ANNUAL REPORT & ACCOUNTS 2017
(cid:58)(cid:23)(cid:43)(cid:38)(cid:227)(cid:56)(cid:3)(cid:8)(cid:43)(cid:44)(cid:31)(cid:382)(cid:25)(cid:56)(cid:3)(cid:44)(cid:40)(cid:14)(cid:3)(cid:44)(cid:16)(cid:382)(cid:58)(cid:23)(cid:13)(cid:382)
(cid:67)(cid:44)(cid:52)(cid:35)(cid:10)(cid:504)(cid:55)(cid:382)(cid:34)(cid:14)(cid:227)(cid:11)(cid:25)(cid:41)(cid:19)(cid:382)(cid:58)(cid:53)(cid:227)(cid:65)(cid:13)(cid:35)(cid:3)(cid:20)(cid:52)(cid:44)(cid:61)(cid:47)(cid:55)(cid:382)
(cid:67)(cid:26)(cid:58)(cid:23)(cid:3)(cid:56)(cid:227)(cid:35)(cid:13)(cid:56)(cid:3)(cid:44)(cid:16)(cid:382)(cid:464)(cid:536)(cid:4)(cid:41)(cid:489)(cid:3)(cid:59)(cid:22)(cid:44)(cid:37)(cid:157)(cid:55)(cid:382)(cid:7)(cid:44)(cid:43)(cid:32)(cid:3)
(cid:25)(cid:56)(cid:3)(cid:56)(cid:61)(cid:47)(cid:46)(cid:44)(cid:52)(cid:59)(cid:13)(cid:11)(cid:3)(cid:5)(cid:73)(cid:382)(cid:529)(cid:529)(cid:488)(cid:527)(cid:527)(cid:527)(cid:3)(cid:8)(cid:43)(cid:35)(cid:34)(cid:14)(cid:227)(cid:20)(cid:61)(cid:14)(cid:55)(cid:382)(cid:3)
(cid:227)(cid:41)(cid:10)(cid:382)(cid:43)(cid:47)(cid:13)(cid:53)(cid:227)(cid:59)(cid:13)(cid:56)(cid:3)(cid:17)(cid:52)(cid:44)(cid:37)(cid:382)(cid:528)(cid:534)(cid:3)(cid:8)(cid:43)(cid:62)(cid:40)(cid:59)(cid:52)(cid:26)(cid:13)(cid:56)(cid:489)
190
(cid:43)(cid:68)(cid:40)(cid:481)(cid:4)(cid:53)(cid:227)(cid:41)(cid:10)(cid:382)(cid:22)(cid:44)(cid:58)(cid:14)(cid:34)(cid:56)(cid:3)(cid:3)
(cid:227)(cid:41)(cid:10)(cid:382)(cid:52)(cid:14)(cid:55)(cid:44)(cid:52)(cid:59)(cid:55)
22,000
(cid:13)(cid:38)(cid:46)(cid:35)(cid:43)(cid:74)(cid:13)(cid:14)(cid:55)
93
(cid:227)(cid:26)(cid:52)(cid:8)(cid:52)(cid:157)(cid:16)(cid:59)
20m
(cid:7)(cid:62)(cid:55)(cid:59)(cid:43)(cid:38)(cid:13)(cid:53)(cid:55)
OVERVIEW
The Group at a glance
Our culture
STRATEGIC REPORT
Our strategy
Our business model
Chairman’s statement
Chief Executive’s review
Our markets today
Customer at our heart
Progress against strategy
Our key performance indicators
Our approach to sustainability
Our people
Financial review
Risk management
01
01
02
04
04
06
09
10
14
16
18
32
33
37
40
54
GOVERNANCE
Directors’ Report
Chairman’s Governance Statement
Board of Directors
Corporate Governance Report
Other disclosures
Annual Statement by Chair of
Remuneration Committee
Directors’ Remuneration Policy
Annual Report on Directors’ Remuneration
60
FINANCIAL STATEMENTS
109
60
62
65
81
84
89
98
Independent Auditors’ Report
Group income statement
Group statement of
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
Seven-year financial summary
Shareholder Information
109
116
117
118
119
121
122
167
168
169
170
181
183
THE GROUP
AT A GLANCE
N O RTH
SEA
GROUP TOUR OPER ATOR
I R E L A N D
U N I T E D K I N G D O M
Revenue*
Gross margin %**
Underlying EBIT**
Underlying EBIT %**
11M
(cid:7)(cid:62)(cid:55)(cid:59)(cid:43)(cid:38)(cid:13)(cid:53)(cid:55)***
2017
£7,122m
15.4%
£250m
3.5%
2016
£6,646m
16.9%
£255m
3.8%
190
(cid:43)(cid:68)(cid:40)(cid:481)(cid:4)(cid:53)(cid:227)(cid:41)(cid:10)(cid:382)(cid:22)(cid:44)(cid:58)(cid:14)(cid:34)(cid:56)
GROUP AIRLINE
Revenue*
EBITDAR margin %**
Underlying EBIT**
Underlying EBIT %**
18.5M
(cid:7)(cid:62)(cid:55)(cid:59)(cid:43)(cid:38)(cid:13)(cid:53)(cid:55)***
93
(cid:227)(cid:26)(cid:52)(cid:8)(cid:52)(cid:157)(cid:16)(cid:59)
2017
£3,185m
13.3%
£115m
3.6%
2016
£2,825m
12.7%
£83m
2.9%
*
**
Segmental revenue of £10,307m does not include £(1,300)m of internal revenue,
which results in Group revenue of £9,007m.
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. This applies to all references
of ‘underlying’ in this report. Underlying segmental EBIT of £365m does not include
corporate costs of £(35)m, which results in Group underlying EBIT of £330m.
*** Segmental customers of 29.5m does not include 9.3m of internal customers, resulting
in Group customers of 20.2m.
BAY O F
BISCAY
F R A N C E
N O R WAY
S W E D E N
F I N L A N D
D E N M A R K
R U S S I A
N E T H E R L A N D S
G E R M A N Y
P O L A N D
B E LG I U M
C ZE C H
R E P U B L I C
AU S T R I A
S W I T Z E R L A N D
H U N GA R Y
C H I N A
M ED ITER R A N E A N S E A
CUSTOMER AT OUR HEART
MAKES US WHO WE ARE…
O
V
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R
V
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In 2015, we launched a pledge to put our
customer back at the heart of everything we do.
Our aim is to ensure we do all that we can to
give our customers great holidays which inspire
them to come back to Thomas Cook.
N E T PRO M OTER SCO R E
Net Promoter Score is our primary
KPI and is explicitly linked to measuring
Group and Director performance.
+9pts*
Overall Group NPS measure
2017: 45.2 (2015: 36.7)
* Increase from 2015.
+7pts*
Own-Brand Hotels and
Resorts NPS measure
2017: 38.7 (2015: 31.5)
+3pts*
Group Airline NPS measure
2017: 26.6 (2015: 23.8)
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
1
OVERVIEW
OUR CULTURE HELPS TO
MAKE US DIFFERENT…
In 2016, we launched our three Customer Promises:
Quality, Service, Reliability. These promises shape
everything we do as a business and determine
the values against which the performance of all of
our 22,000 colleagues is measured. We believe our
promises are what set us apart from the competition.
QUALITY
SERVICE
RELIABILITY
We are passionate travel experts
& have been creating great
holiday memories since 1841.
We’ll be there whenever you
need us. Our teams are available
around the world, 24/7.
We care. You can trust
us to always be open
and honest with you.
We share customer reviews
before you book to help you
choose the perfect trip for you.
We are happy to make you happy
& we promise to put you at the
heart of everything we do.
We always give you all the
information you need to make
your time away stress-free.
We listen & act on
your feedback.
Your holiday means
the world to us.
Your money’s safe
when booking with us.
Our teams & the partners we
work with are always looking
to improve to make your
next holiday even better.
We’d love to welcome you
again & are committed to sending
you home with great memories
of your holiday.
We’re ATOL protected
for peace of mind.
2
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
3
STRATEGIC REPORT
AND OUR STRATEGY IS
DRIVING PROFITABLE GROWTH…
The mantra of ‘Customer at our Heart’
sits firmly at the centre of our strategy
for sustainable growth and our vision
to be the most loved holiday company.
R A T E G Y
T
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CARE
Page 18
CONTACT
Page 20
HOLIDAYS
Page 22
SERVICES
Page 28
PARTNERSHIPS
Page 29
CIE
S A
ND STREAMLINED ORGANISATIONAL STRUCTURE
4
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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OUR PROGRESS IN 2017
> 24-hour quality promise
> In-resort resolution for
carefree holidays
> Expert crisis management
> High health & safety standards
> Group Net Promoter Score up by nine points
since 2015
> 24-Hour Hotel Satisfaction Promise extended
to reach 80% of sun & beach customers
in core hotels
> Annual health and safety audits on all core hotels
> Direct personal engagement
> Web penetration
> Seamless CRM
> Rich content
> Controlled distribution now 68%
> Webshare up 3 percentage points to 46%
> UK web sales up 27% and Germany up 22%
> 1.7 million companion app downloads
> Richer online content for greater inspiration
with 112,000 new images, 1,200 new room
plans and 520 new hotel videos
> Thomas Cook Hotels & Resorts
for unique experience
> Selected high-quality partner hotels
> Own Airline
> Own-brand hotels sales up 10% for the summer
> Moving towards fewer, better quality differentiated
hotels – a further 310 removed for summer 2018
> Airline seat-only sales up by 16%
> Personalised added-extras
> Ancillary sales up a further 10%, reflecting
& ancillaries
more personalised offers
> Thomas Cook Money
> Launch of Thomas Cook Money to expand
financial services offering
> Thomas Cook China with Fosun
> Strategic partnerships
> Leveraging our brand
> Strong first year for Thomas Cook China,
growth targets on track
> Completed complementary hotel strategy
with Expedia alliance and Webjet partnership
See more on page 30
THE RESULT
Increasing
customer
loyalty and
attracting new
customers
OUR VISION
To be the
most loved
holiday
company
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
5
STRATEGIC REPORT
WITH A BUSINESS MODEL FOCUSED
ON THE CUSTOMER JOURNEY
Our business model reflects the customer
journey from dream to experience.
DREAM
SHARE
RETURN
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EXPERIENCE
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OUR OWN-BRAND
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BOOK
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CUST O
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DEPART
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A IR LI N ES
TR ANSFER
PEOPLE
Attracting, retaining and
developing our people is critical
to putting customers at the
heart of what we do.
TECHNOLOGY
Technology underpins all of our
processes and is key to how
we create value; from our IT,
our customer digital channels
or our airline efficiency.
ENVIRONMENTAL RESOURCES
How we manage our operations
and its use of environmental
resources is important to both
our financial success and our
impact on the environment.
See more on page 37
See more on page 35
See more on page 33
6
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
SHARE
DRE AM
RETURN
PL AN
EXPERIENCE
BOOK
TR ANSFER
DE PART
THE CUSTOMER JOURNEY
Our customers’ journey doesn’t start in the airport. It begins with the first
holiday inspiration online or in a store, through to planning and booking their
time away, to the experience on holiday with us and then the memories
they carry with them afterwards. We are building closer relationships with
our customers throughout this cycle to increase loyalty and inspire more
customers to holiday with Thomas Cook.
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IN-DESTINATION MANAGEMENT
AND CUSTOMER REL ATIONS
Our customer teams are integral to our business and the
holiday experience that we give our customers. We believe that
the strength of the relationship we build with the customer is
what sets us apart in a crowded market. Customer Relations
and In-Destination Services – our teams on the ground in resort
– build and maintain relationships so that our customers enjoy
the best of Thomas Cook.
OUR CUSTOMER CHANNELS
Putting the customer at the heart of our business also means
building direct contact with customers, whenever and wherever
they want to interact with us. This includes developing our
websites to offer a better online experience, as well as maintaining
a network of profitable stores to attract, inspire and engage our
customers. The customer insight we have built up over the years,
along with the trust there is in the best brand in travel, shapes
the approach we take to every customer contact.
OUR OWN-BR AND AND
SELECTED PARTNER HOTELS
It is through our holiday offering that we
generate, preserve and capture value.
We focus our holiday offering on our own-
brand hotels and resorts, supplemented by
a defined portfolio of selected partner hotels.
By concentrating on a streamlined portfolio
of hotels, we are able to have a greater
influence on the customer experience, driving
better customer loyalty and recommendations
while delivering higher margins.
OUR AIRLINE
We recognise that the flight to and from the
destination is an integral part of the holiday
experience. Control of our own Airline gives
us influence over the on-board experience
and enables us to create value through sale
of additional in-flight services. The sale of
seat-only airline tickets maximises revenue
from the assets that we control.
ADDED -VALUE SERVICES
To supplement the value that we create
through our holidays, we offer a choice of
additional travel-related services to our
customers, including airline seat sales,
meals on board, transfers and excursions,
as well as holiday-related financial services.
Sales of these services give customers
the opportunity to personalise the holiday
experience and create additional returns
for the business.
STR ATEGIC PARTNERSHIPS
We will enter into strategic partnerships
where we have the opportunity to
streamline our business while also tapping
into new markets or widening our offer
to customers. Our strategic partnerships
also enable us to leverage the trust and
heritage of the Thomas Cook brand.
OUR PARTNER AIRLINES
We partner with other airlines to maximise
the choice for our customers, increase
flexibility in our operations, and manage
our fleet more effectively.
OUR COMPLEMENTARY
HOTEL PARTNERSHIPS
Partnerships with Expedia and Webjet
to outsource the production of our
complementary hotel offering allow us
to provide our customers with a broad
choice of hotels at the lowest possible
cost. This approach means we can focus
on creating maximum value in the holidays
to our directly-contracted own-brand
and selected partner hotels.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
7
STRATEGIC REPORT
HIGHLIGHTS
OF THE YEAR
FI N A N C I A L H I G H LI G HTS
9.3p**
Underlying EPS
£330m**
Underlying EBIT
22.1%**
Underlying gross margin
£12m
Profit after tax
B U S I N ES S H I G H LI G HTS
A strong recovery in Condor,
our German airline
Our second Casa Cook
hotel in Kos
Strategic partnerships which transform
our opportunity for growth
O U R B U S I N ES S BY S EG M E NTS
Revenue*
Underlying EBIT**
Customers***
Group Tour Operator
Group Airline
£7,122m
£250m
11m
£3,185m
£115m
18.5m
* Segmental revenue of £10,307m does not include
£(1,300)m of internal revenue, which results in
Group revenue of £9,007m.
*** Segmental customers of 29.5m does not include
9.3m of internal customers, resulting in Group
customers of 20.2m.
** 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. This applies to all references of
‘underlying’ in this report. Underlying segmental
EBIT of £365m does not include corporate costs
of £(35)m, which results in Group underlying
EBIT of £330m.
8
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
CHAIRMAN’S
STATEMENT
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The progress the business made operationally should
be seen alongside a number of very significant steps
the Group took in 2017 to better position the business
for the future.
In September, the business secured what promises to
be a ground-breaking alliance with Expedia. Meanwhile,
a new strategic partnership with Swiss hotel property
development company, LMEY Investments, establishes the
launch pad to develop and grow Thomas Cook’s portfolio
of own-brand hotels, key to the successful delivery of the
Group’s profitable growth strategy.
Reflecting the Board’s support for the progress that
has been made in the last year and its confidence in
the strategy, the Board has recommended that we pay
a dividend to Shareholders of 0.6 pence per share.
Moving onto the business of the Board, we were
pleased to welcome two new Non-Executive Directors
in July, Jürgen Schreiber and Paul Edgecliffe-Johnson.
Jürgen brings a breadth of international experience
across retail and consumer goods including Chief
Executive roles in both a publicly-listed company and
large private companies. Paul, meanwhile, as CFO
of InterContinental Hotels Group (IHG), brings deep
experience of the global hotel industry to the Board.
In January 2018, we will also welcome a new Executive
Director to the Board when Bill Scott takes over from
Michael Healy as CFO following Michael’s decision to
retire. I look forward to Bill supporting us through the
next phase of the Group’s development and would like
to thank Michael for the very significant contribution he
has made to the financial health of the Group in his six
years with the business. I am pleased that he has agreed
to continue his involvement in the business through
non-executive leadership roles in Thomas Cook China and
Thomas Cook Money, two important areas of potential
growth for the Group.
We are at an exciting point in the development of this
company as we pursue our unique strategy to focus on
our core holidays and streamline the business, while at
the same time partnering with the best in the industry to
offer customers a greater choice. On behalf of the Board,
I would like to thank Peter Fankhauser, CEO, and every
one of the 22,000 colleagues across the business for their
commitment and hard work in the past year. I would also
like to thank all of our Shareholders for their continued
support as we transform Thomas Cook for the future.
FR ANK MEYSMAN
CHAIRMAN
21 November 2017
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
9
2017 has been a year of considerable strategic progress
at Thomas Cook. In what remains a highly competitive
environment – one that has contributed to the collapse
of a number of competitors in the last 12 months –
Management’s focus on executing its strategy for
profitable growth has delivered good results for the year,
and set the business on a clear path for sustainable
growth in the years to come.
“ We are at an exciting point in the
development of this company as we
pursue our unique strategy to focus
on our core holidays and streamline
the business, while at the same time
partnering with the best in the industry
to offer customers a greater choice.”
After five years of hard work to reposition Thomas Cook,
there is a real sense of energy and momentum in the
business – and tangible evidence of execution.
Despite the competitive backdrop, the Group delivered
an £28 million increase in underlying operating profit
to £330 million, an eight per cent increase year-on-year,
and net profit of £12 million, the third consecutive year
of positive net profit after tax. We also took further steps
to strengthen the balance sheet. Debt was reduced
by another £89 million in the year, and the business
has signed new financing arrangements amounting
to £975 million. This builds on the work the Group has
done over the last five years to progressively improve
the terms and maturity of its debt to provide it with
greater flexibility and a more robust capital structure
over the medium term.
STRATEGIC REPORT
CHIEF EXECUTIVE’S
REVIEW
“Our focus on the customer drives
every decision that we take in the
business, from the hotels that we
sell every season and the service
promises that we make, through to
the destinations we fly to. But it
also determines the big decisions
that we take about the business
we want to be in the future.”
PETER FANKHAUSER
CEO
10
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
2017 has been a good year for Thomas
Cook. The actions we took on strategy
in the last 12 months have transformed
the scale of the opportunity ahead
for the Group while at the same time
delivering strong growth in demand,
as more customers from across our
markets chose our modern package
and flight offer for their hard-earned
weeks in the sun.
The very deliberate decision that we
made two years ago to put the customer
back at the heart of our business is now
bearing fruit. Strong customer demand
for our improved holiday offering helped
increase revenues by 9 per cent in the year.
This combined with an improved performance
in our German Airline, Condor, to deliver an
underlying operating profit of £330 million,
an 8 per cent increase year-on-year. That we
achieved this growth in a highly competitive
environment shows how much more resilient
we are as a business than even a few
years ago.
Most importantly, we know that customers’
experience of their holidays with Thomas
Cook is getting better all the time. Our Net
Promoter Score – or NPS – which is the
primary indicator of customer satisfaction
and the metric we look at before anything
else, has increased by nine points over
the last two years. This reflects continued
growth in every one of our significant
markets in 2017.
Our focus on the customer drives every
decision that we take in the business, from
the hotels that we sell every season and
the service promises that we make, through
to the destinations we fly to. But it also
determines the big decisions that we take
about the business we want to be in the
future. It is perhaps there that we have made
the most progress in the past 12 months.
TR ANSFORMING OUR
OPPORTUNIT Y FOR GROW TH
The strategic alliance that we signed in
September with Expedia, outsourcing
our city and domestic hotels business
and using Expedia technology, will
transform the way in which we work.
By attracting one of the best operators
in the travel industry, we will be able to
offer a much greater choice to customers,
at lower cost and complexity to us. This,
in turn, will allow us to focus on holidays
to our own-brand and selected partner
hotels in sun & beach destinations where
we know we can really set ourselves
apart from the competition.
Our partnership with LMEY reinforces
that strategy, paving the way for the
creation of a joint hotel investment
platform which will enable us to super-
charge our portfolio of own-brand
hotels and resorts.
This will give customers an even greater
choice of high-quality hotels to suit
their needs, hotels that are unique to
Thomas Cook, and achieve higher levels
of customer satisfaction and earn better
margins than the portfolio average.
Another example of a successful
partnership is Thomas Cook China, our
joint venture with Fosun, which is growing
fast in a rapidly expanding market,
taking 20,000 bookings in its first year
of operations. Our focus on developing
strong partnerships with big technology-
led players in the Chinese market, like
Alibaba, gives us access to a big customer
base, while our tailored holiday offering
means we can differentiate ourselves in
a competitive environment.
Meanwhile, the launch of Thomas Cook
Money builds on our long heritage in
financial services to offer customers across
our source markets new and simpler ways
to plan, save, borrow and spend their
holiday money, all supported by innovative,
easy-to-use technology.
Each of these developments represent
an important step forward in delivering
our strategy for profitable growth.
Taken together, they transform the
opportunity ahead for the Group.
S
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CARE
Of course, the big strategic moves are only
relevant if we continue to do all we can to
ensure that every customer has the best
experience on holiday with Thomas Cook.
It is here where I believe that we have the
biggest opportunity to differentiate our
holidays from the competition – in the care
and the reassurance that we provide.
In the last year, we have extended our
24-Hour Hotel Satisfaction Promise to more
than 2,000 hotels, giving 80% of customers
who book a sun & beach holiday with
Thomas Cook the reassurance that if a hotel
is not as we described it, we will sort out
the issue or offer to move the customer
to another hotel of the same standard
within 24 hours. This represented a bold
move when we introduced it for summer
2016, one which is now paying off with
customer satisfaction on average 12 points
higher in those hotels with the 24-Hour
Hotel Satisfaction Promise than the rest
of the portfolio.
We continue to innovate to broaden our
appeal – and increase customers’ ability
to personalise their holiday – with the
launch of a ‘Choose Your Room’ option.
Available in 300 of our core hotels for
summer 2018, this is another industry first
for a ‘traditional’ tour operating business
and shows how we are evolving to capture
greater opportunities.
Another area where we have made big
changes is in the way in which we talk
about risk to customers. We operate in a
market where disruption, whether from
natural disaster, political changes or terror
attacks, can affect many of our customers
and our operations. We are not a security
company but we know that what we can
do is to be as transparent as possible about
potential risks – whether that’s through
customer-friendly blogs or clear links to
the latest government advice – so that
the customer can make up their own mind
about whether to travel. I am proud of how
far we have come.
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STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW
CONTINUED
We have also taken a leading role in
bringing the industry together on the issue
of health and safety. In September, the Safer
Tourism Foundation, the independent charity we
set up with Sharon Wood, the mother of Christi
and Bobby Shepherd, launched a pledge which
articulates a new approach to customer health
and safety within the industry. This has already
been signed by seven major travel companies
in a move that we believe will promote greater
collaboration to achieve practical change for
the benefit of all customers.
In our UK business, we have faced a specific
issue this year related to a dramatic surge in
illness compensation claims, many of which
we believe to be fraudulent. Our presence in
destination through our resort teams and our
rigorous focus on hotel quality means we are
continually improving standards and can take
care of those who fall ill, but we must also
protect our customers from dishonest illness
claims which threaten the price and availability
of all-inclusive holidays. We have made good
progress highlighting these false claims in
the courts, in the media and to government,
which we hope will lead to substantive
changes in legislation, including the way
the claims industry is regulated, in time for
summer next year.
We know that our approach to care needs also
to encompass the wider environment in which
we operate, at home and abroad. To this end,
this year we introduced a new animal welfare
policy, becoming the first major travel company
to commit to remove from sale any animal
attraction that is found not to be fully compliant
with the ABTA Global Welfare Guidance for
Animals in Tourism. This is a bold step which
demonstrates our commitment to change.
CONTACT
Our customer focus also extends to
developing direct contact with customers
in order to strengthen our relationships
and provide more personalised services.
This starts with providing rich, inspirational
content on our websites and this year we’ve
added over 110,000 images and 1,200 room
plans to better engage our customers.
The investment we’ve made in our websites
has helped grow our online bookings with
the strongest growth in the UK, up 27 per
cent in 2017. Across the Group, we now
achieve 46 per cent of all sales via the web,
up three percentage points on last year.
In this context, we continue to reshape our
retail store network to ensure we are well-
positioned to meet the changing customer
needs. In the UK, the Co-operative’s exit from
our retail joint venture has enabled us to
take full control of our store portfolio, and
in Germany, we’ve signed 92 new agency
agreements to increase the proportion of
direct sales.
OWN-BR AND HOTELS AND
RESORTS AND SELECTED
PARTNER HOTELS
Of course, the other area where we can
genuinely differentiate ourselves is in the
holidays we offer and, most importantly, our
ability to provide customers with holidays
that are unique to Thomas Cook. To this end,
we have gradually been streamlining our
portfolio of hotels to focus the majority of our
business on 3,000 properties where we know
we can have a higher degree of influence
over the quality and service standards.
Our own-brand hotels and resorts are central
to the success of this strategy. These enable
us to provide customers with a consistent
and high-quality holiday, whatever their needs,
delivering higher satisfaction scores and
higher margins than the portfolio average.
With the arrival this year of Ingo Burmester,
who ran the successful Robinson brand for
TUI, we are now building a hotel management
company inside Thomas Cook under his
leadership, with the aim of growing the size
of the portfolio and strengthening our brands.
We made further progress in the year with
11 new openings in summer 2017, including
our second Casa Cook in Kos and a new
Sunwing Ocean Beach Club in Cyprus.
We also added a seventh brand to the
portfolio in the form of Aldiana, the premium
club-based activity format, through an
acquisition of a 42 per cent stake in the
business as part of a wider partnership
agreement with LMEY. At the same time,
we have continued to rigorously manage
the portfolio for quality, removing hotels
where they don’t meet our standards. I feel
very optimistic about the future growth
prospects for this part of our business in
the coming year as we work to identify
new properties and build up our pipeline.
AIRLINE
Another element of our holiday offering where
I feel optimistic is our airline. Over the last four
years, and in a very competitive market, we’ve
transformed it from four essentially separate
airlines whose primary task was to transport
our tour operator customers, to one airline
group with an increasingly successful seat-
only business, particularly on long-haul routes,
and its own distribution channels. In doing so,
we have created Europe’s third-largest airline
to sun & beach destinations which competes
wing-to-wing with the low-cost carriers,
and Europe’s sixth-largest long-haul carrier
with an expanding range of destinations
and a compelling customer offer.
We have now formalised the work Management
has undertaken to create one Group airline,
by separating its reporting and legal structure.
This is the logical next step which reflects the
way we think about the airline business within
the Group; from our airline being the primary
transport for the tour operator to becoming
a leisure airline in its own right, with its own
commercial relationships, distribution channels
and growth targets – while sharing the Group’s
absolute focus on giving our customers the
best possible experience of Thomas Cook.
PARTNERSHIPS
We are very clear in our strategy for profitable
growth that we will focus our attention and
resources on a number of key areas where
we can genuinely be different from the
competition. This approach is complemented
by a series of partnerships which enable us to
streamline our operations, while also tapping
into opportunities for growth.
The strategic alliance with Expedia agreed at
the end of this year to outsource our city and
domestic hotel business, while harnessing their
technology for our hotel-only offering, is the
most significant of those partnerships agreed
during the year. This, combined with the deal
we agreed in 2016 to outsource the sun & beach
hotels which sit outside of our core portfolio
to Webjet, completes our complementary hotel
strategy and positions us for growth in this area
of the business at the lowest possible cost.
However, we also made good progress in Thomas
Cook China, a joint venture with Fosun launched
September 2016. A full-service travel company, in a
fast-expanding market, our China business booked
20,000 customers in its first year. Our ambition
in 2018 is to grow that number tenfold.
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OPER ATIONAL EFFICIENCIES
The strategy we are executing sets out a
clear path to profitable growth. But it also
results in a business which is much simpler
with a leaner organisational structure. We’re
working to remove duplication from across
the business and to align processes to fit
the new shape of Thomas Cook.
In this respect, the new strategic alliance
with Expedia, and the execution of the
Webjet agreement, effectively outsourcing
our complementary business, is a catalyst
for the next stage in the transformation of
the business. I believe it will enable us to
realise significant cost savings and remove
further layers of complexity in our systems
and processes.
CONCLUSION
In summary, Thomas Cook has made
significant progress in 2017. We operate in an
industry that is constantly changing, impacted
by events that are often unpredictable and
regularly beyond our control. The companies
that succeed are those that are operationally
flexible and which can anticipate shifts in
customer demand.
The fact that we have successfully managed
through a competitive environment while
at the same time taking big decisions that
will strengthen our position for the future is
testament to the hard work and engagement
of our 22,000 people around the globe. They are
the ones that make this company different,
focusing on every detail to make our customers’
experience of our holidays even better.
Looking across the Group, I see real
momentum behind our strategy for
profitable growth. The actions we have
taken in the last 12 months accelerate the
transformation of Thomas Cook into a truly
modern, streamlined travel company with
the customer at the heart of everything that
we do – for the benefit of our customers,
our people and our Shareholders.
PETER FANKHAUSER
CEO
21 November 2017
THE SAFER TOURISM
FOUNDATION PLEDGE
> We are fully committed to the aim of the Safer
Tourism Foundation to improve the health and
safety of tourists when they are on holiday
> We will do all we reasonably can to provide a
safe and healthy environment for our customers
when they go on holiday with us
> We will use our influence on our partners overseas
to improve health and safety standards for
our customers
> We will engage with our customers throughout
their customer journey to ensure they have
access to the information they need to help keep
themselves and their families safe and well
> We will encourage our customers to be aware of
the health and safety risks that they may face
on holiday and how they can reduce the risks
to themselves
> We will act promptly when customers raise
genuine health and safety concerns, to reduce
the risks to them and to future travellers
> We will share our expertise and anonymised data
with other organisations that want to work with
us to improve the health and safety of tourists
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STRATEGIC REPORT
OUR MARKETS TODAY
ECONOMIC ENVIRONMENT
For six consecutive years, the Travel &
Tourism sector has outperformed the global
economy. The 10-year forecast from the
World Travel and Tourism Council anticipates
this trend to continue, with average growth
of 3.9 per cent per year, versus a forecast
of GDP growth of 3.8 per cent.
In addition, package holiday bookings are
forecast to outgrow independent travel
over the next four years as consumers
look for ways to make their leisure spend
go further. Mintel estimates that package
travel in the UK will grow by 28.5 per cent
by 2021, compared with independent travel
which is forecast to grow by 17 per cent.
International tourist arrivals increased
by six per cent in the first half of 2017
compared with the same period in 2016
and significantly above the four per cent
annual growth since 2010. According to
the UNWTO, Mediterranean destinations
reported particularly strong growth in
international tourist arrivals in the first half
of 2017. This trend is driven by the continued
strength of many destinations in the area,
combined with a significant rebound in
destinations that suffered decreases in
previous years, such as Turkey, Egypt and
Tunisia. The rebound is thanks in part to
a more stable geopolitical environment
in these countries in 2017 versus the
disruption of 2016.
Overseas visitors to Turkey and Egypt
increased by 25 per cent and 51 per
cent respectively compared with 2016.
The UK Government’s decision to lift its
recommendation against travel to Tunisia
in July 2017 is a further sign of positive
development in the region. Overall, countries
within Europe saw an eight per cent rise
in international tourism arrivals in the first
six months of the year.
Within our source markets, the OECD
estimates that the Eurozone will grow by
1.9 per cent over 2018, with Germany, our
largest Eurozone source market, just ahead
at 2.1 per cent. UK GDP is expected to rise
by one per cent, while Sweden, Denmark
and Norway are forecast at 2.3, 2.1 and
1.5 per cent respectively.
POLITICAL AND REGUL ATORY
ENVIRONMENT
We expect Brexit to impact the regulatory
framework in which we operate for both
our UK business and our wider Group
operations, and we are actively planning
and preparing for this. Most importantly, the
UK’s current membership of Europe’s Single
Aviation Market will change upon the UK’s
withdrawal from the EU, as will the UK’s
access to EU employment markets, including
the country’s ability to place temporary
workers in EU Member States without
additional barriers.
With regards to maintaining access to
the Single Aviation Market, we continue
to make the case for the extension of
existing aviation arrangements through
a transitional agreement that retains the
current framework. This would provide
welcome certainty for customers and
businesses alike. Having already begun the
sale of flights and holidays in the post-Brexit
era, we now require urgent clarity from
the UK Government and EU institutions on
a transitionary agreement. We continue to
make the case for a comprehensive EUUK
air transport agreement in the longer-term.
We are working with UK and EU
governments to highlight the benefits of the
Posted Workers Directive and to advocate
that these benefits are replicated in a future
trade agreement, or bilateral arrangements
between the UK and EU Member States.
Within the UK, the issue of fraudulent
holiday sickness compensation claims
threatens both the cost and availability of
all inclusive holidays for our UK customers.
We have worked with the government to
highlight the prevalence of fraud within the
sickness claims industry, both directly and
through the media, as well as pressing the
case for effective regulation of the claims
management companies which encourage
customers to make claims – and in many
cases encourage fraudulent activity.
International tourist arrivals (m)
Number of visits abroad by UK residents (thousands)
1,200
1,000
800
600
400
200
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
Total holidays
package holidays
1990
1995
2000
2005
2010
2015
2016
2010
2011
2012
2013
2014
2015
2016
Source: UNWTO Tourism highlights 2017 Edition.
Source: Office of National Statistics.
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We welcome the UK government’s call
for evidence on the topic in October 2017
and the passage of the Financial Guidance
and Claims Bill, both of which we are
monitoring closely and contributing to
where appropriate.
The European Package Travel Directive
will be implemented across the EU
from 1 January 2018, with full compliance
by 1 July 2018. We welcome that the
implementation of the Directive will
help to bring a level playing field for
travel businesses selling ‘linked trips’
incorporating a flight and a hotel booking.
We are working with the EU to make
sure that the measures are implemented
consistently across our markets and that
customers have clarity on the protections
that the Directive brings.
In February 2017, the European Union
Competition Commission launched an
investigation into the travel industry
regarding hotel accommodation agreements
with a focus on the availability of hotel
bookings and pricing between member
states. Thomas Cook is committed to fair
and open competition and will cooperate
fully with the Commission through
the process.
Since current data protection legislation
was introduced, our use of technology
has changed the way we use and process
personal data. In May 2018, the General Data
Protection Regulation (GDPR) will come into
effect. This will bring legislation up to date
with the new, previously unforeseen ways
that data is now used and will harmonise
data protection rules and requirements
across the EU. We are implementing
changes to ensure that the personal data of
our customers and employees is protected
effectively and consistently across the
business and that both our customers
and employees have transparency on how
their data may be used by Thomas Cook
and the protections that the GDPR brings.
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STRATEGIC REPORT
CUSTOMER AT
OUR HEART
‘Customer at our Heart’ is the cornerstone of our
strategy for profitable growth. Our desire to create
a genuinely customer-centric organisation shapes the
way in which we think about the culture of the business
and the values by which we work. It continues to act
as a powerful catalyst for change and we believe it is
where we have the biggest opportunity to differentiate
ourselves from the competition.
We know that happy customers are more likely to
come back to Thomas Cook and to recommend us to
their friends. As customer loyalty increases, our cost
of sale goes down as customers choose Thomas Cook
because of our reputation rather than our marketing.
We also know that on average customers that return to
Thomas Cook spend more with us than new customers,
reflecting their increased trust in our holiday offering.
Operationally, we focus our Customer at our Heart
strategy in two areas: the care and reassurance
we provide to our customers, set out in our three
Customer Promises of Quality, Service and Reliability;
and the contact we maintain with customers,
ensuring that we are accessible however they
choose to interact with us and forming long-lasting
relationships throughout the year.
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PROGRESS AGAINST STRATEGY
CARE
We believe that the biggest opportunity we have
to differentiate a Thomas Cook holiday from the
competition is in the level of care and reassurance
that we provide to our customers.
That principle of customer care informs the approach
that we take across the business; our colleagues who
offer advice and customer service before, during and
after their holidays; the quality assurance that our teams
in resort provide through the formation of deep, long-
lasting relationships with our hotel partners; and the
assistance we offer if something goes wrong – from
individual incidents of hotel snags right through to
emergency evacuations in crisis situations.
In a sign of our commitment to drive meaningful
change in customer satisfaction across the business,
we created a Group Customer Experience Team in 2015.
Bringing expertise from across our source markets and
in-resort teams, the team drew up a structured four-
year plan with the objective of delivering outstanding
customer experience and differentiating Thomas Cook
as the most loved holiday company.
In year one, their focus was on fixing the basics by
identifying the key drivers of customer satisfaction
and implementing NPS as the single KPI for customer
satisfaction and one of the key metrics of business
performance across the Group.
Year two involved delivering the priority improvements
identified, and introducing the voice of the customer
via customer feedback into our plans for the future.
We are now in year three of our plan, which is all about
leveraging customer care as a genuine differentiator for
our business. We have introduced new organisational
values across the Group which properly reflect our
priorities as a holiday company: ‘We put our heart into
it’, ‘Wear their flip flops’ and ‘We’re one Thomas Cook’.
These are directly linked to our Customer Promises of
Quality, Service and Reliability respectively. See overleaf
for more details.
OUR PROGRESS IN 2017
We are now seeing evidence of the direct link between
NPS uplift and rebooking rate. Our data demonstrates
that the hotels which score highest in NPS achieve
not only a higher rebooking rate, but also attract
more new customers to Thomas Cook, showing that
customer advocacy is playing an increasingly important
role in the growth of our business.
N E T PRO M OTER SCO R E
+3pts*
Group Airline NPS measure
2017: 26.6 (2015: 23.9)
+9pts*
Overall Group NPS measure
2017: 45.2 (2015: 36.7)
+7pts*
Own-Brand Hotels and
Resorts NPS measure
2017: 38.7 (2015: 31.5)
* Increase from 2015.
Our Academy of Excellence, established to work with our
hotel partners to help them maintain the highest standards
of customer service and quality at our hotels, is now in
its third year. In 2017, it helped implement over 650 quality
improvement plans with hoteliers, contributing to a rise in
NPS across our core hotel portfolio this year.
For summer 2017 we extended our 24-Hotel Satisfaction Promise
to cover 2,000 hotels in our core portfolio of own-brand and
selected partner hotels, giving 80 per cent of our core sun &
beach holiday customers additional reassurance of quality and
service. We plan to increase the roll out to cover 100 per cent of
customers on holiday in our core portfolio of 3,170 hotels in 2018.
We have also succeeded in increasing the proportion of
complaints that we have been able to resolve in resort
before customers come home. The result is that customers
come home happier, while we spend less on customer
relations in our source markets.
There is more to come as we introduce new ways to
increase loyalty and attract new customers to Thomas Cook.
New innovations for summer 2018 include the ability to
pre-book a specific hotel room based on detailed floor plans
and imagery.
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GA M B I A
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January is a popular time for holidays
to the Gambia, which offers reliable
winter sun in a beautiful African setting.
Unfortunately, political instability following
a disputed election caused the UK Foreign
Office in January 2017 to change its
travel advice for this small West-African
nation, recommending against all but
essential travel.
We had been monitoring the situation for
some weeks and maintaining close contact
with the Foreign Office to understand what
impact the escalating tension could have on
civil stability. With just one airport and an
unfavourable mountainous geography, we
knew that we had to act early to position
aircraft and crew in the region so we had
the operational flexibility to evacuate our
customers at short notice should the
situation deteriorate.
Before the UK Government changed the
travel advice, we had already drawn up
a logistics plan in anticipation of the
situation escalating. Aircraft capacity and
crew availability were earmarked for a
potential full evacuation, as were Special
Assistance Team members willing to travel
to the Gambia in support of a potential
ground operation. That meant that when
the change in advice came, we were ready,
sending extra flights directly from the UK,
on top of the existing scheduled flights
which we sent in empty. We also operated
reserve aircraft based in the Canary Islands
and used Las Palmas in Gran Canaria as a
bridgehead, switching crew and refueling
as necessary. This shorter flight time from
Banjul to the Canary Islands allowed for
an increased number of rotations and an
accelerated evacuation process.
PAUL HUTCHINGS
MANAGING DIRECTOR OPERATIONS
THOMAS COOK AIRLINES UK AND GROUP
DIRECTOR OF FLIGHT OPERATIONS
We provided all of our package
holidaymakers and our seat-only airline
customers with a seat on a rescue flight
home, in total repatriating 3,500 customers
in three days with 16 rescue flights.
Our Airline gives us the responsiveness
to evacuate our customers when they
most need us, while our world-class In-
Destination Management teams, supported
by our trained Special Assistance Team,
offer support to our customers on the
ground. We believe that it is this ability
to offer our customers the reassurance
that we will be there when things go
wrong which differentiates us from
the competition.
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STRATEGIC REPORT
PROGRESS AGAINST STRATEGY
CONTACT
Putting our customers at the heart of the
business means building a closer relationship
throughout the year, wherever and whenever
our customers want to engage with us.
OUR PROGRESS IN 2017
Over the course of the year, we added more than 112,000
images to our website, 1,200 room plans and 520 hotel
and destination videos to further enrich our websites
and inspire our customers.
We also created a single content hub to better distribute
our content across all of our online channels and leverage
the Group’s marketing assets on a larger scale.
These investments in our websites have led to strong
growth in online bookings for our major markets. Overall,
the share of sales generated through the web increased
by another 3 per cent across the Group, meaning we now
take 46 per cent of bookings online.
In Germany we grew web bookings by 21 per cent, in the UK
by 27 per cent and in Scandinavia, by a further 7 per cent
so that 81 per cent of sales are now made online. We have
also made progress in mobile with 45 per cent of online
bookings in the UK accounted for by mobile devices, split
equally between mobile and tablet.
As online grows we have further reshaped our retail
network in the UK, introducing nine ‘Discovery stores’,
larger stores in higher footfall areas, to broaden our reach
as we continue to reduce the number of stores, which
this year fell from 790 to 692 outlets.
Our mobile companion app, now live in Germany, Northern
Europe and the UK, has been downloaded 1.7 million
times, strengthening the direct relationships with our
customers, improving their holiday experience and
generating increased sales of added services.
This focus on improved customer contact has increased
direct distribution across the Group by one percentage
point to 68 per cent.
From the way we persuade our customers to come to us
first, how we sell them our flights and holidays, through
to how we retain and strengthen that relationship,
we are building seamless contact with our customers
throughout their holiday journey.
This includes developing rich, inspirational content that
stands out in a crowded online marketplace and will
grab customers’ attention to drive higher conversion.
By investing in our websites, we can grow our online
presence and reshape our retail estate to create a
true omni-channel approach to how we sell our holidays.
To stay close to our customers, we are building world-
class customer relationship management, including
improving our personalised interaction with customers in
the period running up to their holiday through a holiday
companion app.
This direct contact with customers through the channel
of their choice, be that in-store, through our customer
contact centres or online, means we can drive loyalty and
increase sales of tailor-made services which add value
to our customers’ holidays and increase satisfaction
scores, while at the same time lowering cost of sale
and achieving higher margins.
INSPIRING OUR CUSTOMERS
112,000
(cid:25)(cid:38)(cid:227)(cid:20)(cid:13)(cid:56)(cid:3)(cid:157)(cid:10)(cid:11)(cid:13)(cid:11)(cid:3)(cid:59)(cid:43)(cid:382)
(cid:58)(cid:23)(cid:13)(cid:382)(cid:67)(cid:14)(cid:4)(cid:56)(cid:25)(cid:59)(cid:13)(cid:382)
1.7m
(cid:10)(cid:44)(cid:67)(cid:41)(cid:34)(cid:44)(cid:227)(cid:11)(cid:55)(cid:382)(cid:43)(cid:17)(cid:3)(cid:3)
(cid:43)(cid:62)(cid:52)(cid:382)(cid:37)(cid:44)(cid:4)(cid:26)(cid:34)(cid:14)(cid:3)(cid:157)(cid:46)(cid:47)
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R ES H A PI N G O U R CO NTAC T
W ITH CU S TOM E R S I N TH E U K
K ATHRYN DARBANDI
K A
DIR
DIRECTOR OF RETAIL AND CUSTOMER
E XP
E XPERIENCE AT THOMAS COOK UK & I
This year we’ve seen a big increase in
mobile bookings from our UK customers,
which now account for 45 per cent of
online bookings, up from 40 per cent last
year. It’s part of a clear shift in the way our
customers research and book their holidays
which has helped increase online bookings
from 43 per cent of our Group sales to
46 per cent this year.
We are adapting to this changing behaviour
by investing in our websites and the way
we attract customers online, and this
year UK digital sales overall increased by a
further 27 per cent on top of the 9 per cent
growth we achieved in 2016. While we’re
pleased with the progress we’re making,
we also need to make sure we’re giving
customers a seamless experience of
Thomas Cook wherever they choose
to interact with us – be that in person
or online.
It’s clear that our shops remain an
important channel through which we can
showcase the best of our holiday offering,
as well as provide the expertise and
reassurance that many customers value
as part of their largest annual purchase.
Our 2017 UK Holiday Report showed that
two-thirds of customers still come into
stores to speak to our experts before
booking their holiday, while 47 per cent of
our holidays are still booked in our shops.
At the start of this financial year we
took two important steps to meet those
changing customer needs. First, we took
full control of our all our UK stores after
announcing that we would buy the Co-op
out of our retail joint venture, allowing us
to move to one single Thomas Cook brand.
Second, we took the decision to refocus
our store network into two key formats
to make sure we’re offering our customers
the best of a 21st Century travel company;
larger stores in higher footfall areas like
shopping centres and retail parks, and
smaller stores in traditional high street
locations. Over the past 12 months, we’ve
refurbished or rebranded 51 stores and
closed 101 stores meaning we’ve now cut
the size of our network by 45 per cent in
the past five years to 692 stores, with
many of the closures in areas where there
was a geographic overlap between the
Thomas Cook-branded shops and
Co-operative Travel branded shops.
In this financial year we’ve increased
revenue in the UK by three per cent, thanks
in large part to the work we’ve done online.
Despite closing 101 stores at a cost saving
of £12 million, our retail sales have remained
broadly flat. Crucially, we’ve increased the
proportion of the holidays we sold through
our own channels by a further 1.5 per cent
to 83.5 per cent – evidence that we’ve
improved contact with our customers
whenever and wherever they need us.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
21
STRATEGIC REPORT
PROGRESS AGAINST STRATEGY
OUR HOLIDAYS
Of course, it is the quality and range of our holidays that
determine the success of our business. We want Thomas Cook
customers to trust us to provide a range of consistently
high-quality hotels which provide excellent value for money.
We rigorously track the performance of every one of
these hotels using customer feedback. If they fall short,
we take them out of the portfolio.
OUR PROGRESS IN 2017
We continued to innovate to improve the customer
experience in our core portfolio of hotels in the past
12 months. We expanded our 24-hour hotel satisfaction
promise to cover 2,000 hotels, accounting for more than
80 per cent of our sun & beach customers.
We further reduced the portfolio of directly-contracted
hotels by 310 to 3,170 for summer 2018, marking good
progress towards our target of 2,900 by FY19. At the
same time, we increased sales to our own brand and
selected partner hotels by eight per cent in the summer
compared with 2016, reflecting the strong demand for
our differentiated holiday offer.
We now share 42 per cent of our hotels across more
than one of our source markets, compared with just
seven per cent three years ago, improving the scale
benefits we get in these hotels.
Our strategy is increasingly to focus our attention on a
more streamlined portfolio of around 3,000 hotels by 2019.
By focusing on a smaller number of properties, we can
have a greater influence over the customer experience,
enabling us to offer holidays that are unique to Thomas
Cook with a level of care and quality that stands out from
the competition.
By focusing the majority of our business on a more
streamlined portfolio, we are also selling more of the
rooms in those hotels across more of our source markets.
This means we are able to better leverage our scale and
develop deeper relationships with the hoteliers, with
holidays to these select partner hotels delivering higher
than average selling prices and margin.
At the heart of this portfolio of hotels sit our own-brand
hotels and resorts, which are franchised, managed or
directly owned by Thomas Cook. These are complemented
by our selected partner hotels, contracted directly and
developed in partnership with hoteliers.
In these hotels we seek to give customers elements
of their holiday that are unique to Thomas Cook.
These include our 24-hour hotel satisfaction promise;
our on-the-ground resort teams and our connected
services helplines; as well as a raft of measures that
customers don’t see – from more frequent auditing for
health and safety, to the work done by our team of quality
managers to ensure that we are providing a standard of
accommodation and service of which we can be proud.
I M PROV I N G OU R CU STO M ER E X PER I ENCE
+8%
(cid:55)(cid:157)(cid:34)(cid:14)(cid:55)(cid:382)(cid:58)(cid:44)(cid:3)
(cid:43)(cid:68)(cid:40)(cid:481)(cid:4)(cid:53)(cid:227)(cid:41)(cid:10)(cid:382)(cid:3)
(cid:227)(cid:41)(cid:10)(cid:382)(cid:55)(cid:14)(cid:34)(cid:14)(cid:7)(cid:59)(cid:13)(cid:11)(cid:3)(cid:3)
(cid:46)(cid:157)(cid:52)(cid:59)(cid:40)(cid:14)(cid:52)(cid:56)(cid:3)(cid:23)(cid:43)(cid:59)(cid:13)(cid:35)(cid:55)(cid:382)
(cid:25)(cid:41)(cid:3)(cid:56)(cid:61)(cid:38)(cid:37)(cid:14)(cid:52)(cid:382)(cid:529)(cid:527)(cid:528)(cid:535)(cid:3)
310
(cid:22)(cid:44)(cid:58)(cid:14)(cid:34)(cid:56)(cid:3)
(cid:52)(cid:14)(cid:37)(cid:44)(cid:64)(cid:14)(cid:10)(cid:382)
(cid:16)(cid:53)(cid:43)(cid:38)(cid:3)(cid:44)(cid:61)(cid:53)(cid:3)(cid:3)
(cid:46)(cid:44)(cid:52)(cid:59)(cid:16)(cid:44)(cid:34)(cid:26)(cid:43)
3,170
(cid:43)(cid:68)(cid:40)(cid:481)(cid:4)(cid:53)(cid:227)(cid:41)(cid:10)(cid:382)(cid:3)
(cid:227)(cid:41)(cid:10)(cid:382)(cid:55)(cid:14)(cid:34)(cid:14)(cid:7)(cid:59)(cid:13)(cid:11)(cid:3)(cid:3)
(cid:46)(cid:157)(cid:52)(cid:59)(cid:40)(cid:14)(cid:52)(cid:56)(cid:3)(cid:3)
(cid:22)(cid:44)(cid:58)(cid:14)(cid:34)(cid:56)(cid:3)(cid:17)(cid:43)(cid:53)(cid:3)
(cid:55)(cid:62)(cid:37)(cid:38)(cid:13)(cid:53)(cid:3)(cid:529)(cid:527)(cid:528)(cid:535)
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I N - D ESTI N ATI O N S ER V I C ES –
H OTE L Q UA LIT Y TR AC K I N G
As part of our strategy to rigorously
manage the quality of our select partner
hotels, we track NPS scores at all stages
of the holiday. This year we stepped up the
resources and tools available to our hotel
quality managers in destinations to help
improve this process.
