THOMAS COOK (INDIA) LIMITED ANNUAL REPORT 2008 DIRECTOR'S REPORT TO THE MEMBERS Your Directors have pleasure in presenting the Thirty-second Annual Report, together with the Balance Sheet and Profit and Loss Account for the year ended 31st December, 2008. Rupees in Million Year ended 31st December, 2008 2007 Revenues 2588 2230# Profit before Taxation and Exceptional items 536 393 Provision for Taxation 187 72 Provision for Deferred Taxation (1) (25) Provision for Fringe Benefit Tax 16 12 Profit after Taxation and before Exceptional item 334 334 Exceptional item, net of taxation 32 - Profit after Taxation 302 334 Transferred from.Reserve U/sec. 80 HHD of 18 13 the Income Tax Act, 1961 Transferred to General Reserve 34 34 Proposed Dividend* 93 124 EPS (Basic) after exceptional items 1.78 1.76 EPS (Diluted) after exceptional items 1.72 1.71 * Includes preference share dividend (# Regrouped in 2008) Operations & Results: The first half of the year witnessed a healthy growth in the travel & tourism industry. But the second half was impacted by the economic slowdown with individuals and corporates significantly reducing the travel spends. The arrivals of foreign tourists got impacted by the bomb blasts in certain tourist hubs in India and the situation was further aggravated by the 26/11 terror attack. International tourist arrivals in India in 2008 grew by 6% as against 14% growth in 2007. After showing a 26% growth in 2007, the passengers at Indian airports recorded a negative growth of 2%. Despite the above, your Company managed to increase the revenues by Rs. 358 million and Profit before Taxation and exceptional items by Rs. 143 million. During the year, the Company reaped the benefits arising out of integration of LKP Forex and Travel Corporation (India) Limited coupled with the new initiatives like E-Business, launch of new products and services catering to various segments of the customers. Your Company recorded turnover of Rs. 2588 million and profits before tax and exceptional item of Rs. 536 million with profit after tax being Rs. 302 million for the year ended 31st December, 2008. The basic earning per share of the Company is Rs. 1.78. As of December, 2008 end, Thomas Cook (India) Limited, alongwith its subsidiaries, continues to be the largest integrated travel group with its presence in 146 locations in India and 7 countries outside of India. Issues & Redemption: Your Company had issued 10,50,00,0001% Cumulative Non-Convertible Redeemable Preference Shares of Rs.10/- each amounting to Rs. 105,00,00,000 in the previous year. These Preference shares were due for redemption on 29th January 2009. Your Company successfully completed a Rights issue and on 21st January, 2009, allotted 5,06,50,699 fully paid-up equity shares of Re. 1/- each for cash at a price of Rs. 35.50 (including a premium of Rs. 34.50) per equity share aggregating to Rs. 1.8 billion. The aforementioned preference shares were then timely redeemed out of the proceeds of the Rights Issue. The new equity shares so issued were listed and available for trading on the Bombay Stock Exchange and the National Stock Exchange with effect from 28th January, 2009. With the redemption and a fresh issue of equity shares, the issued, Subscribed and Paid-up Share Capital underwent a change with the Authorised Share Capital remaining unchanged. The share capital structure as of 27th February, 2009 is as follows: Authorised Capital: Rs. Rs. Equity:- 34,58,27,060 Equity Shares of Re. 1/- each 345,827,060 Preference: (i) 11,47,60,000 Class A', 4.65% Cumulative Non-Convertible Redeemable Preference Shares of Rs. 10/- each 1,147,600,000 (ii) 3,55,294 Class B' 0.0010/ Cumulative Convertible / Redeemable Preference Shares of Rs. 10/- each 3,552,940 (iii) 3.02,000 Class 'C' 0.001% Cumulative Convertible / Redeemable Preference Shares of Rs. 10/- each 3,020,000 (iv) 12,50,00,000 1% Cumulative Non- Convertible Redeemable Preference Shares of Rs. 10/- each 1,250,000,000 2,750,000,000 Issued, Subscribed and Paid-up Capital: Equity:- 211,446,569 Equity Shares of Re. 1/-each 211.446,569 Preference: (i) 3,19,765 Class B' 0.001% Cumulative Convertible / Redeemable Preference Shares of Rs. 10/- each 3,197,650 (ii) 2,71,800 Class C' 0.001% Cumulative Convertible / Redeemable Preference Shares of Rs. 10/- each 2,718,000 217,362,219 Employees Stock Option Scheme (ESOP): With the objective of motivating and retaining key talent in the organisation and fostering ownership, your Company granted stock options to its employees. The Recruitment & Remuneration Committee administers and monitors the scheme. The applicable disclosures under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999('the Guidelines') are mentioned in the Annexure to the Directors' Report. Except for senior managerial personnel and two other persons, none of the employees have received options exceeding 5% of the value of the options issued during the year ending December 2008. Likewise, no employee has been issued share options, during the year equal to or exceeding 1% of the issued capital of the Company at the time of grant. Dividend: Your Directors recommend dividend on the Class 'B' & Class 'C' Preference shares as per their terms as also seek the ratification of the dividend paid to holders of Class 'A' & 10,50,00,000 1% Cumulative Non-Convertible Redeemable Preference Shares on redemption. The Directors are also pleased to recommend a dividend of 37.5% on the equity share capital. The proposed dividend on the equity capital and preference capital absorbs Rs. 93 million for dividend and Rs. 16 million for Dividend Tax. General Reserve: Your Directors have resolved to transfer Rs. 34 million to General Reserve out of the profits of the Company. With the transfer, the total reserves stand at Rs. 757 million as at 31st December, 2008. Directors' Responsibility Statement: The Directors would like to assure the Members that the financial statements for the year under review conform in their entirety to the requirements of the Companies Act, 1956 