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Chapter 1 EXECUTIVE SUMMARY:
This project highlights the financial statement analysis for Thomas Cook plc, a merger of Thomas Cook AG and My Travel Group plc. The reason this project was undertaken is to fulfill the requirements of B. Sc. (Hons) Applied Accounting in part for Oxford Brookes University.
Thomas Cook plc was chosen as a company from the Travel Industry. This company has over the years transformed into a strong brand in the market. However with the Global Crisis spreading throughout the World in 2007 and 2008 it was interesting to the author to study the financial health of such a Giant in Travel Industry.
The financial tools used are Trend and Ratio analysis. Trend Analysis highlights a positive movement with the revenue however the story with other key financial items like Profit before Interest and Tax, Earning per Share and Dividends is quite demoralizing. Similarly in the Ratio Analysis the author learns that although the risk offered to investors is quite low by the company however the returns are not at all attractive to bring in more investments.
Also due to the financial crisis the tendency of people is to spend less and this has been observed by the author while researching about the external environment, which in comparison with the financial analysis makes it difficult for Thomas Cook plc to attract more business.
Thus this RAP provides a more business level analysis coupled with a financial analysis for Thomas Cook plc and it will certainly help anyone who wants to have a 360 degree view of the situation of the company in dwindling times.
Chapter 2: INTRODUCTION
2.1 Reason for Choosing Thomas Cook plc.
As a completion of my B.sc (Hons) Applied Accounting, I had to conduct this Research & Analysis project. The project I am conducting is mainly based on the Financial Analysis of the company. I am able to conduct the financial analysis and produce the statements due to this project. I have followed the Trend & The ratio analysis for the fulfilment of the project. As I am a Finance person and has a liking towards the finances of the company the choice i have put is Thomas Cook plc. This project would help me to develop and interpret the financial values of the company like Thomas Cook which was merged with Thomas Cook AG and MyTravel Group plc. In the year 2007 June 19th, Company has seen many ups and downs since the day it was ventured in the market. It gave a new meaning to the Travel and leisure. Hence this analysis will help us to understand the dynamics of finances of Thomas Cook plc.
2.2 Thomas Cook plc.
This company today stands in the market is due to the dedication of one single man years ago, Thomas Cook started with an international travel company in the year 1841.In the same year on 5th of July he gave a start of one day journey in a shilling from Leicester to Loughborough, this is how it was just a humble venture to help Briton to view the world with a new perspective.
Thomas Cook & John Mason Cook both left the world around 1890's and left the business for their three sons Frank Henry, Ernest Edward and Thomas Albert better known as “Bert”. In the early quarters of 20th century Winter sports holiday were introduced by motor car and commercial air travel by Thos Cook and son the then Thomas Cook, It was incorporated as Thos Cook & Son Ltd in 1924 and within two years 1926 the headquarters were moved from Ludgate Circus ,to Berkeley Street, Mayfair.In 1928 the surviving heirs Frank & Earnest sold the company to Belgian Compagnie Internationale des Wagons-Lits et des Grands Express Européens, operators of most of Europe's luxury sleeping cars, including the Orient Express. After the outbreak of the World War II, the Wagon Lits headquarters was seized by the occupying forces & the Cooks' assets were taken over by the British Government. Due to which the company was going through the financial crisis & to save it, during that time a deal was brokered & the Firm was sold to Britain's four major railway companies. Thos Cook settled its complexes with Wagon Lits and regained 25% share in the abroad. Later as soon the war was over in 1948 it became a part of the Nationalised British Railways.
Thomas Cook & son Ltd had gained a lot of profit after the war, during the holidays and remained one of the largest and prominent successes in the travel industry. Now it was being challenged by its young competitors which were able to give better and cheaper package deals ‘still Thomas Cook lived on the top in 1965 the company crossed the net profit of £1 million for the first time, As earlier stated due to stronger competition Thomas Cook business gradually dwindled. Presently Thomas Cook UK & Ireland is the world's 2nd largest travel & Leisure Company which is a part of Thomas Cook plc. It was born on the 19th day of June 2007 by the merger of Thomas Cook AG and MyTravel Group plc.
Keeping in mind the aim of the research following are the objectives of the RAP.
- To Study the Trend of the key financial figures in the financial statements of Thomas Cook plc from 2006 to 2008.
