Thomas Cook Merger and Acquisition Procurement Integration at Thomas Cook PLC

Merger and Acquisition: Procurement Integration at Thomas Cook PLC

Introduction to Thomas

Thomas Cook Group plc Page 2

to Thomas Cook

Thomas Cook published its first winter sports brochure in 1908.

It did not feature skiing!

Six travel facts you didn’t know about Thomas Cook

Thomas Cook personally conducted the first round-the-world

tour in 1872/73. The tour took 222 days and cost £3001

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In the late 19th century the Nile was known as "Cook's Canal"

Thomas Cook Group plc

It did not feature skiing!

Thomas Cook's monthly European Rail Timetable, still

published today, was first issued in 1873

Thomas Cook started a register of people interested in

travelling to the moon in 1950

For half a century (1889-1939), Thomas Cook owned a

funicular railway at the top of Mount Vesuvius

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5

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63

Thomas Cook is the 2nd largest travel Group worldwide

3 21Source markets

4 22 millionCustomers

1 £ 9.3 billionRevenue

2 £ 415 million (4.5%)EBIT (margin)


5 3,200Retail outlets

6 94Aircraft

7 Destinations 2,000

8 Employees 31,000

We are present in 21 source markets

Canada

US

UK

Ireland

France

Belgium

Netherlands

Germany

Austria

Switzerland

Sweden

Norway

Finland

Denmark

Poland

Hungary

Czech Rep.

Slovakia


Note: 1Sweden Norway, Finland, Denmark

IndiaEgypt

Lebanon

We have a leading portfolio of travel brands

Global umbrella brand

Major local brands


Other local brands

We’ve developed a strategy for long term growth

Strategic objectives

Strengthening our business and investing for growth

Growth drivers

Vision


Financial rigourBrandsCustomer insightTechnology

Results orientated

Obsessed with customer service

United as one team Driving robust decisions

Pioneering our future

Values

Product

Enablers

Become a leading

independent travel provider

Become the leading

travel-related financial services provider

Capture growth and

value through M&A and

partnerships

Maximisevalue of

mainstream

P R O U D

Note: Version shown is strategy as of FY09, this has not materially changed since 2007

Main acquisitions completed June 2007 – Sep 2010

Acquisitions¹ Country Date

Mainstream

Travel:

Independent

Travel

Neckermann UrlaubsweltenOeger Tours

GermanyGermany

May 08Sep 10

Jet Tours France Aug 08

Hotels4U.com UK Feb 08

Elegant Resorts UK Apr 08


Travel

Emerging

markets

Elegant Resorts UK Apr 08

TriWest Canada Aug 08

Med Hotels UK Feb 09

Gold Medal UK Apr 09

Travel Plus Czech Aug 07

TC Egypt Egypt/ ME Apr 08

TC India India Mar - Jul 08

Note: ¹ Other acquisitions completed: Wasteels, Airtrack, neckermann.de, urlaub.de; 65% of Iberoservice acquired in 2008

however not included as an acquisition

Procurement Transformation


‘a global category management approach giving a flexible

operating model for a growing organisation’

Large cost base for Procurement to challenge

£8.9b

Aviation excl. fuel

Fuel

Commission/ OtherCommission & Other £0.6b

• Greater control of distribution and commission rate reductions

• Reduced agent costs in-destination

Aviation and fuel £3.3b

• Better buying of aviation services across the Group

• Best practice sharing between airlines e.g. on fuel efficiency


Cost of providing tourism services Operating expenses

FY 2009 Group Costs

Other Opex

Accommodation

Personnel

Accommodation costs £3.1b

• Better buying process and use of Group buying power

• Co-ordination of activities and best practice sharing

Operating expenses £1.8b

• Operating leverage; spread fixed costs over higher volumes

• Adopt a common approach to airline, personnel, IT etc.

Targets new group procurement function

• Implementing a global category management organisation and processes

• Realizing any bundling opportunity within the group

• Use chances of global sourcing

• Standardise within the group where ever appropriate


• Standardise within the group where ever appropriate

• Reduce no. of suppliers substantially and deliver more value w. strategic partnerships

• Implement a global supplier management to our strategic partners

Leveraging our position through a world class procurement approach

What will change?

•The move from a vertical BU Orientation to a Horizontal Group Orientation in relevant categories

•Coordinated approach to strategy, demand management, category management, sourcing, SRM, contract

