Position of Arcandor AG (“Arcandor”) as former major shareholder

Arcandor’s shareholding in the issued shares of the Company was:

• In the period to 4 August 2009 52.66%;
• Between 4 August 2009 and 10 September 2009 43.9%; and
• From 10 September 2009 nil.

Relationship Agreement

The Relationship Agreement, which was in force in the period to 10 September 2009, set out certain aspects of the Company’s governance arrangements that the Board considered to be in the best interest of the Company in view of its then ownership structure. The Relationship Agreement was automatically terminated on 10 September 2009, when Arcandor’s interest in the shares of the Company fell below 30%.

The Relationship Agreement covered the following governance arrangements:

• Arcandor had the right to appoint two Non-Executive Directors;
• For so long as Arcandor held at least 40% or more of the shares in the Company, it also had the right to appoint one of their appointed Directors as Chairman;
• At all times the Independent Non-Executive Directors had to constitute a majority of the Board, excluding the Chairman;
• The two Arcandor appointed Non-Executive Directors had the right to membership of the Audit Committee, the Management Development & Remuneration Committee and the Nominations Committee. However, the Relationship Agreement provided that those Committees should also comprise no fewer than three Independent Non-Executive Directors, one of whom would be appointed Committee Chairman;
• For so long as Arcandor held 40% or more of the shares in the Company, the Board could not appoint a new Chief Executive Officer without the prior written consent of Arcandor;
• Provided the nomination processes as set out in the Relationship Agreement were followed, Arcandor’s voting rights, in respect of the election or re-election of any non-Arcandor appointed Director at General Meetings, was restricted to two-thirds of the voting shares in issue which were not held or controlled by Arcandor;
• The Company should carry on its businesses independently from Arcandor. Any proposed transactions and relationships between the Company and Arcandor were to be on a normal commercial basis and would be subject to the prior approval of a Committee comprising the Independent Non-Executive Directors and to the provisions of Chapter 11 of the Listing Rules of the UK Financial Services Authority (Related Party Transactions). In circumstances where Chapter 11 of the Listing Rules would require a proposed transaction to be approved by shareholders, Arcandor would not vote its shares on that resolution. Although not covered in the Relationship Agreement, the Company’s financing arrangements, including the €1.8 billion credit facility referred to in the Financial Review, were ringfenced from Arcandor; and
• The Relationship Agreement would terminate in the event of Arcandor’s shareholding falling below 30%.

The Relationship Agreement was terminated on 10 September 2009 upon the placing of 43.9% of the Company’s issued shares previously held by Arcandor by the mandated lead arranging banks who exercised pledges over those shares in respect of Arcandor’s bank indebtedness.

The Board of Directors

An effective Board of Directors leads and controls the Group and has a schedule of matters reserved for its approval. This schedule and the terms of reference for the Audit, Management Development & Remuneration, Nominations, and Health, Safety & Environmental Committees are available on request and on the Company’s website at www.thomascookgroup.com. The powers of the Directors are set out in the Company’s Articles of Association. These are also available on the Company’s website.

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At its meetings during the year, the Board discharged its responsibilities as listed above. In particular, the Board reviewed:

• the strategies and policies being pursued to mitigate the risks to the Company’s businesses brought upon by volatile fuel prices, the weakness of sterling against the US dollar and the euro, the economic downturn and the effect of swine flu;
• the Group’s taxation strategy and policies, including the management of related risk;
• the risks and uncertainties in respect of the possible insolvency of the Company’s then 52.66% shareholder, Arcandor, and the impact on the Company’s share price due to the market’s anticipation of an ‘overhang’ in the Company’s shares;
• the Group’s ongoing investment in new IT infrastructure;
• future financing requirements, both general and in respect of aircraft refinancing;
• succession plans in respect of the Executive Directors and members of the Group Executive Board;
• initial plans, following the termination of the Relationship Agreement, to strengthen the Board by the addition of new Non-Executive Directors;
• the Group’s governance framework and arrangements, including the Group Delegation of Authority Document, matters reserved for the Board, terms of reference of its primary committees and associated policies and procedures required of a UK listed company;
• developing legal and governance proposals and requirements; and
• the Directors’ conflicts of interest register.