pursuant to Section 217 (2AA) and that a) The Annual Accounts have been prepared in conformity with the applicable Accounting Standards; b) The Directors have selected such accounting policies and applied them consistently except where otherwise stated in the notes to the accounts and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit of the Company for that period; c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. The internal auditors have conducted periodic audits to provide reasonable assurances that established policies and procedures of the Company have been followed. However, it must be recognised that there are inherent limitations in weighing the assurances provided by any system on internal controls; d) The Directors have prepared the annual accounts on a going concern basis. Promoters: Thomas Cook Group plc:- Thomas Cook Group plc is a leading international leisure travel group, created by the merger of MyTravel Group plc and Thomas Cook AG in June 2007. Thomas Cook Group plc is a fully listed company on the London Stock Exchange. Thomas Cook (India) Limited is a part of Thomas Cook Group. It remains as a subsidiary of TCIM Limited, an unlisted private company, incorporated under the laws of England and Wales having its Registered Office at Peterborough, England, U.K. and holding 55.87% of the post Rights issue paid-up equity share capital of the Company. Thomas Cook UK Limited (TCUK) apart from holding 21.45% of the post Rights issue paid-up equity share capital of the Company, also holds 100% holding in TOM Limited. Thus, TCUK indirectly holds 77.31% of the present paidup equity share capital of the Company. Group: Pursuant to intimation from the promoters, the name of the Promoters and entities comprising the 'group' as defined under the Monopolies and Restrictive Trade Practices ('MRTP') Act, 1969 are disclosed in the Annual Report. Persons constituting group coming within the definition of 'group' as defined in the Monopolies and Restrictive Trade Practices Act, 1969, for the purpose of Regulation 3(1)(e)(i) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, include the following: Airtours the Holidaymakers Limited Thomas Cook Group UK Limited (erstwhile Blue Sea Investments Limited) Blue Sea Overseas Investments Limited My Travel Group plc My Travel UK Limited Sandbrook Overseas Investments Limited Sandbrook UK Investments Limited TCIM Ltd. Thomas Cook Group plc Thomas Cook Investments (1) Limited Thomas Cook Investments (2) Limited Thomas Cook Overseas Limited Thomas Cook UK Limited Thomas Cook (India) Limited Operations in India [including Travel Corporation (India) Limited] During the year 2008, the Company successfully consolidated various businesses across Thomas Cook (India) Limited and its subsidiaries. The Company derived the synergy benefits in 2008 arising out of various initiatives like network harmonisation, closureof non-coreand loss making units, manpower realignment, and contributions from tourism boards for marketing spends, re-negotiation with vendors due to increased bargaining power. The one-time cost of integration amounted to Rs. 69.8 million. Thomas Cook organized a 19 city Summer Holiday Sale, a panIndia Holiday road-show offering the best Holiday deals. The road-shows were very successful giving a boost to the Domestic Business. The year 2008 was focused on Domestic Tourism with its launch through the brand name: My India, My Way. During the year, packages catering to the needs of different segments of customers were created. Your Company was the first Travel Company to offer Indian Rail Bookings online in partnership with IRCTC on its portal. Further, the Company also integrated with Hotels4u real time on www.thomascook.in giving its online customers first hand access to over 30,000 hotels in the Hotels4u inventory. The Company also tied-up with Axis Bank for pre-paid forex card which offers exchange of upto 7 currencies. Operations in Mauritius: 2008 has been a year of exceptional performance for Thomas Cook Mauritius Operations Co. Ltd, the foreign exchange arm of the Mauritius Holding entity. Net gains from dealings in the foreign exchange have grown by 38.60/ and Profit Before Tax has soared up by 42.1% as compared to 2007. The Foreign Exchange business has made great strides in creating geographical coverage and visibility by expanding its branch network from 10 to 14 and is expected to grow to 20 branches in the year 2009. Accolades and Awards: Thomas Cook (India) Limited has been the recipient of the following highly prestigious awards in 2008: TTG - Best Travel Agency India CN BC AWAAZ - Best Tour Operator Directors: In accordance with Article 131 of the Articles of Association of the Company, Mr. Dilip De, Mr. Vinayak K. Purohit and Mr. Manny Fontenla-Novoa retire by rotation and being eligible, offer themselves for re-appointment to the Board. Dr. Angus Porter was appointed as an Additional Director with effect from 29th July, 2008. Mr. Rakshit Desai was appointed as an Additional Director and Executive Director - Travel Services with effect from 25th November, 2008. Mr. Heinrich-Ludger Heuberg was appointed as an Additional Director with effect from 27th February, 2009. As Additional Directors, Dr. Porter, Mr. Desai & Mr. Heuberg hold office upto the date of the ensuing Annual General Meeting of the Company. The Service Agreement of Mr. Rakshit Desai, who was appointed as Executive Director - Travel Services, was entered into on 2nd February, 2009. The same has been included in the Notice convening the Annual General Meeting. Mr. Madhavan Menon was re-appointed as the Managing Director of the Company for a period of three years w.e.f. 1st May, 2009. The above appointments and re-appointments form part of the Notice of the Thirty-second Annual General Meeting and the relevant Resolutions are recommended for your approval. Profiles of these Directors, as required by the Listing Agreement provisions, are given in the Notice/ Corporate Governance Report forming part of this Annual Report. Auditors: M/s. Lovelock & Lewes, Chartered Accountants, Auditors of the Company who retire at the forthcoming Annual General Meeting are eligible for re- appointment and have expressed their willingness to accept office, if re- appointed. They have given a certificate to the effect that the re- appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956. Your Directors recommend their re- appointment. M/s. Price water house Coopers, Chartered Accountants, Colombo, Sri Lanka, are recommended for re-appointment as Branch Auditors of the Sri Lanka Branch of the Company. Auditors' Report: Regarding Clause 4(a) of the Auditors' Report, based on legal opinions obtained, the Company has considered non-compete fees paid during the year as an allowable expenditure for computing the provision for tax for the current year. The Company has a reasonable case to claim this item as an allowable expenditure. Regarding Clause 4(b) of the Auditors' Report, the appointment and remuneration of Mr. Rakshit Desai, Executive Director Travel Services, is subject to the approval of the members in the general meeting and the Central Government of India for which an application has already been made. Subsidiary Companies: The Audited Statement of Accounts along with the Directors' Report of Travel Corporation (India) Limited, Thomas Cook Insurance Services (India) Limited, Thomas Cook Tours Limited, Indian Horizon Travel & Tours Limited and the Consolidated accounts of Thomas Cook (Mauritius) Holding Company Limited for the year ended 31st December, 2008 are separately attached as required under the provisions of Section 212 of the Companies Act, 1956. Particulars regarding conservation of energy, technology absorption and foreign exchange earnings and expenditure Your Company being in the Tourism hospitality industry, its activities do not involve in any expenditure on Technology and Research and Development and therefore, the other particulars in the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 are not required to be submitted. During the year, the foreign exchange earnings amounted to Rs. 639 million, whereas, theCompany has incurred Rs. 60 million as expenditure in foreign currencies towards interest, bank charges, professional fees as well as travelling for promotional activities, subscriptions, etc., as disclosed in Schedule Q Note 2(h) and 2 (f) in the Notes to the accounts. Fixed Deposits: Your Company has not accepted deposits from the Public within the meaning of Section 58A of the Companies Act, 1956 and as such no amount principal or interest was outstanding on the date of the Balance Sheet. Listing of Shares: Your Company is listed on two Stock Exchanges in India viz. Bombay Stock Exchange Limited, Mumbai and National Stock Exchange of India Limited, Mumbai. The Listing Fees for the Financial Year 2008-2009 have been paid to both the Stock Exchanges within the prescribed time limit. Employees: Relations with the employees continued to be cordial throughout the year. Your Directors place on record their appreciation of the efforts, dedication, commendable teamwork and exemplary contribution of the employees in the various initiatives of the Company and contributing to the performance of the Company during the year under review. Information pursuant to Section 217(2A) of the Companies Act, 1956: The particulars required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, forms part of this Report and have been annexed herewith. Corporate Governance: Your Company continues to be committed to good corporate governance aligned with the best corporate practices. It has also complied with various standards set out by SEBI and the Stock Exchanges where it is listed. The disclosures as required under the Corporate Governance standards have been furnished as a part of this report. Your Company has taken the requisite steps to comply with the recommendations concerning the Corporate Governance. The Management Discussion and Analysis Report forms part of this Annual Report. A certificate from the Auditors of the Company regarding compliance of conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is attached to this report. Acknowledgments: Your Directors thank all the Shareholders, Customers, Vendors for their continued support throughout the year. We also thank Ministry of Tourism, Reserve Bank of India and other Banks, Financial Institutions, Government of India, State Governments, and other Government agencies for the support extended by them and also look forward to their continued support in future. Your Directors also wish to place on record their appreciation of the contribution made by the Company's employees at all levels but for whose hard work, solidarity and support your Company's consistent growth would not have been even possible. FOR AND ON BEHALF OF THE BOARD UDAYAN BOSE - CHAIRMAN Place: Mumbai MADHAVAN MENON - MANAGING Dated: 27th February, 2009 DIRECTOR Annexure to the Directors' Report Disclosures under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. Scheme Name: ESOP 2007 Granted on 25th July 2007 1. Options Granted: 1167875 2. Pricing Formula: 95% of the closing market price on that exchange where higher shares are traded 3. Options Vested: 1104125 4. Options Exercised: 13540 5. Total number of Ordinary Shares arising as a result of exercise of Options: 13540 6. Options Lapsed / Forfeited / Cancelled: 231085 7. Variations of terms of options.: The ESOP 2007 Scheme was amended vide Postal Ballot Notice dated 21st August 2007 and approved on 12th October 2007, for the purposes of recovering the Fringe Benefit Tax (FBT) from the employees and varying certain terms of the Scheme according to SEBI guidelines 8. Money realised by exercise of the Options.: Rs. 837,990.60 9. Total number of Options in force: 923250 Granted on 10th July 2008: 1. Options Granted: 1414250 2. Pricing Formula: 95% of the closing market price on that exchange where higher shares are traded. 