Thomas Cook Enters Russian Travel Market

THOMAS COOK ENTERS RUSSIAN TRAVEL MARKET

Thomas Cook Group plc (Thomas Cook) announces today that it has reached agreement to form a joint venture with VAO Intourist, one of Russia's most renowned travel companies, in which Thomas Cook will acquire a 50.1% stake. The joint venture will include Intourist's outbound, domestic and inbound tour operating operations as well as its retail travel network1 and will focus on expansion in Russia and the other CIS countries.

The move reflects Thomas Cook's long-stated strategic objective to capture growth in emerging markets and its aim to enter the fast-growing Russian market which has strong demand for beach and family holidays, particularly to Turkey and Egypt. Over 6 million Russians went on overseas, packaged holidays last year and the market is expected to grow by a double-digit percentage in the coming years given increasing wealth amongst Russia's population of 142 million and strong economic growth driven by the natural resources sector.

Founded in 1929 and privatised in the early 1990s, Intourist is Russia's oldest travel business and one of the country's leading travel brands. In 2009, Intourist carried over 650,000 passengers and volumes have been growing strongly in 2010, up 30% in the nine months to 30 September 2010 compared with the equivalent period in 2009. Intourist has a network of 144 shops covering large parts of the country and, together with Thomas Cook, sees an opportunity to grow sales by expanding controlled distribution in Moscow, St Petersburg and in the regions.

The joint venture will benefit from Thomas Cook's scale in accommodation purchasing in key destinations, as well as its product know-how and IT systems. This, combined with the expertise of the Intourist management team, will enable the joint venture to improve its product offering and expand its destination portfolio which is expected to drive future sales growth and profitability.

In the year ended 31 December 2009, Intourist had pro forma sales from operations within the scope of the joint venture of US$324 million and EBITDA of US$5.3 million. For 2008, pro forma sales were US$405 million and pro forma EBITDA was US$12.5 million; the decline in 2009 resulted principally from the impact of the financial crisis on the Russian tourism industry.2

Thomas Cook will initially acquire a 50.1% stake in the new joint venture company, for a maximum consideration of US$45 million (subject to an adjustment for net debt and working capital). The initial consideration will be satisfied by a cash payment of US$10 million and by the issue of US$35 million of Thomas Cook shares3. There may be a further adjustment of up to US$15 million by way of repayment of part of the initial consideration, or an increase in Thomas Cook's shareholding, if 2012 EBITDA is less than US$15 million; this adjustment will be based on a multiple of 6x 2012 EBITDA.

Thomas Cook has call options, and VAO Intourist has put options under which Thomas Cook may acquire the remainder of the shares in the joint venture over the next five years. The exercise price for the options will be determined by reference to 6x EBITDA in the year preceding the exercise of the options4. The business is expected to require c.US$30 million to US$40 million over the next four years to fund the integration and growth.

Intourist's existing management team will continue to run the business day-to-day under the leadership of its current President Alexander Arutyunov, strengthened by selected Thomas Cook representatives, including a new CFO, who will be appointed shortly. Denis Wathier, CEO of Thomas Cook France, will become Chairman of the joint venture board. Thomas Cook will control the board and consolidate the business and it will be reported as part of Thomas Cook's West & East Europe segment under the leadership of Thomas Döring.

The joint venture is conditional upon anti-trust clearance in Russia and certain other conditions and is expected to complete in or before February 2011.

Manny Fontenla-Novoa, Group Chief Executive, Thomas Cook Group plc said:

"We are delighted to be entering the fast-growing Russian market in partnership with VAO Intourist and Sistema. The move into Russia is in line with our established strategy of capturing growth in emerging markets. I am glad we have taken our time to secure a strong partnership and a financially attractive transaction. Together with Intourist's strong management, we see huge potential to establish a leading position in the market and to grow sales and profits by leveraging Intourist's local market knowledge, Thomas Cook's scale and strength in key destinations and our combined tour operating expertise."

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Notes to editors:

1. Intourist's hotel division and management company VAO will not form part of the joint venture and all financial and operating performance information has been adjusted to exclude the hotel division and management company.

2. For the year ended 31 December 2009, loss before tax for operations forming the joint venture as reported in the consolidation schedules was US$4.2 million. Gross assets as reported in the consolidation schedules as at 31 December 2009 were US$439.5 million. Excluding assets not transferring to the joint venture, estimated gross assets as at 31 December 2009 were US$76.1 million.

3. Thomas Cook shares will be owned by JSFC Sistema (VAO Intourist's current majority owner) or an affiliate. JSFC is one of the largest public diversified companies in Russia and the CIS, managing companies serving over 100 million customers in sectors spanning telecommunication, high-tech, oil and energy and aerospace, banking, real estate, mass-media and healthcare services. JSFC Sistema is listed on the Moscow and the London Stock Exchanges.

4. Thomas Cook has call options pursuant to which Thomas Cook will be able to acquire a further 24.8% of, or all of the remaining shares in, the joint venture in early 2014 and each year thereafter at a multiple of 6x the preceding year's EBITDA. VAO Intourist has put options pursuant to which it may require Thomas Cook to acquire a further 24.8% of the joint venture in 2014, and all of the remaining shares in the joint venture in 2015 and each year thereafter, at a multiple of 6x the preceding year's EBITDA.

About Thomas Cook Group plc

Thomas Cook Group plc is one of the world's leading travel groups with sales of £9.3 billion and 22.1 million customers. The Group operates under five geographical segments in 21 countries, and is number one or two in all its core markets. Its business is supported by 31,000 employees, a fleet of 94 aircraft and a network of over 3,400 owned and franchised travel stores.

About VAO Intourist

VAO Intourist is a vertically integrated tourist holding, representing the management company VAO Intourist and three business divisions, tour operating (NTK Intourist), hotels (Intourist Hotel Group) and retail sales (Intourist Travel Shop). Intourist is present in 80 regions of the Russian Federation. VAO Intourist is owned by JSFC Sistema (66%) and the Moscow city government (34%).