One of the Board’s meetings during the year was specifically devoted to the development and approval of the Group’s strategy. This Board meeting was attended by the members of the Group Executive Board, each of whom presented the proposed strategy of their respective Segment. Strategy is continually monitored and reviewed by the Board and periodic updates of strategy and market conditions are presented to the Board by the Segment Chief Executive Officers.

Board meetings and attendance

The Board has regular scheduled meetings throughout the year and supplementary meetings are held as and when necessary. The Board held ten scheduled and 12 unscheduled supplementary meetings during the year. A table detailing individual Director attendance at scheduled Board and Committee meetings during the year is set out below. Non attendance at meetings was due to illness and prior business commitments. Directors who were unable to attend specific Board or Committee meetings reviewed the relevant briefing papers and provided their comments to the Chairman of the Board or Committee, as appropriate. The Chairman and each Non-Executive Director have provided assurance to the Board that they remain fully committed to their respective roles and can dedicate sufficient time to meet what is expected of them.

The table below shows the number of scheduled Board and Committee meetings attended by each Director out of the number convened during the time served by each Director on the Board or relevant Committee during the year.

Current Directors who served during the year:

Name	Board	Nominations Committee	Audit Committee	Management Development & Remuneration Committee	Health, Safety & Environmental Committee
Michael Beckett (Non-Executive Chairman)	9/10	7/7	4/7	8/8	4/5
Manny Fontenla-Novoa	10/10	–	–	–	5/5
David Allvey	10/10	–	7/7	–	5/5
Roger Burnell	10/10	7/7	6/7	8/8	5/5
Bo Lerenius	9/10	–	6/7	–	–
Nigel Northridge	10/10	7/7	–	8/8	–

Former Directors who served during the year:

Name	Board	Nominations Committee	Audit Committee	Management Development & Remuneration Committee	Health, Safety & Environmental Committee
Peter Diesch 1	1/2	1/2	3/3	2/4	–
Thomas Middelhoff 2	2/3	2/3	3/4	3/5	–
Karl-Gerhard Eick 3	5/7	1/4	1/4	2/3	–
Hemjö Klein 4	8/10	–	–	6/8	4/5
Jürgen Büser 5	3/10	–	–	–	–

Notes in respect of former Directors

1. 1 Peter Diesch resigned on 22 December 2008.
2. 2 Thomas Middelhoff resigned on 17 March 2009.
3. 3 Karl-Gerhard Eick was appointed on 22 December 2008 and resigned on 10 September 2009.
4. 4 Hemjö Klein resigned on 18 September 2009.
5. 5 Jürgen Büser resigned on 29 November 2009.

Special note in respect of the Acting Group Chief Financial Officer

During the period in which Ludger Heuberg was acting Group Chief Financial Officer, he attended all seven scheduled Board and all three scheduled Audit Committee meetings.

Further details are given under the heading of Board composition opposite.

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Board composition

As at 30 September 2009 the Board comprised the Chairman, two Executive Directors and four Independent Non-Executive Directors. View biographical details of those Directors.

The Chairman

Michael Beckett was appointed Non-Executive Chairman of the Company upon the termination of the Relationship Agreement on 10 September 2009, prior to which he was Deputy Chairman and Senior Independent Director. Karl-Gerhard Eick was Chairman in the period 17 March 2009 to 10 September 2009. Thomas Middelhoff was Chairman in the period to 17 March 2009. Both Thomas Middelhoff and Karl-Gerhard Eick were nominated by Arcandor under the provisions of the Relationship Agreement and, as neither was independent on appointment as Chairman, the Company was not compliant with provision A.2.2 of the Code. Michael Beckett was independent upon his appointment as Chairman of the Company.

The roles of the Chairman and Chief Executive Officer are separate and distinct and each has a written statement of his respective responsibilities, a summary of which can be found on the Company’s corporate website at www.thomascookgroup.com.

The Board

Changes to the Board during the year were as follows:

Peter Diesch resigned from the Board on 22 December 2008 and was replaced as an Arcandor nominated Non-Executive Director by Karl-Gerhard Eick with effect from the same date. Karl-Gerhard Eick resigned from the Board on 10 September 2009. Thomas Middelhoff resigned from the Board on 17 March 2009. Hemjö Klein resigned from the Board as an Independent Non-Executive Director due to personal reasons on 18 September 2009.