- To Study the financial Ratios indicating the financial health of Thomas Cook plc from 2006 to 2008.
- To Study the impact of external environmental changes on Thomas Cook plc.
Chapter 3: DATA COLLECTION AND INFORMATION GATHERING:
Here the researcher is able to explain about the methods used to collect the data & the information for the project. Also here it tells about the key sources from where the data has been sourced, methods of analysis done to evaluate the financial performance of the company.
3.1 Secondary Method for Data Collection:
The researcher follows the Secondary method for gathering his data for the analysis. However he is able to source them from the Published sources, the researcher has to be careful for using only those data's which are available and for the analysis which he would be conducting for. Also he can only use the data which would be made available from the reliable sources.
The following are the sources the researcher has used for his project.
3.1.1 Annual Reports
As the topic of selection is financial analysis of the company to assess the performance of the organization. Financial statements - Balance Sheets, Income Statements and Cash Flow statements are the ones which will have all the required information. While the Balance sheet explains the financial position of the company in terms of its assets and liabilities, the income statement will show if the company is making a profit or a loss and the cash flow statement will highlight the sources of cash inflow and outflow giving a net cash balance with the company. As the company, Thomas Cook plc is a public limited company it is liable for the company to publish the financial statements for the interest of its investors and the market.
3.1.2 Text Books:
ACCA text books are the good source of the references for the financial analysis. These text books details tell how the reporting is done and further helps to comprehend the reports when published. Mainly it would highlight pros & cons of the analytical tools used for the financial analysis. For this i would accept it that helped me the most to comprehend from the different views and perspectives of the financial analysis also helping to see the performances from the perception of a professional.
3.1.3 Other Information:
As for the company the internal environment does play a role to its growth but apart from it the external environment plays a vital role in its performance. To analyse this it gave the researcher an opportunity to study the external surrounding of the company and its impact on the market especially in the UK sector along with the changes in the Global market. The researcher was able to go through the various magazines and newspapers and of course Financial Times. Also the newspapers which were started by the Thomas Cook to give the idea and to promote its own company helped a lot to know about the financial condition of the company in this credit crunch globally. Financial Times served the basis to know more about the market at home as well as around especially for the Travel & Leisure industry. Study of Stock Exchange was also helpful for comparing the share prices of Thomas Cook pcl. with the sector and FTSE index. Lastly London Stock Exchange website was a good source in giving comparison of Thomas Cook plc and the sector. Researching on the official website of Thomas Cook plc gave wonderful information of the strategies of the company and its future business ventures.
3.2 Methods adopted to analyse the financial Performance:
3.2.1 Ratio Analysis:
One of the best and most useful tools for financial Status is the Ratio analysis which further helps to compare the performance of any organization with the peer group in the sector also other bench marks. This kind of comparison will help to recognize the performance of company leading to improve better in each venture. Since the comparison just not focus on the improvements but also on the usage of the resources in the right channel hence not to mention that the outcome would be better and sufficient with the budget. Ratio analysis has a scrutinizing approach which is more effective in evaluating the financial statements of the company. Hence it means that it does not give any kind of chance for the company to be proactive in their approach.
Thus the following are ratios which the researcher was able to focus on
- Profitability Ratios - ROCE, ROSF& Net Profit Margin Ratios - These reflect on the ability of the company to be profitable.
- Solvency Ratios - Gearing Ratio & Interest Cover - These reflect on the ability of the firm to secure its debt obligations.
- Efficiency Ratios - Return on Asset, Asset Turnover and Sales per employee ratios - these show how efficiently the firm has been in giving outputs with an efficient use of its inputs.
- Investment Ratio - EPS - This show the earnings per share that was realised and reflects on the shareholder value creation ability of the firm.
Hence it has helped researcher to compare evaluate the data for the analysis.
3.2.2 Trend Analysis
This is done to see the financial statement of the company to see the performance year after year whether it is improving or declining. Hence not say that always an improvement is praised on the other hand a decline in the performance always raises number of questions on the firm operations. It also works as the media to watch the performance on the yearly basis which further guides to act accordingly to improve on seeing a decline in any of particular trend. The trend can be marked base on the benchmark and seeing the improvement or decline in the performance. Hence for this project especially the researcher has observed the trend in the following items from the financial statements of the Thomas Cook plc. - Revenue, Profit before Taxation, Earnings per Share and Returns Share Holder Value Creating Value.
