Oral evidence: Thomas Cook, HC 39
Oral evidence, 15 October 2019.
Witnesses
Sten Daugaard, Peter Fankhauser, Frank Meysman, Warren Tucker, and Martine Verluyten.
Chair
Thank you very much to the five of you for coming to give evidence this morning into the collapse of Thomas Cook. In the Gallery behind you there are former staff—probably customers as well—of Thomas Cook, so can I ask you first of all, Peter Fankhauser, former chief executive of Thomas Cook, if there is anything you would like to say to the staff who have lost their jobs and to customers who were stranded on holiday and those who had holidays booked who are not able to go to them, and indeed to taxpayers who are now picking up the bill for the collapse of the company you managed? Is there anything you would like to say before we get on to our questions?
Peter Fankhauser
Yes, Chair. Thank you very much for giving me this opportunity to start with. You heard me, probably, saying it already, but I really want to repeat it in front of the members of the Select Committee—how deeply sorry we are that we could not save this iconic brand and this company that has a long-standing history in this part of UK industry history. I am deeply sorry about this failure, and I am deeply sorry for the distress we caused to millions of customers who booked holidays with us and who were on holidays with us. I am deeply sorry for our suppliers, who were longstanding partners and who were loyal to us throughout this time. I am especially sorry for all my colleagues who worked extremely hard and tirelessly to make Thomas Cook a better company. Let me add one further sentence: I am grateful for the professional work that the CAA did with the repatriation under the leadership of Richard Moriarty, and I am extremely proud of the 2,000 colleagues who supported the CAA in this repatriation until the very last customer came home, because this proved to me that “Customer at our Heart” was not just a phrase; it was a real part of our culture.
Chair
And what exactly are you sorry for, Mr Fankhauser?
Peter Fankhauser
I am sorry for not being able to turn round this company at pace, and to really pay back this debt pile. When I started as CEO in 2014, I was fully aware of the challenge, and I tried to tackle this challenge by really transforming the business from an old-fashioned tour operator into a modern tour operator by differentiating our offering and our services, to differentiate us from companies that were better funded than we were. Obviously, the pace at which we could do that was not fast enough. It was constrained by this huge debt pile. Since 2012, we paid £1.2 billion of interest costs and refinancing costs. Imagine if only half of that could have been reinvested in the business; we could have been faster.
Chair
Is there anything that you should have done differently Mr Fankhauser?
Peter Fankhauser
Yes, of course. I am generally a very reflective person, and I have now had time to reflect on what I could have done differently. As I said, if I could start from scratch then I would probably have pushed even more on the pace, but it was difficult for me to find the balance between pace—and the money you need to transform such a big business at pace—and the investments that we had to make, and we were forced to make, taken back always by this debt pile and the interest costs. We were sometimes overtaken by external events as well, which made it difficult to generate the cash that we needed to pay back the debts.
Chair
You were chief executive for five years. Is that right, Mr Fankhauser?
Peter Fankhauser
Yes.
Chair
And in those five years, bonuses worth £20 million were paid to the board members. Is that correct?
Peter Fankhauser
I can just talk about my pay, and—
Chair
Well, you are chief executive, Mr Fankhauser. That is the number that has been reported: £20 million-worth of bonuses to board members over the five years that you were chief executive. Does that sound about right to you, Mr Fankhauser?
Peter Fankhauser
Look, I can talk about my pay, and I am not going to try to defend my base pay because, in relation to a normal worker’s base salary, it is an enormous amount. What I can tell you is that for this base pay I worked extremely hard and exhaustively, and I did not get a bonus for 2018, or for 2019 of course. Half of my total compensation, which was in the press, was paid in shares. Thirty per cent of the bonuses were paid in shares, and one long-term incentive plan paid out in 2015, so £4 million-worth was in shares, and my commitment to the company was shown by the fact that I never sold one share. I believed in the company and in the success of the company. That is what I have to say about my salary. I have also—
Chair
How much of your pay can be clawed back by the insolvency service?
Peter Fankhauser
We have a clawback provision; this is a clawback within two years. The bonus of 2017 could, theoretically, be clawed back, if this qualifies for a clawback.
Chair
Do you think that the bonus you were paid in the last two years should be clawed back?
Peter Fankhauser
The bonus in the last two years, ’18 and ’19? There was no bonus, and it is not up to me to decide that.
Chair
Will any of your pay, Mr Fankhauser, be able to be clawed back to pay some of the debts, some of the redundancy pay, that you have left the company with?
