Thomas Cook plans to double profits in the next three years by pushing independent travel and financial services, as well as managing cost savings from its recent merger.

Europe’s second-largest travel firm by market value said it plans to double operating profit to €620 million in three years

The company, created from the tie-up of KarstadtQuelle’s travel unit and Britain’s MyTravel and which sells around 6 million holidays a year plans to improve performance in mainstream tour operating, make significant advances in independent travel, travel-related financial services and emerging markets, and grow overall revenue and profit.

The plan sets four key targets:

Group operating profit to exceed €620 million in 2009/10 (earnings before interest, tax and exceptional items), which implies EBITDA of more than €800 million. ? Group revenue to grow to approximately €13 billion in 2009/10. ? Revenue from financial services to grow from €215 million in 2005/06 to around €370 million in 2009/10. ? Revenue from independent travel to grow from €2.2 billion in 2005/06 to €3.3 billion in 2009/10.

Manny Fontenla-Novoa, Joint Chief Executive, said: “Through the merger of Thomas Cook and MyTravel we have transformed both our business and the industry in general. In the last five months we have almost completed the integration, announced the merger of our German airline, Condor, with Air Berlin, and taken steps to align capacity with demand. In addition, we are announcing today that we expect to achieve not less than €200 million merger synergies - an increase of €60 million on our earlier prediction.

“Building on this strong foundation we are now entering a further new and exciting phase of our development which will focus on leveraging the strength of our mainstream business, developing a market leading independent travel business, driving further growth through our unique travel-related financial services capability and taking advantage of the significant opportunities that emerging markets represent for us.”

The plans are being set out as part of a presentation to analysts and investors in London setting out the Group’s strategy. Full copies of the presentation material will be available during the day on the Group’s website ( www.thomascookgroup.com ).

As the Group’s revenue increases and with its focus on harnessing the stronger growth potential in independent travel and financial services, it is expected that the revenue from mainstream (excluding financial services) will decline as a proportion of the total from 80% in 2005/06 to 72% in 2009/10. Revenue from independent travel is expected to increase as a proportion of the total from 18% in 2005/06 to 25% in 2009/10, while revenue from financial services is expected to increase as a proportion of the total from 2% in 2005/06 to 3% in 2009/10.

In 2005/06, financial services generated €215 million of revenue and €52 million of EBIT. Within that, the proportion of revenue from foreign exchange is expected to fall from 69% in 2005/06 to 56% in 2009/10, while the proportion from insurance remains 31% and the proportion from cards rises from zero to 13%.

As part of the Group’s strategy of increasing its controlled distribution, one of its objectives will be to increase its targeted online sales to 35% in 2009/ 10.

The Group will explore investment opportunities, including acquisitions, in mainstream, independent travel, travel-related financial services and emerging markets, while maintaining an asset-light business model. Investment opportunities will be reviewed against a series of criteria including: return on invested capital exceeding weighted average cost of capital by the third year, earnings accretion by the second year, strategic fit and integration risk.

Dividend policy

The Board expects to recommend dividends per share in respect of each full year in the range of 40-50% of earnings per share and to pay one third of an annual dividend as an interim and two thirds as a final dividend. The Board believes it is desirable to provide shareholders with dividend payments increasing progressively over time. It is expected that the Board will propose a final dividend in respect of the year ending 31 October 2007, for payment after, and subject to shareholder approval at, the annual general meeting expected to be held on 10 April 2008. This first dividend will be in respect of the second half of the year ended 31 October 2007 and will therefore represent two thirds of the dividend that would have been paid in respect of a full year, equal to 40% of earnings for that year.

Current trading and outlook

As announced on 1 November, the Board believes that the Group’s financial performance for the year will be in line with its expectations. Record profits are expected in Northern Europe, Airlines Germany and Continental Europe. Trading in all divisions has continued broadly in line with the 1 November announcement and we continue to be encouraged by bookings for 2007/08.

Timetable

The Group will announce provisional figures for the year to 31 October 2007 on 18 December and full results for the year on 30 January 2008. It will issue an interim management statement on 14 February 2008 and hold its first annual general meeting on 10 April 2008.
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