3.2.3 Impact of External Environment on Thomas Cook plc.
As now we have done the research on the financial status of the company, I have decided to look into the external environment and its impact on the performance of the company. After the death of the father and the son the company went through a various changes it was taken over as well as sold to others; but the main which changed the face of the company was in the year 1924 when the company was incorporated and made Thos Cook & Sons ltd, also during the outbreak of World War II the Wagon Lits headquarter at Paris was seized by the occupying forces and Cooks British assets were seized by the British Government, during that time to save it from the financial collapse it was settled with the Wagon Lits which helped to retain 25% of share in abroad. In the year 1970 the company saw many changes and became a fully own subsidiary of Midland Bank Group later to add to its success it was taken over by Westdeutsche Landesbank (WestLB), Germany's third largest bank, and LTU Group, Germany's leading charter airline, in 1992. Thomas Cook's longevity was celebrated in the year 1991 the Golden Jubilee year (50th Anniversary) and it successfully returned to the market in the year 1996 when it was able to take over the Sun World. Later in the year 1995 the company became a fully owned subsidiary of WestLB.
Hence the method applied here is to get a comprehensive perception of the financial performance of the company. This kind of analysis will draw the focus on the internal as well as on the external performance of the company and its effects.
Chapter 4: ANALYSIS OF THOMAS COOK GROUP PLC:
4.1 Trend Analysis of key financial items:
Trend analysis is a type of comparative study which is majorly used by the investors to measure the past as well as the future ventures of the company. This process may involve the comparison of the past and the current financial ratios as they are related to various companies in order to focus how much more the current trend will continue. This information is very helpful to the various investors who would like to make the most of it from their investments. This also helps in checking out the decline in the movement which is a problematic situation since it is the main concern for the company. On these bases the company can do a thorough check into the situation to find the root cause which will help them to find the solution to the problem and maintain a positive trend. The trends are actually calculated with a base year and performance of the company in subsequent years with respect to the base year. For this case the researcher uses a trend analysis method of some important items in the financial statement for the period 2006 to 2008.
The revenues for the Thomas cook group plc which was generated in the year 2006 to 2007 was about 9.67 %, which was actually an upward movement in the trend where as in the year 2007 to 2008 it drastically rose up to 27.52 % giving a big difference in the company's revenue. Hence the researcher has shown the gradual change in the trend which is really a good sign for the investors, here also the researcher shows the comparison between the years 2006 to 2008 39.96 % it is also the comparison as well as the difference between the above mentioned years.
Hence we can already see that the company now gradually going towards the rise and in the positive trends.
4.1.2 Profit before taxation:
The researcher has shown the clear picture by following the trend analyse throughout his project, which in turn has helped us to see the impact of the external environment on the Thomas Cook Group plc. In the above mention point .i.e. 4.1.1 it is talking about the revenue generated by the company which gradually was risen and went to the positive trend, Now we would see the PBT of the company for the same years taking 2006 as the base year moving forward to 2008. If we carefully monitor the profit of the company before taking out the taxes in the year 2006 to 2007 it was 15.80 % which showed the negative trend moving to year 2007 to 2008 73.97 % which in turn was also decline in the trend and not to mention further more as well it was more into decline in the trend in the year 2007 to 2008 it was about 69.86 %.
4.1.3 Earnings per share:
One of the best measures to find the company's profit is to check the Earning per share. It is one of the sign which shows the returns are being provided to the shareholders for their investments per share. In the case of Thomas Cook Group plc, we can clearly understand from the graph which is shown below, tells that though the revenue has seen the growth the company sees the negative trend in the year 2006 to 2007 it was 16.19 %, further in the year 2007 to 2008 it still went in the further more decline state and was about -78.64 %, hence we can see from year 2006 to 2008 it was about 82.09 %.
4.1.4 Returns to Shareholder -- Creating Value:
Thomas Cook Group plc was born in the market after the merger of Thomas Cook AG & My Travel Group plc. Usually the M & A are good for the companies but in the case of Thomas Cook AG and My Travel Group plc was different the company did not benefit the way it should. The researcher has followed the Trend analysis to show the profitability of the company has made from the year 2006 to 2008 keeping 2006 as the base year. We can clearly see that the M & A did actually serve its purpose of increasing the share values on the other hand the shareholders got the positive value.
