
£153k
£1.008m5
–
–
0%
0%
–
–
0%
0%
0%
–
£717k
£1.171m
–
–
–
23%
–
–
–
0%
–
–
£2.855m
–
–
–
100%
–
–
–
–
–
–
–
£1.046m
–
–
–
0%
–
–
–
–
–
–
£4.262m
£248k
–
–
69%
0%
–
–
70%6
–
–
–
The table above shows the prescribed remuneration data (as shown in the left-hand side column) for the Director(s) undertaking the role
of Chief Executive Officer during each of the last five financial years.
Notes:
1 Peter Fankhauser was appointed CEO on 26 November 2014.
2 Harriet Green stepped down as CEO on 26 November 2014 and remained a Director until
31 December 2014.
3 Sam Weihagen was appointed CEO on 3 August 2011, and remained in post until the appointment
of Harriet Green on 30 July 2012.
4 Manny Fontenla-Novoa stepped down as CEO on 2 August 2011.
5 The single figure for FY11 for Manny Fontenla-Novoa excludes his termination payment,
which was a total of £1,166,639 (in respect of contractual entitlements to base salary,
pension allowance and benefits, in lieu of notice).
6 Relates to the June 2012 PSP and COIP awards and the September 2012 PSP award representing
the full value received.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
101
REL ATIVE IMPORTANCE OF SPEND ON PAY
The table below displays the relative expenditure of the Company
on all employees’ pay and shareholder distributions as required
by the Regulations.
Overall Expenditure on
group employee pay
Group underlying EBIT
Shareholders distributions
2014
£m
890
323
0
2015
£m
Year on year
% change
848
310
0
−5%
−4%
Group underlying EBIT is shown above as this continues to be
a key performance measure. The figures shown in the table are
extracted from the Group’s financial statements. The amounts
for Group employees’ and Directors’ pay include employer social
security payments.
PERCENTAGE CHANGE IN REMUNER ATION
OF CHIEF EXECUTIVE OFFICER
The table below sets out the percentage change in the remuneration
of the CEO. It also sets out the percentage change in the
remuneration of other employees in the Group. A peer group of
UK-based employees has been selected (excluding any employees
whose pay is subject to long-term collective agreements). We have
selected this peer group as the Chief Executive Officer is UK-based
and therefore pay movement in this peer group is subject to similar
external pressures. We have excluded employees subject to long-term
collective agreements for the same reason. In order to ensure that
the comparison is on a like-for-like basis, we have excluded any new
hires, leavers or promotions.
% change in remuneration from FY14 to FY15
% change in
base salary1
% change in
benefits2
% change in
annual bonus3
CEO
UK-based employees
−0.62%
2.64%
−65.81% See Note 3
0% See Note 3
Notes:
1 For comparative purposes the role of the Group CEO’s pay is shown as a year-on-year basis,
meaning that the comparison uses the salary of Harriet Green and Peter Fankhauser as at
30 September 2014 and 2015 respectively.
2 The main taxable benefits provided to UK-based employees are private medical insurance
and car allowance, dependent upon seniority. There has been no change in the Policy level
of benefits provided.
3 In order to provide the most direct comparison possible, the Committee considers a focus on all
UK-based employees participating in the Group Bonus Plan is appropriate, as the performance
targets have a “Group” focus similar to the performance targets in place for the CEO. Bonus levels
for both the Group CEO and those in the Group Bonus Plan were zero for FY14. In FY15 achievement
for the Group CEO was 69% of maximum bonus opportunity. For those who are UK based and
in the Group Bonus Plan the average pay-out level was also 69% of maximum bonus opportunity.
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GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNER ATION CONTINUED
STATEMENT OF IMPLEMENTATION OF
REMUNER ATION POLICY IN THE FOLLOWING
FINANCIAL YEAR
Group Bonus Plan measures and weightings – FY16
Maximum opportunity for Executive Directors bonus payout will be
150% of salary in line with our approved Remuneration Policy. For FY16,
the measures will be as follows:
Measures
Weighting
% overall opportunity
Core measures
Role-specific objectives
Group
underlying EBIT
Group cash
Improvement in
net promoter score
Leadership
Strategic progress
40%
30%
20%
5%
5%
The performance measures above were selected to align with the
strategic objectives of the Group. Our bonus targets will be set on
a fixed currency basis at the beginning of the performance period.
The Committee considers that the targets are commercially sensitive,
so these have not been disclosed. We will disclose these targets
at such point that the Committee considers they are no longer
commercially sensitive.
In determining the bonus outcome, the Committee considers that
there are circumstances in which it would not be appropriate to
pay a bonus due to the poor financial performance of the business
and therefore the Committee has discretion to adjust any payments
as it considers appropriate.
The FY16 bonus will be subject to financial hurdles for the underlying
EBIT and cash measures.
Performance Share Plan
The Committee will grant the next award under the PSP to Executive
Directors during the start of FY16. It is anticipated that the level of
award will be 150% of salary for both the Group CEO and Group CFO.
In line with the Remuneration Policy, the Committee has determined
that these will vest to the extent stretching EPS and relative
TSR targets (weighted equally) are achieved over a three-year
performance period.
TSR performance will be assessed relative to the constituents of
the FTSE 250, excluding companies in the financial services and
commodity sectors.
TSR performance
Vesting (% of this portion)
Index +12% per annum
Index + 8% per annum
Index + 0% per annum
100%
60%
30%
Awards will vest on a straight-line basis between these points.
For performance below that of the Index, there will be no vesting.
EPS performance will be assessed against stretching absolute
targets for FY18. The targets are set for basic EPS and will be
measured on a constant currency basis. Given that the targets are
set as actual monetary amounts for a single year (and not growth
percentages) they are considered commercially sensitive. We will
disclose these targets at such point that the Committee considers
they are no longer commercially sensitive.
DIRECTORS’ AND FORMER DIRECTORS’
SHARE INTERESTS (AUDITED)
The following table shows the beneficial interests of the Directors
in the shares of the Company:
Current Directors
Peter Fankhauser
Michael Healy
Frank Meysman
Dawn Airey
Annet Aris
Emre Berkin
Warren Tucker
Martine Verluyten
Former Executive Director
Harriet Green*
Former Non-Executive Director
Carl Symon
Beneficial holdings
(Number of shares as at
30 September 2015)*
1,286,776
402,182
470,000
42,000
–
–
30,800
165,000
732,700
45,000
* Interest in shares for Harriet Green shown as at 31 December 2014 that is the date she stepped
down from the Board.
Shareholding guidelines (audited)
Executive Directors are required to hold the Company’s shares to the
value of 100% of base salary, under the Thomas Cook Shareholding
Guidelines (the “Guidelines”). Executive Directors are allowed a
build-up period which ends after sufficient awards under the PSP
have vested to provide shares to the value of 100% of base salary
(after tax has been paid on the shares). Until the shareholding
guideline is met, after-tax proceeds of vested PSP shares cannot be
sold. At 30 September 2015, Peter Fankhauser met the shareholding
guidelines with a holding of 271% of salary. Michael Healy has met the
requirement with a holding of 100%.
In line with the Guidelines, the value of the Directors’ holding is
calculated by taking the greater of: a) the initial financial commitment;
and b) the market value at 30 September 2015.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
103
Directors’ and former directors’ interests in shares under the COIP, DBP and PSP (audited)
Date of grant
Share price at
date of grant
At
30 September
2014
Granted
Released
Lapsed
At
30 September
2015
Earliest vesting
date of
outstanding
awards
Director
Peter Fankhauser
COIP (closed)
PSP
DBP
Michael Healy
PSP
DBP
Former Director
Harriet Green
PSP
DBP
12/06/2012
12/06/2012
28/09/2012
30/09/2013
12/03/2015
31/03/2014
12/06/2012
28/09/2012
30/09/2013
12/03/2015
31/03/2014
28/09/2012
30/09/2013
31/03/2014
£0.165
£0.165
£0.175
£1.534
£1.486
£1.776
£0.165
£0.175
£1.534
£1.486
£1.776
£0.175
£1.534
£1.776
362,469
283,049
2,600,850
610,169
–
150,282
576,780
2,307,120
610,169
–
101,351
7,195,316
922,033
251,266
–
–
–
–
720,752
–
–
–
–
532,729
–
362,469
283,049
–
–
–
150,282
576,780
–
–
–
101,351
–
–
–
–
–
–
–
–
–
–
–
0
0
2,600,850
610,169
720,752
0
0
2,307,120
610,169
532,729
0
28/09/2015
30/09/2016
12/03/2018
28/09/2015
30/09/2016
12/03/2018
–
–
–
4,115,721
–
215,266
3,079,595
922,033
–
0
0
0
DETAILS OF PL ANS
Deferred Bonus Plan (DBP)
Under the Deferred Bonus Plan, a third of any bonus payment made
under the Group Bonus Plan is deferred into shares for a period of
two years on a compulsory basis. Prior to FY14, the deferral period
was one year with 25% of bonus payments being deferred. The DBP
awards shown above represent a quarter of the FY13 bonus. The DBP
award was made in March 2014 and the shares were released on
31 March 2015, the value of which was disclosed in the 2013 annual
report, which is available on the Company’s website.
Co-Investment Plan (COIP)
Under the (now closed) COIP the participants own funds were
used to purchase shares on their behalf (“Lodged Shares”), which
had to be held for three years. The participant was then awarded
“Matching Shares” in proportion to the number of Lodged Shares they
had purchased.
The Plan was limited to the former Group Executive Board (GEB)
members, which included Peter Fankhauser at the time of the
2012 grant, and a very small number of other senior executives.
The performance conditions in respect of the 2012 award of Matching
Shares were the same as those for the June 2012 PSP award which
vested in full. Full details of these are given on page 98. There are no
outstanding awards under this scheme.
Performance Share Plan (PSP)
Under the PSP, participants are awarded a contingent share award
over shares in Thomas Cook Group plc. Shares under the awards will
vest subject to the satisfaction of the performance target at the end
of the performance period. Performance conditions are based 100%
on share price performance, based on highest 60-day average share
price 12 June 2014–12 June 2015 for the 2012 award. For subsequent
awards made, performance conditions were based on absolute share
price, Group underlying EBIT and Group cash conversion.
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104
GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNER ATION CONTINUED
Performance Share Plan (PSP) Performance Conditions (audited)
The performance conditions under the FY12 PSP and COIP awards which were met in part during the year are set out on page 98.
The FY13 PSP awards made to Executive Directors are subject to performance measures set out in the table below:
Share price
(45% of the overall award)
Performance level
Share price
Group underlying EBIT
(30% of the overall award)
Cash conversion
(25% of the overall award)
Vesting (% of
this portion)
Performance level
Group underlying EBIT
Vesting (% of
this portion)
Performance level
Cash conversion
Vesting (% of
this portion)
100%
30%
£3.00
£2.25
Maximum
Threshold
Share price performance is measured as the
average share price performance over the fixed
period of 30 trading days from the release of
the preliminary FY16 results, with the intention
of capturing the market’s reaction to the
financial results.
To be disclosed
retrospectively
Maximum
Threshold
Group underlying EBIT performance in respect
of FY16, which is the final year of the three-year
performance period.
100%
30%
90%
70%
Maximum
Threshold
Cash conversion performance measured in
respect of FY16 cash conversion, which is the
final year of the three-year performance period.
100%
30%
Group underlying EBIT excludes exceptional
items.
Cash conversion is defined as free cash
flow post exceptional items, before capital
expenditure/EBITDA.
The FY15 PSP awards made to Executive Directors are subject to performance measures set out in the table below:
Share price
(45% of the overall award)
Performance level
Share price
Group underlying EBIT
(30% of the overall award)
Cash conversion
(25% of the overall award)
Vesting (% of
this portion)
Performance level
Group underlying EBIT
Vesting (% of
this portion)
Performance level
Cash conversion
Vesting (% of
this portion)
Maximum
£3.00
100%
Maximum
To be disclosed
retrospectively
100%
Maximum
80%
100%
30%
Threshold
£2.25
Share price performance is measured as
the average share price performance over
the fixed period of 30 trading days from the
release of the preliminary FY17 results, with the
intention of capturing the market’s reaction to
the financial results.
Threshold
Group underlying EBIT performance in respect
of FY17, which is the final year of the three-year
performance period.
30%
Group underlying EBIT excludes exceptional
items.
70%
Threshold
Cash conversion performance measured in
respect of FY17 cash conversion, which is the
final year of the three-year performance period.
30%
Cash conversion is defined as free cash
flow post-exceptional items, before capital
expenditure/EBITDA.
STATEMENT OF SHAREHOLDER VOTING
The table below sets out the results of the vote on the Directors’ Remuneration report at the 2015 AGM:
Votes for
Number
%
Votes against
Number
%
Votes cast
Votes withheld
Annual remuneration report
1,150,915,753
99.76
2,742,362
0.240.44
1,153,658,115
532,949
This Annual Report on remuneration has been approved by the Board of Directors and signed on its behalf by:
WARREN TUCKER
CHAIRMAN, REMUNER ATION COMMITTEE
24 November 2015
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
105
OTHER DISCLOSURES
SHARE CAPITAL
The Company has the following three classes of shares in issue:
Name
Ordinary Shares of €0.01 each
Deferred Shares of €0.09 each
Deferred Shares of £1 each
Number of shares
in issue at
30 September
2015
1,535,851,316
934,981,938
50,000
Ordinary Shares
The Ordinary Shares carry the right to the profits of the Company
available for distribution and to the return of capital on a winding up
of the Company. The Ordinary Shares carry the right to attend and
speak at general meetings of the Company; each share holds the
right to one vote. The Ordinary Shares are admitted to the premium
segment of the Official List and to trading on the London Stock
Exchange’s main market.
Employees who hold shares under the Thomas Cook BAYE or vested
shares under any of the Company’s executive share plans (as detailed
on page 103), are sent a Form of Instruction by the relevant trustee
in respect of any general meetings of the Company, so that they
may instruct the trustee to vote on their behalf. Unvested shares
under the Company’s executive share plans are not voted at
general meetings.
Deferred Shares
Both classes of Deferred Shares carry no right to the profits of the
Company. On a winding up, the holders of the Sterling-denominated
Deferred Shares would be entitled to receive an amount equal to the
capital paid up on each Sterling-denominated Deferred Share and the
holders of the Euro-denominated Deferred Shares would be entitled
to receive an amount equal to the capital paid up on each Euro-
denominated Deferred Share only after the holders of the Ordinary
Shares and Sterling-denominated Deferred Shares have received, in
aggregate, the amounts paid up thereon. The holders of both classes
of 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.
Warrants
As part of the £200 million bank facility announced on 25 November
2011, the Company issued Warrants to certain of its lenders, giving
holders the right, at any time until 22 May 2015, to subscribe for
up to an aggregate of 42,914,639 Ordinary Shares (representing
approximately 4.9% of the issued share capital of the Company at
the date of issue) at a subscription price per share of 19.875 pence.
On 10 May 2012, the Company issued Warrants as part of the bank
facility amendment announced on 5 May 2012 to certain of its lenders,
giving holders the right, at any time until 22 May 2015, to subscribe
for up to an aggregate of 43,749,517 Ordinary Shares, representing
approximately 5.0% of the issued share capital of the Company at the
date of issue (subsequently increased by 4,440,376 Ordinary Shares
to reflect the Company’s Rights Issue and Placing in June 2013) at
a subscription price per share of €0.10 (subsequently adjusted to
€0.0857282 to reflect the Company’s Rights Issue and Placing in June
2013). In addition, the Warrants issued as part of the bank facility
announced in November 2011 were re-priced to the same exercise
price. During the year, the final remaining Warrantholder exercised its
Subscription Rights in respect of 1,939,126 Warrants (exercised into
Ordinary Shares on a one-for-one basis). Therefore, as at 20 November
2015, there were no outstanding Warrants.
Allotments of shares during the year
On 15 December 2014, the Company issued 1,939,126 Ordinary Shares
with an aggregate, nominal value of €19,391.26 to a Warrantholder
for an aggregate price of €166,237.78. On 6 March 2015, the Company
issued 73,135,777 Ordinary Shares with an aggregate, nominal value
of €731,357.77 to Fosun International Limited for an aggregate price of
£91.8 million. Further details in relation to the Company’s share capital
can be found on page 159.
ARTICLES OF ASSOCIATION
The Company’s Articles of Association (the “Articles”) may only
be amended by a special resolution at a general meeting of
shareholders. The Articles are available on the Company’s website
at www.thomascookgroup.com.
AUTHORIT Y TO PURCHASE SHARES
The Company currently does not have authority to purchase
its own shares.
SHARE TR ANSFER RESTRICTIONS
The Articles are designed to ensure that the number of the Company’s
shares held by non-EEA nationals does not reach a level which could
jeopardise the Company’s entitlement to continue to hold or enjoy
the benefit of any authority, permission, licence or privilege which
it, or any of its subsidiaries, holds or enjoys and which enables an
air service to be operated (each an “Operating Right”). In particular,
EC Council Regulation 1008/2008 on the 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.
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GOVERNANCE
OTHER DISCLOSURES CONTINUED
The Company maintains a separate register (the “Separate Register”)
of shares in which non-EEA nationals, whether individuals, bodies
corporate or other entities have an interest (such shares are referred
to as “Relevant Shares” in the Articles). An interest in this context
is widely defined (see below). The Directors may require relevant
members or other persons to provide them with information to
enable them to determine whether shares are, or are to be treated
as, Relevant Shares. If such information is not provided, then the
Directors will be able, at their discretion, to determine that shares
to which their enquiries relate be treated as Relevant Shares.
Registered shareholders will also be obliged to notify the Company
if they are aware either (a) that any share they hold ought to be
treated as a Relevant Share for this purpose or (b) that any share
they hold which is treated as a Relevant Share should no longer be
so treated. In this case, the Directors shall request such information
and evidence as they require to satisfy themselves that the share
should not be treated as a Relevant Share 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 that 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 that
may subsist at any time (which may not, save in the circumstances
referred to below, be lower than 40% of the total number of issued
shares) and treat any Relevant Shares in excess of this Permitted
Maximum as Affected Shares (see below). The Directors may serve
a notice (an “Affected Share Notice”) in respect of any Affected
Share. An Affected Share Notice can, if it so specifies, have the
effect of depriving the registered holder of the right to attend, vote
and speak at general meetings which they would otherwise have
had as a consequence of holding such shares. Such an Affected
Share Notice can, if it so specifies, also require the recipient to
dispose of the Affected Shares (so that the Relevant Shares will
then cease to be Affected Shares) within 21 days or such longer
period as the Directors may determine. The Directors are also
given the power to sell such Affected Shares themselves where
there is non-compliance with an Affected Share Notice at the
best price reasonably obtainable at the relevant time on behalf
of the shareholder.
In deciding which shares are to be dealt with as Affected Shares,
the Directors, in their sole opinion, will determine which Relevant
Shares may give rise to the fact of risk of an Intervening Act occurring
and, subject to any such determination, will have regard to the
chronological order in which particulars of Relevant Shares have been,
or are to be, entered in the Separate Register unless to do so would,
in the sole opinion of the Directors, be inequitable. If there is a change
in any applicable law or the Company or any subsidiary receives any
direction, notice or requirement from any state or regulatory authority,
which, in either case, necessitates such action to overcome, prevent
or avoid an Intervening Act, then the Directors may either:
> lower the Permitted Maximum to the minimum extent that they
consider necessary to overcome, prevent or avoid an Intervening
Act; or
> resolve that any Relevant Shares shall be treated as Affected
Shares. 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 UK (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 that has been specified.
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 certified, to the satisfaction of the
Company, that they are EEA nationals.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
107
A person shall be deemed to have an interest in relation to Thomas
Cook Group plc shares if:
> such person has an interest that would (subject as provided below)
be taken into account, or which they would be taken as having, in
determining for the purposes of Part 22 of the Companies Act 2006
whether a person has a notifiable interest; or
> they have 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 their spouse or any infant, child or stepchild
(or, in Scotland, pupil or minor) of theirs is interested by virtue of
that relationship or which they hold 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.
As at 30 September 2015, 486,987,357 Ordinary Shares (31.71%) were
held on the Separate Register. During the year the Board increased
the Permitted Maximum from 40% to 45% in light of the acquisition
by Fosun International Limited of a 5% stake in the Company.
PROVISIONS OF CHANGE OF CONTROL
The Company has a facilities agreement (the “Agreement”) in
place which consists of £500 million revolving credit facility and
£300 million bilateral bonding and guarantee facilities. The Agreement
provides that, on any change of control of the Company, the lenders
under the Agreement are obligated to negotiate (for a period not
exceeding 30 days, unless extended by agreement for a further
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; (ii) cancel all of its commitments under the Agreement; and/or
(iii) under certain conditions demand immediate credit support.
The Company also has £300 million 7.75% guaranteed notes due 2017
(upon the occurrence of certain change of control events relating to
the Company (and then only if certain rating conditions in respect
of the relevant notes are met), each holder has the option to require
the Company to redeem or (at the option of the Company) to purchase
the notes of such holder at par value plus accrued interest.
The Company’s subsidiary, Thomas Cook Finance plc, has outstanding
€525 million 7.75% senior notes due 2020 and €400 million 6.75%
senior notes due 2021. On the occurrence of certain change of control
events relating to the Company, each holder has the option to require
Thomas Cook Finance plc (the issuer of these notes) to repurchase all
or any part of the holder’s notes at a purchase price in cash equal to
101% of the principal amount plus accrued and unpaid interest.
POLITICAL DONATIONS
The Company did not make any political donations during the financial
year (2014: nil).