We want our quality managers to operate
at the heart of the feedback loop between
customers, our source markets and
our hotels, to make sure we’re doing all
that we can to continually improve our
holiday offering.
The remit of our team of 49 quality
managers is simple: to ensure all of the
hotels in our core portfolio offer the
best possible quality to our customers.
This means working closely with our hotel
partners to identify areas of improvement,
based on customer feedback and our
quality managers’ rich experience in the
holiday industry.
Our portfolio of services, which includes
hotel training and consulting services,
the Sunny Heart Academy of Excellence
and online reputation management
advice, means that the team is able to
offer valuable support for hoteliers to
improve overall standards for the benefit
of all customers.
In 2017, the team undertook close to
10,000 hotel visits, implemented more
than 650 quality improvement plans and
monitored over 800 hotel construction and
refurbishment projects.
We also saw the benefits of a new system
introduced last summer to bring a more
data-driven approach to the quality
managers’ work. The Quality Tracking Tool is
a web-based programme that compiles into
one place all relevant hotel KPIs, including
NPS, customer service questionnaires and
online performance, as well as construction
reports, quality manager visits and quality
improvement plans.
JÜRGEN HEISS
GROUP HE AD OF QUALIT Y,
CONNECTED SERVICE & LOGISTICS
This gives us a comprehensive set of
qualitative and quantitative measurements
that help us to put the right plans in place
to support underperforming hotels that
want to improve, or make the difficult
but necessary decision to terminate the
contracts of those hotels that do not.
The results have been clear – NPS has risen
across the hotel portfolio and was a full five
points above target in summer 2017 with a
particular improvement in underperforming
hotels. It has also made more clear where
we need to terminate hotel contracts –
as we did with 100 hotels from our UK
portfolio at the start of the year – in order
to maintain the quality and service that
our customers expect from a Thomas
Cook holiday.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
23
STRATEGIC REPORT
PROGRESS AGAINST STRATEGY
OWN-BRAND HOTELS & RESORTS
The development of a strong portfolio of own-brand hotels
and resorts is critical to the success of our strategy for
profitable growth. They enable us to provide customers with
a consistent, high-quality and unique holiday, whatever their
needs, and earn us higher returns than the portfolio average.
Our aim is to build a hotel company within Thomas Cook
with a community of hoteliers who want to work with
our brands and loyal customers who follow the brands
round the world. By building deeper and longer-lasting
relationships with our own-brand hoteliers and taking
more capacity at the hotels, we have greater influence
over the service levels and quality standards. As a result,
these hotels achieve higher customer satisfaction scores
and higher loyalty than the portfolio average. We also
earn additional revenues through management, incentive
and franchise fees. Together with the brand value which
these hotels command, we earn a higher margin for these
hotels than others in our holiday offering.
In addition, the two companies have agreed to work
together to create a joint hotel investment platform,
in order to accelerate the growth of Thomas Cook’s
own-brand hotels portfolio. The partners will contribute
a minimum of five owned and directly-managed hotel
properties between them, which will be used to develop
the platform into a fund focused on acquiring a pipeline
of further hotel and resort assets across Thomas Cook’s
destination markets.
In total, we closed the year with 190 own-brand hotels
in the portfolio, including the eight Aldiana resorts
which will come as part of the agreement we signed
in September.
OUR PROGRESS IN 2017
We made further progress in 2017 in strengthening our
existing portfolio of own-brand hotels and developing
a pipeline of new hotels. We continued to rigorously
manage the quality in our hotels, taking a total of 19
properties from the portfolio which did not meet the
quality expectations we set. We opened 11 new hotels
for summer 2017, including a new Sunprime hotel in
Tenerife, our first Italian own-brand property, in Sicily,
and the successful launch of our second Casa Cook in
Kos. We have a further 20 hotels in the pipeline to open
between winter 2017 and summer 2019. This includes at
least another two Casa Cooks.
As the quality of our own-brand hotels improved, so we
continued to drive a higher number of bookings to the
portfolio. Sales to our own-brand hotels increased eight
per cent in 2017.
The arrival in the spring of our new Chief Hotels Officer,
Ingo Burmester, formerly head of TUI’s Robinson hotel
brand, brought welcome experience at the head of the
team and provided an opportunity to reboot our approach
in this part of the business.
In September we took a significant step forward by
agreeing a new strategic partnership with Swiss-based
hotel property development company LMEY Investments.
Under the terms of the agreement, Thomas Cook has
acquired a seventh brand in the popular club-based
sector with a 42 per cent stake in Aldiana, a premium club
and activity-focused tour operator and hotel management
company based in Germany.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
STRENGTHENING OUR PORTFOLIO
20
(cid:22)(cid:44)(cid:58)(cid:14)(cid:34)(cid:56)(cid:3)(cid:157)(cid:10)(cid:11)(cid:13)(cid:11)(cid:3)
(cid:58)(cid:44)(cid:3)(cid:44)(cid:61)(cid:53)(cid:3)(cid:47)(cid:25)(cid:47)(cid:13)(cid:35)(cid:25)(cid:41)(cid:13)
11
(cid:40)(cid:14)(cid:67)(cid:382)(cid:22)(cid:44)(cid:58)(cid:14)(cid:34)(cid:56)(cid:3)(cid:17)(cid:43)(cid:53)(cid:3)
(cid:55)(cid:62)(cid:37)(cid:38)(cid:13)(cid:53)(cid:3)(cid:529)(cid:527)(cid:528)(cid:534)
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C A SA COO K
KO S
REMO MASAL A
GROUP CRE ATIVE DIRECTOR
We introduced Casa Cook as a hotel brand
in 2016 to fill a niche in the travel industry:
boutique resorts that tick all the boxes
for a growing generation of independent
travellers, many of whom would not think
to book a package holiday.
We wanted Casa Cook to be an eclectic
collection of stylish modern resorts with a
low-key vibe, each with its own personality
inspired as much by the local surroundings
as our interpretations of global travel trends
and tastes. The pool, bar and restaurant form
the social hub at each hotel, informed by the
Greek concept of ‘Parea’ – roughly translated
as a get-together with friends to nourish
the body and mind. The staff are attentive
yet discreet, guided by a service culture that
encourages guests to determine their own
holiday rhythm. This extends to the dining
experience: healthy and made with regional
products, food is served any time of day and
well into the evening.
We opened our first Casa Cook in May 2016 in
Rhodes, Greece. In just one season we knew
we were spot-on with our concept.
The feedback has been overwhelmingly
positive and 90 per cent of our guests were
new to Thomas Cook, proving that we have
achieved our aim of attracting travellers who
thought a holiday package wasn’t for them.
Our second Casa Cook in Kos posed a
challenge – how to replicate the success of
Rhodes and maintain consistency of brand
while at the same time forging a unique
identity at the new hotel. With a beautiful
location on the north coast of Kos, nestled
between the countryside and the soft,
dune-backed beach, we knew we had the
backdrop for a stunning addition to the Casa
Cook hotel, and the greenfield site allowed
us to be even bolder in our design to embed
the Casa Cook ethos from the ground up.
Like Rhodes, the hotel’s pool, beach bar and
restaurant are designed to bring guests
together. The rooms themselves were all
created as private sanctuaries, focusing on
stylish simplicity, many with their own or
shared pools. The result is a perfect balance
of private and shared areas, akin to historic
Greek villages and their labyrinth of cubist
houses, designed to harmonise with the
surrounding landscapes.
At the close of our first summer, we’re
very happy with what we’ve achieved in
Kos. The hotel ran at 95 per cent occupancy,
showing how well our new brand has landed
since we opened in Rhodes in May 2016,
again with almost 75 per cent of customers
new to Thomas Cook. Guests from across
all of our source markets were attracted
to our new Casa Cook, and we achieved
a customer satisfaction score of 87 – a
fantastic result for any hotel, let alone one in
its first months of operation.
Next year we open our third Casa Cook
in Chania, Crete – a pure family concept
that is very different to what people
might expect. In 2019 we go to Croatia where
we’re putting the Casa Cook vision into
a sixties-era hotel – our most exciting
challenge yet. There’s no doubt we’ve got
a big task to balance local individualism
with our house style when we grow to four
hotels, but if Casa Cook Kos is anything to
go by, we’re on the right track.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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STRATEGIC REPORT
PROGRESS AGAINST STRATEGY
OUR AIRLINE
The other key element of our holiday offering which is
increasingly important to our strategy for profitable growth
is our airline. Over the last four years, we have transformed
our airline from four separate national airlines into one
Group Airline under one management team, with shared
maintenance, IT systems and infrastructure.
In parallel, we have expanded the proportion of business that
the Airline does independent of the tour operator, building a
world-class leisure airline which benefits from a dependable,
and sizeable, base of Tour Operator customers, while also
increasingly competitive with airlines across Europe on a
seat-only basis. Thomas Cook Group Airline is now Europe’s
third largest airline to sun & beach destinations, and its sixth
largest long-haul carrier following strong profitable growth
in our long-haul and seat-only programme.
Our strategy for the Airline is clear: to profitably build on our
position in the European leisure airlines market, focused on
four areas.
First: we will invest in the customer experience to build on
the progress we’ve made in the last few years, targeting
the areas which we know matter most to our customers.
Second; we will continue to open new routes, particularly
in long haul. Third: we are leveraging the support that our
tour operating business provides the Airline, whilst actively
developing new distribution channels. This model helps us
to flex capacity between the Tour Operator and Airline in
order to optimise performance. And finally, we will continue
to review our cost structure to ensure that we are operating
as competitively as we can in a tough market environment,
without compromising on safety. We have measures in place
to further improve reliability and operational performance,
as well as ensuring we have the right cost structure in the
right locations.
OUR PROGRESS IN 2017
Overall, 2017 been a positive year for our Group Airline in
what has been a very competitive market, and we have
made good progress against all four of our strategic aims.
We have added 15 new destinations across our three
markets, including San Francisco, New Orleans and, closer
to home, Malaga and Mykonos. Next year, we will begin flying
from a new base in the UK – Leeds Bradford – expanding
our reach in the North of England for our tour operator
customers where previously we used third-party airlines.
In total, we have grown the number of long haul
routes we offer by 30 per cent in the last three years,
supported by a good long-haul cost base and our strong
distribution channels.
We have improved our distribution channels by working
more closely with third-party tour operators, and online and
traditional travel agents. We’ve also increased seat-only
sales by improving our website and increasing the number
of interline agreements we hold with other long-haul airlines.
This, together with our expanded route capacity, has meant
we have grown seat-only sales by 16 per cent versus 2016.
We are now benefiting from our new, Group-wide commercial
IT system, which for the first time enables us to sell all
ancillaries through industry global distribution systems and
to take code-share bookings from third-party airline partners
with the aim of driving significant revenue growth.
As part of our drive for greater efficiencies while opening up
new opportunities for growth, in May we agreed to extend
an existing partnership with Brussels Airlines to make them
the leading carrier for Thomas Cook in Belgium. Under the
terms of the agreement, we transferred all 160 pilots and
cabin crew, all flight slots and two aircraft from Thomas Cook
Airlines Belgium to Brussels Airlines. We also sold our ground
operations and Airline Operating Certificate to SHS Aviation.
The agreement gives Thomas Cook’s customers a wider
choice of destinations, flights and departure days while at the
same time enabling us to manage our aircraft and personnel
more efficiently and effectively.
We followed the partnership in Belgium by agreeing a
partnership in September with Canadian airline Air Transat,
under which the two companies will exchange aircraft on
a seasonal basis. This takes advantage of the different
seasonality of the leisure market in each country, and is a
further step in our strategy to work with partners in order to
manage our fleet more efficiently.
Finally, in October 2017 we launched a new airline based in
Majorca which will give us a greater degree of operational
flexibility in how we share aircraft across our Group Airline.
Our plan is to focus any future growth in our fleet through
this operating unit, allowing us to deploy aircraft to our three
airlines in the UK, Germany and Scandinavia at a competitive
cost, based upon seasonal and operational requirements.
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CASE STUDY
U S
LO N G - H AU L GROW TH
JENS BOYD
DIRECTOR , LONG HAUL & RE VENUE
MANAGEMENT THOMAS COOK
GROUP AIRLINE
We’ve transformed the choice we offer
customers over long haul in recent
years, expanding the fleet and opening
up new routes. In Germany for example
we expanded our long-haul fleet from
eight to 18 aircraft in the last three
years and more than doubled the fleet
in the UK to eight long-haul aircraft plus
incremental peak capacity transferred
from Scandinavia. We’ve had a particular
focus on transatlantic routes, reflected
in the fact that more than one million
passengers flew across the North Atlantic
with Thomas Cook during last year’s winter
and summer season.
In the same period, we introduced 11 new
US destinations and we have more routes
planned, including flights to Phoenix from
Germany and Seattle from the UK which
start in early 2018.
That is particularly evident to us on our
successful nonstop route from Frankfurt
to Seattle, where the frequency of our
flights provide the flexibility that business
travellers need.
With a total of 18 US destinations on offer
across the Group – three of which we
now fly year-round – and five in Canada,
we’re making excellent progress with our
strategy to grow our long-haul network.
These customers consistently tell us
how great the quality and value is on our
business class offer which is reaching load
factors clearly above 80 per cent across our
entire long-haul network.
As a carrier that generally focuses on
leisure destinations, we, of course, look for
cities that might have interest from within
the German, UK and greater European
outbound tourist market. However, we also
are winning business in corporate markets.
Offering a wide range of quality options
to our customers allows them to make
the smart choices whenever they fly, and
allows us to further develop and grow our
long-haul business.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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STRATEGIC REPORT
PROGRESS AGAINST STRATEGY
SERVICES
The additional services we offer our customers as part of
their holiday, through our direct sales channels, our Airline
and our in-destination teams, are a big part of what makes
us different from travel agents and other tour operators.
I N C R E A S I N G SA LES
O F H O LI DAY E X TR A S
+10%
(cid:25)(cid:41)(cid:7)(cid:53)(cid:13)(cid:157)(cid:55)(cid:14)(cid:10)(cid:382)(cid:55)(cid:157)(cid:34)(cid:14)(cid:55)(cid:382)
(cid:43)(cid:41)(cid:3)(cid:23)(cid:43)(cid:35)(cid:25)(cid:11)(cid:227)(cid:74)(cid:3)(cid:14)(cid:70)(cid:59)(cid:52)(cid:157)(cid:55)
+20%
(cid:25)(cid:41)(cid:7)(cid:53)(cid:13)(cid:157)(cid:55)(cid:14)(cid:3)(cid:56)(cid:25)(cid:41)(cid:7)(cid:14)(cid:3)
(cid:67)(cid:14)(cid:3)(cid:8)(cid:52)(cid:14)(cid:227)(cid:59)(cid:13)(cid:11)(cid:3)(cid:59)(cid:22)(cid:14)(cid:3)
(cid:19)(cid:53)(cid:43)(cid:62)(cid:46)(cid:382)(cid:227)(cid:41)(cid:7)(cid:26)(cid:34)(cid:35)(cid:227)(cid:53)(cid:25)(cid:14)(cid:55)(cid:382)
(cid:58)(cid:14)(cid:227)(cid:38)(cid:3)(cid:26)(cid:40)(cid:382)(cid:529)(cid:527)(cid:528)(cid:532)(cid:3)
By offering more choice to our customers in all aspects
of their holiday, we can provide a unique holiday
experience that is tailored specifically to our customers’
individual needs.
This more personalised experience increases customer
satisfaction and loyalty at the same time as delivering
additional revenue and margin from the services
that are purchased. The more personalised approach
also enables us to combine some of the flexibility of
independent travel with the hassle-free reassurance
of a package holiday, thus modernising our offer and
broadening our appeal to those who may not previously
have considered a Thomas Cook holiday.
OUR PROGRESS IN 2017
This year we have further increased revenues from our
core ancillary services, as well as broadening the range
of value-add holiday extras that we offer customers.
Overall, we grew sales of ancillary services, such as
seat reservations, extra luggage, meals on board, travel
insurance and in-resort transfers and excursions, by 10
per cent, a total increase of 20 per cent in the two years
since we created the Group Ancillaries Team in 2015.
The improvements we made to our websites this year in
providing richer content have helped improve conversion
of sales. As we optimise how and when we offer these
services to customers, from the point of booking to
in-resort, we help to build customers’ excitement as they
plan their perfect holiday, while increasing penetration
of our services and gaining a greater share of wallet.
This year also saw the launch of a new division which
builds on our heritage in financial services to offer
customers across our source markets new ways to plan,
save, borrow, spend and protect their holiday money.
Led by Anth Mooney, the former head of financial services
at Virgin Money, Thomas Cook Money will combine the
trust that consumers have in the Thomas Cook brands
with the best of new technology in order to offer a
genuinely innovative set of new products and services.
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PROGRESS AGAINST STRATEGY
PARTNERSHIPS
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As we focus on our holiday offer, we are
putting our energy and attention into a
number of key areas where we can create
the most value for our customers.
This strategy is complemented by a series of partnerships
which enable us to expand our offer to customers
while at the same time streamlining our operations.
Our partnerships also enable us to leverage our brand
as a way to tap into new opportunities for growth.
PROGRESS IN 2017
In September, we agreed a ground-breaking strategic
alliance with Expedia which will transform the way in
which we produce and sell our ‘complementary’ hotels
which sit outside of our core portfolio.
Under the terms of the agreement, Expedia will
become the preferred provider of hotels for our city
and domestic business, offering customers more than
60,000 additional hotels in city and domestic locations
than currently on sale.
We will also integrate Expedia’s market-leading booking
platform into Thomas Cook sales channels for all hotel-
only and city-break sales. This agreement completes
the outsourcing of the production of our non-core
hotel offer to customers, following the signing of our
strategic partnership with Webjet in 2016 to outsource
our non-core sun and beach hotels.
Another partnership where we have made good progress
in 2017 is Thomas Cook China, our joint venture with
Fosun. This has got off to a great start, tapping into
the growing demand from Chinese consumers for
personalised holiday packages to destinations around the
world. It’s early days, but we took 20,000 customers on
holiday in our first year of operations. Our aim is to grow
this more than 10 times in 2017/18.
CASE STUDY
TH O M A S COO K
C H I N A
We officially launched Thomas Cook China
in September 2016, less than a year after
we announced our joint venture with
Fosun. Since then, the business has
developed into a one-stop, full service travel
company operating inbound, domestic and
outbound tourism from offices in Shanghai
and Beijing.
Our plan has always been simple – combine
our brand heritage and travel expertise
with Fosun’s local market access and
knowledge to tap in to the huge growth
opportunity offered by the world’s largest
source market for leisure travel.
While large and fast growing, the China
travel market is also very competitive
and fragmented. The biggest opportunity
lies in the rapidly evolving behaviours of
Chinese travellers. The traditional group
tour travel is gradually giving way to a
more independent and higher quality type
of travel, and the industry is not keeping
up with the pace of this change. At Thomas
Cook China, we have focused on developing
products that are truly unique and
differentiated, leveraging Thomas Cook and
Fosun’s resources across destinations.
In our first year of operations we served over
20,000 customers. Recent improvements
in technology and newly established local
distribution partnerships have made the
business more scalable. Over the next
financial year, we aim to grow by more
than 10 times.
ALESSANDRO DASSI
MANAGING DIRECTOR ,
THOMAS COOK CHINA
Both Thomas Cook and Fosun remain
fully committed to supporting the future
growth of our joint venture business in
China. The ambition is to make China a
sizeable source market for Thomas Cook
Group, comparable, over time, with our
more mature markets in Europe. As China’s
tourism sector continues to grow strongly,
our expertise in travel and our unique,
personalised offer means we are well-
positioned to take full advantage of
the opportunity.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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STRATEGIC REPORT
PROGRESS AGAINST STRATEGY
EFFICIENCIES
Underpinning every element of our strategy for profitable
growth is a continual drive for greater operational
efficiency, removing duplication and aligning processes
so that they fit the new shape of Thomas Cook.
By reducing the number of hotels in our core holiday
offering, and outsourcing the production of our non-core
hotels and the technology platform to sell them, we
will be able to take considerable cost and complexity
out of our business – first, in terms of the contracting,
pricing and other support that we need, and then
through our IT systems which will support the sale
of a smaller number of hotels.
These efficiencies also flow through into our marketing
and digital activities where we are able to focus
investment building content to support one streamlined
portfolio of hotels across the Group. And this is key –
reducing duplication and complexity in our systems
Group-wide will enable us to increase investment in those
areas where we know we can make greatest impact on
customers and how they buy from us.
In our airline, we have now saved £35 million against
a 2015 baseline through rationalisation of our ground
handling and maintenance set-ups across our destination
and source markets airports.
In March we announced that we would be extending
our partnership with Brussel Airlines to make them
the leading carrier for our Belgian tour operator, with
Thomas Cook Airlines Belgium (TCAB) no longer operating.
The agreement reduces our operating costs in our Belgian
market while increasing choice for customers. In addition,
three of our TCAB aircraft will operate under our new
airline in Palma from summer 2018.
See Our Airline section on page 26
The result is a business which is much simpler, with a
leaner organisational structure that is more focused on
the activities which matter to our customers.
G R E ATER O PER ATI O N A L
EFFI C I EN C I ES
OUR PROGRESS IN 2017
Continuing our efficiencies drive in Continental Europe,
we consolidated our tour operator activities into three
hubs for the segment: in Oberursel, Ghent and Hamburg.
We accelerated our UK store closure programme following
our announcement at the start of the financial year that
our retail joint venture with the Cooperative Group would
end. In all we closed 101 stores this financial year, taking
our retail network to 692, down from more than 1,200
in 2012.
See case study in Contact on page 21
We have made good progress through procurement
activities to reduce our spend by rationalising the number
of suppliers we use across the Group to better leverage
our scale.
Our financial shared service centre has made good
progress this year and now houses financial functions
from across the Group.
See case study on page 31
£35m
(cid:55)(cid:157)(cid:64)(cid:14)(cid:10)(cid:382)(cid:25)(cid:41)(cid:3)(cid:44)(cid:61)(cid:53)(cid:3)(cid:157)(cid:25)(cid:53)(cid:34)(cid:26)(cid:40)(cid:14)(cid:3)
(cid:64)(cid:56)(cid:3)(cid:529)(cid:527)(cid:528)(cid:532)(cid:3)(cid:5)(cid:227)(cid:56)(cid:13)(cid:35)(cid:25)(cid:41)(cid:13)
101
(cid:61)(cid:32)(cid:3)(cid:56)(cid:58)(cid:44)(cid:52)(cid:14)(cid:55)(cid:382)(cid:7)(cid:35)(cid:43)(cid:56)(cid:13)(cid:11)(cid:3)
(cid:58)(cid:23)(cid:25)(cid:56)(cid:3)(cid:74)(cid:13)(cid:157)(cid:52)
30
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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PAUL HEMINGWAY
BUSINESS CHANGE DIRECTOR
To accommodate this growth we’re
moving into a new building and by
September 2018 we expect to have one
Finance Shared Service Centre in Palma
providing services to all segments in
the Group, staffed by Thomas Cook
colleagues, with our shared vision and
values, working to put the customer
at the heart of everything we do.
CASE STUDY
FI N A N C I A L S H A R ED
S ER V I C E C ENTR E
I N PA LM A
We knew there was an opportunity to
bring our finance shared service centres
together from across the Group in a way
which would not only significantly reduce
cost but would also mean we can provide
a greater consistency of quality to all
parts of the business.
More importantly, one central financial
shared service centre would also allow
us to create a working environment
that encourages the simplification and
standardisation of processes so critical
to our vision of ‘One Thomas Cook’.
We chose Palma as a target location when
we first set up the finance transformation
project because of its central location
within Europe and an abundance of skilled
professionals from universities in Palma
and mainland Spain. It is also the Group’s
most popular holiday destination, meaning
we had a sizeable existing presence
and infrastructure on which to build.
In 2014 we started to move finance
functions from across our Continental
business source markets into Palma.
By September this year the Palma
centre was providing finance services to
Germany, France, Belgium, The Netherlands
and Austria.
Phase two of the shared service centre
is now well underway. We are in-sourcing
those of the UK’s finance functions which
are currently run from Mumbai and Pune,
India, to give us greater control over the
quality of the output. We also have further
plans to expand the existing services by
moving further functions from within
Continental Europe, the UK, our Northern
Europe business and Group Airline into
Palma. Our aim is that these measures will
foster a culture of greater collaboration and
best practice across the Group, meaning it
will become more efficient as it grows.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
31
STRATEGIC REPORT
OUR KEY PERFORMANCE
INDICATORS
FI N A N C I A L
Underlying EBIT (£m) and EBIT margin (%)(i)
Basic EPS and underlying EPS(ii)
Net Debt £m(iii)
4.1%
360
3.7%
327
2.3%
208
Basic EPS
Underlying EPS
3.7%
306
3.7%
330
5.0p
11.3p
–8.2p
8.9p
1.6p
8.0p
0.3p
9.3p
0.8p
(40)
(128)
(129)
(315)
2013
2014
2015
2016(ii)
2017
–17.1p
2013
2014
2015
2016(ii)
2017
(426)
2013
2014
2015
2016
2017
Definition
Underlying EBIT provides a measure of the underlying
operating performance of the Group and growth in
profitability of the operations. EBIT margin measures
the underlying EBIT generated as a proportion of
sales. We target improving these metrics across all
our businesses.
2017 performance
Group underlying EBIT of £330m and underlying
EBIT margin of 3.7% represents growth of £24m due
to an improvement in our Airline partially offset by
competitive pressure on our UK Tour operator.
(i) Figures have been represented on a like-for-like basis.
(ii) FY16 figures have been restated. See Note 33 for details.
Definition
Basic earnings per share (EPS) represents profit
for the year attributable to equity Shareholders.
This metric provides a measure of Shareholder return
that is comparable over time. Underlying EPS(iii) is
defined as earnings before separately disclosed items
after a national tax charge divided by the weighted
average number of ordinary shares. We are targeting
a positive and improving EPS.
2017 performance
Underlying EPS has increased by 1.3p whilst Basic EPS
has increased by 0.5p since FY16 due to continued
progress in our transformation.
(ii) FY16 figures have been restated. See Note 33 for details.
Definition
Net debt is a measure of how the Group is
managing our balance sheet and capital structure.
A strong balance sheet is essential to withstand
external market shocks and seize opportunities.
Accordingly, reducing net debt and as well as the
cost of the debt is a priority for the Group.
2017 performance
Net debt decreased by £89m; mainly due to free cash
flow generation of £93m.
(iii) FY15 Net debt has been restated to include hedging
on borrowings.
N O N - FI N A N C I A L
Net Promoter Score
45
41
37
Employee Satisfaction Score:
Core-Index and Commitment-Index
Core-Index
Commitment-Index
74
68
74
68
72
64
68
61
64
56
2015
2016
2017
2013
2014
2015
2016
2017
Definition
Net Promoter Score (NPS) is an index that measures
the willingness of our customers to recommend our
products and services to others. We use this as an
indicator across the whole Group of our customers’
overall loyalty and satisfaction in relation to our
flights, our hotels and the holiday experience overall.
We are targeting NPS increases in all of our source
markets and our branded hotels.
2017 performance
Year on year the group achieved a 4 point increase
in NPS, with improvements seen in all of our major
service markets and our branded hotels.
Definition
Employee engagement is measured through our annual
Survey, “Every Voice”. We focus on the measurement of two
main indexes, being our ‘Core-index’ and ‘commitment-index.
Our target is to at least maintain our high core-index score
and increase our commitment index score.
2017 performance
Our core index and commitment index was 74% and 68%
respectively, level with 2016. The strongest progress this
year was seen in customer orientation, driven by the launch
of the Customer promises and values which has driven
more customer centricity. The results also told us that the
strategy and direction of the Company is more clear among
all managers – a foundation for driving the new strategy.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
SUSTAINABILITY
OUR APPROACH TO SUSTAINABILITY
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The millions of customers that choose Thomas Cook for
their holiday have high expectations of us and the services
that we provide them. We understand that sustainability
is extremely important for our customers and critical to
the long-term success of our business.
Over the last year, we conducted an internal review of our
sustainability programmes and have developed a renewed
vision and strategy for sustainability which is integral to
our business strategy. Through this renewed vision and
strategy, we can enhance the Company’s resilience to
the external environmental and social challenges while
improving the experience of our customers.
OUR ‘MAKING A DIFFERENCE WITH
EVERY HOLIDAY’ STR ATEGY
Our goal is to ‘make a difference with every holiday’,
working at every step to change the way we operate to
limit environmental impacts whilst maximising the social
and economic benefits travel can bring.
Our new strategy is simplified and stronger than
previous iterations. It reflects three key stages of the
customer journey:
> At Home
> On the Journey
> On Holiday
Each of these areas aligns to the three core concepts of
sustainability: people, environment and business. For each
one of the three areas of the customer journey, our new
strategy articulates our objective as well as a simple but
bold target to be achieved by 2020.
AT HOME
We understand Thomas Cook’s operations affect individuals
and communities around the world. Through working with
our partners, NGOs and other industry tourism groups we
can better understand and mitigate the negative impact of
the business, whilst maximising the economic and social
benefits tourism can bring.
The key strand of our work ‘at home’ focuses on our impact
as a business through our charitable and community
initiatives, while ensuring we have the right policies
and procedures in place to make sure we contribute
meaningfully to the communities in which we live and work.
In order to materially impact the lives of 100,000 people by
2020, we have taken strong steps to strengthen our impact
through greater alignment on charitable activity across
Thomas Cook Group.
The Group’s Health, Safety & Environmental Committee
this year endorsed an over-arching charitable strategy for
the Group. This strategy, a first for Thomas Cook, aligns our
charitable activity across our source markets and focuses
our impact in key areas, including improving health and
well-being, supporting vulnerable children, providing natural
disaster relief and enhancing community spaces. We aim to
make transformational impact through our charitable work.
Greater alignment means we can focus on fewer, more
relevant issues, whilst leveraging the scale of the business
to create lasting change for thousands of people at home
and in our destinations.
AT HOME
ON THE JOURNE Y
ON HOLIDAY
Objectives
We will put the customer at
our heart and will contribute
to the communities in which
we live and work.
We will strive to deliver resource
efficiencies throughout the business
to run our operations in the most
responsible way possible.
2020 Targets
100,000 people reached through
our charitable and community
programmes.
12% increase in fuel efficiency
for Group Airline, from a 2008/09
baseline.
We will embed sustainability into
our business to deliver world class
quality products and services. We
will collaborate and innovate with our
customers, partners and suppliers.
100% of our own-brand hotels to
obtain a Travelife award.
Underpinning
the strategy
By engaging every one of our 22,000 employees we will make a difference with every holiday
and embed sustainable practices at the heart of our business.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
33
STRATEGIC REPORT
SUSTAINABILITY
CONTINUED
CASE STUDY
SA FEGUA R D I N G
A N I M A L W E LFA R E
Experiencing the local environment and
wildlife-viewing opportunities can be a
key part of many of our customers’ holiday
experiences. We recognise that these
activities have a socio-economic benefit
and can help to promote biodiversity and
education initiatives. However, we also are
acutely aware of the welfare of animals
impacted by tourism.
Last year we took the decision to
commission animal welfare experts Global
Spirit to conduct an independent audit of
a selection of animal attractions we offer.
DAVID VILLE
GROUP SUSTAINABILIT Y
MANAGER
Following that initial review we set out
our new animal welfare policy in December
2016. At its heart is a simple premise – our
customers trust us to make sure anything
we recommend to them is consistent
with our Customer Promises of Quality,
Service and Reliability.
From that premise came a simple rule
– if an animal attraction is found not to
be fully compliant with the ABTA Global
Welfare Guidance for Animals in Tourism,
Thomas Cook won’t sell it.
We are determined to improve standards
for all animals in our supply chain, while
allowing our customers to enjoy and learn
about animals in their natural environments.
We remain committed to working
responsibly and ethically in all areas of our
business, and we expect the same from
our suppliers.
To that end, we have already stopped the
sale of 16 of 25 audited excursions following
the 2016 audit programme. We have
expanded our 2017 audit programme,
with a further 50 audits underway.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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ON THE JOURNEY
The environmental impact of the travel industry is
considerable, with around five per cent of all global
carbon emissions coming from the travel and tourism
sector. We recognised the risks presented by climate
change and our duty to reduce our impact.
We have for a number of years worked to reduce our
environmental impact across our business and supply
chain. This includes reducing the use of water in our
hotels, using sustainable products and materials wherever
possible; reducing our production of waste; and sourcing
or producing renewable energy.
Our new strategy has environmental efficiency at its heart.
We are committed to making progress across our business
to decrease our impact. This is demonstrated through
our annual response to CDP who assess our response to
carbon management. In 2016 we scored ‘B’, which means
we are taking coordinated action on climate change issues.
Fuel efficiency in our airline is central to this effort and
is a key part of our approach to running efficient and
profitable airlines, as demonstrated through our target
of a 12 per cent increase in fuel efficiency per passenger
km by 2020 (based on a 2011 baseline). We recognise the
challenge presented by the Paris Climate Agreement to the
airline industry and we are determined to drive incremental
improvements in our current fleet, while working with
the industry to develop more efficient aircraft and more
sustainable fuels.
Thomas Cook Group Airline is among the most efficient
in Europe, with only 72.4g CO2 per passenger kilometre,
compared with an average of 88.6g CO2 for the five largest
European airlines last year. Our German airline was ranked
ninth in the Charter Carrier sector by the 2016 Atmosfair
Airline Index, which ranks the carbon efficiency of the
200 largest airlines in the world.
In 2017 we brought together a group across the Airline
to focus on fuel efficiency. Seven key projects were
selected, including a continued drive to reduce weight
on board, improve flight planning processes and optimise
routing. Our upgraded aircraft continue to deliver greater
comfort and a superior experience for passengers, whilst
contributing toward improved efficiency.
2017
Tonnes of CO2
equivalent
2016
Tonnes of CO2
equivalent
Total Scope 1 – Direct emissions
4,342,127
4,091,159
Total Scope 2 – Indirect emissions
Total emissions
Total emissions/£million turnover
17,931
4,360,058
484
21,045
4,112,203
526
We have reported on all the emission sources required
under the Companies Act 2006 (Strategic report and
Directors’ reports) Regulations 2013. We only have
responsibility for the emission sources that are included
in our Annual Report and Accounts. 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 2017.
ON HOLIDAY
Tourism is one of the biggest industries in the world and
one that contributes to the economic and social fabric of
destination communities. We work extensively with our
hotel brands to enable our customers to experience local
products and services, giving them an authentic taste
of the local culture.
By 2020, we aim to have all of our own-brand hotels
accredited by Travelife, the internationally-recognised
scheme which helps hotels and accommodations to manage
and improve their social and environmental performance.
The scheme also ensures that staff in resort are employed
fairly and local sourcing of products is promoted. We know
that Travelife hotels are not only better for us, but they are
better for our customers too, with greater results recorded
in customer satisfaction surveys than our other hotels.
Over the last year we have taken strong steps to embed
Travelife within our Hotels and Resorts business. This has
included integrating Travelife as a brand standard in our
Casa Cook, Sunwing, Sunprime and SENTIDO brands, with
Smartline and Sunconnect brands to follow in 2018 and 2019.
Four years ago we launched range of excursions to allow
customers to immerse themselves in the culture of a
destination and create lasting memories. 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.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
35
STRATEGIC REPORT
SUSTAINABILITY
CONTINUED
CASE STUDY
TU N I S I A
E D UC ATI O N PROGR A M M E
STEFANIE BERK
MANAGING DIRECTOR CENTR AL
AND E ASTERN EUROPE
Tourism is a hugely important industry in
Tunisia, but one which suffered in recent
years. It is essential that following this
tough period for the tourism industry,
skills are retained and quality is improved
for customers. A key challenge is finding
good-quality staff who are able to deliver
high-quality service while promoting
sustainability within our hotels.
This innovative programme consists of
two strands, focusing on further education
and training.
The ‘Continuing Education’ project, which
runs from September 2017 to the end of
2018, will focus on the re-qualification and
training of hotel staff in order to increase
service quality and sustainability.
The pilot project will run for three years
and is part of the develoPPP.de programme
that GIZ implements on behalf of the
German Federal Ministry for Economic
Cooperation and Development (BMZ).
At the same time, Thomas Cook and
Futouris e.V, together with the Gesellschaft
für Internationale Zusammenarbeit Gmbh,
the German Association for International
Cooperation (GIZ) , have launched a new
partnership. The aim is to improve the
training for the hotel staff in Tunisian
hotel schools and hotels through greater
experiential learning.
The two strands of the programme will
enable the training and mentoring of
employees in the Tunisian hotels, enabling
them to access better quality employment
and delivering a more sustainable, higher-
quality experience for our customers.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
SUSTAINABILITY
OUR PEOPLE
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Our strategy towards recruiting, training,
developing, retaining and inspiring our
workforce is critical to our success.
We recognise that strong leadership and the development
of a highly engaged and committed workforce is critical to
achieve our profitable growth strategy and continue the
transformation of our organisation. We are particularly
pleased therefore that our employee engagement score
increased by 1 per cent to 77 per cent in our annual
engagement survey this year. We believe this reflects the
efforts we have made to bring our strategy to life for our
people and inspire strong belief in our new organisational
values, which form the basis of our drive to put the
customer at the heart of all that we do.
COMMUNICATION
We know that great internal communications is key to
breaking down silos and building awareness and belief in
our strategy. This year has seen a re-energised approach
to communication with the introduction of new global
townhalls giving Peter Fankhauser the opportunity to
speak to thousands of our people, increasing his visibility
and reach to record numbers.
In May, we held our annual briefing for the top 170 leaders
in the Thomas Cook Leadership Council (‘TCLC’) in Tenerife.
With many of our leaders now working in a horizontal
or matrix structure, we can see stronger connections
across the TCLC, with several subjects at the Tenerife
event ‘co-presented’ by teams from across the Group.
CULTURE AND WAYS OF WORKING
With a continued focus on our ‘Customer at our Heart’
mantra, we felt the time was right in 2017 to make a bold
next step in redefining our culture and place the customer
even more firmly at the centre of our organisation.
We decided to move away from traditional corporate
values, and instead, to develop and launch a new set of
values and behaviours that truly reflect a holiday company.
To this end, we took the unconventional approach of
developing a set of values and customer promises from
research into what our customers told us they want from
a holiday company. Our new values help our people to
understand what we expect from them in their behaviour,
both towards each other and our customers.
Since launch in January, 21,255 colleagues across the Group
have attended training workshops on the new Customer
Promises and Values. Our annual survey showed that 80 per
cent of our people understand the new values, 2 per cent
more than last year, and 73 per cent of our people believe
they are the right values for us to succeed. We continue
to embed our new behaviours by using them to recruit,
develop, measure performance and reward our people.
The new values and behaviours were introduced as criteria
for our Customer Heroes recognition programme, which we
continued this year. Nominated by colleagues or managers,
we identify customer heroes in each market and hold local
recognition events to celebrate the finalists. The winners
are then recognised at the TCLC.
Our annual survey has shown that work to develop a more
customer-focused culture is having an impact. There was
a significant increase in customer orientation with 83
per cent of our people indicating that an awareness of
customer feedback drives their improvements.
We also launched a new version of our Code of Conduct in
May to reflect changes to our values and ways of working.
The revised Code of Conduct is provided to all new joiners
and we held briefings for existing colleagues in 2017,
emphasising the importance of individual responsibility
to adhere to the values at all times.
PUT OUR HEART INTO IT
WEAR THEIR FLIP FLOPS
WE’RE ONE THOMAS COOK
We seek feedback & act on it
We challenge the status quo
& continually look for ways to
make things better
We listen carefully to
understand what’s required
We’re open and honest
& act with integrity
We’re solution focused & strive
for the best outcome
We take ownership & deliver
what we’ve promised
We’re proactive to anticipate
customer’s needs
We focus on the little things that
make a big difference
We work as one
Thomas Cook team
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
37
STRATEGIC REPORT
SUSTAINABILITY
CONTINUED
ALIGNMENT OF OUR PEOPLE BEHIND
THE STR ATEGY
Reflecting the need to align our people behind
the Group strategy, our Group-wide performance
management system is organised into key themes
from the strategy so that all colleagues can select
from a range of measures designed to achieve our
organisational goals.
Our annual Every Voice engagement survey showed
that awareness of strategy rose 2 per cent this year
to 68 per cent.
Building an efficient organisational structure is a
key strategic objective and we are working across
the Group to better align structures. Our organisational
design review includes a focus on reducing layers
between the CEO and our front line colleagues, and
increasing spans of control – creating larger teams
with fewer managers. The aim is to increase speed
of decision making and empower teams to take action
for the benefit of our customers.
We have also further developed our matrix structure
to bring the operations closer to the horizontal
functions. This has seen us split our two key horizontals
(Commercial and Digital & Marketing) across the UK,
Northern Europe and Continental Europe. This ensures
that our leaders think ‘Group’ at the same time as
their local markets, streamlining the organisation
and accelerating the next phase of our strategy for
profitable growth.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
PEOPLE/TALENT DEVELOPMENT
We strengthened our Group-wide talent management
processes this year, culminating in our annual talent
review with the PLC Board in July.
Introducing a newly updated definition of ‘potential’,
we have reviewed all our leaders’ performance to
identify those we regard as ‘high potential’ and reviewed
succession for all roles across the TCLC. 70 per cent of
our leaders were rated as ‘key talent’, up from 61 per cent
the previous year, while 69 per cent of our TCLC have
an identified successor.
We welcomed two new members to the Executive
Committee (previously General Management Council)
in the year: Ingo Burmester as Chief Hotels Officer,
and Anth Mooney as our new Chief Financial Services
Officer, leading Thomas Cook Money. Tenure across
the TCLC, those reporting to the Executive Committee,
increased, with the number of leaders with less than one
year’s tenure reducing from 45 per cent to 31 per cent.
Attrition across the TCLC was 14 per cent.
There were 30 new appointments into the TCLC, of which
20 were internal promotions, demonstrating that our
talent processes are working. We have also moved key
high potential leaders into our two new businesses in
China and Thomas Cook Money, aligning talent with our
strategic priorities.
In June, we launched our first global career site, aimed
at encouraging international movement and retaining our
talent. Within the first three months, the site had received
over 120,000 visits and 16,000 registrations.
We launched a new Group-wide Leadership Development
programme, Leadership Plus, for our middle managers,
department heads and local Directors, recognising the
influence this group has on overall engagement.
Leadership Plus addresses three main areas:
> Influencing without authority (reflecting the growth
of matrix structures)
> Authentic leadership
> Building highly effective teams
40 leaders attended the pilot programme with excellent
feedback. A further 45 leaders started the programme in
October, with further programmes planned for 2018.
In addition, leaders from across our In-Destination
teams attended a new Leadership programme aimed at
addressing the challenges of leading virtual teams and
building high performance.
Our Navigator programme, our Group-wide emerging
talent programme, successfully concluded in February,
with presentations to the Executive Committee from
18 leaders.
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DIVERSIT Y
Our vision to be the world’s most loved holiday company
is supported by an internationally diverse workforce.
We believe that improving our diversity will open up new
ways of thinking, get us closer to our customers and drive
profitable growth. We are committed to creating an inclusive
working environment in which every employee is able to
fulfil their potential through training, career development
and fair promotion, regardless of personal characteristics.
Gender diversity has been a particular focus area for us
in 2017. We introduced ‘balanced’ gender shortlists for
the first time, for leadership roles, ensuring a fair and
consistent selection of males and females. In the UK,
we ran our second Women’s sponsorship programme for
high potential females, while in Germany, we introduced
a family centre in our Head Office in Oberusel, to support
working parents in their child care.
Our international diversity across our Leadership Team is
strong, with 18 nationalities represented, the largest of which
are British at 37 per cent, German at 28 per cent and Swedish
at 9 per cent. We are working to create a new international
mobility framework, designed to encourage the movement
of colleagues across different countries and markets.
Ethnicity is also an increasing subject of focus. We aim to
establish an organisational benchmark in 2018 and establish
a framework of activity based on the results. We remain
committed to a fully diverse workforce which represents
the wide range of ethnicities from both our customer base
and the countries and destinations in which we operate.
EVERY VOICE – ENGAGEMENT
Our annual ‘Every Voice’ colleague survey is at the
heart of our people strategy. The 5th annual Group-wide
survey was completed by just over 19,013 colleagues,
representing a response rate of 78 per cent, something
we attribute to the fact that 75 per cent of our people
said that they had seen positive actions taken based
on results of our last survey.
Our ‘Core Index’ – an indication of a highly performing
organisation – was 74 per cent, level with 2016, and
our engagement index rose by 1 per cent to 77 per cent.
Customer orientation was at 83 per cent, seeing
the highest increase of all areas of our survey.
This is particularly pleasing, given our ‘Customer
at our heart’ focus.
Our employee commitment remains high at 70 per
cent, and we saw a 2 per cent increase in colleagues
recommending Thomas Cook as an employer.
Each team builds an action plan off the back of their
results, culminating in one overall plan for the Group.
Action plans are reviewed closely by the Executive
Committee to understand progress and ensure
momentum is maintained.
GENDER DIVERSIT Y ACROSS THE THOMAS COOK GROUP
Executive Committee
Other Managers
Total
73%
Male
27%
Female
Thomas Cook Leadership Council
Other Employees
73%
Male
27%
Female
41%
Male
59%
Female
31%
Male
69%
Female
32%
Male
68%
Female
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STRATEGIC REPORT
FINANCIAL
REVIEW
“The Group achieved good
financial progress in FY17,
reporting higher revenues,
higher underlying EBIT and
lower Net Debt.”
MICHAEL HEALY
CFO
H I G H LI G HTS
Higher revenues
Delivered improved cash conversion
Underlying EBIT improvement
Revenue increased by £722m (9%) on
a like-for-like basis (FY16: £8,285m)
Cash conversion ratio increase of 45ppts
(FY16: 37%)
Underlying EBIT increased by £24m on
a like-for-like basis (FY16: £306m)
£9,007m
82%
£330m
Delivered a stronger balance sheet
Delivering returns for shareholders
Continuation of a dividend
Like-for-like net debt reduced by £122m
(FY16: £162m)
Basis earnings per share increased by
0.5p (FY16 restated: 0.3p)
Dividend per share increase of 0.1p (20%)
(FY16: 0.5p)
£40m
0.8p
0.6p
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£m
Revenue
Underlying(ii) Gross profit
Underlying(ii) Gross Margin (%)
Underlying(ii) Operating expenses
Underlying(ii) profit from operations (Underlying EBIT)
EBIT Separately Disclosed Items
Profit from operations (EBIT)
Associated Undertakings
Net investment income
Underlying(ii) Net finance charges
Separately disclosed finance charges
Profit before tax
Tax
Profit after tax
Basic EPS
Underlying(ii) EPS
DPS(iv)
Free cash flow(v)
Net debt
12 months ended
30 Sep 2017
12 months ended
30 Sep 2016
(restated)(i)
Change
Like-for-like
change
9,007
1,995
22.1%
(1,665)
330
(99)
231
(1)
–
(143)
(41)
46
(34)
12
0.8p
9.3p
0.6p
153
(40)
7,810
1,829
23.4%
(1,527)
302
(105)
197
(1)
1
(140)
(23)
34
(33)
1
0.3p
8.1p
0.5p
60
(129)
+1,197
+166
-130bps
-138
+28
+6
+34
Same
-1
-3
-18
+12
-1
+11
+0.5p
+1.2p
0.1p
+93
+89
+722
+56
-130bps
-32
+24
+6
+30
Same
-1
-3
-18
+8
-1
+7
–
–
–
–
+122(vi)
Notes:
(i)
As part of the preparation of the FY17 Group financial statements, management identified several non-cash adjustments which have been applied to the Group’s financial statements for FY16. Further details of
the restatement can be found on page 165.
(ii) ‘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 on page 135.
(iii) ‘Like-for-like’ change adjusts for the impact of foreign exchange translation, fuel. The detailed like-for-like adjustments are shown on page 42.
(iv) Dividend per share of 0.6 pence is equivalent to a cash cost of £9million.
(v) Free cash flow is cash from operating activities less exceptional items, capital expenditure and interest paid. A summary cash flow statement is presented on page 49, and a reconciliation of free cash flow
is shown on page 52.
(vi) Like-for-like net debt adjusts the prior year comparative for foreign exchange translation, the impact in change in finance lease arrangements and associated costs of the bond refinancing, which totalled
£33 million, resulting in FY16 like-for-like net debt of £162 million.
OVERVIEW
The comments below are based on underlying like-for-like
comparisons unless otherwise stated, as Management believes
this provides a clearer view of Group’s year-on-year progression.
The Group made good financial progress in FY17, reporting higher
revenues, higher underlying EBIT and lower net debt, compared
to last year. Group revenue increased by 15% (£1,197 million) on a
headline basis (before adjusting for the positive benefits of foreign
exchange translation differences), and by 9% (£722 million) on a
like-for-like basis, as demand grew for our holidays, particularly to
Greece and Long-Haul destinations, as well as Turkey and Egypt.
Supported by our strong revenue growth, gross profit increased
by £56 million, although gross margin decreased by 130 basis
points to 22.1%, mainly reflecting a more competitive market in
holidays to Spain, and a mix effect from higher sales in our Russian
business which has a structurally lower gross margin than our
other businesses.
The Group’s underlying EBIT improved by £24 million to £330 million,
while the Group’s profit from operations improved by £30 million to
£231 million, due to lower EBIT Separately Disclosed Items.
Separately disclosed finance charges increased by £18 million to
£41 million due to costs associated with our bond refinancing in
December 2016. As a result, Group profit before tax increased by
£8 million to £46 million. The tax charge for the year was £34 million,
£1 million higher than last year, resulting in Group profit after tax
of £12 million.
