Pro forma (unaudited) financial results

Income statement highlights

Revenue and profit from operations
The Group pro forma revenue for the period was £8,809.8m, an increase of 11.8% on the prior year period. However, excluding the impact of translation and acquisitions, Group revenue was flat year on year, with an underlying decrease in UK revenue of 3% being offset by an increase in Northern Europe of 9%.

The pro forma profit from operations increased by 49.8%, to £365.9m. Fuel costs increased significantly year on year. However, this was more than offset by improvements in underlying performance and increased and accelerated synergy realisation from the merger of Thomas Cook and MyTravel, together with a contribution from acquisitions in the period and a net benefit from changes in exchange rates.

Exceptional operating items
Pro forma exceptional operating items amounted to £205.3m (2007: £171.2m) and largely relate to the costs of the merger integration process, the integration costs for other acquisitions made in the year and other business restructuring activities.

A summary of the segmental pro forma revenue and profit from operations is shown below. Further information on the movements in revenue and profit from operations are given in the Operational Review. Further information on the exceptional operating items is provided in the statutory financial results.

Net finance costs
Net finance costs (excluding exceptional finance costs) in the period were £58.2m (2007: £7.9m). The increase year on year reflects lower interest rates on deposits and lower cash balances, due in part to expenditure on acquisitions and integration costs; increased costs stemming from the new three year revolving credit facility; and the normalised phasing effect of marking to market the forward points on our foreign currency hedging, which should reverse next year when the underlying transactions take place.

Exceptional finance costs in the period amounted to £26.8m. This includes £13.9m of revaluation losses on trading securities and £12.9m relating to the exceptional element of the phasing effect of marking to market the forward points on our foreign currency hedging, which arose in September as a result of the global banking crisis.

Earnings per share and dividends
The pro forma adjusted earnings per share for the period was 24.1 pence compared with 17.1 pence in the pro forma prior year period. Pro forma adjusted earnings per share has been calculated using the pro forma profit for the period, before exceptional items and amortisation of business combination intangibles, divided by the weighted average number of shares in issue. For the prior year period, the number of shares in issue at the end of the period was taken due to the distortion caused by the merger. Adjustments have been made to reflect a normalised pre-exceptional tax charge.

The Board is recommending a final dividend of 6.5 pence per share, for payment after, and subject to shareholder approval at, the Annual General Meeting expected to be held on 19 March 2009. This, together with the interim dividend of 3.25 pence paid on 5 September 2008, brings the total dividend in respect of the period to 9.75 pence. Based on the adjusted earnings per share figure noted above, this equates to a 41% payout ratio for the full year.

Pro forma (unaudited) segmental performance review

	12 months ended 30 September 2008 £m	12 months ended 30 September 2007 £m	Change %
External revenue*
UK	3,097.3	3,131.8	−1.1
Continental Europe	3,620.4	3,049.0	+18.7
Northern Europe	971.6	806.6	+20.5
North America	439.8	379.1	+16.0
Airlines Germany	680.7	511.7	+33.0
Corporate	–	0.3
Group	8,809.8	7,878.5	+11.8
Profit from operations **
UK	143.4	73.6	+94.8
Continental Europe	106.3	67.5	+57.5
Northern Europe	86.2	73.5	+17.3
North America	6.0	4.9	+22.4
Airlines Germany	45.4	46.2	−1.7
Corporate	(21.4)	(21.5)	+0.5
Group	365.9	244.2	+49.8

See Appendix 2 for key.

The costs of running the Corporate headquarters have remained broadly in line with the prior year, with synergy benefits being offset by year on year net losses on translation due to adverse movements in exchange rates. The review of performance for all the other segments is included in the Operational Review.

Cash flow and net debt

The net cash inflow from operating activities during the pro forma period was £220.2m (2007: £215.3m). This includes the profit from operations during the period, partly offset by the cash outflow on integration costs, tax paid, and a small net outflowon working capital of £38.3m.

The net cash outflow from investing activities was £361.4m (2007: £122.2m). The outflow in the current period includes £296.4m spent on acquisitions of businesses and £159.5m expenditure on tangible and intangible fixed assets. These were partly offset by the realisation into cash of £75.9m of our trading securities.

The net cash inflow from financing activities was £28.1m (2007: outflow of £103.5m). The inflow in the period largely comprises the net draw down of borrowings under the credit facility of £503.6m, offset by the cash outflow in respect of the share buyback programme of £247.8m; £78.2m paid out in dividends (prior year final dividend and current year interim dividend); finance lease payments of £91.8m; and interest payments of £58.1m.

Cash and cash equivalents on the balance sheet at 30 September 2008 were £761.3m (2007: £856.0m). This excludes cash held in short-term securities of £129.2m (2007: £197.3m). However, the balance does include restricted cash of £127.1m (2007: £104.3m) which is held: in escrow accounts predominantly in the US and Canada, in respect of local regulatory requirements; by White Horse Insurance Ireland Limited, the Group’s insurance company; and in other securities. In addition, it should be noted that the Group’s working capital cycle is such that cash balances are at their lowest in the winter months and at their peak in the summer months.

Net debt at 30 September 2008 was £292.5m (2007: net funds of £393.6m). The movement year on year largely reflects the cash outflow during the period on the share buyback programme and the acquisitions made, which has resulted in the drawing down of funds on the revolving credit facility. The ratio of net debt to adjusted EBITDA (profit from operations before depreciation and amortisation) at 30 September 2008 was 0.6 times.