From the official website of the company the researcher was able to find after the merger of the companies that the company's interim dividends were minimally paid, but during the year 2006 it was nil, as it went into the decline, where as in the year 2007 the company was at least able to pay 5 pence per share, in the same way for the year 2008 as well it paid 9.75 pence per share.
Note:- According to the Annual reports & the Accounts 2007 of the Thomas Cook Group plc. the rates were calculated in EURO, it has been calculated after the conversion into United Kingdom Pounds(GBP)Basing on the Historical rate table which was £ 0.75 (xe.com, 2009).
4.2 Ratio Analysis
This part of the report focuses on the Ratios for Thomas cook plc. Author has studied the financial health of the company from 2006 to 2008. This period has seen the merger of Thomas Cook AG and my Travel Group plc to form Thomas Cook plc. Hence the Ratios will explain the financial health for Thomas Cook plc in this period and it will also be a guide for Investors who are willing to invest in Thomas Cook plc.
All the figures have been taken from the Annual Reports of Thomas Cook plc for the year 2007 and 2008. The figures for 2006 have been extracted from the annual report of Thomas Cook AG. These figures for 2006 were stated in Euros and the same have been converted to Pound Sterling at the following rate - 1Euro = 0.75 Pound Sterling. This rate is taken from the historic rate table from xe.com for April 2007, when the report for 2006 was published.
4.2.1 Return on Share Holder Funds
This ratio measures how much the company is able to retain as Profits by utilizing the funds of the Investors. It is a comparison of Profit after Tax with that of the Shareholder funds and Reserves. Clearly from the way the ratio is calculated it can be seen that higher values of the ratios indicate a better situation for the shareholders of the company. A higher profit means better use of shareholder funds to give the higher level of profits and comparatively lower level of funds again indicate the same situation that the efficiency or the manner in which the funds are utilised is optimum. This gives high ratio indicating a good financial situation (Atrill et al, 2006).
The case of Thomas cook is concerning. The graph is a steep downward one and indicates a poor financial situation from 2006 to 2007. The interesting point to notice with this situation is that the figures for both the Profit after tax and Share Holder Funds have seen a change from 2006 to 2008. While considering the merger between Thomas Cook AG and My Travel Group plc it follows that the share holder funds will rise. This is noticeable in the change in the Shareholder funds from 2006 to 2008, which has risen sharply from £615m to £2274.1m. However the Profit after tax has seen a sharp downfall from £134.85m to £44.4m. This clearly explains the decline in the ratio and financial health. The downfall in the profit can be attributed to sharp rise in the cost of sales from £4475m to £6295.5m in the period. This is a rise of 40%.
4.2.2 Return on Capital Employed
This ratio measures the Operating Profit of any company against the Capital that Company Employs to generate that level of profit. This is a measure of the effectiveness of the Operation of any organisation. Since the comparison here is made with the Operating Profit, it indicates the effectiveness of any organizational operations. It follows from the discussion done so far that higher levels of ROCE ratio will indicate higher Operating profits compared to the Capital Employed or it could be the case that Capital Employed is changed significantly as compared to similar profit levels. Not to mention that a lower ROCE ratio will speak otherwise about the company operations and raise questions about the same (Atrill et al, 2006).
Thomas cook plc's ROCE trend from 2006 to 2008 is not very encouraging. Thomas cook AG did have a better situation in 2006 with a ratio of 26.5%. The year 2007 witnessed the merger of Thomas cook AG and My Travel Group plc, which increased the capital employed for the new company. This increase was significant. However the Profit from Operations has seen a slightly declined trend in the same period. Thus the operations of the two businesses combined together did not given better results and fulfil the expectations. Although the operating profit has not declined at the rate with Profit after tax declined, the graph still is a downward trend and is a cause of concern for the Operating Directors of Thomas Cook plc. This is also indicative of the fact that the Finance Cost has sharply risen in this period and has impacted the ROSF ratio.