Free cash flow for the year was £153 million, £93 million higher
than last year, underpinned by growth in EBITDA of £46 million to
£552 million, and improvements in working capital as a result of
stronger trading. The Group’s improved cash flow position, together
with non-cash changes such as foreign currency translation,
resulted in net debt of £40 million, £122 million lower on a like-for-like
basis than the position as at 30 September 2016.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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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. To assist in understanding the
impact of those factors, and to better present underlying year-on-
year changes, ‘like-for-like’ comparisons with FY16 are presented in
addition to the change in reported numbers.
The ‘like-for-like’ adjustments to the Group’s FY16 results and the
resulting year-on-year movements are as follows:
Group (£m)
Restated FY16(i)
Impact of Currency Movements
Reduced fuel cost
Restated FY16 Like-for-like
FY17 Reported
Like-for-like change
Like-for-like change (%)
Revenue
7,810
575
(100)
8,285
Gross
margin
%
23.4%
(0.3)%
0.3%
23.4%
22.1%
9,007
n/a
+722
+9% -130bps
Operating
expenses
Underlying
EBIT
(1,527)
(106)
n/a
(1,633)
(1,665)
-32
-2%
302
4
n/a
306
330
+24
+8%
Note: (i) See Note 33 on page 165 for details of the prior year restatement.
PERFORMANCE BY BUSINESS LINE
The Group now reports the operations of its Group Tour Operator
and Group Airline businesses as its primary reporting segmentation,
as this split better reflects how the business is managed and
reported internally. This segmentation was previously given as
supplementary information. Further description of this change in
segmental reporting can be found under “Segmental Information”
on page 130.
Underlying EBIT by business line (£m)
Group Tour
Operator
Group
Airline Corporate
Group
Restated FY16(i)
Impact of Currency Movements
Restated FY16 Like-for-like
FY17 Reported
Like-for-like change
Like-for-like change (%)
249
6
255
250
-5
-2%
83
(2)
81
115
+34
+42%
(30)
–
(30)
(35)
-5
-17%
302
4
306
330
+24
+8%
Note: (i) See Note 33 on page 165 for details of the prior year restatement.
PERFORMANCE BY GEOGR APHICAL MARKET
As the Group’s Tour Operator and Airline activities are integrated
to varying degrees in each of our source markets, we believe that
it is helpful to provide supplementary information by geographic
source market, consistent with how the Group has reported in
previous years.
Underlying EBIT by
source market (£m)
Continental
Europe
Northern
Europe
UK
Condor Corporate
Group
FY16 Restated
Internal business
unit transfer(i)
Impact of Currency
Movements
FY16 Like-for-like
FY17 Reported
Like-for-like change
Like-for-like change
(%)
146
(2)
–
144
111
-33
72
2
1
75
108
+33
124
–
5
129
134
+5
(10)
(30)
302
–
(2)
(12)
12
+24
–
–
(30)
(35)
-5
–
4
306
330
+24
-23%
+44%
+4% +200%
-17%
+8%
Note:
(i) The trade and assets of our accommodation business, Hotels4U, was transferred from our UK
business to our Continental Europe business in August 2016; a like-for-like adjustment has been
made to show comparable performance of these two segments.
REVENUE
Group revenue increased by £722 million (9%) to £9,007 million, as
we expanded our Winter and Summer programmes to meet growing
customer demand. This resulted in higher revenue from holidays and
flights to Greece, Spain, and Long Haul destinations, as well other
Short and Medium haul destinations including Turkey and Egypt.
The main components of the changes by destination are as follows:
Revenue £m
224
105
8,285
163
103
101
26
9,007
FY16
like-for-like
revenue
Greece
Spain
Turkey
Other
short/medium
haul
Long
haul
Other
revenue
FY17
revenue
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GROSS PROFIT AND MARGIN
Gross profit increased by £56 million to £1,995 million, supported by
strong revenue growth. Gross margin of 22.1% is 130 basis points
lower than last year, mainly reflecting the impact of bed cost
inflation on holidays to Spain, particularly in our UK business, and
the mix effect in Continental Europe of strong growth in our Russian
business, which has a lower relative gross margin. Our Airline gross
margin was broadly in line with last year, with short-haul yield
pressure during Winter offset by the Condor turnaround during
Summer. The impact on the Group’s gross margin performance by
segment is set out below.
UNDERLYING EBIT
The Group generated underlying EBIT of £330 million during the
year, £24 million (8%) higher than last year on a like-for-like basis.
The principal components of the Group’s EBIT performance for the
year are summarised below.
EBIT
Statutory EBIT of £231 million represents an increase of 15%
like-for-like (£30 million), due to lower underlying EBIT, together
with a reduction in separately disclosed items to £99 million
(FY16: £105 million).
Underlying Gross Margin %
23.4
(0.7)
(0.5)
0.0
(0.1)
22.1
FY16
like-for-like
gross margin
UK Tour
operator
Continental
Europe Tour
operator
Northern
Europe Tour
operator
Airline
FY17
gross
margin
OPER ATING EXPENSES/OVERHEADS
Operating expenses before depreciation increased by 2% (£28 million)
to £1,443 million as the benefits of efficiency initiatives were offset
by inflation and volume-related increases to the operating cost
base. Depreciation increased by £4 million to £222 million reflecting
investment in our aircraft fleet and IT enhancements.
£m
Personnel Costs
Net Operating Expenses
Sub Total
Depreciation
Total
Year ended
30 Sep 2017
Year ended
30 Sep 2016
Like-for-like
Like-for-like
change
(975)
(468)
(1,443)
(222)
(1,665)
(946)
(469)
(1,415)
(218)
(1,633)
-29
+1
-28
-4
-32
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
43
STRATEGIC REPORT
FINANCIAL REVIEW
CONTINUED
S E G M E NTA L R E V I E W
PRIMARY SEGMENTATION: PERFORMANCE BY BUSINESS LINE
During the year underlying EBIT increased by £24 million on a like-for-like basis, analysed as follows:
£m
Group Tour Operator
Group Airline
Corporate(i)
Group
Revenue
Gross Margin (%)
Underlying EBIT
Underlying EBIT margin (%)
Like-for-like Underlying EBIT change
Customers (’000)
7,122
15.5%
250
3.5%
-5
11,032
3,185
27.8%
115
3.6%
+34
18,528
(1,300)
n/m
(35)
n/m
-5
(9,359)
9,007
22.1%
330
3.7%
+24
20,201
Note: (i) Negative revenue and customers reported in corporate are intercompany eliminations.
A review of the performance of each of our business units is set out below:
Group Tour Operator
Group Airline
Corporate
Group
Revenue £m
Gross margin %
£7,122m
27.8%
£3,185m
15.5%
£(1,300)m
£9,007m
Group Tour
Operator
Group
Airline
22.1%
Group
Underlying EBIT £m
Underlying EBIT %
£330m
£306m
3.5%
3.6%
3.7%
£255m
£250m
£115m
£81m
£(30)m
£(35)m
FY16
Like-for-like
FY17
FY16
Like-for-like
FY17
FY16
Like-for-like
FY17
FY16
Like-for-like
FY17
Group Tour
Operator
Group
Airline
Group
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Revenue (£m)
Gross margin (%)
Underlying EBIT (£m)
EBIT margin (%)
Customers (000’s)
7,122
15.5
250
3.5
11,032
UK
Having traded strongly in the first half, our UK Tour Operator
experienced challenging conditions in the second half of the
year, as highlighted in previous announcements. A combination of
hotel price inflation, weaker Sterling and increased air capacity
made the market for holidays to Spain more competitive than
in previous years, putting pressure on input costs and selling
prices. The business also absorbed the costs of rising fraudulent
illness claims during the year, and of supporting 10,000 customers
caught up in Hurricane Irma. As a result, while revenue grew by
3%, underlying EBIT declined by £34 million compared to the strong
result reported last year.
In response, our UK Tour Operator has implemented a set of actions
to improve profitability. We have taken a robust approach towards
illness claims including improving our handling and assessment
processes, and taking legal action against fraudsters – as a result,
the claim rate has declined dramatically. We are also rebalancing our
destination mix towards more profitable, fast-growing destinations
such as Turkey and Egypt, and we are continuing to drive
operating efficiencies.
In addition, we are continuing to reposition the business. In FY17 web
bookings grew by more than 25% and we closed over 100 stores, in
order to accelerate the shift towards online distribution. We also
grew sales of differentiated holidays, by 16% for holidays to own-
brand hotels, and by 8% for sales to selected partner hotels, in order
to improve our competitive positioning. Together, we expect that
these actions will help to return the business to its former profitable
growth trajectory.
£m
Restated
FY16
FY17
Change
Restated
FY16
Like
-for-like
Like
-for-like
change
Revenue
Gross Margin (%)
Underlying EBIT
Underlying EBIT margin (%)
Customers (000’s)
ASP (£)
7,122
15.5%
250
3.5%
11,032
646
+899
6,223
17.0% -160bps
249
+1
4.0% -50bps
+165
+74
10,867
572
+476
6,646
16.9% -140bps
255
-5
3.8% -30bps
+165
+34
10,867
612
The market for overseas holidays experienced a resurgence in
demand in FY17, following a more muted demand environment
in FY16 due to geopolitical disruption. Against this backdrop, our
Group Tour Operator business increased revenues by £476 million
(7%) to £7,122 million, reflecting growth in both customer numbers
and average selling prices across most of our source markets,
particularly in Continental Europe. Supported by both strong
demand and a continued focus on efficiencies, Continental Europe
grew underlying EBIT significantly, while Northern Europe further
increased profits on top of a strong performance last year. This was
offset by lower margins in our UK business, and as a result Group
Tour Operator underlying EBIT declined by £5 million to £250 million.
The underlying EBIT for our Group Tour Operator, split by source
market, is set out below.
£m
Underlying EBIT
– UK Tour Ops
– Continental Europe Tour Ops
– Northern Europe Tour Ops
Total
Restated
FY16
FY17
Change
Restated
FY16
Like
-for-like
Like
-for-like
change
52
96
102
250
87
70
92
249
-35
+26
+10
+1
86
71
98
255
-34
+25
+4
-5
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
45
STRATEGIC REPORT
FINANCIAL REVIEW
CONTINUED
Continental Europe
Our Continental Europe tour operating business achieved a
significantly improved performance in FY17, with revenues up
9%. Stronger demand for our holidays, coupled with a continuing
efficiencies programme, helped to increase EBIT by £25 million (35%)
to £96 million.
In Germany, we maintained our market share in a highly competitive
marketplace, growing revenues by 7%. Underlying EBIT increased
by £13 million (29%) to £58 million, helped by business improvement
initiatives, including expanding our online bookings by 22%, growing
sales of holidays to own-brand hotels by 9%, expanding our
relationships with distribution partners, and restructuring our back
office functions.
Most of our other businesses in Continental Europe also experienced
good demand growth and achieved higher EBIT. Sales in our Russian
business more than doubled, amid a resurgence in demand for
outbound holidays as Russian tourists returned to Turkey following
a travel ban in the previous year. Our businesses in Eastern Europe
also performed strongly during the year.
Northern Europe
Our Northern Europe business reported revenue growth of
7%, reflecting further expansion in our own-brand hotel range.
Trading over the Summer period was notably stronger, after a
Winter performance that was in line with the previous year, as
we expanded sales of both classic package holidays and dynamic
packages. As a result, underlying EBIT grew by a further £4 million
to £102 million, further building on a very strong year last year.
During the year, the business further strengthened its customer
proposition, achieving the highest net promoter score in the
Group of 51, up 7 points compared to FY16. We continue to refine
and streamline the cost structures within the four Nordic source
markets and to leverage the competitive strengths of our integrated
business model.
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Revenue (£m)
EBITDAR margin (%)
Underlying EBIT (£m)
EBIT margin (%)
Departed customers (000’s)
3,185
13.3
115
3.6
18,528
£m
FY17
FY16
Change
FY16
Like
-for-like
Like
-for-like
change
Flight Revenue
Ancillary Revenue
Other Revenue
Total Revenue
Total Operating Costs
Underlying EBITDAR
Underlying EBITDAR margin
(%)
Underlying EBIT
Underlying EBIT margin (%)
Customers (000’s)
Proportion of internal sales
(%)
Available Seat Kilometres
(ASK) (m)
Seat Load Factor (SLF) (%)
Short/Medium Haul Yields
per seat (£)
Long Haul Yields per seat (£)
Unit cost (p./ASK)
2,847
310
28
3,185
(2,760)
425
13.3%
115
3.6%
18,528
2,530
265
30
2,825
(2,465)
360
+317
+45
-2
+360
-295
+65
2,598
283
32
2,913
(2,536)
377
+249
+27
-4
+272
-224
+48
83
12.7% +60bps
+32
2.9% +70bps
+948
17,580
81
12.9% +40bps
+34
2.8% +80bps
+948
17,580
42%
45% -30bps
–
–
70,171
89.7%
66,776
+3,395
89.3% +40bps
66,776
+3,395
89.3% +40bps
110
306
(4.37)
104
299
(4.11)
+6
+7
-0.26
112
321
(4.40)
-2
-15
+0.03
Our Group Airline revenue increased by £272 million (9%) to
£3,185 million on a like-for-like basis, driven by further expansion
of our long-haul business from UK and Germany. In particular, our
long-haul performance was driven by seat-only growth to new
destinations including New Orleans, San Diego and San Francisco,
together with growing third-party tour operator sales in Germany.
In short and medium haul, a number of actions to turn around our
Condor business resulted in an overall improvement in yields, while
load factors increased by 110 basis points to 91.1%. In the UK, we also
selectively added capacity to Turkey, in response to strong demand.
Ancillary revenues grew by 10%, partly as a result of the increase in
long haul flying, which attracts higher ancillary sales than short and
medium haul flights. In addition, we experienced growing demand
for seat reservations, as well as for our pre-packaged duty free
products sold under the “Airshoppen” brand. As a result, ancillary
revenue per passenger increased by 4% over the year to £16.63
(FY16: £16.10).
Operating cost increases due to volume-related growth and less
favourable exchange rates were mitigated by cost efficiencies
as part of our profit improvement programme, such that the total
cost per ASK reduced by 0.03 pence to 4.37 pence per ASK.
Underlying EBIT for our Group Airline grew by 42% (£34 million) to
£115 million. The improvement was largely driven by the turnaround
in Condor, which made good progress implementing the profit
improvement measures that we set out in our FY16 results
announcement in November 2016. These included re-routing capacity
from the Spanish Islands to alternative destinations such as Italy,
Bulgaria and Greece, and improving the flexibility of our flight
planning, helping to optimise yields and to mitigate competitive
pricing pressures in the market. As a result, Condor reported 9%
higher revenue than last year, and improved Underlying EBIT by
£24 million, to achieve a positive EBIT result of £12 million.
Our UK Airline reported revenue of 13% higher than last year,
reflecting increases to the long haul and short/medium haul
flight programme to take advantage of a recovery in demand to
Turkey and growth in new and existing long haul destinations.
As a consequence of further cost-out initiatives and a further
strengthening of our seat-only offering, our UK airline delivered
underlying EBIT in line with last year.
In Belgium, our airline recovered from the terror attacks at Brussels
airport in March 2016 to deliver an Underlying EBIT improvement of
£10 million compared to last year and broadly in line with FY15 levels.
As previously announced, from November 2017, our Belgian airline
business transferred to Brussels Airlines such that it is no longer
part of the Group.
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STRATEGIC REPORT
FINANCIAL REVIEW
CONTINUED
OTH E R F I N A N C I A L ITE M S
NET FINANCE CHARGES
Group net finance costs for the year of £143 million were broadly
in line with last year (FY16: £140 million). Bank and bond interest
charges reduced by £6 million following the replacement of our
2017 and 2020 bonds with a new lower-coupon €750 million bond
issued in December 2016. This was offset by a £6 million increase in
non-cash interest charges relating to the discounting of long term
provisions, within other interest costs.
TA X ATION
The tax charge for the year increased to £34 million
(FY16: £33 million). Current tax of £42 million is £3 million higher
than last year due to increased tax payable in respect of our
profitable business in Northern Europe. A net credit of £8 million was
recognised during the year for deferred tax which largely reflects
the increased recognition of deferred tax assets in respect of
carried forward tax losses in our Spanish entities.
UK tax legislation was enacted after the balance sheet date which
will restrict the permitted level of utilisation of brought forward
tax losses. The associated UK deferred tax asset will subsequently
be recovered over an extended period of time. Although we expect
this to impact the recognition of deferred tax assets in FY18 in
respect of our sizeable UK tax losses, we do not expect there to be
a significant impact on cash tax.
£m
Current Tax
Deferred Tax
Total Tax Charge
Total Cash Tax
FY17
FY16
(42)
8
(34)
(37)
(39)
6
(33)
(15)
OPER ATING LEASE CHARGES
Operating lease charges in the year increased by £23 million
compared to last year to £236 million. Aircraft operating lease
charges increased by £24 million to £144 million primarily due to the
weakening of the pound against the US Dollar and changes to our
narrow-body fleet.
£m
FY17
FY16
Included within EBIT:
Aircraft operating lease charges(i)
Retail operating lease charges
Hotel operating lease charges
Other operating lease charges
Total
144
41
19
32
236
120
40
21
32
213
Note:
(i) In addition the Group incurred seasonal wet lease costs of £75m (2016: £60m) during the year.
The year-on-year increase was due in part to unplanned requirements as a result of grounded
aircraft in Condor, as well as the expansion of our long-haul programme, increased summer
demand in the UK and a fleet rollover on four aircraft, thus resulting in higher operating
lease charges.
£m
FY17
FY16
RCF and Bond interest
Commitment fees and other bank related charges
Letters of credit and other interest payable
Fee amortisation
Interest income
Net interest & finance costs before aircraft financing
Aircraft financing
Net Finance Costs
(68)
(10)
(44)
(7)
4
(125)
(18)
(143)
(72)
(12)
(36)
(7)
6
(121)
(19)
(140)
Further information on Finance costs are set out in Note 8
on page 136.
SEPAR ATELY DISCLOSED ITEMS
Net Separately Disclosed Items in FY17 comprised a charge
of £140 million, which is £12 million higher than the prior year
(FY16: £128 million) as analysed below:
£m
FY17
FY16
New Operating Model implementation costs
Restructuring costs
Onerous contracts and store closures
Costs of transformation
Reassessment of contingent consideration
Write offs, revaluations and other non-cash
Other
EBIT related items
Finance related charges
Total
Of which:
– Cash(i)
– Non-Cash
(42)
(12)
(30)
(84)
32
(23)
(24)
(99)
(41)
(140)
(125)
(15)
(50)
(20)
(21)
(91)
4
(15)
(3)
(105)
(23)
(128)
(93)
(35)
Note:
(i) Items classified as ”Cash” represent both current year cash flows, and cash effects which are
yet to be realised.
Further information on Separately Disclosed Items is set out in
Note 7 on page 135.
48
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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EARNINGS PER SHARE
Underlying earnings per share, before separately disclosed items,
was 9.3 pence, a year-on-year increase of 1.2 pence (FY16: 8.1 pence).
Basic earnings per share for the year was 0.8 pence, a year-on-year
increase of 0.5 pence (FY16 restated: 0.3 pence). Further information
is included in Note 11 on page 138.
£m
FY17
FY16
Profit After Tax
Separately Disclosed Items
Attributable to Non-controlling Interests
Exceptional Tax(i)
Adjusted Profit After Tax
Weighted Ave. # of shares (m)
Underlying Earnings Per Share (Pence)
Note:
(i) This represents the tax impact of separately disclosed items.
SUMMARY CASH FLOW STATEMENT(i)
12
140
1
(10)
143
1,536
9.3p
1
128
3
(8)
124
1,531
8.1p
Free cash flow of £153 million was £93 million higher than last
year (2016: £60 million), reflecting growth in EBITDA of £46 million
to £552 million and an improvement in working capital as a result
of stronger trading. These improvements were partially offset
by increased outflows in relation to the timing of tax payments
and additional one-off financing costs associated with the bond
refinancing in December 2016.
Net cash interest paid was unchanged at £129 million. Bond and
bank interest costs reduced by £9 million, whereas volume-related
costs such as letters of credit increased by a similar amount.
Current year cash exceptional items are analysed as follows:
Exceptional items (£m)
FY17
FY16
Current year cash related exceptionals
Of which will be paid in future years
Prior year cash exceptionals paid in current year
Prior year EU261 (paid in Financial Year)
Total cash exceptional items(i)
(125)
26
(16)
–
(115)
(93)
20
(13)
(9)
(95)
£m
Underlying EBIT
Depreciation
Underlying EBITDA
Working capital
Tax
Pensions & other operating
Operating Cash flow
Exceptional items
Bond Refinancing
Capital expenditure
Net interest paid
Free Cash flow(ii)
Dividend and Co-Op payment
Net Cash flow
Opening Net Debt
Net Cash Flow
Other Movements in Net Debt(iii)
Closing Net Debt
FY17
FY16
Note:
(i) Total cash exceptionals in FY17 are the sum of exceptional items £(105)m and Bond Refinancing
costs of £(10)m as presented in the cash flow.
The Group uses a measure of cash conversion representing the
percentage of underlying profit before tax that is converted into free
cash flow. On this basis, cash conversion has increased in FY17 to
82% (FY16: 37%) due to the working capital benefits from the volume
related increases experienced in FY17.
Cash conversion (£m)
FY17
FY16
Underlying EBIT
Net interest
Underlying Profit before tax
Free Cash flow(i)
Cash conversion
330
(143)
187
153
82%
302
(140)
162
60
37%
Note:
(i) Free cash flow is cash from operating activities less exceptional items, capital expenditure
and interest paid.
330
222
552
105
(37)
(24)
596
(105)
(10)
(199)
(129)
153
(40)
113
(129)
113
(24)
(40)
302
204
506
18
(15)
(25)
484
(95)
–
(200)
(129)
60
(4)
56
(128)
56
(57)
(129)
Notes:
(i) The Group uses three non-statutory cash flow measures to manage the business.
Operating Cashflow is net cash from operating activities excluding interest income and the
cash effect of separately disclosed items impacting EBIT. Free Cash flow is cash from operating
activities less capital expenditure and net interest paid. Net 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) Free cash flow is cash from operating activities less exceptional items, capital expenditure and
net interest paid
(iii) Other movements in net debt include currency translation and the reclassification of operating
leases to finance leases
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
49
STRATEGIC REPORT
FINANCIAL REVIEW
CONTINUED
NET ASSETS
Net Assets decreased by £46 million from £326 million at September
2016 to £280 million at September 2017. This includes a negative
revaluation of £83 million for the Group’s derivatives in respect
of fuel and currency hedging, due mainly to an increase in the
differential between our hedged fuel prices and spot prices,
together with a positive revaluation of our pension liability of
£88 million due to an improvement in bond yields used to calculate
the present value of the Group’s pension obligations.
Net assets £m
186
(34)
326
88
(140)
(83)
(26)
(32)
(5)
280
Opening
net assets(i)
Underlying
PBT
Tax
charge
Separately
disclosed
items
Revaluation
of
derivatives
Revaluation
of pension
liability
Currency
loses
Dividends
paid to
Coop
Other
Closing
net assets
Note:
(i) Further information on prior year restatement is set out in Note 33 on page 165.
NET DEBT
The Group sources debt and finance facilities from a combination of
the international capital markets and its relationship banking group.
During FY17, the Group’s net debt has fallen from £129m to £40m,
equivalent to an improvement of £122m on a like-for-like basis.
Like-for-like Net Debt reconciliation
FY16 Reported
Impact of currency and other non-cash movements
Aircraft lease extensions
Bond refinancing
FY16 Like-for-like
FY17 Reported
Like-for-like change
£m
(129)
10
(18)
(25)
(162)
(40)
+122
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
The composition and maturity of the Group’s net debt is
summarised below.
£m
2017 GBP Bond
2020 Euro Bond
2021 Euro Bond
2022 Euro Bond
Commercial Paper
Revolving Credit Facility(i)
Finance Leases
Aircraft related borrowings
Other external debt
Arrangement fees
Total Debt
Cash (net of overdraft)
Net Debt
30 Sep
2017
–
–
(353)
(662)
(218)
–
(154)
(32)
(37)
17
(1,439)
1,399
(40)
30 Sep
2016 Movement
Maturity
(200)
(451)
(345)
–
(117)
–
(183)
(64)
(26)
23
(1,363)
1,234
(129)
200
451
(8)
June 2017
June 2020
June 2021
(662) June 2022
Various
(101)
– May 2019
Various
Various
Various
n/a
29
32
(11)
(6)
(76)
165
89
Note:
(i) The Revolving Credit Facility (RCF) is shown as nil in FY17 and FY16, however in FY17 the Group
had utilised £28 million (FY16: £20 million) which related to the ancillary facilities of the RCF,
which was used solely for bonding and is thus net debt neutral.
As at 30 September 2017 the Group had £800 million of Committed
Facilities, which comprised a Revolving Credit Facility of £500 million,
of which £28 million was utilised at 30 September 2017 (£20 million
in September 2016), and a £300 million bonding and guarantee
facility of which £267 million was drawn at 30 September 2017
(30 September 2016: £275 million). All of the combined £295 million of
drawn balances have been used solely for bonding, and therefore is
not reflected in our gross debt. These facilities were due to expire
in May 2019.
In November 2017 the Group entered into new financing
arrangements amounting to £975 million, replacing our existing
facilities. This is further discussed under “Borrowing facilities” on
pages 146 to 147.
TREASURY AND CASH 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.
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, and enhance the Group’s credit rating over
the medium term.
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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 our liquidity headroom calculation.
HEDGING OF FUEL AND FOREIGN EXCHANGE
AS AT 31 OCTOBER 2017
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.
Euro
US Dollar
Jet Fuel
As at 31 October 2017.
Winter
2017/18
Summer
2018
Winter
2018/19
Fully Hedged
Fully Hedged
Fully Hedged
76%
83%
90%
39%
33%
51%
As 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 £15 million in FY17 compared
to the previous year, these benefits were partially offset by higher
dollar-denominated non-fuel flying costs. For FY18, we are hedged
at significantly below the current forward rate, and estimate that,
as a result of our hedge position, our fuel costs will fall by a further
£10 million.
The Group does not hedge the translation of overseas profits into
Sterling, and as a result of currency movements during the year,
underlying EBIT in FY16 was higher by £4 million.
The average and period end exchange rates relative to the Group
were as follows:
GBP/Euro
GBP/US Dollar
GBP/SEK
Average Rate
Period End Rate
FY17
FY16
FY17
FY16
1.15
1.27
11.05
1.28
1.42
11.99
1.13
1.34
10.93
1.16
1.30
11.17
CREDIT R ATING
The Group has received an upgrade from Fitch to B+ whilst
Standard & Poor’s issued a positive outlook and Moody’s maintained
their B1 rating, recognising the continuing progress in Thomas
Cook’s transformation.
Corporate ratings
2017
2016
Rating
Outlook
Rating
Outlook
Standard and Poor’s
Fitch
Moody’s
B Positive
Stable
B+
Stable
B1
B
B
B1
Stable
Stable
Stable
FORWARD LOOKING STATEMENTS
This document includes forward-looking statements that are
based on estimates and assumptions and are subject to risks and
uncertainties. These forward-looking statements are all statements
other than statements of historical facts or statements in the
present tense, and can be identified with words such as “aim”,
“anticipates”, “aspires”, “assumes”, “believes”, “could”, “estimates”,
“expects”, “intends”, “hopes”, “may”, “outlook”, “plans”, “potential”,
“projects”, “predicts”, “should”, “targets”, “will”, “would”, as well as
the negatives of these terms and other words of similar meaning.
These statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those
otherwise expressed.
The forward-looking statements in this document are made
based upon our estimates, expectations and beliefs concerning
future events affecting the Group and are subject to a number
of known and unknown risks and uncertainties. Such forward-
looking statements are based on numerous assumptions regarding
the Group’s present and future business strategies and the
environment in which it will operate, which may prove not to be
accurate. We caution that these forward-looking statements are
not guarantees and that actual results could differ materially from
those expressed or implied in these forward-looking statements.
Undue reliance should, therefore, not be placed on such forward-
looking statements.
Any forward-looking statements contained in this document apply
only as at the date of this document and are not intended to give
any assurance as to future results. Other than in accordance with
any legal or regulatory obligations, the Group does not undertake
any obligation to update or revise any forward-looking statement
after the date on which the forward-looking statement was made,
whether as a result of new information, future developments
or otherwise.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
51
STRATEGIC REPORT
FINANCIAL REVIEW
CONTINUED
A P P E N D I X 1 – U S E O F A LTE R N ATI V E P E R FO R M A N C E M E A S U R E S
Reconciliation to IFRS measures
£m
FY17
FY16
Underlying EBIT
IFRS depreciation and amortisation
IFRS share based payments
IFRS movement in working capital and provisions
Add back cash impact of separately disclosed items
on working capital
IFRS Income taxes paid
IFRS additional pension contributions
Add back non cash impact of separately
disclosed items
Operating Cash Flow
330
222
3
73
29
(37)
(28)
4
596
302
204
1
8
(6)
(15)
(29)
19
484
£m
FY17
FY16
IFRS net cash used in operating activities
IFRS proceeds on disposal of property, plant and
equipment
IFRS Investments in joint ventures & associates
IFRS purchase of tangible assets
IFRS purchase of intangible assets
IFRS interest paid
Free Cash Flow
IFRS dividends paid
IFRS dividends paid to non-controlling interests
Net Cash Flow
496
7
–
(132)
(74)
(144)
153
(8)
(32)
113
395
9
(3)
(117)
(89)
(135)
60
–
(4)
56
The Directors have adopted a number of alternative performance
measures (APM), namely underlying EBIT, net debt, underlying EPS,
operating cash flow, free cash flow and net cash flow. The Group’s
results are presented both before and after separately disclosed
items. Separately disclosed items are disclosed in Note 7 of the
consolidated financial statements.
These measures have been used to identify the Group’s strategic
objectives of ‘Underlying EBIT and Underlying EBIT margin growth’
and ‘Net Debt’ reduction, and to monitor performance towards these
goals. The alternative performance measures are not defined by IFRS
and therefore may not be directly comparable with other companies’
alternative performance measures. These measures are not
intended to be a substitute for, or superior to, IFRS measurements.
The definition of each APM presented in this report, together with
a reconciliation to the nearest measure prepared in accordance
with IFRS is presented below.
UNDERLYING EBIT
This is the headline measure of the Group’s performance, and is
based on profit from operations before the impact of separately
disclosed items. Underlying EBIT provides a measure of the
underlying operating performance of the Group and growth in
profitability of the operations.
Reconciliation to IFRS measures
£m
FY17
FY16
Profit from operations
Less: Separately disclosed items affecting loss from
operations (Note 7)
Underlying EBIT
231
(99)
330
197
(105)
302
MANAGEMENT CASH FLOW STATEMENT
The Group uses three non-statutory cash flow measures to manage
the business. Operating Cash flow is net cash used in operating
activities excluding the cash effect of separately disclosed items.
Free Cash flow is cash from operating activities less capital
expenditure and interest paid. Net Cash flow is the net decrease
in cash and cash equivalents excluding the net movement in
borrowings, facility set-up fees and finance lease repayments.
These cash flow measures are indicators of the financial
management of the business. They reflect the cash generated by
the business before and after investing and financing activities and
explain changes in the Group’s Net Debt position.
52
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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UNDERLYING EPS
Earnings are based on results before separately disclosed items
after a notional tax charge divided by the weighted average number
of ordinary shares, adjusted for any potential dilutive impact of the
assumed conversion of the employee equity-settled share-based
payment schemes outstanding.
Reconciliation to IFRS measures:
£m
FY17
FY16
Profit before tax
Separately disclosed items (Note 7)
Underlying profit before tax
Notional tax charge
Loss attributable to non-controlling interests
Underlying profit attributable to equity holders
of the parent
Weighted average number of shares used for basic
and diluted earnings per share (Note 11)
Underlying EPS (pence)
46
(140)
186
(44)
1
143
1,536
9.3p
34
(128)
162
(41)
3
124
1,531
8.1p
Note:
(1) The notional tax charge £44m (2016: £41m) includes IFRS tax charge of £34m (2016: £33m) and a
notional tax charge on separately disclosed items of £10m (2016: £8m).
NET DEBT
Net debt comprises bank and other borrowings, finance lease
payables and net derivative financial instruments used to hedge
exposure to interest rate risks of bank and other borrowings,
offset by cash and cash equivalents. Net debt is a measure of
how the Group manages its balance sheet and capital structure.
A strong balance sheet and efficient capital structure is essential
to withstand external market shocks and seize opportunities.
Accordingly, reducing net debt and the cost of the debt is a priority
for the Group.
Reconciliation to IFRS measures:
£m
Borrowings
Obligations under finance leases
Net derivative financial instruments – interest rate
swaps (Note 21)
Cash and cash equivalents
Net Debt
FY17
FY16
(1,292)
(154)
(1)
1,407
(40)
(1,738)
(183)
16
1,776
(129)
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
53
STRATEGIC REPORT
RISK MANAGEMENT
EMBEDDING A CULTURE
OF RISK MANAGEMENT
TOP DOWN OVERSIGHT
In 2017, we enhanced our approach to risk management by
incorporating the top down risk review process into the agenda of
the Executive Committee, which is chaired by the CEO. The purpose
of the top down risk review is to provide leadership, direction
and oversight with regard to the Group’s overall risk framework,
appetite, and relevant risk policies, processes and controls. As part
of the new process, key strategic risks from the Group Risk
Dashboard are reviewed on a quarterly basis to ascertain whether
all risks are being mitigated appropriately and to take action where
further mitigations are required. The Group Risk Dashboard is then
presented and discussed at the Audit Committee, which ensures
that the Audit Committee is provided with an enterprise-wide view
of the Group’s current risk exposure.
BOTTOM UP ASSESSMENTS
Each major business unit has a quarterly risk committee attended
by the risk owners representing all areas of the business, as
well as by the Group Risk 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 during the Executive Committee
risk review.
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 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 results of these activities have informed the 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 74.
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; changes in the economic environment, strategy or
performance of the business will impact this evaluation.
The Board is aligned on the relative risks and has agreed the
appetite for risk taking for Strategic Initiatives, Digital Delivery,
Product Portfolio, and Talent is entrepreneurial. This position aligns
with the strategic aims and targets set for the business. The Board
seeks to minimise exposure to all Health and Safety, Reputational
and Customer risks. In all other aspects, the Board takes a balanced
view on risk taking.
The Board will use the results of this review to influence setting of
Group strategy and support its ongoing decision-making process.
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 embedding a culture of risk management that will contribute
towards effective strategy execution, ensuring both risks and
opportunities are identified and managed to deliver long-term
value creation.
During 2017, we focused on maturing our risk management
programme. We strengthened our risk analysis and reporting
through the incorporation of quantitative key risk indicators into
the process. We advised the business on how to assess the risks
inherent within the Group’s commercial partnership agreement
with Expedia. We delivered project risk management training to the
IT project management community, which will help ensure risks
are appropriately considered and addressed during the delivery
of strategic projects.
54
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TH E R I S K M A N AG EM ENT FR A M E WO R K
TOP DOWN
Oversight and assessment
of risk exposures at the
corporate level
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
> Supports the Board in monitoring risk exposure
> Monitors the risk management process
against risk appetite
AUDIT COMMITTEE
EXECUTIVE COMMITTEE
> Maintains executive oversight
of the Group’s key risks and
mitigation
> Provides oversight and challenge
for risk mitigation plans
> Considers emerging risks
> Sets the risk management
process
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
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 discussed with the
Board quarterly. This includes all relevant principal risks that could
threaten Thomas Cook’s business model, future performance,
solvency or liquidity.
VIABILIT Y STATEMENT
The Directors have assessed the prospects of the Group
in accordance with provision C2.2 of the 2016 UK Corporate
Governance Code.
The Directors believe a five-year period is appropriate to consider
viability as this duration is in line with the Thomas Cook Group
business plan (the ‘Business Plan’) and the maturity of the Group’s
bank facility.
In order to assess the viability of the Group, the Directors reviewed
each of the principal risks and uncertainties, taking into account
current operational and financial performance as well as the
Business Plan. The key assumptions which underpin the Business
Plan include:
> revenue growth of 4% per annum;
> the benefits of the Group’s strategic plans are delivered in full; and
> financing facilities in the form of debt or aircraft leases will
continue to be available.
As part of the analysis, stress testing focusing on the following
scenarios was performed:
> A major terrorist incident or natural disaster in one of the
Group’s larger destinations that leads to a significant decline
in customer demand
> The Group fails to fully deliver the efficiency targets or new
business initiatives included in its business plan
Based on the results, the Directors have a reasonable
expectation that the Group will be able to continue in operation
and to meet its liabilities as they fall due over the five-year period
of their assessment.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
55
STRATEGIC 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.
Risk Direction
(after mitigation)
Increased risk
Risk exposure unchanged
Reduced risk
Principal risks
Mitigation
Our Strategic Priorities
CARE
CONT
HOL
SERV
PART
EFF
Care
Contact
Holidays
Services
Partnership
Efficiencies
Trend vs
2016
Link to
Strategy
Strategic initiatives
We continue to implement our
strategy for profitable growth, which
involves significant changes to our
businesses and operations, as well
as our underlying processes and
systems. Due to the complexity of
these changes, there is a risk that we
will not deliver the targeted benefits.*
Customer satisfaction
Technological advances have had
a significant impact on consumer
behaviour by increasing price
transparency and availability
of travel products as well as a
proliferation of online reviews about
travel experiences. Consequently,
competition for travel services is
increasing and Thomas Cook must
differentiate itself by providing a
high-quality holiday experience.
Inability to consistently meet
customer expectations may have an
adverse impact on Thomas Cook’s
market share.*
> Weekly Executive Committee meetings attended by senior management during
which progress and issues are discussed and addressed
> Financial benefits and KPIs are incorporated in the business plan and delivery
is tracked as part of the business review process
> Each project or programme has its own steering group which provides challenge
to the project, monitors progress and ensures that decisions are made at the
appropriate level
> We have made significant progress within all elements of our strategy including the
24-Hour Hotel Satisfaction Promise and partnerships with LMEY Investments and
Expedia. Our strategic initiatives are key mitigation measures for our principal risks
and are described in detail in the mitigation of each risk below
> Our implementation of the Customer Experience Roadmap is progressing well and
is on track to be fully embedded into the business by 2020. This has strengthened
our focus on customer excellence and is improving our ability to respond to shifts in
consumer behaviours
> We have refreshed our organisational values to ensure clear alignment with our
Customer Promises of Quality, Service, and Reliability. All employees received
training on our Customer Promises and the new organisational values, which helps
foster a culture of customer excellence
> The 24-Hour Hotel Satisfaction Promise has been extended to apply to most of our
differentiated properties and continues to receive positive customer feedback
> We regularly review our customer journey map to identify innovative holiday
features such as ‘Choose Your Room’
> We have a robust hotel quality review process
> We proactively monitor our Net Promoter Score (NPS) to identify and address areas
for improvement at each stage of the customer journey
Quality of our products and services
Our success and future growth
depend upon the introduction and
expansion of products and services
that appeal to consumers. If we
are unable to provide the right new
products and services to rapidly
changing customer demands and
preferences, it may have an adverse
effect on our business.*
> We are continuing to invest into our own-branded hotel portfolio, which
contributes to higher customer satisfaction and margin. This summer we opened
11 own-branded hotels across Bulgaria, Croatia, Italy, Turkey, Spain, Greece, Cyprus,
and the Maldives. In 2018 we are planning to launch a further 11 own-branded hotels
> Our aim is to reduce the number of hotels within our differentiated portfolio.
This allows us to focus our resources into developing a better experience for
our customers
> We have entered into a strategic partnership with LMEY Investments, a Swiss-
based hotel property development company, to further develop and grow
Thomas Cook’s own-brand hotel portfolio
> We have signed a multi-year agreement with Expedia which will provide our
customers with over 60,000 more hotels in global city and European domestic
locations than currently on offer
> We have launched the ‘Choose Your Room’ service which allows customers to
pick the hotel room of their choice. It is initially available at 50 hotels and will be
available in 300 by summer 2018. The service raises the bar in terms of the quality
and value we offer our customers. Personalised add-ons and ancillaries are real
drivers of profitable growth
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56
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
S
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P
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Principal risks
Mitigation
Trend vs
2016
Link to
Strategy
Digital strategy
Our distribution approach has to be
aligned with customer demands and
preferences and be able to adapt to
rapid changes in technology. If we
are not successful in adapting our
approach it may have an adverse
effect on our market share,
profitability and future growth.*
Talent
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 delivery
of our business strategy.
IT infrastructure
We are increasingly dependent on
technology to reduce costs and to
enhance customer service. If our IT
architecture is unable to support the
needs of the business, our business
may be adversely affected.
Cyber security
Information security and cyber
threats are currently a priority
across all industries and remain
a key Government agenda item.
We recognise that we have high
risk exposure in this area.
Our review of this area indicates that
the Group is particularly sensitive to
criminal activity against our brand,
reputation and revenue as well as
ransomware/malware attacks.
> We continue to improve our websites, which is leading to strong growth
in web bookings for our major markets
— Our OneWeb platform is now fully operational in the UK, Belgium and
The Netherlands
— The web platform used by our German market was recently ranked as
one of Germany’s best online portals
— We are currently upgrading the technology utilised on our Northern European
platform, which will make the website faster and more responsive
> In an effort to attract more customers to our websites, we have developed rich and
inspirational content. This year we have added 80,000 images and 130 hotel videos
> Our Companion App is available for our customers to support them during their
entire journey
> Our annual engagement survey allows us to assess employee commitment and
identify actions we need to enable talent retention. We will therefore introduce
with effect from FY18, a new commitment index designed to focus leaders on
those areas which will drive commitment to the organisation to deliver the
business strategy
> Our high potential talent have been identified by using a matrix of performance and
potential. Those identified have targeted development plans based on their career
aspiration
> Graduate programmes were introduced in 2016 in the UK and Group Airline
businesses to further strengthen succession and were further expanded in 2017
> Our Group Leadership Development programme for direct reports to Senior Leaders
commenced in 2017, targeting those identified as having potential for senior
leadership roles
> The recent appointment of the new CFO following the retirement of the current CFO
was done through internal channels demonstrating effective succession planning
> Our service delivery process ensures demands from the business are addressed
in a timely manner
> We have a robust governance framework that enables IT to align with and meet
the needs of the business
> We have commenced a major change programme which involves simplifying and
harmonising our IT landscape and will lead to significant operational efficiencies
> We are currently implementing a robust Cyber Security Strategy based on five
objectives: Protect, Detect, Deter, Respond, and Recover
> The Strategy is aligned with internationally recognised standards of Cyber security
from the ISO 27001 series and is designed to be quickly adaptable to the changing
cyber threat landscape
> Our Cyber Security Steering Group, which meets monthly, monitors progress of the
Cyber Security Strategy implementation and ensures appropriate mitigations are
in place for all high risk areas. The Audit Committee also receives regular updates
regarding progress on cyber risk mitigation
> We are currently undertaking a project to achieve compliance with the General Data
Protection Regulation by May 2018. As part of this project we are enhancing our
information security measures to ensure the confidentiality, integrity, availability
and resilience of our processing systems. This work complements our Cyber
Security Strategy and serves as an additional mitigation of this risk
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
57
STRATEGIC REPORT
RISK MANAGEMENT
CONTINUED
OUR PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Principal risks
Mitigation
Trend vs
2016
Link to
Strategy
Disruption to airline operations
The success of our Group Airline
business depends on our ability
to effectively manage our fleet by
ensuring we maintain the right
number and types of aircrafts and by
operating those aircrafts to deliver
a high-quality and cost-efficient
service to our customers.
Inability to operate the required
number and types of aircraft in our
fleet may lead to missed revenue
or reduced margins. Inability to
operate the fleet effectively may lead
to customer dissatisfaction, cost
increases and reduced profitability.
This risk has always been monitored
by the Group at an operational level.
At the request of the Audit Committee
this risk was added to the principal
risks to ensure a more holistic
disclosure of the Group’s risk profile.
Cash and working capital
Our ability, over the longer term,
to generate sufficient cash flow
to make scheduled payments on
our debt will depend on our future
operational performance, which will
be affected by a range of economic,
financial, regulatory, competitive and
business factors; many of which are
outside of our control.*
Health and safety
Due to the nature of our industry, the
Group will always be exposed to the
risk of a health and safety incident
en route to a destination, in the
accommodation or during an excursion.
A health and safety incident could have
a negative impact on our reputation.
> We have commenced a programme that aims at achieving efficiencies in the
maintenance, flight operations, ground operations, operation control and flight
dispatch departments through the adoption of a more streamlined organisational
structure, which will have a positive effect on our ability to manage and prevent
operational disruptions
> The Red3 programme was implemented with the aim of reducing the number of
three-hour delays through the adoption of mitigating measures such as the use
of charters and aircrafts in reserves
> The fleet Management Team continuously assesses the status of our fleet;
forecasting potential needs and managing dismissal and intake of aircraft.
Our fleet strategy also involves the structuring of our lease plans over a long
period of time. This approach allows us to refinance the lease/purchase of
aircrafts on a staggered schedule
> The acquisition of new aircraft is subject to a number of qualitative criteria that
guarantee consistency with our product offering
> We have recently entered into a seven-year agreement with Transat A.T. inc. for
the exchange of aircraft on a seasonal basis, enabling us to manage and utilise
our fleet more efficiently
> We proactively monitor our short, medium and long-term cash requirements and
liquidity headroom. Our new bank facility will further increase headroom
> Our cost-out and profit improvement initiatives are successfully contributing to
cash availability
> 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
> The markets in which we operate each have their own health and safety regulations.
We are currently focused on enhancing our policies and procedures by finding best
practice from each of the markets in order to define a common Group standard.
The policies address all major risk areas including swimming pools, balconies,
transport, excursions, fire and hygiene
> Our Health and Safety Audit Programme, which is delivered by reputable external
specialists (SGS and Cristal), verifies compliance with Federation of Tour Operators
and industry standards and includes a robust follow-up process. We continue to make
improvements to our audit programme; most recently we engaged an external specialist
to perform hygiene and security audits
> The Group Health, Safety, and Security Team regularly reviews and updates its safety
and security training programmes to ensure they continue to reflect best practice
> All new hotels are inspected by the internal Quality Team and SGS before opening to
ensure robust standards are in place
> We actively monitor the number of health and safety incidents and over the last
few years we have seen a significant rise in fraudulent customer illness claims by
UK tourists. We have put in place prevention and detection measures (e.g. fraud
investigators) in an effort to address this issue
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58
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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G
I
C
R
E
P
O
R
T
Principal risks
Mitigation
Trend vs
2016
Link to
Strategy
Geopolitical uncertainties
A significant decline in customer
demand due to the growing threat
of terrorist attacks in our key tourist
destinations, specifically Turkey,
may lead to a decrease in revenue
from our branded, selected and
complementary hotels.*
Brexit
Our risk assessment of the UK’s exit
from the EU identified the following areas
that could have a major impact on the
Group’s strategy:
> Loss of access to the European Single
Aviation Market could have a significant
impact on the ability of our UK Airline
to operate in the EU and the US
> Loss of access to EU employment
markets, including the ability for
businesses to place temporary workers
in EU Member States without additional
barriers may cause a skill shortage
in the UK and in destination
> Our flexible business model allows us to align our committed capacity to fluctuating
demand. We continue to rebalance our destination mix and add new destinations to
our portfolio, thereby mitigating the impact of geopolitical events
> We have developed a Hotel Security Framework, which defines a set of minimum
security standards that should be operational in our hotels. Implementation of
the Framework will follow a risk-based approach, with risk destinations including
Tunisia and Egypt as a priority
> We proactively monitor the geopolitical landscape by partnering with the Risk
Advisory Group, a leading independent global risk management consultancy that
provides intelligence, investigations and security services
> We continue to follow the guidance of the appropriate state departments relevant
to our source market
> We have a robust crisis management framework which we activate in the event
of an incident
> The Corporate Affairs Team has been proactively meeting with Government officials
from both the UK and the EU to ensure our concerns are appropriately understood
> The Brexit Working Group which includes representatives from Finance, Tax, HR,
Communications, Legal, Risk, the Group Airline and the Tour Operating Segments
was established in 2016 to ensure all risks and potential issues related to the UK’s
upcoming exit from the EU are being considered and addressed
> Management is putting in place contingency plans for every eventuality with a
particular focus on ensuring that our customers’ holiday experience is not impacted
Compliance with regulatory and legislative requirements
There is a risk that we do not comply
with regulatory, legislative and corporate
social responsibility requirements in
the legal jurisdictions where Thomas
Cook operates.
> We have a dedicated legal team, which works to ensure that we comply fully with
regulatory requirements and 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
> Our Code of Conduct is backed by a comprehensive training programme to ensure
In particular, in February 2017,
the European Union Competition
Commission launched an investigation
into the travel industry regarding
hotel accommodation agreements
with a focus on the availability of
hotel bookings and pricing between
member states.
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
> In regards to the EU Competition Commission investigation, Thomas Cook is
committed to fair and open competition and will cooperate fully with the Commission
through the process
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Risk Direction
(after mitigation)
Increased risk
Risk exposure unchanged
Reduced risk
Our Strategic Priorities
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
59
GOVERNANCE
CHAIRMAN’S GOVERNANCE
STATEMENT
DEAR SHAREHOLDER
In my statement last year, I spoke about the focus of the Company to
put the customer at the heart of our organisation. The Board shared
this focus by dedicating time to getting to know our customers, our
colleagues and our holiday offering more closely. This year as part
of our governance activities we have used this insight to support
Management to drive the right behaviours throughout the business
and ensure we have the right people in place to do this.
In spring, we reviewed our corporate values and redeveloped them
based upon our Customer Promises, so that the behaviours within our
own organisation align with the promises we make to our customers.
We also updated our Code of Conduct to ensure it closely reflects
both our values and Customer Promises. These initiatives reflect
Management’s continued commitment to instill a customer centric
culture. All of our colleagues have received training on the new values
so that everybody can develop an understanding of what the values
mean to them. The behaviour of our people is key to all that we do
and I believe our new values will help ensure we are doing business
in a way we can be proud of.
BOARD COMPOSITION
During our FY16 Board evaluation, we identified that the importance
of the customer and our own-brand hotel portfolio to our strategy
meant that we could benefit from additional Non-Executive
expertise in these areas. Following a comprehensive search led by
the Nominations Committee, I am delighted that Jürgen Schreiber
and Paul Edgecliffe-Johnson agreed to join the Board. Jürgen is a
highly accomplished executive with broad international experience
across retail and consumer goods businesses. Paul is the CFO of
InterContinental Hotels Group PLC so brings with him valuable
expertise and in-depth knowledge of the hotel industry.