Changes to the Board since the year end were as follows:

Sam Weihagen was appointed to the Board as Deputy to the Group Chief Executive Officer on 6 November 2009. He is also Chief Executive Officer, Northern Europe and a member of the Group Executive Board. Jürgen Büser stepped down from the Board and the position of Group Chief Financial Officer on 29 November 2009 following a period of ill health. The Nominations Committee led and directed a process to find a new Group Chief Financial Officer aided by external search consultants. The Chairman of the Audit Committee was involved in the search and selection criteria and the interview process. Following this process, Paul Hollingworth was appointed as Group Chief Financial Officer with effect from 1 January 2010. Since March 2009 when Jürgen Büser took absence for health reasons, Ludger Heuberg has carried out the role as Acting Group Chief Financial Officer. Ludger Heuberg (Group Chief Financial Officer of the Company from June 2007 until June 2008 and a current member of the Group Executive Board) is not a Director of the Company.

In order to strengthen the Board following the termination of the Relationship Agreement, a formal, rigorous and transparent process was put in place to appoint two additional Independent Non-Executive Directors. The first of these, Peter Middleton, was appointed as a Non-Executive Director with effect from 30 November 2009.

The search, selection and appointment process in respect of both the new Group Chief Financial Officer and new Independent Non-Executive Directors is fully described in the Nominations committee section in the Corporate governance report.

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Director independence and the Senior Independent Director

At its September 2009 Board meeting, as part of its annual audit of corporate governance against the Code, the Board considered the independence of the Non-Executive Directors against the criteria specified in the Code and determined that David Allvey, Roger Burnell, Bo Lerenius and Nigel Northridge remained independent. Hemjö Klein, who left office prior to the September Board Meeting met the independence criteria in the Code. However, the Arcandor-nominated Directors who left office during the year; Thomas Middelhoff, Peter Diesch and Karl-Gerhard Eick were not considered as independent.

Until 10 September 2009, Michael Beckett was the Deputy Chairman and Senior Independent Director and, as such, was available to shareholders if they had concerns which had not, or could not, be resolved through discussion with the Chairman or the Executive Directors. In that capacity, he chaired meetings of the Independent Non-Executive Directors, who met periodically throughout the year. A new Senior Independent Director was not appointed when Michael Beckett relinquished that role upon his appointment as Chairman on 10 September 2009 as the Board has agreed that it would be preferable to defer such appointment until the Board is at full strength upon the appointment of additional Non-Executive Directors (referred to above). Until such appointment is made, the Company will be non-compliant with provision A.3.3 of the Code.

Re-appointment of Directors

In accordance with the Code and the Company’s Articles of Association, all Directors are subject to election by shareholders at the first Annual General Meeting (“AGM”) following their appointment to the Board and thereafter are subject to re-election every third year. Non-Executive Directors are initially appointed for a three-year term and, subject to rigorous review by the Nominations Committee and re-election by shareholders, can serve up to a maximum of three such terms.

Upon the recommendation of the Nominations Committee, Manny Fontenla-Novoa and Roger Burnell will be proposed for re-election and Sam Weihagen, Paul Hollingworth and Peter Middleton, having been appointed to the Board since the last AGM, will each retire and offer himself for appointment by shareholders at the 2010 AGM.

Operation of the Board

Before each Board meeting, Directors received a comprehensive pack of papers and reports on the matters to be discussed at the meeting. Senior executives below Board level also attended relevant parts of Board meetings in order to make presentations on their areas of responsibility. This gave the Board access to a broader group of executives and helped the Directors make assessments of the Group’s succession plans.

Between Board meetings, Directors were provided with relevant information on matters affecting the businesses.

The Group Company Secretary, who was appointed by the Board, is responsible for advising and supporting the Chairman and the Board on company law and 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 Secretary and, through him, 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, the Group Executive Board, the Finance & Administration Committee, the Disclosure Committee, the Audit Committee, the Nominations Committee and the Management Development & Remuneration Committee. The Deputy Group Secretary acts as secretary to the Health, Safety & Environmental Committee.

The Code provides that the Chairman and Non-Executive Directors should meet without executives present. Such meetings have taken place, but because of the governance structure under the Relationship Agreement that existed for most of the year, the Board believed that the spirit of the Code was best served by meetings of the Independent Non-Executive Directors chaired by the then Deputy Chairman and Senior Independent Director. In the future, such meetings will be chaired by the Company Chairman in accordance with the Code.

