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View Annual Report Thomas Cook Group plc Annual Report & Accounts 2013 Transformation The first 365 days Financial highlights Delivering improved financial results Delivering a stronger balance sheet Underlying EBIT up by £86 million year-on-year Net debt reduced from £788 million in 2012 Strategic report 1 Overview 2 At a glance 4 Chairman’s statement 8 £263m £421m Group Chief Executive Officer’s Q&A 10 Market overview 16 Delivering stronger margins Delivering more operational cash flow Business overview 17 Underlying gross margin 22.1% Cash conversion ratio at 48%, Strategic report Review of strategy 20 (up 80 basis points year-on-year) on a last 12 months basis Our people 25 Risk management 30 Performance 22.1% 48% Financial review 32 Operating review 42 Delivering more cost out and Sustainability 47 profit improvement benefits Cumulative total £194 million (FY13 target of £170 million) Directors’ report £194m 2 Board of Directors 50 Corporate governance report 52 Remuneration report 70 Other disclosures 88 Financial summary Year ended Year ended 30 September 2013 30 September 2012 £m (unless otherwise stated) Underlying Statutory Underlying Statutory Revenue 9,315 9,315 9,195 9,195 EBIT 263 13 177 (170) EBIT margin (%) 2.8% 0.1% 1.9% N/A Free cash flow 53 53 (103) (103) Earnings (loss) per share (p) 5.0p (16.7)p 0.6p (67.2)p Net debt (421) (421) (788) (788) Operational highlights Financial statements > Significant transformational progress – delivered UK underlying EBIT margin of 2.2% on a like-for- 3 Independent auditors’ report 90 like basis, on track to achieve a 5% margin on the same basis by FY15. Group income statement 93 > Incremental new product revenue grew by £94 million in FY13, including contributions from concept Group statement of other hotels, partnership hotels and city breaks, leading to an increase in our FY15 target of incremental comprehensive income 94 new product revenue to £700 million. Group cash flow statement 95 Group balance sheet 96 > Increased the percentage of holidays booked online to 36%, moving towards our target in FY15 of Group statement over 50%. of changes in equity 98 > Simplified brand labels from 85 to 30, unifying them under the Sunny Heart symbol representing Notes to the financial statements 99 for our customers personalised and trusted holidays, high tech, high touch delivery, backed by Financial statementsCompany balance sheet 148 Directors’ report market leading international scale and purchasing power. Company cash flow statement 149 Company statement > Successful implementation of an internal and disciplined operating model called “The Thomas Cook of changes in equity 150 Business System”. Under this system, with our customer at the heart of everything we do, as well as Notes to the Company how and everywhere we do it, we aim to bring further professionalism to the high tech, high touch financial statements 151 delivery of trusted, personalised products to all our customers, supported by a lean and innovative Shareholder information 158 operating system that is designed specifically to serve their needs. Throughout this document the term "underlying" refers to trading results after adjusting statutory results 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 financial statements. Free cash flow is shown on page 37 and represents Operating Cash Flow less Net Interest , Capital Expenditure and Separately Disclosed Items. Full financial statements From page 90 Thomas Cook Group plc Annual Report & Accounts 2013 1 Transformation: 1 Inspiring personal journeys The first phase of our exciting Transformation is Strategic report well underway. Every day we are transforming towards an improved, more unique business model and have already delivered some significant milestones. We’ve defined our ‘high tech, high touch’ strategy for profitable 2 growth, committing to be there for our customers wherever, whenever and however they need us, building a digital presence for the future. Directors’ report We’re developing a new and differentiated product portfolio, inspiring our customers’ personal journeys with the assurance of quality they have come to expect from the global pioneer in travel. We’re living the values of the ‘Sunny Heart’ with trust, innovation and personalisation at the heart of all we do. 3 With the Thomas Cook Business System we now have the methodology to further professionalise our business. Financial statements Financial After the first 365 days of our Transformation we have a clear strategy for profitable growth, we have momentum and we’re delivering against our targets. And this is just the start... 