We have delivered a strong performance in 2009 achieving full year results ahead of market expectations. This comes despite the worldwide recession and the financial impact of the
swine flu outbreak.

Key financial achievements in 2009

• Revenue up 6% to £9.3bn*
• Adjusted EBIT up 13% to £414.9m**
• Adjusted EBIT margin up 7% to 4.5%***
• Adjusted basic EPS up 10% to 26.4p
• Recommended final dividend of 7.0p per share, brings
  the total to 10.75p

See Appendix 2 for key.

Our strong performance reflects the quality of our product and the experience of our management team in adapting to changes in demand. It also demonstrates the resilience of the package holiday and the strength of our asset-light business model, which gives us high levels of operational and cost flexibility to support our profitability.

Profit from operations grew 13%, demonstrating the resilience of the package holiday and the power of our brands. The adjusted EBIT margin rose from 4.2% to 4.5%, driven by our focus on medium haul and higher margin product, careful capacity and cost management and a strong contribution from our acquisitions.

Looking ahead, the late booking trend is still evident but our winter 2009/10 trading position continues to improve and trend towards our planned capacity. Although it is still early in the cycle, bookings for summer 2010 are also in line with our expectations. Recent customer research shows that UK consumers remain intent on taking their holidays abroad next summer and we continue to see strong growth in bookings to medium haul destinations such as Turkey and Egypt.

We remain committed to achieving significant growth and have embarked on a programme of strategic initiatives that will deliver revenue, profit and margin expansion over the medium term. These include centralising accommodation purchasing in order to leverage the scale of our Group buying power in mainstream travel; building on our financial services heritage in key markets; targeted acquisitions in emerging markets; and taking advantage of consolidation opportunities as they arise. In addition, we are restructuring our independent business and targeting significant long term growth in the European online travel agency (OTA) market.

A final dividend of 7.0p when added to the interim dividend of 3.75p gives a total dividend for the year of 10.75p per share. The Board remains confident that the Group will perform in line with its expectations for the current year.

Overview of financial results

Group revenue for the 12 months to 30 September 2009 grew 6% to £9,268.8m (2008: £8,754.2m). Excluding the impact of currency translation, Group revenue was down 1%, reflecting reduced capacity in all our major markets, as we actively managed the business through the global recession, offset by the year on year increase as a result of acquisitions in this year and last.

We delivered a 13% increase in adjusted Group EBIT to £414.9m (2008: £365.9m). The Group operating profit margin rose 7% to 4.5%, from 4.2% last year. This strong result reflected our ability to adapt to changing demand by reducing capacity, improvements in our product and destination mix, increased average selling prices, acquisitions, merger synergies and cost initiatives.

Adjusted profit before tax was flat year on year at £308.2m (2008: £309.3m). Financing costs increased as a result of higher net debt throughout the year and our decision to draw down all available funds to protect ourselves against counterparty risk in the early stages of the banking crisis. Net debt increased as a result of the funding of the share buyback programme and acquisitions in 2008 and 2009, and the higher working capital requirements in 2009 resulting from the capacity cuts and the later booking trend we have experienced. Adjusted basic EPS increased 10% to 26.4p (2008: 24.1p).

Operating cash flow broadly followed the usual seasonal phasing. However, as a result of the increased cash requirements arising primarily from the impact of the later booking profile and the capacity reductions on working capital, operating cash flow before exceptional items¹ was £420m (2008: £471m) and free cash flow before exceptional items² was £103m (2008: £208m).

The Group and segmental performance is reported in detail in the Operational Review and in the Financial Review.

1. 1Operating cash flow before exceptional items is defined as cash generated by operations before tax, interest received, additional pension contributions and exceptional items.
2. 2Free cash flow before exceptional items is defined as operating cash flow before exceptional items (as defined above) less net capital expenditure (tangible and intangible), net interest paid, additional pension contributions made and tax paid.

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Financial position

Net debt at 30 September 2009 was £675m (30 September 2008: £292m). The increase year on year reflects the completion of the share buyback programme and payments for acquisitions, as well as the cash outflows on working capital noted above and expenditure on integration and restructuring initiatives.

Our financial position remains robust. Our bank facility of €1.8bn does not expire until May 2011, although we plan to refinance this by summer 2010.

Dividend

The Board is recommending a final dividend of 7.0p per share, which, when combined with the interim dividend of 3.75p per share gives a total dividend for the year of 10.75p. This represents a payout of 41.0% (2008: 40.5%) of adjusted diluted EPS. This is in line with our policy, which remains to increase dividends progressively, paying between 40% and 50% of adjusted earnings.

Operational flexibility, cost base and hedging

The flexibility within our asset-light business model has given us the ability to adapt to market conditions during this past challenging period and we have strengthened our foundations through cost rationalisation to underpin our future performance even if demanding conditions persist.

In addition, the mainstream travel market has been strengthened by capacity rationalisation throughout the industry. Capacity reductions in the UK market, for example, amount to approximately 30% over the last two years through our actions and those of other market participants.

The reliance of our partner hotels on the strength and breadth of our distribution gives us significant buying power to manage accommodation costs, which represent more than 30% of revenue.

The ability to adjust our cost base for potential changes in demand is also important, particularly in the current market conditions. At the beginning of the summer season, less than 10% of our group-wide hotel capacity is committed, giving us considerable scope to make further capacity adjustments as required as the season progresses. We also have flexibility in flying right up until the beginning of the season. Tight control of all costs is a fundamental part of the Thomas Cook business approach and we have, and will continue to, cut operating costs throughout the Group to ensure we operate as efficiently and as flexibly as possible.