In accordance with its Articles, the Company has granted a deed of indemnity, to the extent permitted by law, to each Director and the Group Company Secretary. The Company also maintains Directors’ and Officers’ liability insurance.

Board evaluation

A thorough evaluation of the Board and its Committees was conducted during the year. This was facilitated by the Group Company Secretary under the direction of the then Deputy Chairman and Senior Independent Director. The process involved each of the Directors completing a comprehensive questionnaire, which was structured to encourage both graded responses and narrative feedback in respect of a range of questions that focused on the following areas:

• Board and Committee composition, knowledge and dynamics;
• Time management;
• Support;
• Strategic development and oversight;
• Delegation of authority;
• Risk management;
• Corporate responsibility;
• Human resource management;
• Executive remuneration;
• Mergers & acquisition transactions;
• Performance of Executive and Non-Executive Directors;
• Committee structure and performance; and
• Priorities for change.

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Upon receipt of the completed forms, the Group Company Secretary compiled a report, drawing out the key themes and issues that were raised and formulated a number of recommendations to further enhance the overall effectiveness of the Board and its Committees. This report was developed and agreed with the then Deputy Chairman and Senior Independent Director and circulated to the Board for debate at the September 2009 Board meeting. The results of the evaluation concluded that the operation of the Board and its Committees had improved during the year but highlighted a small number of areas where further improvement could be made as part of the natural evolution of a Board that was formed two years previously upon the merger of Thomas Cook AG and MyTravel Group plc. Areas for further improvement included: a requirement for more regular reviews of executive and senior management succession plans; the need for additional Non-Executive Directors to strengthen the Board to ensure a pool of candidates for succession to the positions of the Chairman and, more immediately, the Senior Independent Director; an increase in the frequency and time allocated to the review of strategy and risk; increased exposure to members of the Group Executive Board and other senior managers; and the fine tuning of certain regular Board reports. The Board debated the above and agreed the recommended actions and a forward agenda of additional key issues for review. The Board and Committee evaluation to be carried out in the current financial year will cover the same areas as listed above and will be designed to track progress against the agreed actions set in 2009.

The Independent Non-Executive Directors did not conduct a performance review of the Chairman, Karl-Gerhard Eick, due to the short period of time that he had been in office. The Independent Non-Executive Directors and the Executive Directors did evaluate the performance of the Deputy Chairman and Senior Independent Director as part of the Board evaluation process shortly before appointing him as Chairman of the Company. As part of the Company’s performance management system that applies to management at all levels across the Group, the performance of the Group Chief Executive Officer and the Group Chief Financial Officer is reviewed by the Management Development & Remuneration Committee.

Board training and induction

An induction programme tailored to meet the needs of individual Directors is provided for each new Director. Overall, the aim of the induction programme is to introduce new Directors to the Group’s business, its operations and its governance arrangements. Such inductions typically include meetings with senior management, including a structured meeting with the Group Company Secretary, visits to the Company’s Business Segments, and the receipt of presentations on key business areas and relevant documentation.

Directors also receive training throughout the year. At Board meetings and, where appropriate, Committee meetings, the Directors receive regular updates and presentations on changes and developments to the business, and to the legislative and regulatory environments. During the year, the Board was provided with: updates on the economic environment in each of the Segments, including customer perceptions and booking habits; a briefing on how the Company complies with health and safety legislation applicable to customers and employees in both source and destination markets; and briefing papers on the final implementation of the Companies Act 2006, the implementation of the EU Shareholder Rights Directive, the Financial Reporting Council’s review of the Combined Code on Corporate Governance, the potential impact on the governance arrangements for all companies following Sir David Walker’s review of governance in respect of banking institutions, and potential changes to executive remuneration governance as a result of the above and the European Commission’s Recommendations in respect of executive remuneration.

Directors’ conflicts of interest

From 1 October 2008, a Director has had a statutory duty to avoid a situation in which he has, or can have, an interest that conflicts or possibly may conflict with the interests of the Company. A Director will not be in breach of that duty if the relevant matter has been authorised in accordance with the Articles of Association by the other Directors.