4.2.3 Net Profit Margin
NPM is a measure of the effectiveness of the Operations to generate sales. This clearly indicates and reflects on the short term strategies that are adopted by the organisation in generating enough sales and then controlling the operating cost to keep the operating profits high. This ratio can be higher with higher Operating Profits and a more constant sales level, which would then indicate tight control on the operating cost. Similarly a more constant Operating Profits with declining sales would again suggest efficient handling of the operations in a declining market share situation. A declining sales trend would suggest declining market share. A better trend with this ratio is always appreciated, while a downward trend will raise questions on the Operations of the business (Atrill et al, 2006).
The situation of Thomas Cook plc is showing a declining trend in the period from 2006 to 2008, moving from 2.81% to 1.66%. This definitely is not a very good situation. Although the sales figures have shown an increase from £5835.2m to £8167.1m which shows that the company is growing in terms of market share. However the operating profits in the same period have shown a declining trend. This speaks about the fact that the management does not have a tight control on the operations of the company. A point to note is that in 2006 the Net Profit Margin was high, which was before the merger. However the post merger phase has seen the decline in the ratio, indicating a poor situation.
4.2.4 Return on Assets
ROA is a better indicator of asset utilization by any organisation and lower ROA is an example of under utilization of the assets of the firm. The movement in the trend for this ratio is again a result of the movement in the Assets of the organisations and the movement in the operating profits of the organisation. If the Assets move upwards with stable operating profits then it indicates under utilization of the assets. If the Assets are stable with upward moving operating profits then the ratio is indicative of better utilization of the assets. In a different situation if the assets move downward with stable operating profits then it again is a better situation for the company, but a downward moving operating profits with stable assets is a cause of concern. In either case, a better ROA is indicative of optimum utilization of assets to generate good and sufficient profit levels for the organisation (Atrill et al, 2006).
The ROA for Thomas Cook plc is trending downward in the period from 2006 to 2008. This downward trend suggests that the assets are under-utilized within Thomas Cook plc. A closer look at the numerators and the denominators for the ratio indicate that the Assets have significantly risen in the period. In was £2956.7m in 2006 and moved to £7018.4m in 2008. This is an increase of close to 133% in this period; however in the same period the operating profits have been more stable. The merger of Thomas Cook AG and My Travel Group plc did make a stronger set of Assets for the new company; however the operations could not make an optimum use of these assets to give operating profits that are quite comparable in the similar proportion.
4.2.5 Asset Turnover Ratio
This ratio is much similar to the ROA ratio which measures the assets of any company against the operation profits. In doing so it sees the ability of the company to effectively use assets in giving higher profit levels. Similarly ATR is a comparison of Turnover to Assets and in that is measures the effectiveness of the company to generate higher sales by effectively using the Assets. From this discussion we can follow that a higher ATR will indicate a better use of Assets to generate sufficient levels of the sales. However a downward trending ATR will indicate under utilization of the Assets and it then impacts the sales levels of the firm (Atrill et al, 2006). At this point the author would also like to point out that in comparing the Assets with the operating profits and sales turnover may see differing trends. This difference should then explain how good the operations are controlled for operating costs.
The ATR trend is very striking. The year 2006 to 2007 has witnessed a downward trend from 197.35% to 110.09%. However the following period, which is from 2007 to 2008, has seen a slightly upward trend. The ATR has moved up from 110.09% to 116.37%. Hence it can be noticed that the sales level of Thomas cook plc have improved with the utilization of the Assets, particularly in the year 2008 the results are better if not comparable to 2006. Also our discussion on ROA in 4.2.4 speaks about under utilization of assets to generate downward moving operating profits. This then throws light on the fact that the operations may have utilized the assets to give good sales however it is the lack of control on the operating cost that is leading to a worse situation on ROA as compared to ATR.
4.2.6 Sales per Employee
Sales per employee are a measure of the effective utilization of the employees of an organisation to generate the sales level. A higher level of sales per employee is an indicator of better utilization of the staff and lower ratio clearly indicates gap in the productivity of the employees. In a case of merger the common belief is that the new company should benefit from the synergies of the two parent organisations. The employees of the two companies can add value to the new business and help better fulfil the customers. This is the basic idea behind any merger transaction. Hence sales per employee should move in the positive direction (Atrill et al, 2006).
Sales per employee for Thomas cook plc is showing a constantly declining graph over the three year period from 2006 to 2008. A good point to note here is that both the numerator and the denominator have increased from 2006 to 2008; however the rate at which both showed an increase was different. The newly formed company would have witnessed growth in the market with merger synergies but instead of trying to sustain this growth with lower employee levels it went on to recruit higher number in 2008 leading to lower productivity overall.
