TIDMTCG
RNS Number : 8816Z
Thomas Cook Group PLC
13 March 2013
13(th) March 2013
Thomas Cook Group plc
NEW GROWTH STRATEGY AND UPDATED PROFIT IMPROVEMENT PLANS
The Thomas Cook Group plc today announces its new profitable
growth strategy, focused on simplification, web innovation,
flexible new products and services, enabled by rigorous execution
and an integrated IT platform. Building on its trusted brand and
171 year heritage Thomas Cook will deliver personalised holiday
experiences through a high-tech, high-touch approach.
Financial Highlights
-- Business Transformation gaining momentum. A further GBP50m of
cost-out actions identified bringing the total profit improvement
actions so far to GBP350m with more to come.
-- Significant progress achieved in embedding improved working
capital management practices contributing to cGBP150m improvement
in average working capital.
-- UK Turnaround on track; thorough UK restructuring underway to
re-shape the organisation to meet customer need with a target to
deliver UK EBIT margin in excess of 5% by FY15.
-- Northern and Central Europe continue to build on their industry leading positions.
-- Executing on one Group-wide Airline Segment, improving costs,
quality, reliability and customer experience to build a stronger
business.
-- Transformed approach to hotel purchasing to utilise Group
scale, already delivering tangible benefits.
-- Non-core disposal programme underway with the opportunity to
realise gross proceeds of GBP100- GBP150m.
Strategic Highlights
-- A Strategy of simplification, focused on delivering trusted,
personalised holiday experiences delivered through a high-tech,
high-touch approach.
-- New strategy has been based upon extensive research and
analysis including a comprehensive, in-depth survey measuring the
attitudes and changing needs of almost 18,000 travellers, validated
against the experiences of many of Thomas Cook's own customers.
-- Clear metrics developed to measure and report on progress,
with the following measures established:
FY15 Targets
o New product revenue > GBP500m
o Increase Group web penetration to > 50%
o Cost Out/profit improvement of GBP350m
FY15 KPI's
o Sales increasing at CAGR > 3.5%
o Underlying Gross margin improvement >1.5%
o UK EBIT margin >5%
o Cash Conversion of >60%
-- The strategy will deliver on-going product and service
innovation through four major initiatives:
o Expand our successful, proven international hotel concepts
across our markets
o Creating a new portfolio of flexible, trusted, products and
services
o Creating a single, consistent, omni-channel gateway for
customers to access personal recommendations from our extensive
range of products and services
o All underpinned by the powerful Thomas Cook brand and an
integrated IT platform
Outlook
Following the positive trends outlined in the Q1 IMS trading
continues to be robust and summer trading is progressing well with
improved margins. The outlook for the full year continues to be
encouraging, underpinned by the on-going delivery of the Group's
Transformation actions.-
Harriet Green, Group CEO Thomas Cook Group plc said:
"Our Business Transformation plans are ahead of schedule and
already delivering substantially improved performance, which
resulted in our recent return to the FTSE 250. We have exceeded our
initial commitments and today announced a further GBP50m of cost
out actions, bringing the total profit improvement actions
identified already to GBP350m, GBP290m of which is still to come
Stabilising the business has been our priority through addressing
our cost and cash challenges, and strengthening the leadership team
to create a more effective, aligned organisation focused on
rigorous execution.
We are excited to now reveal our new strategy based on four
cornerstone principles; delighting customers with trusted,
personalised holiday experiences through a high tech, high touch
approach. Based on comprehensive consumer research we aspire to
occupy a unique position in the market through our new strategy,
deliver industry leading margins and customer loyalty, whilst
maintaining consistent quality that can be trusted. We will expand
our already successful hotel concepts; and build a new portfolio of
flexible, trusted products and services; creating a single gateway
for customers to access personalised recommendations, specifically
tailored to meet their needs.