management and business service and support

Vertical BU Orientation –

BUs each perform category

management process, have

independent strategies, varying

sourcing procedures and execution

Current Procurement Structure

No

formal

Group Tyres Commodity

Strategy & Direction

Tyres


UK & I

Tyres

Spend & Market

Intelligence


Tyres


West

Tyres

Spend & Market

Intelligence


Tyres


Condor

Tyres Commodity

Spend & Market

Intelligence


Tyres


Scandana

via

Tyres Commodity

Spend & Market

Intelligence


Tyres


East

Tyres Commodity

Spend & Market

Intelligence


Tyres

Spend & Market

Intelligence


Germany

Tyres

Spend &

Intelligence


Tyres


North

AmericaGroup

As Is Spend &

Market Intelligence

Spend & Market

Intelligence

Spend & Market

Intelligence

Spend & Market

Intelligence

Spend & Market

Intelligence

Spend & Market

Intelligence

Category Category Category Category Category Category Category


Horizontal Group Orientation -

Centrally led Group Procurement

Strategy, direction setting,

governance and decision making

Future Procurement Model

Group

Purchasi

ng

Tyres Commodity

Mgt

Operational Tyres

Procurement

OperationalProcurement

Tyres Commodity

Mgt

Operational

Tyres Procurement

Tyres Commodity

Mgt

Operational

Tyres Procurement

Commodity

Mgt

Operational Tyres

Procurement

Tyres Commodity

Mgt

Operational Tyres

Procurement

Commodity

Mgt

Operational Tyres

Procurement

Tyres Commodity

Mgt

Operational

Tyres Procurement

As Is

To

Be

UK & I


Tyres

Category B

Category C

Thomas Cook Procurement

Etc.East / WestGermanyGroup

Proc

Group

CFO

TC Group Suppliers& Service Delivery

Supply

Business Demand & Requirements


Tyres

Category B

Category C

Strategy &Direction

Category Mgt

Category Mgt

Category Mgt

Category Mgt

Category Mgt

Category Mgt

Category Mgt

Strategy &Direction

Strategy &Direction

Glbal Cat MgrIT







Glbal Cat MgrMarketing

Glbal Cat MgrTraded Goods

Local Procurement

Local Procurement

Local Procurement

Procurements 3 Year Transformation Plan

2010 2011 2012

Achieve VisionAchieve VisionBest in Class

Strategic Business Partners

Centre of Excellence

Leading Edge Technology

Sourcing Teams seen as the Norm

Procurement Organisation Design (Group & Local)

Group Procurement Roles Filled

Group Policies Defined & Agreed

Group Procurement Vision, Plans & Policies Communicated

Stakeholder alignment (Group & Local)

Category Landscape Defined

Group Category Planning Defined

Group Spend Analysis Complete

Management of Strategic Suppliers Defined and Agreed

Supplier Management

Strategic Supplier Days

SRM Toolkit – UK Pilot

Agreed Group Category Plan

Top Talent Program

Development Plans & Succession Planning

Common Category Management Processes

Group E -Sourcing solution in Place

Group Contract Management Solution

Thomas Cook Group plc Page 13–1

Set Vision

Phase 1 Phase 2

Mobilise, Define, Design & Build Implement Refine

Define

Operating

Model

Design, Build

& Implement

Common

Processes

across TC

Best in class realised Skills & Competency Assessments

Common Target Setting

On-line Group Savings Tracker in Place

Procurement Benefits Tracked & Finance Sign of Obtained

Improved Procurement Intranet Usage

Group

Procurement

We have started on the transformation journey…….

Organisation

-New Organisation in place

-Clearly defined Roles & Responsibilities – Global v Local

Q2 Q1 Q4Q3 Q4 Q3Q2Q12010 2011

Status

-Group Wide Savings Tool

-Group Wide e-sourcing solution & Group Spend

-Improved P2P platform in all markets

-Group Wide Contracts Database

Systems

Processes

The commonly agreed transformation map leads Procurement towards its targets

Complete

In Progress

Complete

Under Review

In Progress

Complete


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-Group Procurement Guidelines & Policies in Place

-Group Category Plans in Place

-Group Cat Management defined

-Common Processes in place

Processes

-Org chart & functions clearly defined & aligned

-Define competency requirements

-Full development program implemented

-Implement common target setting

People

In Progress

In Approval

In Progress

In Progress

Under Review

Communication & Governance

Stakeholder Engagement & Regular Meetings

In Progress

Not Started

In Progress

Supplier & Market


Market Consolidation

Procurement Integration Activities – Airline Synergies• 6 Airlines

• UK Merger – Thomas Cook Airline & MyTravel Airlines in 2007/8

• Condor merger talks with Air Berlin in 2008

• Regular individual cost cutting programmes but priority in each airline

• Synergies realised in an opportunistic way

Initial Situation:

• Best practice sharing

• Use of group buying power

• Supplier consolidationTarget


• Lead joint tenders for global catering supplier, in-flight entertainment etc

• Joint negotiation for ground handling contracts

• Supporting role in harmonising IT systems

• Reduce hotel accommodation contracts for travel

Procurement Action

• Million pounds of savings (up to 40%)

• Group Procurement Director part of Airline Synergy Board together with Airline CEOs

• Agreed within project to centralise fuel, maintenance, ground handling under group procurementResults

Procurement Integration Activities – IT Systems & Suppliers

• More than 1100 IT Suppliers

• >100 different desktop images

• >30 data centres

• Approx 500 IT projects

Initial Situation:

• Industrialise Infrastructure and deliver savings in excess of 25%

• Reduce no of IT-suppliers by 50%

• Deliver synergies with global suppliersTarget


• One managed global infrastructure tender incl; networks, data centres, desktops and service management

• Global mobile tender

• Supply chain quick-win initiative with common suppliers

• Assessment of further offshoring opportunities

Procurement Action

• Shortlist of two global infrastructure providers forecasting >25% savings

• New global contracts with Oracle, SAP, Microsoft

• Started assessment of Application Management & Development outsourcingResults

Procurement Integration Activities – Brochure Production

• 55 printers producing Thomas Cook Brochures

• Various paper suppliers

• Different paper quality, sizes etcInitial Situation:

• Reduce no of printers to 5-10

• Find single supplier for paper

• Further standardise quality where feasible and usefulTarget


• Tender paper volume to one single supplier

• Organise strategic partner days to communicate strategy, drive innovation and seek proposals

• Organise ‘look and feel’ board meetings to drive standardisation and downgrading of material

Procurement Action

• Global paper supplier delivered savings of 8%

• Reduced no of printers to 16 as a first step

• Drove out costs of up to 24% due to change of specification

• Agreed on future global tender process

Results

Lessons Learnt after 12 months transformation

• Create common vision and jointly develop strategy

• Stick to your strategy but remain flexible

• Do your stakeholder management

• Communicate successes

• Don’t underestimate cultural differences