MAJOR SHAREHOLDINGS
The table below shows notifications of major shareholdings received
by the Company in accordance with rule 5 of the Disclosure Rules and
Transparency Rules of the UK Listing Authority:
Name
Invesco Ltd
Standard Life Investments Ltd
The Capital Group
FPI UK Limited (Fosun)
Black Rock Inc.
Marathon Asset
Management LLP
Orbis Holdings Limited
Number of shares held
as at 30 September 2015
Percentage of
issued capital (%)
as at 30 September 2015
277,529,587
138,942,805
107,099,975
79,789,001
72,899,276
72,555,285
43,905,280
18.07
9.05
6.97
5.20
5.02
4.97
3.01
The Company did not receive notification of any changes to the
above shareholdings in the period from 30 September 2015 to
20 November 2015.
DISCLOSURE OF INFORMATION UNDER LISTING
RULE 9.8.4
Details in respect of allotments of equity securities are given on
page 105. This is the only disclosure required under Listing Rule 9.8.4.
GREENHOUSE GAS EMISSIONS
Information in respect of greenhouse gas emissions have been included
in the Sustainability section of the Strategic report on page 64.
EMPLOYEE INFORMATION
Disclosures in respect of the employment of disabled people and
employee evolvement can be found on pages 60 and 61 of the
Strategic Report.
INDEPENDENT AUDITORS
PwC have expressed their willingness to be re-appointed as Auditor
of the Company. Upon the recommendation of the Audit Committee,
resolutions to re-appoint them as the Company’s Auditor and to
authorise the Directors to determine their remuneration will be
proposed to the 2016 Annual General Meeting.
The Strategic Report and Directors’ Report comprising pages 16 to 65
have been approved and are signed by order of the Board by:
ALICE MARSDEN
GROUP COMPANY SECRETARY
24 November 2015
Registered office
3rd Floor, South Building
200 Aldersgate
London EC1A 4HD
Registered number
6091951
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financial
statements
DELIVERING IMPROVED FINANCIAL RESULTS
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FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF THOMAS COOK GROUP PLC
REPORT ON THE GROUP FINANCIAL STATEMENTS
Our opinion
In our opinion:
> Thomas Cook Group plc’s Group financial statements and Company
financial statements (the “financial statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at
30 September 2015 and of the Group’s profit and the Group’s and the
Company’s cash flows for the year then ended;
> the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union; and
> the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards
the group financial statements, Article 4 of the IAS Regulation.
What we have audited
The financial statements, included within the Annual Report and
Accounts (the “Annual Report”), comprise:
> the Group and Company balance sheet as at 30 September 2015;
> the Group income statement and statement of other comprehensive
income for the year then ended;
> the Group and Company cash flow statements for the year
then ended;
OUR AUDIT APPROACH
Context
Thomas Cook Group plc is a British global travel company listed on
the London Stock Exchange. The Group operates from approximately
15 source locations across Europe. The context for our audit has
been set against the continued execution of the Group’s strategy
to become more resilient and focused on profitable growth, through
the Wave 1 programme and the launch of the New Operating Model
project, given the effect of external factors and events which impact
the travel industry as a whole. This was particularly relevant for the
work performed on the carrying value of goodwill and deferred tax
assets, the recoverability of hotel prepayments and presentation of
separately disclosed items.
The areas of audit focus where work performed by component teams
was most relevant were the recoverability of hotel prepayments
and the accounting for aircraft leases and associated maintenance
provisions. The judgements in respect of the recoverability of goodwill
and deferred tax assets, treasury derivatives, the Group’s defined
benefit pension schemes and the presentation of items as separately
disclosed are primarily taken at a Group level.
Overview
> the Group and Company statement of changes in equity for the year
then ended; and
> the notes to the financial statements, which include a summary of
significant accounting policies and other explanatory information.
Materiality
Certain required disclosures have been presented elsewhere in the
Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are
identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and IFRSs as
adopted by the European Union and, as regards the Company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
Audit scope
Areas of
focus
> Overall Group materiality: £15.5m which is
based on 5% of the underlying profit from
operations, being profit from operations
adjusted for the impact of ‘separately
disclosed’ items.
> Full scope audits performed on 35 of 120
units from across the four geographic
operating divisions.
> The reporting units where we performed
audit work accounted for 70% of the
Group’s underlying profit from operations
and 81% of the Group’s revenue.
> The Group team visited all three of
the ‘Sub-Consolidation component’
teams (being UK, Northern Europe and
Continental Europe) and the Airlines
Germany component team to attend the
clearance meetings and to discuss the
audit findings.
> Carrying value of goodwill and deferred
tax assets.
> Aircraft leases and associated
maintenance provisions.
> Separately disclosed items.
> Recoverability of hotel prepayments.
> Treasury operations and use of
derivative instruments.
> Defined benefit pension valuation.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
111
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards
on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
including evaluating whether there was evidence of bias by the
Directors that represented a risk of material misstatement due
to fraud.
We designed our audit by determining materiality and assessing
the risks of material misstatement in the financial statements.
In particular, we looked at where the Directors made subjective
judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future
events that are inherently uncertain. As in all of our audits we also
addressed the risk of management override of internal controls,
The risks of material misstatement that had the greatest effect on
our audit, including the allocation of our resources and effort, are
identified as “areas of focus” in the table below. We have also set out
how we tailored our audit to address these specific areas in order to
provide an opinion on the financial statements as a whole, and any
comments we make on the results of our procedures should be read
in this context. This is not a complete list of all risks identified by
our audit.
Area of focus
How our audit addressed the area of focus
CARRYING VALUE OF GOODWILL AND DEFERRED TA X ASSETS
Refer to page 124 (Accounting policies) and pages 141 and 157 (notes).
The Group holds significant goodwill and deferred tax assets on the
balance sheet of £2,388m and £197m respectively. Determining the carrying
value of these assets is dependent on complex and subjective judgements
by the Directors about the future results of the business.
In particular, in respect of goodwill we focused on the value in use of
the UK Cash Generating Unit (“CGU”) which accounts for 67% of the total
goodwill balance. Similarly, for deferred tax we focused on the UK which
holds a net deferred tax asset of £141m.
The value of these assets is highly dependent upon the Directors’
views of the future results and prospects of the business including the
successful implementation of the ongoing UK transformation and business
development and restructuring initiatives that form part of the New
Operating Model.
If forecast results are not achievable, the valuation of the goodwill and
the recognition of the deferred tax assets may not be appropriate.
We evaluated the process by which the Directors prepared their cash
flow forecasts and confirmed that they reflected the latest Board
approved three-year plans. We performed a critical review of the historical
accuracy of budgets and forecasts by, for example, comparing the actual
performance of the business in the current year against the board
approved budgets. These procedures enabled us to determine the quality
and accuracy of the forecasting process.
The key assumptions within the UK forecasts are the continuing successful
implementation of the business development and profit improvement
initiatives which drive the resulting growth rates. In assessing the
appropriateness of the Directors’ assumptions we benchmarked certain
external data used in the discount rate calculation against rates used by
comparable companies. We also considered factors such as independent
forecast growth rates for the wider travel industry and progress against
plans associated with the business development and profit improvement
initiatives.
We applied sensitivity analysis to the Directors’ calculations to ascertain
the extent to which reasonable adverse changes would, either individually
or in aggregate, require the impairment of goodwill or the de-recognition
of deferred tax assets.
As a result of our work, we concurred with the Directors’ conclusion that
no goodwill impairment charges were required and that it was appropriate
to recognise a deferred tax asset for the UK.
AIRCR AFT LEASES AND ASSOCIATED MAINTENANCE PROVISIONS
Refer to pages 125 and 131 (accounting policies) and page 158 (notes).
Significant fixed assets for aircraft of £605m and provisions of £241m
for maintenance and contractual end of lease obligations are held on
the balance sheet.
This was an area of focus for our audit due to the size of these balances
and the inherent level of estimation included in the calculation of the
maintenance provisions which are based upon forecast aircraft usage
and maintenance costs.
Furthermore, there is judgement needed to determine whether leases
are operating or financing in nature. Further complexity arises in respect
of aircraft where contractual terms have been amended, including the
extension of lease terms.
We examined the terms included within new or extended aircraft lease
contracts to check that they were appropriately accounted for as operating
or finance leases.
We examined the appropriateness of the maintenance and other
contractual end of lease provision calculations prepared by management
by performing an assessment of new obligations, verifying key
assumptions such as the quantum and timing of maintenance
expenditure to contracts, confirming flying hours to the aircraft log
books maintained by the engineering department and understanding
any significant provision releases.
Our procedures did not identify any aircraft that had been incorrectly
classified or any material misstatements within the associated
aircraft provision.
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FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF THOMAS COOK GROUP PLC
CONTINUED
Area of focus
How our audit addressed the area of focus
SEPAR ATELY DISCLOSED ITEMS
Refer to page 129 (accounting policies) and page 137 (notes).
The value of separately disclosed items which are presented within a
separate column on the face of the income statement has reduced this
year but remains high. These items are excluded from the Directors’
reporting of the underlying results of the business.
The nature and use of separately disclosed items is explained in the
Group’s accounting policy and includes costs associated with the Group
Transformation Programme (Wave 1) and the newly initiated New Operating
Model programme (including redundancy, consultancy, personnel and
other related costs). Other items within separately disclosed items include
significant legal and onerous lease provisions, the write off fees associated
with the Group’s refinancing and the impact of certain asset disposals.
We focused on this area because separately disclosed items are not
defined by IFRSs as adopted by the European Union and therefore
judgement is required by the Directors to identify such items. Consistency
in identifying and disclosing items as separately disclosed is important to
maintain comparability of the reporting year on year.
RECOVER ABILIT Y OF HOTEL PREPAYMENTS
Refer to page 131 (key sources of estimation uncertainty) for further information.
Significant prepayments to hoteliers are held on the year end balance
sheet.
The recoverability of these balances requires the Directors’ judgement
including consideration of current booking levels, historical trend data,
future forecast bookings, the credit-worthiness of the hoteliers and the
impact of external factors.
We challenged the Directors’ rationale for the presentation of separately
disclosed items, assessing this against the Group’s accounting policy,
plans for the New Operating Model and consistency of treatment with prior
periods.
We also considered items that were recorded within underlying profit that
we considered to be ‘exceptional’ in nature and challenged management
as to whether they should be presented within separately disclosed items.
We assessed the appropriateness, consistency and balance of the
Directors’ presentation of these items within the financial statements.
We assessed the Directors’ ability to utilise the hotel deposits and
prepayments based on actual and forecast bookings at the hotels.
We examined contracts to ensure that contractual agreements were
in place to roll forward prepayments to future seasons.
We evaluated the Directors’ contingency plans regarding certain aged
prepayments, with particular focus on those deemed to be at higher risk
due to geographic location or the credit risk associated with the hotel
owner together with any security held by the Group. We challenged the
recoverability of certain deposits and whether appropriate provisions
had been recorded.
Our work did not identify any hotel prepayments that we did not consider
to be recoverable.
TREASURY OPER ATIONS AND USE OF DERIVATIVE INSTRUMENTS
Refer to pages 125 and 126 (accounting policies) and 151 notes for related disclosures.
The Group uses a number of hedging structures including options to
manage its exposure to adverse movements in fuel prices and foreign
exchange rates.
The accounting for options and related derivatives is complex and we
therefore focused on this area to assess whether hedge accounting
had been properly applied and the impact of hedging had been properly
presented.
We used our specialist treasury knowledge to test the valuation for fuel
and foreign currency derivatives by recalculating their fair value using
observable market data.
We evaluated the values held in the hedging reserve and tested the manual
adjustments made to correct for timing differences between the maturity
of the hedging instrument and the underlying exposure.
We examined the hedge documentation and the hedging structures in
place to check whether they had been accounted for in accordance with
the Group’s accounting policies and presented appropriately in the Annual
Report and Accounts. Our work performed did not identify any material
misstatements.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
113
Area of focus
How our audit addressed the area of focus
DEFINED BENEFIT PENSION VALUATION
Refer to pages 127 and 131 (accounting policies) and page 163 (notes) for details of the Group defined
benefit schemes.
The Group has defined benefit pension plans with net post-retirement
liabilities of £279m which is significant in the context of the overall balance
sheet of the Group.
The valuation of the pension liabilities requires significant levels of
judgement and technical expertise in choosing appropriate assumptions.
Changes in a number of the key assumptions (including salary increases,
inflation, discount rates and mortality) can have a material impact on the
calculation of the liability, particularly for the Airlines Germany pension
schemes which are unfunded.
There is also an element of judgement in the measurement of fair value
of pension assets due to the nature of financial investments.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough
work to be able to give an opinion on the financial statements as a
whole, taking into account the geographic structure of the Group, the
accounting processes and controls, and the industry in which the
Group operates.
The Group is organised into four geographic operating divisions: Airlines
Germany, Continental Europe, Northern Europe and the UK. With the
exception of Airlines Germany, each operating division comprises
numerous management entities which sub-consolidate at a geographic
operating division level and then ultimately at a Group level. The Group
financial statements are ultimately a consolidation of 120 reporting units
representing the Group’s operating businesses within these geographic-
based divisions and the centralised functions.
The reporting units vary in size and we identified 35 reporting units,
from across the four geographic operating divisions, which required an
audit of their complete financial information due to their individual size.
These 35 reporting units were audited by eleven country component
teams and the Group engagement team. These reporting units
accounted for 70% of the Group’s underlying profit from operations
and 81% of the Group’s revenue.
Specified procedures and audits of financial statement line items were
performed on certain balances in a further 19 reporting units including
the Groups IT development company (because of internally generated
intangible assets), the Russia operation (because of its size) and two
Group financing companies (because of the material bonds, cash and
derivatives held by these companies).
Our audit work at these reporting units, which included visits by the
Group engagement team to the three ‘Sub-consolidation’ component
teams and the Airlines Germany team and attendance at their clearance
meetings, together with the additional procedures performed at Group
level, gave us the evidence we needed for our opinion on the Group and
Company financial statements as a whole.
We used our pension specialists to evaluate the Directors’ assessment
of the assumptions made in relation to the valuation of the liabilities and
assets in the Group’s pension plans
We also focused on the valuations of pension plan liabilities and the
pension assets as follows:
> We agreed the discount and inflation rates used in the valuation of the
pension liability to our internally developed benchmarks
> We assessed salary increase and mortality rate assumptions against
national and industry averages.
> We obtained third-party confirmations on the ownership and valuation
of pension assets
We checked that there was no impact of specific events, such as changes
to schemes and redundancies that should have been incorporated into the
Directors’ calculation.
We tested underlying inputs, such as employees in the scheme, to the
liability valuation used by the scheme actuary. We also evaluated and
tested management’s controls and processes over pension data such as
leavers to the plan. The assumptions used by the Directors’ were materially
within our independent expected ranges.
Materiality
The scope of our audit was influenced by our application of materiality.
We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit procedures
on the individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually and on
the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall Group
materiality
How we
determined it
Rationale for
benchmark
applied
£15.5m (2014: £15m).
5% of underlying profit from operations, being profit
from operations adjusted for the impact of separately
disclosed items.
We believe that the underlying profit from operations
provides us with a consistent year-on-year basis for
determining materiality and is the key metric against
which the performance of the Group is most commonly
measured.
Component
materiality
For each component in our audit scope, we allocated
a materiality that was less than our overall Group
materiality. The range of materiality allocated across
components was between £1m and £11m.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £1m (2014: £1m) as
well as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
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FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF THOMAS COOK GROUP PLC
CONTINUED
Going concern
Under the Listing Rules we are required to review the Directors’
statement, set out on page 85, in relation to going concern. We have
nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have
anything material to add or to draw attention to in relation to the
Directors’ statement about whether they considered it appropriate to
adopt the going concern basis in preparing the financial statements.
We have nothing material to add or to draw attention to.
As noted in the Directors’ statement, the Directors have concluded
that it is appropriate to adopt the going concern basis in preparing
the financial statements. The going concern basis presumes that the
Group and Company has adequate resources to remain in operation,
and that the Directors intend them to do so, for at least one year from
the date the financial statements were signed. As part of our audit
we have concluded that the Directors’ use of the going concern basis
is appropriate. However, because not all future events or conditions
can be predicted, these statements are not a guarantee as to
the Group’s and Company’s ability to continue as a going concern.
OTHER REQUIRED REPORTING
Consistency of other information
Companies Act 2006 opinion
In our opinion the information given in the Strategic Report and
the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if,
in our opinion:
> information in the Annual Report is:
– materially inconsistent with the information in the
audited financial statements; or
We have no
exceptions
to report.
– apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group and
Company acquired in the course of performing our audit;
or
– is otherwise misleading.
> the statement given by the Directors on page 87, in
accordance with provision C.1.1 of the UK Corporate
Governance Code (“the Code”), that they consider the
Annual Report taken as a whole to be fair, balanced and
understandable and provides the information necessary
for members to assess the Group’s and Company’s
performance, business model and strategy is materially
inconsistent with our knowledge of the Group and
Company acquired in the course of performing our audit.
We have no
exceptions
to report.
> the section of the Annual Report on pages 79–81, as
required by provision C.3.8 of the Code, describing the work
of the Audit Committee does not appropriately address
matters communicated by us to the Audit Committee.
We have no
exceptions
to report.
The directors’ assessment of the prospects of the group
and of the principal risks that would threaten the solvency
or liquidity of the group
Under ISAs (UK & Ireland) we are required to report to you if we have
anything material to add or to draw attention to in relation to:
> the Directors’ confirmation on page 57 of the Annual
Report, in accordance with provision C.2.1 of the Code,
that they have carried out a robust assessment of the
principal risks facing the Group, including those that
would threaten its business model, future performance,
solvency or liquidity.
> the disclosures in the Annual Report that describe
those risks and explain how they are being managed
or mitigated.
> the Directors’ explanation on page 57 of the Annual
Report, in accordance with provision C.2.2 of the Code,
as to how they have assessed the prospects of the
Group, over what period they have done so and why
they consider that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due
over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
We have
nothing
material to
add or to draw
attention to.
We have
nothing
material to
add or to draw
attention to.
We have
nothing
material to
add or to draw
attention to.
Under the Listing Rules we are required to review the Directors’ statement
that they have carried out a robust assessment of the principal risks
facing the Group and the Directors’ statement in relation to the longer-term
viability of the Group. Our review was substantially less in scope than an
audit and only consisted of making inquiries and considering the Directors’
process supporting their statements; checking that the statements are
in alignment with the relevant provisions of the Code; and considering
whether the statements are consistent with the knowledge acquired by
us in the course of performing our audit. We have nothing to report having
performed our review.
Adequacy of accounting records and information and
explanations received
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
> we have not received all the information and explanations we
require for our audit; or
> adequate accounting records have not been kept by the company,
or returns adequate for our audit have not been received from
branches not visited by us; or
> the company financial statements and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
115
Directors’ remuneration
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in
our opinion, certain disclosures of directors’ remuneration specified
by law are not made. We have no exceptions to report arising from
this responsibility.
Corporate Governance Statement
Under the Listing Rules we are required to review the part of the
Corporate Governance Statement relating to ten further provisions
of the Code. We have nothing to report having performed our review.
RESPONSIBILITIES FOR THE FINANCIAL
STATEMENTS AND THE AUDIT
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’ Responsibilities
set out on page 86, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view.
Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and ISAs (UK & 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.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an
assessment of:
> whether the accounting policies are appropriate to the Group’s
and Company’s circumstances and have been consistently applied
and adequately disclosed;
> the reasonableness of significant accounting estimates made
by the Directors; and
> the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
Directors’ judgements against available evidence, forming
our own judgements, and evaluating the disclosures in the
financial statements.
We test and examine information, using sampling and other auditing
techniques, to the extent we consider necessary to provide a
reasonable basis for us to draw conclusions. We obtain audit evidence
through testing the effectiveness of controls, substantive procedures
or a combination of both.
In addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with the
audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
PAUL CR AGG
SENIOR STATUTORY AUDITOR
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
24 November 2015
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FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2015
GROUP INCOME STATEMENT
Year ended 30 September 2015
Re-presented*
Year ended 30 September 2014
Underlying
results
£m
Separately
disclosed items
(Note 7)
£m
7,834
(6,060)
1,774
(859)
(174)
(431)
–
–
310
1
–
10
(151)
170
–
(2)
(2)
(27)
(1)
(47)
(13)
(9)
(99)
–
7
–
(28)
(120)
Notes
4
5
12/13
6
7
14
14
8
8
9
Revenue
Cost of providing tourism services
Gross profit
Personnel expenses
Depreciation and amortisation
Net operating expenses
Loss on disposal of assets
Impairment of goodwill and amortisation of business
combination intangibles
Profit from operations
Share of results of associates
Profit on sale of associated undertaking
Finance income
Finance costs
Profit/(loss) before tax
Tax
Profit/(loss) for the year from operations
Attributable to:
Owners of the parent
Non-controlling interests
Basic and diluted earnings/(loss) per share (pence)
11
Underlying
results
£m
Separately
disclosed items
(Note 7)
£m
8,588
(6,672)
1,916
(913)
(173)
(507)
–
–
323
2
–
10
(153)
182
–
(50)
(50)
(26)
–
(126)
(19)
(50)
(271)
–
–
–
(25)
(296)
Total
£m
7,834
(6,062)
1,772
(886)
(175)
(478)
(13)
(9)
211
1
7
10
(179)
50
(31)
19
23
(4)
19
1.6
Total
£m
8,588
(6,722)
1,866
(939)
(173)
(633)
(19)
(50)
52
2
–
10
(178)
(114)
(1)
(115)
(118)
3
(115)
(8.2)
* £2m of forward points on foreign exchange cash flow hedging contracts has been re-presented from finance costs to cost of providing tourism services within separately disclosed items.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
117
FOR THE YEAR ENDED 30 SEPTEMBER 2015
GROUP STATEMENT OF OTHER
COMPREHENSIVE INCOME
Profit/(loss) for the year
Other comprehensive income and expense
Items that will not be reclassified to profit or loss:
Actuarial gains/(losses) on defined benefit pension schemes
Tax on actuarial gains/(losses)
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation losses
Fair value gains and losses
Losses deferred for the year
Tax on losses deferred for the year
Losses transferred to the income statement
Tax on losses transferred to the income statement
Total net other comprehensive expense for the year
Total comprehensive expense for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive expense for the year
Year ended
30 September
2015
£m
Year ended
30 September
2014
£m
Notes
19
(115)
30
24/9
143
(18)
(91)
19
(34)
(103)
21
24/9
(223)
48
88
(24)
(20)
(1)
3
(4)
(1)
–
–
45
(10)
(140)
(255)
(258)
3
(255)
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FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2015
GROUP CASH FLOW STATEMENT
Profit/(loss) before tax
Adjustments for:
Net finance costs
Net investment income and share of results of associates
Depreciation, amortisation and impairment
Loss on disposal of assets
Share-based payments
Profit on sale of associated undertakings
Decrease in provisions
Additional pension contributions
Interest received
Movement in working capital:
Inventories
Receivables
Payables
Cash generated from operations
Income taxes paid
Net cash from operating activities
Dividends received from associates
Proceeds on disposal of subsidiaries (net of cash disposed)
Proceeds on disposal of property, plant and equipment
Purchase of subsidiaries (net of cash acquired)
Purchase of tangible assets
Purchase of intangible assets
Proceeds from sale of associated undertakings
Net cash used in investing activities
Dividends paid to non-controlling interests
Interest paid
Draw down of borrowings
Repayment of borrowings
Payment of facility set-up fees
Shares purchased by Employee Benefit Trust
Net proceeds on the issue of ordinary shares
Repayment of finance lease obligations
Net cash from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash, cash equivalents and overdrafts at end of year
Year ended
30 September
2015
£m
Notes
Re-presented
Year ended
30 September
2014
£m
50
169
(1)
184
13
1
(7)
(55)
(28)
10
–
139
17
492
(18)
474
–
–
3
–
(130)
(70)
17
(180)
(6)
(134)
561
(450)
(18)
–
92
(35)
10
304
1,017
(35)
1,286
(114)
168
(2)
233
19
4
–
(51)
(26)
9
(8)
86
49
367
(32)
335
2
78
2
(4)
(118)
(38)
–
(78)
(4)
(139)
125
(208)
–
(9)
1
(44)
(278)
(21)
1,090
(52)
1,017
26
AT 30 SEPTEMBER 2015
GROUP BALANCE SHEET
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
119
Non-current assets
Intangible assets
Property, plant and equipment
– aircraft and aircraft spares
– other
Investments in associates
Other investments
Deferred tax assets
Pension asset
Tax assets
Trade and other receivables
Derivative financial instruments
Current assets
Inventories
Tax assets
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Current liabilities
Retirement benefit obligations
Trade and other payables
Borrowings
Obligations under finance leases
Tax liabilities
Revenue received in advance
Short-term provisions
Derivative financial instruments
30 September
2015
£m
30 September
2014
£m
Notes
12
13
13
14
24
30
16
21
15
16
21
17
30
18
19
20
25
21
2,794
605
202
4
1
197
50
–
55
15
3,923
32
3
585
114
1,301
2,035
5,958
(7)
(1,979)
(219)
(35)
(22)
(1,117)
(147)
(176)
(3,702)
2,873
578
177
14
1
195
–
2
106
19
3,965
34
3
705
68
1,019
1,829
5,794
(1)
(2,083)
(449)
(34)
(15)
(999)
(247)
(66)
(3,894)
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FINANCIAL STATEMENTS
GROUP BAL ANCE SHEET CONTINUED
Non-current liabilities
Retirement benefit obligations
Trade and other payables
Long-term borrowings
Obligations under finance leases
Non-current tax liabilities
Deferred tax liabilities
Long-term provisions
Derivative financial instruments
Total liabilities
Net assets
Equity
Called-up share capital
Share premium account
Merger reserve
Hedging and translation reserves
Capital redemption reserve
Accumulated losses
Investment in own shares
Equity attributable to equity owners of the parent
Non-controlling interests
Total equity
30 September
2015
£m
30 September
2014
£m
Notes
30
18
19
20
24
25
21
26
(322)
(79)
(1,038)
(148)
(22)
(46)
(210)
(23)
(1,888)
(5,590)
368
69
524
1,547
(12)
8
(1,778)
(18)
340
28
368
(447)
(90)
(715)
(147)
(21)
(49)
(143)
(3)
(1,615)
(5,509)
285
69
435
1,547
133
8
(1,907)
(38)
247
38
285
The financial statements on pages 116 to 168 were approved by the Board of Directors on 24 November 2015.
Signed on behalf of the Board
MICHAEL HEALY
GROUP CHIEF FINANCIAL OFFICER
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
121
FOR THE YEAR ENDED 30 SEPTEMBER 2015
GROUP STATEMENT OF
CHANGES IN EQUITY
Share capital
and share
premium
£m
Other
reserves
£m
Hedging
reserve
£m
Translation
reserve
£m
Accumulated
losses
£m
Attributable to
equity owners
of the parent
£m
Non-
controlling
interests
£m
Total equity
£m
At 30 September 2013
Loss for the year
Other comprehensive expense:
Foreign exchange translation losses
Actuarial losses on defined benefit pension
schemes (net of tax)
Losses deferred for the year (net of tax)
Gains transferred to the income statement
(net of tax)
Total comprehensive expense for the year
Equity credit in respect of share-based payments
Investment in Employee Benefit Trust
Issue of shares – exercise of warrants
Dividends paid to non-controlling interest
At 30 September 2014
Profit for the year
Other comprehensive expense:
Foreign exchange translation losses
Actuarial gains on defined benefit pension
schemes (net of tax)
Losses deferred for the year (net of tax)
Gains transferred to the income statement
(net of tax)
Total comprehensive income/(expense) for the
year
Exercise of shares – Employee Benefit Trust
Equity credit in respect of share-based payments
Issue of shares – Fosun
Dividends paid to non-controlling interest
At 30 September 2015
503
–
–
–
–
–
–
–
–
1
–
504
–
–
–
–
–
–
–
–
89
–
593
1,526
–
–
–
–
–
–
–
(9)
–
–
1,517
–
–
–
–
–
–
20
–
–
–
1,537
(26)
–
–
–
–
35
35
–
–
–
–
9
–
–
–
(175)
64
(111)
–
–
–
(102)
227
–
(103)
–
–
–
(103)
–
–
–
–
124
–
(34)
–
–
–
(34)
–
–
–
90
(1,721)
(118)
–
(72)
–
–
(190)
4
–
–
–
(1,907)
23
–
125
–
–
148
(20)
1
–
–
(1,778)
509
(118)
(103)
(72)
–
35
(258)
4
(9)
1
–
247
23
(34)
125
(175)
64
3
–
1
89
–
340
39
3
–
–
–
3
–
–
–
(4)
38
548
(115)
(103)
(72)
–
35
(255)
4
(9)
1
(4)
285
(4)
19
–
–
–
–
(4)
–
–
–
(6)
28
(34)
125
(175)
64
(1)
–
1
89
(6)
368
Other reserves consist of the merger reserve, the capital redemption reserve and own shares held. The capital redemption reserve was
created as a consequence of the share buyback programme during the year ended 30 September 2009.
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.
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NOTES TO THE FINANCIAL STATEMENTS
1 GENER AL INFORMATION
Thomas Cook Group plc is a limited liability company incorporated and domiciled in England and Wales under the Companies Act 2006 and listed
on the London Stock Exchange. The address of the registered office is 3rd Floor, South Building, 200 Aldersgate, London EC1A 4HD. The principal
activities of the Group are discussed in the Strategic Report on pages 15 to 33.
These consolidated financial statements were approved for issue by the Board of Directors on 24 November 2015.
2 BASIS OF PREPAR ATION
These financial statements have been prepared in accordance with EU endorsed International Financial Reporting Standards (IFRS) and
interpretations issued by the IFRS Interpretations Committee (IFRS IC) and Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have also been prepared in accordance with IFRS adopted for use in the European Union and therefore comply with
Article 4 of the EU IAS Regulation.
After making enquiries and taking into account the matters set out in the Risk Management section on pages 56 to 59, the Directors confirm
that they consider it appropriate to use the going concern basis in preparing the Annual Report & Accounts.
The financial statements have been prepared on a historical cost basis, except for revaluation of certain financial assets and liabilities
(including derivative financial instruments) at fair value through the profit or loss, share-based payments and defined benefit
pension obligations.
The financial statements have been rounded to the nearest million in Great British Pounds, or in certain cases, to the nearest thousand
pounds. Amounts in pence have been rounded to the nearest tenth of a pence.
The principal accounting policies applied in the preparation of the financial information presented in this document are set out below.
These policies have been applied consistently to the periods presented unless otherwise stated.
3 SIGNIFICANT ACCOUNTING POLICIES
3A CHANGES IN ACCOUNTING POLICY AND DISCLOSURE
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.
IFRS 10
“Consolidated financial statements” standard builds on existing principles by identifying the concept of control as the determining
factor in whether an entity should be included within consolidated financial statements. The amendment did not have an effect
on the Group financial statements.
IFRS 11
IFRS 12
IAS 27
IAS 28
IAS 32
IAS 36
“Joint arrangements” provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the
arrangement, rather than its legal form. The amendment did not have an effect on the Group financial statements.
“Disclosure of interests in other entities” standard includes the disclosure requirements for all forms of interests in other entities,
including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The amendment did not
have an effect on the Group financial statements.
(Revised) “Separate financial statements” is effective for annual periods beginning on or after 1 January 2014. This standard includes
the provisions on separate financial statements that are left after the control provisions of IAS 27 have been included in the new
IFRS 10. The amendment did not have an effect on the Group financial statements.
(Revised) “Investments in associates and joint ventures” standard includes the requirements for joint ventures, as well as associates,
to be equity accounted following the issue of IFRS 11. The amendment did not have an effect on the Group financial statements.
“Offsetting financial assets and liabilities” provides clarification on the application of offsetting rules relating to financial assets
and financial liabilities. The amendment did not have a significant effect on the Group financial statements.
“Impairment of assets” removes certain disclosures of the recoverable amounts of CGUs. The application of these amendments
has no material impact on the disclosures in the Group financial statements.
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3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3A CHANGES IN ACCOUNTING POLICY AND DISCLOSURE CONTINUED
IAS 39
“Financial instruments: Recognition and measurement” on the novation of derivatives and the continuation of hedge accounting.
The application of these amendments has not had any material impact on the Group financial statements.
IFRIC 21
“Levies”, sets out the accounting for an obligation to pay levy that is not income tax. The interpretation addresses what the
obligating event is that gives rise to pay a levy. The Group is not currently subject to significant levies so the impact on the
Group is not material. The application of these amendments has not had any material impact on the Group financial statements.
New or amended standard and interpretations in issue but not yet effective or EU endorsed
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that have been
issued but are not yet effective or EU endorsed:
IFRS 9
“Financial Instruments” is effective for annual reporting periods commencing on or after 1 January 2018. The standard will eventually
replace IAS 39 but currently only details the requirements for recognition and measurement of financial assets. The Group is
assessing the impact of IFRS 9.
IFRS 15
“Revenue from contracts with customers” is effective for annual periods beginning on or after 1 January 2018. The Group is assessing
the impact of IFRS 15.
IAS 1
“Presentation of financial statements” is effective for annual reporting periods beginning on or after 1 January 2016. This standard
is not expected to have a significant impact and will only have an impact on the disclosures of the financial statements.
There are no further IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.
The Directors expect that IFRS 9 will impact the measurement and disclosures of financial instruments and IFRS 15 may have an impact on
revenue recognition and related disclosures.
3B SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The Group’s financial statements consolidate those of the Company and its subsidiary undertakings. Subsidiaries are all entities (including
structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are
fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.
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 six (2014: six) SPEs that own five (2014: five) aircraft operated by the Group on operating leases.
Business combination
The acquisition 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.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair
values at the acquisition date. These values are finalised within 12 months of the date of acquisition.
When the ownership of an acquired company is less than 100%, the non-controlling interest is measured at either the proportion of the
recognised net assets attributable to the non-controlling interest or at the fair value of the acquired company at date of acquisition.
The excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets acquired is recorded as goodwill.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Associates
Entities, other than subsidiaries, over which the Group exerts significant influence, but not control or joint control, are associates. Entities
which the Group jointly controls with one or more other party under a contractual arrangement are joint ventures.
The Group’s investments in its associates and joint ventures are accounted for using the equity method.
Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the
investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date.
Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortised nor individually
tested for impairment.
Foreign currency
The presentation currency of the Group is Sterling.
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 year 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.
Intangible assets – goodwill
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 purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units.
On disposal of a subsidiary, joint venture or associate, the attributable amount of goodwill is included in the determination of the profit or loss
on disposal.
Intangible assets – other
Intangible assets, other than goodwill, are carried on the Group’s balance sheet at cost less accumulated amortisation.
Other than capitalised development costs, internally generated intangible assets are not capitalised and expenditure is reflected in the income
statement in the year in which the expenditure is incurred.
Amortisation is charged on a straight-line basis over the intangible asset’s useful life, when finite, as follows:
Brands
Customer relationships
Computer software
9 years to indefinite life
1 to 15 years
3 to 10 years
Indefinite-lived intangible assets principally comprise those trademarks for which there is no foreseeable limit to the period over which they
are expected to generate net cash inflows. These are considered to have an indefinite life, given the strength and durability of our brands
and the level of marketing support. The nature of the industry we operate in is such that brand obsolescence is not common, if appropriately
supported by advertising and marketing spend.
Intangible assets with indefinite useful lives are tested for impairment at least annually at the CGU level 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.
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3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Property, plant and equipment
Property, plant and equipment is stated at cost, net of straight-line depreciation and any provision for impairment. Where costs are incurred
as part of the start-up or commissioning of an item of property, plant or equipment, and that item is available for use but incapable of operating
in the manner intended by management without such a start-up or commissioning period, then such costs are included within the cost of
the item. Costs that are not directly attributable to bringing an asset to the location and condition necessary for it to be capable of operating
in the manner intended by management are charged to the income statement as incurred.
Depreciation on property, plant and equipment, other than freehold land, upon which no depreciation is provided, is calculated on a straight-line
basis and aims to write down their cost to their estimated residual value over their expected useful lives as follows:
Freehold buildings
Leasehold properties
Aircraft
Aircraft spares
Other fixed assets
40 to 50 years
Shorter of remaining lease period and 40 years
23 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.
Aircraft overhaul and maintenance costs
Major overhaul expenditure, including replacement spares and labour costs, is capitalised and amortised over the average expected life
between major overhauls. All other replacement spares and other costs relating to maintenance of fleet assets (including maintenance
provided under “pay-as-you-go” contracts) are charged to the income statement on consumption or as incurred respectively.
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 flown 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.
Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to interest rate, foreign exchange and fuel price risks arising from
operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial
instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
remeasured at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument and if so the nature of the item being hedged.
The gain or loss on remeasurement to fair value, on derivatives not designated as a hedging instrument is recognised immediately in the
income statement.
Derivatives are presented on the balance sheet on a gross basis. A derivative with a positive fair value is recognised as a financial asset
whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or
a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled
within 12 months.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Hedge accounting
For fair value hedges, changes in the fair value of derivative financial instruments that are designated as fair value hedges are recognised in
the income statement as part of finance income or cost line, where they offset the changes in fair value on the hedged item. Where the hedged
item is designated in a fair value hedge relationship of a financial liability held at amortised cost, the change in fair value in respect to the
hedged risk is recorded as a fair value adjustment within finance income or cost.
Fair value hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies
for hedge accounting. At that point in time the changes in fair value on the hedging instrument will continue to be recognised immediately into
the income statement, while the hedged item will no longer be adjusted for fair value changes.
The gain or loss on remeasurement to fair value on derivative financial instruments that are designated and effective as cash flow hedges of
future cash flows is recognised directly in other comprehensive income and the ineffective portion is recognised immediately in the income
statement within net operating expenses.
Forward points on foreign exchange forward contracts and time value of options are not designated as part of the hedging relationship and
therefore, are recorded in the income statement within costs of providing tourism.
Changes in fair value deferred through the hedge reserve, are recognised in the income statement in the same period, or periods, in which
the hedged highly probable forecast transactions are recognised in the income statement.
Cash flow hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for
hedge accounting. At that point in time, any cumulative gains or losses on the hedging instrument recognised in other comprehensive income
are retained until the forecast transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss
recognised in other comprehensive income is transferred to the income statement for the period.
Non-derivative financial instruments
Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised when the Group transfers substantially all the risks (and rewards) relating to the financial asset or when
the contractual rights to the cash flows associated with the financial asset expire. Financial liabilities are derecognised when the obligation
is discharged, cancelled or expires. The measurement of particular financial assets and liabilities is set out below.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and term deposits which are readily convertible to known amounts of cash and which
are subject to insignificant risk of changes in value and have an original maturity of three months or less. Where the Group operates centrally
pooled accounts and has the intention and ability to pool account balances, the net cash or overdraft position is disclosed. Where the intention
or ability to pool balances together is absent, the cash and overdraft are disclosed on a gross basis in the consolidated balance sheet and the
overdraft is excluded from cash and cash equivalents for the purpose of the consolidated statement of cash flows.
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 flows.
Available-for-sale financial assets
Available-for-sale financial assets are recognised and subsequently recorded at their fair value. Gains or losses (except for impairment losses
and foreign exchange gains and losses) are recognised directly in equity until the financial asset is derecognised. At this point, the cumulative
gain or loss previously recognised in equity is recognised in the income statement. Any impairment losses, foreign exchange gains or losses
or dividends receivable are recognised in the income statement.
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3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Held for trading investments
Short-term investments and derivatives that are not designated in a hedge relationship such as natural hedges of a balance sheet exposure
are classified as held for trading and are recognised and subsequently measured 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.
Borrowings that are designated as hedged items in a fair value hedge relationship are adjusted for changes in their fair value in respect of the
hedged risk. The adjustment will be amortised to the income statement at the time when the hedged item ceases to be adjusted for changes
in its fair value attributable to the hedged risk.
Provisions
The Group recognises a provision when there is a present obligation as a result of a past event, it is probable that an outflow of resources
will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
Provisions are recognised at the Director’s 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.
Pensions
The Group operates a number of defined benefit schemes. The pension liabilities recognised on the balance sheet in respect of these schemes
represent the difference between the present value of the Group’s obligations 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 benefits 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 finance costs and finance income respectively. Past service costs are recognised immediately in the income
statement in personnel expenses.
Pension costs charged against profits in respect of the Group’s defined contribution schemes represent the amount of the contributions
payable to the schemes in respect of the accounting period.
Share capital
Ordinary Shares including share premium are classified as equity.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Leases
Leases under which substantially all of the risk and rewards of ownership are transferred to the Group are finance leases. All other leases
are operating leases.
Assets held under finance leases are recognised at the lower of the fair value of the asset and the present value of 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 finance lease payments represents a constant proportion of the capital balance outstanding and is
charged to the income statement over the period of the lease.
Operating lease rentals are charged to the income statement on a straight-line basis over the lease term.
Income arising from operating leases where the Group acts as lessor is recognised on a straight-line basis over the lease term and included
in operating income due to its operating nature.
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.
The grant by the Company of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as
a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over
the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.
The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the
date at which they are granted.
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. The portion of premium received on in-force contracts that relates to unexpired risks at the balance sheet date is reported as a
provision for unearned premium. 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. They include best estimate direct and indirect claims settlement costs
arising from events that have occurred up to the balance sheet date even if they have not yet been reported to the Company. Where applicable,
deductions are made for salvage and other recoveries. The Company 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 Company and statistical
analysis for the claims incurred but not reported (IBNR). It is assumed that the development pattern of the current claims will be informed
by previous experience.
The expected claims are calculated having regard to events that have occurred prior to the balance sheet date.
Contracts entered into by the Group with reinsurers, under which the Group is compensated for losses on one or more contracts issued by
the Group, and that meet the classification requirements for insurance contracts, are classified as reinsurance contracts held. The benefits
to which the Group is entitled under its reinsurance contracts held are recognised as receivables from reinsurers. The Group assesses its
reinsurance assets for impairment on an annual basis.
Receivables and payables are recognised when due. These include amounts due to and from insurance policyholders.
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3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Revenue recognition
The Group’s revenue is measured as the aggregate amount of gross revenue receivable from inclusive tours, airline travel services, hotel
services, travel agency commission and other travel services supplied to customers in the ordinary course of business. The Group records
revenue on a net basis after deducting trade discounts, volume rebates, value added tax and compensation vouchers granted to customers.
Revenue relating to travel services arranged by the Group’s leisure and airline travel providers, including travel agency commission and other
services, are taken to the income statement on the date of holiday and flight departure. Revenue relating to other services provided by the
Group is taken to the income statement as earned. Revenue from the sale of goods is recognised when all the significant risks and rewards
of ownership is transferred to the customer, usually on delivery of the goods. Monies received by the balance sheet date relating to holidays
commencing and flights departing after the period end are included within current liabilities as revenue received in advance.