At its meeting in September 2008, the Board approved a set of guiding principles on managing conflicts; considered the process that had been adopted for identifying current conflicts; authorised the conflicts that had been identified and stipulated conditions in accordance with the guiding principles; and agreed a process to identify and authorise future conflicts. It was also agreed that the Nominations Committee would review the authorised conflicts every six months, or more frequently if the potential conflict situation materialises. The Nominations Committee and Board applied the above principles and process throughout the year to 30 September 2009. The Board was mindful of the potential conflict situation during the year in respect of the financial difficulties of Arcandor, the Company’s major shareholder until 10 September. This resulted in Peter Diesch, Thomas Middelhoff and Karl-Gerhard Eick, each being Arcandor-nominated Directors, absenting themselves from deliberations of the Board at certain times.

The Group governance structure

The Board has delegated authority to its Committees on specific aspects of management and control of the Group. The papers in respect of the Audit, Nominations, Health Safety & Environmental, and Disclosure Committees are circulated to all the Directors, regardless of Committee membership, and the papers in respect of the Management Development & Remuneration Committee are circulated to the Non-Executive Directors. Matters discussed and agreed at those Committees and at the Group Executive Board are reported to the next Board meeting.

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Group Executive Board

The Group Chief Executive Officer chairs the Group Executive Board which meets at least ten times a year to oversee the strategic development and operational management of the Group’s businesses. The Group Chief Financial Officer and the Chief Executive Officer, Northern Europe & Deputy to the Group Chief Executive Officer are also members of the Group Executive Board. Read more about other current members of the Group Executive Board, together with their biographies.

Finance & Administration Committee

To facilitate swift and efficient operational management decisions, the Board has established the Finance & Administration Committee (comprising any two Directors, one of whom must be an Executive Director) which has delegated authority, within clearly identified parameters, in relation to day-to-day financing and administrative matters.

Disclosure Committee

The Board has established a Disclosure Committee, which is responsible for implementing and monitoring systems and controls in respect of the management and disclosure of inside information in accordance with the Company’s obligations under the UK Listing Authority’s Disclosure and Transparency Rules. The Committee comprises the Group Chief Executive Officer, who is the Chairman, the Group Chief Financial Officer, the Group Investor Relations Director, the Group Director of PR & Communications and the Group Company Secretary.

Audit Committee

Role of the Committee

The Board has delegated to the Committee responsibility for overseeing the financial reporting and internal risk management control functions and for making recommendations to the Board in relation to the appointment of the Company’s internal and external auditors.

In accordance with its terms of reference, the Committee, which reports its findings to the Board, is authorised to:

• monitor the integrity of the annual and half-year results and interim management statements, including a review of the significant financial reporting judgements contained in them;
• review the Company’s internal financial controls, internal control and risk management systems;
• monitor and review the effectiveness of the Company’s internal audit function;
• establish and oversee the Company’s relationship with the external auditors, including the monitoring of their independence; and
• monitor matters raised pursuant to the Company’s whistleblowing arrangements.

The full terms of reference of the Committee are available on www.thomascookgroup.com or from the Group Company Secretary at the registered office.

Composition of the Committee

All members of the Committee are Non-Executive Directors. Consistent with the Relationship Agreement, the Arcandor-nominated Directors who held office for periods of the year and who did not therefore meet the test of independence, were members of the Committee. However, the other four members of the Committee at that time were independent. During the year, the Arcandor-appointed Directors, Peter Diesch, Thomas Middelhoff and Karl-Gerhard Eick, resigned from the Board, and therefore ceased to be members of the Committee on 22 December 2008, 17 March 2009 and 10 September 2009 respectively. Michael Beckett resigned from the Committee on 24 September 2009 following his appointment as Chairman of the Company. As of that date, the Committee comprised the following members, all of whom were Independent Non-Executive Directors:

David Allvey (Chairman)
Roger Burnell
Bo Lerenius

David Allvey is considered by the Board to have recent and relevant financial experience as required by the Code.

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Meetings and attendance

The Committee, which meets as often as required, met seven times during the year, which included meetings held by teleconference, to review and approve matters such as the provision of financial information to Arcandor pursuant to the Relationship Agreement. Attendance by Committee members at each meeting is given in the attendance table.

Meetings of the Committee are normally also attended by the Chairman of the Company, the Group Chief Executive Officer, the Group Chief Financial Officer, the Group Company Secretary and the internal and external auditors.

During the year, the Committee met with the external auditors, PricewaterhouseCoopers LLP (“PwC”), and separately with Ernst & Young LLP (“E&Y”), the internal auditors of the Company.