Peter Fankhauser
The clawback provisions are just for the eligible—or are for the bonus I got in 2017.
Chair
What was your bonus in 2017, Mr Fankhauser?
Peter Fankhauser
It was about £750,000, and 30% of that was in shares. Those shares are, of course, now nul and void.
Chair
So about £500,000 or £600,000 of the bonus was in cash. Is that right?
Peter Fankhauser
Yes, that is right.
Chair
How much of that will be able to be clawed back? I am just trying to get to this point; I know I have asked several times, but I haven’t yet had an answer. How much of that will be able to be clawed back?
Peter Fankhauser
Honestly, Chair, I was not thinking about that, because I am not the one who is setting my pay and I am not the one who is deciding my bonus, so my—
Chair
You have said, Mr Fankhauser, that you are a reflective person, and you have said about the work that your staff did at Thomas Cook and how customer service wasn’t just a phrase; it was the whole ethos of the people who worked there. Of that money that you were paid in a bonus to recognise the work that you did, do you think that that bonus should be paid back, and maybe—if I can put it like this—be put to better purpose? It could be used to pay the redundancy pay; it could be used to compensate taxpayers who are now bailing out the company that you guided, and you guided in the end into the rocks, Mr Fankhauser. Do you think that that bonus should be paid back?
Peter Fankhauser
I fully understand where you are coming from, and I fully understand the sentiment of the public. I fully understand as well the sentiment of some of our colleagues. However, what I can say to that is that I worked tirelessly for the success of this company, and I am deeply sorry that I was not able to secure the deal, but it was not single-handedly that I failed. There were multiple parties who had to contribute to the deal, which did not finally succeed.
Chair
Your apologies would perhaps ring a bit more true if you were willing to do something about it. At the moment I am afraid, Mr Fankhauser, the number of times you have said “sorry” rings rather hollow when you are not willing to put something back. Maybe in your reflections, you could reflect a little bit more on that.
Peter Fankhauser
In my reflection I will take that back, Chair, and I will consider what is right, but I am not going to decide that today.
Mark Pawsey
I would like to ask a question of each of our witnesses individually, if I may. I think each of you has been provided with a timeline of events. You have each had an opportunity to take a look at that; you have had plenty of time to look at that. Can I ask each of you—perhaps starting with Mr Tucker and then moving along—are you happy with the timeline of events? Is it accurate, and is there anything significant missing?
Warren Tucker
Good morning, everyone. Before I answer that question, could I just associate myself with Peter’s comments; that despite his and the team’s exhaustive efforts, the company wasn’t able to be rescued. I, too, am sorry for that and the effect it has had, particularly on our colleagues but on suppliers, customers and other stakeholders as well. I left the board in May this year, so I cannot really comment on the timeline of events after that, but in the period before that, yes, I obviously read the document and it aligns with my recollection.
Mark Pawsey
Mr Daugaard?
Sten Daugaard
I would like to associate myself also with the opening remarks of Peter Fankhauser. Please keep in mind that I joined the company on 1 October last year and became a board member on 1 December last year, so the timeline that is mentioned before that date I have not participated in in detail, but after that date it is accurate.
Mark Pawsey
Mr Fankhauser, do you agree with the timeline?
Peter Fankhauser
It is an accurate reflection, definitely.
Mark Pawsey
Mr Meysman?
Frank Meysman
Yes, it is an accurate line, and it shows how close we got to the deal.
Mark Pawsey
Ms Verluyten?
Martine Verluyten
Let me share the apologies of Peter; I always feel terribly sorry about what happened. Yes, the timeline is accurate.
Mark Pawsey
Thank you. I want to focus on the financing costs and the borrowing. It is clear, from looking at the timeline, that what caused the problems with Thomas Cook was that it had excessive borrowing, which it wasn’t able to deal with. I was going to ask you that question, Mr Daugaard, but you just pointed out to us that you started relatively recently. What was your assessment of the financial position of the company that you joined and, in particular, the level of borrowing that it had?
Sten Daugaard
When I joined the company it had just had two profit warnings about the earnings situation for 2018. The company had already started a number of programmes to improve earnings, save costs and preserve liquidity. One of my first tasks was to look at to what extent those programmes would be sufficient to get through the coming winter; the winter is always a critical part of the business year for a company like Thomas Cook. However, the debt was very high and when you look at the 2018 earnings there was no positive cash generation. The original idea, as I understood it at that time, was to generate cash to repay the debt through an improvement of the business. After ’18, it didn’t look like that would be possible. Therefore, the whole process, as you have seen with the timeline of the strategic reviews, started to be much more concrete.