3. Options Vested: None vested so far 4. Options Exercised: 0 5. Total number of Ordinary Shares arising as a result of exercise of Options: 0 6. Options Lapsed / Forfeited / Cancelled: 174250 7. Variations of terms of options.: None 8. Money realised by exercise of the Options.: N.A. 9. Total number of Options in force: 1240000 10. i) Details of Options granted to senior managerial personnel in 2008: Appendix-A ii) Any other employee who receives in any One Year of grant of Option amounting to 50/ or more of options granted during the Year Appendix-B iii) Identified employees, who were granted Options, during any One Year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of the grant: None 11. Diluted Earning Per Share (EPS) calculated in accordance with Accounting Standard 20 issued by ICAI for the year ended 31st December, 2008. 1.72 12. i) Method of calculation of employee compensation cost Reported Profits: ii) Difference between the employeecompensation cost so computed at (i) above and the employee compensation cost that shall have been recognized if fair value of Options had been used. iii) The impact of difference on profits and EPS of the Company for the year ended 31st December, 2007 had fair value options had been used for accounting Employee Options: Granted on 25th July 2007 Granted on 10th July 2008 Intrinsic Value Method 301962632 Add: Intrinsic Value: 2734702 Less: Fair Value: 30588842 Adjusted Profits: 274108492 Reported Basic EPS: 1.78 Adjusted Basic EPS: 1.61 Reported Diluted EPS: 1.72 Adjusted Diluted EPS: 1.56 - Granted on 25th July 2007: 13. Weighted Average exercise price of options granted during the year is less than market price of stock on the grant date. Granted on 10th July 2008: Rs. 77.62 14. A description of method and significant assumptions used during the year to estimate the fair value of options granted during the year. The fair value of options has been calculated by using Black Schole's Method. The assumptions used in the above are: 1) Risk free interest Rate 9.26%-9.28% 2) Expected Life 5.50 - 6.50 years 3) Expected Volatility based on daily closing Market 40.70%-42.87% Price 4) Expected Dividend Yield 0.96% 5) The price of underlying share in the market at the 81.70% time of grant Appendix - A (Details of options granted to and accepted by Senior Managerial Personnel) Name of Senior Designation No. of Options Offered in Managerial Personnel 2007 2008 1. Mr. Madhavan Menon Managing Director 2,05,000 2,50,500 2. Mr. Vinayak K. Purohit Executive Director 1,62,500 1,85,000 Finance 3. Mrs. Nalini Gupta President & Head - 1,50,000 1,85,000 Travel Businesses 4. Mr. Gautam Sharma President & Head - 1,08,750 - Marketing & Financial Services 5. Mr. Parag Mehta President & Head - 1,08,750 1,00,000 Foreign Exchange 6. Mr. Amitabh Pandey President & Head - 63,750 86,000 E-Businesses 7. Dr. D. Prasanth Nair President & Head - 56,750 86,000 Human Resources & Special Projects TOTAL 8,55,500 8,92,500 Appendix- 8 (Employees who received in 2008, grants of Options amounting to 5% or more of options granted during 2008) Name of Designation options Percentage Employee offered of options in 2008 offered in 2008 1. Mr. Vishal Suri Chief Operating Officer - 73,000 5.16% Leisure Travel (Outbound) & Domestic 2. Mr. Sunit Suri Chief Operating Officer - 78,000 5.52% Leisure Travel (Inbound) TOTAL 1,51,000 (Note: There were no employees who received in 2007, grants of Options amounting to 5% or more of options granted during 2007.) FOR AND ON BEHALF OF THE BOARD Place: Mumbai UDAYAN BOSE - CHAIRMAN Dated: 27th February, 2009 MADHAVAN MENON - MANAGING DIRECTOR The Management Discussion and Analysis Report: India Travel and Tourism Industry:- India is an attractive and preferred tourist destination. A 5,000 years history, rich cultural heritage, natural beauty, diversity of religion and alternative medicine fascinate budget and luxury travelers alike. Tourism in India has registered significant growth in the recent years. In 1951, international tourist arrivals stood at around 17,000 which has gone up to 5.36 million in 2008. Indian tourism is one of the most diverse products on the global tourism scene. India has 26 world heritage sites. It is divided into 25 bio-geographic zones and has wide ranging eco-tourism products. Apart from this, India has a 6,000 km coastline and dozens of beaches. India's great ethnic diversity translates into a wide variety of cuisine and culture. India also has a large number of villages, plantations and adventure locations. India is home to a great variety of wildlife and its wildlife reserves are well known throughout the world. It also has one of the world's biggest railway systems opening possibilities for those interested in rail tourism. India also has excellent hospitals offering affordable medicare and traditional healthcare systems like Ayurveda. With rising incomes, growing aspirations and increasing globalization the domestic tourism is also on the rise. More Indians are traveling domestically and aboard, for leisure. A growing airline industry, cheaper fares and improvement in the travel related infrastructure over the last few years has contributed to this. Tourism sector holds immense potential for Indian economy. It can provide impetus to other industries through backward and forward linkages and can contribute significantly towards the country's GDP. According to the Tourism Satellite Account of India (TSA), tourism contributes to 6% of the total GDP and its share in employment; both direct as well as indirect is 9%. GOVERNMENT INITIATIVES: Slowdown in the source markets coupled with terrorist attacks have affected the foreign tourist arrivals in India adversely. In order to revive the Inbound Tourism, the Indian Government has taken the following initiatives: 1. Market Development Assistance (MDA) Scheme: Ministry of Tourism will provide support for promoting tourism in India. 2. Under the Hospitality programme, Ministry of Tourism will invite editorial teams of travel publications, travel writers, journalists, photographers, etc. to effectively project India as an attractive multi- destination tourist centre. Expenditure for travel, etc. of the editorial teams will be met by the Ministry. 