During the year, the Nominations Committee continued to focus on
executive succession planning and spent considerable time looking
at the talent pipeline. In September, our CFO Michael Healy decided to
retire following a very successful five years at Thomas Cook, during
which time he has put the business on a much more stable financial
footing. I am pleased that we were able to appoint a high-calibre
successor to Michael from our own ranks. Bill Scott, currently Director
of Financial Reporting, has a proven track record in the business,
having taken a leading role in the Group’s key corporate transactions
over the last five years, including the equity and debt raising as
part of the Group’s recapitalisation in 2013 and subsequent debt
refinancing exercises. As such, Bill’s appointment will ensure that
we continue on our journey with a CFO who is perfectly positioned
to keep driving the business forward in achieving its strategic goals.
Together, these three appointments further strengthen the Board
and will give us, I believe, the optimal balance of skills, experience
and independence needed to deliver on our strategy.
GOVERNANCE HIGHLIGHTS:
BOARD EVALUATION
See more on pages 70 to 71
BOARD ACTIVIT Y
See more on pages 68 to 69
DIVIDEND POLICY
See more on page 73
COMPLIANCE WITH THE UK
CORPOR ATE GOVERNANCE CODE
This report sets out how the Company applied the
principles of the April 2016 version of the UK Corporate
Governance Code (‘the Code’). It is the Board’s view
that for the year ended 30 September 2017 the
Company fully complied with the provisions applicable
to this reporting period. The Code can be read in full
at www.frc.org.uk.
60
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
GOVERNANCE HIGHLIGHT:
BILL SCOT T APPOINTED
AS CFO FROM JANUARY 201 8
Key strengths and skills:
> Extensive experience in strategic financial planning and
financial reporting
> Chartered accountant with expertise in leading large corporate
transactions including debt and equity refinancing
> Knowledge of international markets, having worked in Asia
Previous experience and appointments:
Director of Financial Reporting at Thomas Cook; Financial
Controller at Kwik-Fit; and senior finance positions at PwC;
First Pacific Company; Shell; and eBookers plc.
BOARD EVALUATION
Recognising the need continually to develop the effectiveness
of the Board this year, I engaged Dr Tracy Long of Boardroom
Review Limited to conduct an independent evaluation of the
Board’s operation. This rigorous and thorough assessment
involved in-depth one-to-one interviews and individual feedback,
as well as overall feedback to the Board. The review provided
useful insight and identified practical actions that will help us to
develop. More details about the evaluation process and outputs
can be found on pages 70 to 71.
G
O
V
E
R
N
A
N
C
E
COMMITTEES
During the year, our Committees made good progress in delivering
positive change in their respective areas.
With the continuing significant threat posed by cyber-attacks
and the pending implementation of the General Data Protection
Regulations, our Audit Committee has been particularly focused
on the risks associated with cyber and information security and
the controls we have in place to deal with them. The Committee
continues closely to monitor progress in this area to ensure we do
all we can to keep our customers’ data safe. The Audit Committee
also oversaw the transition to our new auditor Ernst & Young,
with FY17 being their first audit. I am pleased to report a smooth
transition and effective audit, benefiting from the enhanced
independence that a new auditor brings.
Our Health, Safety & Environmental Committee oversaw the
introduction of a number of initiatives that demonstrate our
commitment to doing business in a responsible way which puts
our customer at the heart. Our Group Airline introduced the ‘Safe@
Heart’ initiative which aims to enhance the culture of safety in our
Group Airline through a number of measures, including providing
extra safety training to up to 7,000 Group Airline employees. In the
area of sustainability, the Committee approved a new Sustainability
Strategy which aligns with our main strategy for profitable growth.
The Committee also oversaw the introduction of an industry-leading
Animal Welfare Policy which takes a much stronger approach to
ensuring the standard of care of the animals in attractions and
aligns with our Customer Promises.
Meanwhile, our Remuneration Committee undertook the
important task of setting targets for our Performance Share Plan
which are stretching but not commercially sensitive, so that we
can disclose them prospectively to our Shareholders. I believe
this development represents a step forward in our reporting and
demonstrates the Committee’s commitment to being as transparent
as possible and acting upon feedback from our investors.
More information about the Remuneration Committee’s activities
can be found on pages 84-108.
SUMMARY
Thomas Cook enters FY18 with a strong Board and an enhanced
corporate culture, making us well-positioned to achieve our strategic
goals and build Shareholder value. The actions we have taken in the
last 12 months represent positive steps forward in our governance
practice and I look forward to building on this momentum in the
coming year.
FR ANK MEYSMAN
CHAIRMAN
21 November 2017
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
61
GOVERNANCE
LEADERSHIP
BOARD OF DIRECTORS
1
1
FR ANK ME YSMAN
FR ANK ME YSMAN
NON - E XECUTIVE CHAIRMAN
NON - E XECUTIVE CHAIRMAN
2 PETER FANKHAUSER
2 PETER FANKHAUSER
CEO
CHIEF E XECUTIVE OFFICER
3 MICHAEL HE ALY
3 MICHAEL HE ALY
CFO
CHIEF FINANCIAL OFFICER
4 DAWN AIRE Y
4 DAWN AIRE Y
5 ANNET ARIS
5 ANNET ARIS
6 EMRE BERKIN
6 EMRE BERKIN
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
AND SENIOR INDEPENDENT DIRECTOR
AND SENIOR INDEPENDENT DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
7 WARREN TUCKER
7 WARREN TUCKER
8 MARTINE VERLUY TEN
8 MARTINE VERLUY TEN
9 LESLE Y KNOX
9 LESLE Y KNOX
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
10 PAUL EDGECLIFFE - JOHNSON
11 JÜRGEN SCHREIBER
INDEPENDENT NON-EXECUTIVE DIRECTOR
INDEPENDENT NON - E XECUTIVE DIRECTOR
12 ALICE MARSDEN
GROUP GENER AL COUNSEL
AND COMPANY SECRETARY
62
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
EXPERIENCE AND DIVERSITY
Board tenure
4 2
5
0-2 years
3-4 years
>4 years
Gender diversity
4
Female
7 Male
Board balance
1
8
Chairman
2
Executive Director
Non-Executive Director
Nationality mix of Board members
Belgium 1 Swiss 5
2
British
1 Dutch
1 Turkish 1 German
G
O
V
E
R
N
A
N
C
E
1 FR ANK MEYSMAN
NON - E XECUTIVE CHAIRMAN
Appointment: October 2011
Committee memberships: N
Key strengths and skills
> Extensive chairmanship experience across
public and private companies
> International business expertise
> Track record in the creation of shareholder
value on the back of heritage brands
Other directorships
Chairman of JBC N.V.; Independent Representative
Director of Warehouses De Pauw (WDP) and
Spadel S.A.
Previous experience and appointments
Various senior positions at Procter & Gamble;
Douwe Egberts; and Sara Lee Corporation
where he served as Executive Vice President
and on the Board of Directors.
2 PETER FANKHAUSER
CEO
Appointment: November 2014
Committee memberships: H
Key strengths and skills
> Strong international leadership skills
> Successful track record in turning around
and growing travel businesses
> Proven expertise in developing and delivering
complex strategy with a clear customer focus
Other directorships
None
Previous experience and appointments
MD of the UK and Continental Europe and
subsequently COO at Thomas Cook. Senior
positions at Kuoni and CEO at LTU Group (the third
largest tour operator in Germany at that time).
3 MICHAEL HEALY
CFO
Appointment: July 2012
Key strengths and skills
> Expertise in refinancing highly
levered businesses
> In-depth knowledge of debt and equity
markets and significant experience of M&A
> Chartered Accountant with international
experience across a broad range of industries
including consumer and financial services
Other directorships
None
Previous experience and appointments
CFO at Kwik Fit Group; COO and FD at First
Pacific Company (listed on the Hong Kong stock
exchange); and CFO at ebookers plc.
4 DAWN AIREY
INDEPENDENT NON - E XECUTIVE
DIRECTOR AND SENIOR
INDEPENDENT DIRECTOR
Appointment: April 2010
(appointed SID October 2015)
Committee memberships:
NR
Key strengths and skills
> Previous experience serving on the board
of a large low-cost airline
> Deep understanding of the use of technology
in the consumer market
> Current executive role leading a
global business
Other directorships
CEO Getty Images and Chair of the National
Youth Theatre.
Previous experience and appointments
Senior Vice President of Yahoo! EMEA; President
of CLT-UFA UK Television Limited within the
RTL Group; Chair and CEO of Five TV; Managing
Director of Global Content at ITV plc; and Non-
Executive Director of easyJet plc.
5 ANNET ARIS
INDEPENDENT NON - E XECUTIVE
DIRECTOR
Appointment: July 2014
Committee memberships:
HR
Key strengths and skills
> Experience in the travel practice of a leading
management consultancy
> Expertise in digital transformation and
continental corporate governance
> Knowledge of the European technology sector
Other directorships
Adjunct Professor of Strategy at INSEAD
in France; 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; Board member and member of
the Technology and Strategy Committee and the
Remuneration Committee of ASML N.V.
Previous experience and appointments
Partner of McKinsey & Company in Germany
leading its Travel and Transportation practice,
and later, its Media practice.
Committee membership
N
R
A
H
Nominations
Remuneration
Audit
Health, Safety & Environmental
Chairman
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
63
GOVERNANCE
EXPERIENCE AND DIVERSITY
CONTINUED
6 EMRE BERKIN
8 MARTINE VERLUY TEN
INDEPENDENT NON - E XECUTIVE
DIRECTOR
INDEPENDENT NON - E XECUTIVE
DIRECTOR
10 PAUL EDGECLIFFE- JOHNSON
INDEPENDENT NON - E XECUTIVE
DIRECTOR
Appointment: November 2012
Committee memberships:
NH
Appointment: May 2011
Committee memberships: A N
Appointment: July 2017
Committee memberships: A R
Key strengths and skills
> Significant experience leading international
businesses with expertise in finance and IT
> Experienced CFO
> Strong experience in audit
Key strengths and skills
> In-depth knowledge of the global
hotel industry
> Current executive role leading a
FTSE 100 company
Key strengths and skills
> In-depth knowledge of the operation
of low-cost airlines
> Expertise in key destination markets,
particularly Turkey
> Strong background in managing and
developing strategy in the technology sector
Other directorships
Board member of MyGini Inc.
Previous experience and appointments
Various senior positions at Microsoft, including
Vice President of EMEA. Non-Executive Director at
a broad range of technology companies including
Acatel Lucent Teletas Telekomunikasyon A.S. Non-
Executive Director at Pegasus Airlines.
7 WARREN TUCKER
INDEPENDENT NON - E XECUTIVE
DIRECTOR
Appointment: October 2013
Committee memberships: A R
Key strengths and skills
> Experience of travel industry including
senior finance positions in a large airline
> Expertise in international business and
strategic transformations with knowledge
of M&A and equity markets
> MBA, Chartered Accountant and
experienced CFO with significant UK listed
Board experience
Other directorships
Independent 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; and Independent Non-Executive Director
and Chair of the Audit & Risk Committee of the
UK Foreign & Commonwealth Office.
Previous experience and appointments
CFO at Cobham plc; various senior finance positions
at British Airways plc and Cable & Wireless plc; and
Non-Executive Chairman of PayPoint plc.
Other directorships
Supervisory Board member and Chair of the
Audit Committee of STMicroelectronics N.V. and
Independent Director and Member of the Audit
Committee of Group Bruxelles Lambert.
Previous experience and appointments
CFO of Umicore (a Brussels-based materials
technology group); CFO of Mobistar (the mobile
telephone operator); Chair of the Audit Committee
of the Flemish Region in Belgium; and Non-
Executive Director of 3i Group plc.
9 LESLEY KNOX
INDEPENDENT NON - E XECUTIVE
DIRECTOR
Appointment: March 2016
Committee memberships: A R
Key strengths and skills
> Substantial financial services and
international experience
> Expertise in consumer-oriented sectors
including fast-moving consumer goods
and retail
> Significant Non-Executive Director
experience in UK listed companies and an
extensive traveller
Other directorships
Non-Executive Director for Centrica plc; Chair
of Grosvenor Group and Non-Executive Director
and Chair of the Remuneration Committee of
Legal & General Group Plc and a member of the
Nominations and Audit Committees.
Previous experience and appointments
Chairman of Alliance Trust PLC; Senior
Independent Director at Hays plc; Non-Executive
Director at Signet Jewelers and MFI Direct
Limited; Chair of the Remuneration Committee
of SABMiller plc.
> Chartered Accountant with extensive financial
experience and knowledge of debt and
equity markets
Other directorships
CFO of InterContinental Hotels Group PLC.
Previous experience and appointments
Various senior finance positions at
InterContinental Hotels Group PLC; PwC; and
HSBC Investment Bank.
11 JÜRGEN SCHREIBER
INDEPENDENT NON - E XECUTIVE
DIRECTOR
Appointment: July 2017
Committee memberships: A H
Key strengths and skills
> Broad experience serving at board
level of large multi-national consumer
facing businesses
> Accomplished private equity executive
> In-depth knowledge of international markets
Other directorships
Senior Managing Director of Katz Group, Chairman
of The Aldo Group and Non-Executive Director of
Lidl & Schwarz, Discount and Hypermarket Board.
Previous experience and appointments
CEO of Rexall Health; CEO, President and Deputy
Chairman of Edcon; and CEO and President of
Shoppers Drug Mart Corporation.
12 ALICE MARSDEN
GROUP GENER AL COUNSEL
AND COMPANY SECRETARY
Appointment: September 2015
Key strengths and skills
> Solicitor with a strong commercial mind-set
> In-depth knowledge of corporate governance
regulation and best practice
> International experience, having worked in the
UAE and for a global law firm
Previous experience and appointments
Head of Legal for the UK&I for Thomas Cook and
Senior Associate at Latham & Watkins.
Committee membership
N
R
A
H
Nominations
Remuneration
Audit
Health, Safety & Environmental
Chairman
64
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
CORPORATE GOVERNANCE REPORT
H OW O U R B OA R D LE A D S TH E B U S I N ES S
BOARD
Chairman, CEO, CFO and eight Independent Non-Executive Directors.
THE BOARD IS GOVERNED BY:
> A Schedule of Matters reserved for the Board which sets out matters that can only be decided by the Board
> A documented Division of Responsibilities between the Chairman and the CEO
> Terms of Reference for Committees which set out matters the Board has authorised the Committees to deal with
These documents are available on the Group’s website at www.thomascookgroup.com.
OUR COMMITTEES
AUDIT COMMITTEE
NOMINATIONS COMMITTEE
Five Independent
Non-Executive Directors.
Responsible for overseeing the
Group’s financial reporting, internal
and external audit, internal control
and risk management system, and
whistleblowing policies.
Chairman and three Independent
Non-Executive Directors.
Leads the process for Board
appointments and re-election, and
succession planning of Directors
and the Chairman.
HEALTH, SAFET Y &
ENVIRONMENTAL COMMITTEE
CEO and three Independent
Non-Executive Directors.
Responsible for health, safety and
environmental policy and compliance,
and developing standards
and procedures to manage risk
across the Group.
REMUNER ATION COMMITTEE
Five Independent
Non-Executive Directors.
Responsible for advising the Board
on remuneration of Executive
Directors and setting an overall
policy for remunerating the
Group’s employees.
G
O
V
E
R
N
A
N
C
E
Committee report on pages 74 to 77.
Committee report on pages 78 to 79.
Committee report on page 80.
Committee report on page 84 to 108.
FINANCE & ADMINISTR ATION COMMITTEE
DISCLOSURE COMMITTEE
CEO, CFO and Group General Counsel and Company Secretary.
Meets weekly to facilitate swift and efficient operational management decisions
for the business in relation to day-to-day financing and administrative matters.
A schedule of decisions taken by the Committee is reported
to each Board Meeting.
CEO, CFO, and Group General Counsel and Company Secretary and also
attended by senior managers from Group Finance, Investor Relations,
and Corporate Communications.
The Committee meets regularly during the year to consider the Group’s
disclosure obligations and to review results announcements prior to release.
E XECUTIVE COMMITTEE
CEO, CFO and functional and segment leaders.
Meets on a weekly basis to review trading, execution of strategic projects, progress against targets and monitor risk.
THE CODE
OF CONDUC T
THOMAS COOK LEADERSHIP
COUNCIL (‘TCLC’)
DELEGATED
AUTHORIT Y MATRIX
The Board-approved Code of Conduct sets out the
behaviours expected of everyone in the organisation.
During the year the Code of Conduct was updated
to ensure it supports and aligns with the new
Customer Promises and values (more information
about our values can be found on page 37).
The Code of Conduct includes guidance to
colleagues about their responsibility to report
problems and issues that come to their attention
and how they can do this. All colleagues are
encouraged to use ‘Trustline’, the Company’s
independent whistleblowing helpline, if they wish
to raise concerns anonymously. Any significant
issues brought to Management’s attention
through the Trustline are investigated and
reported to the Audit Committee.
The TCLC comprises the top 170 senior leaders
in the organisation. Information about the
Company’s strategy and performance is regularly
communicated to the TCLC, who in turn cascade
to their teams to ensure everyone understands
where they fit into the strategy and what they
can do to help the Company achieve its goals.
More information about how our strategy and
values are communicated throughout the
organisation can be found on page 37.
The Board-approved Delegated Authority Matrix
sets out levels of authority delegated by the Board
to senior leaders within the business in respect
of the decision making required for the day-to-day
operation of the business.
The Matrix is reviewed and updated annually.
The Matrix is sent out to all members of the TCLC
so that they can cascade to their teams.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
65
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
Director independence and time commitment
The Nominations Committee and the Board considered the
independence of the Non-Executive Directors against the criteria
specified in the Code and determined that each was independent.
They also considered the independence of Directors whose three-
year terms were renewed during the year, before approving the
renewal of these terms.
The Chairman and each Independent Non-Executive Director have
provided assurance to the Board that they remain fully committed
to their respective roles and can dedicate sufficient time to fulfil
their obligations.
All Directors must obtain the prior consent of the Chairman before
taking on any additional directorships. Before providing consent
the Chairman will take into consideration any existing directorships
and commitments and the nature, location and expected time
commitment of the proposed new role. The Chairman will not
approve any Director taking on additional commitments that he
believes would interfere with their ability to dedicate sufficient time
to the Company.
THE BOARD IS RESPONSIBLE FOR:
> guiding the Group’s strategic aims and approving the Group’s
strategy and its budgetary and business plans;
> approving significant investments and capital expenditure;
> approving the Group’s dividend policy and payments;
> establishing and maintaining the Group’s risk appetite, system
of internal control, governance and approval authorities;
> monitoring executive performance, remuneration and succession
planning; and
> reviewing standards of ethics and policy in relation to health,
safety, environment, social and community responsibilities.
Board composition
As at 21 November 2017, the Board was made up of 11 Directors
which comprised the Chairman, two Executive Directors and eight
Independent Non-Executive Directors.
Frank Meysman was the Chairman throughout the year. The roles
of the Chairman and CEO are separate and distinct. Dawn Airey is
the Senior Independent and is available to Shareholders should they
have concerns that cannot be resolved through the normal channels
involving the Executive Directors or the Chairman.
Biographical details of all Directors can be found on
pages 63 to 64 and on the Group’s corporate website at
www.thomascookgroup.com.
Changes to the Board and Committees
During the year, Paul Edgecliffe-Johnson and Jürgen Schreiber
were appointed as Independent Non-Executive Directors with
effect from 26 July 2017 and subsequently Paul Edgecliffe-Johnson
was appointed to the Audit and Remuneration Committees and
Jürgen Schreiber was appointed to the Audit and Health, Safety &
Environmental Committees.
Following these appointments, the Board reviewed the membership
of its Committees and made further changes so that each Non-
Executive Director is a member of two Committees. Therefore, with
effect from 1 October 2017, Dawn Airey stepped down from the Audit
and Health & Safety Committees, Warren Tucker stepped down from
the Nominations Committee, Emre Berkin stepped down from the
Remuneration Committee and Peter Fankhauser stepped down from
the Nominations Committee.
66
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Directors’ conflicts of interest
The Board has a set of principles for managing conflicts and an
agreed process to identify and authorise potential conflicts where
appropriate. The Nominations Committee reviews any potential
conflicts, as and when they arise, and makes a recommendation to
the Board as to whether the potential conflict should be authorised.
The Nominations Committee regularly reviews all authorised
conflicts. It also reviews the interests of candidates prior to making
recommendations to the Board for the appointment of new Directors.
This process was followed throughout the year to 30 September 2017.
Re-appointment of Directors
In accordance with the Code and the Company’s Articles of
Association, all Directors are subject to re-election by Shareholders.
At the AGM held in February 2017, each of the Directors in post at
the time was submitted for re-election and successfully re-elected.
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.
Group Company Secretary
The Group Company Secretary 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 Secretariat
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, Alice Marsden held the position of
Group General Counsel and Company Secretary. Biographical details
can be found on page 64.
Meetings
The full Board meets at least six times a year at its scheduled
meetings, and in between these meetings when required.
Board members communicate with each other and Management
outside of formal Board meetings to keep up-to-date with
business developments. The Chairman and the Committee Chairs
hold planning meetings and calls with Management in respect of
upcoming meetings.
At each Board meeting, the CEO presents a comprehensive update
on the progress of the Group’s strategy and business issues arising
across the Group, and the CFO presents a detailed analysis of the
financial performance, both at Group and segment level.
Packs for the Board and Committee meetings are circulated using
a fully encrypted electronic portal system. This enables fast and
secure distribution of information that can be accessed using
electronic tablets.
All Directors are invited to attend the meetings and receive the
packs for all Committees, regardless of membership (unless not in
line with governance best practice i.e. an Executive Director would
not attend a Remuneration Committee meeting where their own
remuneration was being discussed). This ensures all Directors
remain well informed on all matters of the Board’s business and
reduces the need for lengthy Committee feedback sessions during
Board meetings.
G
O
V
E
R
N
A
N
C
E
Attendance at scheduled Board and Committee meetings during the year is set out below:
Name
Frank Meysman
Peter Fankhauser
Michael Healy
Dawn Airey
Annet Aris
Emre Berkin
Warren Tucker
Martine Verluyten
Lesley Knox
Paul Edgecliffe-Johnson*
Jürgen Schreiber*
Board
Audit
Committee
Remuneration
Committee
Health, Safety &
Environmental
Committee
Nominations
Committee
6/6
6/6
6/6
6/6
6/6
6/6
5/6
6/6
5/6
1/1
1/1
–
–
–
5/5
–
–
4/5
5/5
4/5
–
–
–
–
–
6/6
6/6
6/6
6/6
–
5/6
1/1
–
–
4/4
–
4/4
4/4
4/4
–
–
–
–
–
6/6
6/6
–
6/6
–
6/6
5/6
6/6
–
–
–
* Paul Edgecliffe-Johnson and Jürgen Schreiber were appointed as Independent Non-Executive Directors on 26 July 2017.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
67
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
W H AT TH E B OA R D D I D D U R I N G TH E Y E A R
NOVEMBER
2016
DECEMBER
2016
JANUARY
2017
FEBRUARY
2017
MARCH
2017
APRIL
2017
Met in
London office.
Reviewed full
year performance.
Approved
recommendation of
final dividend.
Met in
London office.
Met in Oberursel and
Frankfurt airport
offices in Germany.
Attended AGM
in London and
met Shareholders.
Held strategy day in
Germany and received
presentations from
various areas of
the business.
Lesley Knox induction activities – visited Oberursel in Germany and
In-Destination Services Team in Mallorca where she met with colleagues and Management.
H OW TH E B OA R D I S E FFEC TI V E
BOARD INDUCTION AND TR AINING
A tailored induction programme is provided to each new Director
on appointment. Inductions typically include: the provision of
a comprehensive induction pack; meetings with other Board
members and senior management across a wide variety of
geographies; visits to the Company’s business operations; and
presentations and briefings on the Company’s business and other
relevant topics. Individual induction requirements are monitored by
the Chairman, with the support of the Group General Counsel and
Company Secretary.
During the year Lesley Knox completed her comprehensive Non-
Executive Induction programme. Following positive feedback, a
similar programme has been designed for Paul Edgecliffe-Johnson
and Jürgen Schreiber. The programme covers the following
activities and meetings during the course of the coming year:
During the year the Board spent significant time considering the
Company’s key strategic projects, receiving deep-dive Management
presentations and comprehensive updates. Projects included the
launch of a €750 million guaranteed bond in November 2016; extending
a partnership with Brussels Airlines to make them the leading carrier
for Thomas Cook in Belgium and the sale of the Belgium Airlines ground
operations and Airline Operating Certificate to SHS Aviation; entering
into a strategic alliance with Expedia under which Expedia will become
the preferred supplier of complementary city and domestic hotels; and
entering into a partnership with LMEY Investments to develop and grow
the Company’s own-brand hotel portfolio. Other important items on the
Board agenda included the approval of the five-year business plan and
risk mitigation matters, including agreeing the Board’s risk appetite.
In March, the Board held its meetings and strategy days in the
Company’s Oberursel and Frankfurt airport offices in Germany, the
head offices of the Tour Operator and Airline in Germany respectively.
The strategy days included in-depth discussion of the Company’s
strategy and presentations from various areas of the business including
Thomas Cook China and Thomas Cook Money. In July, the Board held
its meetings in the new Peterborough office, the head office of the
UK Tour Operator, where it was able to meet colleagues and receive
presentations on the UK business.
The Board dedicated half a day to people, where it spent time
considering a Group-wide talent review which examined talent,
succession, retention risk and diversity in respect of the top 100 roles
in the business and how this feeds into the executive pipeline.
68
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
MAY
2017
Met in
London office.
Reviewed half-
year performance.
JUNE
2017
JULY
2017
AUGUST
2017
SEPTEMBER
2017
Chair of Audit
Committee and Group
General Counsel and
Company Secretary
met with key business
partners in Cyprus
and Turkey as part
of an In-Destination
compliance review.
Met in
Peterborough office.
Met colleagues in new
Peterborough office and
received presentations
from UK business.
Met in
London office.
Received training on
Directors’ duties.
Paul Edgecliffe-Johnson and Jürgen Schreiber induction activities commence
(see below).
Held risk appetite
sessions with
Head of Risk.
Externally facilitated Board
effectiveness evaluation.
One-to-one interviews and meeting observation.
Carried out Group-
wide talent and
succession review.
Approved risk appetite
statement for Annual
Report & Accounts.
Board evaluation
feedback and
discussion at meeting.
G
O
V
E
R
N
A
N
C
E
Visits to the following business areas:
> The Group Airline head office at Manchester Airport
> The Northern Europe Tour Operator business and Airline head
offices in Stockholm and Copenhagen respectively
> The UK business head office in Peterborough
> The German Tour Operator business and Condor Airline head
offices in Oberursel and Frankfurt respectively
> A retail store
Visits will involve meetings with Management Teams, presentations
from the businesses, touring premises and meeting colleagues.
One-to-one meetings with:
> Executive Directors
> Committee Chairs
> Group General Counsel and Company Secretary
> Other members of the Executive Committee
> Other key leaders in the business
> The Company’s audit partner
> Attendance at an Executive Committee meeting
> Invitation to attend a Thomas Cook Leadership Council event
> A familiarisation trip to a Thomas Cook own-brand hotel to
experience our product and meet customers
In respect of the appointment of Bill Scott, who will take up post as
Group CFO on 1 January 2018, a tailored induction programme has
been designed. As Bill has been with the business for five years, he
has an in-depth knowledge of the Company’s operations and well-
established relationships with key business leaders. Therefore his
induction activities will focus on the new responsibilities he will
take on as an Executive Director including a training session on
Directors’ duties and responsibilities.
At Board meetings and, where appropriate, Committee meetings, the
Directors receive updates and presentations on developments to the
legislative and regulatory environments. In September 2017, the Board
received a training session on Directors’ duties and responsibilities.
The Board also holds deep-dive sessions on different aspects of the
business which are presented by Management.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
69
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
BOA R D EFFEC TI V EN ES S E VA LUATI O N
During the year the Chairman engaged Dr Tracy Long, of Boardroom Review Limited, to conduct an externally facilitated Board evaluation.
Neither Dr Tracy Long nor Boardroom Review Limited have any other connection with the Company aside from the provision of board
evaluations. The below sets out the evaluation process:
PREPAR ATION
Themes to be considered
were agreed as:
EVIDENCE
Insight was collected
through:
> Strategy
> Horizon scanning
> Risk & control
> Remuneration setting
> Talent development &
executive succession
> Stakeholder
communication
> Culture, composition
& choreography
> Use of time
> One-to-one in-person
interviews with Board
members and the Group
Company Secretary
> Observation of Board,
Committee meetings
& private sessions
> Review of Board and
committee papers
and minutes
OUTPUTS FROM 2017 EVALUATION
Strengths identified:
REVIEW
A discussion
document was
prepared which set out:
> Strengths
> Challenges
> Areas of focus
FEEDBACK
Feedback was
provided via:
> One-to-one verbal
discussions
> Collective Board
discussion at the
September Board
meeting
ACTIONS
The Group Company
Secretary and Chairman
devised an action plan
based on the discussion
document.
A meeting between Dr Tracy
Long and the Chairman will
take place within 6-12
months to discuss progress.
> A positive Board culture focused on adding
> An increasingly effective use of formal and
> Good attention to the risk and control
value to the Company with a shared strategic
perspective, led by the CEO, and focused on
the customer
informal Board and Committee time, including
a good balance of strategy, performance and
governance themes throughout the year
framework, crisis management and visibility
of and confidence in the lines of defence
Areas of focus identified:
Actions:
Certain agenda items and the private sessions (i.e. the
meetings of Non-Executive Directors in the absence of
Management) can sometimes feel rushed as a result
of lack of time available on a busy agenda.
The Nominations Committee should spend more
time looking at long-term succession planning for
the Chair and Committee chairs as well as the
Executive Directors.
The Group Company Secretary and Chairman will work to increase the overall
time available for meetings and improve time allocation of the agenda.
This will be added to the Nominations Committee agenda.
The Board has set a clear tone from the top in respect
of culture but it could now benefit from spending
more time monitoring how culture changes are being
received and filtering down through the organisation.
The annual employee engagement results will be presented to the Board by
the Group HR Director and allocated time on the Board agenda for discussion.
Exit interviews of any outgoing senior personnel will be conducted by the
Senior Independent Director.
70
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
The Chairman and Group Company Secretary monitor progress against the action plan set. The below sets out progress in respect of
the action points identified following last year’s internal evaluation:
OUTPUTS FROM 2016 EVALUATION
Areas of focus identified:
Progress:
The format and quality of Board papers should continue
to be developed to shift the emphasis from reporting
past events to highlighting important matters that
require the Board’s guidance.
The Group Company Secretary provided guidance to senior management on the
structure and content of Board papers. Templates were created and provided to
contributors to ensure consistency and papers must pass a more robust review
and gatekeeping process before being provided to the Board.
The Board may benefit in the future from recruiting an
additional Non-Executive Director with direct customer
experience in the retail industry and/or relevant travel
industry experience.
The Nominations Committee should be given more time
on the agenda.
On the recommendation of the Nominations Committee, the Board appointed
two new Independent Non-Executive Directors who possess the skills identified
(see Nominations Committee report on pages 78 to 79 for more details).
The Group Company Secretary put in place an annual agenda plan and set aside
more time for Nominations Committee meetings. During the year the Nominations
Committee held six scheduled meetings and spent more time looking at succession
planning (see Nominations Committee report on pages 78 to 79]for more details).
CHAIRMAN EVALUATION
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 discussed by the Board in
the absence of the Chairman and feedback was given to him by
the Senior Independent Director, and reported to the Board at its
November meeting.
INDIVIDUAL EXECUTIVE EVALUATION
The individual performance of the Executive Directors is reviewed
separately by the Chairman and the Remuneration Committee.
G
O
V
E
R
N
A
N
C
E
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 www.thomascookgroup.com)
and a large number of meetings with existing Shareholders and
potential investors throughout the year. The Company makes every
effort to ascertain investor perceptions and regular reports of investor
and analyst feedback are provided to the Board.
The Chairman of the Board and Chairman of the Remuneration
Committee engage with Shareholders on matters concerning corporate
governance and executive remuneration respectively, and feed this
back to the Board. Dawn Airey held the position of Senior Independent
Director throughout the year, providing an additional channel through
which Shareholders can engage with the Board if they so wish.
In respect of debt investors, the Company maintains regular
dialogue with key relationship banks which includes semi-annual
meetings with presentations from the Executive Management Team.
During the year, it also held update and review meetings with Moody’s,
Standard & Poor’s and Fitch, the Company’s credit rating agencies.
The Company hosts a dedicated conference call for bondholders on
a semi-annual basis and during the year the CFO and Management
also engaged with Bondholders both as a group, and, on a one-
to-one basis, at several investment-bank sponsored conferences.
Additionally, the Board responded to ad-hoc requests for information.
All Shareholders are entitled to attend the AGM. Shareholders are
given the opportunity to lodge their votes by way of proxy and/or
to attend the meeting 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
and reduced environmental impact and cost. Shareholders may
still opt to receive their communications in a paper format.
The Company’s corporate website (www.thomascookgroup.com)
contains information for Shareholders, including share price
information and news releases.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
71
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
RISK MANAGEMENT AND INTERNAL CONTROL
The Board recognises its ultimate accountability for maintaining
an effective system of internal control and risk management
that is appropriate in relation to both the scope and the nature
of the Group’s activities, and complies with the UK Corporate
Governance Code.
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 54 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.
These systems have been in place for the year under review and up
to the date of approval of the Annual Report & Accounts. The Board
has approved the framework and the standards implemented.
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 monitors the internal control
processes on an ongoing basis, including financial, operational
and compliance controls, under the auspices of the 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, Ernst & Young, as part of
the external audit. The Board 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
The Directors have assessed the prospects of the Group over the
medium term in the context of its current operating performance,
the principal risks facing the business and its internal business
plan for the next five years. In addition, the Group has prepared a
sensitivity analysis on its business plan and evaluated the impact
of certain principal risks occurring both individually and in unison,
together with mitigating actions that could be implemented in
such circumstances.
As part of their assessment, the Directors have also noted
the refinancing of the Group’s bonds in December 2016, which
further extended debt maturities and reduced borrowing costs,
and the agreement of larger, more flexible banking facilities in
November 2017.
Having considered the above factors, the Directors have concluded
that it is appropriate to adopt the going concern basis of accounting
in preparing the financial statements.
INTERNAL CONTROL AND RISK MANAGEMENT IN
RELATION 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; and
> 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; and
— 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 position and performance, business model and strategy.
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.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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 they are aware, there is
no relevant audit information of which the Company’s auditors are
unaware; and that they have taken all steps that they ought to
have taken as a Director to make them aware of any relevant audit
information and to establish that the Company’s auditors are aware
of that information.
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 81 to 83.
DIVIDEND
The Board has proposed a final dividend of 0.6 pence per
share, representing a distribution to shareholders of £9 million.
This represents an increase of 20% compared to the dividend
paid in respect of the previous year, reflecting the underlying
progress made in FY17 and the confidence of the Board in the
Group’s future.
The Board has a policy to target dividend growth that reflects
the Group’s progress in underlying earnings per share.
As previously stated, 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 ex-dividend date will be 8 March 2018 and, subject to
shareholder approval at the 2018 Annual General Meeting, the
final dividend of 0.6 pence per share will be paid on 5 April 2018
to shareholders on the register at the close of business on
9 March 2018.
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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
> confirm 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. The Directors are also responsible for
safeguarding the assets of the Company and the Group and 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. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
DISCLOSURE GUIDANCE AND TR ANSPARENCY
RULES CONFIRMATION
Each of the Directors who were in office at the date of this report
and whose names and functions are listed on pages 63 to 64,
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 4 to 59
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.
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 58) given at Board and Committee meetings as well as a
regular flow of information about the business between meetings.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
73
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
AU D IT CO M M IT TEE
CHAIRMAN
Martine Verluyten
OTHER MEMBERS
Dawn Airey (until 30 September 2017, Paul Edgecliffe-Johnson
(from 21 September 2017), Lesley Knox, Jürgen Schreiber
(from 21 September 2017), Warren Tucker.
COMPOSITION OF THE COMMITTEE
All members of the Committee are Independent Non-Executive
Directors.
Martine Verluyten, Warren Tucker and Paul Edgecliffe-Johnson
are considered by the Board to have recent and relevant financial
experience, as required by the Code, and satisfy the requirements
for competence in accounting and/or auditing under the Disclosure
Guidance and Transparency Rules. The Board considers that the
Committee as a whole has competence in the travel sector. Travel
sector experience is highlighted in the Directors’ biographies.
DIRECTORS’ BIOGR APHIES
See pages 63 to 64
MEETINGS ALSO ATTENDED BY:
The Chairman and the other Non-Executive Directors, Peter
Fankhauser (CEO), Michael Healy (CFO), Alice Marsden (Group General
Counsel and Company Secretary), Bill Scott (Director of Financial
Reporting), Sofya Linderman (Group Head of Risk), Derek Foster
(Group Head of Audit), Ani Sen Gupta (Internal Audit, Deloitte),
Nick Ong-Seng (Thomas Cook Money Risk and Compliance Director)
and Richard Wilson (External Audit Partner, Ernst & Young).
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 Internal Audit and Risk functions and
Ernst & Young, the Company’s external auditor in the absence
of Management.
ROLE OF THE COMMITTEE
The role and responsibilities of the Audit Committee are set
out in written Terms of Reference which are available at
www.thomascookgroup.com. Some of their keys responsibilities are:
> monitoring the integrity of the annual, half-year and quarterly
results statements, including reviewing the significant financial
reporting judgements contained in them;
> reviewing the Company’s internal financial controls and internal
control and risk management systems;
> monitoring and reviewing the effectiveness of the Company’s
Internal Audit function;
> establishing and overseeing the Company’s relationship with
its external auditors, including monitoring their effectiveness
and independence; and
> monitoring matters raised pursuant to the Company’s
whistleblowing arrangements.
ACTIVITIES
Financial reporting and significant judgement areas
The Committee monitored the integrity of the annual, half-year and
quarterly results statements, including a review of the significant
financial reporting judgements contained in them. In May and
November, the Committee reviewed a comprehensive paper prepared
by the Director of Financial Reporting, which set out the Group’s
accounting policies and basis of preparation. The Committee also
reviewed a paper prepared by the external auditors, which included
significant reporting and accounting matters. 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 overleaf.
During the year, the Company had correspondence with the
FRC’s Corporate Reporting Review team in relation to its review
of the Company’s FY16 Annual Report & Accounts1 in line with
the FRC’s disclosed focus on the travel and leisure sector in 2017.
The Company provided clarifications and rationale for disclosures in
respect of separately disclosed items and alternative performance
measures and committed to enhancing disclosure in these
areas going forward. The FRC welcomed these commitments.
Management presented the findings of the review to the Committee
and the Committee reviewed and approved the correspondence
with the FRC.
1 The FRC stated that the scope of their review was based on the Company’s FY16 Annual Report
& Accounts and was conducted by staff of the FRC who have an understanding of the relevant
legal and accounting framework. The review did not benefit from detailed knowledge of the
Company’s business or an understanding of the underlying transactions entered into and
therefore their review does not provide assurance that the FY16 Annual Report & Accounts
are correct in all material respects.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Significant issues in relation to the financial statements
considered by the Committee
How the issue was addressed
by the Committee
Revenue Recognition: There are a significant number of transactions
in relation to revenue, given the nature of the business. The accounting
for revenue is susceptible to management override. This brings a risk
around the completeness and accuracy of the revenue recognised
during the year.
The Committee evaluated the IT systems and the internal controls in
place around revenue recognition. This included a review of the Group
revenue recognition policies to ensure revenue is recognised in line
with the policy. The Committee concluded that revenue was complete
and accurate.
Accounting for aircraft maintenance provisions: Significant fixed
assets for aircraft and provisions for maintenance and contractual end
of lease obligations are held on the balance sheet.
There is an 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 the appropriate
discount rate for the provision.
Separately disclosed items: The Group has an established policy of
separately disclosing items that are either exceptional or not reflective
of the underlying performance of the Group.
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 reporting
year-on-year.
Carrying Value of Goodwill and Deferred Tax Assets: The Group
holds significant goodwill and deferred tax assets on the balance
sheet. Determining the carrying value of these assets is dependent
on judgements about the future results of the business.
Provision for illness claims and associated recoveries: There has
been a significant increase in the number of customer illness claims in
the current year. Significant judgement is required and there is limited
historical data available in determining the level of provision required.
In addition, in line with the increase in illness claims the level of
recoveries from hotels relating to these illness claims has also increased.
To determine the amount recoverable is subjective and requires
Management judgement.
The Committee reviewed the methodology and key assumptions used
by Management in accounting for aircraft maintenance provisions
and concluded that the treatment was appropriate. In addition, the
methodology for the calculation of the discount rate and the subsequent
prior year correction as a result of this change was reviewed and agreed
as appropriate.
The Committee considered the presentation of the Group financial
statements and the appropriateness of the presentation of separately
disclosed items, in particular items relating to the New Operating Model
and certain non-cash finance items. The Committee reviewed the
nature of items identified and concurred with Management that the
treatment was even-handed, consistent across years and appropriately
presented movements on items which have an effect over a number
of years. Consideration was also given to the quality of earnings within
underlying results.
The Committee reviewed Management’s process for testing goodwill and
deferred tax assets for potential impairment. This included challenging
the key assumptions: principally cash flow forecasts, growth rates and
discount rates for goodwill and taxable profit forecasts for deferred
tax assets.
The Committee reviewed and challenged the assumptions that
Management had used in determining the provision for illness claims
to satisfy itself that the level of provisioning was appropriate.
The Committee reviewed the methodology behind the hotel recovery
position and challenged Management on the assumptions used.
The Committee satisfied itself that the level of recovery recognised
as appropriate.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
75
GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
INTERNAL CONTROL , RISK MANAGEMENT
AND INTERNAL AUDIT
Risk Management
The Audit Committee considers risk exposure against the risk
appetite of the Group, as set by the Board, by profiling key risks
to the business in terms of their potential impact and likelihood of
occurrence, after consideration of mitigating and controlling actions
that are in place. During the year, the Committee reviewed the key
strategic risks and received updates from the Group Head of Risk
in respect of the Group Risk Dashboard, highlighting any changes
in the Company’s risk profile. The Committee also confirmed that
appropriate mitigations were in place for the key strategic risks.
These activities fed into the annual Internal Audit Plan, which
enables a risk-based approach to be adopted as part of the ongoing
Internal Audit and assurance programme.
The Committee was supported in its work by the Executive
Committee, which is comprised of relevant representatives of senior
management and chaired by the CEO. The Executive Committee
meets quarterly to monitor the risk dashboard.
Particular areas of focus for the Committee during the year
included: fraudulent customer illness claims in the UK; information
security; data protection; and cyber security. The Committee
received presentations and regular updates from senior
management on these issues. The Committee received regular
updates in respect of the Group’s legal compliance programme
which covered matters including: data protection; anti-bribery and
corruption; competition law; the Package Travel Directive; hotel and
accommodation contracting.
As part of the ongoing In-Destination Compliance Programme, the
Committee Chair and Group General Counsel & Company Secretary
visited Cyprus and Turkey and met with key business partners to
receive first-hand feedback in respect of the Company’s general
governance and compliance practices in-destination. Findings from
the review were reported to the Committee and an action plan to
further enhance compliance in this area was put in place and is
being monitored by the Committee.
The Committee reviewed reports of all cases lodged with
Expolink, the Group’s whistleblowing line, and the outcomes of
resulting investigations.
Internal Audit
The Committee continued to oversee and support development of
the in-house Internal Audit function. The Committee challenged and
approved the proposed Internal Audit Plan, and throughout the year
monitored the allocation of Internal Audit resource and delivery
against the Internal Audit Plan. The Committee closely monitored
the recruitment process for a new Group Head of Internal Audit.
The Committee considered an effectiveness review of the Internal
Audit function, which measured performance against the Quality
Assessment criteria provided by the Institute of Internal Auditors
and concluded it remains satisfied with work of the Internal
Audit function.
During the year the Committee considered the findings of a number
of reviews carried out by the Internal Audit function.
Internal Control
The Group’s internal control framework is managed by the Group
Finance function. The Audit Committee receives updates on internal
control matters at each meeting which provides the Committee
with assurance that the internal controls in place are robust.
Regular monitoring of the internal control framework allows timely
identification of issues and formal tracking of remediation plans.
The internal control framework includes Risk and Control Matrices,
which act as a key mechanism to mitigate the risk of financial
misstatement and fraud. Management of each Thomas Cook
reporting entity certified compliance with the Risk and Control
Matrix for the financial year. Group Finance ensure that agreed
actions are being implemented to support a programme of
maintaining and improving internal controls. Management also
continues to refine the framework based on the findings of the
reviews from Internal Audit.
To further support the Board’s annual assessment of the
effectiveness of the internal control framework, Group Finance
prepare a report on the Group’s internal control framework and
its effectiveness, which describes the risk management systems
and arrangements in place for internal control, as well as work
conducted during the year to improve the control environment.
Work in the current year has focused on further education on the
internal control framework, to achieve consistency across the Group,
as well as phased testing of reconciliations and controls.
These activities, together with the 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 controls (see
section headed “Risk Management and Internal Control” on page 72).
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
EXTERNAL AUDITOR
The Company’s external auditor is Ernst & Young and Richard Wilson
is the Audit Partner.
Independence
During 2016, the Audit Committee conducted a competitive
tender process, the details of which were reported in last year’s
Annual Report & Accounts. The Board approved the Committee’s
recommendation to appoint Ernst & Young as auditor in respect
of the audit of FY17 onwards, and a resolution was approved by
Shareholders at the Company’s Annual General Meeting in February
2017. Thorough conflict of interest checks were undertaken as
part of the tender process and independence was one of the key
considerations for the Committee when making its recommendation.
Therefore the Committee considers that appointment of Ernst &
Young will ensure a high level of independence is maintained and the
Committee will continue to monitor this area.
Effectiveness
At its meeting in November 2017, the Committee considered the
effectiveness of Ernst & Young as external auditor in respect of
FY17. The review included consideration of comprehensive papers
from both Management and the external auditor, and meetings
with Management in the absence of the external auditor.
The effectiveness review considered matters such as: the
competence of the key senior members of the team and their
understanding of the business and its environment; the planning
process; effectiveness in identifying key risks; technical expertise
displayed by the auditors over complex accounting matters;
communicating and resolving audit issues; timeliness of the
audit process; cost; and communication of issues and risks to
Management and the Committee.
Following the review, the Committee concluded that overall Ernst &
Young had provided an effective and independent audit in respect
of FY17.
The Company confirms that it has complied with the provisions of
the Competition and Markets Authority’s Statutory Audit Services
Order in respect of the financial year under review.
Non-audit Fees
The Company has a Non-audit Fee Policy (the ‘Policy’) in place to
ensure that the provision of non-audit services by the external
auditor does not impair their independence or objectivity.
The Policy, which is appended as a schedule to the Audit
Committee’s Terms of Reference, is published on the Group’s website
at www.thomascookgroup.com. The Policy states that the external
auditor should not be engaged in respect of services ‘blacklisted’
in the FRC’s Ethical Standard 2016. Any other material non-audit
work must be authorised in advance by the Committee, unless the
engagement is urgent, in which case the CFO can agree the work
with the Committee Chair and report it to the next Committee
meeting. The details of non-audit work (if any) are reported to the
Committee on a six-monthly basis.
Fees for non-audit services during the year totalled £202,604
representing 13% of the fees paid to the external auditor (further
information about non-audit fees can be found in Note 6 to the
financial statements). Taking into consideration that £184,082 of
this fee was in respect of the review of the Company’s half-year
results, for which the Company’s external auditor must be used,
the Committee considered the level of fees to be acceptable and
did not consider it posed any risk to auditor independence.
Planning
At its meeting in May 2017, the Committee considered and
approved the external audit plan for the audit of the Group for FY17.
The Committee considered significant risk areas for the audit, the
proposed scope, the materiality threshold, the approach to internal
audit and the transition from PwC to Ernst & Young.
MARTINE VERLUY TEN
CHAIRMAN OF THE AUDIT COMMITTEE
21 November 2017
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
N O M I N ATI O N S CO M M IT TEE
CHAIRMAN
Frank Meysman
OTHER MEMBERS
Dawn Airey, Emre Berkin, Peter Fankhauser (until 30 September 2017),
Warren Tucker (until 30 September 2017) and Martine Verluyten.
COMPOSITION OF THE COMMITTEE
A majority of the members of the Committee are
Non-Executive Directors.
DIRECTORS’ BIOGR APHIES
See pages 63 to 64
MEETINGS ALSO ATTENDED BY:
The other Non-Executive Directors, Peter Fankhauser (CEO),
Michael Healy (CFO) and Alice Marsden (Group General Counsel
and Company Secretary).
ROLE OF THE COMMITTEE
The Board has delegated to the Committee responsibility for
reviewing and proposing appointments to the Board and for
recommending any other changes to the composition of the Board
or 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 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.
ACTIVITIES
During the year, the Committee dealt with two significant tasks,
firstly appointing two new Non-Executive Directors, and secondly
appointing a new CFO.
The Committee considered the current skill set, experience and
balance of the Board alongside the Company’s strategic goals
and decided that, given the importance of the customer and the
hotel portfolio to the Company’s strategy, it would recommend
the appointment of two individuals with particular expertise in
these areas.
The Committee provided a skills-based brief to executive search
firm Egon Zehnder (who do not have any connection to the Company
and are a signatory to the Voluntary Code of Conduct of Executive
Search Firms) and instructed them to compile a gender balanced
long list of candidates for the roles. After a comprehensive search
the Committee recommend that Paul Edgecliffe-Johnson, who has
deep global hotel industry experience, and Jürgen Schreiber, who
has extensive experience across retail and consumer goods, be
appointed to the Board. More information about each Director can
be found in the biography section on pages 63 to 64.