Expenses
Direct expenses relating to inclusive tours arranged by the Group’s leisure travel providers are taken to the income statement on holiday
departure or over the period to which they relate as appropriate. Indirect expenses are recognised in the income statement over the period
to which goods and services are received by the Group.
Separately disclosed items
The Group separately discloses in the income statement: non-recurring items, impairment of goodwill and amortisation of business
combination intangibles; and IAS 39 fair value remeasurement.
Separately disclosed items, namely items that are material either because of their size or their nature, and which are non-recurring,
are presented within their relevant income statement category, but highlighted through separate disclosure. The separate reporting helps
provide a full understanding of the Group’s underlying performance.
Items which are included within the separately disclosed category include:
> profits/(losses) on disposal of assets or businesses and costs of acquisitions;
> costs of integration of significant acquisitions and other major restructuring programmes;
> significant goodwill or other asset impairments;
> material write-down of assets/reassessment of accruals, reflecting a more cautious evaluation in light of current trading and economic
conditions (excluding errors or prior year items); and
> other individually material items that are unusual because of their size, nature or incidence.
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 significant 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 remeasurement includes movements in forward points related to foreign exchange forward contracts and time value of
options in cash flow hedging relationships. Both items are subject to market fluctuations and unwind when the options or forward contracts
mature and therefore are not considered to be part of the Group’s underlying performance. Interest income and charges arising on the
Group’s defined benefit pension schemes and interest charges arising on the unwind of discount on exceptional provisions and contingent
consideration are not considered to be part of the Group’s underlying performance.
The Group’s management consider that these items should be disclosed separately to enable a full understanding of the Group’s results.
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3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 fair value adjustments to hedged items in a designated fair value hedge.
Finance costs comprise interest costs on borrowings and finance leases, unwind of the discount on non-current liabilities, interest cost on
pension plan liabilities, changes in the fair value of held for trading interest-related derivatives, movement in forward points on outstanding
foreign exchange forward contracts in cash flow hedging relationships and changes in fair value of derivatives designated in a fair value
hedge relationship.
The changes in fair value on derivatives designated in a fair value hedge relationship and the fair value adjustment on hedged items
in a fair value hedge relationship are separately disclosed in Note 7 under the description “IAS 39 fair value remeasurement”.
Tax
Current tax
Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based
on tax rates and laws that are substantively enacted at the balance sheet date.
Deferred tax
Deferred tax is recognised on all temporary differences arising from differences between the carrying amount of an asset or liability and
its tax base, with the following exceptions:
> Where the temporary difference arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction
that is not a business combination and at the time of the transaction affects neither the accounting or taxable profit or loss;
> In respect of taxable temporary differences associated with investments in subsidiaries, associates and joint arrangements, where the
timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in
the foreseeable future; and
> Deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible
temporary differences, tax losses or credits carried forward can be utilised.
Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset
is realised or liability is settled, based on tax rates and laws substantively enacted at the balance sheet date.
Allocation of tax charge or credit between income statement, other comprehensive income and equity
Tax is recognised in the income statement unless it relates to an item recognised directly in equity, in which case the associated tax
is recognised directly in other comprehensive income or equity respectively.
Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or
loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is determined by adjusting the weighted average number of ordinary shares outstanding for the effects of all dilutive potential
ordinary shares. EPS measures for continuing operations have been presented in accordance with IAS 33. The Group also presents a basic and
diluted underlying EPS measure based on underlying profit before tax as defined in separately disclosed items section above. Further details
of the EPS calculation are presented in Note 11.
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3C CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
In applying its accounting policies, the Group has made estimates and assumptions concerning the future, which may differ from the related
actual outcomes. Those estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed below.
Revenue recognition
A key judgement in recognising revenue is to distinguish where the Group’s businesses act in the capacity of principal or agent so to determine
the accounting as either gross or net respectively, in line with IAS 18 Revenue Recognition. The Group exercises judgement to assess principal
or agency by considering if it is the prime obligor in all the revenue arrangements, has pricing discretion and is exposed to inventory and credit
risk, in which case the Group will be principal to the arrangement.
Residual values of tangible fixed assets
Judgements have been made in respect of the residual values and useful economic lives of aircraft included in property, plant and equipment
(see Note 13). Those judgements determine the amount of depreciation charged in the income statement.
Impairment of goodwill
Judgements have been made in respect of the amounts of future operating cash flows to be generated by certain of the Group’s businesses
in order to assess whether there has been any impairment of the amounts included in the balance sheet for goodwill or intangible assets
with an indefinite life in relation to those businesses.
Special purpose entities
The nature of the relationship with certain special purpose entities involved in leasing aircraft to the Group shows that they should be
interpreted as controlled by the Group, and therefore consolidated, even though the Group has no direct or indirect equity interest in
those entities.
Recoverable amounts of deposits and prepayments
Estimates have been made in respect of the volumes of future trading with hoteliers and the credit-worthiness of those hoteliers in order
to assess the recoverable amounts of deposits and prepayments made to those hoteliers.
Aircraft maintenance provisions
Provisions for the cost of maintaining leased aircraft and spares are based on forecast aircraft utilisation, estimates of future maintenance
costs and planned rollover and renewal of the aircraft fleet.
Tax
The Group operates in many tax regimes and the tax implications of its operations are complex. It can take several years for tax liabilities to
be agreed with the relevant authorities. Tax assets and liabilities represent management’s estimates of tax that will be payable or recoverable
in the future and may be dependent on estimates of future profitability.
In addition, estimates have been made in respect of the probable future utilisation of tax losses, and deferred tax assets have been recognised
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 profitability.
Retirement benefits
The consolidated financial statements include costs in relation to, and provision for, retirement benefit obligations. The costs and the present
value of any related pension assets and liabilities depend on such factors as life expectancy of the members, the salary progression of current
employees, the returns that plan assets generate and the discount rate used to calculate the present value of the liabilities. The Group uses
previous experience and impartial actuarial advice to select the values of critical estimates. The estimates, and the effect of variances in key
estimates, are disclosed in Note 30.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
132
132
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4 SEGMENTAL INFORMATION
For management purposes, the Group is organised into four geographic based operating divisions: UK, Continental Europe, Northern Europe,
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.
These reportable segments are consistent with how information is presented to the Group Chief Executive (chief operating decision maker)
for the purpose of resource allocation and assessment of performance.
The primary business of all these operating divisions is the provision of leisure travel services and, accordingly, no separate secondary
segmental information is provided.
Segmental information for these activities is presented below:
Year ended 30 September 2015
Continuing Operations
Revenue
Segment sales
Inter-segment sales
Total revenue
Revenue by product
Tour Operations
Airlines
Other
Inter-segment sales
Total revenue
Result
Underlying profit/(loss) from operations
Separately disclosed items
Impairment of goodwill and amortisation of business combination
intangibles
Segment result
Share of results of associates
Profit on sale of associated undertaking
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
UK
£m
Continental
Europe
£m
Northern
Europe
£m
Airlines
Germany
£m
Corporate
£m
Total
£m
2,457
(54)
2,403
3,449
(31)
3,418
1,057
(16)
1,041
1,257
(285)
972
–
–
–
119
(41)
(7)
71
71
(30)
(2)
39
96
(1)
–
95
56
(2)
–
54
(32)
(16)
–
(48)
8,220
(386)
7,834
5,789
2,806
577
(1,338)
7,834
310
(90)
(9)
211
1
7
10
(179)
50
(31)
19
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
133
4 SEGMENTAL INFORMATION CONTINUED
UK
£m
Continental
Europe
£m
Northern
Europe
£m
Airlines
Germany
£m
Corporate
£m
Total
£m
Other information
Capital additions
Depreciation
Amortisation of intangible assets
Amortisation of business combination intangibles
Impairment of property, plant and equipment
Balance sheet
Assets
Segment assets
Inter-segment eliminations
Investments in associates and joint ventures
Tax and deferred tax assets
Total assets
Liabilities
Segment liabilities
Inter-segment eliminations
Tax and deferred tax liabilities
Borrowings and obligations under finance leases
Total liabilities
86
49
10
7
–
26
6
11
2
1
84
18
1
–
–
68
72
–
–
–
37
–
8
–
–
3,134
3,770
1,486
1,226
8,115
(3,333)
(2,299)
(864)
(916)
(8,160)
301
145
30
9
1
17,731
(11,977)
5,754
4
200
5,958
(15,572)
11,512
(4,060)
(90)
(1,440)
(5,590)
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).
The entity is domiciled in the UK. Revenue from external customers in the UK was £2,355m (2014: £2,539m) which is derived from the ‘UK’
segmental revenue shown above but excluding external revenue in Ireland and Spain-domiciled companies, which would otherwise be included
in the UK segment. Revenue from external customers in Germany was £2,918m (2014: £3,747m).
The total non-current assets, other than financial instruments and deferred tax (there are no employment benefits assets or rights arising
under insurance contracts), located in the UK was £1,944m (2014: £1,720m).
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
134
134
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4 SEGMENTAL INFORMATION CONTINUED
Year ended 30 September 2014
Continuing Operations
Revenue
Segment sales
Inter-segment sales
Total revenue
Revenue by product
Tour Operations
Airlines
Other
Intercompany sales
Total revenue
UK
£m
Continental
Europe
£m
Northern
Europe
£m
Airlines
Germany
£m
Corporate
£m
Total
£m
2,585
(56)
2,529
3,958
(26)
3,932
1,153
(8)
1,145
1,299
(317)
982
–
–
–
Result
Underlying profit/(loss) from operations
Separately disclosed items
Impairment of goodwill and amortisation of business combination
intangibles
Segment result
Share of results of associates
Finance income
Finance costs
Loss before tax
Tax
Loss for the year
Other information
Capital additions
Depreciation
Amortisation of intangible assets
Amortisation of business combination intangibles
Impairment of other intangible assets
Impairment of goodwill
89
(95)
(48)
(54)
54
43
11
6
1
41
102
(41)
(2)
59
20
7
11
3
1
–
101
–
–
101
15
17
1
–
–
–
50
(16)
–
34
82
78
–
–
–
–
(19)
(69)
–
(88)
13
1
4
–
–
–
8,995
(407)
8,588
7,096
2,912
589
(2,009)
8,588
323
(221)
(50)
52
2
10
(178)
(114)
(1)
(115)
184
146
27
9
2
41
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
135
4 SEGMENTAL INFORMATION CONTINUED
UK
£m
Continental
Europe
£m
Northern
Europe
£m
Airlines
Germany
£m
Corporate
£m
Total
£m
Balance sheet
Assets
Segment assets
Inter-segment eliminations
Investments in associates and joint ventures
Tax and deferred tax assets
Total assets
Liabilities
Segment liabilities
Inter-segment eliminations
Tax and deferred tax liabilities
Borrowings and obligations under finance leases
Total liabilities
5 PERSONNEL EXPENSES
Wages and salaries
Social security costs
Share-based payments – equity settled (see note 29)
Defined benefit pension costs (see note 30)
Defined contribution pension costs (see note 30)
The monthly average number of employees of the Group during the year was:
UK
Continental Europe
Northern Europe
Airlines Germany
Corporate
2,638
3,665
1,523
1,145
7,249
(2,833)
(2,322)
(919)
(776)
(7,487)
16,220
(10,640)
5,580
14
200
5,794
(14,337)
10,258
(4,079)
(85)
(1,345)
(5,509)
2014
£m
792
98
4
3
42
939
2014
Number
9,720
6,568
3,120
2,997
267
22,672
2015
£m
740
91
1
13
41
886
2015
Number
8,985
6,473
3,089
2,989
277
21,813
Disclosures of Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension entitlements required
by the Companies Act 2006 and those specified for audit by the Financial Conduct Authority are on pages 96 to 104 within the Remuneration
report and form part of these audited financial statements.
Disclosures in respect of remuneration of key management personnel are included in note 31.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
136
136
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6 OPER ATING EXPENSES
Advertising expenses
Rents and expenses for building maintenance
Information technology and telecommunication costs
Travel expenses and ancillary personnel expenses
Legal and consultancy fees
Impairment of current and non-current assets, excluding goodwill
Insurance
Auditor’s remuneration
Other operating expenses
A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below:
Auditors’ remuneration
Fees payable to Company’s auditor and its associates for the audit
of parent company and consolidated financial statements
Fees payable to Company’s auditor and its associates for other services:
Audit of subsidiaries
Total audit fees
Other non-audit services
Total non-audit services
Total fees
2015
£m
121
101
138
49
35
19
11
4
–
478
2014
£m
144
110
161
54
81
32
12
5
34
633
2015
£m
2014
£m
1
2
3
1
1
4
1
3
4
1
1
5
Included within ‘Audit of subsidiaries’, £0.1m (2014: £0.1m) has been incurred in respect of the audits of the Group pension schemes.
Total non-audit services is inclusive of £0.2m in relation to tax services.
Fees paid to the Company’s auditors and their associates for services other than the statutory audit of the Company are not disclosed in
subsidiaries’ accounts since the consolidated accounts of the subsidiaries’ parent, Thomas Cook Group plc, are required to disclose non-audit
fees on a consolidated basis.
A description of the work of the Audit Committee is set out in the Corporate Governance report on page 79 and includes an explanation of how
auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
137
7 SEPAR ATELY DISCLOSED ITEMS
Affecting profit from operations
Reorganisation and restructuring costs
Reassessment of contingent consideration
Impairment of goodwill and asset valuation reviews
Onerous contracts and legal disputes
Amortisation of business combination intangibles
Provision for tax dispute resolution
Other
Affecting income from associates
Profit on disposal of associates
Affecting finance income and costs
Write off of unamortised bank facility set-up and related costs
Net interest cost on defined benefit obligation
Unwind of discount on non-current liabilities
Total separately disclosed items
2015
£m
Re-presented*
2014
£m
(52)
18
–
(35)
(9)
–
(21)
(99)
7
7
(7)
(12)
(9)
(28)
(120)
(110)
–
(57)
(79)
(9)
2
(18)
(271)
–
–
–
(15)
(10)
(25)
(296)
* £2m of forward points on foreign exchange cash flow hedging contracts has been re-presented from finance costs to cost of providing tourism services and £14m of loss on disposal of assets has been
reclassified from restructuring costs to other.
Restructuring costs
Restructuring costs of £52 million include £25m in relation to implementation costs associated with delivering the New Operating Model
(NUMO). In addition, there have been Group-wide restructuring costs of £27m.
Reassessment of contingent consideration
In line with IFRS, the Group reassessed the carrying value of a contingent obligation to acquire from the Co-operative Group and
Central England Co-operative their shares in the UK retail joint venture. The reassessment resulted in a reduction of £18m to the liability.
Goodwill impairment and asset valuation reviews
The prior year balance principally relates to pre-disposal goodwill impairment of £41m.
Onerous contracts and legal disputes
During the year the Group has assessed its position in respect of certain onerous contracts and made appropriate adjustments to assets on
the balance sheet and made provision for future losses under these contracts. The charge primarily comprises an onerous lease of £9 million.
In relation to onerous contracts identified in prior years, the Group has recognised a final £24 million non-cash charge in respect of a UK
outsourcing contract that concluded in June 2015.
Amortisation of business combination intangibles
Material business combination intangible assets were acquired as a result of the merger between Thomas Cook AG and MyTravel Group plc
and other business combinations made in subsequent years. The amortisation of these intangible assets is significant and the Group’s
management consider that it should be disclosed separately to enable a full understanding of the Group’s results.
Provision for tax dispute resolution
In FY14 there was a release of £2m to a provision held on a sales tax judgement.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
138
138
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
7 SEPAR ATELY DISCLOSED ITEMS CONTINUED
Other
This amount includes loss on the disposal of assets as well as £6m gain from the movement in forward points related to foreign exchange
forward contracts and time value of options in cash flow hedging relationships. Both items are subject to market fluctuations and unwind
when the options or forward contracts mature and therefore are not considered to be part of the Group’s underlying performance.
Finance related charges
The Group has provisions for future liabilities arising from separately disclosed circumstances, primarily deferred acquisition consideration.
A notional interest charge of £9m on the discounted value of such liabilities is recognised within separately disclosed finance related charges.
During the year £7m of facility fees have been written off.
Interest income and charges arising on the Group’s defined benefit pension schemes is £12m.
8 FINANCE INCOME AND COSTS
Underlying finance income
Income from loans included in financial assets
Other interest and similar income
Underlying finance costs
Bank and Bond interest
Fee amortisation
Letters of Credit
Other interest payable
Underlying aircraft related finance costs
Interest payable
Finance costs in respect of finance leases
Underlying finance cost
Net underlying Interest
Separately disclosed finance costs
Write off of unamortised bank facility set-up and related costs
Net interest cost on defined benefit obligation (note 30)
Unwind of discount on non-current liabilities
Total net interest
2015
£m
Re-presented
2014
£m
1
9
10
(95)
(8)
(15)
(16)
(134)
(3)
(14)
(17)
(151)
(141)
(7)
(12)
(9)
(28)
(169)
1
9
10
(89)
(9)
(17)
(17)
(132)
(4)
(17)
(21)
(153)
(143)
–
(15)
(10)
(25)
(168)
Other interest payable includes fair value gain of £1m (2014: £14m gain) on hedging instruments and fair value loss of £1m (2014: £12m loss) on
hedged items in fair value hedges.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
139
9 TA X
Analysis of tax charge
Current tax
Overseas
Total current tax
Deferred tax
Total deferred tax
Total tax charge
corporation tax charge for the year
adjustments in respect of prior periods
tax charge/ (credit)
2015
£m
2014
£m
29
(2)
27
4
4
31
23
(6)
17
(16)
(16)
1
The tax on the Group’s profit/(loss) before tax differs from the theoretical amount that would arise using the UK standard corporation tax rate
applicable to profits of the company as follows:
Tax reconciliation
Profit/ (loss) before tax
Expected tax charge at the UK corporation tax rate of 20.5% (2014: 22%)
Income not liable for tax
Expenses not deductible for tax purposes
Impairment for which no tax relief is due
Losses and other timing differences for which tax relief is not available
Utilisation of tax losses not previously recognised
Recognition of losses not previously recognised
Derecognition of deferred tax previously recognised
Difference in rates of tax suffered on overseas earnings
Impact of changes in tax rates
Other
Income tax charge in respect of prior periods
Tax charge
2015
£m
2014
£m
50
10
(15)
13
–
21
–
(41)
10
9
1
2
21
31
(114)
(25)
(6)
30
9
31
(4)
(56)
18
7
5
1
(9)
1
In addition to the amount charged to the income statement, deferred tax relating to actuarial losses on pension schemes and the fair value
of derivative financial instruments of £6m has been credited directly to equity (2014: credit of £9m). UK corporation tax is calculated at 20.5%
(2014: 22%) of the estimated assessable profit/(loss) 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 £1,935m (2014: £2,340m) are available predominantly in the UK, France and Spain for offset
against future profits.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
140
140
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
10 DIVIDENDS
No dividends were declared during the year ended 30 September 2015 (2014: nil).
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 9 million shares held by the employee share ownership trusts (2014: 21m).
Basic and diluted loss earnings/(loss) share
Net profit attributable to the owners of the parent
Weighted average number of shares for basic earnings/(loss) per share
Weighted average number of shares for diluted earnings/(loss) per share*
Basic and diluted earnings/(loss) per share
Underlying basic and diluted earnings per share
Underlying net profit attributable to equity holders of the parent**
Underlying basic earnings per share
Underlying diluted earnings per share
2015
£m
23
2014
£m
(118)
2015
millions
2014
millions
1,487
1,487
2015
pence
1.6
2015
£m
132
2015
pence
8.9
8.9
1,440
1,464
2014
pence
(8.2)
2014
£m
163
2014
pence
11.3
11.1
* Awards of shares under the Thomas Cook Performance Share Plan, Buy As You Earn Scheme, Restricted Share Scheme and Co-Investment Plan will be satisfied by shares held in trust and therefore are
potentially dilutive. The remainder of the share schemes will be satisfied by the purchase of existing shares in the market and will therefore not result in any dilution of earnings per share.
** Underlying net profit attributable to owners of the parent is derived from the continuing pre-exceptional profit before tax for the year ended 30 September 2015 of £170m (2014: 182m) and then deducting
a notional tax charge of £42m (2014: £16m), and taking into account non-controlling interests.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
141
12 INTANGIBLE ASSETS
Cost
At 1 October 2013
Additions
Disposals
Exchange differences
At 30 September 2014
Additions
Disposals
Reclassification to plant, property and equipment
Exchange differences
At 30 September 2015
Accumulated amortisation and impairment losses
At 1 October 2013
Impairment loss
Charge for the year
Disposals
Exchange differences
At 30 September 2014
Charge for the year
Disposals
Exchange differences
At 30 September 2015
Carrying amount
At 30 September 2015
At 30 September 2014
Goodwill
Computer software and
concessions
£m
Purchased
£m
Internally
generated
£m
Brands and
customer
relationships
£m
Order
backlog
£m
Other
Purchased
£m
Total
£m
3,035
–
(89)
(158)
2,788
3
–
–
(96)
2,695
344
–
–
(12)
(13)
319
–
–
(12)
307
2,388
2,469
136
5
(4)
(10)
127
9
(9)
–
(6)
121
111
1
5
(3)
(9)
105
4
(11)
(5)
93
28
22
254
34
(9)
(13)
266
60
(13)
(3)
(5)
305
147
–
22
(8)
(3)
158
26
(1)
(4)
179
125
108
481
–
(52)
(19)
410
–
(2)
–
(25)
383
155
1
9
(23)
–
142
9
(1)
(16)
134
249
268
44
–
(2)
(1)
41
–
–
–
–
41
44
–
–
(2)
(1)
41
–
–
–
41
–
–
21
1
(14)
(2)
6
–
(3)
–
–
3
15
–
–
(14)
(1)
–
–
–
–
–
3
6
3,971
40
(170)
(203)
3,638
72
(27)
(3)
(132)
3,548
816
2
36
(62)
(27)
765
39
(13)
(37)
754
2,794
2,873
12_Notes_1_16_p122_p146_v60.indd 141
06/01/2016 13:07
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
142
142
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12 INTANGIBLE ASSETS CONTINUED
The carrying value of goodwill is analysed by business segment as follows:
UK
Continental Europe
Northern Europe
Airlines Germany
2015
£m
1,602
155
613
18
2,388
2014
£m
1,631
159
659
20
2,469
Goodwill Impairment Testing
In accordance with accounting standards, the Group tests the carrying value of goodwill for impairment annually and whenever events or
circumstances change.