3. The Ministry will also provide benefits to organisers of MICE (Meetings, Incentives, Conventions and Events) programmes, which have emerged as a substantially high component of growth inbound tourism. 4. The Ministry would encourage the private tourism trade to organize annual trade mart wherein all travel agents, travel operators, travel journalists would participate to promote tourism. 5. Tourism industry has declared 2009 as the Visit India Year. Those who visit India in 2009 would thereafter experience India's rural tourism, eco tourism, adventure tourism, wellness tourism in specially worked out packages in 2010 and 2011. 6. India tourism offices overseas shall liaise with the media and travel trade in their respective regions and examine the possibility of organizing familiarization tours to Mumbai and/or other regions of the country, to get a first hand information on the ground realities. Other initiatives taken by the government are: The rate of service tax has been reduced by 2%. Ministry of Tourism is conducting road shows in Europe and the Americas. Make maximum use of the opportunities that will be presented to India when we host the 2010 Commonwealth Games in New Delhi. Present Scenario: After registering a 9% growth in last three years, Indian Economy's growth declined to 7% (estimated). The Rupee depreciated against a Dollar by 26%. Inflation (WPI), which was at 3.80/ at the beginning of 2008, reached to a peak of 12.1% in August 2008. Crude oil price went as high as S 147 a barrel in July '08. The above had a direct impact on Travel and Tourism industry in 2008. Airlines increased the fuel surcharges and hence air travel became costlier. Depreciating Rupee increased the land cost of the holiday packages. Corporates reduced the travel spends as their bottomlines were under pressure. FINANCIAL SERVICES: A turbulent 2007 paved the way for a better 2008. The Rupee that appreciated in 2007 moved the other end of the curve and depreciated 26% over 2007. This together with the positive trend that prevailed in the first half of the year helped the foreign exchange business to rake in volumes. The synergy benefits arising out of merger of LKP Forex Limited were fully fructified in the current year and the benefit of rationalization was clearly visible. The year 2008 was a mixed bag with sharp movement in Rupee especially during Q1 2008 and then a period of steady movements during Q2 & Q3, followed by a sharp depreciation again in Q4. Turmoil in the financial markets and the Fit outflows were seen as major factors influencing the movement of the Rupee. The credit squeeze in the Indian Markets that followed in the wake of the global financial crisis saw the RBI stepping in to announce a slew of rate cuts to infuse capital in the economy. Your Company managed to insulate itself in these difficult times in the foreign exchange business with a number of measures to ensure profitable volumes and took advantage of the credit squeeze to improve its margins in the wholesale business. The Retail business surged ahead especially in 'U-Special', a product for students going overseas for studies, which was launched in 2007. During the year the business tied up with a leading private bank to offer Prepaid Travel cards which offers the flexibility of offering six currencies thereby allowing the customer the choice for destination currencies. The business faces challenges in the coming months given the global meltdown and recession in many big economies. Curtailed travel spends by many corporates and a slow down in the outbound business may impact its performance though business is making every effort to tide this over by managing costs prudently and focusingon niche retail segments to continue its growth trajectory. TRAVEL & RELATED SERVICES: A strong, consumption-driven economy, a large and increasingly affluent middle class and the on-going liberalization of air transport will contribute to around 10 per cent annual growth in Indian outbound travelers. Better negotiation and strategic alliances between travel partners would be a key to sustaining the higher revenues. The travel market is changing dramatically. With the internet, e-mails, mobile phones and other communication technology becoming a part of daily lives, a whole world of information and choices are available to today's travelers, which make it critical for the travel agents to constantly innovate in order to understand the customer's needs and expectations. With high degree of comfort of the internet bookings, online business is expected to gain increased momentum and increase in volumes. All Thomas Cook products are available through our website. An exclusive warehouse has been set up to execute all online bookings. With our new portal www.thomascook.in, having commenced a range of travel related products can be booked with real-time Availability and confirmations. This new ecommerce enabled portal is focussed on functionality: an ease in bookings and simple transaction processes coupled with online payment via credit card and internet banking. Domestic tourism will grow rapidly in the coming years. The Company launched several tour packages to capitalize on the growing demand from the domestic tourism. India remains an attractive destination for foreign tourists. The UK, US and Canada together contribute one third of the total arrivals. New forms of inbound tourism like medical, rural, religious, adventure, etc. are on the rise. The start of the year saw a buoyant economy with a GDP of 8-9%. This led to continuation of the spurt in aviation growth, particularly in the low cost segment. The surplus seat capacity led to reduction in prices, and had a chain effect of being able to woo away the high-end rail traveller to air travel. Post July 08, however, the steady rise in ATF fuel prices, coupled with the global economic crisis which impacted all sectors, however led to a fall in