The operational credibility of this strategy rests on the
success of our self -help measures to date, our trusted brand and
the clear targets and KPI's against which we are ready to be
judged. We have real options now, with the prospect of delivering
improved revenues, strengthened gross margin, better cash flow and
disposal opportunities, to build a strong and exciting future for
the Thomas Cook Group, worthy of our customers and our
heritage"
***
The Group is holding a Capital Market's Morning today, March
13(th) , during which this information will be discussed with
investors and analysts. A video of the presentations will be posted
on the newly launched Group website later.
www.thomascookgroup.com
Enquiries:
Andrew Lorenz, FTI Consulting +44(0)7775 641807
+44(0)207 269 7291
Jenny Peters, Thomas Cook Group +44 (0)7568 105144
Chief Executive's Statement
Thomas Cook is fundamentally a sound business with revenues of
GBP9.5 billion in the financial year ending September 2012 and,
with a strong market position in each of our source markets: we
already feature as number one or two in our core markets of the UK,
Continental Europe, and Northern Europe. Our business model has
consistently delivered strong gross margins in excess of 20%,
demonstrating the trust and the value that the 23 million customers
who travelled with us in 2012, place upon our products.
The Business Transformation of the last six months has delivered
results substantially ahead of expectations through a clear focus
on the priorities, simplification of approach, and the acceleration
of the initiatives already underway. The Transformation actions of
the last 6 months have been focused on addressing costs and cash,
building an effective organisation and creating a strategy for the
future. As the Group looks to a brighter future we are now
announcing the adoption of a new profitable growth strategy.
Addressing Costs and Cash
After a period of turbulence, the immediate priority last summer
for the new executive leadership was to address the Group's cost
and cash challenges and create a foundation from which we could
launch a new and differentiated strategy capable of delivering
sustainable, profitable growth.
The business has been stabilised as a result of decisive
self-help action and the execution of rigorous Transformation
Initiatives by the new management team.
In 2011, we announced our UK Turnaround plan which identified
GBP140m of EBIT improvements. In February 2012 we announced GBP60m
of improvements to be delivered by the end of September 2012. We
are today announcing that we are on track to deliver the remaining
GBP80m by the end of FY15. In November 2012 a further GBP100m of
cost savings and profit improvements were identified at Group level
and in the Q1 IMS in February 2013 this target was increased to
GBP160m.
Today we are announcing a further GBP50m of identified cost
savings and profit improvements bringing the total cost out and
profit improvement plans to GBP350m of which GBP60m was delivered
in FY12. We aim to deliver the remaining GBP290m by the end of
FY15.
The UK is being radically restructured to deliver savings and
better decision making, following the appointment of Peter
Fankhauser as UK & Ireland CEO on 1st November 2012, in
addition to his responsibilities for Continental Europe. Peter has
leveraged the experience of the earlier transformation of the
German business and has rapidly restructured the UK business. The
focus has been on actions to unlock our core brand strength in the
UK, by simplifying the organisation structure at all levels,
streamlining processes and decision making. Business locations are
being consolidated to reduce real estate costs and to support
operational excellence and earlier this month the UK business
announced it was commencing consultation with employees with the
expected reduction of 2,500 jobs. Even with the proposed reduction
of 195 stores we will remain the principal travel brand on the High
Street with 874 stores remaining, and approximately 13,000
full-time UK employees poised to deliver a quality, high touch
experience.
The Group-wide approach to hotel purchasing has been innovative,
allowing us for the first time to pool requirements and leverage
scale while simultaneously offering those scale benefits to our
hotel partners. All of the decisions will be data driven and
enabled by a comprehensive data cube of the Group's purchasing and
product data so that issues identified are either fixed, or the
under-performing and unprofitable hotels are eliminated from the
offering - even if they are popular with customers.
This new approach to hotel purchasing covers our group-wide
relationship with our strategic hotel partners. The benefit is that
we can roll out concepts faster, and optimise operations for both
ourselves and our hotels partners. It also offers us the full
advantage of the Group purchasing scale. 24% of our agent contract
spend is currently being renegotiated with a view to achieving
improved terms on quality and reliability of service along with
improved value for money.