4.2.7 Gearing Ratio
Gearing Ratio is a critical measure of any firm's debt commitments. This ratio measures the debt with that of the equity of any firm and thus indicates to the investors of the firm of the risk associated with their investments. Higher level of debt financing will lead to a higher level of firm's commitment to pay the financing cost, which will again tend to be higher. While a lower Gearing ratio will give more confidence to the investors, the high gearing ratio will only help not attract the investors to invest in the company (Atrill et al, 2006).
Thomas Cook plc performs better in terms of the Gearing Ratio. Although the ratio has moved upward from 2007 to 2008; as compared to the movement from 2006 to 2007, the gearing level of Thomas cook in the year 2008 is still comparatively better than 2006. Thus this gives much more confidence to the investors that Thomas cook is a safe investment option from a gearing point of view. However it may not be wise to only look at the gearing levels of the organisation and ignore the discussion that was done in the preceding sections on Asset Utilization, Capital & Shareholder funds utilization and Operating cost. In light of the discussion done in totality of all the factors any investor may be motivated to think otherwise.
4.2.8 Interest Cover Ratio
Interest Cover Ratio is a comparison of Profit before interest and tax with that of the Interest any firm is liable to pay on its debt financing. This measures the ability of the firm to cover the interest commitments by means of the profit from operations. It often speaks about how much interest commitments can be covered by the profits alone. Thus a higher Interest cover ratio will only give much more confidence to the share holders (Atrill et al, 2006).
The trend for Interest Cover Ratio for Thomas cook gives a much better outlook to the investors. Although the declining trend is observable, but even in the year 2008 the profit is able to cover more than 85% of the debt financing cost, which is significant. An important area to focus will be to control the operating cost so that higher profit is realised to cover even higher interests.
4.2.9 Current Ratio
Current Ratio is the ability of any firm to meet its short term liabilities with its short term assets. Clearly a desirable ratio will be more than 1, as this would indicate the sufficient level of current assets to meet the current liabilities. This also means that higher profits can be then shared with the investors giving them more value (Atrill et al, 2006).
The current ratio for Thomas cook plc is on a declining trend. In first instance in the period of observation it has not gone above 1, which means Thomas cook plc has insufficient current assets to meet its current liabilities. It will then have to share a part of the profit to meet its short term obligations and thus be able to share less with the investors. This can also be correlated to the discussion done about shareholder returns in section 4.1 where we analysed that the returns shareholders got on their investing was declining each year.
4.3 Impact of External Environment on Thomas Cook Plc
The recent economic climate has had its impact on the travel industry. According to a research survey (Source: Mintel2009) the fear of economic recession has more affect on consumers buying behaviour than their personal economic circumstances. The survey further says that more than 30% of the UK adult population have cut down on their expenses on travel and leisure in face of looming economic crisis.
It is projected by research that next 12 month period is significantly bad for mid size family travel market, with around 35% of the population having cancelled their travel plans considering the economic climate and its corresponding affect on their income. Around 60 billion was spent on travel and holidays, which comes to an average of 2259 per household per year on holidays. This trend has seen the tourist business revival in many of the UK's tourist destinations.
Domestic travel has accounted for nearly 16% of the total holiday spend by Britons this year. In terms of revenue the domestic market grossed 1.3 billion in 2008 with an accounted 6.4 million visitors.
The economic downturn has had a severe impact on overseas travel market, with more and more of the population cutting down on spends in this sector.
The research conducted by Continental research , further puts down the numbers, and UK emerges as the single largest choice among most Britons as the destination of choice for their holidays in the next 12 months. This phenomenon can be also attributed to the growing weakening of the pound against international currencies leading to poor exchange rates and thus making international travel unattractive which previously was a very attractive proposition in face of high value of pound in comparison to foreign currencies.
If we see from the above table, the overall inbound tourism hasn't been particularly well for UK. There has been a sharp decline if we see the market traffic in 2008 compared to a similar period in 2007.
A closer look at Thomas Cook group and its pre closing update gives a picture for the way ahead.