During the year the Committee also spent considerable time
focusing on executive succession planning. Aware of the CFO’s
intention to retire in the near future, the Committee oversaw a
rigorous recruitment and selection process. Again the Committee
instructed Egon Zehnder to compile a gender balanced long list
of candidates and considered a number of external and internal
candidates. This process resulted in the recommendation to appoint
Bill Scott, currently Director of Financial Reporting, as successor to
Michael Healy. In reaching its decision, the Committee considered
Bill’s skill set, experience and achievements during his five years
at the Company alongside the Company’s business plan and
strategic goals.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Other important work in the area of succession planning included
considering how the annual talent review feeds into Executive
succession planning and reviewing initiatives to strengthen
the internal pipeline such as the ‘Leadership and Development
Programme’ which aims to develop the leadership skills of c.90
leaders in the business and the ‘Women’s Sponsorship Programme’
which aims to enhance the profile and opportunity for future female
leaders. More information about the Group’s activities in this area
can be found on page 39.
The Committee also considered:
> the composition of the Committees following the appointment
of two new Non-Executive Directors and recommended changes;
> the extension of Annet Aris’ and Martine Verluyten’s appointment
terms for a further three years;
> re-appointment of Directors before making a recommendation
to the Board regarding their re-election at the 2017 AGM; and
> Directors’ potential conflicts of interests and independence.
BOARD DIVERSIT Y
The Board currently has 36% female representation which exceeds
the Davies Review target for Boards to have a minimum of 33%
female representation by 2020. The Chairman is a member of the
30% Club, which has the aim of promoting the achievement of 30%
of women on FTSE 100 Boards. The Committee continues to monitor
gender diversity of senior management, including the Executive
Committee and the TCLC (statistics for which are provided on
page 39), and is mindful of the Hampton-Alexander Review targets
in respect of gender diversity in senior management of FTSE
100 companies.
The Board also acknowledges the target set by the Parker Review
as a FTSE 250 company, to have at least one non-white Director by
2024. As stated in the “People” section on page 39, ethnicity will be
an area of increased focus for the Company in the coming year and
the Committee will consider this aspect of diversity in the context
of the Board.
The Committee remains committed to ensuring a diverse and
representative Board, and making appointments based on merit.
A copy of the Group’s Board Appointments Policy can be found at
the Group’s website at www.thomascookgroup.com
FR ANK MEYSMAN
CHAIRMAN OF THE NOMINATIONS COMMITTEE
21 November 2017
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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GOVERNANCE
CORPORATE GOVERNANCE REPORT
CONTINUED
H E A LTH , SA FE T Y &
EN V I RO N M ENTA L CO M M IT TEE
CHAIRMAN
Emre Berkin
OTHER MEMBERS
Dawn Airey (until 30 September 2017), Annet Aris, Peter Fankhauser
and Jürgen Schreiber (from 21 September 2017).
COMPOSITION OF THE COMMITTEE
A majority of the members of the Committee are
Non-Executive Directors.
DIRECTORS’ BIOGR APHIES
See pages 63 to 64
MEETINGS ALSO ATTENDED BY:
The other Non-Executive Directors, Michael Healy (CFO), Marc Jordan
(Group Head of Health, Safety and Security), Jean Christoph-Degen
(Group Airlines Director of Aviation Safety), Alice Macandrew
(Group Corporate Affairs and Communications Director),
Stephen D’Alfonso (Group Head of Public Affairs) and Alice Marsden
(Group General Counsel and Company Secretary).
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.
ACTIVITIES
The Committee continued to put customer and employee safety at
the forefront of its agenda. As well as closely monitoring activity
in these areas, it provided strategic oversight and guidance to
ensure that activities align with the Company’s strategy and values.
The matters it considered within its four main areas of focus are:
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Health and Safety
> Oversaw a restructure of the Group Health and Safety function which
involved aligning the Group’s approach to health and safety across all
markets for both complementary and differentiated products
> Monitored the work and performance of the Company’s main
third-party audit supplier (SGS) and other suppliers, including
Cristal Standards, who carried out independent security audits in
certain destinations
> Supported an increase in health and safety audits of hotels,
resulting in a position where over 92% of differentiated hotels have
been audited by one of the Company’s independent third-party
audit suppliers
> Monitored the outcomes and findings of audits and any remedial
actions identified
> Reviewed the Company’s Health and Safety Policy statement, Group
Fuel Policy and Legionella Policy
> Monitored compliance with the Thomas Cook Group Fuel Policy
> Approved the introduction of a Hotel Security Policy Framework
which aligns with the Federation of Tour Operators Security Guidance
> Oversaw a training programme in respect of retail store security
in the UK which resulted in a reduction of burglary incidents
Aviation Security
> Reviewed and approved a four-year Safety Plan which aims to
enhance and harmonise safety practices across the Group Airline.
The Safety Plan includes the launch of the ‘Safe@Heart’ initiative
which aims to embed an enhanced culture of safety in the Airline,
including extra safety training for 7,000 Group Airline employees
> Monitored the safety and security of various airports including
those in Turkey, Tunisia and Egypt
> Carried out a deep-dive into the Group Airline’s Disruptive
Passenger Policy
Sustainability
> Approved a new Sustainability Strategy which is aligned to the
Group’s wider strategy and provided direction in respect of target
setting and implementation
> Approved a new Animal Welfare Policy and supported the
engagement of an independent third-party supplier to carry out
audits of animal attractions to ensure they meet ABTA’s standards
for animal welfare
> Monitored the performance of hotels in achieving a Travelife
sustainability certification
> Oversaw a review of the Group’s charitable activities.
> Monitored Carbon reporting under the Carbon Disclosure Project
and the Commitment to Carbon Reduction Scheme
Public Affairs
> Monitored the Group’s engagement with governments and policy
makers in respect of Brexit, the implementation of the Package
Travel Directive, fraudulent customer illness claims in the UK and
the security of various airports and resorts
EMRE BERKIN
CHAIRMAN OF THE HE ALTH, SAFET Y &
ENVIRONMENTAL COMMITTEE
21 November 2017
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
2017
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, 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.
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.
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.
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POWERS OF DIRECTORS
The powers of the Directors are set out in the Articles. The Directors
were authorised at the 2017 Annual General Meeting to allot shares
equal to approximately one-third of the Company’s issued share
capital as at 7 December 2016 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 10% of the
Company’s issued share capital at 7 December 2016 without first
offering them to existing Shareholders in proportion to their existing
holdings (however more than 5% can only be used in connection
with an acquisition or specified capital investment).
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.
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.
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
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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OTHER DISCLOSURES
CONTINUED
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 currently set at 45%. 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.
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 2017, 527,456,364 Ordinary Shares (34.34%) were
held on the Separate Register.
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PROVISIONS OF CHANGE OF CONTROL
The Company has in place a facilities agreement (the ‘Agreement’)
which consists of a £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.
DISCLOSURE OF INFORMATION UNDER
LISTING RULE 9.8.4
There is no information to be disclosed 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
pages 33 to 39.
EMPLOYEE DISCLOSURES
Disclosures in respect of employee involvement can be found on
pages 37 and 39 of the Strategic Report.
The Company also has outstanding €750 million 6.25% guaranteed
notes due 2022. On the occurrence of certain change of control
events relating to the Company, each holder has the option to
require the Company 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.
As described on page 39, we are committed to creating an
environment in which employees from all backgrounds can reach
their full potential. This commitment is supported by recruitment,
career development and reward policies and practices which are
free from discrimination and ensure equal opportunities for all
employees, irrespective of their personal characteristics.
The Company’s subsidiary, Thomas Cook Finance plc, has
outstanding €400 million 6.75% guaranteed 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 (2016: nil).
MAJOR SHAREHOLDINGS
The table below shows notifications of major shareholdings
received by the Company in accordance with rule 5 of the
Disclosure Guidance and Transparency Rules:
Voting
rights reported
as at 30
September
2017
Percentage
of issued
capital (%)
as at 30
September
2017
Voting
rights
as at 21
November
2017
Percentage
of issued
capital (%)
as at 21
November
2017
Name
321,948,268
183,196,317
169,059,734
Invesco Ltd
Standard Life
Aberdeen
FPI UK Limited (Fosun)
Marathon Asset
77,257,909
Management LLP
77,168,099
The Capital Group
77,148,585
BlackRock, Inc.
Orbis Holdings Limited 76,633,091
20.96
307,031,986
19.99
11.93
11.01
183,196,317
169,059,734
5.03
5.02
5.02
4.99
77,257,909
74,336,279
138,937,979
76,633,091
11.93
11.01
5.03
4.84
9.04
4.99
Full and fair consideration is given to applications received by those
with disabilities with regard to their skills and experience for the
role. Those with disabilities within our organisation are provided
with appropriate learning and development, training courses, career
development and promotion opportunities, with care taken to
ensure that these are made fully available. If there were to be any
instance of an employee becoming disabled during their employment
with us, reasonable adjustments would be made to support that
particular individual to ensure that they are retained within the
business with the appropriate training provided for them to continue
in their role, or if appropriate an alternative role within the business.
The Strategic Report and Directors’ Report comprising pages 4 to 83
have been approved and are signed by order of the Board by:
ALICE MARSDEN
GROUP COMPANY SECRETARY
21 November 2017
Registered office
3rd Floor, South Building
200 Aldersgate
London EC1A 4HD
Registered number
6091951
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
ANNUAL STATEMENT BY CHAIR OF
REMUNERATION COMMITTEE
R EM U N ER ATI O N CO M M IT TEE
DEAR SHAREHOLDERS
On behalf of the Board, I am pleased to present our Directors’
Remuneration Report for the financial year ended 30 September
2017, our first report under the Directors’ Remuneration Policy (the
‘Policy’) which was approved at our Annual General Meeting on
9 February 2017.
OUR PERFORMANCE IN FY17
This has been a year of real progress for Thomas Cook. In a very
competitive environment, Management’s focus on executing our
strategy for profitable growth has delivered a good financial
performance for 2017 while at the same time transforming the
Company’s opportunities for growth over the longer-term.
Strong customer demand for our improved holiday offering across
all source markets delivered a Group underlying EBIT of £330 million.
This achievement is a strong sign of the Company’s resilience as a
result of our ongoing transformation.
Nowhere is this transformation more clear than in our customers’
experience of Thomas Cook holidays. The Net Promoter Score, (NPS)
– the key metric by which we measure customer satisfaction –
increased a further 4 points in 2017. This reflects the very rigorous
way our people now manage the quality and service at every stage
of the holiday life-cycle. But it is also linked to a number of bold
moves where the Company has innovated to modernise its offering
and drive reappraisal of the package holiday such as the roll out
of the 24-Hour Hotel Satisfaction Promise across 2,000 hotels – a
strong sign of the Group’s commitment to putting customers at the
heart of the business.
2017 also saw the announcement of a number of important
developments that will transform the size and shape of the business
for the future. These include the strategic alliance with Expedia
and improving the Group’s financial position by both lowering
the cost of financing and by extending the Group’s debt maturity
profile. Taken together, the business has a strong platform on
which to implement our clear strategy to deliver profitable growth
and returns.
The long-term sustainability of the business is based on the
execution of a very clear strategy to transform Thomas Cook into
a more streamlined business focused on a number of key areas
where it can set itself apart from the competition. Our Policy directly
links Executive Directors’ pay to the achievement of stretching
performance targets which underpin that strategy. The Committee
ensures that the performance measures selected in the incentive
Plans reflect the Key Performance Indicators (KPIs)of the business
and therefore align the interests of the Executive Directors to those
of your own.
CHAIRMAN
Warren Tucker
OTHER MEMBERS
Dawn Airey, Annet Aris, Emre Berkin (until 1 October 2017), Paul
Edgecliffe-Johnson (from 21 September 2017) and Lesley Knox.
COMPOSITION OF THE COMMITTEE
All members of the Committee are Independent
Non-Executive Directors.
DIRECTORS’ BIOGR APHIES
See pages 63 and 64.
MEETINGS ALSO ATTENDED BY:
Frank Meysman (Chairman), Peter Fankhauser (CEO), Michael
Healy (CFO), Martine Verluyten (Independent Non-Executive
Director), Jürgen Schreiber (Independent Non-Executive Director),
Alice Marsden (Group General Counsel & Company Secretary),
Mitul Shah (Deloitte LLP, ‘Deloitte’) (until May 2017), Pete Smith
(Mercer Ltd, ‘Mercer’) (from September 2017) and members of the
HR Leadership Team as required, being Rachael Gillett (Group &
UK HR Director), Caroline Forsyth (Group Head of Reward) and
Emily Hallett (Executive Remuneration Manager).
All attendees are by invitation only.
SCHEDULED MEETINGS
Six.
This report is set out in the following key sections:
ANNUAL STATEMENT
BY CHAIR OF THE
REMUNER ATION COMMITTEE
DIRECTORS’ REMUNER ATION
POLICY
ANNUAL REPORT ON
REMUNER ATION
See pages 84 to 88.
See pages 89 to 97.
See pages 98 to 108.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Stretching targets are set to incentivise and reward profitable
growth, disciplined cash management, unrivalled customer service
and long-term Shareholder value creation. The diagram below shows
the alignment between our strategy (as set out on pages 4 to 5) and
KPIs (as set out on page 32).
PAY PHILOSOPHY
As a Committee, we remain very mindful of the sensitivities of
executive pay felt by companies, employees, Shareholders and our
customers. Our approach is to ensure that our Policy reflects our
strategy, with outcomes that are fair and have a strong link to
performance, and this remains our priority as a Committee.
As set out in the Policy, fixed pay is set at median levels against
the market, and the provision of benefits set by the local market
in which the Executive Directors operates. Variable remuneration
is a combination of both short and long-term incentives which are
strongly linked to the rigorous execution of the strategy.
LI N K I N G PAY W ITH P E R FO R M A N C E
OUR VISION
AND STR ATEGY
KPIS WE USE TO
ME ASURE PERFORMANCE
HOW E ACH KPI IS REFLECTED IN INCENTIVES
Annual Bonus
Performance Share Plan (PSP)
Our vision is to be the most
loved holiday company.
‘Customer at our Heart’ sits
firmly at the centre of our
vision and our strategy for
sustainable growth
Our key performance
indicators, measure the
success of our strategy
See more on page 32
Underlying EBIT1
Core Measure
Earnings Per Share (EPS)
Core Measure
Net Debt
Core Measure
(Cash Flow)
Net Promoter Score (NPS)
Core Measure
Employee Satisfaction
Role-specific measure
(Engagement)
Interests are
further aligned
with Shareholders
through Total
Shareholder Return
(TSR) as a Core
Measure
1 Any reference to underlying EBIT in the Directors’ Remuneration Report is stated in line with the definition explained in Appendix 1 in the Financial Review
– Use of Alternative Performance Measures on page 52.
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ANNUAL STATEMENT BY CHAIR OF REMUNERATION COMMITTEE
CONTINUED
THE 2017 POLICY
Last year, the Committee introduced an updated Policy which came
into effect in February 2017 and included a number of best practice
improvements. Whilst we were pleased that the Policy presented
at the 2017 Annual General Meeting received approval, we recognise
that there was a minority that voted against it, with particular
concerns relating to the Strategic Share Incentive Plan (SSIP).
Your support is very important to us. To alleviate some of your
concerns around the SSIP, following the results of the Annual
General Meeting, we made the commitment to make a future
award under the SSIP only following full consultation with our
major Shareholders as to the circumstances, the objective(s), the
target(s) and the quantum of any award. We also committed to not
proceeding without the full support of our major Shareholders.
To date, the exceptional circumstances that would give rise to using
the SSIP have not arisen and therefore the SSIP has not been used
in FY17 and there are no plans to use it in FY18.
In addition, in response to your concerns around the maximum
opportunity under the SSIP, we have capped the award to ensure
that the maximum achievable under the SSIP will not exceed
the maximum achievable under the PSP, being 200% of salary.
An amended Policy with this change is not being presented for
formal approval, however it has been reflected as notes to the
future Policy table on pages 92 and 93.
The Committee also acknowledges your concerns with our approach
to disclosing EPS targets retrospectively under the PSP. I would like
to update you on the progress we have made here. To date, EPS
targets have been directly linked to our business plan. This made
them price sensitive and therefore we felt we could not disclose
these prospectively.
We have reviewed our target setting process and have developed
a methodology that results in a target range which can now be
disclosed prospectively. As such I am pleased to be able to share
the target range for the upcoming PSP award to be made in FY18.
In addition, in this report you will also find EPS target ranges for the
two outstanding PSP awards. This brings our approach to disclosure
in line with the market and aligns with our aim to be open and
transparent on our long-term incentive plan targets.
As I mentioned earlier, a number of best practice changes were
introduced during the year. These included: an increase to the
shareholding requirement for Executive Directors; the addition of a
holding period to all long-term incentive plans which provide for a
five-year time horizon on all plans; aligning good leaver provisions;
and capping the maximum employer pension benefit. We also
reduced the level of vesting available for threshold performance
under the PSP and improved bonus disclosure of targets by bringing
forward disclosure by one year.
The changes we made and the way in which they have been
implemented following approval of the Policy are set out in the
table opposite:
Change made
How we have implemented this change
Shareholding
requirement for
Executive Directors
increased from 100%
to 200% of salary
Good leaver provisions
aligned across all Plans
Reduced the level of
threshold vesting under
the PSP from 30% to 25%
Capped the maximum
pension benefit within
the Policy
Introduced a two-year
holding period to the PSP
(and SSIP)
Strengthened malus and
clawback
Improved bonus target
disclosure
Improved EPS target
disclosure
The CEO and CFO have holdings of 449% and
300% respectively.
The PSP vesting date for the CFO is aligned to
the normal vesting date under each award.
The bonus payment for the CFO will be made
on the normal payment date and a proportion
of the bonus will continue to be subject to a
two-year deferral period.
Put in place from the FY17 (December 2016)
grant onwards.
New CFO pension arrangement set at a level
below the cap – i.e. 20% if receiving the benefit
as a cash allowance or 15% if receiving as
an employer contribution into the pension
scheme, instead of the Policy maximum of
30%, to align more closely to the maximum
an employee with long-service in the UK
can receive.
Holding period written into the PSP rules ready
for next grant in FY18 (December 2017). This
means that all long-term incentive plans at
Thomas Cook have a five-year time horizon in
line with corporate governance guidelines and
Shareholder expectations.
Whilst Thomas Cook was an early adopter of
malus and clawback in the bonus plan and
malus in the PSP, clawback events have been
written into the PSP rules ready for next grant
in FY18 (December 2017). Malus and clawback
are now across all of our incentive plans.
Targets are now disclosed at the end of the
performance year in line with corporate
governance guidelines and Shareholder
expectations. FY17 targets are disclosed in
this report.
Last year we provided information on how
EPS targets were set, and gave a performance
update for targets under each outstanding
award. This year we are prospectively
disclosing target ranges for the upcoming
PSP awards and disclosing target ranges for
all outstanding awards.
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CFO SUCCESSION
As previously announced, in January 2018, Bill Scott will succeed
Michael Healy as CFO, following Michael’s decision to retire at the
end of the year. The Board was delighted to make this internal
promotion and look forward to welcoming Bill to the Board.
The key components of Bill’s remuneration package were published
on our Company website and announced via a regulatory news
service (RNS) statement shortly after they were agreed, and are set
out in detail on page 104.
Bill’s appointment will commence on 1 January 2018 following Michael
stepping down from the Board. I would like to echo the Chairman’s
comments on the significant contribution Michael has made to the
Group as CFO and member of the Board.
The Committee agreed Michael’s leaving arrangements in line
with the Policy and these were also disclosed at the time on our
Company website and via the same RNS statement Full details of
the arrangements are set out on page 104.
COMMITTEE AND ADVISER CHANGES
In addition to the forthcoming change to the Executive Board, we
appointed two new Independent Non-Executive Directors to the
Board. As mentioned previously by the Chairman on page 9, Paul
Edgecliffe-Johnson was appointed to the Remuneration Committee
on 21 September 2017. As part of the overall streamlining and
reorganisation of the Committees, Emre Berkin stepped down from
the Remuneration Committee effective 1 October 2017.
The Committee also took the opportunity to review the advisers
to the Committee as part of its obligation to ensure continued
independence, conducting a thorough and robust tender process
during the year in which five firms were invited to participate.
As described further on page 98, Mercer was selected and
appointed, advising the Committee from September 2017.
Other Committee activities during the year included:
> ongoing dialogue with Shareholders;
> deciding the salary increases for the CEO and CFO for April
2017, being an increase of 2 per cent in line with the overall
employee population;
REMUNER ATION OUTCOMES IN FY17
Short-term incentives
Progress has been made this year to deliver Group underlying EBIT
growth, and strong cash flow management. Our ‘Customer at our
Heart’ strategy continues to bear fruit and the Group has achieved
another year of improvement in NPS.
This has resulted in a calculated achievement of 117 per cent of base
salary for the CEO (77.7 per cent of the maximum bonus opportunity).
The Group underlying EBIT and Group Free Cash Flow performance,
along with strengthening the financial position of the Company,
resulted in a calculated achievement of 128 per cent of base salary
for the CFO (85.5 per cent of the maximum bonus opportunity).
One third of bonus payments will be deferred in shares for a period
of two years and will be subject to clawback during this time.
Targets and outcomes for the year are fully disclosed on page 100.
Long-term incentives
There were no awards made to Executive Directors during FY14,
therefore no awards vested during FY17.
The award made in FY15 (granted in March 2015) is subject to the
achievement of performance conditions relating to FY17. The targets
under this award reflected our aims of significant growth in
earnings and a substantive improvement in our cash position, with a
corresponding improvement in share price. As performance against
the targets have not been achieved against the stretching targets,
and share price performance is likely not to be achieved to the
extent that the target requires, awards held by Executive Directors
are anticipated to lapse in March 2018. The targets and outcomes
under this award are shown on page 101.
Overall variable pay compared to the maximum available
Outcomes reflect progress made. However they also reflect that
Thomas Cook is still in a period of business transformation and
there is still a lot to do to deliver long-term value to Shareholders.
Remuneration outcomes for the year were significantly lower
than the maximum opportunity during FY17, as shown in the
following charts:
> determining performance against the targets set under the FY17
CEO
annual bonus plan;
> deciding on the continued operation of the terms of the bonus plan
and setting targets for the FY18 Plan;
> determining award levels under the PSP for the grant to be made
in FY18. As was the case last year, the PSP award will vest subject
to challenging Relative TSR and EPS targets described more fully
on page 104;
> taking into consideration Corporate Governance updates
throughout the year and;
> performing annual governance checks; including the review of
dilution limits, shareholding levels against Policy, reviewing risks
associated with executive remuneration and the Committee’s
activities against its Terms of Reference.
£1.8m
actual
£3.2m
maximum
CFO
£1.4m
actual
£2.3m
maximum
Base salary
Benefits incl pension
Bonus
PSP
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ANNUAL STATEMENT BY CHAIR OF REMUNERATION COMMITTEE
CONTINUED
APPROACH FOR FY18
Salary reviews
Salary reviews are undertaken annually in April of each year.
Overall salary increases for the Group for 2018 have not yet been
considered, with the exception of the following:
> any increase that is awarded to Peter Fankhauser in April
2018 will not exceed the increase provided to the general
employee population
> there will be no increase to Michael Healy’s base salary during FY18
> Bill Scott, who will be assuming the role of CFO effective 1 January
2018 will not receive a salary increase in April 2018
Short-term incentives
Two years ago, the bonus plan was reviewed to align to our
‘Customer at our Heart’ strategy. The Plan was rolled out to all
bonusable roles across the Group where possible, and continues
to be operated consistently across the Group. For FY18, there will
be full retrospective disclosure of targets and performance against
these in next year’s Directors’ Remuneration Report. The annual
bonus opportunity will remain at 150 per cent of base salary with
one third of any payment being deferred into shares, this proportion
aligns with the recently published Investment Association’s
Principles of Remuneration which state that deferral should be
applied to any bonus payments of more than 100 per cent of salary.
Long-term incentives
The Committee intends to grant PSP awards in FY18, shortly
after announcement of our full year results. The award for
Peter Fankhauser and Bill Scott will be at the normal grant level
of 150 per cent. There will be no award made to Michael Healy
following his notification to the Board of his forthcoming retirement.
The performance conditions for the award will be Relative TSR and
Basic EPS, the target range of which is disclosed on page 104.
REMUNER ATION AT A GL ANCE
The table below provides a high-level summary of the outcomes for the year and the remuneration arrangements for Executive Directors
for FY18:
FY18
Role
Name
Annual salary
Maximum bonus opportunity (one-third
deferred into shares for two years)
Chief Executive Officer
Chief Financial Officer
Incoming Chief Financial Officer
Peter Fankhauser
Michael Healy
Bill Scott
£717,800
(increased from £703,800,
+2% effective 1 April 2017)
£541,200
(increased from £530,600,
+2% effective 1 April 2017)
£420,000
effective 1 January 2018
150% of base salary
150% of base salary
150% of base salary
(pro-rata for time employed)
Salary used in calculation pro-
rated to reflect time in CFO role
PSP award (subject to performance)
150% of base salary
No award being made
150% of base salary
FY17
Role
Chief Executive Officer
Chief Financial Officer
Incoming Chief Financial Officer
Bonus payment
% of base salary
117%
LTIP awards
vesting
in the year
£
% of maximum
award vesting
£836,596
None
Number of vested shares None
128%
£694,089
None
None
Not applicable to CFO role
CLOSING REMARKS
As a Committee, we believe that our approach to remuneration
closely aligns to your expectations, making responsible
remuneration decisions, and being mindful of the evolving corporate
governance landscape in which we operate, with many best practice
approaches included in our Policy. With your continued input, we will
ensure we maintain our strong commitment to a clear link between
pay and performance, operating under a structure that rewards
performance for the execution of our ‘Customer at our Heart’
strategy, and the delivery of long-term Shareholder value.
I would like to take this opportunity to give my thanks to my fellow
members of the Committee and those who supported us for their
contributions during the year.
Finally, I look forward to receiving your support on the resolutions
relating to remuneration at the Annual General Meeting in February
2018 where I will be available to respond to any questions you may
have on this report, or the Committee’s activities more generally.
WARREN TUCKER
CHAIRMAN OF THE REMUNER ATION COMMITTEE
21 November 2017
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
DIRECTORS’
REMUNERATION POLICY
This section of the report sets out Thomas Cook’s Directors’ Remuneration Policy (the ‘Policy’). The Policy was subject to a binding
Shareholder vote at the Company’s Annual General Meeting on 9 February 2017 and was effective from this date.
REMUNER ATION PHILOSOPHY AND PRINCIPLES
Thomas Cook Group plc’s Remuneration Policy supports the organisation’s overall remuneration philosophy of pay for performance, and is
based on the following principles:
Attracts and motivates:
Drives performance:
Provides balance:
Creates long-term value:
> Attracts and motivates high-calibre
talent without paying more than
is necessary
> Facilitates delivery of a level of total
remuneration which is competitive
with companies of a similar size,
international aspect and complexity,
in the relevant market for talent
> Focuses Management on rigorous
execution of Thomas Cook’s strategy
with the right behaviours in line with
the Company’s values
> Performance-related pay plans
will provide meaningful reward to
Management, dependent upon the
satisfaction of challenging targets
which are critical to the delivery of
our business strategy
> Provides an appropriate mix of fixed,
short and long-term performance-
related pay via simple structures
> Reflects the Company’s relentless
focus on performance and preserves
and enhances company reputation
without encouraging excessive
risk-taking
> Is linked to the creation of long-term
sustainable value through long-term
performance targets and share-based
remuneration
> Remuneration should support the
creation of long-term Shareholder
value and the building of a strong
and sustainable future for Thomas
Cook, worthy of our customers and
our heritage
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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GOVERNANCE
DIRECTORS’ REMUNERATION POLICY
CONTINUED
F U TU R E P O LI C Y TA B LE
Element
Base salary
Retirement
benefits
Benefits
Purpose and link to
strategic objectives
Operation
> Provides fixed remuneration
for the role, which reflects
the size and scope of
the Executive Director’s
responsibilities
> Attracts, motivates and
retains the high-calibre
talent necessary to deliver
the business strategy
> Salaries are paid monthly and are normally reviewed annually. There is no automatic right to an increase each year
> Consideration is typically given to a range of factors including:
— size and scope of the Executive Director’s responsibilities;
— performance and experience in the role;
— typical pay levels for comparable roles in companies of a similar size, international aspect and complexity
in the relevant market;
— the economic climate and market conditions in which the business operates; and
— overall salary budgets and levels across the Group.
> To provide competitive
post-retirement benefits
> Attracts and retains
the high-calibre talent
necessary to deliver the
business strategy
> Set at an appropriate level
of risk and cost to the Group
> Ensures the overall
remuneration package
is competitive
> Attracts and retains
the high-calibre talent
necessary to deliver the
business strategy
> Payment may be made either into a pension Plan (for example, a defined contribution Plan or into such other
arrangement the Committee considers has the same economic benefit) or paid as a cash allowance with Company
contributions set as a percentage of basic salary in lieu of any Company pension contributions
> Peter Fankhauser also has a German pension provision relating to his employment with Thomas Cook prior to his
appointment to the Thomas Cook Group Board which has been frozen at the level accrued to 26 November 2014
(the date he was appointed CEO) and will be payable from age 60. Peter has the option to commute the annual pension
to a one-off lump sum payment at age 60.If Peter’s employment is terminated without good cause, a pension may be
paid from termination
> Benefits may include those currently available to Executive Directors including a car allowance, a travel allowance
or reimbursements, tax advice, private healthcare benefits for the Executive Directors and their immediate family,
employee travel concessions and life assurance. These are reviewed annually by the Committee to ensure that they
provide a competitive remuneration package and facilitate the delivery of the business strategy
> Executive Directors will be entitled to take part in any ‘all-employee’ benefits and share plans on the same basis
as other employees
> The Company reserves the right to offer benefits to Executive Directors depending on their individual circumstances,
which may include (but are not limited to) housing, travel, healthcare and other allowances
> In the case of non-UK Executive Directors, the Committee may consider additional allowances in line with standard
practice for that region
Annual bonus
> Focuses Management
> Measures and targets are set annually and payout levels are determined by the Committee after 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 at least one-third of their annual bonus into Company shares which then vest two
years after the cash bonus payment date
> Clawback and malus provisions will apply to the cash and deferred elements of the annual bonus as described in the
notes to this table
> Eligibility for any bonus payment will be forfeited if the participant leaves employment before the cash bonus payment
date, or before the vesting date in the case of any deferred share award, unless in specific ‘good leaver’ circumstances
> Good leaver terms are described in more detail in the ‘Service Contracts and Loss of Office Payments’ section of
this Policy
on 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 delivery of our
business strategy
> Compulsory deferral into the
Company’s shares provides
a link to the creation of
long-term sustainable
value, and therefore
a retention element
> The clawback and malus
provisions enables the
Company to mitigate risk
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Maximum opportunity
Performance metrics
> Whilst the Committee has not set a monetary
> Performance, through our performance Management process, is one of the key considerations in reviewing
and setting salary.
maximum, ordinarily base salary increases will usually
not exceed the average increase awarded to other
employees in the Group
> More significant 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 appropriate
market positioning over time.
> Contributions into any Plan or paid as a cash
> None.
allowance will be up to 30% of base salary per annum.
> The Committee has not set a monetary maximum
(given the value of benefits will vary based on the
individual’s circumstances) and reserves the right
to provide such level of benefits as it considers
appropriate to support the ongoing strategy
of the Company.
> None.
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> For maximum performance:
— 150% of salary
> The Committee will have regard to various performance measures (which will be determined by the Committee)
measured over the relevant financial year, when determining bonus outcomes
> 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 other strategic or 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
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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GOVERNANCE
DIRECTORS’ REMUNERATION POLICY
CONTINUED
F U TU R E P O LI C Y TA B LE CO NTI N U ED
Element
Purpose and link to
strategic objectives
Operation
Long-term
share-based
incentive Plan
Strategic share-
based award
Updates to Policy
following AGM:
> Maximum award
level is capped
at 200% (aligned
to maximum
PSP award)
> The Committee
will only use
this award
following
consultation
with major
Shareholders
Chairman and
Non-Executive
Director fees
> Focuses Management
> A summary of the key features of the Plan is set out below:
on 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 delivery of our
business strategy
> Long-term performance
targets and share-based
remuneration support
the creation of long-term
Shareholder value
> The Strategic Share Incentive
Plan (SSIP) provides focus on
near-term strategic targets
that are important to the
future strategic success of
Thomas Cook
> Long-term TSR targets
support the creation of long-
term Shareholder value
> To reward individuals for
fulfilling the relevant role
> Attracts and retains
individuals with the skills,
experience and knowledge
to contribute to an
effective Board
— awards will vest dependent upon the achievement of performance conditions set by the Committee measured over
a performance period of at least three years;
— awards made under the new PSP approved by Shareholders in February 2017, i.e. awards made from December 2018
onwards, will be subject to an additional holding period (currently two years) following the end of the performance
period, unless the Committee determines otherwise;
— 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; and
— 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 in the ‘Service Contracts and Loss of Office
Payments’ section of this Policy.
> Clawback and malus provisions will apply as described in the notes to this table.
> A summary of the key features is set out below:
— an individual Executive Director can only participate in the SSIP once every four years;
— participation in the SSIP precludes participation in the PSP (or any other long-term incentive plan) in respect of that
particular financial year;
— an initial share-based award may be made based on the achievement against predefined strategic performance
target(s) assessed over a period of at least two financial years;
— the number of shares in the initial share-based award will be determined following the assessment of the
strategic target(s);
— the initial share-based award will be subject to a TSR multiplier measured over three years commencing in the year
the individual is invited to participate in the SSIP;
— awards will be subject to an additional holding period following the end of the TSR performance period, unless the
Committee determines otherwise;
— the Committee has full discretion to amend the level of vesting (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; and
— the award will lapse if the participant leaves employment before the initial share-based award is made, unless
there are specific good leaver circumstances. If the participant leaves employment following the grant of the initial
share-based award, the award will subsist on its original terms unless the Committee determines otherwise.
> Clawback and malus provisions will apply as described in the notes to this table.
> 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 or membership 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
(along with any associated tax liability).
PAYMENTS WHICH ARE NOT IN ACCORDANCE WITH THE POLICY
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretions available to it in connection
with such payments) notwithstanding that they are not in line with the Policy set out above where the terms of the payment were agreed (i) before the 2014 Annual General
Meeting (the date the Company’s first Shareholder-approved Directors’ Remuneration Policy came into effect); (ii) before the Policy set out above came into effect, provided that
the terms of the payment were consistent with the Shareholder-approved Policy in force at the time they were agreed; or (iii) at a time when the relevant 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. For these purposes
‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment are ‘agreed’ at the time the
award is granted.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Maximum opportunity
Performance metrics
> Under the Plan rules, the aggregate value of all
> The performance measures for the PSP will be a combination of financial measures and share price-based
awards made in respect of any financial year must
not exceed 200% of base salary.
> The normal maximum face value of awards is 150%
of base 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.
> An initial award of shares of up to 150% of base salary
can be made dependent on the achievement against
strategic targets.
> This initial award of shares may be increased by 33%1
or decreased by 50% dependent on TSR performance
(i.e. the overall maximum award size in respect of any
financial year is 200%1 of salary).
1 The maximum award size was approved at 225%, however
was subsequently capped at 200% and is reflected in the
wording above and throughout this Policy.
measures, measured over at least a three-year performance period. Normally, the weightings will be as follows:
— at least 40% will be based on financial measures;
— at least 40% will be based on share price-based measures; and
— the remaining proportion may be based either on financial or share price-based measures.
> 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 25% 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
> The Committee may determine that a ‘target’ level of performance is applicable to the award. The ‘target’
performance level will be between ‘threshold’ and ‘maximum’ performance levels and will be set in the context
of the business Plan. For achievement of the ‘target’ performance, between 50% and 70% of each respective
element of the award will vest
> Normally, there will be straight-line vesting between ‘threshold’ and ‘maximum’, or when applicable, between
‘threshold’ and ‘target’ and between ‘target’ and ‘maximum’
> Awards will be subject to (i) a performance condition measuring strategic targets over at least two years and
(ii) a performance condition relating to the Company’s TSR measured over a period of at least three years
> For achievement of a ‘threshold’ performance level against the strategic target (which is the minimum level of
performance that results in an initial award being made), no more than 25% of the maximum initial award will
be made
> For achievement of a ‘maximum’ performance level against the strategic targets (which is the highest level of
performance that results in an initial award being made), an award equal to 100% of the maximum initial award
will be made
> The initial award can then be increased by 33%1 or decreased by 50% based on TSR performance ensuring that
through the whole vesting period the award is subject to performance
1 The maximum award size was approved at 225%, however was subsequently capped at 200% and is reflected in the wording
above and throughout this Policy
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> The maximum level of fees will not exceed the limit
set out in the Company’s Articles of Association and
will be set at a level which the Committee (or the
Board, as appropriate) considers:
> None
— 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.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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GOVERNANCE
DIRECTORS’ REMUNERATION POLICY
CONTINUED
EXPL ANATORY DETAIL FOR FUTURE POLICY TABLE
Common award terms
Awards under any of the Company’s share Plans referred to in this
report may:
a) be granted as conditional share awards or nil or nominal-cost
options or in such other form that the Committee determines has
the same economic effect;
b) have any performance conditions applicable to them amended
or substituted by the Committee if an event occurs which
causes the Committee to determine an amended or substituted
performance condition (s) would not be materially less difficult
to satisfy;
c) incorporate the right to receive an amount (in cash or additional
shares) equal to the value of dividends which would have been
paid on the shares under an award, that vest up to the time of
vesting (or where the award is subject to a holding period, at
the end of the holding period). This amount may be calculated
assuming that the dividends have been reinvested in the
Company’s shares on a cumulative basis;
d) be settled in cash at the Committee’s discretion; and
e) be adjusted in the event of any variation of the Company’s share
capital or any de-merger, de-listing, special dividend or other
event that may affect the Company’s share price.
Explanation of chosen performance measures and the target
setting process
Performance measures have been selected by the Committee to
reflect the targets and key performance indicators that are critical
to the delivery of our business strategy (as shown on page 85).
Challenging performance targets are set by the Committee each
year for the annual bonus plan, PSP and when applicable, the SSIP.
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 against these targets.
Malus and Clawback
As highlighted in the Policy table, malus and clawback arrangements
are in place. The following elements of the remuneration package
are subject to these provisions:
> the cash part of the annual bonus will be subject to clawback
provisions for a period of at least two years following payment;
> the unvested deferred annual bonus shares will be subject to
malus provisions; and
> the PSP and SSIP will be subject to malus and clawback provisions
until the end of any holding period for a period of five years from
the grant of a PSP award, or in the case of the SSIP, the date the
Executive Director was invited to participate in the SSIP.
Malus and clawback may be applied in the following circumstances:
> a material adverse misstatement or misrepresentation of the
Company’s or any Group member’s financial statements; and/or
> 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 or
financial downturn, as determined by the Committee, as a result
of any action (or in the case of awards under the new PSP or SSIP,
any action or omission) taken by the participant, or their team.
Salary, pension and benefits are not subject to clawback.
Shareholding requirements
Executive Directors are required to build and maintain a shareholding
in the Company to a value of at least 200 per cent of base salary
within a five-year period commencing on appointment as an
Executive Director.
Unless the Committee determines otherwise, those Executive
Directors who do not at any point meet the shareholding
requirements must hold any shares vesting net of tax under the
Company’s share plans until the requirements are met.
Policy for the remuneration of employees generally
Remuneration arrangements are determined throughout the Group
based on the same principle of pay for performance. Reward should
be achieved for delivery of our business strategy and should be
sufficient to attract, motivate and retain high-calibre talent, without
paying more than is necessary, with remuneration based on
market rates.
Thomas Cook has operations based in a number of different
countries and employees with different levels of skills and
experience, and whilst based on the over-arching principle of
pay for performance, reward policies may vary depending upon
these factors.
APPROACH TO RECRUITMENT REMUNER ATION
When agreeing a remuneration package for the appointment
of a new Executive Director, the Committee will apply the
following principles:
> The remuneration package will be sufficient to attract, motivate
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 applicable Annual Remuneration Report, the
Committee will explain to Shareholders the rationale for the
relevant arrangements
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
The following variations may be considered by the Committee for
inclusion in a recruitment package for an Executive Director:
Element
Approach
Initial
long-term
incentive
award
Initial annual
bonus
opportunity
An initial long-term incentive award may be made in
line with the opportunity in the Policy table (either
200% under the PSP, or 150% under the SSIP with the
opportunity to increase to 200%1 upon vesting subject
to TSR performance).
1 The maximum award size was approved at 225%, however was
subsequently capped at 200% and is reflected in the wording above and
throughout this Policy.
The Committee will ensure:
> the award is linked to the achievement of appropriate
and challenging performance targets. The Committee
has the flexibility to use different performance
measures and weightings to those set out in the
Policy table;
> the award will be subject to the leaver provisions
set out in the ‘Service Contracts and Loss of Office
Payments’ section; and
> awards will only be made following consultation.
The initial annual bonus opportunity will be in line with
the opportunity of 150%, as set out in the Policy table.
The Committee will ensure the award is linked to
the achievement of appropriate and challenging
performance targets. The Committee has the flexibility
to use different performance measures and weightings
to those set out in the Policy table.
Compensation
for forfeited
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; and
> the form and timing of the original award.
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 market practice.
The Committee will seek to ensure that no more
is paid than is necessary.
Under reporting regulations, Thomas Cook is required to set out
the maximum amount of variable pay which could be paid to a new
Executive Director in respect of their recruitment. The Committee
has set this figure in line with the maximum allowed under the
short-term and long-term incentive Plans combined, being either
350 per cent if a PSP award has been made, or 300 per cent (rising
to a maximum of 350 per cent1 based on the TSR multiplier) if a SSIP
has been made, in addition to the maximum opportunity under the
annual bonus. This excludes the value of any compensation for
forfeited awards.
1 The maximum award size was approved at 225 per cent, however was subsequently capped at
200 per cent and is reflected in the wording above and throughout this Policy.
For an individual 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
Policy table.
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
> The extent to which any performance linked elements of an
Executive Director’s remuneration package will be delivered will
depend on the circumstances of the Executive Director’s departure
and whether the Committee considers the Executive Director
to be a ‘good leaver’. A ‘good leaver’ scenario may constitute
circumstances where the Executive Director leaves because
of disability, injury, ill-health, redundancy or retirement or the
Executive Director’s employing company or business being sold out
of the Group, for any other reason that the Committee determines
appropriate, or on the Executive Director’s death
> If an Executive Director leaves as a ‘good leaver’ during the annual
bonus performance year or before the normal bonus payment
date, a bonus payment in respect of the year may be made, which
will be pro-rated to reflect the portion of the performance year
elapsed and performance achieved at the end of the performance
year. This bonus may be paid in such proportions of cash and
shares as determined by the Committee and paid on the normal
payment dates
> If the participant leaves as a ‘good leaver’ before the end of the
deferral period, any unvested deferred bonus awards will vest at
the normal vesting date
> Any ‘good leaver’s’ unvested awards under the PSP vest to
the extent determined by the Committee taking into account
performance achieved against any relevant performance targets
and the proportion of the vesting period that has elapsed
> SSIP awards will lapse if the individual leaves prior to the initial
share-based award being made, unless in a good leaver scenario,
defined for the purposes of the SSIP as death, ill-health, injury
or disability only. If a participant in the SSIP leaves after the
initial share-based award has already been made, the award will
continue to subsist on its original terms, unless the Committee
determines otherwise
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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GOVERNANCE
DIRECTORS’ REMUNERATION POLICY
CONTINUED
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 advisery 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. 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
Director’s time commitment to the performance of Thomas
Cook duties.
The Committee will allow Executive Directors to retain any
fees payable.
STATEMENT OF CONSIDER ATION OF CONDITIONS
ELSEWHERE IN THE COMPANY
When setting the Policy for Executive 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
incentive plans;
> company-wide benefits (including pension); and
> any other relevant factors as determined by the Committee
In order to take into account the views of the general employee
population when formulating Executive Director pay Policy, the
Committee may review information provided by the HR function and
feedback from employee satisfaction 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.
> Where PSP and SSIP awards are subject to an additional
holding period, they will be released following the end of the
holding period, unless in the case of death when vesting will be
accelerated. Awards structured as options shall be exercisable
for a period of six months (or 12 months in the case of death) from
vesting (or where subject to a holding period, release)
> In the event of a takeover or winding-up of the Company (other
than as part of an internal re-organisation of the Thomas Cook
Group), PSP and SSIP awards may vest to the extent determined
by the Committee, taking into account the performance achieved
against any relevant performance targets and, the proportion of
the vesting period that has elapsed (in the case of PSP awards)
and the period of time that has elapsed since grant (in the case
of SSIP awards where the strategic performance condition(s)
have not yet been satisfied). Vested awards will be released from
any holding periods at the time of transaction. Where a takeover
occurs after an Executive Director has been invited to participate
in the Plan but prior to the grant of the initial share-based award,
the Committee may grant the individual an award which takes into
account the Company’s performance and the length of time the
individual has been a participant in the SSIP
> Awards may alternatively be ‘rolled over’ into new shares of an
acquiring company or at the Committee’s discretion be amended
or allowed to subsist on their original terms. In the event of any
demerger, delisting, special dividend or other event which, in the
Committee’s opinion, may affect the Company’s current or future
share price, awards may, at the Committee’s discretion, vest (and
be released) on the same basis as for a takeover
> The Committee reserves the right to make any other payments
in connection with an Executive Director’s cessation of office
or employment where the payments are made in good faith in
discharge of an existing legal obligation (or by way of damages
for breach of such an obligation) or by way of a compromise or
settlement of any claim arising in connection with the cessation
of an Executive Director’s office or employment. Any such
payments may include but are not limited to paying any fees for
outplacement assistance and/or the Executive Director’s legal and/
or professional advice fees in connection with their cessation of
office or employment
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 Annual General Meeting.
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 Annual General Meeting. The Directors’ service
contracts and letters of appointment are kept for inspection by
Shareholders at the Company’s registered office.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
ILLUSTR ATIVE PERFORMANCE SCENARIOS
This section illustrates the levels of remuneration that may be received by the current Executive Directors. Their remuneration
is set in accordance with the Policy. The charts below show three scenarios: (a) fixed pay, comprising of base salary, benefits and pension,
(b) mid and (c) maximum of overall potential:
CEO Total remuneration £’000
CFO Total remuneration £’000
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
£1,009
100%
(a) Fixed
PF
£3,163
34%
34%
32%
(c) Maximum
PF
2,000
1,500
1,000
500
0
£702
100%
£520
100%
(a) Fixed
MH
BS
£1,190
41%
59%
£1,276
30%
30%
40%
(b) Mid
MH
BS
£1,514
54%
46%
£1,780
35%
35%
30%
(c) Maximum
BS
MH
£2,301
28%
28%
44%
(b) Mid
PF
Total fixed
Annual bonus
PSP
PF = Peter Fankhauser
Total fixed
Annual bonus
MH = Michael Healy; BS = Bill Scott
PSP
In developing the scenarios, the following annualised assumptions have been made:
(a) Fixed
Based on fixed pay being received only, for example, base salary, benefits and pension.
This is calculated for Peter Fankhauser and Michael Healy as follows:
> Base salary at the date of this report
> 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
The calculation basis for Bill Scott is as follows:
> Base salary at 1 January 2018
> Benefits are based on an estimated amount based on the contractual arrangements
> Pension measured by applying cash in lieu rate against base salary at 1 January 2018
Base salary (£’000s)
Benefits (£’000s)
Pension (£’000s)
Total fixed (£’000s)
CEO
CFO (Michael Healy)
CFO (Bill Scott)
£718
£541
£420
£76
£26
£16
£215
£135
£84
£1,009
£702
£520
(b) Mid
If performance is in line with the Company’s expectations:
> Annual bonus pays out at 60% of maximum for on-target performance, based on a maximum annual eligibility of 150% of salary
> For Peter Fankhauser and Bill Scott only: A PSP award with a face value of 150% of base salary pays out 60% of maximum
(c) Maximum
If performance is in line with the maximum eligibility levels:
> Full pay-out of annual bonus i.e. 150% of salary with stretching performance achieved
> For Peter Fankhauser and Bill Scott only: A PSP award with a face value of 150% of base salary pays out at 100% of maximum in line
with stretching performance
Note:
As required by the regulations, PSP 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 within
this section. Decisions taken on remuneration during the year are in line with our Directors’ Remuneration
Policy, which was approved at our Annual General Meeting in February 2017.
External advisers
Under its Terms of Reference, the Committee obtains the advice of
external independent remuneration consultants and is responsible
for their selection and appointment. The Committee also considers
the independence and effectiveness of the Adviser, and it was
decided that after a five-year period of working with Deloitte as
adviser to the Remuneration Committee, it would be appropriate and
good governance to put the role out to tender. Following a formal
tender process involving five firms which included Deloitte, following
references being undertaken, the Committee was delighted to
appoint Mercer as its independent remuneration adviser.
Mercer commenced work with the Committee in August 2017 and
fees for the two-month period were £43,050 for advice in relation
to executive remuneration. Deloitte’s fees for the preceding
part of the year were £79,500. Both fees covered attendance at
Committee meetings, general advice and updates on remuneration
developments with the total fees paid to advisers equating to
£122,550 for FY17.
Deloitte also provided advice in relation to miscellaneous consulting
services as well as international mobility, tax, corporate finance and
internal audit advice. Mercer provided advice in relation to pensions
and insured benefits.
Mercer and Deloitte are both members of the Remuneration
Consultants Group (RCG) and comply with its Code of Conduct.
The Committee is satisfied that their advice was and continues to
be objective and independent.
The following pages set out the remuneration of the Executive
Directors during FY17, and the intended approach for FY18.
CONSIDER ATION BY THE DIRECTORS OF MATTERS
REL ATING TO DIRECTORS’ REMUNER ATION
The Remuneration Committee is responsible for recommending
to the Board the Policy for Executive Directors and for setting the
remuneration packages for each Executive Director.
The Committee also has input into the remuneration arrangements
of the Executive Committee in conjunction with the CEO, and has
oversight of the Policy and remuneration packages for other senior
leaders with particular focus on the variable pay elements, ensuring
incentives are consistently applied beyond the CEO and CFO to
ensure the execution of the strategy throughout the organisation.
The aim of the Committee is to align Remuneration Policy to
the overall strategy of the Thomas Cook Group, and to ensure
remuneration reflects our Shareholders’ and customers’ interests,
governed by our Policy and its philosophy and principles.
During the year, the Committee had six scheduled meetings. At the
end of each financial year at the Committee’s meeting in September
a review is undertaken of activities against its Terms of Reference
(available on the Thomas Cook Group plc website) to ensure the
Committee is properly fulfilling its duties and responsibilities.
Attendees
The Committee invites individuals to attend meetings, as it deems
beneficial, to assist it in reviewing matters for consideration.
