Statutory financial results

As noted earlier, the statutory Group profit from operations for 2008 reflects 100% of the results of Thomas Cook Group plc for the eleven month period ending on 30 September 2008. The statutory Group profit from operations for 2007 reflects 100% of Thomas Cook AG for the twelve month period ending 31 October 2007 and 100% of MyTravel Group plc and Thomas Cook Group plc from 19 June 2007 (being the date of the merger) to 31 October 2007.

Income statement highlights

Revenue and profit from operations
Revenue in the period amounted to £8,167.1m compared with £6,404.5m in the prior year. Profit from operations before exceptional items and amortisation of business combination intangibles was £363.4m compared with £308.9m in the prior year.

Exceptional operating items
Exceptional items are defined as costs or profits that have arisen in the period which management do not believe are a result of normal operating performance and which, if not separately disclosed, would distort the year on year comparison of trading performance.

Total net exceptional operating costs (excluding amortisation of business combination intangibles) in the period were £179.6m compared with £127.0m in the prior year. The increase year on year largely reflects higher merger integration costs as we accelerate and realise higher synergy savings than previously anticipated, together with integration costs associated with new acquisitions made in the period and other restructuring costs.

Included within the net £179.6m of exceptional operating items are £106.7m of costs associated with the integration of the former MyTravel and Thomas Cook businesses. The majority of these costs have arisen in the UK businesses and largely reflect redundancy and other people-related costs and costs of terminating and amalgamating various contracts.

Other exceptional operating costs include £46.4m in relation to provisions for the integration of other businesses acquired during the year and for restructuring projects within the underlying Thomas Cook businesses.

Amortisation of business combination intangibles
Amortisation of business combination intangibles in the period amounted to £48.0m (2007: £30.1m), of which £31.7m relates to the amortisation of brand names, customer relationships and computer software, and £16.3m to the amortisation of the order backlog that existed at the time of the respective acquisitions.

Associates and joint ventures
Our share of results of associates and joint ventures before exceptional items was a loss of £1.6m (2007: profit of £1.8m). The reduction year on year largely reflects the disposal in May 2008 of our 40% stake in Activos Turisticos as part payment for the acquisition of a 65% stake in Viajes Iberoservice Espana S.L., together with increased losses in our Barclaycard joint venture arrangement.

Net investment income, which reflects dividends and interest received from investments, was £0.5m (2007: £1.7m).

The profit on disposal of associates in the prior year of £35.5m largely reflected the sale, to Arcandor, on an arm’s length basis, of our 50% interest in SunExpress, an airline based in Turkey.

Net finance costs
Net finance costs (excluding exceptional finance costs) in the period were £58.4m (2007: £0.6m). 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; increased costs on finance leases due to the full year effect of including the former MyTravel leases; 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.

Profit before tax for the eleven months ended 30 September 2008 was £49.5m (twelve months ended 31 October 2007: £190.2m).

Tax
The tax charge in the period was £5.1m (2007: £39.5m). Excluding the effect of adjustments to tax provisions made in respect of previous years and exceptional items, this represents an effective tax rate of 26.1% on the pre exceptional profit for the year.

The cash tax rate will continue to be considerably lower than 26.1% as a result of being able to utilise the losses available in the UK and Germany. Total losses available to carry forward in the Group at 30 September 2008 are £1.3 billion. Deferred tax assets have been recognised in respect of £0.7 billion of this amount.

Profit after tax for the eleven months ended 30 September 2008 was £44.4m (twelve months ended 31 October 2007: £150.7m).

Earnings per share and dividends
The basic and diluted earnings per share for the period was 4.7 pence (2007: 22.0 pence). The earnings per share figures noted here are affected by the weighted average number of shares in issue which are significantly lower for the comparative period due to the nature of the merger transaction, and by the change in year end. As a result, management believes that the adjusted earnings per share figures included within the pro forma (unaudited) financial results section of this financial review are a more meaningful measure of return.

As noted in the pro forma (unaudited) financial results and performance review section of this Financial Review, the Board is recommending a final dividend of 6.5 pence per share for the period ended 30 September 2008, 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 dividend for the eleven month period to 9.75 pence.

Balance sheet, cash flow and net debt

Net assets at 30 September 2008 were £2,009.2m (31 October 2007: £2,120.6m).

Given the cyclical nature of the Group’s working capital cycle, the change in accounting reference date, and the merger of MyTravel and Thomas Cook part way through the prior year period, any comparison of statutory current period cash flows against the prior year is significantly distorted. As a result, the pro forma cash flow analysis included earlier in this Financial Review should be used as the basis for understanding the Group’s cash flows in the period under review.

Cash and cash equivalents on the balance sheet at 30 September 2008 were £761.3m (31 October 2007: £622.3m). This excludes cash held in short-term securities of £129.2m (2007: £255.6m). However, the balance does include restricted cash of £127.1m (2007: £116.2m) which is held in escrow accounts predominantly in the US and Canada, in respect of local regulatory requirements; held by White Horse Insurance Ireland Limited, the Group’s insurance company; and held in other securities.

Net debt at 30 September 2008 was £292.5m (31 October 2007: net funds of £248.7m).