Principal activities during the year

At its meetings during the year, the Committee discharged its responsibilities as listed above and in particular, it reviewed:

• the Group’s ongoing investment in new IT infrastructure;
• the Group’s business continuity plans and the work plan and timetable for further development;
• the Group’s main risks and mitigating actions;
• the Group’s taxation strategy and policies, including the management of related risk;
• a plan for dealing with the deficit in the UK defined benefit pension scheme;
• the Group’s system of internal control, receiving reports from management, the external auditors and the internal auditors;
• proposals for engaging the external auditors to carry out non-audit related work (see below); and
• the Committee’s terms of reference and related policies.

Support to the Committee

The Committee received information and support from management during the year to enable it to carry out its duties and responsibilities effectively.

External auditors

There is a policy in place which requires all material non-audit work proposed to be carried out by the external auditors to be pre-authorised by the Committee in order to ensure that the provision of nonaudit services does not impair the external auditors’ independence or objectivity. The policy, which is appended as a schedule to the Audit Committee’s terms of reference, is published on the Company’s website at www.thomascookgroup.com.

An analysis of the fees earned by the Group’s auditors for audit and non-audit services is disclosed in Note 9 to the Financial Statements.

PwC were re-appointed by shareholders at the AGM held on 19 March 2009. Upon the recommendation of the Audit Committee, PwC will be proposed for re-election by shareholders at the AGM to be held on 25 March 2010. PwC have confirmed their independence as auditors of the Company in a letter addressed to the Directors.

Nominations Committee

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 the Board 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 for such appointments. The Committee is also responsible for reviewing at least every six months, or more frequently if required, the Directors’ potential conflicts and for making recommendations to the Board in respect of authorising such matters.

The full terms of reference of the Committee are available on www.thomascookgroup.com or from the Group Company Secretary at the registered office.

Composition of the Committee

All of the members of the Committee are Non-Executive Directors. During the year, Peter Diesch, Thomas Middelhoff and Karl-Gerhard Eick, all Arcandor-nominated Directors, resigned from the Board, and therefore ceased to be members of the Committee on 22 December 2008, 17 March 2009 and 10 September 2009 respectively. Hemjö Klein resigned from the Board as an Independent Non-Executive Director, and therefore ceased to be a member of the Committee, on 18 September 2009. On 24 September 2009, David Allvey and Bo Lerenius were appointed to the Committee. At 30 September 2009, the Committee comprised the following members, all of whom, except the Committee Chairman, were Independent Non-Executive Directors:

Michael Beckett (Chairman)
David Allvey
Roger Burnell
Bo Lerenius
Nigel Northridge

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Board appointments

Appointments to the Board are made on merit and against objective criteria. This process is led by the Nominations Committee which, after evaluating the balance of skills, knowledge and experience of each Director, makes recommendations to the Board.

Meetings and attendance

During the year, the Committee, which meets as often as required, had seven formal meetings. Attendance by Committee members at each meeting is given in the attendance table. Meetings of the Committee are normally also attended by the Group Chief Executive Officer and the Group Company Secretary.

Principal activities during the year

At its meetings during the year, the Committee discharged its responsibilities as listed above and in particular:

• considered Directors’ potential conflicts;
• considered the re-appointment of the Directors subject to retirement by rotation, before making a recommendation to the Board regarding their re-election;
• agreed and monitored the process in respect of the search and selection of a new Group Chief Financial Officer; and
• commenced the process to recruit additional Non-Executive Directors in order to strengthen the Board and to ensure there is a pool of candidates amongst current and new Directors for succession to the positions of the Chairman and, more immediately, the Senior Independent Director.

In respect of the appointment of a new Group Chief Financial Officer, the Committee agreed that the search and selection firm, Spencer Stuart, should be used and that the Chairman of the Audit Committee should be involved with the engagement of such firm and the interview of the short-listed candidates.

In respect of the process to appoint two new Non-Executive Directors to the Board, the Committee formulated a set of criteria, including the required skills and attributes for suitable candidates. This took account of the comments from the Board evaluation process and considered the current composition of the Board and the skills and attributes required in the future. The Committee considered candidates brought to their attention from a wide range of professional firms and other sources.

Management Development & Remuneration Committee

A report detailing the composition, responsibilities and work carried out by the Management Development & Remuneration Committee during the year, including an explanation of how it applies the principles of the Code in respect of Executive Directors’ remuneration, is included within the Remuneration Report.