demand for travel, as corporates increasingly cut costs in order to survive the economic slowdown. This was further accentuated by the 26/11 crisis in Mumbai. After showing a 26% growth in 2007, the passengers at Indian airports recorded a negative growth of 2%. The zero percent commission by airlines to the agents which came into play partially will lead to some aggressive deals from the airlines for larger players. In the zero percent scenario the ability of the Travel Management Company to differentiate its products and offer Value Added Services would be the key to future growth prospects. The combined strength of Thomas Cook and Travel Corporation (India) Limited (TCI) offers us a higher leverage with our partners in terms of financial benefits. The outlook for 2009 indicates that the effects of the global economic crisis could continue for some time. The Company has embarked on a major software initiative project which will provide 13213 facilities via a Self Booking Tool to its corporate customers, where all services would be available to the customer seamlessly offered on one platform. Another initiative to be launched shortly will lead to all back-end operations being centralised leading to uniformity, standardisation and higher quality of service to the customer. These initiatives are expected to be fully in place in Q1 2009. Airlines are continuously lowering their fares lower to woo more customers in a stagnant economy (while taxes keep rising). This erodes the revenue margins and may lead to lower revenues. The zero commission environment coupled with the economic slowdown is forcing some customers to undertake bookings themselves on portals directly, thereby eliminating the travel agent as an intermediary. This will be countered by us by offering these customers a 'low fee-no frill' service on the Self Booking Tool. Efforts are being made to enhance our customer base as well as sales base by signing on a few key large market customers. The Company will continue to strive in dovetailing its actions and strategies to take advantage of the ever changing and growing travel sector, and continue to interact and influence the government, in continuing to provide the Indian tourists with global bench-marked services and an appropriate infrastructural platform to the tourism sector. Uncertainties such as terror attacks, epidemics, conflicts, natural calamities and the effects of the global business downturns are risks the travel and tourism industry will be susceptible to; these perils cannot be disregarded in the future. MEETINGS, INCENTIVES, CONFERENCES AND EVENTS (MICE): MICE or Meetings Incentives Conferences Events is the fastest growing section of the International tourism market. It caters to various forms of business meetings, employee and stake holder rewards, international business conferences, conventions, events and exhibitions. Indian corporates are increasingly looking at overseas destinations in South East Asia, Western Europe, Australia, Middle East, Japan, Canada &Africa for their annual conferences, rewards and events. The importance of the MICE industry lies in the fact that it converts the annual business meetings and conferences into a glamorous and enjoyable event for the delegates and attendants. Our incentive division works closely with the client to tailor make a program best suited to his needs and budgets. These individual programs being created are unique in nature normally provide us a client with a long-term relationship. The incentive division amongst other services assists in selection of a destination, providing a choice of airlines using the most economical route and complete logistic support on ground. The Company has explored the huge potential in the MICE segment of business and has achieved substantial growth. FINANCIAL PERFORMANCE: The Company has posted profit before tax (and before exceptional items) of Rs. 536.5 million and the profit after tax (after exceptional items) of Rs.301.9 million. On a consolidated basis, the profit before tax (and before exceptional items) stood at Rs. 631.2 million and the profit after tax (after exceptional items) was Rs. 373.3 million. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY: Internal control systems are basically of four types namely Strategic, Operational, Financial and Legal. All the four types of systems have been integrated to ensure that the Company's Business Objectives are duly accomplished. These systems are being regularly reviewed and wherever necessary are modified or redesigned to ensure better efficiency and effectiveness. In 2005, our Company implemented an integrated Front Office System (FOS) - the Project Vector, to give effect to various system level controls. The front office system is backed by an integrated SAP Accounting System. These twin integrated systems form the backbone of the overall control environment. Further user requirements are taken care on an on- going basis so as to derive maximum benefits of these information systems. The systems are subjected to supervision by the Board of Directors and the Audit Committee, duly supported by the Corporate Governance, voluntarily observed since the last two decades and statutorily applicable from the financial year ending October 2001. Control environment has been well laid down through written policies pertaining to integrity and business ethics, prevention of insider trading, anti money laundering and human resources. These policies are implemented through operational and financial manuals. Corporate level Credit Policy is implemented to effectively monitor the Credit Business to Corporates and thereby effective funds management is ensured. Considering the key role played by information Technology in the various business processes of the Company, proper framework has been provided for the data security through the information Systems Security Policy laid down by the Management. Periodical reviews are carried out to ensure effective implementation of the policy in all the functional areas. All