Impairment testing is performed by comparing the carrying value of each cash-generating unit (CGU) to the recoverable amount, determined
on the basis of the CGU’s value in use. The value in use is based on the net present value of future cash flow projections discounted at
pre-tax rates appropriate for each CGU. The Group’s CGUs are determined by geographical market and consist of: UK, Continental Europe,
Northern Europe and Airlines Germany.
The future cash flow projections used to determine the value in use are based on the most recent annual budgets and three-year plans for
each of the CGUs. The key assumptions used to determine the business’ budget and three-year plans relate to capacity and the pricing of
accommodation and fuel inputs. Capacity is based on management’s view of market demand and the constraints to managing capacity such
as aircraft lease commitments. The accommodation pricing is primarily driven by the underlying bed rate and the foreign exchange hedges
in place. The former is based on the businesses’ ongoing dialogue with bed suppliers and local cost inflation. The fuel pricing assumption
is primarily driven by the fuel hedges in place and the forward fuel curve at the time that the budget is set. The key assumptions used to
determine the Independent business’ budget and three-year plans relate to passenger volumes and commission rates, and are based on
the individual businesses’ view of the market conditions.
Cash flow forecasts for years beyond the three-year plan are extrapolated at an estimated average long-term nominal growth rate of 2%.
A pre-tax discount rate of between 10.4% – 10.9% reflecting the specific risks of each CGU is used to calculate the value in use for each
of the CGUs.
Sensitivity analysis has not been disclosed as management believe that any reasonable change in assumptions would not cause the
carrying value of the CGUs to exceed their recoverable amount.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
143
13 PROPERT Y, PL ANT AND EQUIPMENT
Aircraft and
aircraft spares
£m
Freehold land
and buildings
£m
Short
leaseholds
£m
Other
fixed assets
£m
Other
Total
£m
Other property, plant and equipment
Cost
At 1 October 2013
Additions
Reclassification
Disposals
Exchange differences
At 30 September 2014
Additions
Reclassification
Disposals
Exchange differences
At 30 September 2015
Accumulated depreciation and impairment
At 1 October 2013
Charge for the year
Reclassifications
Disposals
Exchange differences
At 30 September 2014
Charge for the year
Provision for impairment
Reclassifications
Disposals
Exchange differences
At 30 September 2015
Carrying amount
At 30 September 2015
At 30 September 2014
1,227
117
(2)
(60)
(154)
1,128
193
(4)
(87)
(55)
1,175
624
123
(13)
(58)
(126)
550
125
–
9
(81)
(33)
570
605
578
153
1
(2)
–
(11)
141
18
4
(5)
(6)
152
55
4
–
–
(6)
53
2
–
–
(5)
(3)
47
105
88
145
7
15
(32)
(4)
131
7
(4)
(6)
(3)
125
104
8
3
(23)
(3)
89
7
1
(11)
(5)
(2)
79
46
42
197
19
(7)
(40)
(6)
163
14
7
2
(9)
177
138
11
3
(32)
(4)
116
11
–
2
4
(7)
126
51
47
495
27
6
(72)
(21)
435
39
7
(9)
(18)
454
297
23
6
(55)
(13)
258
20
1
(9)
(6)
(12)
252
202
177
12_Notes_1_16_p122_p146_v60.indd 143
06/01/2016 13:07
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
144
144
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 PROPERT Y, PL ANT AND EQUIPMENT CONTINUED
Freehold land with a cost of £30m (2014: £24m) has not been depreciated.
The net book value of aircraft and aircraft spares includes £300m (2014: £270m) in respect of assets held under finance leases.
The net book value of other property, plant and equipment includes £23m (2014: £10m) in respect of assets held under finance leases.
The depreciation of the owned assets during the year was £74m (2014: £85m). Depreciation for property, plant and equipment held under
finance lease was £70m (2014: £61m).
Capital commitments
Capital expenditure contracted but not provided for in the accounts
2015
£m
15
2014
£m
28
The Group is contractually committed to the acquisition of four new Airbus A321 aircraft as at 30 September 2015, which had a list price of
$96m each at the time of commitment, before escalations and discounts. All are intended to be financed by sale and leaseback at the point
of delivery in 2016. Leases for all of the aircraft were signed as at 30 September 2015, subject to the purchase taking place, and the operating
lease commitment included in Note 27.
14 INVESTMENT IN ASSOCIATES
Cost
At 1 October 2014
Disposals
Group’s share of associates’ profit for the year
Dividend received from associate
Exchange differences
At 30 September 2014
Amounts written off or provided
At 1 October 2014
Exchange differences
At 30 September 2015
Carrying amount
2015
£m
2014
£m
36
(10)
1
–
(2)
25
22
(1)
21
4
38
–
2
(2)
(2)
36
24
(2)
22
14
Associated undertakings
Investments in associates at 30 September 2015 included a 40% interest in Activos Turisticos S.A, an incoming agency and hotel company
based in Palma de Mallorca, Spain.
Hotelera Adeje S.L., a hotel company based in Santa Cruz, Tenerife was disposed of during the year generating a profit on sale of £7m.
12_Notes_1_16_p122_p146_v60.indd 144
06/01/2016 13:07
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
145
14 INVESTMENT IN ASSOCIATES CONTINUED
Summarised financial information in respect of the associated undertakings is as follows:
2015
Associates
£m
2014
Associates
£m
Total assets
Total liabilities
Net assets
Group’s share of net assets
Revenue
Profit for the year
Group’s share of associates’ profit for the year
76
(18)
58
4
39
4
1
The financial statements of the associated undertakings are made up at different times to that of the Group. For the purposes of applying
the equity method of accounting the most recent financial statements of these undertakings and the management accounts are used to
draw up the financial position and performance of each associate.
15 INVENTORIES
Goods held for resale
Airline spares and other operating inventories
The cost of inventories recognised as an expense was £130m (2014: £185m).
2015
£m
9
23
32
80
(22)
58
16
43
4
2
2014
£m
10
24
34
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
146
146
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16 TR ADE AND OTHER RECEIVABLES
Non-current assets
Trade receivables
Other receivables
Deposits and prepayments
Loans
Current assets
Trade receivables
Other receivables
Deposits and prepayments
Loans
Other taxes
Amounts owed by associates and participations
2015
£m
2014
£m
1
6
46
2
55
201
47
317
4
16
–
585
–
13
91
2
106
252
44
390
4
14
1
705
The average credit period taken on invoicing of leisure travel services is 10 days (2014: 11 days). No interest is charged on the receivables.
The credit risk in respect of direct receivables from customers is limited as payment is required in full before the services are provided. In the
case of travel services sold by third-party agents, the credit risk depends on the 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
£36m (2014: £53m) of deposits on aircraft lease arrangements.
The amounts presented in the balance sheet are net of allowances for doubtful receivables. An allowance for impairment is made where there
is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.
Allowances for doubtful debts in respect of trade receivable balances are managed in the business units where the debts arise and are based
on local management experience. Factors that are considered include the age of the debt, previous experience with the counterparty and local
trading conditions. Trade receivables arise from individual customers as well as businesses in the travel sector. The Directors do not consider
there to be significant concentration of credit risk relating to trade and other receivables.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
147
16 TR ADE AND OTHER RECEIVABLES CONTINUED
Movement in allowances for doubtful receivables
At beginning of year
Additional provisions
Exchange differences
Receivables written off
Unused amounts released
At end of year
At the year end, trade and other receivables of £88m (2014: £69m) were past due but not impaired.
The analysis of the age of these financial assets is set out below:
Ageing analysis of overdue trade and other receivables
Less than one month overdue
Between one and three months overdue
Between three and 12 months overdue
More than 12 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.
17 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Term deposits with a maturity of less than three months
2015
£m
38
9
(1)
(9)
(8)
29
2015
£m
42
15
21
10
88
2015
£m
573
728
1,301
2014
£m
44
14
–
(12)
(8)
38
2014
£m
42
15
10
2
69
2014
£m
403
616
1,019
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:
> £7m (2014: £38m) held within escrow accounts in respect of local regulatory requirements;
> £18m (2014: £18m) of cash held by White Horse Insurance Ireland Limited, and Voyager Android Insurance Services the Group’s captive
insurance companies; and
> £1m (2014: £1m) of cash held in countries where exchange control restrictions are in force.
The Directors consider that the carrying amounts of these assets approximate to their fair value.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
148
148
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
18 TR ADE AND OTHER PAYABLES
Current liabilities
Trade payables
Amounts owed to associates and participations
Social security and other taxes
Accruals and deferred income
Other payables
Non-current liabilities
Accruals and deferred income
Other payables
2015
£m
2014
£m
1,401
1
46
400
131
1,979
1
78
79
1,268
2
56
613
144
2,083
2
88
90
2014
£m
82
2
84
365
449
365
308
407
1,080
(365)
715
The average credit period taken for trade purchases is 83 days (2014: 72 days).
Included within the other payables (non-current liabilities) of £78m is £73m (2014: £82m) that represents the carrying value of the
contingent obligation to acquire from The Co-operative Group and Midlands Co-operative (now Central England Co-operative) their shares
(representing a 33.5% ownership interest), formed by the merger of the three companies’ high street retail stores in 2012. The discounted
obligation was recognised at the time of the merger and its fair value is subsequently reassessed at each period end as the minority
shareholders have the right, after 30 September 2016, to require the Company to acquire their shares, (see note 21).
The Directors consider that the carrying amounts of trade and other payables approximate to their fair value.
19 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 five years
– repayable after five years
Less: amount due for settlement within one year shown under current liabilities
Amount due for settlement after one year
2015
£m
171
14
185
34
219
34
734
304
1,072
(34)
1,038
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
149
19 BORROWINGS CONTINUED
Borrowings by class
Group committed credit facility (including transaction costs)
Aircraft-related bank loans (including transaction costs)
Commercial paper
Other bank borrowings
Issued bonds (including transaction costs)
Current
£m
2015
Non-current
£m
Current
£m
2014
Non-current
£m
–
50
155
14
–
219
(8)
49
–
21
976
1,038
–
53
82
4
310
449
(12)
11
–
12
704
715
The Directors consider that the fair value of the Group’s borrowings with a carrying value of £1,257m is £1,307m (2014: carrying value £1,164m;
fair value £1,227m). £1,032m (2014: £1,077m) of the fair value which relates to issued bonds has been calculated using quoted market prices.
For all other borrowings, the Directors consider that the fair value of £275m (2014: £150m) is approximate to the carrying amount. In 2015,
the Group has £101m as security to aircraft (2014: £63m) and £21m as a security to property (2014:£14m).
During the year £8m (2014: £9m) of the capitalised transaction costs relating to banking facilities have been recognised within finance costs
in the income statement and £7m relating to the write off of old facility fees is included within separately disclosed items.
The Group has completed three major financing transactions during the year, including:
> the issue of a €400m Eurobond in January 2015 with a coupon of 6.75% which matures in June 2021;
> a tender offer in February 2015 in respect of our €400m 6.75% June 2015 notes, of which 29% were purchased ahead (with the balance
redeemed in full at the maturity date); and
> a new £800m four year banking facility in May 2015 maturing in May 2019 to replace prior facilities.
Borrowing facilities
As at 30 September 2015, the Group had undrawn committed debt facilities of £453m (2014: £297m) and undrawn committed debt facilities
plus cash available to repay revolving credit facility of £1,682m (2014: £1,168m). Whilst these facilities have certain financial covenants they are
not expected to prevent full utilisation of the facilities if required. The Group has complied with its financial covenants throughout the year.
Covenant measures
The covenant measures are tested on a quarterly rolling 12 month basis and consist of a leverage covenant and a fixed charge covenant.
The leverage covenant is a measure of pre-exceptional earnings before interest, tax, depreciation, amortisation and aircraft operating
lease rentals compared to net debt. The fixed charge covenant is a measure of pre-exceptional earnings before interest, tax, depreciation,
amortisation and operating lease charges compared to net interest and operating lease charges. The leverage and fixed charge covenant
hurdles vary depending on the period that they relate to and range between 1.21x to 3.46x and 1.78x to 2.16x respectively.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
150
150
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20 OBLIGATIONS UNDER FINANCE LEASES
Amounts payable under finance leases:
Within one year
Between one and five years
After five years
Less: future finance charges
Present value of lease obligations
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 finance leases is:
Euro
US dollar
Finance leases principally relate to aircraft and aircraft spares.
No arrangements have been entered into for contingent rental payments.
Minimum lease payments
2015
£m
48
145
32
225
(42)
183
2014
£m
47
148
35
230
(49)
181
Present value of
minimum lease payments
2015
£m
2014
£m
35
121
27
183
–
183
(35)
148
2015
£m
11
172
183
34
119
28
181
–
181
(34)
147
2014
£m
13
168
181
The Directors consider that the fair value of the Group’s finance lease obligations with a carrying value of £183m was £191m at 30 September
2015 (2014: carrying value £181m; fair value £181m). 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 finance leases are secured by the lessors’ rights over the leased assets.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
151
21 FINANCIAL INSTRUMENTS
Carrying values of financial assets and liabilities
The carrying values of the Group’s financial assets and liabilities as at 30 September 2015 and 30 September 2014 are as set out below:
At 30 September 2015
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Obligations under finance leases
Provisions arising from contractual obligations
Derivative financial instruments
2015
Fair value
through profit
or loss
£m
Derivative
instruments
in designated
hedging
relationships
£m
Financial
liabilities at
amortised
cost
£m
Fair value
through profit
or loss
£m
Derivative
instruments
in designated
hedging
relationships
£m
Loans &
receivables
£m
Loans &
receivables
£m
–
–
(73)
–
–
–
5
(68)
–
–
–
–
–
–
(75)
(75)
323
1,301
–
–
–
–
–
1,624
–
–
(1,846)
(1,257)
(183)
(345)
–
(3,631)
–
–
(82)
–
–
–
(5)
(87)
–
–
–
–
–
–
23
23
397
1,019
–
–
–
–
–
1,416
Derivative financial instruments
The fair values of derivative financial instruments were:
Interest rate
swaps
£m
Currency
contracts
£m
Fuel
contracts
£m
At 1 October 2013
Movement in fair value during the year
At 1 October 2014
Movement in fair value during the year
At 30 September 2015
Non-current assets
Current assets
Current liabilities
Non-current liabilities
(5)
16
11
–
11
(38)
80
42
42
84
1
(36)
(35)
(130)
(165)
2015
£m
15
114
(176)
(23)
(70)
2014
Financial
liabilities at
amortised
cost
£m
–
–
(1,816)
(1,164)
(181)
(371)
–
(3,532)
Total
£m
(42)
60
18
(88)
(70)
2014
£m
19
68
(66)
(3)
18
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
152
152
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Fair value hierarchy
The fair value of the Group’s financial instruments are disclosed in hierarchy levels depending on the valuation method applied.
The different methods are defined as follows:
Level 1:
valued using unadjusted quoted prices in active markets for identical financial 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 financial assets and liabilities are set out below:
Financial assets
Currency contracts
Fuel contracts
Interest rate swaps
Financial liabilities
Currency contracts
Fuel contracts
Contingent consideration
At 30 September
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
–
106
12
11
(22)
(176)
(70)
–
–
–
–
–
(73)
(73)
2015
Total
£m
106
12
11
(22)
(176)
(73)
(143)
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
–
72
4
11
(30)
(39)
–
18
–
–
–
–
–
(82)
(82)
2014
Total
£m
72
4
11
(30)
(39)
(82)
(64)
The fair values of financial instruments have been calculated using discounted cash flow analysis.
The contingent consideration represents the carrying value of the contingent obligation to acquire from The Co-operative Group and Midlands
Co-operative (now Central England Co-operative) their shares and is included in Other payables (refer to Note 18 – Trade and Other payables).
The carrying value reported is the fair value of the consideration calculated at each year end using the Financial Dividend model. The fair value
is the net present value of the Group’s forecasted cash outflows arising from final dividend and exit payment of 4 x EBITDA, discounted at the
Group’s weighted average cost of capital.
The cash outflows are dependent on EBITDA for financial year 2015-16 and a 5% change in EBITDA will result in a £0.3m change in fair value
(decrease in fair value liability and corresponding gain in profit before tax arising from increase in EBITDA) of this level 3 financial instrument.
Similarly a 1% change in discount rate will result in £1.1m change in fair value (decrease in fair value liability and corresponding gain in profit
before tax arising from increase in discount rate).
The Group uses derivative financial instruments to hedge material future transactions and cash flows denominated in foreign currencies.
The Group enters into foreign currency forward contracts, swaps and options in the management of its exchange rate exposures.
The fair value of currency contracts designated in a cash flow hedge as at 30 September 2015 was an asset of £78m (2014: £47m asset).
Currency hedges are entered into up to a maximum of 18 months in advance of the forecasted requirement. As at 30 September 2015,
the Group had in place currency hedging derivative financial instruments with a maximum maturity of February 2017 (2014: February 2016)
The Group also uses derivative financial instruments to mitigate the risk of adverse changes in the price of fuel. The Group enters into
fixed price contracts (swaps) and net purchased options in the management of its fuel price exposures. All fuel hedges are designated
as cash flow hedges.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
153
21 FINANCIAL INSTRUMENTS CONTINUED
Fuel price hedges are entered into up to a maximum of 18 months in advance of forecasted consumption of fuel. Trades with maturities
longer than 18 months need additional approval in line with treasury policy. As at 30 September 2015, the Group had in place fuel price hedging
derivative financial instruments with a maximum maturity of March 2017 (2014: April 2016).
In addition, the Group uses derivative financial instruments to manage its interest rate exposures. The Group enters into interest rate swaps
to hedge against interest rate movements in connection with the financing of aircraft and other assets and to hedge against interest rate
exposures on fixed rate debt. The Group also enters into cross currency interest rate swaps to hedge the interest rate and the currency
exposure on foreign currency external borrowings. The fair value of interest rate swaps and cross currency contracts in designated fair
value hedge relationships at 30 September 2015 was an asset of £11m (2014: £11m asset).
As at 30 September 2015, the maximum maturity of interest rate derivatives was June 2020 (2014: June 2020).
The fair values of the Group’s derivative financial instruments have been calculated using underlying market prices available on
30 September 2015.
During the year, a loss of £88m (2014: £45m loss) was transferred from the hedge 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 £1m was recognised
in the income statement in respect of the forward points on foreign exchange cash flow hedging contracts (2014: £2m loss) and a gain of £5m
in respect of the movement in the time value of options in cash flow hedging relationships (2014: £2m loss).
Cost of providing tourism services:
– release from hedge reserve
– time value on options
– forward points on foreign exchange cash flow hedging contracts
Finance income/(costs):
– fair value movements on derivatives in designated fair value hedge
2015
£m
Re-presented
2014
£m
(88)
5
1
1
(45)
(2)
(2)
11
During the year a gain of £nil (2014: £27m loss) was taken directly to the income statement in respect of held for trading derivatives that are
used to hedge Group balance sheet exposure.
The closing hedging reserve, excluding the impact of tax, was a loss of £122m (2014: £13m gain). The periods in which the cash flows are
expected to occur and when they are expected to impact the income statement are a loss of £103m (2014: £7m gain) within one year and
a loss of £19m (2014: £6m gain) between one and five years.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
154
154
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
Offsetting financial assets and financial liabilities
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements:
As at 30 September 2015
Derivatives financial assets
Derivatives financial liabilities
Cash and cash equivalents
Bank overdrafts
Total
As at 30 September 2014
Derivatives financial assets
Derivatives financial liabilities
Cash and cash equivalents
Bank overdrafts
Total
Gross amounts of
recognised financial
assets
£m
Gross amounts of
recognised financial
liabilities set off in
the balance sheet
£m
Net amounts of
recognised financial
assets presented in
the balance sheet
£m
Financial
Instruments
£m
Cash collateral
received
£m
Net Amount
£m
Related amounts not set off in the balance sheet
129
(199)
1,305
(18)
1,217
–
–
(4)
4
–
129
(199)
1,301
(14)
1,217
(85)
85
–
–
–
–
–
–
–
–
44
(114)
1,301
(14)
1,217
Gross amounts of
recognised financial
assets
£m
Gross amounts of
recognised financial
liabilities set off in
the balance sheet
£m
Net amounts of
recognised financial
assets presented in
the balance sheet
£m
Financial
Instruments
£m
Cash collateral
received
£m
Net Amount
£m
Related amounts not set off in the balance sheet
87
(69)
1,665
(648)
1,035
–
–
(646)
646
–
87
(69)
1,019
(2)
1,035
(47)
47
–
–
–
–
–
–
–
–
40
(22)
1,019
(2)
1,035
For the financial assets and liabilities subject to enforceable master netting arrangements or similar arrangements above, each agreement
between the Group and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a
net basis. In the absence of such an election, financial assets and liabilities will be settled on a gross basis, however, each party to the master
netting agreement or similar agreement will have the option to settle all such amounts on a net basis in the event of default of the other party.