On 24 September 2009, the terms of reference of the Committee were changed in line with the Code to include responsibility for determining the remuneration of the Chairman. Prior to that date the Chairman’s remuneration was the responsibility of the Committee of Independent Non-Executive Directors. That arrangement, which was technically in breach of the Code, was considered to be more appropriate and balanced in view of the Chairman’s nomination by Arcandor and his membership of the Committee. A further explanation of this is set out in the Remuneration Report.

Composition of the Committee

All current members of the Committee are Non-Executive Directors. Consistent with the Relationship Agreement, the Arcandor-nominated Directors who held office for periods of the year and who therefore did not meet the test of independence, were members of the Committee. However, the other four members who held office during the year, being a majority of the Committee, were independent. During the year, the Arcandor-nominated Directors, Peter Diesch, Thomas Middelhoff and Karl-Gerhard Eick, resigned from the Board, and therefore ceased to be members of the Committee on 22 December 2008, 17 March 2009 and 10 September 2009 respectively. On 24 September 2009 the Board, on the recommendation of the Nominations Committee, agreed to appoint Nigel Northridge as Chairman of the Committee in place of Michael Beckett who, as Chairman of the Company, had decided to resign from the Committee. Bo Lerenius was appointed to the Committee on the same day.

Meetings of the Committee are normally also attended by the Chairman of the Company, the Group Chief Executive Officer, (other than in respect of matters specifically related to their own remuneration), the Group HR Director and the Group Company Secretary.

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Health, Safety & Environmental Committee

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 on www.thomascookgroup.com or from the Group Company Secretary at the registered office.

Composition of the Committee

During the year Hemjö Klein and, following his appointment as Chairman of the Company, Michael Beckett resigned as members of the Committee on 18 September and 24 September 2009 respectively. As at 30 September 2009, the Committee comprised the following members, all of whom, except Manny Fontenla-Novoa, were Independent Non-Executive Directors:

Roger Burnell (Chairman)
David Allvey
Manny Fontenla-Novoa

Meetings and attendance

During the year, the Committee met five times. Attendance by Committee members at each meeting is set out in the attendance table. Meetings of the Committee are normally also attended by the Chairman of the Company, a number of executives and senior managers with responsibility for health, safety and environmental matters, the Group Company Secretary and the Deputy Group Company Secretary.

During the year, the Committee reviewed and agreed the Group’s sustainability report; approved a new group-wide strategy for health and safety; reviewed the legal framework for health and safety and how the Group is organised to ensure it meets its obligations in relation to health and safety; approved a new corporate responsibility strategy and reviewed the process of health and safety reporting across the Group.

The Group’s sustainability report for 2008/2009 is available on www.thomascookgroup.com and contains the Group’s health, safety and environmental policies, an explanation of how Thomas Cook manages corporate responsibility and progress against targets.

A summary of the online report is contained in the Sustainability section.

Shareholder communication

The Board promotes open communication with shareholders. This is formalised within a framework of an investor relations programme conducted by the Group Chief Executive Officer and the Group Chief Financial Officer and the Investor Relations team. The programme includes the presentation of preliminary and half-year results, which can be accessed on the Thomas Cook website along with financial reports, interim management statements and trading updates. The management team conducts regular meetings with institutional investors, and welcomes the dialogue that this enables with shareholders. The Company makes every effort to ascertain investor perceptions of the Company and regular reports of investor and analyst feedback are provided to the Board. Additionally, the Board responds to ad hoc requests for information and all shareholders are entitled to attend the AGM, where they have an opportunity to ask questions of the Board.

The Chairman, who was until 10 September 2009 the Deputy Chairman and Senior Independent Director, met a number of major institutional shareholders during the year to discuss the Group’s remuneration policy and governance arrangements, and to gain a first-hand understanding of any issues or concerns they may have had. With 100% of the shares in the Company now freely floating on the London Stock Exchange, the Company is responding to an increased level of investor interest.

At its 2008 AGM, the Company passed a resolution allowing the website and email to be used 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, reduced environmental impact and cost. Shareholders may still opt to receive their communications in a paper format. The Company’s website contains information for shareholders, including share price and news releases, and can be found at www.thomascookgroup.com.