These improvements in hotel purchasing - along with the
decisions we have taken in restructuring our UK, web and airlines
businesses - have supported our achievements in cost out so far and
have built a strong foundation for our business.
Following the restructuring of our web business and the
introduction of the Ecommerce Centre of Excellence and the Digital
Advisory Board each segment now has responsibility for the
integration of all of the channels through which a customer may
interact with our business. This has substantially strengthened the
omni-channel approach across the Group, eliminating inter-channel
competition while preserving Group-wide excellence in online
technology, marketing, customer experience, and content
development.
The decision we have taken to create a Group-wide airline
segment will deliver improved customer' service and operational
savings. This also brings significant scale advantages, making the
combined Thomas Cook airline the 11(th) largest airline in Europe.
It also delivers increased flexibility from crew and fleet swapping
and, improved operational excellence. We are also taking steps to
optimise procurement of third party capacity and reviewing the
balance between our in-house and third party capacity. We are in
parallel discussing ventures, deals, and programmes around the
asset-light model to drive symbiotic strategies with other major
carriers.
The foundations for the Group's profitable growth strategy are
now laid.
Building an effective organisation
Another focus area for our senior team has been the breaking
down of the silos that existed within the Group to enable the
sharing of best practice. This change has enabled the Business
Transformation progress to happen quickly whilst delivering greater
synergies and efficiencies. New and objective performance based
measurement criteria have been applied across the board as part of
a new, relentless focus on performance as the Group looks to create
a new culture - that is more agile, responsive and decisive. New
values, ways of working and a comprehensive Code of Conduct have
been introduced and the leadership team has been strengthened
through a mix of internal promotions and external appointments,
with approximately one third of the original management team
remaining. Embedding a strong focus on enterprise risk assessment
and working effectively together to reshape the organisation will
be instrumental in creating the right culture for the future.
Creating a Profitable Growth Strategy
Thomas Cook's new strategy is to drive profitable growth by
delighting customers with trusted, personal holiday experiences
delivered through a high-tech, high-touch approach.
To do this we have identified four strategic initiatives based
on facts generated from a thorough review of the industry and
Thomas Cook's performance within it, including one of the most
comprehensive surveys of travellers ever conducted, with in-depth
analysis of the attitudes of almost 18,000 people across all our
key source markets. Some important conclusions from the review that
have shaped our thinking in conjunction with independent insight
from the travel needs of its own customers are:
-- The core Sun and Beach opportunity continues to grow.
-- The market for package holidays is growing particularly in Germany and Sweden
-- Some other holiday types that are growing significantly, such
as city breaks, are currently only a small part of the Thomas Cook
portfolio, and this must change.
The customer survey has led us to conclude that trust,
personalisation, high-tech and high-touch are the success factors
in travel and consistency and strong brand are the drivers of
consumer choice. 93% of travellers either search online or prefer
to book online, 70% of travellers want a connected relationship
with their supplier that goes beyond just booking and paying for
the holiday, whilst 66% of travellers want help and trusted advice
to make the right selection and 50% of travellers admitted to
feeling overwhelmed by choice and wanted help to navigate the vast
amount of information.
In response the Group's new strategy involves four major
pillars:
-- Expand and leverage Thomas Cook's proven successful,
exclusive, and international hotel concepts. The Group already has
successful concepts in Northern Europe and Continental Europe, such
as Sunwing, Sentido and the newly internationally-launched
Smartline, and these will be expanded. These hotels, which on
average earn twice the margin of our other hotels already have a
reputation for delighting customers and this powerful customer
concept will be at the heart of the Group's competitive advantage.
We believe this can be delivered in a cash neutral way over five
years by seeking to cover the investment cost from the benefits of
closing underperforming hotels and leveraging group scale to secure
better rates. We have well developed plans in place to grow the
number of passengers in our concept hotels four-fold in the next
five years. The precise number of passengers and hotels will evolve
as we progress in implementation and we will prioritise some
concepts over others as we go based on success.