22 FINANCIAL RISK
The Group is subject to risks related to changes in interest rates, exchange rates, fuel prices, liquidity and counterparty credit within the
framework of its business operations.
Interest rate risk
The Group is subject to risks arising from interest rate movements in connection with the issue of Eurobonds, bank debt, aircraft financing
and cash investments. Interest rate swaps are used to manage these risks and are designated as both cash flow and fair value hedges.
Foreign exchange rate risk
The Group has activities in a large number of countries and is therefore subject to the risk of exchange rate fluctuations. These risks arise
in connection with the procurement of services in destinations outside the source market. For example, US Dollar exposure arises on the
procurement of fuel and operating supplies for aircraft, as well as investments in aircraft.
The Group requires segments to identify and appropriately hedge all exposures in line with approved treasury policies designed to reflect
the commercial risk of each underlying business. Each segmental hedging policy includes the hedging build up and permitted instruments.
The maximum hedge tenor is 18 months and each segment should achieve at least an 80% hedge ratio prior to the start of the season.
The Group uses currency forwards, currency swaps and currency options to manage transactional currency risks and these are usually
designated as cash flow hedges.
The Group does not hedge translation exposures arising from profits generated outside the UK.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
155
22 FINANCIAL RISK CONTINUED
Fuel price risk
Exposure to fuel price risk arises due to flying costs incurred by the Group’s aircraft.
The Group requires segments to identify and appropriately hedge all exposures in line with approved treasury policies designed to reflect
the commercial risk of each underlying business. Each segmental hedging policy includes the hedging build up and permitted instruments.
The maximum hedge tenor is 18 months and in general each segment should achieve at least an 80% hedge ratio prior to the start of
the season.
The Group uses commodity derivative contracts, including fixed price contracts (swaps) and net purchased options to manage fuel price
risk and these are usually designated as cash flow hedges.
The market risks that the Group is subject to have been identified as interest rate risk, foreign exchange rate risk and fuel price risk.
The impact of reasonably possible changes in these risk variables on the Group, based on the period end holdings of financial instruments
have been calculated and are set out in the tables below. In each case it has been assumed that all other variables remain constant.
As at 30 September 2015, the sensitivity of these risks to the defined scenario changes are set out below:
Interest rate risk
1% (2014: 1%) increase in interest rates
0.25% (2014: 0.25%) decrease in interest rates
Foreign exchange rate risk
5% (2014: 5%) strengthening of Euro
5% (2014: 5%) weakening of Euro
5% (2014: 5%) strengthening of US Dollar
5% (2014: 5%) weakening of US Dollar
Fuel price risk
10% (2014: 10%) increase in fuel price
10% (2014: 10%) decrease in fuel price
Impact
on profit
before tax
£m
8
(2)
Impact
on profit
before tax
£m
(6)
6
(7)
6
Impact
on profit
before tax
£m
–
–
2015
Impact
on equity
£m
–
–
2015
Impact
on equity
£m
28
(27)
77
(74)
2015
Impact
on equity
£m
56
(56)
Impact
on profit
before tax
£m
6
(1)
Impact
on profit
before tax
£m
(1)
–
(5)
4
Impact
on profit
before tax
£m
3
(3)
2014
Impact
on equity
£m
–
–
2014
Impact
on equity
£m
17
(16)
70
(65)
2014
Impact
on equity
£m
52
(52)
Given recent historical movements in fuel prices management believe a 10% shift is a reasonable possibility.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
156
156
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22 FINANCIAL RISK CONTINUED
Liquidity risk
The liquidity position of the Group is significantly influenced by the booking and payment pattern of customers. As a result, liquidity is at its
lowest in the winter months and at its highest in the summer months. The Group manages the seasonal nature of its liquidity by making use
of its bank facility, the terms of which, including the covenant measures, are detailed in the borrowings Note (refer to note 19). The Group also
uses liquidity swaps to manage short-term currency positions. These liquidity swaps are presented as held-for-trading financial instruments
The undrawn committed debt facility plus the cash available ranged between £200m and £1,682m during the current financial year
(2014: £169m – £1,168m).
Surplus short-term liquidity is invested in accordance with approved treasury policy.
Financial liabilities are analysed below based on the time between the period end and their contractual maturity. The amounts shown are
estimates of the undiscounted future cash flows and will differ from both carrying value and fair value.
Amount due – 2015
Amount due – 2014
At 30 September 2015
Trade and other payables
Borrowings
Obligations under finance
leases
Derivative financial
instruments:
– payable
– receivable
Provisions arising from
contractual obligations
in less than
3 months
£m
between
3 and 12
months
£m
between
1 and 5 years
£m
in more than
5 years
£m
Total
£m
in less than
3 months
£m
between
3 and 12
months
£m
between
1 and 5 years
£m
in more than
5 years
£m
1,549
194
12
699
(703)
59
1,810
287
29
36
1,724
(1,646)
63
493
81
931
145
541
(532)
121
1,287
2
428
32
–
–
102
564
1,919
1,582
225
2,964
(2,881)
345
4,154
1,576
95
12
681
(686)
72
1,750
230
380
34
1,311
(1,311)
157
801
88
365
148
388
(401)
77
665
4
587
35
–
–
65
691
Total
£m
1,898
1,427
229
2,380
(2,398)
371
3,907
For all gross settled derivative financial instruments, such as foreign currency forward contracts and swaps, the pay and receive leg has been
disclosed in the table above. For net settled derivative financial instruments, such as fuel swaps and options, the fair value as at the year end
of those instruments in a liability position has been disclosed in the table above. Trade and other payables include non-financial liabilities of
£142m (2014: £277m) which have not been analysed above.
Counterparty credit risk
The Group is exposed to credit risk in relation to deposits, outstanding derivatives and trade and other receivables. The maximum exposure
in respect of each of these items at the balance sheet date is the carrying value. The Group assesses its counterparty credit risk exposure in
relation to the investment of surplus cash, fuel contracts, foreign exchange and interest rate hedging contracts and undrawn credit facilities.
The Group primarily uses published credit ratings to assess counterparty strength and to define the credit limit for each counterparty in
accordance with approved treasury policies.
The Group’s approach to credit risk in respect of trade and other receivables is explained in note 16.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
157
23 INSUR ANCE
Management of insurance risk
Incidental to its main business, the Group, through its subsidiary White Horse Insurance Ireland Limited, issues contracts that transfer
significant insurance risk and that are classified as insurance contracts. As a general guideline, the Group defines as significant insurance
risk the possibility of having to compensate the policyholder if a specified uncertain future event adversely affects the policyholder.
Business written includes standard commercial risks for the Group and travel insurance for both Group and non-Group customers.
The principal nature of travel insurance risks is one of short-term, low value and high volume. Underwriting performance is monitored on an
ongoing basis and pricing reviewed annually for each individual contract. Exposure is capped by specific limits within the insurance policy
and by using reinsurance contracts for any claims in excess of these retention limits. Commercial policies have been fully commuted at the
year end.
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 financial statements.
The Group operates a reinsurance policy approved by the White Horse Insurance Ireland Ltd Board of Directors which ensures that reinsurers
have a financial stability rating of A (S&P). The Group has assessed these credit ratings as being satisfactory in diminishing the Group’s
exposure to the credit risk of its insurance receivables.
24 DEFERRED TA X
The following are the deferred tax liabilities and assets recognised by the Group and movements thereon during the current reporting year:
At 1 October 2014
Credit/ (charge) to income
Credit to equity
Reclassifications
Exchange differences
At 30 September 2015
Aircraft
finance
leases
£m
Retirement
benefit
obligations
£m
Fair value
of financial
instruments
£m
Other
temporary
differences
£m
Tax losses
£m
(62)
4
–
(1)
4
(55)
56
3
(20)
(2)
(2)
35
(4)
(6)
24
2
–
16
(23)
(39)
–
2
3
(57)
179
34
2
–
(3)
212
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial
reporting purposes:
Deferred tax assets
Deferred tax liabilities
2015
£m
197
(46)
151
Total
£m
146
(4)
6
1
2
151
2014
£m
195
(49)
146
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
158
158
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 DEFERRED TA X CONTINUED
At the balance sheet date, the Group had unused tax losses of £2,844m (2014: £3,150m) available for offset against future profits. Deferred tax
assets have only been recognised to the extent that business plans evidence future taxable profits against which the assets may be
recovered. No deferred tax asset has been recognised in respect of tax losses of £1,935m (2014: £2,340m) due to the unpredictability of future
profit streams.
Other temporary differences on which deferred tax has been provided primarily relate to the difference in book to tax value on qualifying tax
assets, provisions for which tax relief was not originally available, and fair value accounting on assets acquired.
In addition, the Group had unused other temporary differences amounting to £339m (2014: £295m) for which no deferred tax asset has been
recognised due to the unpredictability of future profit streams.
Deferred tax liabilities were offset against the corresponding deferred tax assets as appropriate within territories.
Reductions in the UK corporation tax rate from 20% (effective from 1 April 2015) to 19% (effective from 1 April 2017) and to 18% (effective 1 April
2020) were substantively enacted on 26 October 2015. This will reduce the group’s UK deferred tax asset at 30 September 2015 (which has been
calculated based on the rate of 20% substantively enacted at the balance sheet date) by £5m.
25 PROVISIONS
At 1 October 2014
Additional provisions
in the year
Unused amounts released
in the year
Unwinding of discount
Utilisation of provisions
Exchange differences
At 30 September 2015
Included in current liabilities
Included in non-current liabilities
At 30 September 2015
Included in current liabilities
Included in non-current liabilities
At 30 September 2014
Aircraft
maintenance
provisions
£m
Off-market
leases
£m
Insurance and
litigation
£m
Reorganisation
and restructuring
plans
£m
Other
provisions
£m
234
125
(30)
4
(87)
(5)
241
15
6
2
1
(13)
–
11
90
62
(3)
–
(73)
(1)
75
23
8
(7)
–
(17)
(1)
6
28
10
(2)
–
(12)
–
24
Total
£m
390
211
(40)
5
(202)
(7)
357
147
210
357
247
143
390
The aircraft maintenance provisions relate to maintenance on leased aircraft and spares used by the Group’s airlines in respect of leases which
include contractual return conditions. This expenditure arises at different times over the life of the aircraft with major overhauls typically
occurring between two and ten years. The aircraft maintenance provisions are re-assessed at least annually in the normal course of business
with a corresponding adjustment made to either non-current assets (aircraft and aircraft spares) or aircraft costs.
Off-market leases relate to leases acquired through the Resorts Mallorca Hotels International S.L.U (Hi!Hotels) acquisition and certain office
locations which have commitments in excess of the market rate at the time of the transaction.
Insurance and litigation represents costs related to legal disputes, customer compensation claims (including EU261) and estimated costs
arising through insurance contracts in the Group’s subsidiary, White Horse Insurance Ireland Limited. Reorganisation and restructuring plans
predominantly represent committed restructuring costs in the UK and Continental segments.
“Other” represents liabilities where there is uncertainty of the timing or amount of the future expenditure required in settlement and includes
such items as onerous contracts, dilapidations and emissions trading liabilities. This grouping contains no single amount larger than £6m.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
159
26 CALLED -UP SHARE CAPITAL
At 1 October 2013
Exercise of Warrants
At 30 September 2014
Exercise of Warrants
Issue of shares
At 30 September 2015
Ordinary Shares
of €0.01 each
Deferred Shares
of €0.09 each
Ordinary Shares
of €0.01 each
£m
Deferred Shares
of €0.09 each
£m
Deferred Shares
of £1 each, 25p paid
£m
1,453,403,227
7,373,186
1,460,776,413
1,939,126
73,135,777
1,535,851,316
934,981,938
–
934,981,938
–
–
934,981,938
11
–
11
–
–
11
58
–
58
–
–
58
50,000
–
50,000
–
–
50,000
The Ordinary Shares carry the right to the profits of the Company available for distribution and to the return of capital on a winding up of the
Company. The Ordinary Shares carry the right to attend and speak at general meetings of the Company; each share holds the right to one vote.
The Ordinary Shares are admitted to the premium segment of the Official List and to trading on the London Stock Exchange’s main market.
Both classes of Deferred Shares carry no right to the profits of the Company. On a winding up, the holders of the sterling-denominated Deferred
Shares would be entitled to receive an amount equal to the capital paid up on each sterling-denominated Deferred Share and the holders of
the euro-denominated Deferred Shares would be entitled to receive an amount equal to the capital paid up on each euro-denominated Deferred
Share only after the holders of the Ordinary Shares and sterling-denominated Deferred Shares have received, in aggregate, the amounts paid
up thereon. The holders of both classes of 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.
Contingent rights to the allotment of shares
As at 30 September 2015, options to subscribe for ordinary shares were outstanding with respect to the Thomas Cook Group plc 2007
Performance Share Plan and the Thomas Cook Restricted Share Plan. For further details refer to Note 29. On exercise, the awards of shares
under the plan will be satisfied by either purchases in the market of existing shares or, subject to institutional guidelines, issuing new shares.
A new financing facility consisting of £500 million revolving credit facility and £300 million bilateral bonding and guarantee facility was agreed
on 19 May 2015.
Under the old financing agreement there remained unexercised Warrants in issue to certain lenders giving holders the right, at any time until
22 May 2015, to subscribe to an aggregate of 1,939,126 Ordinary Shares. All remaining Warrants in issue under the old financing agreement were
exercised during the year. For further information on the financing facilities please refer to the “Governance – other disclosures section” of the
annual report on pages 105 to 107.
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 Restricted Share Plan. Equiniti Share Plan Trustees Limited hold shares 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 2015 by EES Trustees International Limited and Equiniti Share Plan Trustees Limited was 9,103,314
(2014: 20,865,104) and 350,328 (2014: 381,015) respectively. The cumulative cost of acquisition of these shares was £14m (2014: £30m) and the
market value at 30 September 2015 was £11m (2014: £25m). Shares held by the trust have been excluded from the weighted average number
of shares used in the calculation of earnings per share.
Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The capital structure of the Group consists of debt, cash and cash equivalents 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 £479m (2014: £573m).
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
160
160
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 OPER ATING LEASE ARR ANGEMENTS
The Group as lessee
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Within one year
Later than one and less than five years
After five years
Property
and other
2015
£m
Aircraft and
aircraft spares
2015
£m
58
143
140
341
125
563
467
1,155
Total
2015
£m
183
706
607
1,496
Property
and other
2014
£m
Aircraft and
aircraft spares
2014
£m
72
178
146
396
96
357
473
926
Total
2014
£m
168
535
619
1,322
Operating lease rentals payable charged to the income statement for hire of aircraft and aircraft spares was £135m (2014: £106m) and other
£90m (2014: £102m). 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. Leases for new aircraft
are typically negotiated for an average term of 12 years, leases for second hand aircraft and extensions are typically considerably shorter.
28 CONTINGENT LIABILITIES
Contingent liabilities
2015
£m
114
2014
£m
102
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 represent 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 the ordinary course of its business, the Group is subject to commercial disputes and litigation including customer claims, employee disputes,
taxes and other kinds of lawsuits. These matters are inherently difficult to quantify. In appropriate cases, a provision is recognised based on
best estimates and management judgement but there can be no guarantee that these provisions will result in an accurate prediction of the
actual costs and liabilities that may be incurred. There are also contingent liabilities in respect of litigation for which no provisions are made.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
161
29 SHARE-BASED PAYMENTS
The Company operates equity-settled share-based payment schemes, as outlined below. The total charge recognised during the year in respect
of equity-settled share-based payment transactions was £1m (2014: £4m charge).
The Thomas Cook Group plc 2007 Performance Share Plan (PSP)
Executive Directors and senior executives of the Company and its subsidiaries are granted options to acquire, or contingent share awards of,
the ordinary shares of the Company. The awards will vest if performance targets are met during the three years following the date of grant.
The Thomas Cook Group plc 2008 Co-Investment Plan (COIP)
Executive Directors and senior executives may be required to purchase the Company’s shares using a proportion of their net bonus (Lodged
Shares). For each Lodged Share purchased, participants may receive Matching Shares if performance targets are met during the three years
following the date of grant.
The Thomas Cook Group plc 2008 HM Revenue & Customs Approved Buy As You Earn Scheme (BAYE)
Eligible UK tax-paying employees are offered the opportunity to purchase shares in the Company by deduction from their monthly gross pay.
For every 10 shares an employee buys, the Company will purchase one matching share on their behalf.
The Thomas Cook Group plc 2011 Restricted Share Plan (RSP)
Senior management of the Company and its subsidiaries are granted options to acquire, or contingent share awards of, the ordinary shares of
the Company. Executive Directors are excluded from receiving awards under the RSP. The Company will determine at the date of award whether
the award will be subject to a performance target and the date of vesting.
The Thomas Cook 2014 Deferred Bonus Plan (DBP)
Executive Directors and a small number of senior Executives of the Company and its subsidiaries are granted contingent share awards of the
ordinary shares of the Company, relating to a proportion of their annual bonus. Awards are subject to forfeiture if a clawback event occurs
during the period that the award is held.
The movements in options and awards during the year in relation to the PSP and the other awards were:
At 1 October 2014
Granted
Exercised
Lapsed
Outstanding at 30 September 2015
Exercisable at end of year
Exercise price (£)
Average remaining contractual life (years)
PSP
2015
Other
30,487,662
11,163,840
(8,961,220)
(7,224,426)
25,465,856
5,018,980
4,307,753
679,417
(2,945,360)
(330,318)
1,711,492
23,240
nil
1.4
nil
1.5
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
162
162
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29 SHARE-BASED PAYMENTS CONTINUED
The weighted average share price at the date of exercise for the options exercised during the year ended 30 September 2015 was £1.33.
At 1 October 2013
Granted
Exercised
Lapsed
Cancelled
Forfeited
Outstanding at 30 September 2014
Exercisable at end of year
Exercise price (£)
Average remaining contractual life (years)
PSP
2014
Other
31,899,162
3,451,942
(807,281)
(2,851,735)
–
(1,204,426)
30,487,662
95,653
5,440,212
2,267,869
(688,342)
(1,929,368)
(244,642)
(537,976)
4,307,753
58,260
nil
1.3
1.77
2.2
The weighted average share price at the date of exercise for the options exercised during the year ended 30 September 2014 was £1.64
The fair value of options and awards subject to Group EBIT and cash conversion 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
Weighted average option life (years)
Weighted average risk-free rate
Expected dividend yield
Weighted average fair value at date of grant
2015
PSP
2014
PSP
£1.49
nil
43%
3
0.9%
nil
£1.04
£1.45
nil
40%
3
1.30%
0
£1.02
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.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
163
30 RETIREMENT BENEFIT OBLIGATIONS
Pension schemes for the employees of the Thomas Cook Group consist of defined contribution plans and defined benefit plans, with the
defined benefit plans being both funded and unfunded. The obligations arising from defined contribution plans are satisfied by contribution
payments to both private and state-run insurance providers.
Present value of funded obligations
Fair value of plan assets
(Surplus)/deficit of funded plans
Present value of unfunded obligations
Total deficit of defined benefit pension plans
2015
£m
1,063
(1,104)
(41)
320
279
2014
£m
1,119
(1,001)
118
329
447
Unfunded defined benefit pension obligations
Unfunded defined benefit pension obligations primarily relate to the Group’s employees in the German businesses of Thomas Cook AG and the
Condor Group. Provisions are established on the basis of commitments made to those employees for old-age and transitional pensions based
on the legal, tax and economic circumstances of the individual countries and on the period of employment and level of remuneration of the
respective employees.
Provisions for pensions and similar obligations totalling £270m (2014: £277m) were attributable to the pension commitments of the Condor
Group (Condor Flugdienst GmbH, Condor Berlin GmbH and CF GmbH). For employees who joined a Condor Group company prior to 1995, the total
pension commitment of the pensions authority of the German federal government and regional states was adjusted and maintained in the
form of a company pension scheme.
The flight crews were additionally entitled to a transitional provision for the period between the termination of their in-flight employment and
the time they became eligible for a state-run or company pension. In both cases, the benefit commitment depended on the final salaries of the
employees concerned prior to the termination of their in-flight employment (final salary plan).
Employees who joined a Condor Group company 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 classified as unfunded
defined benefit obligations and classified as such in these financial statements.
The Condor Group defined benefit plans have been closed to new entrants (with the exception of pilots) since 2004.
There are additional unfunded defined benefit obligations comprising individual commitments to executive staff at Thomas Cook Group and
obligations in respect of past service for employees in the Northern Europe and Continental Europe segments.
The unfunded pension schemes are accounted for as part of liabilities for retirement benefit obligations in the balance sheet.
The following weighted average actuarial assumptions were made for the purpose of determining the unfunded defined benefit obligations:
Discount rate for scheme liabilities
Expected rate of salary increases
Future pension increases
2015
%
2.68%
2.56%
1.52%
2014
%
2.71%
2.54%
1.53%
The mortality tables 2005 G drawn up by Prof. Dr. Klaus Heubeck were used, for the German pension schemes, as the basis for the mortality
assumptions used in arriving at the present value of the pension obligations at 30 September 2015. These assume a life expectancy for
members currently aged 65 of 19 years for men and 23 years for women.