Fuel costs represent approximately 9% of revenue and currency has also been a significant element of our costs during a volatile year. Hedging will continue to be an important tool for managing these costs and ensuring pricing certainty. We use a mixture of swaps, collars and options to ensure flexibility.

Foreign exchange is hedged 6 to 15 months in advance of the expected expenditure. We have hedged 89% of our dollar and euro requirements for winter 2009/10 and 85% of our dollar and 87% of our euro requirements for summer 2010.

Our fuel hedging recognises the varying requirements of different markets and we plan to hedge between 80% and 90% of our fuel requirements between 6 and 18 months ahead of consumption. In line with our policy as at 30 September 2009, we have hedged 99% of our fuel requirements for winter 2009/10 and 70% for summer 2010.

Strategy

We continue to deliver against our strategy, which is focused on strengthening our core mainstream business and investing for growth in independent travel, financial services and emerging markets. We have made significant progress in each of these areas again this year, which is set out in more detail in our strategy.

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Merger synergies

The integration of our operations since the merger between Thomas Cook and MyTravel Group in June 2007 has been highly successful.

Synergies have amounted to more than initially identified, with the target raised to £215m from £155m at the end of the last financial year. By accelerating synergy delivery, we have realised total savings of £205m in 2009 (2008: £142m), of which £63m were additional synergies achieved during the period. We expect to deliver a final tranche during the current year, achieving the previously stated cumulative synergies of £215m.

Management team

I am extremely proud of this year’s strong performance, which is the result of the hard work of our management team.

On 6 November 2009, Sam Weihagen, Chief Executive Officer, Northern Europe, took on the additional role of Deputy to the Group Chief Executive Officer and joined the Board as an Executive Director. In taking this role, he brings a vast tour operating experience to benefit the Group more directly.

I am also delighted that Paul Hollingworth will be joining the Company as Group Chief Financial Officer on 1 January 2010. Paul brings a wealth of financial experience, having been Chief Financial Officer of a number of UK listed companies.

On 29 November 2009, Jürgen Büser stepped down as Group Chief Financial Officer and as an Executive Director, following a period of ill health. We are delighted to confirm, however, that Jürgen has recovered well and is returning to the business to take up the role of Group Strategy Director. Ludger Heuberg, who has been Acting Group Chief Financial Officer since March 2009, will continue in this role until 31 December 2009, after which time he will return to his operational role.

The following changes were made at the Group Executive Board level on 6 November 2009: Pete Constanti, previously Chief Executive Officer, Mainstream Travel – UK and Ireland, was appointed to the new Group role of Chief Executive Officer, Group Destination Management and Ian Derbyshire, previously Chief Executive Officer, Independent Travel – UK and Ireland, was appointed Chief Executive Officer, UK and Ireland.

From left to right:
Back row: Jürgen Büser, Pete Constanti, Thomas Döring, Michael Friisdahl, Ludger Heuberg, Ralf Teckentrup and Paul Wood.

Front row: Alexis Coles-Barrasso, Ian Derbyshire, Peter Fankhauser, Manny Fontenla-Novoa, Sam Weihagen and Derek Woodward.

Read more information about the Group Executive Board

Employees

Against a very challenging backdrop our Group has delivered a strong performance, none of which could have been achieved without the energy, motivation and commitment of our people. At Thomas Cook we truly believe that our people are our true differentiator and this year they have proved what a strong, talented and united team they have become.

I would like to take this opportunity to thank them for their efforts and unwavering support in a year which will not only go down in our 168-year history as one of the toughest on record, but one in which we achieved a strong financial performance and made significant strategic progress.

Outlook

While the late booking trend is still evident, our winter 2009/10 trading position continues to improve and trend towards our planned capacity. It is still early in the summer booking cycle, however, we are confident we can manage trading in line with demand.

A range of initiatives within our power underpins our confidence for the current financial year. Our business model allows us to flex capacity and product mix well into the summer 2010 booking cycle. In addition, capacity rationalisation throughout the industry supports pricing discipline. We have further scope to manage input costs and are negotiating with suppliers to ensure costs, and accommodation costs in particular, are reduced. We also have tight cost discipline throughout the business and are hedging fuel and currency against extreme volatility. As ever, we have contingency plans to cut overhead costs further should tougher market conditions prevail.

The combination of our management team’s long industry experience, a consolidated marketplace, our own initiatives and our current trading supports our confidence that we can meet the Board’s expectations for the current financial year.

Looking further ahead, we are confident that we can grow revenue, profit and margin in the medium term. This will be achieved through significant growth in our independent and e-commerce businesses; expansion of our financial services heritage in key markets; targeted acquisitions, including expansion into emerging markets and taking advantage of consolidation opportunities as they arise; and continued cost efficiencies and improvements in mainstream distribution.

Manny Fontenla-Novoa
Group Chief Executive Officer
29 November 2009

Key priorities for 2010

• Deliver financial results in line with the Board’s expectations
• Continue to strengthen our mainstream business, particularly leveraging the Group’s buying power
• Continue to build on our brand strength including Financial Services
• Grow our share in independent travel, building on the strength we already have
• Weigh up opportunities for expansion through M&A, capitalising on those that deliver value

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