The results have been encouraging for Thomas cook in the summer 2009, with the group's flexible capacity management allowing it to survive through difficult times. Despite negative impacts of environment factors like the swine flu epidemic, the group still has managed a satisfactory performance and on its way to achieve acceptable figures. The group returned with load factors of 96% for the period of May to August.
Chapter 5: Conclusions
5.1 Objective 1 - Trend Analysis of Thomas Cook plc.
Revenues have shown a upward movement between 2006 to 2007, it moved from £5835m to £6404.5m. Also in the year from 2007 to 2008 the revenues have moved up from £6404.5m to £8167.1m. A total increase in the revenue, between 2006 and 2008, is 40%. Profit before Interest and tax has seen a downward trend as compared to the revenue. From 2006 to 2007 it moved from £163.65m to £151.8m and from 2007 to 2008 it moved from £151.8m to £135.8m. This trend has shown a total decline of revenue from 2006 to 2008 of 17.02%. Earnings per share have also been on a declining trend from 2006 to 2008. EPS from 2006 to 2007 has moved from 26.25 pence to 22 pence and from 2007 to 2008 it has moved from 22 pence to 4.7 pence; indicating a total of 82.1% decline. Although the financial trend for Thomas Cook has been poor it has still show an upward moving trend in creating shareholder value by giving positive dividends in the period. For 2006 it did not pay any dividend, in 2007 it paid a total of 5 pence per share and in 2008 it paid a total of 9.75 pence per share.
Thus the trend analysis of Thomas Cook plc is not very encouraging for an investor apart from the fact that there are some positive dividends paid.
5.2 Objective 2 - Ratio Analysis of Thomas Cook plc.
A declining ROSF trend is a cause of concern for Thomas Cook plc, where it reduced from 21.91% to 1.95% from 2006 to 2008. This indicates poor use of shareholder funds in getting enough returns. ROCE has witnessed a similar trend with a downward moving trend from 26.60% to 5.97% from 2006 to 2008; indicating opportunities in the use of capital employed to create better operating profits. Net Profit Margin has also seen a downward movement from 2.8% to 1.6% from 2006 to 2008. This clearly indicates huge operating cost which is moving upward year on year. Return on Assets has been declining from 5.54% to 1.93% in the same period indicating poor use of assets available. Asset Turnover has been stable from 2006 to 2008 moving from 197.35% to 110.09% and then moving up to 116.37%. Thus use of asset is done fairly to get good revenues but lack of control on operating cost is impacting the business. Sales per employee has been declining, although not so significantly, but has moved from £0.30m to £0.27m per employee. This indicates lower employee productivity. Gearing levels have been stable around 20% to 16%, although 2007 witnessed 6.29%. This indicates that Thomas Cook poses less risk to investors. Interest Cover has been appropriate, although moving down from 214.34% to 88.41% and is coinciding with the gearing levels to some extent. Current ratio has seen a downward trend from 67% to 55%, indicating lower ability to meet short term obligations year on year.
Thus the financial health of Thomas Cook plc from 2006 to 2008 is not at all encouraging, even if it is looked at from an Operations Point of View and Investor Point of View. Although the company poses less risk in terms of low gearing levels and appropriate interest cover; the ability to provide return on investment is quite low. There is clear lack in the way operations are managed currently and highlights room for improvement.
5.3 Objective 3 - Impact of External Environment.
The current economic situation has had its impact on the Travel Industry at large and Thomas Cook plc is a no exception to this. UK citizens have been cutting spends in lights of the looming economic situation and this decision has been unaffected by their own current economic circumstances. UK domestic travel has seen more growth as compared to International Travel. Some researchers argue weakening pound to be one of the reason for this, which makes the international travel an expensive affair. Given the crisis situation people have a general tendency to spend less and weakening pound further adds fuel to this. In light of the discussion done in section 4.1 and 4.2 about the financial health of Thomas Cook plc, the external environment and in particular the Global financial crisis has had a significant impact on the financial performance of Thomas Cook.
Chapter 6: Bibliography
1. Atrill P. and McLaney E Accounting and Finance for non-specialist [Book].- England: Pearson Education Ltd, 2006.- Vol. V.
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3. Mintel Mintel Press Release [Online]// Mintel Travel Industry Outlook.- Mintel International Group Ltd, January 1, 2007.- November 10, 2009.- http://www.mintel.com/searchresults?query=travel+industry&js_on=0.
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