Full Year Results: Thomas Cook delivers further strong profit growth

12 months ended 30 September 2014 compared with 12 months ended 30 September 2013:

Underlying EBIT on a like-for-like basis was £323 million, an increase of £98 million, or 44% (FY13 LFL: £225 million)
All businesses delivered improved profitability. In particular, underlying UK EBIT margin improved by 130 basis points to 3.5% (FY13: 2.2%), achieving our FY14 target
New Product revenue grew by £186 million in FY14, bringing cumulative growth since FY12 to £280 million and contributing towards our FY15 target of £700 million. Customer demand for Concept Hotels has been encouraging with Summer 14 bookings up 43% year-on-year
Web penetration increased to 38% (FY13: 36%). In particular, web performance improved on main websites in the UK, Germany and Northern Europe where our focused digital investment has led to double-digit increases in bookings. We developed and implemented our omnichannel strategy in the UK, with other markets to follow
Further Wave 1 cost out and profit improvements of £206 million delivered in FY14 brought cumulative benefits to £400 million. Reflecting the continuing success of the programme, we are increasing our Wave 1 FY15 target from £460 million to more than £500 million
Our Wave 2 FY18 target currently remains at £400 million. We are increasing our identified risk-weighted benefits by £30 million to £180 million, reflecting greater certainty of delivery
We have de-risked our business by reducing low profit and high risk operations, through business disposals, strategic reductions in risk capacity in France and Russia, and the removal from sale of low quality product
Net debt reduced by £95 million to £326 million (FY13: £421 million), alongside significant investment in the business in the form of capital expenditure and transformation costs

Key Financial Points

Revenue of £8,588 million was £727 million lower than last year, mainly as a result of business disposals (£207 million), foreign exchange translation (£300 million), reduction of strategic risk capacity and removal of low quality product (£189 million), and continuing lower demand for Egypt (£177 million), offset by an increase in revenue from new products of £186 million. This has resulted in an improved quality of business, reflecting our focus on higher margin products as part of our strategy for sustainable profitable growth
Gross margin improved by 20 basis points to 22.3% (FY13: 22.1%), despite competitive pressures, due to the benefits from the Wave 1 of our profit improvement programme and improved gross margins in our UK business in the second half of the year. On a like-for-like basis, gross margin improved by 60 basis points, resulting in a cumulative improvement of 150 basis points since FY12, an achievement of our FY15 target one year early
Overhead costs reduced by £107 million (6.3%) on a like-for-like basis, reflecting strong progress in delivering Wave 1 of our cost out and profit improvement programme
Underlying EBIT improved by £60 million to £323 million (FY13: £263 million). After adjusting for disposals (£15 million) and foreign exchange translation (£23 million), underlying EBIT was £98 million (44%) higher than last year, mainly due to improved profitability in our UK and Continental European businesses
Northern Europe maintained its strong EBIT position, while all other parts of the business recorded increased profits, with the UK and Continental Europe seeing particularly significant like for like improvements of £38 million and £35 million respectively. Condor also performed positively despite difficult market conditions
Separately disclosed items impacting EBIT totalled £269 million (FY13: £250 million). This was mainly due to restructuring costs of £124 million (FY13: £127 million) incurred as part of the transformation, pre-disposal impairments (£41 million) and provision for potential customer claims for flight delays under European directive EU261 (£41 million)
EBIT after separately disclosed items for FY14 was £54 million, an improvement of £41 million compared to last year (FY13: £14 million). After deducting net interest and tax charges, the loss for the year amounted to £115 million, an improvement of £98 million (FY13: loss of £213 million)
Free cashflow of £116 million (FY13: £53 million) was generated in FY14. Improved underlying EBIT and disposal proceeds were partially reinvested in the business through higher capital expenditure and exceptional costs related to the transformation. The remainder was used to reduce net debt by £95 million to £326 million (FY13: £421 million)
Outlook

In the two years since the start of the transformation, we have delivered like-for-like EBIT growth of £102 million (82%) in FY13 and £98 million (43%) in FY14. Reflecting the tougher trading environment our outlook for growth in FY15, while still positive, is more measured. Accordingly, we now expect to deliver further growth this year at a more moderate pace. From a cash perspective, we expect to further improve our net debt position, to between £100 million and £150 million by the end of the financial year.

Our work to transform Thomas Cook continues. We are just two years into our major change programmes and, whilst the transformation has already delivered substantial benefits to the business and its stakeholders, there is more to do. We are confident that our robust product strategy, our focus on digital and our continuing profit improvement initiatives will enable us to deliver further significant value this year and beyond.

Forthcoming announcement dates

The Group intends to publish its first quarter 2015 interim management statement on 11 February 2015, and to release its half year results on 20 May 2015.