Individuals who have provided support and advice to the Committee
during the year include the Board members, Alice Marsden – Group
General Counsel and Company Secretary, Rachael Gillett – Group
& UK HR Director, Caroline Forsyth – Group Head of Reward, Emily
Hallett – Executive Remuneration Manager and a representative
from each of the Committee’s independent external advisers, being
Mitul Shah – Partner, Deloitte, and Pete Smith – Partner, Mercer.
Warren Tucker, Chairman of the Remuneration Committee is also
a member of the Audit Committee and, as such, ensures there
is knowledge and coordination in respect of risk and accounting
issues. No Director or senior executive is present at the section
of the meeting when their own remuneration arrangements are
being discussed.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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 2016 and 2017:
Salary/fees
Benefits3
Group Bonus Plan4
£’000
FY17
£’000
FY16
£’000
FY17
£’000
FY16
£’000
FY17
£’000
FY16
£’000
FY17
PSP
£’000
FY16
Pension
£’000
FY16
£’000
FY17
£’000
FY17
Total
£’000
FY16
Executive Directors
Peter Fankhauser
Michael Healy
Non-Executive Directors
Frank Meysman
Dawn Airey
Annet Aris
Emre Berkin1
Paul Edgecliffe-Johnson2
Lesley Knox
Jürgen Schreiber2
Warren Tucker
Martine Verluyten
711
536
275
70
60
80
11
60
11
80
80
697
525
275
70
60
70
–
35
–
80
80
76
26
30
3
7
7
1
1
2
3
9
67
25
837
694
236
194
41
2
6
6
–
1
–
8
4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
213
134
209
131
1,837
1,390
1,209
876
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
305
73
67
87
12
61
13
83
89
316
72
66
76
–
36
–
88
84
Notes:
1 The Committee Chair fees were aligned from 1 October 2016, resulting in an increase to the fees paid to Emre Berkin.
2 Paul Edgecliffe-Johnson and Jürgen Schreiber were appointed to the Board on 26 July 2017.
3 Executive benefits paid includes car allowance, healthcare, life assurance, tax advice for Peter Fankhauser only, and expenses which are chargeable to 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).
4 One-third of the bonus will be deferred into an award of shares under the Deferred Bonus Plan.
ADDITIONAL DISCLOSURES REL ATING TO THE SINGLE FIGURE TABLE (AUDITED)
Further information in respect of the base salary, pension, annual bonus and PSP amounts is shown in this section:
Salary
The table below shows the base salaries of Peter Fankhauser and
Michael Healy at the end of FY17 and at the end of the previous
financial year. Salary increases were effective 1 April 2017.
Salary at
30 September 2017
Salary at
30 September 2016
Percentage
increase
Peter Fankhauser
Michael Healy
£717,800
£541,200
£703,800
£530,600
2.0%
2.0%
The salary increases awarded to the Executive Directors were in line
with the overall salary increase budget (expressed as a percentage)
across the Group during the 2017 annual salary review and were
in line with the level of increase awarded to the general employee
population where individual performance was ‘effective’.
Pensions (audited)
Currently, both Peter Fankhauser and Michael Healy receive a
taxable cash allowance of an amount equivalent to 30 per cent
and 25 per cent of base salary respectively. These allowances are
broadly in line with the equivalent maximum net contribution for
UK-based employees who are eligible to receive up to 15 per cent of
reference salary from the Company in pension contributions, which
are paid as gross employer contributions into the Company’s defined
contribution pension plan.
FY17 Group Bonus Plan, (the Plan) (audited)
The maximum Plan opportunity for both Peter Fankhauser and
Michael Healy was 150 per cent of base salary, one third of which is
subject to deferral into shares to be held for two years, subject to
malus (clawback before the vesting date), as described on page 94.
As described in the Chairman’s statement on page 87, bonus
outcomes reflect the progress made against a number of the
Group’s KPIs and progress in the delivery of the strategic and
ongoing transformation of the business. Therefore there is an
element of payout against each of the core bonus measures and
role-specific objectives, as set out in the table on the following page.
For the CEO, the role-specific objectives were partly achieved, (13 per
cent out of 15 per cent) of the maximum bonus opportunity and is
described below.
The role-specific leadership objective is measured by the overall
engagement of colleagues across the Group, underpinned by
rigorous performance management and customer focus of the
leadership team. As described in the KPIs section on page 32 and in
our people report on page 39, the very high core-index score of 74
per cent was maintained in 2017, resulting in an achievement of 3 per
cent out of the 5 per cent for this element of the Plan.
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GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNERATION
CONTINUED
The second role-specific objective, (equating to 10 per cent of the
maximum bonus opportunity) was achieved through the partnership
entered into with Expedia. This partnership gives our customers
a much bigger choice of hotels in City and Domestic and delivers
on the Complementary part of our Group-wide strategy that was
set out last year. It is a catalyst for restructuring the business
and simplifying systems and processes, so that the focus on core
package holidays can be achieved. By using Expedia’s superior
technology, leveraging their global reach, volume and expertise,
the Group will be able to significantly reduce costs and complexity
within the business for the long-term. This objective was therefore
fully achieved.
For the CFO, achievement against the role-specific objectives was
in respect of the implementation of a Board-approved financial plan
that delivered tangible steps towards improving the Group’s financial
position. In December 2016, the Company took advantage of positive
market sentiment to issue a new €750 million bond due in 2022, with
a coupon of 6.25 per cent. The proceeds from this bond were used to
repay two more expensive bonds due in 2017 and 2020. As a result,
this refinancing exercise improved the Group’s financial position by
both lowering the cost of financing and by extending the Group’s
debt maturity profile. Accordingly, the Committee has concluded
that this refinancing fully satisfies the achievement of this element
(50 per cent) of the CFO’s bonus criteria for FY17.
FY17 Group Bonus Plan, (the Plan) (audited) (Continued)
CEO – Peter Fankhauser
Weighting
Threshold
(20%)
Target
(60%)
Stretch
(100%)
Group underlying EBIT2
(constant currency)
Group Free Cash Flow3
Net Promoter Score4
Leadership: Core-Index
Employee Satisfaction Score
(Thomas Cook Group)
35%
35%
15%
5%
£290m
£125m
42.25
Stay above
external ‘top 30’
benchmark of 70%
£330m
£200m
43.25
£350m
£244m
44.25
Maintain
at 74%
Increase by 1% pt
to 75%
Resulting level
of award
(of max %
opportunity)
Performance
achieved
£312m1
£305m
45.18
14.7%
35%
15%
74%
3%
Strategic Progress in
New Operating Model
Total level of award as a % of maximum opportunity:
10%
CFO – Michael Healy
New substantial
change in the
New Operating
Model direction
› Delivery of partnership
with Expedia: Outcome 100%
› New Operating Model
benefits delivered; £67m
£43m
£60m
10%
77.7%
Weighting
Threshold
(20%)
Target
(60%)
Stretch
(100%)
Resulting level
of award
(of max %
opportunity)
Performance
achieved
FY17
Measures
Core
Role-specific
FY17
Measures
Core
Group underlying EBIT
(constant currency)2
Group Free Cash Flow3
25%
25%
Role-specific
Implement a Board-
approved financial
Plan that delivers
tangible steps towards
improving the Group’s
financial position
50%
Total level of award as a % of maximum opportunity:
£330m
£200m
£290m
£125m
£350m
£244m
Either repaying the £200m Bond due in
June 2017, while ensuring adequate liquidity
headroom throughout the following winter; or
Issuing a new Bond with a coupon rate of no
more than 7% to refinance and extend the
Group’s maturing liabilities at a lower cost; or
Agreeing a revised bank facility, consistent
with the Group’s revised financial Plan.
£312m1
£305m
In December 2016, the Company issued
a new €750m bond due in 2022, with a
coupon of 6.25%. The proceeds were used
to repay two more expensive bonds due in
2017 and 2020 and, as a result, improved the
Group’s financial position by both lowering
the cost of financing and by extending the
debt maturity profile.
10.5%
25%
50%
85.5%
1 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.
2 Group underlying EBIT is defined as Earnings before interest and tax excluding exceptional items measured on a constant currency basis.
3 Group Free Cash Flow is defined as Group Cash Flow for the financial year before payments/receipts in respect of tax and payments/receipts associated with exceptional items, where exceptional items
include restructuring costs and asset disposals.
4 Net Promoter Score (NPS): NPS is the main customer key performance indicator of the Group. It shows the degree of customer loyalty and recommendations by reference to responses from our
customer feedback survey when asked, ‘How likely would you recommend Thomas Cook to your friends & family?’. It is calculated by taking the percentage of promoters and deducting the percentage
of detractors.
Note: In order for there to be any payment under the Plan, the two financial hurdles of Group underlying EBIT and Group Free Cash Flow must be achieved.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Long-Term Incentives
The awards made in FY15, vesting in FY18 are subject to three-year performance ending in FY17 and it is expected that these will not vest
due to the non-achievement of targets under the Plan. This award is expected to lapse in March 2018, the third anniversary from the date
of award.
Performance conditions for FY15 PSP awards
Weighting
Threshold level of
vesting (30%)
Maximum level of
vesting (100%)
Outcome
Level of
vesting
Share price and dividend
Share price is measured as the average share price and dividends over
the fixed period of 30 trading days from the release of the preliminary
FY17 results.
FY17 Group underlying EBIT
Group underlying EBIT excludes exceptional items.
FY17 Group cash conversion
Cash conversion is defined as cash flow post-exceptional items, before
capital expenditure/EBITDA.
45%
30%
25%
225p
300p
Estimated
<225p
£453m
£548m
£330m
70%
80%
64%
0%
0%
0%
0%
This will result in the number of shares vesting for each Executive Director as set out below:
Director
Date of grant
Earliest vesting date
Number of shares under
award
Number of shares
vesting
Share price on date of
vesting
Value of shares that
vested
Peter Fankhauser
Michael Healy
12/03/2015
12/03/2015
12/03/2018
12/03/2018
720,752
532,729
0
0
n/a
n/a
0
0
Scheme interests awarded during the financial year (audited)
PSP awards were made to Peter Fankhauser and Michael Healy in FY17 equating to a face value of 165 per cent and 150 per cent of salary
respectively, as reported previously in the FY16 report. Details of the performance conditions can be found on page 107, with details of the
individual awards shown below:
Director
Type of award
Plan
Date of
award
End of
performance
period
Number of
shares
awarded
Face value
of award1
Face value
of award
Share price
used to
calculate award2
Number of shares
received if threshold
performance achieved3
Peter Fankhauser
Michael Healy
Conditional Share Award PSP
Conditional Share Award PSP
01/12/2016 30/09/2019 1,388,248
951,464
01/12/2016 30/09/2019
165%
150%
£1,161,269
£795,900
£0.8365
£0.8365
347,062
237,866
Notes:
1 Expressed as a % of base salary at the time of award.
2 The share price used to calculate the award was 83.65, pence being the average closing share price of the three days prior to grant.
3 Threshold performance is equal to 25% of maximum award.
Payments to past Directors
There were no payments made to past Directors during the year.
Loss of office payments
There were no loss of office payments made to past Directors during
the year.
External appointments
Executive Directors currently do not hold any external appointments.
Current Executive Directors’ service contracts
The dates of the service contracts for Peter Fankhauser and
Michael Healy are 23 February 2015 and 8 May 2012 respectively.
Executive Directors have rolling service contracts terminable
in line with the Directors’ Remuneration Policy. The service
contracts are available on request for inspection at the Company’s
registered office.
Michael Healy tendered his resignation and notification of retirement
on 25 September 2017 and is currently working his six months’ notice
period, with his employment ending on 31 March 2018. Details of
the remuneration arrangements associated with his departure are
shown on page 104.
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GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNERATION
CONTINUED
STATUTORY GR APH
The graph below shows the TSR for holders of Thomas Cook Group plc Ordinary Shares for the nine-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 (£)
300
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
30 Sept 16
30 Sept 17
The table below shows the pattern of remuneration of the CEO during this period.
CEO
FY09
FY10
FY11
FY 12
FY13
FY14
FY15
FY16
FY17
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
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£153k
n/a
£717k
£1.171m
n/a
£2.855m
n/a
n/a
£1.046m
n/a
£4.296m
£248k
n/a
£1.209m
n/a
n/a
£1.837m
n/a
n/a
£2.996m
n/a
n/a
n/a
£2.322m
n/a
n/a
n/a
£1.008m5
n/a
n/a
0%
96%
n/a
n/a
n/a
68%
80%
n/a
n/a
n/a
0%
0%
n/a
n/a
0%
0%
n/a
n/a
n/a
23%
n/a
n/a
–
0%
n/a
n/a
n/a
100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0%
n/a
n/a
69%
0%
n/a
n/a
n/a
70%6
n/a
n/a See below2
n/a
n/a
n/a
n/a
n/a
22%
n/a
n/a
n/a
0%
n/a
n/a
n/a
n/a
78%
n/a
n/a
n/a
0%
n/a
n/a
n/a
The table above shows the prescribed remuneration data (as shown in the left-hand side column) for the Director(s) undertaking the role of
CEO during each of the last nine financial years.
Notes:
1 Peter Fankhauser was appointed CEO on 26 November 2014, and has been employed in the Group since 1 May 2001.
2
Harriet Green stepped down as CEO on 26 November 2014 and remained a Director until 31 December 2014. In addition to the single figure shown, a proportion of Harriet Green’s 2012 PSP award vested
following her departure with 4,115,721 shares vesting under this award.
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 £1.2m (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.
102
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
PERCENTAGE CHANGE IN REMUNER ATION
COMPONENTS OF THE CEO
The table below sets out the percentage change in the remuneration
of the CEO. It also sets out the average percentage change in the
remuneration of other employees in the Group. A peer group of
UK-based employees has been selected. We have selected this peer
group as the CEO is UK-based and therefore pay movement in this
peer group is subject to similar external market conditions. 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.
% change in remuneration from FY16 to FY17
% change in
base salary
% change in
benefits1
% change in
annual bonus2
CEO
UK-based employees
2.00%
2.71%
13.5%
2.16%
248%
104%
Notes:
1 The main benefits provided to UK-based employees are private health insurance, life assurance,
travel concessions and car allowances. The increase in benefits for the CEO is a result of
increased premiums on private health insurance, life assurance and the continuation of tax
advice relating to Peter’s former expatriate arrangement.
2 In order to provide the most direct comparison possible, the above calculation includes all
UK-based employees participating in the Thomas Cook Bonus Plan which have a significant
Group element to the Plans. Bonus payouts in FY16 were 22% for the CEO and on average 36%
for those in the Group Bonus Plan. In FY17, achievement for the CEO was 78% and for those
who are UK-based and in the Thomas Cook Bonus Plan the average payout level will be 73%.
The difference is caused by the achievement of the UK and Airline element of the Plans being
lower than the Group achievement.
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 pay2
Group underlying EBIT3
Shareholders’ distributions
2016
£m
863
3024
0
2017
£m
Year-on-year
% change1
943
330
8
8.5%
8.5%
100%
1 Some of the year-on-year increase is attributed to a benefit from exchange rates. The figures
shown in the table are extracted from the Group’s financial statements.
2 The amounts for Group employees’ and Directors’ pay include employer social security payments.
3 Group underlying EBIT is shown above as this continues to be a key performance measure.
4 Restated FY16 number.
STATEMENT OF IMPLEMENTATION OF
REMUNER ATION POLICY IN THE FOLLOWING
FINANCIAL YEAR
2018 salary reviews
Salary reviews for the Group are in April each year. The Committee
will undertake the annual salary review for the CEO at this time,
with no increase in April 2018 for the new CFO due to the timescales
associated with the appointment.
FY18 Group Bonus Plan
FY18 maximum opportunity for Executive Directors’ annual bonus will
remain at 150 per cent of base salary. Any payments under the FY18
Plan will be subject to financial hurdles for the Group underlying
EBIT and Group Unlevered Free Cash Flow measures being met.
Core measures focus on our customer, profit and cash measures
to drive business performance and growth, with role-specific
objectives set to support the delivery of our ‘Customer at our Heart’
strategy through the continued growth of our own-brand hotel
offering, delivering on the new partnerships entered into where we
can leverage our brand to tap into new opportunities for growth.
For FY18, Group Unlevered Free Cash Flow is defined as cash flow
before payments/receipts in respect of interest and any cash
amounts associated with acquisitions/disposals, payment of
dividends or the refinancing of the Group’s bank facilities and bonds.
The structure of the FY18 Plan for the Executive Directors is set
out below:
CEO
CFO (Michael Healy)
CFO (Bill Scott)
Group
Underlying EBIT
Group Unlevered
Free Cash Flow
Net Promoter
Score (NPS)
Refinancing and
CFO transition
(15%)
Group
Underlying EBIT
Group Unlevered
Free Cash Flow
Net Promoter
Score (NPS)
Delivery of
Strategic Project
Benefits
Leadership:
Succession &
Engagement
Group
Underlying EBIT
Group Unlevered
Free Cash Flow
Net Promoter
Score (NPS)
Delivery of Tour
Operator Finance
Organisation
Leadership:
Gender Diversity
& Engagement
Weighting %
overall
opportunity
35%
35%
15%
10%
5%
Bonus targets are set on a constant currency basis at the start
of the performance period. Details of the targets will be disclosed
at the end of the performance period, in the FY18 Directors’
Remuneration Report.
G
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E
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N
A
N
C
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
103
GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNERATION
CONTINUED
Performance Share Plan (PSP)
The Committee will grant the next award under the PSP following
the announcement of our FY17 results in accordance with the
current Policy. Peter Fankhauser and Bill Scott will each be made
awards equating to a face value of 150 per cent of salary. There will
be no award made to Michael Healy.
In line with the Remuneration Policy and our previous two PSP
grants, the awards will vest to the extent stretching EPS and
Relative TSR targets (weighted equally) are achieved over a three-
year performance period. Following the end of the vesting period,
awards will be subject to a two-year holding period.
Targets under the award are set out below:
Total Shareholder Return (TSR)
The Indexed TSR measures the
TSR of the Company relative to
the FTSE 250 excluding financial
services and commodities over the
full three-year performance period
ending 30 September 2020.
Level of vesting
Threshold
(25%)
Target
(60%)
Maximum
(100%)
Performance
Required
Equal to the
index
+8% above the
index per annum
+12% above the
index per annum
Basic Earnings Per Share (EPS)
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
FY20 in respect of the final year
of the performance period ending
30 September 2020.
Level of vesting
Threshold
(25%)
Performance
Required
10p
Maximum
(100%)
18p
The EPS targets, set on a constant currency basis for the FY18
PSP award have been set by the Committee taking into account
multiple considerations, including the Group’s overall business
strategy, expectations for future years as incorporated into our
long-term Business Plan, growth expectations within our sector,
and historical performance.
The EPS vesting schedule is non-linear with an intermediate point.
The Committee may take into account the impact of any major
restructuring plans (not envisaged when setting the target) when
assessing performance against the EPS target, to ensure the
PSP rewards actions taken by management which are in the best
long-term interests of Shareholders. Details of the intermediate
point will be disclosed retrospectively following the end of the
performance period.
EPS targets ranges for both outstanding awards are shown on
page 107.
CFO TR ANSITION ARR ANGEMENTS
Michael Healy stands down from the Board and his role as CFO
with effect from 31 December 2017. He remains available to Peter
Fankhauser, Bill Scott and the Board to assist with the transition
and will leave employment with Thomas Cook on 31 March 2018.
Michael will be retiring from the Company and will be treated as
a good leaver in respect of his outstanding awards. The leaving
arrangements set out below are in accordance with the Policy
approved by Shareholders at the 2017 Annual General Meeting:
> There are no payments for loss of office
> Salary and benefits will be paid in full on a monthly basis during
the notice period
> The FY17 bonus is disclosed on page 100. One third of this bonus
will be deferred for a period of two years
> The FY18 bonus will be determined by the Committee in November
2018 following the end of the financial year, and will be prorated to
reflect the period employed in the year. One third of the FY18 bonus
will also be subject to deferral for a period of two years however
will be deferred as cash as Michael will not be an employee of the
Group at the time of grant
> There will be no FY18 PSP award made
> All outstanding PSP awards will vest at the normal vesting date i.e.
on the three-year anniversary from grant and will be prorated to
reflect the period employed
> Outstanding deferred bonus awards will vest in full at the normal
vesting dates, subject to there being no clawback events occurring
during the vesting period
> Malus and clawback provisions remain in force throughout
After ceasing employment with Thomas Cook, Michael will continue his
Non-Executive Director roles in Thomas Cook China and Thomas Cook
Money. The single consolidated fee for these Board roles will be £80,000
per annum in total, with any additional consultancy fee for advisery
work to the Thomas Cook Group plc paid at a rate of £5,000 per day. It is
expected that the latter fees will not exceed £60,000 per annum.
Bill Scott will be appointed as an Executive Director and CFO with
effect from 1 January 2018. His remuneration for FY18 for the period
in which he is Executive Director will be reported in the FY18
Directors’ Remuneration Report. The key terms were disclosed via
RNS on 28 September 2017 following the Board’s decision to appoint
Bill, and are also summarised below:
> Annual base salary: £420,000; next salary review date April 2019
> Pension: 15 per cent contribution into the Thomas Cook defined
contribution pension scheme, or if taken as cash, a taxable
allowance of 20 per cent of salary
> Car allowance: £12,000 per annum
> Annual bonus: 150 per cent of base salary of which one third is
subject to deferral for a period of two years
> PSP award: 150 per cent of base salary
> Shareholding requirement of 200 per cent of base salary
> Benefits in line with Policy
In addition to existing PSP awards granted within the Policy, Bill Scott
also has an existing share award granted to him in December 2016
under the Restricted Share Plan (RSP). The Committee has determined,
in accordance with the Directors’ Remuneration Policy, that this award
will be allowed to continue under the original terms of the Plan.
104
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Directors’ and former Directors’ share interests (audited)
The following table shows the beneficial interests of the Directors
in the shares of the Company:
Beneficial holdings
(Number of shares as at 30 September 2017)
Peter Fankhauser
Michael Healy
Frank Meysman
Dawn Airey
Annet Aris
Emre Berkin
Paul Edgecliffe-Johnson
Lesley Knox
Jürgen Schreiber
Warren Tucker
Martine Verluyten
2,229,376
1,212,890
547,000
42,000
–
–
–
46,100
–
30,800
165,000
From 30 September 2017 to 21 November 2017 there were no changes
to any of the Directors’ beneficial interests in shares.
G
O
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E
R
N
A
N
C
E
NON-EXECUTIVE DIRECTORS
The Chairman is paid a fee of £275,000 per annum.
The Non-Executive Directors are paid an annual basic fee, plus
additional fees for the chairing of Board Committees.
Non-Executive Director fees
Non-Executive Director fees are reviewed periodically to ensure they
remain at an appropriate level relative to the market, and that they
reflect the skills, expertise and the contribution of the Directors.
It was determined in September 2017 that the fees would remain at
their current levels.
The annual rates of Non-Executive Director’s fees for FY17 are shown
in the table below:
Position
Non-Executive Director
Additional fee for the Chair of the Audit Committee
Additional fee for the Chair of the Remuneration Committee
Additional fee for the Chair of the Health, Safety &
Environmental Committee
Additional fee for the Senior Independent Director
Annual fees
£’000
60
20
20
20
10
Each of the Non-Executive Directors has been appointed pursuant to
a letter of appointment, which is available on request 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
Date of latest
letter of appointment
Expiry date
Notice period
Frank Meysman
Dawn Airey
Annet Aris
Emre Berkin
Paul Edgecliffe-
Johnson
Lesley Knox
Jürgen Schreiber
Warren Tucker
Martine Verluyten
27 March 2013
21 July 2016
16 March 2017
13 October 2015
N/A
11 April 2019
30 April 2020
30 October 2018
3 months
1 month
1 month
1 month
26 July 2017
23 February 2016
26 July 2017
22 September 2016
16 March 2017
25 July 2020
28 February 2019
25 July 2020
3 October 2019
6 May 2020
1 month
1 month
1 month
1 month
1 month
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
105
GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNERATION
CONTINUED
SHAREHOLDING REQUIREMENT (AUDITED)
Under our Shareholding Requirement Policy, Executive Directors are
required to build up within five years of appointment to the Board,
and maintain a minimum shareholding of 200 per cent of base
salary, increased from 100 per cent earlier during the year. Until the
shareholding requirement is met, vested shares cannot be sold,
other than to pay tax in respect of the relevant award.
To ensure alignment with Shareholders and to encourage a
share ownership culture across the senior team, members of the
Executive Committee are required to build up within five years of
becoming an Executive Committee member, and maintain 50 per
cent of base salary in the Company’s shares.
In line with the Policy, the value of the Directors’ holding has
been calculated by taking the greater of: a) the initial financial
commitment; and b) the market value at 30 September 2017.
At 30 September 2017, the shareholding of Peter Fankhauser
and Michael Healy were 449 per cent and 300 per cent of salary
respectively, as shown below:
Executive Director shareholding vs policy requirement
CEO
CFO
200%
shareholding requirement
449%
300%
Directors’ interests in shares under the DBP and PSP (audited)
Date of grant
Actual
share price at
date of grant
At
30 September
2016
Granted
Released
Lapsed
At
30 September
2017
Earliest
vesting date
of outstanding
awards
Peter Fankhauser
Performance Share Plan
Deferred Bonus Plan
Michael Healy
Performance Share Plan
Deferred Bonus Plan
12/03/2015
11/12/2015
01/12/2016
08/01/2016
15/02/2017
12/03/2015
11/12/2015
01/12/2016
08/01/2016
15/02/2017
£1.486
£1.13
£0.86
£1.191
£0.888
£1.486
£1.13
£0.86
£1.191
£0.888
720,752
880,102
–
193,702
–
532,729
663,520
–
150,885
–
–
–
1,388,248
–
89,081
–
–
951,464
–
73,168
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
720,752
880,102
1,388,248
193,702
89,081
532,729
663,520
951,464
150,885
73,168
12/03/2018
11/12/2018
01/12/2019
06/01/2018
31/01/2019
12/03/2018
11/12/2018
01/12/2019
06/01/2018
31/01/2019
There are no outstanding awards for past Directors.
106
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
DETAILS OF SHARE PL ANS
Deferred Bonus Plan (DBP)
Under the DBP, one third of any bonus payment made to Executive Directors under the Group Bonus Plan is deferred into shares for a period
of two years on a compulsory basis. The DBP awards shown in the previous table represent one third of the FY15 bonus and FY16 bonus
respectively. DBP awards are made at the earliest opportunity following bonus payment date, and are released on the second anniversary of
the actual bonus payment date.
Performance Share Plan (PSP)
Under the PSP, participants are awarded a conditional award of shares in Thomas Cook Group plc. Shares under the awards will vest to
the satisfaction of stretching performance conditions measured over three years being met. Performance conditions for awards up to
and including March 2015, were based on absolute share price, Group underlying EBIT and Group Cash Conversion. For subsequent awards,
granted from December 2015 onwards, the performance conditions are Relative TSR and Basic EPS. Performance conditions for the
outstanding awards are shown on the following page.
Performance Conditions for PSP Awards (audited)
FY14 PSP awards
There were no awards made to Executive Directors during FY14.
FY15 PSP awards
The performance measures, targets and performance achieved under the FY15 PSP awards which lapsed during the year are set out on
page 101.
FY16 PSP awards
The FY16 PSP awards made to Executive Directors are subject to equally weighted Basic EPS and Relative TSR performance measures as set
out in the table below:
G
O
V
E
R
N
A
N
C
E
Total Shareholder Return (TSR)
The Indexed TSR measures the
TSR of the Company relative to
the FTSE 250 excluding financial
services and commodities over
the full three-year performance
period ending 30 September 2018.
Level of vesting
Threshold
(30%)
Target (60%)
Performance
Required
Equal to the index
+8% above the
index per annum
Maximum
(100%)
+12% above the
index per annum
Basic Earnings Per Share (EPS)
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
FY18 in respect of the final year of
the performance period, ending
30 September 2018.
Level of vesting
Performance
Required
Threshold
(30%)
Maximum
(100%)
9.3p
16.5p
FY17 PSP awards
The FY17 PSP awards made to Executive Directors are subject to equally weighted Basic EPS and Relative TSR performance measures as set
out in the table below:
Total Shareholder Return (TSR)
The Indexed TSR measures the
TSR of the Company relative to
the FTSE 250 excluding financial
services and commodities over
the full three-year performance
period ending 30 September 2019.
Level of vesting
Threshold
(25%)
Performance
Required
Equal to the index
Target
(60%)
+8% above the
index per annum
Maximum
(100%)
+12% above the
index per annum
Basic Earnings Per Share (EPS)
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
FY19 in respect of the final year of
the performance period, ending
30 September 2019.
Level of vesting
Performance
Required
Threshold
(25%)
Maximum
(100%)
11.2p
18.2p
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
107
GOVERNANCE
ANNUAL REPORT ON DIRECTORS’ REMUNERATION
CONTINUED
STATEMENT OF SHAREHOLDER VOTING
The table below sets out the results of the votes on the Directors’ Remuneration Policy and Report at the 2017 Annual General Meeting:
Votes for
number of shares
Proportion of total
votes cast
Votes against
number of shares
Proportion of total
votes cast
Total number of
votes cast
Total number of
votes withheld
Annual Remuneration Report (2017 Annual General
Meeting)
Remuneration Policy (2017 Annual General Meeting)
995,505,485
994,036,827
77.49
78.32
289,162,803
275,169,417
22.51
21.68
1,284,668,288
1,269,206,244
201,701
15,663,744
The Board acknowledges the views of Shareholders who voted against the above resolutions at the 2017 Annual General Meeting.
The Board’s aim is to consult regularly with major Shareholders and achieve the maximum possible support for all proposals. On this
basis, the Board consulted with a number of key Shareholders and proxy advisory bodies at the start of the 2017 financial year, and again
in the weeks leading up to the Annual General Meeting. This showed that there was misalignment with a small number of institutional
Shareholders and was a serious concern to the Board. Therefore, we listened to the feedback which are set out below, and took the
following actions:
Policy Review and SSIP (Remuneration Policy Resolution)
A number of Shareholders raised concerns in relation to the SSIP. From the feedback, it was clear that concern centred on the level of
disclosure in respect of potential strategic objectives and the maximum potential award level. It also became clear that views were split
with no clear consensus on the issue amongst Shareholders.
The SSIP was put in place to cater for exceptional circumstances that would warrant an alternative long term incentive plan. The Committee
did not make use of the SSIP in FY17 and has no need to in FY18. In response to Shareholder concerns following the AGM the Board made the
following commitments:
> The Committee would use the SSIP following consultation and with the support of our major Shareholders and;
> The maximum opportunity under the SSIP, if it were used, would be capped so that it would not exceed that of the PSP (i.e. 200% of salary)
A revised Policy has not been presented back to Shareholders for approval. However, the current approved Policy has been updated to reflect
the above commitments.
Long-Term Incentive Plan Target Disclosure (Remuneration Report Resolution)
Some Shareholders wanted to see EPS targets under the PSP disclosed prospectively. The need to provide Shareholders with assurance that
the PSP is based on stretching targets that drive strong performance and have a direct positive impact on Company performance, and thus
an increase in Shareholder value, is clear.
Up to and including the FY17 award granted in December 2016, EPS targets had been explicitly and directly linked to the business plan.
This made them price sensitive. However, following Shareholder feedback, as described earlier in this report the Committee has developed
a new methodology for setting targets that is based on a number of other factors and does not directly link to the business plan. This new
methodology has enabled the prospective disclosure of EPS target ranges for the FY18 PSP grant in the FY17 Directors’ Remuneration Report.
There are also two outstanding awards where EPS targets have not been previously disclosed. In the commitment made to Shareholders to
provide greater transparency, the FY17 Directors’ Remuneration Report has also disclosed target ranges for these two awards.
Finally, the maximum size of awards under the PSP is 200% of salary but the normal award to Executive Directors is 150% of salary.
In December 2016, Peter Fankhauser, CEO was granted an award of 165% of salary under this provision to incentivise his continued leadership,
drive and commitment he demonstrates and the profitable growth he is expected to deliver over the long-term. Some Shareholders felt there
was not a strong enough rationale to support this. For FY18, the award for Peter Fankhauser will be set at the normal award level of 150% of
base salary.
I would like to take this final opportunity to assure you, our Shareholders, that we take seriously your views and act upon them, which I
hope you can see we have demonstrated this year.
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
21 November 2017
108
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF THOMAS COOK GROUP PLC
Conclusions relating to principal risks, going concern and
viability statement
We have nothing to report in respect of the following information in the
Annual Report, in relation to which the ISAs(UK) require us to report to
you whether we have anything material to add or draw attention to:
> the disclosures in the Annual Report set out on pages 56 to 59 that
describe the principal risks and explain how they are being managed
or mitigated;
> the Directors’ confirmation set out on page 72 in the Annual Report
that they have carried out a robust assessment of the principal risks
facing the entity, including those that would threaten its business
model, future performance, solvency or liquidity;
> the Directors’ statement set out on page 72 in the financial
statements about whether they considered it appropriate to adopt
the going concern basis of accounting in preparing them, and their
identification of any material uncertainties to the entity’s ability to
continue to do so over a period of at least 12 months from the date of
approval of the financial statements;
> whether the Directors’ statement in relation to going concern
required under the Listing Rules in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained in
the audit; or
> the Directors’ explanation set out on page 72 in the Annual Report
as to how they have assessed the prospects of the entity, 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 entity 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.
Overview of our audit approach
Key audit
matters
> Revenue recognition due to the susceptibility to management
override through inappropriate manual journals
> Leased aircraft maintenance provisions
> Provision for illness claims and associated recoveries from suppliers
> Classification of separately disclosed items
> Carrying value of goodwill
> Recoverability of deferred tax assets
> We performed an audit of the complete financial information of
20 components and audit procedures on specific balances for a
further 17 components
> The components where we performed full or specific audit
procedures accounted for 85% of underlying profit from operations
and 86% of revenue
> The components subject to review scope procedures covered the
remainder (15% of underlying profit from operations and 14% of revenue)
REPORT ON THE FINANCIAL STATEMENTS
Our opinion
In our opinion:
> Thomas Cook Group plc’s Group financial statements and parent
company financial statements (the ‘financial statements’) give a true
and fair view of the state of the Group’s and of the parent company’s
affairs as at 30 September 2017 and of the Group’s profit for the year
then ended;
> the financial statements have been properly prepared in accordance
with IFRSs as adopted by the European Union;
> the parent company financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union as applied
in accordance with the provisions of the Companies Act 2006; and
> the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006, and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
What we have audited
We have audited the Group and parent company financial statements
of Thomas Cook Group plc for the year ended 30 September 2017
which comprise:
Group
Parent company
Group income statement for the year
then ended
Company balance sheet as at
30 September 2017
Group statement of comprehensive
income for the year then ended
Company cash flow statement for the
year then ended
Group cash flow statement for the year
then ended
Company statement of changes in equity
for the year then ended
Group balance sheet as at
30 September 2017
Related Notes 1 to 20 to the financial
statements including a summary of
significant accounting policies
Group statement of changes in equity
for the year then ended
Related Notes 1 to 34 to the financial
statements, including a summary of
significant accounting policies
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards
the parent company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
Audit
scope
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities
for the audit of the financial statements section of our report below.
We are independent of the Group and Company in accordance with
the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Materiality
> Overall Group materiality of £15m which represents 5% of underlying
profit from operations
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the
financial statements as a whole, and in our opinion thereon, and we do
not provide a separate opinion on these matters.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
109
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF THOMAS COOK GROUP PLC
CONTINUED
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Revenue recognition due to the susceptibility to management override through inappropriate manual journals (£9,007m, FY16 restated: £7,810m)
Refer to the Audit Committee Report (page 75); Accounting policies (page 127); and Note 4 of the Consolidated Financial Statements (pages 130 to 133)
The accounting for revenue is
susceptible to management override
through the recording of manual,
top side journal entries either in the
underlying ledgers or via consolidation.
Based on the audit procedures performed
we did not identify evidence of material
misstatements in the revenue recognised
in the current year. The impact of the
change in application of the accounting
policy was not material to the
financial statements.
Our journal entry testing procedures did
not identify any instances of inappropriate
management override in the recognition
of revenue across the Group.
We understood the Group’s revenue recognition policies and how they are applied.
We identified a change in the application of the accounting policy for revenue recognition
on third-party commission income in the UK during the year.
We have assessed the design of key controls and where appropriate, tested the operating
effectiveness of controls over revenue and the financial statement close process.
For a number of reporting units, as part of our overall revenue recognition testing we used data
analysis tools on 100% of revenue transactions in the year to test the correlation of revenue to
cash receipts to verify the occurrence of revenue. For those in-scope businesses where we did
not use data analysis tools, we performed appropriate alternative substantive procedures over
revenue recognition including tests of details for a sample of revenue transactions.
Other audit procedures specifically designed to address the risk of management override
of controls included journal entry testing, placing particular focus on manual journal
entries in revenue.
Using data extracted from the accounting system, we tested the appropriateness of
journal entries impacting revenue, as well as other adjustments made in the preparation
of the financial statements.
We performed cut-off testing for a sample of revenue transactions around the period end
date, to check that they were appropriately recorded as revenue or revenue received in
advance based on the date of travel and other attributes of package holidays.
We performed full and specific scope audit procedures over this risk area in 28 locations,
which covered 86% of the Group’s revenue.
Leased aircraft maintenance provisions (£366m, FY16 restated: £330m)
Refer to the Audit Committee Report (page 75); Accounting policies (page 127); and Note 25 of the Consolidated Financial Statements (pages 155 to 156)
The Group recognises provisions for
maintenance obligations in relation
to leased aircraft. The calculation
of aircraft maintenance provisions
requires complex judgements and
estimates to be made based on
forecast aircraft utilisation, estimates
of future maintenance costs, planned
rollover and renewal of the aircraft
fleet. In addition judgement is required
to determine the appropriate rate to
discount the provision.
We have evaluated the methodology and key assumptions adopted by Management in its
calculation of aircraft maintenance provisions and walked through the controls over the
process. This involved the following procedures:
> Understanding the process and testing the arithmetical accuracy and integrity of
the data in the provision models
> Challenging the consistency and reasonableness of the assumptions adopted.
This included a review of discount rates, testing of source data in the model to
information from lessors and comparison of assumptions to contract terms
> Testing the cost estimates of future maintenance events to the latest rate reviews
in contracts, tenders or historical cost experience
> For the timing of future maintenance, we corroborated the maintenance interval limits
to the manufacturer’s information and tested the actual flight hours to the technical logs
and the forecast flying hours to the forecast flying hour plans
We have tested the completeness of the provisions by comparison to fleet and financing
registers and reviewing lease agreements for hand back obligations.
We assessed the discount rate applied to the provision. Using our valuation specialists,
we determined the appropriate rate to be applied to this provision by reference to IFRS
guidance in this area.
We concluded the assumptions within the
models used to calculate the provision
before discounting as at 30 September
2017 were appropriate and supported by
underlying evidence.
We concluded an adjustment for credit
risk that had been applied to the risk-free
discount rate was not required. This also
applied to previous years. An adjustment
to correct this was recorded as a prior
year adjustment. See Note 33.
Provision for illness claims and associated recoveries from suppliers (Illness provision £24.4m, FY16: 19.9m;
Recoveries from suppliers £20.6m, FY16 (restated): £8.0m)
Refer to the Audit Committee Report (page 75); Accounting policies (page 126); and Note 25 of the Consolidated Financial Statements (pages 155 to 156)
There has been a significant increase
in the number of illness-related claims
from customers in the UK. Significant
judgement is required in determining
the level of provision required
particularly in respect of underlying
assumptions such as the total amount
of potential compensation, probable
amount to be settled in respect of
claims, and the likelihood of having
a valid defence against such claims.
In addition, there is a risk that expected
recoveries from suppliers in respect of
such claims are recognised when such
income is not virtually certain.
We have evaluated the methodology and key assumptions adopted by Management
in its calculation of provision for illness claims and walked through the controls over
the process. This included:
> Challenging the consistency and reasonableness of the assumptions adopted
> Testing the arithmetical accuracy and integrity of the data in the provision models
> Testing manual adjustments to provisions to understand their rationale and ensure
that they are appropriate
In respect of recoveries we have challenged whether appropriate evidence exists to
support the recoveries, such as acknowledgement from a hotel that they were at fault and
intend to reimburse the Group, or a signed agreement in place in relation to that claim.
In respect of recoveries we identified that the contractual terms indicates that liability
rests with the hoteliers. We have sought evidence that signed contracts are in place with
hoteliers. In instances where signed contracts were not available or where the recovery
is with parties that are not hotels we have sought additional evidence that there is
acknowledgement of liability.
Our year-end audit procedures did not
identify any material misstatement
of provisions for illness claims and
the assumptions in the underlying
calculations were assessed
as reasonable.
We identified that the recoverability of
certain balances from suppliers was not
virtually certain at the balance sheet date.
We concluded that these did not result in
a material misstatement to the financial
statements as a whole.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Risk
Our response to the risk
Key observations communicated
to the Audit Committee
Classification of separately disclosed items (£140m, FY16 (restated): £128m)
Refer to the Audit Committee Report (page 75); Accounting policies (pages 127 to 128); and Note 7 of the Consolidated Financial Statements (pages 135 to 136)
The Group separately discloses items
in the income statement that are
considered non-recurring and material
either because of their size or nature.
Separately disclosed items are
not defined by IFRS and therefore
considerable judgement is required
in determining the appropriateness
of such classification. Consistency in
items treated as separately disclosed
is important to maintain comparability
of reporting year-on-year.
We have reviewed the separately disclosed items to understand the rationale for the
separate classification and have challenged the appropriateness by confirming they are
material and non-recurring to warrant separate disclosure.
We compared separately disclosed costs incurred with the budgets approved by the Board
to ensure consistency with the plan. We have also assessed consistency with the nature
of separately disclosed items reported in the prior year.
We challenged the treatment of a number of items of expenditure that we considered
would be more appropriately classified as underlying.
We have reviewed the enhanced disclosures regarding items classified as separately
disclosed and conclude they provide further transparency on the nature of these items
which provides clarity on those items excluded from underlying performance of the Group.
In light of the guidelines published by
ESMA we recommend that Management
continues to focus on the nature of
expenses classified as exceptional
and the disclosures provided in the
financial statements. There is significant
judgement in determining the appropriate
type of expenditure to separate from the
Group’s underlying performance.
We challenged the classification of
certain items of expenditure recorded
as separately disclosed items which we
believe should be recorded in underlying
profit and concluded that those that
remained unadjusted were not material.
Carrying value of goodwill (£2,627m, FY16: £2,595m)
Refer to the Audit Committee Report (page 75); Accounting policies (page 123); and Note 12 of the Consolidated Financial Statements (pages 139 to 140)
The Group holds significant goodwill
on the balance sheet. The Group’s
business is geographically diverse and
the changing geopolitical environmental
and economic landscape will continue
to influence business performance
and could impact the carrying value
of goodwill.
The annual impairment test of
goodwill includes several key areas
of estimation and judgement over the
future performance of the business
and specific assumptions such as
discount rates and terminal growth
rates. Changes to these assumptions
or adverse performance could have
a significant impact on the available
headroom and any impairment that may
be required.
We understood the methodology applied by Management in performing its impairment test
for each of the relevant CGUs.
For all CGUs we calculated the degree to which the key inputs and assumptions would
need to fluctuate before an impairment was triggered and considered the likelihood of this
occurring. We performed our own sensitivities on the Group’s forecasts and determined
whether adequate headroom remained.
We performed detailed testing to critically assess and corroborate the key inputs to the
valuations, including:
> analysing the historical accuracy of budgets to actual results to determine whether
forecast cash flows are reliable based on past experience;
> working with our internal specialists, corroborating the discount rate used by obtaining
the underlying data used in the calculation and benchmarking it against market data and
comparable organisations; and
> validating the growth rates assumed by comparing them to economic and
We agreed with Management’s conclusion
that no impairments were required, based
on the results of our work.
Of the Group’s goodwill, that relating
to the Airline CGU is most sensitive
to reasonable possible changes in
key assumptions.
Sensitivities have not been disclosed
in the ‘Intangible assets’ note to
the Group financial statements as
Management believe any reasonable
change in assumptions would not cause
an impairment. We concur that this
is reasonable.
industry forecasts.
We assessed the disclosures in Note 12 against the requirements of IAS 36 Impairment of
Assets, in particular in respect of the requirement to disclose further sensitivities for CGUs
where a reasonably possible change in a key assumption would cause an impairment.
The audit procedures performed to address this risk were performed by the Group
audit team.
Recoverability of deferred tax assets (£216m, FY16: £228m)
Refer to the Audit Committee Report (page 75); Accounting policies (page 128); and Note 24 of the Consolidated Financial Statements (pages 154 to 155)
Judgement is required in assessing
the recoverability of the deferred
tax assets based on the likelihood of
taxable profits arising in the future
periods and the likelihood that the tax
assets will be utilised.
Management applies judgement in assessing the deferred tax assets to be recognised
in each jurisdiction, based on the application of tax law and probability that sufficient
taxable profits are available.
We performed detailed testing to assess the recoverability of deferred tax assets
recognised which included:
> testing Management’s process to prepare the deferred tax calculation;
> assessing the period over which deferred tax assets will be utilised and corroborating
to supporting forecasts of future profits;
> testing adjustments made to forecast profits required to assess the level of forecast
taxable profits available to support the recoverability of the deferred tax asset; and
> audited individual transactions that gave rise to additional deferred tax assets
recognised or utilised during the year.
We have considered the recognition
period over which deferred tax assets
will be recovered and concluded they
were reasonable.
We noted full recognition of deferred tax
assets on brought forward losses and
other temporary differences in Spain,
resulting in an increase in the period over
which they will be recovered.
We concur with the basis of recognition
due to supporting taxable profit forecasts.
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FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF THOMAS COOK GROUP PLC
CONTINUED
The risks of material misstatement to the financial statements as
set out in the table above differ from those reported by Thomas Cook
Group plc’s previous external auditor. We have included provisions
for illness claims and associated recoveries from suppliers due to
the significant increase in illness claims in the UK observed during
the current financial year which we considered increased the risk
of material misstatement. In addition, we have included revenue
recognition, including the risk of management override, as a key
audit matter as we view revenue as an area susceptible to material
misstatement. During the course of preparing the financial statements
in the current year the Company identified a number of prior year
adjustments which have been adjusted and are disclosed in Note 33 to
the financial statements. In the course of our audit we have confirmed
the appropriateness of the adjustments made.
We have omitted the following areas in the auditor’s report that were
included in the prior year: recoverability of hotel prepayments, defined
benefit pensions valuation, treasury operations and use of derivative
instruments, and going concern. Whilst we agreed that these were
areas of increased risk for our audit they were not assessed as being
areas subject to significant Management judgement or areas where
there were significant findings in our audit.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope for
each entity within the Group. Taken together, this enables us to form
an opinion on the consolidated financial statements. In determining
our audit scope, we take into account size (based on contribution
to Group underlying profit from operations and Group revenue), risk
profile (including country risk, risks from the complexity of operations
and accounting treatment and judgements, controls findings and risk
arising from change in the period including changes to IT systems and
key management personnel) and the number of significant accounts
based on performance materiality and any other known factors when
assessing the level of work to be performed at each entity.
The Group structures its operations around its three geographical tour
operators and group airline, with sub-consolidations being performed
at the tour operator locations. Our approach to scoping has been at
the individual reporting unit level and the Group team has directed
the sub-scoping in each of the segments to ensure that we have the
appropriate level of involvement to enable us to obtain sufficient audit
evidence as a basis for our opinion on the Group as a whole.
In assessing the risk of material misstatement to the Group financial
statements, and to ensure we had adequate quantitative coverage
of significant accounts in the financial statements, of the 135
reporting components of the Group, we selected 37 components
covering entities within the four reporting segments outlined
above, which represent the principal reporting units within the
Group. This constituted 12 country component teams and the group
engagement team and included one non-EY component auditor to
perform full scope procedures over one reporting unit and specific
scope procedures over accounts we concluded were significant at one
further reporting unit.
Of the 37 components selected, we performed an audit of the complete
financial information of 20 components (‘full scope components’) which
were selected based on their size or risk characteristics. For the
remaining 17 components (‘specific scope components’), we performed
audit procedures on specific accounts within that component that
we considered had the potential for the greatest impact on the
significant accounts in the financial statements either because of
the size of these accounts or their risk profile. The audit scope of
these components may not have included testing of all significant
accounts of the component but will have contributed to the coverage
of significant accounts tested for the Group.
The full and specific scope reporting components where we performed
audit procedures accounted for 85% of the Group’s underlying profit
from operations and 86% of the Group’s revenue.
Of the remaining 98 components that together represent 15% of
the Group’s underlying profit from operations, none are individually
greater than 5% of the Group’s underlying profit from operations
or individually greater than 2% of the Group’s revenue. For these
components, we performed other procedures, including analytical
review, review of the legal register and discussions with the in-house
legal counsel, testing of unusual, one-off transactions and testing of
consolidation journals, intercompany eliminations and foreign currency
translation recalculations to respond to any potential risks of material
misstatement to the Group financial statements.
Thomas Cook Group plc’s previous external auditor performed full
and specific scope audit procedures on components accounting for
75% of the Group’s underlying profit from operations and 80% of the
Group’s revenue.
Involvement with component teams
In establishing our overall approach to the Group audit, we determined
the type of work that needed to be undertaken at each of the
components by us, as the primary audit engagement team, or by
component auditors from other EY global network firms operating
under our instruction. Of the 20 full scope components, audit
procedures were performed on two of these directly by the Group
audit team, 17 by component auditors of the EY global network
and one by a non-EY component team. For the 13 specific scope
components, where the work was performed by component auditors,
we determined the appropriate level of involvement to enable us to
determine that sufficient audit evidence had been obtained as a basis
for our opinion on the Group as a whole.
During the current year’s audit cycle, the Senior Statutory Auditor
or other members of the Group audit team visited the component
teams in Northern Europe, UK and Continental Europe where sub-
consolidations of results within that region are performed; 15 of the full
scope and specific scope reporting units are audited by these teams.
In addition, the Senior Statutory Auditor visited the Airlines Germany
team. In addition to our visits the Senior Statutory Auditor and other
members of the Group team attended the year-end closing meetings
with local management.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Audit work at component locations for the purpose of obtaining
audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality.
The performance materiality set for each component is based on
the relative scale and risk of the component to the Group as a whole
and our assessment of the risk of misstatement at that component.