-- Product and Service Innovation: This is the creation of a new
portfolio of flexible, trusted products and services based on
feedback and trends demonstrated through the survey. Today Thomas
Cook is announcing the first five innovations in this area with
more innovation to come. These are: an increased emphasis on winter
sun, a portfolio of dynamic packaged city break holidays, budget
quality hotels with great design for the smart traveller, expanding
room and flight only booking capability whilst providing an
assurance of quality and a deeper engagement with our customers
through a suite of 'high tech services' through community
engagement which complements the holiday product portfolio leading
to higher conversion rates, improved share of wallet and improved
likelihood of repeat purchase.
-- Single customer gateway: this will enable a consistent,
personalised customer experience with access to a full range of
products, services and personal recommendations across all channels
allowing deeper, more insightful customer relationships which go
beyond the booking transaction. A key priority of the Group is to
become the leading on-line tour operator with a digital platform
that will host a full portfolio of digital products and services.
We will reduce our online brands and websites to just three
customer facing in the UK and one in Germany, implement
functionality enhancements and extend our product offering,
increase our investment in offline advertising and search
optimisation and invest in customer engagement tools. We aspire to
have the highest share of bookings online for a major tour operator
to deliver targets per segment by FY15 as follows: UK over 55%;
Central Europe over 12% and over 30% by 2016/17; West/East over 40%
and Northern Europe and the Airlines by over 75% each.
-- Execution supported by brand and technology: The Thomas Cook
brand, and other leading brands within the Group, engender trust
and a commitment to quality. Being named once again the leading
sector brand in the Superbrands 2013 survey demonstrates the brand
strength and proud 171 year old history, 60% of those surveyed said
it was a brand they grew up with and trust in the brand was 9%
higher than the market average. Drawing together the IT
capabilities across the Group into a consistent platform that will
enable the extension of the Group'sdynamic packaging capability to
customers in all markets, assist with yield management across the
portfolio and create a seamless, unified, multi-channel customer
interaction experience across mobile, web, and in store will add
considerable value. We are building the capability to support
personalised customer interaction through micro segmentation,
social media integration, and powerful recommendation analytics.
The IT investment plan is based on using verified, proven
capabilities and systems that already exist within the Group and
rolling them out to other parts of the Group. The annual investment
required for this IT programme over three years is approximately
GBP60m (compared to the investment made between FY10 - FY12, of
approximately GBP55m p.a.) with significant benefits as it
underpins the delivery of other key parts of the strategy.
Timeframe
Implementation of this strategy will be carefully phased over
the next five years to balance the desire for rapid improvements
where possible against the necessary lead times for major
infrastructure projects (for example in relation to concept hotels)
and the Group's investment requirements. Over the next two years
Thomas Cook expects to expand on our concept hotels, and introduce
the first wave of new products, including the scale-up of dynamic
packaging capabilities. Web penetration is expected to climb as the
single gateway and ancillary propositions develop. Thereafter, the
concept expansion will continue, the quality- assured inventory
will grow and the single gateway will reach maturity.
Clear targets and KPI's established
We have set clear performance targets and KPI, as shared in the
Strategic Highlights to measure the impact of the new strategy over
the medium term. There are clear targets for each pillar of the
strategy and we will use these to transparently monitor our
progress.
Capital Structure
Having now established our profitable growth strategy, we will
review our capital structure, taking into account the opportunity
we have to improve cash generation of the group through our profit
improvement programme, further working capital improvements and
possible non-core asset disposals. When that review is complete we
will decide on what action we should take, if any, including
whether to raise new debt and/or equity capital and the amount and
structure of any such capital raising.
Outlook
Following the positive trends outlined in the Q1 IMS trading
continues to be robust and summer trading is progressing well with
improved margins. The outlook for the full year continues to be
encouraging, underpinned by the on-going delivery of the Group's
Transformation actions.
Appendix
The information in this Appendix will be included in the
presentation to be given at the Capital Markets Morning on 13 March
2013.