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Risk management and internal control

The Board recognises its ultimate accountability for maintaining an effective system of internal control that is appropriate in relation to both the scope and the nature of the Group’s activities and complies with the Turnbull Committee Guidance on the Combined Code and has approved the framework and the standards implemented. The Board has delegated responsibility for the implementation of the Group risk management policy to the Group Chief Financial Officer. The Group Chief Financial Officer has formed the Group Risk Management Committee comprising senior executives from across the Group, to support him in fulfilling this responsibility.

The Group Risk Management Committee is responsible for:

• supervising a thorough and regular evaluation of the nature and extent of the risks to which the Company is exposed;
• reviewing the corporate risk profile and recommending risk management strategies; and
• supervising and assessing the overall effectiveness of the risk management process.

To support the Group Risk Management Committee, there are segment risk management committees, each comprising the respective segment Chief Executive Officer, Chief Financial Officer and other senior managers. The Group has established five segment risk committees which report into and support the work of the Group Risk Management Committee:

• UK & Ireland;
• Continental Europe;
• Northern Europe;
• North America; and
• Airlines Germany.

By implementing the risk management policy, the segments are responsible for:

• maintaining and updating risk reporting;
• managing risk action implementation and measurement systems; and
• maintaining and reviewing risk performance and measurement systems.

Risk registers are compiled and submitted by each segment for review quarterly. The Group Risk Management Committee prepares a half yearly risk report for the attention of the Audit Committee based on the feedback from the segment risk management committees.

The report identifies the principal risks to the business and assesses the adequacy of controls and procedures in place to mitigate the likelihood and the impact of these risks. The regular risk reporting regime has created an environment for the development and improvement of risk management procedures across the Group. The Audit Committee reviews the reports of the Group Risk Management Committee and makes recommendations to improve risk management and internal control. This process of risk identification, measurement and reporting provides a comprehensive ongoing assessment of the significant risks facing the Group and the mitigating actions taken in respect of those risks. This process ensures that the Group complies with relevant corporate governance best practice in relation to risk management, including the guidance issued under the Turnbull Report. The Group’s internal audit function reports directly to the Chairman of the Audit Committee. Internal audit makes recommendations to that Committee in relation to the maintenance of a sound control environment throughout the Group.

A schedule of the Group’s principal risks and uncertainties, likely impacts on the Group and mitigating actions being taken by management is set out in the Principal risks & uncertainties section.

The Group encourages employees to report any concerns which they feel need to be brought to the attention of management and has adopted a whistleblowing policy and theft and fraud reporting policy. These are published on the Group’s intranet sites, allowing such matters to be raised in confidence through the appropriate channels. The Group has a code of ethics which deals with:

• prohibitions on employees using their position for personal gain;
• prohibitions on improper business practices;
• a requirement for compliance with all internal approval and authorisation procedures and legal requirements; and
• a requirement to disclose potential conflicts of interest and potential related party contracts.

This code of ethics is contained within the Group’s internal policies guide, which is available to all employees and, in particular, those with responsibility for procurement or other dealings with third-party suppliers. In addition, the Group Company Secretary is available for advice on any matter which may give rise to cause for concern in relation to the code of ethics.

During the year, the Board, through the work of the Audit Committee, has conducted a review of the Group’s system of internal control. There is an ongoing process for the identification and evaluation of risk management and internal control processes which has been in place throughout the year and remains in place up to the date of the financial statements. The work conducted by management and described in the Principal risks & uncertainties section is complemented, supported and challenged by the controls assurance work carried out independently by the external auditors, PwC, and the internal auditors, E&Y. Regular reports on control issues are presented to the Audit Committee by PwC and E&Y. The Board, in reviewing the effectiveness of the system of internal control, can confirm that necessary actions have been, or are being, taken to remedy any significant failings or weaknesses identified from that review.

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Going concern

After making appropriate enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Statement of Directors’ responsibilities in respect of the Annual Report, the Directors’ Remuneration 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.

In preparing those financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent; and
• state 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 proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group, and for ensuring 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. They are also responsible for safeguarding the assets of the Company and the Group and hence 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, and legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

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 he is aware, there is no relevant audit information of which the Company’s auditors are unaware; and that he has taken all steps that he ought to have taken as a Director to make him aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Responsibility statement of the Directors in respect of the annual financial statements

Each of the Directors, who were in office at the date of this report, whose names and responsibilities are listed on the Board of directors section 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 Directors' Report contained in the Overview, Business Review and Governance sections 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.

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