In the current year, the range of performance materiality allocated to
components was £1m to £3.8m.
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them all
uncorrected audit differences in excess of £0.75m, which is set at 5% of
planning materiality, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
OTHER INFORMATION
The other information comprises the information included in the Annual
Report including the Overview, the Strategic Report and the Directors’
Report set out on pages 1 to 108, other than the financial statements
and our auditor’s report thereon. The Directors are responsible for the
other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement
in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
These visits involved meeting with our component team to discuss and
direct its audit approach, reviewing and understanding the significant
audit findings in response to the risk areas including leased aircraft
maintenance provisions, provisions for illness claims and revenue
recognition, holding meetings with local management and obtaining
updates on local regulatory matters. The primary team interacted
regularly with the component teams where appropriate during various
stages of the audit, reviewed key working papers and were responsible
for the scope and direction of the audit process. This, together with the
additional procedures performed at Group level, gave us appropriate
evidence for our opinion on the Group financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the
audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in
the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides
a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £15m, which is 5% of
underlying profit from operations. We believe that underlying profit
from operations is the most relevant performance measure to the
stakeholders of the Group.
Starting basis
Adjustments
Materiality
> Profit from
operations –
£231m for the
year ended
30 September
2017
> Separately disclosed
items impacting profit
from operations – £99m
> Less amortisation of
business combination
intangibles – (£8m)
> See Note 7 to the
financial statements
> Underlying profit
from operations
£322m excluding
amortisation
of business
combination
intangibles (basis
for materiality)
> Materiality of £16m
(5% of materiality
basis)
The above materiality is our reassessment based on the final results
for the year. Our audit was conducted at the lower preliminary
materiality of £15m.
Performance materiality
The application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment
of the Group’s overall control environment, our judgement was that
performance materiality was 50% of our planning materiality, namely
£7.5m, reflecting that this is our first period as auditor of Thomas Cook
Group plc.
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113
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF THOMAS COOK GROUP PLC
CONTINUED
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of
the other information where we conclude that those items meet the
following conditions:
> Fair, balanced and understandable set out on page 73 – the
statement given by the Directors that they consider the Annual
Report and financial statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
Shareholders to assess the Group’s performance, business model
and strategy, is materially inconsistent with our knowledge obtained
in the audit; or
> Audit Committee reporting set out on page 74 –the section
describing the work of the Audit Committee does not appropriately
address matters communicated by us to the audit committee; or
> Directors’ statement of compliance with the UK Corporate
Governance Code set out on page 55 – the parts of the Directors’
statement required under the Listing Rules relating to the Company’s
compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with
Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
> 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; and
> the Strategic Report and the Directors’ Report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the
parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the Strategic
Report or the Directors’ Report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to you
if, in our opinion:
> adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
> the parent company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
> certain disclosures of Directors’ remuneration specified by law are
not made; or
> we have not received all the information and explanations we require
for our audit.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set
out on pages 65 to 66, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view in accordance, and for such internal control as the
Directors determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements the Directors are responsible
for assessing the Group and Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless Management either
intends to liquidate the Group or the Company or to cease operations,
or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are: to identify and
assess the risks of material misstatement of the financial statements
due to fraud; to obtain sufficient appropriate audit evidence regarding
the assessed risks of material misstatement due to fraud, through
designing and implementing appropriate responses; and to respond
appropriately to fraud or suspected fraud identified during the audit.
However, the primary responsibility for the prevention and detection
of fraud rests with both those charged with governance of the entity
and management.
Our approach was as follows:
> We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined that
the most significant frameworks which are directly relevant to
specific assertions in the financial statements are those that relate
to the reporting framework (IFRS, the Companies Act 2006 and the
UK Corporate Governance Code) and the relevant tax compliance
regulations in the jurisdictions in which the Group operates.
In addition, we concluded that there are certain significant laws
and regulations which may have an effect on the determination
of the amounts and disclosures in the financial statements being
the Listing Rules of the UK Listing Authority, and those regulations
relating to health and safety and employee matters.
> We understood how Thomas Cook Group plc is complying with those
frameworks by making enquiries of Management, enterprise risk and
internal audit, those responsible for legal and compliance procedures
and the Group legal counsel. We corroborated our enquiries through
our review of Board minutes, papers provided to the Audit Committee
and Board and correspondence received from regulatory bodies.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
> We assessed the susceptibility of the Group’s financial statements to
material misstatement, including how fraud might occur by meeting
with Management from various parts of the business to understand
where they considered there was susceptibility to fraud. We also
considered performance targets and their influence on efforts made
by Management to manage earnings or influence the perceptions of
analysts. We considered the programmes and controls that the Group
has established to address risks identified, or that otherwise prevent,
deter and detect fraud; and how senior management monitors those
programmes and controls. Where the risk was considered to be
higher, we performed audit procedures to address each identified
fraud risk. These procedures included testing manual journals and
were designed to provide reasonable assurance that the financial
statements were free from fraud or error.
Based on this understanding, we designed our audit procedures to
identify non-compliance with such laws and regulations identified in
the paragraphs above. Our procedures involved journal entry testing,
with a focus on manual consolidation journals and journals indicating
large or unusual transactions based on our understanding of the
business; enquiries of legal counsel, Group management, enterprise
risk and internal audit, segment management and Management at full
and specific scope entities; and focused testing, as referred to in the
Key audit matters section above.
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for
our audit work, for this report, or for the opinions we have formed.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Other matters we are required to address
> Following the recommendation of the Audit Committee, we were
appointed by the Company on 9 February 2017 to audit the financial
statements for the year ending 30 September 2017 and subsequent
financial periods.
The period of total uninterrupted engagement including previous
renewals and re-appointments is one year, covering the year ending
30 September 2017.
> The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Company and we remain
independent of the Group and the Company in conducting the audit.
> The audit opinion is consistent with the additional report to the
Audit Committee
RICHARD WILSON
SENIOR STATUTORY AUDITOR
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
21 November 2017
Notes:
1.
The maintenance and integrity of the Thomas Cook Group plc website is the responsibility of
the Directors; the work carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for any changes that may have
occurred to the financial statements since they were initially presented on the website.
2. Legislation in the UK governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
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115
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2017
GROUP INCOME STATEMENT
Year ended 30 September 2017
Year ended 30 September 2016
Restated*
Underlying
results
£m
Separately
disclosed items
(Note 7)
£m
Underlying
results
£m
Separately
disclosed items
(Note 7)
£m
Total
£m
Notes
4
5
12/13
6
7
14
8
8
9
Continuing operations
Revenue
Cost of providing tourism services
Gross profit
Personnel expenses
Depreciation and amortisation
Net operating expenses
Loss on disposal of assets
Amortisation of business combination intangibles
Profit from operations
Share of results of joint venture and associates
Net investment income
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
9,007
(7,012)
1,995
(975)
(222)
(468)
–
–
330
(1)
–
4
(147)
186
–
(2)
(2)
(28)
–
(52)
(9)
(8)
(99)
–
–
–
(41)
(140)
7,810
(5,981)
1,829
(882)
(204)
(441)
–
–
302
(1)
1
6
(146)
162
–
(9)
(9)
(39)
–
(41)
(10)
(6)
(105)
–
–
–
(23)
(128)
9,007
(7,014)
1,993
(1,003)
(222)
(520)
(9)
(8)
231
(1)
–
4
(188)
46
(34)
12
13
(1)
12
0.8
Total
£m
7,810
(5,990)
1,820
(921)
(204)
(482)
(10)
(6)
197
(1)
1
6
(169)
34
(33)
1
4
(3)
1
0.3
Basic and diluted earnings per share (pence)
11
The notes on pages 122 to 166 form an integral part of the consolidated financial statements.
* For details of restatement please see Note 33.
116
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
FOR THE YEAR ENDED 30 SEPTEMBER 2017
GROUP STATEMENT OF
COMPREHENSIVE INCOME
Profit 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 and losses
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation losses
Fair value gains and losses
(Losses)/gains deferred for the year
Tax on (losses)/gains deferred for the year
(Gains)/losses transferred to the income statement
Tax on (gains)/losses transferred to the income statement
Total net other comprehensive income/(loss) for the year
Total comprehensive income/(loss) for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income/(loss) for the year
* For details of restatement please see Note 33.
Year ended
30 September
2017
£m
Notes
Year ended
30 September
2016
Restated*
£m
12
1
30
24/9
24/9
21
24/9
114
(28)
(27)
(20)
5
(60)
(5)
(21)
(9)
(8)
(1)
(9)
(144)
30
(15)
53
5
105
(21)
13
14
17
(3)
14
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
117
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2017
GROUP CASH FLOW STATEMENT
Year ended
30 September
2017
£m
Notes
46
184
1
20
238
9
3
(28)
4
2
(110)
164
533
(37)
496
7
–
(132)
(74)
(199)
(32)
(8)
(144)
1,011
(948)
(10)
(44)
(175)
122
1,234
43
1,399
14
Year ended
30 September
2016
Restated*
£m
34
163
–
1
216
10
1
(29)
6
(7)
(88)
103
410
(15)
395
9
(3)
(117)
(89)
(200)
(4)
–
(135)
157
(340)
–
(38)
(360)
(165)
1,286
113
1,234
Profit before tax
Adjustments for:
Net finance costs
Net investment income and share of results of joint ventures and associates
Increase in provisions
Depreciation, amortisation and impairment
Loss on disposal of assets
Share-based payments
Additional pension contributions
Interest received
Decrease/(increase) in working capital:
Inventories
Receivables
Payables
Cash generated from operations
Income taxes paid
Net cash from operating activities
Proceeds on disposal of property, plant and equipment
Investment in joint ventures and associates
Purchase of tangible assets
Purchase of intangible assets
Net cash used in investing activities
Dividends paid to non-controlling interests
Dividends paid
Interest paid
Draw down of borrowings
Repayment of borrowings
Payment of facility set-up fees
Repayment of finance lease obligations
Net cash used in financing activities
Net (decrease)/increase 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
* For details of restatement please see Note 33.
118
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
AT 30 SEPTEMBER 2017
GROUP BALANCE SHEET
Non-current assets
Intangible assets
Property, plant and equipment:
– aircraft and aircraft spares
– other
Investments in joint ventures and associates
Other investments
Deferred tax assets
Pension asset
Trade and other receivables
Derivative financial instruments
Current assets
Inventories
Tax assets
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Non-current assets held for sale
Total assets
Current liabilities
Retirement benefit obligations
Trade and other payables
Borrowings
Obligations under finance leases
Tax liabilities
Revenue received in advance
Short-term provisions
Derivative financial instruments
* For details of restatement please see Note 33.
30 September
2017
£m
Notes
Restated*
30 September
2016
£m
12
13
13
14
24
30
16
21
15
16
21
17
32
30
18
19
20
25
21
3,136
581
139
6
1
216
123
65
6
4,273
42
1
735
56
1,407
2,241
101
6,615
(9)
(2,343)
(245)
(39)
(57)
(1,355)
(168)
(109)
(4,325)
3,077
627
221
8
1
228
52
58
26
4,298
43
4
677
145
1,776
2,645
–
6,943
(8)
(2,179)
(891)
(42)
(40)
(1,251)
(139)
(83)
(4,633)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
119
FINANCIAL STATEMENTS
GROUP BALANCE 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
* For details of restatement please see Note 33.
30 September
2017
£m
Notes
Restated*
30 September
2016
£m
30
18
19
20
24
25
21
26
(439)
(25)
(1,047)
(115)
(7)
(61)
(307)
(9)
(2,010)
(6,335)
280
69
524
1,547
8
8
(1,867)
(8)
281
(1)
280
(501)
(109)
(847)
(141)
(31)
(51)
(301)
(3)
(1,984)
(6,617)
326
69
524
1,547
115
8
(1,950)
(8)
305
21
326
The financial statements on pages 116 to 166 were approved by the Board of Directors on 21 November 2017.
Signed on behalf of the Board
MICHAEL HEALY
GROUP CHIEF FINANCIAL OFFICER
120
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
FOR THE YEAR ENDED 30 SEPTEMBER 2017
GROUP STATEMENT OF CHANGES IN EQUITY
As at 30 September 2015
Adjustment on correction of error
At 30 September 2015 restated
Profit for the year as reported
Adjustment for correction of error
Restated profit for the period
Other comprehensive income/(loss):
Foreign exchange translation losses
Actuarial losses on defined benefit pension
schemes (net of tax)
Gains deferred for the year (net of tax)
Losses transferred to the income statement
(net of tax)
Total comprehensive income for the year
Dividends paid to non-controlling interest
correction of error
Exercise of shares – Employee Benefit Trust
Equity credit in respect of share-based
payments
At 30 September 2016 restated
Profit for the year
Other comprehensive income/(loss):
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 for the year
Equity credit in respect of share-based
payments
Dividends paid
Dividends paid to non-controlling interest
Settlements of non controlling interest
At 30 September 2017
* For details of restatement please see Note 33.
Share capital
and share
premium
£m
Other
reserves
£m
Hedging
reserve
£m
Translation
reserve
£m
Accumulated
losses
£m
Attributable to
equity holders
of the parent
£m
Non-
controlling
interests
£m
Total
equity
£m
593
–
593
–
–
–
–
–
–
–
–
–
1,537
–
1,537
–
–
–
–
–
–
–
–
10
–
593
–
1,547
–
–
–
–
–
–
–
–
–
–
593
–
–
–
–
–
–
–
–
–
–
1,547
(102)
–
(102)
–
–
–
–
58
84
142
–
–
–
40
–
–
–
(15)
(65)
(80)
–
–
–
–
(40)
90
–
90
–
–
(15)
–
–
–
(15)
–
–
–
75
–
(27)
–
–
–
(27)
–
–
–
–
48
(1,778)
(53)
(1,831)
12
(8)
4
–
(114)
–
–
(110)
–
(10)
1
(1,950)
13
–
86
–
–
99
3
(8)
–
(11)
(1,867)
340
(53)
287
12
(8)
4
(15)
(114)
58
84
17
–
–
1
305
13
(27)
86
(15)
(65)
(8)
3
(8)
–
(11)
281
28
–
28
(3)
–
(3)
–
–
–
–
(3)
(4)
–
–
21
(1)
–
–
–
–
(1)
–
–
(32)
11
(1)
368
(53)
315
9
(8)
1
(15)
(114)
58
84
14
(4)
–
1
326
12
(27)
86
(15)
(65)
(9)
3
(8)
(32)
–
280
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 (currently known
as Thomas Cook GmbH). 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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
121
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
1 GENER AL INFORMATION
Thomas Cook Group plc is a public 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 4 to 59.
These consolidated financial statements were approved for issue by the Board of Directors on 21 November 2017.
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 54 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. 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.
Management identified several adjustments that, in their opinion should be applied to Thomas Cook’s financial statements for the year
ended 30 September 2016. As a result these have been restated. Refer to Note 33 for further details of the restatement.
3 SIGNIFICANT ACCOUNTING POLICIES
3A CHANGES IN ACCOUNTING POLICY AND DISCLOSURE
No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 October 2016 have
had a material impact on the Group or parent company.
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 a replacement for IAS 39 ‘Financial Instruments’ and covers three distinct areas. Phase 1 contains new
requirements for the classification and measurement of financial assets and liabilities. Phase 2 relates to the impairment of
financial assets and requires the calculation of impairment on an expected loss basis rather than the current incurred loss basis.
Phase 3 relates to less stringent requirements for general hedge accounting. IFRS 9 is effective for periods commencing on or
after 1 January 2018, and therefore will be applied by the Group in fiscal year 2019. Based on our preliminary assessment, the Group
does not currently anticipate a material impact from the new standard other than in providing additional disclosures in the
Annual Report.
IFRS 15
“Revenues from Contracts with Customers” introduces a five-step approach to the timing of revenue recognition based on
performance obligations in customer contracts. IFRS 15 is effective for periods commencing 1 January 2018 and therefore will be
applied by the Group in fiscal year 2019. The Group continues to assess the possible impact of IFRS 15, which involves:
> an examination of key contract types in order to identify any distinct performance obligations in the context of the
contractual arrangement;
> assessing the point at which the Group delivers promised services to its customers and whether this presents a requirement
to change the timing of its revenue recognition; and
> understanding the specific new disclosure requirements prescribed.
Based on our preliminary assessment, the Group does not currently anticipate a material impact from the new standard other than
in providing additional disclosures in the Annual Report.
122
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3A CHANGES IN ACCOUNTING POLICY AND DISCLOSURE CONTINUED
IFRS 16
“Leases” provides a single lessee accounting model, requiring lessees to recognise right of use assets and lease liabilities for all
applicable leases. The leasing standard is expected to have a material impact on net debt, gross assets, profit from operations and
interest. IFRS 16 is effective for annual periods beginning on or after 1 January 2019, and therefore will be applied by the Group in
fiscal year 2020. Management have commenced a project across the Group to assess the overall impact of the standard, including
considering the systems and processes required for implementation and the options around transition. We expect to report on the
impact in the 2018 Annual Report. In addition, the Group awaits the result of ongoing HMRC consultation to understand the impact
on taxes.
IFRS 17
“Insurance Contracts” is effective for annual periods beginning on or after 1 January 2021 subject to endorsement by the EU. IFRS 17
establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope
of the standard. The Group plans to assess the impact of IFRS 17 closer to implementation date.
IFRIC 23
“Uncertainty over Income Tax Treatments” is effective for periods commencing on or after 1 January 2019 with early adoption
permitted. IFRIC 23 clarifies how to apply the recognition and measurements requirements in IAS12 ‘Income Taxes’ when there is
uncertainty over income tax treatments. The Group is assessing the impact of IFRIC 23.
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.
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.
Joint venture and 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 Costs of providing tourism services within 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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
123
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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, including those that are internally generated, 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.
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.
Non-current assets held for sale
Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale
transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.
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.
124
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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, term deposits and investment in money market funds 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 legal right along with 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.
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FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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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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.
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. This credit is not considered to
be distributable under the Companies Act 2006.
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.
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, 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 to profit before tax 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, or 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 which may extend over a number of years;
> 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; 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 (currently known as Thomas
Cook GmbH) 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 considers that it should be disclosed separately to enable a full understanding of the Group’s results.
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
3B SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
In addition, certain finance costs or income that derive from one-off events or transactions are not considered to be part of the Group’s
underlying performance. The Group’s Management considers that these items should be disclosed separately to enable a full understanding
of the Group’s results.
Finance income and costs
Finance income comprises interest income on funds invested, expected return on pension plan assets, changes in the fair value of held for
trading 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 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 “Finance related charges”.
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 within other comprehensive income, in which case
the associated tax is recognised directly in other comprehensive income 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 the “Separately Disclosed Items” section
above. Further details of the EPS calculation are presented in Note 11.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
3 SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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.
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.
Provisions for illness claims and associated recoveries
In calculating the level of provisions required, judgements have been made on the probability of success in defending legal claims and
estimated outcome of such claims. In assessing associated recoveries, judgements have been made been on the estimate of the amounts
that will be recovered from hotel suppliers.
Tax
Judgements 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.
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129
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
4 SEGMENTAL INFORMATION
During the year, the Group refined its organisational structure resulting in a reassessment of its reportable segments. In line with
this change the Group reassessed its reporting segments. The principal activities of the Group are therefore presented in the
following segments:
> Tour operations and associated activities (‘Group Tour Operator’) within the Group’s 17 source markets:
> Airline-related services, including both scheduled and charter services, and associated activities (‘Group Airline’) within the Group’s four
airlines; and
> Certain residual businesses and corporate functions that 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. Segment information for the year ended 30 September 2016 has
been restated accordingly.
Segmental information for these activities is presented below:
Year ended 30 September 2017
Revenue
Segment sales
Inter-segment sales
Total revenue
Revenue by geography
UK
Continental Europe
Northern Europe
Airlines Germany
Intercompany eliminations
Result
Underlying operating profit/(loss) from operations
Separately disclosed items
Amortisation of business combination intangibles
Segment result
Share of results of associates and joint venture
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Other information
Capital additions
Depreciation
Amortisation of intangible assets
Amortisation of business combination intangibles
Impairment of property, plant & equipment
130
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Group Tour
Operator
£m
Group Airline
£m
Corporate
£m
Group
£m
7,122
(43)
7,079
3,185
(1,257)
1,928
–
–
–
10,307
(1,300)
9,007
2,476
4,139
1,307
1,470
(385)
9,007
330
(91)
(8)
231
(1)
4
(188)
46
(34)
12
231
185
36
8
8
250
(74)
(8)
168
77
23
17
8
8
115
1
–
116
120
162
4
–
–
(35)
(18)
–
(53)
34
–
15
–
–
4 SEGMENTAL INFORMATION CONTINUED
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
Group Tour
Operator
£m
Group Airline
£m
Corporate
£m
Group
£m
7,666
3,627
8,539
(6,491)
(1,881)
(9,007)
19,832
(13,440)
6,392
6
217
6,615
(17,379)
12,615
(4,764)
(125)
(1,446)
(6,335)
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 total non-current assets, other than goodwill, indefinite life intangibles, financial instruments and deferred tax located in the UK, was
£1,991 (2016: £2,013m). The total non-current assets, other than goodwill, indefinite life intangibles, financial instruments and deferred tax
located in Germany was £578m (2016: £615m).
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
131
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
4 SEGMENTAL INFORMATION CONTINUED
Year ended 30 September 2016 restated
Revenue
Segment sales
Inter-segment sales
Total revenue
Revenue by geography
UK
Continental Europe
Northern Europe
Airlines Germany
Intercompany eliminations
Result
Underlying operating profit/(loss) from operations
Separately disclosed items
Amortisation of business combination intangibles
Segment result
Share of results of associates and joint venture
Net investment income
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Other information
Capital additions
Depreciation
Amortisation of intangible assets
Amortisation of business combination intangibles
Impairment of property, plant & equipment
Impairment of other intangible assets
132
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
Group Tour
Operator
£m
Group Airline
£m
Corporate
£m
Group
£m
6,223
(43)
6,180
2,825
(1,195)
1,630
–
–
–
249
(82)
(6)
161
83
(7)
–
76
(30)
(10)
–
(40)
70
20
19
6
4
–
136
154
3
–
–
–
31
–
8
–
–
2
9,048
(1,238)
7,810
2,363
3,435
1,132
1,253
(373)
7,810
302
(99)
(6)
197
(1)
1
6
(169)
34
(33)
1
237
174
30
6
4
2
4 SEGMENTAL INFORMATION CONTINUED
Year ended 30 September 2016 restated
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 average number of employees of the Group during the year was:
Group Tour Operator
Group Airline
Corporate
Group Tour
Operator
£m
Group Airline
£m
Corporate
£m
Group
£m
7,661
3,678
10,723
(6,400)
(1,928)
(10,919)
2017
£m
834
109
3
6
51
1,003
2017
Number
14,016
7,525
247
21,788
22,062
(15,359)
6,703
8
232
6,943
(19,247)
14,673
(4,574)
(122)
(1,921)
(6,617)
2016
£m
766
97
1
11
46
921
2016
Number
14,320
7,372
248
21,940
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 98 to 108 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.
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133
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
Write off of bad debt and impairment of plant, property and equipment
Auditor’s remuneration
Other operating expenses
A more detailed analysis of auditors’ remuneration on a worldwide basis is provided below:
Auditors’ remuneration
Ernst & Young
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
Pricewaterhouse Coopers LLP
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
Ernst & Young
Other non-audit services
Pricewaterhouse Coopers LLP
Other non-audit services
Total non-audit services
Total fees
2017
£m
155
105
124
54
48
27
3
4
520
2017
£m
1
–
2
3
–
–
–
–
–
–
–
3
2016
£m
132
99
124
51
21
23
4
28
482
2016
£m
–
–
–
–
1
–
2
3
–
1
1
4
Included within the above ‘The audit of company’s subsidiaries’, £0.1m (2016: £0.1m) has been incurred in respect of the audits of the Group
pension schemes.
Total non-audit services are inclusive of £0.2m (2016: £0.6m) in relation to the review of Group’s interim financial statements and £nil
(2016: £0.1m) 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 74 and includes an explanation of
how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
7 SEPAR ATELY DISCLOSED ITEMS
Affecting profit from operations
New Operating Model implementation costs
Restructuring costs
Onerous leases and store closures
Costs of transformation
Reassessment of contingent consideration
Asset valuation reviews
Amortisation of business combination intangibles
Other
Affecting finance income and costs
Net interest cost on bond refinancing
Bond open market repurchase premium
Net interest cost on defined benefit obligation (Note 30)
Unwind of discount on provisions and other non-current liabilities
Total separately disclosed items
2017
£m
Restated
2016
£m
(42)
(12)
(30)
(84)
32
(15)
(8)
(24)
(99)
(23)
–
(7)
(11)
(41)
(140)
(50)
(20)
(21)
(91)
4
(9)
(6)
(3)
(105)
–
(6)
(7)
(10)
(23)
(128)
New Operating Model implementation and restructuring costs
Implementation costs relating to the New Operating Model total £42m (2016: £50m) and primarily relate to efficiency programmes in
Continental Europe and the UK. These programmes commenced in 2015 and were planned over a 3 year period, with a focus on generating
efficiencies within the Group by co-operating more closely across all source markets; rather than duplicating activity in each individual
market. The costs that we have separately disclosed in relation to these programmes include the cost of external professional advice and
redundancies, as well as the cost of dedicated personnel (both external consultants and internal employees) assigned to New Operating
Model projects. The work of these teams focuses on aligning and driving harmonised activities across the Group in each business area,
including finance, digital, marketing, product and yield management. This work represents an investment in our transformation, resulting
in a temporary increase in costs by doubling up resource in some business areas, as we transform our business model into one that is
horizontally aligned across the Group under a matrix structure. Once processes are fully co-ordinated and harmonised in these areas, these
additional costs will fall away. Accordingly we believe that it is appropriate to separately disclose these costs. The New Operating Model was
initially established as a three year transformation project and these costs are expected to continue to be incurred until implementation
is complete.
Restructuring costs of £12m (2016: £20m) largely relate to legacy rationalisation in Continental Europe, namely France and Russia.
Reassessment of contingent consideration
In December 2016, the Group announced its intention to acquire full control of its UK retail store network, following notification by
The Co-operative Group (‘the Co-op’) of the decision to exercise its option over its stake in their UK retail joint venture. In line with the
requirements of IFRS, the Group has reassessed the carrying value of a contingent obligation to acquire the Co-op shares and this
reassessment resulted in a reduction of £32m to the liability previously accrued. As part of the reassessment it was noted that a payment
of £4m was made in the prior period which has been restated in the comparatives above (refer to Note 33).
Onerous leases and store closures
Onerous leases and store closures of £30m (2016: £21m) relates to a provision associated with loss-making UK stores. The provision follows
the results of a strategic review of the UK store network as part of the New Operating Model.
Asset revaluation reviews
Asset valuation reviews of £15m primarily relate to write-offs of property, fixtures and fittings of closed UK stores and IT assets in the UK no
longer required as part of the implementation of the New Operating Model.
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135
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
7 SEPAR ATELY DISCLOSED ITEMS CONTINUED
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 considers that it should be disclosed separately to enable a full understanding of the Group’s results.
Other
Other separately disclosed items of £24m includes £15m in relation to investment in the set-up of partnerships and new business
developments, £6m of costs incurred relating to repatriation of guests net of insurance received for Hurricane Irma and £6m of costs
incurred for fraudulent illness claims. In addition there is a £6m gain from the movement in forward points related to foreign exchange
forward contracts and the time value of options in cash flow hedge 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 £11m on the discounted value of such provisions is recognised within separately disclosed finance related
charges. In addition, the Group incurred an interest charge of £23m as a result of issuing a new Euro bond in December 2016 which
refinanced the Group’s debt at a lower interest rate, while net interest charges arising on the Group’s defined benefit pension schemes
were £7m.
8 FINANCE INCOME AND COSTS
Underlying finance income
Other interest and similar income
Underlying finance costs
Bank, bond interest and other related charges
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 (Note 7)
Bond refinancing costs
Bond open market repurchase premium
Net interest cost on defined benefit obligation (Note 30)
Unwind of discount on provisions and other non-current liabilities
Total net interest
2017
£m
2016
£m
4
4
(78)
(7)
(20)
(24)
(129)
(2)
(16)
(18)
(147)
(143)
(23)
–
(7)
(11)
(41)
(184)
6
6
(84)
(7)
(18)
(18)
(127)
(3)
(16)
(19)
(146)
(140)
–
(6)
(7)
(10)
(23)
(163)
Bank and bond interest includes fair value gain of £nil (2016: £2m gain) on hedging instruments and fair value loss of £nil (2016: £2m loss) on
hedged items in fair value hedges.
136
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
2017
£m
2016
£m
–
(4)
(4)
45
1
46
42
(8)
(8)
34
6
2
8
27
4
31
39
(6)
(6)
33
2016
£m
34
7
(11)
11
34
(2)
(60)
36
9
6
2
1
33
9 TA X
Analysis of tax charge
Current tax
UK
Corporation tax (credit)/ charge for the year
Adjustments in respect of prior periods
Overseas
Corporation tax charge for the year
Adjustments in respect of prior periods
Total current tax
Deferred tax
Total deferred tax
Total tax charge
Tax credit
The tax on the Group’s profit 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 before tax
Expected tax charge at the UK corporation tax rate of 19.5% (2016: 20.0%)
Income not liable for tax
Expenses not deductible for tax purposes
Losses and other temporary differences for which tax relief is not available
Utilisation of tax losses and other temporary differences not previously recognised
Recognition of losses and other temporary differences 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
2017
£m
46
9
(23)
16
41
(4)
(58)
44
7
5
(2)
(1)
34
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 £28m has been charged directly to equity (2016: credit of £14m). UK corporation tax is calculated at 19.5%
(2016: 20%) 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 £2,222m (2016 restated: £2,132m) are available predominantly in France, Germany and the UK
for offset against future profits.
F
I
N
A
N
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I
A
L
S
T
A
T
E
M
E
N
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
137
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
10 DIVIDENDS
The Board recommends a dividend of 0.6p per share (2016: 0.5p). The proposed final dividend is subject to approval by Shareholders at the
Annual General Meeting and has not been included as a liability in these financial statements.
The proposed dividend will be paid to Shareholders on the register at the close of business on 5 April 2018.
The payment of this dividend will not have any tax consequences for the Group.
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 3m shares held by the employee share ownership trusts (2016: 4m).
Basic and diluted earnings per share
Net profit attributable to the owners of the parent
Weighted average number of shares for basic earnings per share
Weighted average number of shares for diluted earnings per share*
Basic and diluted earnings per share
2017
£m
13
2017
millions
1,532
1,536
2017
pence
0.8
2016
£m
4
2016
millions
1,530
1,531
2016
pence
0.3
* Awards of shares under the Thomas Cook Performance Share Plan, Restricted Share Plan and Deferred Bonus Plan will be satisfied by shares held in trust and therefore are potentially dilutive.
138
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
12 INTANGIBLE ASSETS
Cost
At 1 October 2015
Additions
Disposals
Reclassifications
Exchange differences
At 30 September 2016
Additions
Disposals
Exchange differences
At 30 September 2017
Accumulated amortisation and impairment losses
At 1 October 2015
Impairment loss
Charge for the year
Disposals
Exchange differences
At 30 September 2016
Charge for the year
Disposals
Exchange differences
At 30 September 2017
Carrying amount
At 30 September 2017
At 30 September 2016
Goodwill
Computer software and
concessions
£m
Purchased
£m
Internally
generated
£m
Brands and
customer
relationships
£m
Order
backlog
£m
Other
Purchased
£m
Total
£m
2,695
–
–
–
214
2,909
–
–
45
2,954
307
–
–
–
7
314
–
–
13
327
2,627
2,595
182
20
(2)
(2)
20
218
24
(7)
4
239
93
–
4
(1)
17
113
6
(6)
3
116
123
105
244
69
(23)
2
20
312
51
(82)
5
286
179
2
26
(13)
12
206
35
(76)
4
169
117
106
383
–
–
–
36
419
–
–
5
424
134
–
6
–
11
151
8
–
1
160
264
268
41
–
–
–
–
41
–
(1)
–
40
41
–
–
–
–
41
–
(1)
–
40
–
–
3
–
–
–
–
3
2
–
–
5
–
–
–
–
–
–
–
–
–
–
5
3
3,548
89
(25)
–
290
3,902
77
(90)
59
3,948
754
2
36
(14)
47
825
49
(83)
21
812
3,136
3,077
F
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N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
139
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
12 INTANGIBLE ASSETS CONTINUED
Brand names with indefinite lives acquired through business combination intangibles are allocated by cash generating unit. The carrying
value of brand names and goodwill is analysed by cash generating unit as follows:
UK Tour Operator
Northern Europe Tour Operator
Continental Europe Tour Operator
Group Airline
Goodwill
2017
£m
Goodwill
2016
£m
Brand names
2017
£m
Brand names
2016
£m
1,038
505
183
901
2,627
1,030
494
181
890
2,595
67
53
130
–
250
67
51
126
–
244
Impairment Testing
In accordance with IFRS, the Group tests the carrying value of goodwill and brand names with indefinite lives 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.
During the year, the Group refined its organisational structure resulting in a reassessment of its reportable segments. This has resulted in
a reassessment of its CGUs for the purposes of impairment testing, which now consist of UK Tour Operator, Northern Europe Tour Operator,
Continental Europe Tour Operator and Group Airline.
The future cash flow projections used to determine the value in use are based on the most recent annual budgets and four-year plans for
each of the CGUs. The key assumptions used to determine the business’ budget and four-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 four-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 four-year plan are extrapolated at an estimated average long-term nominal growth rate of 2%.
A a pre-tax discount rate of between 9.8% – 10.2% 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 believes that any reasonable change in assumptions would not cause the
carrying value of the CGUs to exceed their recoverable amount.
140
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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 30 September 2015
Additions
Disposals
Exchange differences
At 30 September 2016
Additions
Transferred to held for sale
Disposals
Exchange differences
At 30 September 2017
Accumulated depreciation and impairment
At 30 September 2015
Charge for the year
Provision for impairment
Disposals
Exchange differences
At 30 September 2016
Charge for the year
Provision for impairment
Transferred to held for sale
Disposals
Exchange differences
At 30 September 2017
Carrying amount
At 30 September 2017
At 30 September 2016
1,175
120
(64)
184
1,415
108
–
(89)
33
1,467
570
152
–
(56)
122
788
162
–
–
(83)
19
886
581
627
152
5
(11)
25
171
4
(146)
–
3
32
47
4
–
(11)
10
50
3
4
(57)
(1)
2
1
31
121
125
4
(58)
11
82
29
(1)
(24)
3
89
79
7
4
(57)
7
40
8
4
(1)
(22)
–
29
60
42
177
19
(31)
25
190
13
(43)
(53)
2
109
126
11
–
(29)
24
132
9
–
(31)
(52)
3
61
48
58
454
28
(100)
61
443
46
(190)
(77)
8
230
252
22
4
(97)
41
222
20
8
(89)
(75)
5
91
139
221
Freehold land with a cost of £20m (2016: £34m) has not been depreciated. The net book value of aircraft and aircraft spares includes £244m
(2016: £308m) in respect of assets held under finance leases.
The net book value of other property, plant and equipment includes £20m (2016: £9m) in respect of assets held under finance leases.
The depreciation of the owned assets during the year was £79m (2016: £86m). Depreciation for property, plant and equipment held under
finance lease was £107m (2016: £88m).
Capital commitments
Capital expenditure contracted but not provided for in the accounts
2017
£m
37
2016
£m
51
The Group is contractually committed to the acquisition of one new spare engine as at 30 September 2017, which had a list price of $9.6m
each at the time of commitment, before escalations and discounts. It is intended to be financed by sale and leaseback at delivery date in
November 2017.
F
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A
N
C
I
A
L
S
T
A
T
E
M
E
N
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
141
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
14 INVESTMENT IN ASSOCIATES AND JOINT VENTURES
Cost
At 1 October 2016
Additions
Group’s share of joint ventures and associates’ loss for the year
Exchange differences
At 30 September 2017
Amounts written off or provided
At 1 October 2016
Exchange differences
At 30 September 2017
Carrying amount
2017
£m
2016
£m
33
–
(1)
1
33
25
2
27
6
25
3
(1)
6
33
21
4
25
8
Investments in joint ventures and associates at 30 September 2017 included a 40% interest in Activos Turisticos S.A, an office real estate
company based in Palma de Mallorca, Spain and 49% interest in Kuyi International Travel Agency (Shanghai) Co., Ltd. which forms part of
Thomas Cook China, the Group’s joint venture with Fosun.
Summarised financial information in respect of joint ventures and associates is as follows:
Total assets
Total liabilities
Net assets
Group’s share of net assets
Revenue
Loss for the year
Group’s share of associates’ loss for the year
2017
Joint ventures and
associates
£m
2016
Joint ventures and
associates
£m
35
(21)
14
5
25
(3)
(1)
33
(15)
18
8
22
(2)
(1)
The accounting period end dates of the joint ventures and associates consolidated in the Group financial statements differ from those of
the Group. For the purposes of applying the equity method of accounting the most recent financial statements of these joint ventures and
associates and the management accounts are used to draw up the financial position and performance of each joint venture and associate.
15 INVENTORIES
Goods held for resale
Airline spares and other operating inventories
The cost of inventories recognised as an expense was £196m (2016: £146m).
2017
£m
10
32
42
2016
£m
12
31
43
142
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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
2017
£m
1
18
45
1
65
220
89
401
2
23
735
2016
£m
–
13
44
1
58
242
74
340
4
17
677
The average credit period taken on invoicing of leisure travel services is eight days (2016: nine 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
£7m (2016: £5m) 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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
143
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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 £125m (2016: £203m) 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.
2017
£m
33
12
1
(4)
(3)
39
2017
£m
40
25
34
26
125
2016
£m
29
7
4
(5)
(2)
33
2016
£m
97
47
39
20
203
144
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
17 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Term deposits with a maturity of less than three months
2017
£m
914
493
1,407
2016
£m
1,256
520
1,776
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:
> £24m (2016: £19m) held within escrow accounts in respect of local regulatory requirements; and
> £4m (2016: £3m) of cash held by White Horse Insurance Ireland DAC, and Voyager Android Insurance Services, the Group’s captive
insurance companies.
The Directors consider that the carrying amounts of these assets approximate to their fair value.
Cash, cash equivalents and overdrafts at the end of the year as shown in the Group cash flow statement can be reconciled to the related
items in the Group balance sheet position as shown below:
Cash and cash equivalents
Overdrafts (Note 19)
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
The average credit period taken for trade purchases is 82 days (2016: 97 days).
The Directors consider that the carrying amounts of trade and other payables approximate to their fair value.
2017
£m
1,407
(8)
1,399
2016
£m
1,776
(542)
1,234
2017
£m
2016
£m
1,685
1
53
442
162
2,343
4
21
25
1,602
1
32
423
121
2,179
–
109
109
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
145
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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
2017
£m
217
8
225
20
245
20
667
380
1,067
(20)
1,047
2016
£m
117
542
659
232
891
232
835
12
1,079
(232)
847
Cash and overdraft balances in cash pooling arrangements are reported gross on the balance sheet. The cash pooling agreements do not
incorporate a legally enforceable right of net settlement, so these arrangements do not qualify for net presentation. At 30 September 2017
the total value of overdrafts on accounts in cash pooling arrangements was £8m (2016: £542m) which is offset by an equal amount within
cash and cash equivalents.
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
2017
Non-current
£m
Current
£m
2016
Non-current
£m
–
17
218
10
–
245
(2)
15
–
33
1,001
1,047
–
32
117
542
200
891
(7)
32
–
26
796
847
The Directors consider that the fair value of the Group’s borrowings with a carrying value of £1,292m is £1,476m (2016: £1,738 carrying
value £1,767m; fair value £1,025m). £1,183m (2016: £1,025m) 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 £291m (2016: £742m) is approximate to the carrying amount. In 2017, the
Group has £32m as security to aircraft (2016: £63m) and £37m as a security to property (2016: £29m).
Borrowing facilities
As at 30 September 2017, the Group had undrawn committed debt facilities of £472m (2016: £481m) and undrawn committed debt facilities
plus cash available to repay revolving credit facility of £1,824m (2016: £2,212m). 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 covenants throughout the year.
In December 2016 we issued a new €750 million bond. The new bond, bearing a coupon of 6.25% and maturing in June 2022, enabled us to
redeem in full both the outstanding £200 million principal of our £300 million bond due in June 2017, and our entire €525 million bond due in
June 2020.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
19 BORROWINGS CONTINUED
In November 2017 the Group entered into new financing arrangements being an enlarged £875 million revolving credit facility and bonding
and guarantee facility, maturing in November 2022. In addition the Group has secured £100 million of annual rolling bilateral funding from
one of their insurance providers. These new arrangements replace the Group’s existing facility, which provided £800 million of facilities until
May 2019.
Covenant measures
The covenant measures are tested quarterly on a 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, reflecting the seasonality of the Group’s business.
20 OBLIGATIONS UNDER FINANCE LEASES
Minimum lease payments
Present value of
minimum lease payments
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
2017
£m
49
105
26
180
(26)
154
2016
£m
54
139
28
221
(38)
183
2017
£m
39
91
24
154
–
154
(39)
115
2017
£m
13
141
154
2016
£m
42
117
24
183
–
183
(42)
141
2016
£m
13
170
183
Finance leases principally relate to aircraft and aircraft spares.
No arrangements have been entered into for contingent rental payments.
The Directors consider that the fair value of the Group’s finance lease obligations with a carrying value of £154m was £176m at 30 September
2017 (2016: carrying value £183m; fair value £191m). 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.
F
I
N
A
N
C
I
A
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S
T
A
T
E
M
E
N
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
147
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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 2017 and 30 September 2016 are as set out below:
At 30 September 2017
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
2017
2016
Fair value
through profit
or loss
£m
Derivative
instruments
in designated
hedging
relationships
£m
Loans &
receivables
£m
Financial
liabilities at
amortised cost
£m
Fair value
through profit
or loss
£m
Derivative
instruments
in designated
hedging
relationships
£m
Loans &
receivables
£m
Financial
liabilities at
amortised cost
£m
–
–
–
–
–
–
(9)
(9)
–
–
–
–
–
–
(47)
(47)
394
1,407
–
–
–
–
–
1,801
–
–
(2,202)
(1,292)
(154)
(432)
–
(4,080)
–
–
(79)
–
–
–
2
(77)
–
–
–
–
–
–
83
83
406
1,776
–
–
–
–
–
2,182
–
–
(2,061)
(1,738)
(182)
(395)
–
(4,376)
Derivative financial instruments
The fair values of derivative financial instruments were:
At 1 October 2015
Movement in fair value during the year
At 1 October 2016
Movement in fair value during the year
At 30 September 2017
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Interest rate
swaps
£m
Currency
contracts
£m
Fuel
contracts
£m
11
5
16
(17)
(1)
84
12
96
(181)
(85)
(165)
138
(27)
57
30
2017
£m
6
56
(109)
(9)
(56)
Total
£m
(70)
155
85
(141)
(56)
2016
£m
26
145
(83)
(3)
85
148
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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:
derived using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices). The fair value of financial instruments is determined by discounting expected
cash flows at prevailing interest rates.
Level 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
–
–
–
–
–
–
–
30
32
–
(115)
(2)
(1)
(56)
–
–
–
–
–
–
–
2017
Total
£m
30
32
–
(115)
(2)
(1)
(56)
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
–
131
24
16
(35)
(51)
–
85
–
–
–
–
–
(79)
(79)
2016
Total
£m
131
24
16
(35)
(51)
(79)
6
The fair values of financial instruments have been calculated using discounted cash flow analysis.
In December 2016, the Group announced its intention to acquire full control of its UK retail store network, following notification by
The Co-operative Group of the decision to exercise its option over its stake in their UK retail joint venture. The Group’s contingent
consideration is now fixed, therefore is no longer classified as a Level 3 financial liability. There were no other Level 3 financial assets or
liabilities as at 30 September 2017.
Currency hedges are entered into up to a maximum of 24 months in advance of the forecasted requirement. As at 30 September 2017, the
Group had in place currency hedging derivative financial instruments with a maximum maturity of May 2019 (2016: February 2018).
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. All fuel hedges are designated as cash flow hedges.
Fuel price hedges are entered into up to a maximum of 24 months in advance of forecasted consumption of fuel. Trades with maturities
longer than 24 months need additional approval in line with treasury policy. As at 30 September 2017, the Group had in place fuel price
hedging derivative financial instruments with a maximum maturity of March 2019 (2016: March 2018).
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
149
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
21 FINANCIAL INSTRUMENTS CONTINUED
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 2017 was a
liability of £1m (2016: £16m asset).
As at 30 September 2017, the maximum maturity of interest rate derivatives was June 2022 (2016: June 2020).
The fair values of the Group’s derivative financial instruments have been calculated using underlying market prices available on
30 September 2017.
During the year, a gain of £60m (2016: £105m 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 £6m was
recognised in the income statement in respect of the forward points on foreign exchange cash flow hedging contracts (2016: £2m gain) and
a gain of £nil in respect of the movement in the time value of options in cash flow hedging relationships (2016: £3m gain).
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
2017
£m
60
–
6
(17)
2016
£m
(105)
3
2
5
During the year a loss of £10m (2016: £3m 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 £44m (2016: £36m 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 £35m (2016: £26m gain) within one year and a
loss of £9m (2016: £10m gain) between one and five years.
150
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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 2017
Derivatives financial assets
Derivatives financial liabilities
Cash and cash equivalents
Bank overdrafts
Total
As at 30 September 2016
Derivatives financial assets
Derivatives financial liabilities
Cash and cash equivalents
Bank overdrafts
Total
Related amounts not set off in the balance sheet
Gross amounts of
recognised financial
assets/(liabilities)
£m
Gross amounts of
recognised financial
(liabilities)/assets
set off in the
balance sheet
£m
Net amounts
presented in the
balance sheet
£m
Financial
Instruments
£m
Net Amount
£m
62
(118)
1,412
(13)
1,343
–
–
(5)
5
–
62
(118)
1,407
(8)
1,343
(53)
53
–
–
–
9
(65)
1,407
(8)
1,343
Related amounts not set off in the balance sheet
Gross amounts of
recognised financial
assets/(liabilities)
£m
Gross amounts of
recognised financial
(liabilities)/assets
set off in the
balance sheet
£m
Net amounts
presented in the
balance sheet
£m
Financial
Instruments
£m
Net Amount
£m
171
(86)
1,778
(544)
1,319
–
–
(2)
2
–
171
(86)
1,776
(542)
1,319
(75)
75
–
–
–
96
(11)
1,776
(542)
1,319
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 24 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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
151
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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 24 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 2017, the sensitivity of these risks to the defined scenario changes are set out below:
Interest rate risk
1% (2016: 1%) increase in interest rates
0.25% (2016: 0.25%) decrease in interest rates
Foreign exchange rate risk
5% (2016: 5%) strengthening of Euro
5% (2016: 5%) weakening of Euro
5% (2016: 5%) strengthening of US Dollar
5% (2016: 5%) weakening of US Dollar
Fuel price risk
10% (2016: 10%) increase in fuel price
10% (2016: 10%) decrease in fuel price
Impact
on profit
before tax
£m
9
(2)
Impact
on profit
before tax
£m
(1)
1
2
(1)
Impact
on profit
before tax
£m
–
–
2017
Impact
on equity
£m
–
–
2017
Impact
on equity
£m
8
(7)
75
(67)
2017
Impact
on equity
£m
63
(63)
Impact
on profit
before tax
£m
8
(2)
Impact
on profit
before tax
£m
1
(1)
3
(2)
Impact
on profit
before tax
£m
–
–
2016
Impact
on equity
£m
–
–
2016
Impact
on equity
£m
12
(11)
80
(72)
2016
Impact
on equity
£m
61
(61)
Given recent historical movements in fuel prices Management believes a 10% shift is a reasonable possibility.
152
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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 £993m and £1,824m during the current financial year
(2016: £586m–£2,212m).
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.
At 30 September 2017
Trade and other payables
Borrowings
Obligations under finance leases
Derivative financial instruments:
– payable
– receivable
Provisions arising from contractual obligations
At 30 September 2016
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
1,967
224
13
1,054
(1,053)
27
2,232
180
17
36
2,054
(1,989)
102
400
51
1,310
105
546
(542)
224
1,694
4
28
26
–
–
79
137
in less than
3 months
£m
between
3 and 12 months
£m
between
1 and 5 years
£m
in more than
5 years
£m
1,851
652
14
714
(740)
39
2,530
168
252
40
2,005
(2,028)
45
482
119
1,076
138
575
(593)
260
1,575
2
21
28
–
–
51
102
Amount due
Total
£m
2,202
1,579
180
–
3,654
(3,584)
432
4,463
Amount due
Total
£m
2,140
2,001
220
3,294
(3,361)
395
4,689
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 £165m (2016: £148m) 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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
153
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
23 INSUR ANCE
Management of insurance risk
Incidental to its main business, the Group, through its subsidiary White Horse Insurance Ireland DAC, 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 is 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.
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 has an Actuarial Function 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 DAC 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 major deferred tax liabilities and assets recognised by the Group and movements thereon during the current year:
At 1 October 2016
(Charge)/credit to income
Credit to equity
Exchange differences
At 30 September 2017
Aircraft
finance
leases
£m
Retirement
benefit
obligations
£m
Fair value
of financial
instruments
£m
Other
temporary
differences
£m
(55)
6
–
(2)
(51)
76
(1)
(32)
2
45
(14)
17
–
–
3
(85)
36
–
(4)
(53)
Tax
losses
£m
255
(50)
4
2
211
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
2017
£m
216
(61)
155
Total
£m
177
8
(28)
(2)
155
2016
£m
228
(51)
177
At the balance sheet date, the Group had unused tax losses of £3,182m (restated 2016: £3,274m) available for offset against future profits.
Deferred tax assets have only been recognised to the extent that the business has forecast future taxable profits against which the assets
may be recovered.
As a result of the continuing robustness of the Spanish business it is now considered appropriate for all Spanish losses and deductible
temporary differences to be recognised.
No deferred tax asset has been recognised in respect of tax losses of £2,222m (restated 2016: £2,132m) due to the unpredictability of future
profit streams. £2,219m of these losses have no expiry date, with the remaining £3m expiring within 5 years.
154
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
24 DEFERRED TA X CONTINUED
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 as part of the merger.
In addition, the Group had unused other temporary differences amounting to £432m (2016: £374m) 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.