Details of cost out savings and profit improvement programme
FY12 FY13 FY14 FY15
GBPm GBPm GBPm GBPm
UK Turnaround 60 120 140 140
Group-wide cost out - 25 155 210
- integrated air travel strategy - 6 55 65
- Organisational structure - 7 45 55
- Product, infrastructure,
technology and other - 12 55 90
Total targeted benefits 60 145 295 350
Expected costs to achieve
- Income statement 36 76 12 2
- Cash flow 30 61 62 10
Reduced duplication and efficiency improvements across
airlines
Targeted benefits,
FY15
GBPm
* Reducing from 4 to 1 organisations
* Consolidating to one IT system
* One maintenance system per aircraft type
Maintenance * Aligning all supplier contracts 16
* Align and increase productivity in crew across
airlines
* Optimise crew costs through new agreements
Overhead
and crew * Centralisation of overhead functions 14
* Codeshare between Condor and UK
Increased
revenues * Increased ancillary revenues 23
Other * Savings from aircraft costs, fuel, ground handling 12
Total 65m
Expected cost to achieve 7m
---------------------------------------------------------------------------- -------------------
Improving organisational Structure and footprint
Optimisation principles Examples of our initiatives
1 Reducing layers of
management between
CEO and customer and
increasing spans of
control
2 Optimising organisation
around our business
needs, not past acquisitions
3 * Streamlining our back office functions in West
through integration within
* Moving the Group offices to lower cost premises
* Reducing number of UK back office locations from 18
* Consulting on further reducing our UK store network
by 195 stores to 874 stores
* Delivering omni-channel customer experience
Adjust our distribution
to align with where
our customers want
to me us
FY15 benefit target = GBP55m
Expected cost to achieve = GBP41m
--------------------------------------------------------------------------------------------------------------------
Streamlining our product, infrastructure and technology
Targeted benefits,
FY15
GBPm
---------------- -------------------------------------------------------------- -------------------
* Leveraging group scale to renegotiate hotel contracts
* Renegotiating agent contracts to improve terms on
quality and reliability of services while improving
Product value for money 44
---------------- -------------------------------------------------------------- -------------------
* Consolidated media buys for UK, now initiating CE
* Joint print tender to reduce brochure costs
Marketing * Improved brochure distribution 18
---------------- -------------------------------------------------------------- -------------------
* Consolidating application landscape across UK and CE
* Rationalising our websites across the Group
* Combining IT teams across 3 regions and 3 independent
IT brands into one global IT organisation 17
---------------- -------------------------------------------------------------- -------------------
Overhead costs * Travel, offices and other overheads 11
---------------- -------------------------------------------------------------- -------------------
Total 90
Expected cost to achieve 27
-------------------------------------------------------------------------------- -------------------
Information on the TC Group Airline
Number of aircraft 86
Number of employees 6,500
FY 2012 revenue (including GBP2.8bn
seat only and third party)
FY 2012 spend on air capacity GBP3.1bn
* Schedule 22%
* Charter 23%
* In-house 55%
Targets and KPIs
FY12 FY15
---------- -----------------------------------------------
Targets New Product Revenue - > GBP500m
---------- -----------------------------------------------
Web Penetration 34% > 50%
---------- -----------------------------------------------
Cost out / Profit Improvement GBP60m > GBP350m
---------- ----------------------------------------------- -------- ------------
KPIs Sales CAGR(1) - > 3.5%
---------- -----------------------------------------------
Underlying Gross Margin Improvement(2) - > 1.5%
---------- -----------------------------------------------
UK EBIT Margin Nil > 5%
---------- -----------------------------------------------
Cash Conversion(3) 11% > 60%
---------- -----------------------------------------------
(1.) CAGR from FY13 to FY15 including new product revenue
(2.) Underlying gross margins, adjusted for disposal and store closures
(3.) Free cash flow post exceptionals and before capital expenditure/EBITDA
-----------------------------------------------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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