the systems are subject to Internal Audit by in-house Internal Audit department as well as outside consultants and agencies in the form of Audit assignments such as Operations audits, Finance & Accounts audits, Support functions audits, Systems and IT audits, Statutory compliance audits. These are further supported by the Statutory Auditors who validate that the financial reporting is true and fair. The President & Head - Legal & Company Secretary heads the Compliance function, the Vice-President - Foreign Exchange is the Money Laundering Reporting Officer (MLRO) overseeing the AML compliance and the Associate Vice-President- BPI & Audit, in addition to his role as an Internal Auditor, conducts constant spot checks to ensure that the compliances of all rules and regulations including business processes are met. Clause 49 Audits are conducted by External Auditors and their recommendations are implemented for effective Corporate Governance. The Company has also adopted the system of Concurrent Audit for its branches in the foreign exchange business with effect from October 2003 as per the requirements of RBI. Anti Money Laundering Manual for India is in force since 2003 with revisions therein according to the modified guidelines of RBI. Anti Money Laundering manual for Mauritius and Sri Lanka is in force and effectively monitored. RISKS AND CONCERNS: General:- Corporate level Risk Matrix is approved by the Board and Company resorts to Risk Management methodologies to ensure that various business risks, identified well in time, are assessed for their possible impact and are effectively mitigated through various control measures. Open risks, if any, are adequately covered by insurance. Business Continuity Plans (BCPs) have been designed for the key operations of the Company to address any disaster event. BCPs are further being reviewed during every year, for effective updation. The Company has a Risk Committee chaired by the Managing Director, which meets monthly, in addition to emergency meetings, whenever required to address the risk issues relating to various business and support areas and monitor the critical factors in order to effectively address them. The Risk Committee approved the risk mapping for India, which lists down major risks faced by the Company in India and the mitigation controls put in place to bring down their impact. To address the information Systems related risk issues, the Company has constituted Information Systems Security Committee (ISSC) which has its quarterly meetings. Minutes of the ISSC are put up in the Risk Committee which approves the recommendations made by the ISSC for implementation. The Risk Committee in turn reports to the Audit Committee, constituted by the Board. INFORMATION TECHNOLOGY: Information Systems Security Committee: The Committee consists of members from the Business Process Improvement & Audit department and the Human Resources Department. Member from the information Technology (IT) department acts as Rapporteur. The Committee meets quarterly before each of the Risk Committee Meeting. It also meets when significant changes take place in the information Systems and / or Technology that would affect the security and control perspective favourably / adversely and on any significant breaches of the security / security policy. Terms of reference: This Committee has overall responsibility for all areas concerning IT security. SERVICE QUALITY & CUSTOMER SERVICES: The Service Quality & Customer Services department is an independent department reporting directly to the Managing Director. It has been able to infuse tremendous awareness in the organization on the need to build a 'Customer Centric' culture in the organization that provides us a cutting edge over the intensifying competition and as a most conspicuous differentiating factor for the increasing discriminating customers. Going forward the objective will be to leverage the current vaqpalz;NCMes acs all the Customer touch points and steer strategically the processes and technology changes to align the organization with the volatile market conditions. This has been categorized for action as follows: * Greater focus on Customer service. * Ensuring a structured service resolution and Customer retention. * Track multi channel Customer interactions. * Recording, Managing and Integrating Customer lifecycle history. * Build an adequate Customer Experience Management process During the year 2008, the department undertook the following initiatives:- IMPRESSION MANAGEMENT TRAINING - 13 one-day training programs were conducted by an external agency across the country to ensure that behavioural skills are an integral part of all employees. INTERNAL & EXTERNAL BENCHMARKING - In order to develop Service Standards, the department had collated best practices in processes and soft skills across our Organization and that of our competitors. The data from mysteryaudits and customer feedback were used to develop Internal and External Benchmarks. CUSTOMER COMMUNITY - A customer meet was organized of our repeat clients in Mumbai to provide an opportunity for our customers for their feedback and to showcase the new product offerings. VOICE OF CUSTOMER PRESENTATIONS - So as to create awareness amongst our employees on the significance and importance of customer feedback / complaints, a presentation module was designed and developed based on customer complaints and appreciations received during the year. SEAMLESS CUSTOMER SERVICE AWARDS - The objective of these awards is to create the importance of customer service by rewarding those employees who go 'beyond the call of duty'. These awards are provided on a quarterly basis and culminate in annual awards which also recognize those support departments that have ably assisted the front line through the year. MINIMUM STANDARDS - Basic minimum Service Standards in processes and soft skills were developed so as to have consistent levels of service in the organization. These standards were evolved from customer complaints, quality audits