S
T
N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
164
164
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
30 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
Changes in the present value of unfunded pension obligations were as follows:
At beginning of year
Current service cost*
Past service cost*
Interest expense*
Benefits paid
Settlements*
Effect of experience adjustments and demographic assumptions
Effect of financial assumptions
Business combinations
Exchange difference
At end of year
* These amounts have been recognised in the income statement.
2015
£m
329
11
–
8
(7)
(1)
(5)
2
–
(17)
320
2014
£m
296
10
(6)
10
(7)
(5)
(2)
62
(5)
(24)
329
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 benefit obligations has been included in finance costs. Actuarial gains and losses
have been reported in the statement of comprehensive income.
Funded defined benefit pension obligation
The pension entitlements of employees of Thomas Cook UK and employees in Norway and the Netherlands are provided through funded defined
benefit schemes, where pension contributions are paid over to the schemes and the assets of the schemes are held separately from those
of the Group in funds under the control of trustees. These schemes are closed to new entrants and continue to accrue future benefits for
existing active members.
The plans are final salary pension plans, which provide benefits to members in the form of a guaranteed level of pension payable for life.
The level of benefits provided depends on a member’s length of service and their salary in the final years of active membership. In the UK plans,
pensions in payment are generally updated in line with retail price index, pensions in deferment are generally updated in line with consumer
price index.
Pension costs are assessed in accordance with the advice of qualified actuaries in each country. The fair value of the pension assets in each
scheme at the year end is compared with the present value of the retirement benefit obligations and the net difference reported as a pension
asset or retirement benefit obligation as appropriate. Pension assets are only recognised to the extent that they will result in reimbursements
being made or future payments being reduced.
The funded defined benefit obligation primarily relates to the Thomas Cook UK Pension Plan. The assumptions used in arriving at the present
value of the obligations at 30 September 2015 have been updated following the 2014 triennial actuarial funding valuation. The mortality
assumptions used in arriving at the present value of those obligations at 30 September 2015 are based on the S1PA pensioner tables with
2012 CMI projection model with a long term trend rate of 1.5% for males and 1.25% for females. The mortality assumptions adopted for the plan
liabilities indicate a further life expectancy for members currently aged 65 of 23.6 years for men and 25.6 years for women. The Company
and Board of trustees are responsible for governance of the plans and ensuring it is sufficiently funded to meet current and future benefits.
The trustees appoint advisers to carry out the administration, actuarial work and investment advice.
Following the 2014 actuarial valuation of the Thomas Cook UK pension plan, the Recovery Plan agreed with the pension trustees to fund the
actuarial deficit was extended. In line with that agreement, during the year ended 30 September 2015 Thomas Cook UK paid instalments
totalling £26m in line with the recovery plan.
The valuation of the Thomas Cook UK pension plan at 30 September 2015 resulted in a surplus of £50m, this is included within the net Group
pension deficit of £279m. The £50m has been disclosed as a pension asset in the statement of financial position.
30 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
The movement in the defined benefit obligation over the year is as follows:
Present value of obligation
At beginning of year
Current service cost*
Past service cost*
Interest expense*
Remeasurements:
– Loss from change in demographic assumptions
– (Gain)/loss from change in financial assumptions
– Experience (gains)/losses
Exchange differences
Payments from plans:
– Settlement payments
– Benefit payments
At end of year
Fair value of plan assets
At beginning of year
Interest income*
Remeasurements:
– Return on plan assets, excluding amounts included in interest income
Exchange differences
Expenses paid*
Contributions:
– Employers
Payments from plans:
– Settlement payments
– Benefit payments
At end of year
(Surplus)/deficit of funded plan
* These amounts have been recognised in the income statement.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
165
2015
£m
1,119
–
–
44
44
16
(28)
(63)
(75)
3
–
(28)
1,063
2015
£m
(1,001)
(40)
(40)
(65)
(65)
(1)
3
(28)
–
28
(1,104)
(41)
2014
£m
998
1
(2)
45
44
–
104
2
106
(2)
(6)
(21)
1,119
2014
£m
(889)
(40)
(40)
(75)
(75)
3
2
(29)
6
21
(1,001)
118
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A
T
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A
I
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N
A
N
I
F
166
166
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
30 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
The weighted average actuarial assumptions were as follows:
Discount rate for scheme liabilities
Inflation rate (RPI)
2015
%
3.86%
2.96%
2014
%
3.89%
3.15%
The average mortality assumptions adopted for the plan liabilities indicate a further life expectancy for members currently aged 65
of 22.2 years for men and 24.7 years for women.
Plan assets are comprised as follows:
Cash and cash equivalents
Equity instruments
Debt instruments
Real estate
Derivatives
Investment funds
Assets held by insurance company
Total
Quoted
£m
Non-quoted
£m
Total
£m
9
83
330
57
451
146
3
1,079
–
–
–
–
–
–
25
25
9
83
330
57
451
146
28
1,104
2015
%
1
8
30
5
41
13
2
100
Quoted
£m
Non-quoted
£m
Total
£m
12
280
249
86
117
230
3
977
–
–
–
–
–
–
24
24
12
280
249
86
117
230
27
1,001
2014
%
1
28
25
9
12
23
2
100
The scheme assets do not include any of the Group’s own financial instruments, nor any property occupied by, or other assets used by the
Group. The Scheme currently has part of its assets invested in a liability driven investment portfolio. These assets, in combination with the
other protection assets in the portfolio, provide interest rate and inflation rate protection.
Sensitivities of the defined benefit obligation
The group is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield,
this will create a deficit. However, the group believes that due to the long-term nature of the plan liabilities and the strength of the supporting
group, a level of continuing equity investment is an appropriate element of the Group’s long-term strategy to manage the plans efficiently.
Changes in bond yields
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’
bond holdings.
Inflation risk
Some of the group pension obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most cases, caps
on the level of inflationary increases are in place to protect the plan against extreme inflation). The majority of the plan’s assets are either
unaffected by (fixed interest bonds) or loosely correlated with (equities) inflation, meaning that an increase in inflation will also increase
the deficit.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
167
30 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
Life expectancy
The majority of the plans’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase
in the plans’ liabilities.
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
Impact on defined benefit obligation:
Discount rate for scheme liabilities
Inflation rate
Mortality
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.25%
0.25%
1 year
-5%
3%
3%
5%
-3%
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. When calculating the
sensitivity of the defined benefit obligation to significant actuarial assumptions the same method has been applied as when calculating the
pension liability recognised within the statement of financial position.
The expected future benefit payments are detailed below;
At 30 September 2015
Pension benefit payments
Less than a year
£m
Between 1–2 years
£m
Between 2–5 years
£m
Over 5 years
£m
29
10
33
65
Defined contribution schemes
There are a number of defined contribution schemes in the Group, the principal scheme being the Thomas Cook UK DC Pension Scheme, which
is open to all UK employees. Cash contributions paid into the defined benefit schemes are accounted for as an income statement expense
as they are incurred. The total charge for the year in respect of this and other defined contribution schemes, including liabilities in respect
of insured benefits relating to workers’ compensation arrangements, amounted to £23m (2014: £42m).
The assets of these schemes are held separately from those of the Group in funds under the control of trustees.
31 REL ATED PART Y TR ANSACTIONS
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 are disclosed below. Transactions between the Company and its subsidiaries
and associates are disclosed in the Company’s separate financial statements. Interest in subsidiaries are set out in Note 19 in the Company’s
separate financial statements.
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
Other income
Amounts owed by related parties
Amounts owed to related parties
Associates and participations*
2015
£m
6
(7)
1
1
(1)
2014
£m
8
(11)
3
1
(2)
* Participations are equity investments where the Group has a significant equity participation but which are not considered to be associates.
All transactions are considered to have been made at market prices. Outstanding amounts will normally be settled by cash payment.
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N
E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
168
168
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
31 REL ATED PART Y TR ANSACTIONS CONTINUED
Remuneration of key management personnel
Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration report
on pages 88 to 104.
Short-term employee benefits
Share-based payments
2015
£m
5
11
16
2014
£m
5
–
5
AT 30 SEPTEMBER 2015
COMPANY BALANCE SHEET
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
169
Non-current assets
Intangible assets
Property, plant and equipment
Investments in subsidiaries
Trade and other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Short-term provisions
Non-current liabilities
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Hedging and translation reserves
Capital redemption reserve
Retained earnings
Investment in own shares
Total equity
30 September
2015
£m
30 September
2014
£m
Notes
6
7
8
8
9
10
13
12
13
14
25
2
1,873
554
2,454
1,060
1
1,061
3,515
(518)
–
(3)
(521)
(298)
(819)
2,696
69
524
1,429
382
8
302
(18)
2,696
5
2
1,990
583
2,580
911
35
946
3,526
(154)
(310)
(3)
(467)
(297)
(764)
2,762
69
436
1,429
529
8
329
(38)
2,762
The financial statements on pages 169 to 179 were approved by the Board of Directors on 24 November 2015.
Signed on behalf of the Board
MICHAEL HEALY
GROUP CHIEF FINANCIAL OFFICER
Notes 1 to 19 form part of these financial statements.
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14_Company_Statements_p169_p179_v46.indd 169
06/01/2016 13:16
170
FINANCIAL STATEMENTS
YEAR ENDED 30 SEPTEMBER 2015
COMPANY CASH FLOW STATEMENT
Cash flows from operating activities
Loss before tax
Adjustments for:
Interest expense
Amortisation
Share-based payments
Increase in provisions
(Increase)/decrease in receivables
Increase/(decrease) in payables
Net cash from operating activities
Investing activities
Purchase of tangible and intangible assets
Net cash used in investing activities
Financing activities
Net outflow from borrowings
Interest paid
Share issue
Net proceeds on the issue of ordinary shares
Investment in own shares
Net cash used in financing 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
Year ended
30 September
2015
£m
Year ended
30 September
2014
£m
(8)
44
1
1
–
(155)
346
229
(23)
(23)
(281)
(46)
–
92
–
(235)
(29)
35
(5)
1
(88)
48
–
2
2
104
(17)
51
(5)
(5)
–
(48)
1
1
(8)
(54)
(8)
46
(3)
35
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
171
YEAR ENDED 30 SEPTEMBER 2015
COMPANY STATEMENT OF
CHANGES IN EQUITY
At 1 October 2013
Loss for the year
Other comprehensive income
Total comprehensive expense for the year
Equity debit in respect of share-based payments
Issue of shares-exercise of warrants
Share premium
Purchase of own shares
At 30 September 2014
Loss for the year
Other comprehensive expense
Total comprehensive expense for the year
Equity credit in respect of share-based payments
Issue of shares – Fosun
Exercise of own shares
At 30 September 2015
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Translation
reserve
£m
Retained
earnings
£m
Own
shares
£m
68
–
–
–
–
1
–
–
69
–
–
–
–
–
–
69
434
–
–
–
–
–
2
–
436
–
–
–
–
88
–
524
1,429
–
–
–
–
–
–
–
1,429
–
–
–
–
–
–
1,429
9
–
(1)
(1)
–
–
–
–
8
–
–
–
–
–
–
8
769
–
(240)
(240)
–
–
–
–
529
–
(147)
(147)
–
–
–
382
415
(88)
(2)
(90)
4
–
–
–
329
(8)
–
(8)
1
–
(20)
302
(30)
–
–
–
–
–
–
(8)
(38)
–
–
–
–
–
20
(18)
Total
£m
3,094
(88)
(243)
(331)
4
1
2
(8)
2,762
(8)
(147)
(155)
1
88
–
2,696
Other comprehensive income and expense relates to translation of the balance sheet.
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 and represents the difference between the nominal value and the fair value of the shares acquired.
The share premium arose in connection with the issue of Ordinary Shares of the Company following the issuance of shares to Fosun in
March 15.
At 30 September 2015, the Company had distributable reserves of £302m (2014: £329m).
Details of the own shares held are set out in Note 26 to the Group financial statements.
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172
FINANCIAL STATEMENTS
NOTES TO THE
COMPANY FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
The accounting policies applied in the preparation of these Company financial statements are the same as those set out in Note 2 and 3
to the Group financial statements with the addition of the following:
Investments
Investments in subsidiaries are stated at cost less provision for impairment.
These policies have been applied consistently to the periods presented.
The functional currency of the Company is Euro, however, the Directors have decided to adopt Sterling as the presentation 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 and statement
of comprehensive income for the year. The loss after tax of the Company amounted to £8m (2014: £88m).
The auditors’ remuneration for audit services to the Company was £0.1m (2014: £0.2m).
3 PERSONNEL EXPENSES
Wages and salaries
Social security costs
Share-based payments
Average number of employees of the Company during the year
Employees are based in the United Kingdom and Germany.
2015
£m
23
–
–
23
2014
£m
17
2
–
19
2015
Number
2014
Number
165
137
Disclosures of individual Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension entitlements
required by the Companies Act 2006 and specified for audit by the Financial Conduct Authority are on pages 96 to 104 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 30 of the Group financial statements.
4 TA X
At the balance sheet date, the Company had unused tax losses of £209m (2014: £281m) and other deductible short-term temporary differences
of £5m (2014: £4m) available for offset against future profits. No deferred tax asset has been recognised in respect of unused tax losses and
other deductible short-term timing differences.
5 DIVIDENDS
The details of the Company’s dividend are disclosed in Note 10 to the Group financial statements.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
173
6 INTANGIBLE ASSETS
Other intangible assets
Cost
At 1 October 2013
Additions
Transfer of assets
At 30 September 2014
Additions
At 30 September 2015
Accumulated depreciation and impairment
At 1 October 2013
Charge for the year
At 30 September 2014
Charge for the year
At 30 September 2015
Carrying amount at 30 September 2015
Carrying amount at 30 September 2014
7 INVESTMENT IN SUBSIDIARIES
Cost and net book value
At 1 October 2013
Adjustment in respect of share-based payments
Additions
Exchange difference
At 30 September 2014
Adjustment in respect of share-based payments
Additions
Exchange difference
At 30 September 2015
A list of the Company’s related undertakings is shown in Note 19 to the financial statements.
£m
–
4
1
5
21
26
–
–
–
1
1
25
5
£m
2,167
2
–
(179)
1,990
2
–
(119)
1,873
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A
T
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N
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174
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
8 TR ADE AND OTHER RECEIVABLES
Current
Amounts owed by subsidiary undertakings
Other receivables
Deposits and prepayments
Non-current
Amounts owed by subsidiary undertakings
2015
£m
2014
£m
1,057
1
2
1,060
554
554
879
3
29
911
583
583
2014
£m
35
35
2014
£m
106
2
19
27
154
Amounts owed by subsidiary undertakings are repayable on demand. The average interest on overdue amounts owed by subsidiary
undertakings is 4% (2014: 0.5%). The Directors consider the fair value to be equal to the book value.
9 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
2015
£m
1
1
Cash and cash equivalents includes balances which are considered to be restricted. £0.1m (2014: £35m) is held within escrow accounts
in Denmark and Norway in respect of local regulatory requirements. The Directors consider that the carrying amounts of these assets
approximate their fair value.
10 TR ADE AND OTHER PAYABLES
Amounts owed to subsidiary undertakings
Social security and other taxes
Other payables
Accruals
2015
£m
485
1
11
21
518
The average interest on overdue amounts owed to subsidiary undertakings is 1.8% (2014: 0.8%).
Amounts owing to subsidiary undertakings are repayable on demand, with the exception of £43m due in 2023. The Directors consider the fair
value to be equal to the book value.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
175
11 FINANCIAL INSTRUMENTS
The Company’s financial instruments comprise investment in subsidiary undertakings, amounts due to/from subsidiary undertakings,
cash and cash equivalents, and other payables and receivables. The Company’s approach to the management of financial risks is discussed
on pages 154 to 156. The Company believes the value of its financial assets to be fully recoverable.
The carrying value of the Company’s financial instruments is exposed to movements in foreign currency exchange rates (primarily Sterling).
The Company estimates that a 5% strengthening in Sterling would increase loss before tax by £7m (2014: increase loss before tax by £5m),
while a 5% weakening in Sterling would decrease loss before tax by £7m (2014: decrease loss before tax by £5m).
The carrying value of the Company’s financial instruments is exposed to movements in interest rates. The Company estimates that a 1%
increase in interest rates would increase loss before tax by nil (2014: 1% increase in interest rates increase loss before tax by £1m), while a
0.25% decrease in interest rates would decrease loss before tax by nil (2014: 0.25% decrease in interest rates decrease loss before tax by £nil).
Carrying value of financial assets and liabilities
The carrying values of the Group’s financial assets and liabilities as at 30 September 2015 and 30 September 2014, are set out below:
At 30 September 2015
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Provisions arising from contractual obligations
At 30 September 2014
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Borrowings
Provisions arising from contractual obligations
Loans &
receivables
£m
Financial
liabilities at
amortised cost
£m
1,612
1
–
–
–
1,613
–
–
(518)
(298)
(3)
(819)
Loans &
receivables
£m
Financial
liabilities at
amortised cost
£m
1,494
35
–
–
–
1,529
–
–
(154)
(607)
(3)
(764)
Total
£m
1,612
1
(518)
(298)
(3)
794
Total
£m
1,494
35
(154)
(607)
(3)
765
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E
M
E
T
A
T
S
L
A
I
C
N
A
N
I
F
176
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
11 FINANCIAL INSTRUMENTS CONTINUED
Financial liabilities are analysed below based on the time between the year end and their contractual maturity. The amounts shown are
estimates of the undiscounted future cash flows and will differ from both carrying value and fair value. Any cash flows based on a floating
rate are calculated using interest rates as set at the date of the last rate reset.
At 30 September 2015
Trade and other payables
Borrowings
Provisions arising from contractual obligations
At 30 September 2014
Trade and other payables
Borrowings
Provisions arising from contractual obligations
In less than
3 months
£m
Between 3 and
12 months
£m
Between 1 and
5 years
£m
(505)
–
–
(505)
(26)
–
(3)
(29)
–
(327)
–
(327)
In less than
3 months
£m
Between 3 and
12 months
£m
Between 1 and
5 years
£m
(29)
–
–
(29)
(121)
(348)
(3)
(472)
–
(341)
–
(341)
Amount due
£m
(531)
(327)
(3)
(861)
Amount due
£m
(150)
(689)
(3)
(842)
The Company is exposed to credit risk in relation to cash and cash equivalents, trade and other receivables, and amounts due from subsidiary
undertakings. The maximum exposure in respect of each of these items at the balance sheet date is their carrying value. The Company
assesses its counterparty exposure in relation to surplus cash using credit limits based on counterparty credit ratings.
For amounts due from subsidiary undertakings and receivables, future operating cash flows are assessed for any indication of impairment.
In the opinion of the Directors, the fair value of the Company’s investments is not less than the carrying value as stated in the balance sheet.
As of 30 September 2015, Company receivables from Group undertakings were not past due and were expected to be recovered in full.
The Company’s approach to credit risk in respect of trade and other receivables is explained in Note 8.
12 PROVISIONS
At 1 October
Additional provision in the year
Release of provision
At 30 September
2015
£m
(3)
–
–
(3)
2014
£m
(1)
(3)
1
(3)
13 BORROWINGS
Borrowings comprise a £300m bond with an annual coupon of 7.75% maturing in June 2017.
14 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 26 to the Group financial statements
in this report.
Details of share options granted by the Company are set out in Note 29 to the Group financial statements.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
177
15 OPER ATING LEASE ARR ANGEMENTS
At the balance sheet date, the Company had outstanding commitments for future minimum lease payments related to property, under
non-cancellable operating leases, which fall due as follows:
Within one year
Later than one year and less than five years
After five years
2015
£m
2014
£m
1
3
2
6
1
3
3
7
16 CONTINGENT LIABILITIES
At 30 September 2015, 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 £727m (2014: £710m). This predominately relates to a guarantee on the drawndown
portion of the Group banking facility (detailed in Note 19 to the Group financial statements).
Also included are guarantees related to aircraft finance lease commitments, estimated based on the current book value of the finance lease
liabilities of £183m (2014: £180m).
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.
17 REL ATED PART Y TR ANSACTIONS
Subsidiaries
The Company transacts and has outstanding balances with its subsidiaries. The Company enters into loans with its subsidiaries, at both fixed
and floating rates of interest, on a commercial basis. Hence, the Company incurs interest expense and earns interest income on these loans.
The Company also received dividend income from its subsidiaries during the year.
Transactions with subsidiaries
Interest receivable
Interest payable
Management fees and other expenses
Dividend income received
Year-end balances arising on transactions with subsidiaries
Loans receivable
Other receivables
Loans payable
Other payables
2015
£m
–
(4)
31
45
914
697
(428)
(57)
2014
£m
1
(1)
28
45
731
147
(59)
(43)
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Company, is set out in Note 31 of the Group
financial statements.
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178
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
18 SHARE-BASED PAYMENTS
The employees of the Company, including 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 29 to the Group financial
statements and have therefore not been re-presented here.
The share-based payment charge of £1m (2014: £2m) is stated net of amounts recharged to subsidiary undertakings.
19 SUBSIDIARIES
Name
Country of
Incorporation
Proportion
held %
Class of shares
Name
Country of
Incorporation
Proportion
held %
List of all subsidiaries
AB 9807 Beteiligungsverwaltungs GmbH
Activos Turisticos, S.A.
Airtours Channel Islands Limited
Airtours Finance Limited
Airtours Holidays Transport Limited
Airtours Insurance Services Limited
Airtours Resort Ownership Espana S.L.
Airtrack Services Limited
Algarve Tours – Agencia de Viagens E
Turismo LDA
Alpha Reiseburo Partner GmbH
Anfinpan S.L.