No deferred tax liability has been recognised in respect of unremitted earnings of subsidiaries, associates and joint ventures because
the Group is in a position to control the timing of the reversal of the temporary difference and it is probable that such differences will not
reverse in the foreseeable future.
Factors affecting the tax charge in future periods
In addition to the reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017), a further reduction to 17% (effective from
1 April 2020) was substantively enacted on 6 September 2016. Deferred tax on temporary differences and tax losses as at the balance sheet
date is calculated based on the substantively enacted rates at which the temporary differences and tax losses are expected to reverse.
The Group’s future tax charge could be affected by numerous factors, including but not limited to:
> the UK’s proposal to amend the tax rules relating to the utilisation of brought forward losses and the deductibility of interest were
substantively enacted on 31 October 2017. These new rules apply retrospectively from 1 April 2017. With substantive enactment taking place
after the Group’s balance sheet date, the accounting standards do not require the impact of these rules to be accounted for until the
period ended 30 September 2018. Due to the complexity of the legislation it is too soon to quantify the impact on UK deferred tax; and
> any tax reforms in jurisdictions where we have a taxable presence, including any reforms which may arise from the UK’s proposed exit
from the EU, from the European Commission’s proposals for a Common Corporate Tax Base across the EU or any reforms adopted from the
OECD’s BEPS actions such as those in relation to the deductibility of interest, anti-avoidance or transfer pricing.
25 PROVISIONS
At 1 October 2015 (restated)
Additional provisions in the year
Unused amounts released in the year
Unwinding of discount
Utilisation of provisions
Exchange differences
At 30 September 2016 (restated)
Additional provisions in the year
Unused amounts released in the year
Unwinding of discount
Utilisation of provisions
Exchange differences
At 30 September 2017
Included in current liabilities
Included in non-current liabilities
At 30 September 2017
Included in current liabilities
Included in non-current liabilities
At 30 September 2016
Aircraft
maintenance
provisions
£m
Off-market
leases
£m
Insurance and
litigation
£m
Reorganisation
and restructuring
plans
£m
Other
provisions
£m
287
51
(19)
4
(34)
41
330
73
(37)
11
(8)
(3)
366
11
–
–
–
(7)
1
5
–
(2)
–
(3)
–
–
75
86
(2)
–
(90)
2
71
109
(3)
–
(102)
–
75
6
8
(2)
–
(10)
1
3
12
(2)
–
(12)
–
1
24
24
(4)
1
(16)
2
31
31
(4)
1
(28)
2
33
Total
£m
403
169
(27)
5
(157)
47
440
225
(48)
12
(153)
(1)
475
168
307
475
139
301
440
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
155
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
25 PROVISIONS CONTINUED
The aircraft maintenance provisions relate to maintenance on leased aircraft and spares used by the Group’s airlines in respect of leases
which include contractual return conditions. This expenditure arises at different times over the life of the aircraft with major overhauls
typically occurring between two and 10 years. The aircraft maintenance provisions are reassessed 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.
Insurance and litigation represents costs related to legal disputes, customer compensation claims (including EU 261) and estimated costs
arising through insurance contracts in the Group’s subsidiary, White Horse Insurance Ireland DAC.
Reorganisation and restructuring plans predominantly represent committed restructuring costs in the Group Tour Operator segment.
Other provisions includes items such as onerous contracts, dilapidations and emissions trading liabilities. Of the £31m charge recognised
in the year, £13m has been classified as a Separately Disclosed Item within ‘Onerous leases and store closures’. For further details refer
to Note 7. Onerous lease provisions will be utilised over the lease terms.
26 CALLED -UP SHARE CAPITAL
At 1 October 2015
Exercise of Warrants
Issue of shares
At 30 September 2016
Exercise of Warrants
Issue of shares
At 30 September 2017
Allotted, called-up
and fully paid
Allotted, called-up
and partly paid
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
1,535,851,316
–
–
1,535,851,316
–
–
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 2017, options to subscribe for Ordinary Shares were outstanding with respect to the Thomas Cook Group plc 2007
Performance Share Plan, the Thomas Cook plc 2011 Restricted Share Plan and the Thomas Cook 2014 Deferred Bonus 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.
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, the Thomas Cook plc 2011 Restricted Share Plan and the Thomas Cook 2014 Deferred Bonus 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 2017 by EES Trustees International Limited and Equiniti Share Plan Trustees Limited was 3,211,284
(2016: 3,899,182) and 343,310 (2016: 358,893) respectively. The cumulative cost of acquisition of these shares was £5m (2016: £6m) and the
market value at 30 September 2017 was £4m (2016: £3m). Shares held by the trust have been excluded from the weighted average number of
shares used in the calculation of earnings per share.
156
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
26 CALLED -UP SHARE CAPITAL CONTINUED
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 (net of related hedging instruments), 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 £320m
(2016: £495m).
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
£m
Aircraft and
aircraft spares
£m
68
187
120
375
159
558
377
1,094
2017
Total
£m
227
745
497
1,469
Property
and other
£m
Aircraft and
aircraft spares
£m
71
202
92
365
163
642
505
1,310
2016
Total
£m
234
844
597
1,675
Operating lease rental payable charged to the income statement for hire of aircraft and aircraft spares was £219m (2016: £180m) which
includes £75m (2016: £60m) for seasonal wet leases. Operating lease rental payable charged to the income statement for property and other
was £92m (2016: £93m) which includes £13m of onerous lease provisions recognised in the year (2016: £16m).
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 four 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
2017
£m
154
2016
£m
126
Contingent liabilities primarily comprise guarantees, letters of credit and other contingent liabilities, 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, insurance companies, accredited associations 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’s judgement but there can be no guarantee that these provisions will result in an accurate
prediction of the actual costs and liabilities that may be incurred. These are not expected to have a material impact on the financial position
of the Group.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
157
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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 £3m (2016: £1m 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 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 claw-back 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:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Lapsed
Outstanding at end of year
Exercise price (£)
Average remaining contractual life (years)
PSP
2017
Other
20,295,442
17,167,250
(90,684)
(1,948,444)
(2,448,446)
32,975,118
1,730,112
2,971,574
(617,874)
(121,335)
(11,648)
3,950,829
nil
1.5
nil
1.6
The weighted average share price at the date of exercise for the options exercised during the year ended 30 September 2017 was £0.89.
Outstanding at beginning of year
Granted
Exercised
Lapsed
Outstanding at end of year
Exercise price (£)
Average remaining contractual life (years)
PSP
2016
Other
25,465,856
9,292,704
(4,687,924)
(9,775,194)
20,295,442
nil
1.7
1,711,492
882,355
(673,489)
(190,246)
1,730,112
nil
0.9
The weighted average share price at the date of exercise for the options exercised during the year ended 30 September 2016 was £0.67.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
29 SHARE-BASED PAYMENTS CONTINUED
The fair value of options and awards subject to basic EPS performance targets was determined by the use of Black-Scholes models and the
fair value of options subject to TSR performance targets was determined by the use of Monte Carlo simulations. For options and awards
granted during the year the key inputs to the models were:
Weighted average share price at measurement date
Weighted average exercise price
Expected volatility
Weighted average option life (years)
Weighted average risk-free rate
Expected dividend yield
Weighted average fair value at date of grant
PSP
£0.86
nil
66%
3
0.79%
nil
£0.69
2017
DBP
£0.89
nil
66%
1.46
0.79%
nil
£0.89
PSP
£1.13
nil
40%
3
0.85%
nil
£0.74
2016
DBP
£1.03
nil
40%
1.39
0.8%
nil
£1.03
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.
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. The amounts recognised in the balance sheet are determined as follows:
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
2017
£m
1,315
(1,425)
(110)
435
325
2016
£m
1,442
(1,470)
(28)
485
457
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 £367m (2016: £416m) 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 Group Tour Operator segment.
The unfunded pension schemes are accounted for as part of liabilities for retirement benefit obligations in the balance sheet.
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159
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
30 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
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
Rate of inflation
2017
%
2.19%
2.57%
1.51%
1.80%
2016
%
1.62%
2.57%
1.52%
1.81%
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 2017. These assume a life expectancy for
members currently aged 65 of 19.3 years for men and 23.4 years for women.
Changes in the present value of unfunded pension obligations were as follows:
At beginning of year
Current service cost*
Interest cost*
Benefits paid
Settlements*
Effect of experience adjustments and demographic assumptions
Effect of financial assumptions
Exchange difference
At end of year
* These amounts have been recognised in the income statement.
2017
£m
485
17
8
(8)
(15)
(7)
(55)
10
435
2016
£m
320
11
8
(7)
–
1
105
47
485
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 2017 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 2017 are based on the S2PA pensioner tables
with 2013 CMI projection model until 2014 and then 2016 CMI projection model with a long-term trend rate of 1.5% for males and females.
The mortality assumptions adopted for the plan liabilities indicate a further life expectancy for members currently aged 65 of 23.3 years
for men and 25.2 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.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
30 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
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 2017 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 2017 resulted in a surplus of £123m (2016: £52m), this is included
within the net Group pension deficit of £327m (2016: £457m). The £123m has been disclosed as a pension asset in the statements of
financial position.
The movement in the defined benefit obligation over the year is as follows:
Present value of obligation
At beginning of year
Interest expense/(income)
Remeasurements:
– Gain from change in demographic assumptions
– (Gain)/loss from change in financial assumptions
– Experience (gains)/losses
Exchange differences
Payments from plans:
– 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 expense/(income)
Exchange differences
Expenses paid
Contributions:
– Employers
Payments from plans:
– Benefit payments
At end of year
Deficit of funded plan
2017
£m
1,442
34
34
(26)
(72)
(10)
(108)
–
(53)
1,315
2017
£m
(1,470)
(35)
(35)
56
56
(2)
2
(29)
53
(1,425)
(110)
2016
£m
1,063
41
41
–
387
(24)
363
6
(31)
1,442
2016
£m
(1,104)
(43)
(43)
(324)
(324)
(4)
3
(29)
31
(1,470)
(28)
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
161
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
2017
%
2.67
3.05
The average mortality assumptions adopted for the plan liabilities indicate a further life expectancy for members currently aged 65 of
23.1 years for men and 25 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
11
122
534
–
–
569
6
1,242
–
–
–
54
–
95
34
183
11
122
534
54
–
664
40
1,425
2017
%
1
9
37
4
–
46
3
100
Quoted
£m
Non-quoted
£m
Total
£m
8
108
452
59
651
154
4
1,436
–
–
–
–
–
–
34
34
8
108
452
59
651
154
38
1,470
2016
%
2.37
2.96
2016
%
1
7
31
4
44
10
3
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. See below for more details on the Group’s asset-liability matching strategy.
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.
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.
162
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
30 RETIREMENT BENEFIT OBLIGATIONS CONTINUED
The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:
Discount rate for scheme liabilities
Inflation rate
Mortality
Impact on defined benefit obligation
Change in
assumption
Increase in
assumption
Decrease in
assumption
0.25%
0.25%
1 year
Increase by 6% Decrease by 5%
Decrease by 3%
Increase by 4%
Increase by 2%
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 the financial position.
The expected future benefit payments are detailed below:
At 30 September 2017
Pension benefit payments
Less than a year
£m
76
The weighted average duration of the defined benefit obligation at 30 September 2016 is 24.6 years.
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 contribution 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 £51m (2016: £46m).
The assets of these schemes are held separately from those of the Group in funds under the control of trustees.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
163
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
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 joint ventures and associates are disclosed below. Transactions between the
Company and its subsidiaries, joint ventures and associates are disclosed 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 joint ventures
2017
£m
6
(4)
–
2
(1)
2016
£m
5
(3)
1
1
(1)
All transactions are considered to have been made at market prices. Outstanding amounts will normally be settled by cash payment.
Remuneration of key management personnel
Further information about the remuneration of individual Directors is provided in the audited part of the Remuneration Report on pages 98
to 107.
Short-term employee benefits
2017
£m
4
4
2016
£m
3
3
The short-term employee benefits include employer social security payments which are excluded from the Director’s Remuneration Report.
32 NON- CURRENT ASSETS CL ASSIFIED AS HELD FOR SALE
Non-current asset classified as held for sale
2017
£m
101
2016
£m
–
The non-current assets classified as held for sale consist mainly of properties in Germany, Greece, Spain and the UK currently reported
within the Group Tour Operator segment, are due to be sold within one year and have been recorded at the lower of carrying amount and fair
value less cost to sell.
164
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
33 PRIOR YEAR RESTATEMENTS
During the year management identified that long term aircraft maintenance provisions had been measured using an incorrect discount rate.
An adjustment has been calculated to restate the carrying value of these provisions using a risk free rate based on government bond rates
of similar currency and term to the related obligations. The impact of this restatement principally affects the opening balance at 1 October
2015 and prior periods and has resulted in a £46m increase in aircraft maintenance provisions recorded within opening reserves as at
1 October 2015. The effect of applying these revised discount rates would not be material to the results of 2016.
During the year a reassessment of contingent consideration to be settled in the period has been performed. This has resulted in a £4m
reduction to the prior year separately disclosed items, within the income statement, and corresponding reduction in non-controlling interest.
Following the cessation of the Hotels 4U business in the UK at the end of 2016, it was identified during the year that there were a number of
balances that were assessed as no longer recoverable. This resulted in a reduction in prior year profit of £6m, of which £2m was in respect
of the impairment of property and recognition of onerous leases recorded in separately disclosed items. A further £4m was recognised in
underlying profit in respect of a reduction in trade and other receivables.
During FY16 an estimate of the TOMS (Tour Operator Margin Scheme) liability was recognised, however it was subsequently identified that the
final liability was understated by £2m. This has been recorded as an adjustment to underlying profit with a corresponding decrease in trade
and other payables.
Management identified a deferral of a profit on a historic sale and leaseback transaction had not been correctly recorded over the life of the
lease. This resulted in an adjustment of £4m being recorded in opening reserves in the prior year.
Amounts of £7m previously recognised receivables have been reassessed as irrecoverable, this included £3m that related to pre-FY16 and
therefore has been taken through the opening reserves. The remaining £4m related to FY16 and resulted in an adjustment to separately
disclosed items in 2016.
The errors have been corrected by restating each of the affected financial statement line items for the prior periods, as follows:
Impact on equity – increase/(decrease) in equity 30 September 2016
Trade and other receivables
Plant, property and equipment
Short-term provision
Current trade and other payables
Non-current trade and other payables
Long-term provisions
Net assets
Opening reserves(1)
Retained earnings
Equity attributable to equity owners of the parent
Non-controlling interests
Total equity
(1) The impact on opening reserves comprises long term provisions (£46m), deferred income in long term trade and other payables (£4m) and trade and other receivables (£3m).
£m
(11)
(1)
(1)
(2)
(4)
(46)
(65)
(53)
(8)
(61)
(4)
(65)
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165
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
33 PRIOR YEAR RESTATEMENTS CONTINUED
Impact on statement of profit or loss – increase/(decrease) in profit for 30 September 2016
Underlying EBIT
£m
Separately
disclosed Items
£m
Statutory profit
£m
Sale of goods
Operating expenses
Net impact on profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
(2)
(4)
(6)
–
(2)
(2)
(2)
(6)
(8)
(8)
–
(8)
Impact on basic and diluted earnings per share (EPS) – increase/(decrease) in EPS
Basic and diluted EPS
(0.5) pence
34 SUBSEQUENT EVENTS
As previously announced, from November 2017, our Belgian airline business transferred to Brussels Airlines such that it is no longer part of
the Group.
In November 2017 the Group entered into new financing arrangements being an enlarged, £875 million revolving credit facility and bonding
and guarantee facility, maturing in November 2022. In addition the Group has secured £100 million of annual rolling bilateral funding from
one of their insurance providers. These new arrangements replace the Group’s existing facility, which provided £800 million of facilities until
May 2019.
166
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
AS AT 30 SEPTEMBER 2017
COMPANY BALANCE SHEET
Non-current assets
Intangible assets
Property, plant and equipment
Investments in subsidiaries
Tax assets
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
Called-up share capital
Share premium account
Merger reserve
Hedging and translation reserve
Capital redemption reserve
Retained earnings surplus
Investment in own shares
Total equity
30 September
2017
£m
30 September
2016
£m
Notes
7
8
9
9
10
11
14
13
14
15
49
1
2,037
–
2,087
1,575
1
1,576
3,663
(151)
–
(1)
(152)
(653)
(805)
2,858
69
524
1,429
519
8
317
(8)
2,858
40
2
2,035
1
2,078
1,610
–
1,610
3,688
(571)
(200)
(2)
(773)
–
(773)
2,915
69
524
1,429
519
8
374
(8)
2,915
The loss after tax of the Company amounted to £52m (2016: £81m profit after tax).
The financial statements on pages 167 to 180 were approved by the Board of Directors on 21 November 2017.
Signed on behalf of the Board
MICHAEL HEALY
DIRECTOR
Notes 1 to 20 form part of these financial statements.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
167
FINANCIAL STATEMENTS
YEAR ENDED 30 SEPTEMBER 2017
COMPANY CASH FLOW STATEMENT
Cash flows from operating activities
Loss before tax
Adjustments for:
Interest expense
Amortisation
Increase in provisions
(Increase)/decrease in receivables
Increase/(decrease) in payables
Net cash used in operating activities
Investing activities
Purchase of tangible and intangible assets
Net cash from investing activities
Financing activities
Net inflow/(outflow) from borrowings
Interest paid
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Year ended
30 September
2017
£m
Year ended
30 September
2016
£m
(62)
47
6
(1)
(5)
(338)
(353)
(17)
(17)
428
(49)
(8)
371
1
–
1
51
30
4
(1)
16
41
141
(18)
(18)
(100)
(24)
–
(124)
(1)
1
–
168
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
FOR THE YEAR ENDED 30 SEPTEMBER 2017
COMPANY STATEMENT OF CHANGES
IN EQUITY
Share
capital
£m
Share
premium
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Translation
reserve
£m
Retained
earnings
£m
Own
shares
£m
At 30 September 2015
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Equity credit in respect of share-based payments
Exercise of own shares
At 30 September 2016
Loss for the year
Total comprehensive income for the year
Dividends paid
Equity credit in respect of share-based payments
At 30 September 2017
69
–
–
–
–
69
–
–
–
69
524
–
–
–
–
524
–
–
–
524
1,429
–
–
–
–
1,429
–
–
–
1,429
8
–
–
–
–
8
–
–
–
8
382
–
137
137
–
–
519
–
–
–
–
519
302
81
–
81
1
(10)
374
(52)
(52)
(8)
3
317
(18)
–
–
–
–
10
(8)
–
–
–
–
(8)
Other comprehensive income and expenses 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 2015.
At 30 September 2017, the Company had distributable reserves of £286m (2016: £374m).
Details of the own shares held are set out in Note 26 to the Group financial statements.
Total
£m
2,696
81
137
218
1
–
2,915
(52)
(52)
(8)
3
2,858
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169
FINANCIAL STATEMENTS
NOTES TO THE COMPANY
FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
Thomas Cook Group plc is a public 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 accounting policies applied in the preparation of these Company financial statements are the same as those set out in Note 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 Sterling.
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 54 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. 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 PROFIT FOR THE YEAR
As permitted by section 408(3) of the Companies Act 2006, the Company has elected not to present its own income statement for the year.
The auditors’ remuneration for audit services to the Company was £0.1m (2016: £0.1m).
4 PERSONNEL EXPENSES
Wages and salaries
Social security costs
Share-based payments – equity settled
The average number of employees of the Company during the year was:
Employees are based in the UK and Germany.
2017
£m
21
2
2
25
2016
£m
23
1
0
24
2017
Number
2016
Number
183
169
Disclosures of individual Directors’ remuneration, share options, long-term incentive schemes, pension contributions and pension
entitlements required by the Companies Act 2006 and specified for audit by the Financial Services Authority are on pages 98 to 108 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.
170
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
5 TA X
At the balance sheet date, the Company had unrecognised tax losses of £99m (2016: £145m) and unrecognised deductible short-term
temporary differences of £20m (2016: £1m).
6 DIVIDENDS
The details of the Company’s dividend are disclosed in Note 10 to the Group financial statements.
7 INTANGIBLE ASSETS
Other intangible assets:
Cost
At 30 September 2015
Additions
At 30 September 2016
Additions
At 30 September 2017
Accumulated amortisation
At 30 September 2015
Charge for the year
At 30 September 2016
Charge for the year
At 30 September 2017
Carrying amount
At 30 September 2017
At 30 September 2016
£m
26
18
44
15
59
1
3
4
6
10
49
40
Software and intangible assets are initially measured at cost. The direct costs associated with the development of business software and
intangibles are capitalised where project success is probable and the capitalisation criteria is met. Following initial recognition, software and
intangible assets are stated at cost less accumulated amortisation and impairment losses. Software and intangible assets with a finite life
are amortised from the date the asset is ready for use on a straight-line basis over its estimated useful life which is four years (websites
five years).
At each reporting date, Thomas Cook Group plc reviews the carrying amounts of its software and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. Where estimated useful lives or recoverable values have
diminished, amortisation is accelerated.
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171
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
8 INVESTMENTS IN SUBSIDIARIES
Cost and net book value
At 30 September 2015
Adjustment in respect of share-based payments
Additions
Exchange difference
At 30 September 2016
Adjustment in respect of share-based payments
Additions
Exchange difference
At 30 September 2017
A list of the Company’s related undertakings is shown in Note 20 to the financial statements.
9 TR ADE AND OTHER RECEIVABLES
Current
Amounts owed by subsidiary undertakings
Other receivables
Deposits and prepayments
Non-current
Tax assets
2017
£m
1,562
–
13
1,575
–
–
Amounts owed by subsidiary undertakings are repayable on demand. The average interest on overdue amounts owed by subsidiary
undertakings is 0.8% (2016: 0.3%). The Directors consider the fair value to be equal to the book value.
10 CASH AND CASH EQUIVALENTS
Cash at bank and in hand
2017
£m
1
1
£m
1,873
1
55
106
2,035
2
–
–
2,037
2016
£m
1,606
1
3
1,610
1
1
2016
£m
–
–
Cash and cash equivalents includes balances which are considered to be restricted. £0.1m (2016: £0.1m) 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.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
11 TR ADE AND OTHER PAYABLES
Amounts owed to subsidiary undertakings
Social security and other taxes
Other payables
Accruals
2017
£m
123
5
1
22
151
2016
£m
543
1
10
17
571
The average interest on overdue amounts owed to subsidiary undertakings is 1.2% (2016: 2.4%).
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.
12 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 151 to 153. The Company believes the value of its financial assets to be fully recoverable.
2017: The carrying value of the Company’s financial instruments is exposed to movements in foreign currency exchange rates (primarily Euro).
The Company estimates that a 5% strengthening in Euro would increase profit before tax by £nil, while a 5% weakening in Euro would
decrease profit before tax by £nil.
2016: The carrying value of the Company’s financial instruments is exposed to movements in foreign currency exchange rates (primarily Euro).
The Company estimates that a 5% strengthening in Euro would increase profit before tax by £nil, while a 5% weakening in Euro would
decrease profit before tax by £nil.
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 profit before tax by £nil (2016: 1% increase in interest rates increase loss before tax by £nil), while
a 0.25% decrease in interest rates would decrease profit before tax.
Carrying values of financial assets and liabilities
The carrying value of the Group’s financial assets and liabilities as at 30 September 2017 and 30 September 2016 are set out below:
At 30 September 2017
Non-current asset investments
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
1,575
1
–
–
–
1,576
–
–
(151)
(653)
(1)
(805)
Total
£m
1,575
1
(151)
(653)
(1)
771
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
173
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
12 FINANCIAL INSTRUMENTS CONTINUED
At 30 September 2016
Non-current asset investments
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
1,610
–
–
–
–
1,610
–
–
(571)
(200)
(2)
(773)
Total
£m
1,610
–
(571)
(200)
(2)
837
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 2017
Trade and other payables
Borrowings
Provisions arising from contractual obligations
At 30 September 2016
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
(143)
(21)
–
(164)
(1)
(21)
–
(22)
–
(818)
–
(818)
In less than
3 months
£m
Between 3 and
12 months
£m
Between 1 and
5 years
£m
(564)
–
–
(564)
(7)
(218)
(2)
(227)
–
–
–
–
Amount due
Total
£m
(144)
(860)
–
(1,004)
Amount due
Total
£m
(571)
(218)
(2)
(791)
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 2017, 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 9.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
13 PROVISIONS
Other provisions:
At 1 October
Utilisation of provision
At 30 September
2017
£m
(2)
1
(1)
2016
£m
(3)
1
(2)
Other provisions relate to provisions for insurance claims.
14 BORROWINGS
Borrowings comprise of a €750m bond with an annual coupon of 6.25% maturing in June 2022 (2016: borrowings comprised of a £200m bond
with an annual coupon of 7.75% which was fully repaid in December 2016).
15 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.
16 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
2017
£m
1
4
7
12
2016
£m
1
3
1
5
17 CONTINGENT LIABILITIES
At 30 September 2017, 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 £820m (2016: £669m). This predominantly relates to a guarantee on the
drawndown portion of the Group banking facility (detailed in Note 19 of the Group financial statements).
Also included are guarantees related to aircraft finance lease commitments, estimated based on the current book value of the finance lease
liabilities £154m (2016: £182m).
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.
The Company has issued a letter of support to confirm its intention to provide each subsidiary of the Group with sufficient funds to enable it
to pay its debts as they fall due for a period of at least 18 months.
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
175
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
18 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
2017
£m
12
(7)
30
–
1,279
89
(94)
(16)
2016
£m
1
(3)
20
92
1,527
77
(530)
(8)
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.
19 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 (2016: £1m) is stated net of amounts recharged to subsidiary undertakings.
176
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
20 SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES
In accordance with section 409 of the Companies Act 2006, a full list of subsidiaries, associates and joint ventures as at 30 September 2017
is disclosed below:
Name
1841 Limited1
Registered office address
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
AB 9807 Beteiligungsverwaltungs GmbH
Thomas Cook Platz 1, 61440 Oberursel, Germany
Activos Turisticos, S.A.
Airtours Finance Limited
Airtours Holidays Transport Limited
Airtours Resort Ownership Espana S.L.
Calle General Riera, 154, 07010, Palma de Mallorca, Spain
Mont Crevelt House, Bulwer Avenue, St. Sampson, Guernsey GY2 4LH
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Calle Fray Juniper Serra, 6 Entlo, 07014, Palma de Mallorca, Illes Baleas, Spain
Algarve Tours – Agencia De Viagens E Turismo Lda
Estrada Nacional 125/10, Est Aeroporto, Edif Cefil, Loja 1, 8000, Faro, Montenegro, Portugal
Alpha Reiseburo Partner GmbH
Thomas Cook Platz 1, 61440 Oberursel, Germany
Anfinpan S.L.
Astral Hellas SA
Astral Spain Incoming S.A.
Astral Tours (Cyprus) Limited
Belgian Travel Network CVBA
Calle Mayor de Triana 120 5, Palmas de Gran Canaria, Las Palmas, 35002, Spain
Agnostou Stratioti Square 17, 741 00 Rethymoon, Crete, Greece
Calle Fray Juniper Serra, 6 Entlo, 07014 Palma de Mallorca, Illes Balaes, Spain
4 Riga Fereou street, Omega court, Nicosia, Cyprus
Imperiastraat 10/3, 1930 Zaventem, Belgium
Blue Sea Overseas Investments Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Bucher Reisen GmbH3
Buzzard Leisure Limited
Capitol Holdings Limited
Carousel Holidays Ltd
Düsseldorfer Straße 83, 40667, Meerbusch, Germany
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
3C Dunshughlin Business Centre, Dunshaughlin, Co. Meath, Ireland
Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom
Carousel Resorts International Limited
Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom
Close Number 16 Limited
Close Number 39 Limited
Close Number 40 Limited
Close Number 6 Limited
Condor Berlin GmbH2 & 3
Condor Flugdienst GmbH2 & 3
Condor Technik GmbH2 & 3
Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom
Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom
14 Charing Cross, St. Helier, JE2 3RP, Jersey
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Elly-Beinhorn-Ring 4, 12529 Schönefeld, Berlin, Germany
Condor Platz, 60549, Frankfurt am Main, Germany
Condor Platz, 60549, Frankfurt am Main, Germany
Co-op Group Travel 2 Holdings Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Cooperatieve Parkway U.A.
Atrium , 7th Floor, Strawinskylaan 3105, Amsterdam, The Netherlands
DMH In Destination Management Holdings (Cyprus) Ltd
Makarios III Avenue, 195 Neocleous House, 1-5 Floor, Limassol, CY-3030, Cyprus
Eurocenter Beteiligungs- und Reisevermittlung GmbH3
Thomas Cook Platz 1, 61440 Oberursel, Germany
Feri-o-mat Reisen GmbH
Future Travel Limited
Düsseldorfer Straße 83, 40667, Meerbusch, Germany
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Gesellschaft für Reisevertriebssysteme mbH3
Herner Strasse 299, Gebäude A/6, 44 809 Bochum, Germany
Happy Camp S.P.A.
Helios Palace SA
Hix Express, S.L.
Borgo Cavour 21, 37011 Bardolino, Italy
Ionos Dragoumi 5, Rhodes, Greece, 85.100
GENERAL RIERA 154, 07010, Palma de Mallorca, Illes Balears, Spain
Hotel Investments Sarigerme Turizm Ticaret L.S.
Osmaniye Koyu, Sarigerme, Ortaca, 48063 Mugla, Turkey
Hoteles Sunwing SA
Hotels4u.com Limited
In Destination Incoming, S.L.U.
Inspirations Limited
ITC Enterprises Limited
ITC Travel Investments S.L.
C/ Minerva 15, 07400 Alcudia, Spain
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
GENERAL RIERA 154, 07010, Palma de Mallorca, Illes Balears, Spain
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Calle General Riera 154, 07010, Palma de Mallorca, Illes Balears, Spain
Jeropatur-Viagens e Turismo Limitada
Rotunda da Cruz de Portugal, Edificio Colina, 8300-999 Silves-Portugal, Portugal
Jet Eldo Maroc
Jet Eldo Tunisie
Jet Marques S.A.
JFS GmbH2 & 3
JMCH Services Limited
Kelly Holdings Limited
Kestrel Leisure Limited
Immeuble Salam n° 21 Les Amicales, AGADIR, Morocco
Hotel Salammbô, 8050 Hammamet, Tunisia
92-98 Boulevard Victor Hugo, Clichy Cedex, France
Elly-Beinhorn-Ring 4, 12529 Schönefeld, Berlin, Germany
Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom
3 Bell Lane, Gibraltar
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Kuyi International Travel Agency (Shanghai) Co., Ltd
Room 1010, 10th Floor, No. 6 Jilong Road, (Shanghai) Pilot Free Trade Zo, China
LLC Intourist
LLC NTC Intourist
LLG Nord GmbH & Co. Delta OHG
Maretours NV
129366, Russian Federation, Moscow, Mira Avenue, 150
119334, Russian Federation, Moscow, 5th Donskoy proezd, 15, building 5
Tölzer Strasse 15, 82031 Grünwald, Germany
Diestsesteenweg 141, 3202 Aarschot, Belgium
Proportion of
shares held by
the Company %
Class of shares
100
100
40
100
100
100
100
50
100
70
100
70
50
100
100
100
100
100
100
100
100
100
100
49.999
49.999
49.999
100
100
100
100
100
88
100
100
40
100
100
100
100
100
100
100
100
75
100
100
100
100
100
100
100
100
49
75
75
100
33.333
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary A
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
class A interests,
initial preferred class B and
preferred Class B
ordinary
ordinary
ordinary
ordinary
preference
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
partnership
partnership
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
177
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
20 SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES CONTINUED
Name
Registered office address
Proportion of
shares held by
the Company %
Movables Inversiones 2014, S.L.
MyTravel 330 Leasing Ltd
MyTravel Deutschland GmbH
MyTravel Group Limited
Mytravel IPR Ireland Limited
MyTravel Luxembourg UK Unlimited
MyTravel North America Limited
MyTravel Pioneer Limited
NALG Holdings Unlimited Company
NALG Ireland Unlimited Company
Neckermann Polska BP SP. z.o.o.
Neckermann Slovakia s.r.o.
Neckermann Urlaubswelt GmbH3
Playa del Cura s/n 35140, Mogán, Las Palmas, Spain
M&C Corporate Services Limited, Ugland House, South Church Street, PO Box 309, Grand Cayman, KY1-1104,
Cayman Islands
Thomas Cook Platz 1, 61440 Oberursel, Germany
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
First Floor, Rineanna House, Shannon Free Zone, Shannon, Co. Clare, Ireland
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
First Floor, Rineanna House, Shannon Free Zone, Shannon, Co. Clare, Ireland
First Floor, Rineanna House, Shannon Free Zone, Shannon, Co. Clare, Ireland
Aleje Jerozolimskie Nr 94, 00-807, Warszawa, Poland
Panská 23, 81101 Bratislava, Slovakia
Thomas-Cook-Platz 1, 61440, Oberursel, Germany
N-U-R Neckermann-utazás Szolgáltató Kft.
Dayka Gábor u.5., 1118 Budapest, Hungary
Öger Tours GmbH
Orlando (ABC) Limited
OY Tjaereborg AB
Park Hotel SNC
Heidenkampsweg 81, Hamburg, 20097, Germany
14 Charing Cross, St. Helier, JE2 3RP, Jersey
Urho Kekkonens gatan 3 B, FIN-00100 Helsinki, Finland
18 rue Trezel, 92300 Levallols-Perret, France
Parkway Australia Holdings Pty Limited
C/O: BDW Services Pty Ltd., Level 35, Grosvenor Place, 225 George Street, Sydney NSW NSW, 2000, Australia
Parkway Auto Realisations (Germany) Vermögensverwaltungs
GmbH
Thomas Cook Platz 1, 61440 Oberursel, Germany
Parkway Hellas Holdings Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Parkway Holdings GmbH
Parkway Holdings UK BV
Parkway IPR (Cyprus) Limited
Parkway IPR Limited
Parkway Limited
Parkway Nederland BV
Frankfurt am Main, Deutschland
Rotterdam, Netherlands
Makarios III Avenue, 195 Neocleous House, 1-5 Floor, Limassol, CY-3030, Cyprus
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
PO Box 119, Martello Court, Admiral Park, St Peter Port, Guernsey GY1 3HB
Rotterdam, Netherlands
Parkway Northern Europe Holding A/S
Kay Fiskers Plads 9, 4., 2300, Copenhagen S, Denmark
Peregrine Leisure Limited
Plotin Travel S.A.
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
24, Lagoumitzi Street, Kallithea, 17671 Athens, Greece
Resorts Mallorca Hotels International S.L.
Calle General Riera 154, 07010, Palma de Mallorca, Illes Balears, Spain
Retail Travel Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
ROSATA Grundstücks- Vermietungsgesellschaft mbH & Co.
Objekt am Hammergarten KG
Mercedesstraße 6, 40470, Düsseldorf, Germany
Sandbrook Overseas Investments Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Sandbrook UK Investments Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
SATEE GmbH
SENTIDO Hotels & Resorts GmbH3
Thomas Cook Platz 1, 61440 Oberursel, Germany
Thomas Cook Platz 1, 61440 Oberursel, Germany
Servicios de Administracion y Operacion de Hoteles S.A de C.V. Boulevard Kukulan, KM 3.5, Cancun, Quintana Roo, Mexico, 77500
Shipping and Aviation Industries Limited
Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom
Societe Touristique et Hoteliere du Senegal SOTHOU_SE S.A.
SSRT-Club Aldiana, South Australia, Senegal
Spies A/S
Sumango (Proprietary) Limited
Sun International (UK) Limited
Sunwing Hellas AB
Sunwing Hotels (Cyprus) Limited
Sunwing Hotels Hellas SA
TC Delta GmbH
Kay Fiskers Plads 9, 2300, Copenhagen S, Denmark
Blandford House, 27 Caledon Street, Somerset West, 7130
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Ralambsvagen 17, SE 105-20, Stockholm, Sweden
75 Nissi Avenue, 5340 Ayia Napa, Cyprus
Box 207, 85100, Rhodes, Greece
Thomas-Cook-Platz 1, 61440 Oberursel, Germany
TC in-Destination Management Hellas Single Member PC
1 Lord Byron Street, Heraklion, Crete, 71202, Greece
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
44 Esplanade, St Helier, JE4 9WG, Jersey
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Hill House, 1 Little New Street, London, EC4A 3TR, United Kingdom
Ralambsvagen 17, SE 105-20, Stockholm, Sweden
Suite 1, Burns House, 19 Town Range, Gibraltar
c/o National Air Traffic Services (NATS), Brettenham House South 5th Floor, Lancaster Place, London,
WC2N 7EN, United Kingdom
The Freedom Travel Group Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
100
100
100
100
100
100
100
100
100
100
100
60
100
100
100
100
100
50
100
100
100
100
100
100
100
100
100
100
100
45
100
100
15
100
100
100
100
100
100
99.5
100
100
100
100
100
100
100
100
100
66.5
100
100
50.05
100
99.95
1.166
100
Class of shares
ordinary
cumulative class A, B, C, D
preference and ordinary
ordinary
redeemable, preference
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
deferred and ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary A
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
178
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
20 SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES CONTINUED
Name
Registered office address
THG Touristik GmbH
Thomas Cook (CIS) AB
Thomas-Cook-Platz 1, 61440 Oberursel, Germany
Ralambsvagen 17, S-105 20, Stockholm
Thomas Cook Air Kereskedelmi és Szolgáltató Kft.
Dayka Gábor u.5., 1118 Budapest, Hungary
Thomas Cook Aircraft Engineering (Mexico) S.A. de C.V.
Mariposa No. 394, Col. Smza 51 Cancun, Cancun, Benito Juarez, Quintana Roo, C.P 77533, Mexico
Thomas Cook Aircraft Engineering Inc.
2711 Centerville Road, Wilmington, Delaware 19805, USA
Thomas Cook Aircraft Engineering Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Airlines Balearics SL
Thomas Cook Airlines Belgium NV
Thomas Cook Airlines Limited
Thomas Cook Airlines Scandinavia A/S
Thomas Cook Airport Service GmbH
Thomas Cook Austria AG
Thomas Cook Belgium NV
Thomas Cook Brok Air Services
Thomas Cook Cabin Crews GmbH3
Calle Fray Juniper Serra, 6 Entlo, 07014 Palma de Mallorca, Illes Balaes, Spain
Bedrijvenzone Diegem-Luchthaven 45, 1831 Diegem, Belgium
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
c/o Hangar 276, Copenhagen Airport, DK-2791 Dragor, Denmark
Thomas Cook Platz 1, 61440 Oberursel, Germany
Ungargasse 59-61, 1030 Wien, Austria
Tramstraat 63-67, 9052 Gent, Belgium
92/98 Boulevard Victor Hugo, 92115 Clichy Cedex, France
Thomas-Cook-Platz 1, 61440 Oberursel, Germany
Thomas Cook Continental Holdings Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Cruise Services Limited
Thomas Cook Destination Services Inc
Thomas Cook Destinations GmbH
Thomas Cook Finance plc1
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Morgan Lewis & Bockius, 5300 First Union Financial Center, 200 South Biscayne Boulevard,
Miami, 33131-2339
Thomas Cook Platz 1, 61440 Oberursel, Germany
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Financial Services Belgium
Tramstraat 63-65, 9052 Gent, Belgium
Thomas Cook France Hotellerie Holding S.A.R.L.
92/98 Boulevard Victor Hugo, 92115 Clichy Cedex, France
Thomas Cook France S.A.S.
Thomas Cook GmbH1 & 3
Thomas Cook Group Airlines Limited1
Thomas Cook Group Hedging Limited
92/98 Boulevard Victor Hugo, 92115 Clichy Cedex, France
Thomas Cook Platz 1, 61440 Oberursel, Germany
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Group Management Services Limited1
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Group Tour Operations Limited1
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Proportion of
shares held by
the Company %
Class of shares
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
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
redeemable preference,
preference, ordinary
Thomas Cook Group Treasury Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
100 redeemable preference, ordinary
Thomas Cook Group UK Limited
Thomas Cook Holdco 2 Limited1
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook In Destination Services Limited1
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Indian IP Limited
Thomas Cook International AG
Thomas Cook Investments (2) Limited1
Thomas Cook Money Australia Pty Ltd
Thomas Cook Money Limited1
Thomas Cook Nederland BV
Thomas Cook Nordic Holdings AB
Thomas Cook Northern Europe A/S
Thomas Cook Northern Europe AB
Thomas Cook Online Limited
Thomas Cook Pension Trust Limited
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
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Poststr, 4, 8808, Pfaffkon, Switzerland
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Wheeler Accounting & Taxation Pty Ltd, Suite 246, 117 Old Pittwater Road, Brookvale NSW 2100, Australia
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Spicalaan 41, 2132 JG, Hoofddorp, Netherlands
Ralambsvagen 17, SE 105-20, Stockholm, Sweden
Kay Fiskers Plads 9, 2300, Copenhagen S, Denmark
Ralambsvagen 17, S-105 20, Stockholm
Mont Crevelt House, Bulwer Avenue, St. Sampson, Guernsey GY2 4LH
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Tramstraat 67C, 9052 Gent, Belgium
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Tramstraat 67B, 9052 Gent, Belgium
Praha, Czech Republic
92-98 Boulevard Victor Hugo, 92110 Clichy, France
Poststrasse 4, 8808, Pfaeffikon, Switzerland
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Tour Operations Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Touristik GmbH3
Thomas Cook Platz 1, 61440 Oberursel, Germany
Thomas Cook Travel Pension Trustees Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Treasury Limited
Thomas Cook UK Limited
Thomas Cook UK Travel Limited
Thomas Cook Vertriebs GmbH3
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Thomas Cook Platz 1, 61440 Oberursel, Germany
Thomas Cook West Holdings Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Limited by
Guarantee
100
100
100
100
100
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
bearer
ordinary
ordinary
ordinary
n/a
ordinary
ordinary
ordinary
ordinary
ordinary
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
179
FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
CONTINUED
20 SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES CONTINUED
Name
Registered office address
Thomas Cook West Investments Limited
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
TK Marketing Et Services
Tour Vital Touristik GmbH3
Tourmajor Limited
Travel Alliance a.s.
Travel and Financial Services Limited
Travel Technology Initiative Limited
Univers Holidays S.A.
VA Insurance Services Limited
Ving Norge A/S
Ving Sverige AB
VR Espana SA
Wavell Holdings BV
Rue du Lac de Constance – Les Berges du Lac, Tunis, 1053, Tunisie
Kaltenbornweg 6, 50679, Köln, Germany
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Americká 361/9, Vinohrady, 120 00 Praha, Czech Republic
Westpoint, Peterborough Business Park, Lynch Wood, Peterborough, PE2 6FZ, England
Victoria House, 51 Victoria Street, Bristol, Avon, BS1 6AD, United Kingdom
Boulevard du 22 Aout, Complexe Hotel Tivoli, Agadir, Morocco
Tower House, Loch Promenade, Douglas, IM1 2LZ, Isle of Man
Dronning Eufemias gate 16, 0191 Oslo, Norway
Ralambsvagen 17, S – 105 20 Stockholm, Stockholm, Sweden
Avda. De Tunte 18, San Fernando de Maspalomas, San Bartolomé de Tirajana 35, Las Palmas
Rotterdam, Netherlands
White Horse Administration Services Limited
First Floor, Rineanna House, Shannon Free Zone, Shannon, Co. Clare, Ireland
White Horse Insurance Ireland Designated Activity Company
First Floor, Rineanna House, Shannon Free Zone, Shannon, Co. Clare, Ireland
Proportion of
shares held by
the Company %
Class of shares
100
99.95
100
100
40
100
9.091
15
100
100
100
100
100
100
100
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
ordinary
1 Shares held directly by Thomas Cook Group plc.
2 All risks and rewards continue to be held by the Group and, in accordance with accounting standards, the entity has been treated as being 100% controlled and fully consolidated by the Group.
3 The company has exercised its right of exemption under section 264(3) German Handelsgesetzbuch (HGB).
180
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
SEVEN-YEAR FINANCIAL SUMMARY
Income Statement
Statutory (£m)
Revenue (£m)
Gross profit (£m)
Gross profit margin (%)
Profit/(loss) from operations (£m)
Interest (£m)
Profit/(loss) before taxation (£m)
Profit/(loss) for the financial year (£m)
Weighted average number of shares
(millions)
Basic and diluted loss per ordinary share
Underlying
Revenue (£m)
Gross profit (£m)
Gross profit margin (£m)
EBIT (£m)
Underlying EBIT (%)
Separately disclosed items (£m)
Underlying interest (£m)
Underlying profit before tax (£m)
Weighted average number of shares (millions)
Underlying EPS
Like for like
Revenue (£m)
Gross profit (£m)
Gross profit margin (%)
EBIT (£m)
Interest (£m)
Separately disclosed items (£m)
Profit before taxation (£m)
Profit for the financial year (£m)
2017
2016
2015
2014
2013
2012
2011
Restated(1)
9,007
1,993
22.1%
231
(184)
46
12
1,532
0.8
9,007
1,995
22.1%
330
3.7%
(140)
(143)
187
1,532
9.3
9,007
1,995
22.1%
330
(143)
(140)
46
12
7,810
1,820
23.3%
197
(163)
34
1
1,530
0.3
7,810
1,829
23.4%
302
3.9%
(128)
(140)
162
1,530
8.1
8,285
1,939
23.4%
306
(140)
(128)
38
3
7,834
1,772
22.6%
211
(169)
50
19
8,588
1,866
21.7%
52
(168)
(114)
(115)
9,315
2,020
21.7%
13
(177)
(163)
(213)
1,487
1.6
1,440
(8.2)
1,196
(17.1)
7,834
1,774
22.6%
310
4.0%
(120)
(141)
170
1,487
8.9
8,793
1,968
22.4%
360
(141)
(120)
100
69
8,588
1,916
22.3%
323
3.8%
(296)
(143)
182
1,440
11.3
8,819
1,951
22.1%
327
(143)
(296)
(110)
(111)
9,315
2,059
22.1%
263
2.8%
(281)
(146)
118
1,196
5.0
9,091
1,947
21.4%
208
(146)
(263)
(201)
(248)
9,195
2,031
22.1%
(170)
(168)
(337)
(441)
872
(67.2)
9,195
2,026
22.0%
177
1.9%
(393)
(146)
56
872
0.6
9,102
1,921
21.1%
172
(142)
(272)
(239)
(332)
9,809
2,098
21.4%
(267)
(135)
(398)
(518)
858
(60.7)
9,809
2,160
22.0%
304
3.1%
(573)
(123)
175
858
10.2
8,924
1,922
21.5%
262
(130)
(489)
(364)
(478)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
181
FINANCIAL STATEMENTS
SEVEN-YEAR FINANCIAL SUMMARY
CONTINUED
Statement of financial position (£m)
Total assets
Current assets
Current liabilities
Net pension deficit
Net Assets
Net debt(2)
Statement of cash flows (£m)
Operating cash flow
Investing activities
Financing activities
Exchange (losses)/gains
Net (decrease)/increase in cash
and cash equivalents
Capex
2017
2016
2015
2014
2013
2012
2011
Restated (1)
6,615
2,241
(4,325)
(325)
280
(40)
496
(199)
(175)
45
122
206
6943
2645
(4,633)
(457)
326
(129)
395
(200)
(360)
113
(165)
206
5,958
2,035
(3,702)
(279)
315
(128)
474
(180)
10
(35)
304
200
5,794
1,829
(3,894)
(448)
239
(315)
335
(78)
(278)
(52)
(21)
156
6,285
1,933
(3,688)
(404)
548
(426)
339
(182)
476
2
633
151
5,907
1,524
(3,540)
(331)
458
(792)
152
53
(74)
(19)
131
138
6,690
1,646
(3,749)
(331)
1,183
(894)
289
(178)
(82)
(3)
28
187
Average number of employees
21,788
21940
21,813
22,672
26,448
32,250
31,097
(1) See Note 33 for details of restatement.
(2) FY11 to FY15 Net Debt figures have been restated in accordance with new Net Debt measure adopted in FY16. Net debt comprises bank and other borrowings, finance lease payables, net derivative
financial instruments used to hedge exposure to interest rate risks of bank and other borrowings offset by cash and cash equivalents.
182
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
SHAREHOLDER INFORMATION
ANNUAL GENER AL MEETING (AGM)
The AGM will be held at 1st Floor, North Building, 200 Aldersgate,
London EC1A 4HD on 8 February 2018 at 10.30am. The last date
for AGM proxy votes to be received by the Registrar is 10.30am
6 February 2018.
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 Group’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 Group’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.
DIVIDEND
The Board has proposed a final dividend of 0.6 pence per share.
The ex-dividend date will be 8 March 2018 and, subject to
Shareholder approval at the 2018 Annual General Meeting, the final
dividend of 0.6 pence will be paid on 5 April 2018 to Shareholders on
the register at the close of business on 9 March 2018.
More information about our dividend policy can be found on page 73.
If you have any questions about the payment of this dividend, please
contact our Registrars Equiniti, whose contact details are set out on
this page.
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
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THOMAS COOK GROUP PLC Annual Report and Accounts 2017
183
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
CONTINUED
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.
Search the list of unauthorised firms to avoid at www.fca.org.uk/
scams.
7.
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
THOMAS COOK GROUP PLC Annual Report and Accounts 2017
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 03456 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).
CAUTIONARY STATEMENT
This Annual Report has been prepared for, and only for the
members of the Company, as a body, and no other persons.
The Company, its Directors, employees, agents or advisers do not
accept or assume responsibility to any other person to whom this
document is shown or into whose hands it may come and any such
responsibility or liability is expressly disclaimed. By their nature,
the statements concerning the risks and uncertainties facing
the Group in this Annual Report involve uncertainty since future
events and circumstances can cause results and developments
to differ materially from those anticipated. The forward-looking
statements reflect knowledge and information available at the date
of preparation of this Annual Report and the Company undertakes
no obligation to update these forward-looking statements.
Registered office
3rd Floor, South Building, 200 Aldersgate, London EC1A 4HD
Registered Number: 6091951
SHAREHOLDER CONTACTS
Shareholder Helpline: 0371 384 2154
(International telephone number: +44 (0)121 415 0182)
Website: www.thomascookgroup.com
Registrar’s website: www.shareview.co.uk
Lines are open 8.30am to 5.30pm (London time Monday to Friday
(excluding UK public holidays)).
FINANCIAL CALENDAR
Date
Event
8 February 2018
8 February 2018
17 May 2018
31 July 2018
Q1 2018 Quarterly Results
Annual General Meeting
Interim results for six months ended 31 March 2018
Q3 2018 Quarterly Results
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