and observations and shared with all in the respective businesses. COMPLAINT MANAGEMENT ANALYSIS - Complaint Management software has been specifically made for the Service Quality and Customer Care department to capture complaints and their service recovery, thereby ensuring detailed analysis on the service detractors of the Company. This ensured an effective recovery of the customers' concerns. CUSTOMER RELATIONSHIP MANAGEMENT (CRM) - We have completed the collection and consolidation of contact details in a structure manner of our past customers from all businesses (customer interface touch points) in order to leverage for future customer relationships and cross sell our large range of products and services, thus increasing business. UNIFORMS - The Company introduced new uniforms for all customer interfacing employees across India, as a well groomed appearance instills confidence in a customer and projects a positive and efficient outlook to all. The Service Quality and Customer Care department aims to address all aspects of customer service performance standards, across businesses, with the objective to build Thomas Cook into 'Centers of Excellence' in Customer Service. HUMAN RESOURCES: In keeping with our mission of Exceptional Service from Exceptional People', the Human Resources department in Thomas Cook (India) Limited is focused on building a world class service organization with a high degree of performance orientation by enabling the development of cutting edge leadership competencies, imparting dynamism with a bias for action' and endeavouring to enhance the employee engagement levels. Human Resources, in Thomas Cook strive to enable the organization to achieve its objectives by constantly aligning the people factor' with the business needs'. This creates a need for constantly evolving and stimulating the systems and processes in the context of organizational culture. As part of the HR Action plan, we have initiated steps to work on each of key variables that affect human resources, both at a strategic level and at an operational level. Towards building an organization focused on our strategic objectives, 2008 saw rebuilding of the Leisure Travel Inbound and Corporate Travel Business teams, by inducting senior level talent from the industry. 2008 also witnessed the consolidation and realisation of synergy benefits accruing from the smooth integration with both LKP and TCI. The Performance management system X-Factor', launched in 2006 with the objective of building a Performance Oriented' organization with emphasis on enhancing the process quality and establishing a linkage between results and rewards enabled a greater focus on performance. We will continue to strengthen the process based on feedback. The Company continues to conduct training and development programs at various levels. At the junior Level, the programs are focused on continuous improvement of functional skills and developing effective interpersonal capabilities. At Middle and Senior Management levels, the interventions are geared towards developing a holistic business perspective. Towards this objective, a structured Management Development intervention MILE' was launched last year, in association with Indian Institute of Management, Ahmedabad (IIMA) and Indian Institute of Management, Indore (IIMI). A major emphasis is given to quality and time bound recruitment, which ensures that the down time is minimized. The Company continues to nurture talent through TCMLP (Thomas Cook Middle Leadership Program) and TCETP (Thomas Cook Executive Trainee Program) so as to create talent pipeline at various levels in junior and middle management. In addition last year, we initiated TCMTP (Thomas Cook Management Trainee Program) towards the same objective but with a focus on a different set of fresh talent. With the objective of creating talent, we initiated under the umbrella of Center of Learning' a program for aspiring tour managers and in collaboration with NMIMS - a leading autonomous institute in Mumbai - a one year post graduation qualification titled PGDBM (Tourism)- Post Graduate Diploma in Business Management (Tourism). In addition, employee activities FUNZONE' are undertaken every month towards creating a fun and learning working environment and to enhance bonding. We realize that the only sustainable competitive advantage in today's dynamic, challenging and rapidly changing context is human resources. Towards that, we are in the process of constantly energizing and revitalizing our people by equipping them with cutting edge skills, developing a holistic perspective and imparting in them, a drive for excellence, so as to enable them to be the best in class and in turn, facilitate the movement of Thomas Cook India From Good to Great'. Employee Strength: The financial year end employee strength was 2,349 including persons employed at Sri Lanka, Mauritius, TO and in the insurance company. Employee Relations: Peaceful and cordial relations continue with the employees. The Management wishes to place on record its acknowledgement and appreciation for the support extended by all the employees of the Company. Your Company is undergoing a transformation in its business models while at the same time experiencing rapid growth in all aspects. This provides both opportunities for Thomas Cook to gain the major market share and grow rapidly, as well as a challenge to maintain profitability and make itself more cost efficient. CAUTIONARY STATEMENT: Statements forming part of the Management Discussion and Analysis covered in this report may be forward-looking within the meaning of applicable securities laws and regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Company's operations include demand and supply conditions, changes in government regulations, exchange rates, tax laws, monsoon, natural hazards, economic developments within the country and other factors. FOR AND ON BEHALF OF THE BOARD Place: Mumbai UDAYAN BOSE - CHAIRMAN Dated: 27th February, 2009 MADHAVAN MENON - MANAGING DIRECTOR