2 Thomas Cook Group plc Annual Report & Accounts 2013 Transformation the first 365 days Overview: Our transformational milestones Landmarks towards profitable growth The share price graph below shows some of our landmarks towards profitable growth during the year. 13 Capital Markets Day MAR (announcement of growth strategy and profit Share price chart pence improvement plans) 04 First Thomas Cook 01 Launch of Digital SEP Leadership Council MAR Advisory Board 01 Peter Fankhauser FEB Code of Conduct NOV appointed as CEO, UK 2013 launched Group-wide and Continental Europe October 12 November 12 December 12 January 13 February 13 March 13 Thomas Cook Group plc Annual Report & Accounts 2013 3 1 Strategic report 16 Half-year results & announcement 01 Launch of Sunny MAY of capital refinancing plan OCT Heart brand 180 170 160 2 150 MAY “ Destination 2013 Discovery” 140 launched 130 Directors’ report £58.7m 120 First half underlying EBIT 110 on a like-for-like basis Launch of the improved by £58.7 million 03 to £(197.5) million. SEP “Every Voice” employee 100 engagement survey 90 80 3 70 60 50 Financial statements Financial 40 30 20 10 April 13 May 13 June 13 July 13 August 13 September 13 0 4 Thomas Cook Group plc Annual Report & Accounts 2013 Transformation the first 365 days Overview: At a glance Building on our strengths We are one of the world’s leading leisure travel companies, with operations in 17 source markets. Our core business model is that of a tour operator, sourcing holiday components by creating them ourselves or procuring them from third parties, and selling them to consumers via online and offline channels. We enjoy number one or number two positions (by revenue) in each of our core markets. Business model explained We have a robust investment case On page 17 We have a compelling data-backed investment case, Our targets and Key Performance Indicators (KPIs) for our the delivery of which is specific and measurable: Transformation and profitable growth strategy FY12 FY13 FY14 FY15 It is based on three key drivers: actual actual target target 1 Profitable growth supported by new product New product revenue N/A £94m > £300m >£700m Web penetration1 34% 36% >40% >50% Targets 2 Digital growth supported by innovation Cost out/profit improvement (cumulative run-rate) £60m £194m >£340m >£440m 3 Cost out and profit improvement Sales CAGR2 N/A N/A >2.5% >3.5% Underlying gross margin improvement3 N/A 0.8% >1.2% >1.5% It is measured through specific targets as follows: KPIs Underlying UK EBIT margin 0.1% 2.2% >3.5% >5% Cash conversion4 11% 48% >55% >70% Notes: 1 Measured on a last 12 months departed basis. 2 Compound annual growth rate from FY13 to FY15 including new product revenue. 3 Underlying gross margins, adjusted for disposals and shop closures on a like-for-like basis. 4 Cash conversion defined as net cash from operating activities less interest paid as a percentage of underlying EBITDA. Full financial statements We have a strong financial plan in place From page 90 We have developed a strong financial plan for > The Group has a medium-term > The Group financial plan is reviewed profitable growth from a solid base, underpinned by: planning horizon supported by and approved by the Board on an detailed financial projections annual basis and updated regularly 1. An improved financial position following prepared and owned by to reflect changes to projections as the recent recapitalisation. each business. they arise. 2. Detailed “bottom up” plans owned > The plan for each business is > The approved plan is fully aligned rigorously reviewed by Group and with externally communicated by each of our businesses. segment management through targets and KPIs and with 3. Embedded targets and KPIs aligned a series of meetings to produce management’s objectives and with our external commitments. a robust result. remuneration schemes. Thomas Cook Group plc Annual Report & Accounts 2013 5 Our brand approach and values We delight customers with trusted, personalised holiday experiences through High Tech and High Touch. Brand approach Brand values 1 High tech, high touch Trusted Innovative Personal Strategic report 70% of travellers want a Trust, consistency and a strong We continue to enrich our 50% of travellers feel overwhelmed relationship with their holiday brand are the most important online offer with leading digital by the amount of information provider that goes beyond just drivers of customer choice innovations to improve and choice when booking 66% booking and paying for a trip. 93% conversion rates of travellers want help in choosing of travellers either search for the right product for them content online or express a preference for booking online if possible Related case study Related case study Related case study Related case study On page 40 On page 15 On page 29 On page 46 We have a new, diverse and experienced Executive Committee 2 On 7 November 2013, we announced the completion of the Executive Committee, which is another step on our journey to further professionalise the Group, break down regional silos and realign leadership responsibilities to accelerate the delivery of our strategy for sustainable profitable growth.
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