Chief Executive's Statement
We are pleased with our performance in 2011 and have delivered another year of record profit growth and strong cash flow against a backdrop of unrest in key North African destinations and weak consumer sentiment in some source markets.
These achievements reflect the strength of our strategy to increase differentiated and exclusive product sales, increase controlled distribution with a focus on online to enhance customer access and reduce distribution costs, and the delivery of our turnaround and cost efficiency programmes.
Having experienced a strong start to trading at the beginning of the financial year, the events of the ´Arab Spring´ affected our performance and we reported a £29m impact for the first half. The flexibility we have in our business model meant we were able to act quickly and move capacity for the Summer season from Egypt and Tunisia to other destinations, including Spain, Greece and Turkey – thereby mitigating the full year effect for all our source markets (except France). Our French tour operators rely heavily on these destinations where historically they have collectively accounted for about 40% of the programmes and 65% of Marmara’s alone. This, together with a weaker consumer environment, meant that they were adversely impacted for the full year and results for this source market were very poor. We have initiated a project to consolidate the businesses of the French tour operators with the aim of creating a single business with a long term viable future.
Across the rest of the Group, we delivered a good trading performance in the UK, Nordic region,Belgium, the Netherlands, Canada and Austria. The performance of our differentiated product continues to be encouraging. We continued to make good progress in business improvement (turnaround and cost efficiency) especially in Canada, the Netherlands and Ireland, which have now all completed their turnarounds. The performance in Canada is particularly pleasing where, following the completion of the joint venture with Sunwing, the business has transformed itself to become a market leader. We also achieved a significant reduction in net separately disclosed items which were £74m (2010: £255m).
We continue to focus on cash performance and ended the year with a net cash position of £4m (2010: net debt of £249m). We have a number of cash management initiatives across the Group and the improvement in working capital as a result of these initiatives has helped us to end the year in a net cash position.
As one of the world’s leading leisure travel companies we operate in a highly regulated industry from both a tour operator and an airline perspective. We work with national Governments and the EU to ensure that our position is understood and respected and our opinion remains that a level playing field across the industry is a necessary requirement to allow good companies to flourish.
We have a clear strategy and road map for delivering our strategic growth initiatives. As trading in the new financial year progresses, it is apparent that customers in some source markets are booking later than usual and that the recovery in demand for North African destinations will be slow for some considerable time. We have adjusted our Winter capacities to reflect the current market conditions and are trading in line with our expectations. Summer capacities will be flexed to match profitable demand.
We remain focused on our strategy of increasing the proportion of sales of differentiated and exclusive product, and on increasing controlled distribution with a focus on online to enhance our customer access and reduce distribution costs. Through our new business improvement programme we have self-help measures in place to help offset the difficult macro-economic environment, including clear plans in place for Germany and France. In addition, we continue to strengthen our cash flow in order to fund the dividend and growth. All of which means that, even with the current challenging market conditions, we continue to operate from a position of strength.
Finally, I am very proud of all my colleagues – 53,000 of them – who are passionate about our business and who each year face new challenges head on. I would like to thank them for all their efforts and achievements not only in their own businesses but also at the wider Group level.
Peter Long
Chief Executive