Astral (Cyprus) Holdings Limited
Astral Hellas SA
Astral Spain Incoming S.A.
Astral Tours (Cyprus) Limited
Belgian Travel Network CVBA
Germany
Spain
Jersey
Guernsey
United Kingdom
United Kingdom
Spain
United Kingdom
Portugal
Germany
Spain
Cyprus
Greece
Spain
Cyprus
Belgium
Blue Sea Overseas Investments Limited
United Kingdom
Bucher Reisen GmbH
Buzzard Leisure Limited
Capitol Holdings Limited
Carousel Holidays Limited
Carousel Resorts International Limited
Close Number 1 Limited
Close Number 16 Limited
Close Number 19 Limited
Close Number 25 Limited
Close Number 29 Limited
Close Number 3 Limited
Close Number 30 Limited
Close Number 31 Limited
Close Number 32 Limited
Close Number 33 Limited
Close Number 34 Limited
Close Number 35 Limited
Close Number 36 Limited
Close Number 37 Limited
Close Number 38 Limited
Close Number 6 Limited
Close Number 7 Limited
Close Number 8 Limited
Close Number 9 plc
Compass Travel Limited
Condor Berlin GmbH
Condor Flugdienst GmbH
Condor Technik GmbH
Germany
United Kingdom
Ireland
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Jersey
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Germany
Germany
Germany
Co-op Group Travel 2 Holdings Limited
Cooperatieve Parkway U.A.
United Kingdom
Netherlands
40
99.964
99.815
100
100
100
100
100
50
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
88.889
100
100
100
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
Eurocenter Beteiligungs-und Reisevermittlung
GmbH
Germany
Future Travel Limited
United Kingdom
Gesellschaft für Reisevertriebssysteme mbH
Gigatour Scrl
Happy Camp S.P.A.
Helios Palace SA
Hix Express, S.L.
Hotel Investments Sarigerme Turizm Ticaret L.S.
Hoteles Sunwing SA
Hotels4u.com Limited
Germany
Belgium
Italy
Greece
Spain
Turkey
Spain
United Kingdom
ordinary
Inspirations Group Pension Trustees Limited
United Kingdom
ordinary A & B
Inspirations Limited
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
Intourist
Intourist Overseas Company Limited
ITC Enterprises Limited
ITC Travel Investments S.L.
Jeropatur-Viagens e Turismo Limitada
Jet Eldo Maroc
Jet Eldo Tunisie
Jet Marques S.A.
JMCH Services Limited
Kuyi International Travel Agency (Shanghai)
Co., Ltd
Kelly Holdings Limited
Kestrel Leisure Limited
ordinary & 5%
redeemable preference
Leon y Castillo Management, S.L.
LLG Nord GmbH & Co. Delta OHG
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
Maretours NV
MTG (UK) Limited
MyTravel 330 Leasing Ltd
MyTravel Deutschland GmbH
MyTravel Group Limited
Mytravel IPR Ireland Limited
MyTravel Licensing S.a.r.l.
MyTravel Luxembourg S.a.r.l
MyTravel Luxembourg UK Unlimited*
MyTravel North America Limited
MyTravel Pioneer Limited
NALG Holdings
NALG Ireland
Neckermann Polska BP SP. z.o.o.
Neckermann Slovakia s.r.o.
Neckermann Urlaubswelt GmbH
NTC Intourist
N-U-R Neckermann-utazás Szolgáltató Kft.
Öger Tours GmbH
Orlando (ABC) Limited
OY Tjaereborg AB
Park Hotel SNC
100 ordinary & C fixed preference
100 ordinary & C fixed preference
100
ordinary & 6% preference
50.0023
50.0023
100
100
100
ordinary
ordinary
ordinary
ordinary
class A, initial preferred
class B and preferred class B
United Kingdom
Russia
Russia
United Kingdom
Spain
Portugal
Morocco
Tunisia
France
United Kingdom
China
Gibraltar
United Kingdom
Spain
Germany
Belgium
United Kingdom
Cayman Islands
Germany
United Kingdom
Ireland
Luxembourg
Luxembourg
United Kingdom
United Kingdom
United Kingdom
Ireland
Ireland
Poland
Slovakia
Germany
Russia
Hungary
Germany
Jersey
Finland
France
Australia
Delight Information Systems CVBA
Belgium
79.997
ordinary
Parkway Australia Holdings Pty Limited
Class of shares
ordinary
ordinary and preference
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
cumulative A, B, C, D
preference and ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
100
100
100
28
40
100
100
100
100
100
100
100
100
100
100
75
100
100
100
100
100
49
100
100
100
100
48.57
100
100
100
100
100
100
100
100
100
100
100
100
100
60
100
100
100
100
100
100
50
100
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
179
Name
Country of
Incorporation
Proportion
held %
Class of shares
Name
Country of
Incorporation
Proportion
held %
Class of shares
Parkway Auto Realisations (Germany)
Vermögensverwaltungs GmbH
Parkway GP Sarl
Parkway Hellas Holdings Limited
Parkway Holdings GmbH
Parkway Holdings UK BV
Parkway International S.a.r.l.
Parkway IPR (Cyprus) Limited
Parkway IPR Limited
Parkway Limited
Parkway Nederland BV
Parkway Northern Europe Holding A/S
Peregrine Leisure Limited
Plotin Travel S.A.
Porto Bay Hotels e-Resorts, S.A.
Resorts Mallorca Hotels International S.L.
Retail Travel Limited
ROSATA Grundstücksvermietungs mbH & Co.
Objekt am Hammergarten KG
Sandbrook Overseas Investments Limited
Sandbrook UK Investments Limited
SATEE GmbH
Sentido Hotels & Resorts GmbH
Servicios Bluepar, S.B., S.A.
Servicios de Administracion y Operacion de
Hoteles S.A de C.V.
Germany
Luxembourg
United Kingdom
Germany
Netherlands
Luxembourg
Cyprus
United Kingdom
Guernsey
Netherlands
Denmark
United Kingdom
Greece
Portugal
Spain
United Kingdom
Germany
United Kingdom
United Kingdom
Germany
Germany
Costa Rica
Mexico
Shipping and Aviation Industries Limited
United Kingdom
Societe Touristique et Hoteliere du Senegal
SOTHOU_SE S.A.
Spies A/S
Style Holidays Limited
Sumango (Proprietary) Limited
Sun International (UK) Limited
Sunair N.V.
Sunscan Hotel Sociedad Limitada
Sunwing Hellas AB
Sunwing Hotels (Cyprus) Limited
Sunwing Hotels Hellas SA
TC Delta GmbH
TCCT Holdings Limited
TCCT Holdings UK Limited
TCCT Retail Limited
TCGH Holdings Limited
TCIM Limited
TCNE Aircraft Leasing AB
Tedgold Limited
The Airline Group Limited
The Freedom Travel Group Limited
The Travelworld Group Limited
THG Touristik GmbH
Thomas Cook (CIS) AB
Thomas Cook AG
Thomas Cook Air Kereskedelmi és Szolgáltató Kft.
Thomas Cook Aircraft Engineering (Mexico)
S.A. de C.V.
Senegal
Denmark
United Kingdom
South Africa
United Kingdom
Belgium
Spain
Sweden
Cyprus
Greece
Germany
Jersey
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Sweden
Gibraltar
United Kingdom
United Kingdom
United Kingdom
Germany
Sweden
Germany
Hungary
Mexico
Thomas Cook Aircraft Engineering Inc.
United States
Thomas Cook Aircraft Engineering Limited
United Kingdom
Thomas Cook Aircraft Engineering
Services Limited
Thomas Cook Airlines Belgium NV
Thomas Cook Airlines Limited
Thomas Cook Airlines Scandinavia A/S
Thomas Cook Airline Services Limited
Guernsey
Belgium
United Kingdom
Denmark
Guernsey
100
100
100
100
100
100
100
100
100
100
100
100
45
15
100
100
15
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
66.5
100
100
100
100
100
100
91
100
100
100
100
100
100
100
100
99.9
100
100
100
99.9
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
A ordinary, B ordinary
and preference
ordinary
ordinary
ordinary
Thomas Cook Airport Service GmbH
Thomas Cook Austria AG
Thomas Cook Belgium NV
Thomas Cook Brok Air Services
Thomas Cook Cabin Crews GmbH
Germany
Austria
Belgium
France
Germany
Thomas Cook Continental Holdings Limited
United Kingdom
Thomas Cook Destination Services Inc
Thomas Cook Destinations GmbH
Thomas Cook Finance (2) Limited**
Thomas Cook Finance (Jersey) Limited**
Thomas Cook Finance plc**
Thomas Cook Financial Activities GmbH
Thomas Cook Financial Services Belgium
Thomas Cook France Hotellerie Holding S.A.R.L.
Thomas Cook France S.A.S.
Thomas Cook Group Hedging Limited
Thomas Cook Group Management
Services Limited**
Thomas Cook Group Treasury Limited
Thomas Cook Group UK Limited
Thomas Cook Indian IP Limited
Thomas Cook International AG
United States
Germany
United Kingdom
Jersey
United Kingdom
Germany
Belgium
France
France
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Switzerland
Thomas Cook Investments (2) Limited**
United Kingdom
Thomas Cook Nederland BV
Thomas Cook Nordic Holdings AB
Thomas Cook Northern Europe A/S
Thomas Cook Northern Europe AB
Thomas Cook Online Limited
Netherlands
Sweden
Denmark
Sweden
Guernsey
Thomas Cook Pension Trust Limited
United Kingdom
Thomas Cook Retail Belgium NV.
Thomas Cook Retail Limited
Thomas Cook Retail NV
Thomas Cook s.r.o.
Thomas Cook SAS
Thomas Cook Service AG
Thomas Cook Services Limited
Thomas Cook Tour Operations Limited
Belgium
United Kingdom
Belgium
Czech Republic
France
Switzerland
United Kingdom
United Kingdom
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
Thomas Cook Touristik GmbH
Germany
49.99
Thomas Cook Travel Pension Trustees Limited
United Kingdom
Thomas Cook Treasury Limited
ordinary A
Thomas Cook UK Limited
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
Thomas Cook UK Travel Limited
Thomas Cook Vertriebs GmbH
Thomas Cook West Holdings Limited
Thomas Cook West Investments Limited
Tour Vital Touristik GmbH
Tourmajor Limited
Travel Alliance a.s.
Travel and Financial Services Limited
Travel Technology Initiative Limited
Univers Holidays S.A.
bearer shares
VA Insurance Services Limited
Viajes Iberoservice Espana, S.L.
Ving Norge A/S
Ving Sverige AB
Vingresor Espana SA
Wavell Holdings BV
WELG Aviation NV
White Horse Administration Services Limited
White Horse Insurance Ireland Limited
United Kingdom
United Kingdom
United Kingdom
Germany
United Kingdom
United Kingdom
Germany
United Kingdom
Czech Republic
United Kingdom
United Kingdom
Morocco
Isle of Man
Spain
Norway
Sweden
Spain
Netherlands
Belgium
Ireland
Ireland
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
40
100
100
15
100
65.00
100
100
100
100
99.99
100
100
99.987
deferred and ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
Registered office: The Thomas Cook Business Park, Coningsby Road, Peterborough, Cambs, PE3 8SB, England.
*
** Shares held directly by Thomas Cook Group plc.
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180
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FIVE YEAR RECORD
2015
2014
2013
2012
2011
Income Statement
Statutory (£m)
Revenue (£m)
Gross profit (£m)
Gross profit margin (%)
Profit/(loss) from operations (£m)
Interest (£m)
Profit/(loss) before tax (£m)
Profit/(loss) for the financial year (£m)
Weighted average number of shares (millions)
Basic and diluted earnings/(loss) per ordinary share
Underlying
Revenue (£m)
Gross Profit (£m)
Gross profit margin (%)
Profit from operations (£m)
EBIT margin (%)
Separately disclosed items (£m)
Profit before tax (£m)
Weighted average number of shares (millions)
Underlying basic earnings per share
7,834
1,772
22.6%
211
(169)
50
19
1,487
1.6
7,834
1,774
22.6%
310
4.0%
(120)
170
1,487
8.9
7,834
Like-for-like
Revenue (£m)
Gross profit (£m)
Gross profit margin (%)
Underlying profit from operations (£m)
EBIT margin (%)
Interest (£m)
Separately disclosed items (£m)
Profit before tax (£m)
Profit/(loss) for the financial year (£m)
*FY12 Gross margin includes notional adjustments in relation to UK store closures totalling 0.4%
22.6%
1,774
4.0%
(120)
310
(141)
50
19
8,588
1,866
21.7%
52
(168)
(114)
(115)
1,440
(8.2)
8,588
1916
22.3%
323
3.8%
(296)
182
1,440
11.3
7,748
1,754
22.6%
280
3.6%
(143)
(296)
(157)
(158)
9,315
2,020
21.7%
13
(177)
(163)
(213)
1,196
(17.1)
9,315
2,059
22.1%
263
2.8%
(281)
118
1,196
5.0
8,030
1,759
21.9%
172
2.1%
(146)
(263)
(236)
(283)
9,195
2,031
22.1%
(170)
(168)
(337)
(441)
872
(67.2)
9,195
2,026
22.0%
177
1.9%
(393)
56
872
0.6
8,062
1,728
21.0%
126
1.6%
(142)
(272)
(286)
(379)
9,809
2,098
21.4%
(267)
(135)
(398)
(518)
858
(60.7)
9,809
2,160
22.0%
304
3.1%
(573)
175
858
10.2
7,920
1,725
21.8%
208
2.6%
(130)
(489)
(417)
(531)
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
181
Statement of financial position (£m)
Total assets
Current assets
Current liabilities
Net pension deficit
Net Assets
Net debt
Statement of cash flows (£m)
Operating cash flow
Investing activities
Financing activities
Exchange (losses)/ gains
Net (decrease)/increase in cash and cash equivalents
Capex
2015
2014
2013
2012
2011
5,958
2,035
(3,702)
(279)
368
(139)
474
(180)
10
(35)
304
200
5,794
1,829
(3,894)
(448)
285
(326)
335
(78)
(278)
(52)
(21)
156
6,285
1,933
(3,688)
(404)
548
(421)
339
(182)
476
2
633
151
5,907
1,524
(3,540)
(331)
458
(788)
152
53
(74)
(19)
131
138
6,690
1,646
(3,749)
(331)
1,183
(891)
289
(178)
(82)
(3)
28
187
Average number of employees
21,813
22,672
26,448
32,250
31,097
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182
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
ANNUAL GENER AL MEETING (“AGM”)
The AGM will be held at 1st Floor, North Building, 200 Aldersgate,
London EC1A 4HD on Tuesday 23 February 2016 at 10.30am. The last
date for AGM proxy votes to be received by the Registrar is 10.30am
Sunday 21 February 2016.
All Shareholders can submit their proxy vote for the AGM electronically
at www.sharevote.co.uk. To register their vote, Shareholders will need
the numbers detailed on their form of proxy.
Alternatively, Shareholders who have already registered
with Shareview can submit their proxy vote by logging on to
www.shareview.co.uk and clicking on the link to vote underneath
their Thomas Cook Group plc holding.
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: 0371 384 2154*
(International telephone number: +44 (0)121 415 0182)
* Lines are open 8.30am to 5.30pm (London time), Monday to Friday (excluding UK public holidays).
Shareholders should quote the Company reference number 3174 and
their Shareholder reference number (which can be found on their
share certificates), when contacting the Registrar.
SHAREVIEW
To be able to access information about their shares and other
investments online, Shareholders can register with Shareview
(www.shareview.co.uk). Registration is free; Shareholders will
need their Shareholder reference number which is shown on their
form of proxy and share certificate. By registering for this service,
Shareholders will:
> help reduce paper, print and postage costs;
> help the environment;
> be able to submit their queries by email; and
> be able to manage their shareholding easily and securely online.
Once registered, whenever Shareholder documents are available,
Shareholders will be sent a link to the appropriate website,
where the documents will be available to view or download.
Receiving documents online does not affect Shareholders’ rights
in any way.
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, financial results,
financial calendar and share price information;
> details of Shareholder meetings and poll results;
> biographies of the Board of Directors;
> the Company’s Articles of Association, the terms of reference for the
Committees of the Board and the Board Appointments Policy; and
> sustainability reporting.
MULTIPLE ACCOUNTS ON THE SHARE REGISTER
If a Shareholder receives two or more sets of the documents
concerning the 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 appears 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, detailing the different Shareholder reference numbers,
and request that they be combined into one account.
ELECTRONIC COMMUNICATIONS
At the AGM on 10 April 2008, the Company passed a resolution
allowing the Company’s corporate 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 notification 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 Company’s corporate website.
These arrangements for electronic Shareholder communications
provide Shareholders with the opportunity to access information
in a timely manner and help the Company to reduce both its costs
and its environmental impact.
DIVIDENDS
No dividends have been paid or declared since the interim dividend
for the financial year ended 30 September 2011, paid on 7 October 2011.
THOMAS COOK GROUP PLC ANNUAL REPORT & ACCOUNTS 2015
183
REPORT A SCAM
If you are approached about a share scam you should tell the FCA
using the share fraud reporting form at www.fca.gov.uk/scams,
where you can find out about the latest investment scams. You can
also call the FCA Consumer Helpline on 0800 111 6768. If you have
already paid money to share fraudsters you should contact Action
Fraud on 0300 123 2040.
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 benefit. Find out
more about ShareGift at www.sharegift.org or by telephoning
+44 (0)20 7930 3737.
SHAREVIEW DEALING
A telephone and internet dealing service has been arranged through
the Registrar to provide a simple way of buying and selling Thomas
Cook Group plc shares for existing and prospective UK-based
Shareholders. For telephone dealing call 08456 037 037 (international
telephone number: +44 (0)121 415 7560) between 8.00am and 4.30pm
(London time), Monday to Friday (excluding UK public holidays), or visit
the website: www.shareview.co.uk/dealing. Shareholders will need
the Shareholder reference number shown on their share certificate(s).
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THOMAS COOK AG/MY TR AVEL GROUP PLC MERGER
Thomas Cook Group plc was formed in June 2007 upon the merger
of Thomas Cook AG and MyTravel Group plc.
MyTravel Group plc Shareholders received one Thomas Cook Group plc
Ordinary Share for every one MyTravel Group plc share previously held.
MyTravel Group plc share certificates are no longer valid and can be
destroyed. Replacement Thomas Cook Group plc share certificates
were sent to Shareholders, who held shares in certificated form,
on or around 19 June 2007. If you have any queries relating to this,
please contact the Registrar.
WARNING TO SHAREHOLDERS ABOUT SHARE FR AUD
Fraudsters use persuasive and high-pressure tactics to lure investors
into scams.
They may offer to sell shares that turn out to be worthless or
non-existent, or to buy shares at an inflated price in return for an
upfront payment.
While high profits are promised, if you buy or sell shares in this way
you will probably lose your money.
5,000 people contact the Financial Conduct Authority about share
fraud each year, with victims losing an average of £20,000.
How to avoid share fraud
If you are offered unsolicited investment advice, discounted shares,
a premium price for shares you own, or free company or research
reports, you should take these steps before handing over any money:
1.
Keep in mind that firms authorised by the FCA are unlikely to
contact you out of the blue with an offer to buy or sell shares.
2. Do not get into a conversation, note the name of the person and
firm contacting you and then end the call.
3. Check the Financial Services Register from www.fca.org.uk to
see if the person and firm contacting you is authorised by the FCA.
4. Beware of fraudsters claiming to be from an authorised firm,
copying its website or giving you false contact details.
5. Use the firm’s contact details listed on the Register if you want
to call it back.
6. Call the FCA on 0800 111 6768 if the firm does not have contact
details on the Register or you are told they are out of date.
7.
Search the list of unauthorised firms to avoid at
www.fca.org.uk/scams.
8. Consider that if you buy or sell shares from an unauthorised firm
you will not have access to the Financial Ombudsman Service or
Financial Services Compensation Scheme.
9. Think about getting independent financial and professional advice
before you hand over any money.
10. Remember: if it sounds too good to be true, it probably is!
184
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION CONTINUED
ANALYSIS OF SHAREHOLDERS AS AT
30 SEPTEMBER 2015
Distribution of shares by
the type of Shareholder
Number of
holdings
Number of
shares
Nominees and institutional investors
Individuals
Total
15,169
1,098
16,267
15,868,808
1,519,982,508
1,535,851,316
Size of Shareholding
1–100
101–500
501–1,000
1,001–10,000
10,001–100,000
100,001–500,000
500,001–1,000,000
1,000,001 and above
Total
Number of
holdings
Number of
shares
9,291
3,137
963
2,040
516
141
48
131
16,267
292,660
737,916
725,754
7,267,475
15,772,206
32,959,517
35,236,698
1,442,859,090
1,535,851,316
Registered office
3rd Floor, South Building, 200 Aldersgate, London EC1A 4HD
Registered Number: 6091951
SHAREHOLDER CONTACTS
Shareholder Helpline: 0871 384 2154*
(International telephone number: +44 (0)121 415 0182)
Website: www.thomascookgroup.com
Registrar’s website: www.shareview.co.uk
* Calls to this number cost 8p per minute plus network extras. Lines are open 8.30am to 5.30pm
(London time), Monday to Friday (excluding UK public holidays).
FINANCIAL CALENDAR
Date
Event
11 February 2016
23 February 2016
19 May 2016
28 July 2016
Q1 2016 Quarterly Results
Annual General Meeting
Interim results for six months ended 31 March 2016
Q3 2016 Quarterly Results
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 and Sustainability Reports
> half-year results and interim management statements
> news alerts
> career opportunities
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