Mark Pawsey
So you joined, aware that the financial position of the company was quite difficult. A basic question: why did you join? Did you believe that the situation that you encountered was recoverable? Was what happened inevitable?
Sten Daugaard
In my working career, I have been through five restructurings. They have all been successful. I believed that this situation could still be turned around.
Mark Pawsey
Why wasn’t it successful, Mr Daugaard?
Sten Daugaard
Well, that will take some time to explain in detail. In general, the high debt and the debt service cost, combined with the competitive situation in this industry, did not make it possible to increase much in the business and get back to an earnings level that this business has seen in the past.
Mark Pawsey
But wasn’t that a paradox? As you joined the company, did anything significantly change? You have stated that you joined when it was failing.
Sten Daugaard
No. Of course, that was what we were trying to change, by improving the business, saving costs and being more efficient in how we were running the business.
Mark Pawsey
On the basis of the turnaround that you had achieved in your career previously, was it your assessment that that was likely to be the case with Thomas Cook?
Sten Daugaard
My assessment was that that would be possible; yes.
Mark Pawsey
Mr Fankhauser, how did the debt level get to be so big?
Peter Fankhauser
When I took over in 2014 the debt level was at a level that I assessed to be a challenge. That is why my primary focus was to transform the business so that the business generated cash. That was partly the case; we could pay down £100 million of the debt in 2017 and we were in an extremely good position in May 2018. It looked like we were on the right track. In my 20 years with Thomas Cook, I had never had such a positive booking situation by May. Then, the heatwave came and struck us in a way that meant we couldn’t find a recipe because it was so late in the season. All the flights were scheduled but they were not full; they were over 60% booked so it was extremely difficult.
Mark Pawsey
So you are suggesting a trading problem rather than a debt problem. That is a failure to trade and a failure to generate business, not to deal with the inherent debts that the business had accumulated.
Peter Fankhauser
Yes, that is why my primary focus was to pay down the debts by generating cash. As I said, we were not fast enough in transforming the business, partly because we were overtaken by events outside our control and partly because we had so much debt service to pay to the banks. The £1.2 billion of debt service and refinancing cost is a huge amount. That was also constraining us in the speed of the transformation.
Mark Pawsey
Do you think you identified that problem with the company early enough?
Peter Fankhauser
Yes, of course, because I was with the company in Germany since 2001. I was well aware of the risks, but I was as well—
Mark Pawsey
Did you act early enough to deal with the problem?
Peter Fankhauser
I think we were initiating the right steps and the right strategy, which was not disputed by anybody outside or inside the company. We were embarking on this journey, and I really tried everything I could to transform the business at a high pace, but obviously it was not good enough. Even if we had a target from 2015 to 2018 to pay back £300 million of this debt, we were only able to pay £100 million back.
Antoinette Sandbach
I am going to address my questions initially to Martine Verluyten, because they relate to the audit. Thomas Cook’s last full set of accounts—you left the goodwill on the balance sheet at over £2.5 billion, and Thomas Cook UK accounted for over £1 billion of that. The basis for leaving that amount of value on the goodwill was the assumption of a 28% growth in earnings in each year for three years, and yet six months later you wrote down the goodwill of the group by over £1 billion. In retrospect, do you think the assumption not to write down in 2018 was optimistic?
Martine Verluyten
We started in 2018 from a very, very low base-
Antoinette Sandbach
Sorry, £2.5 billion of goodwill.
Martine Verluyten
From a very low base of income, because of the terrible summer and because FY ’18 was just a terrible year. When the company did its forecast, we assumed that the increase in business would go back to the levels of the years before.
Antoinette Sandbach
Even with Brexit and uncertainty around currency exchange?
Martine Verluyten
If you will allow me. We took into account downside scenarios that took into account Brexit. We first worked with the company and our advisers, and we worked with the auditors and the specialists from the auditors to challenge the forecasts. Based on that, our recommendation was that it was going to be okay.
Antoinette Sandbach
So what was the actual growth in earnings between 2018 and when the company applied for liquidation?
Martine Verluyten
There was a decrease in earnings, because there was a loss of faith.
Antoinette Sandbach
So what went wrong?
Martine Verluyten
There was a loss of faith in the business.
Antoinette Sandbach
And you don’t think that perhaps overstating your goodwill, which you wrote down by a billion pounds, may have contributed to that loss of faith?
Martine Verluyten
At the point in 2018 when we looked at all the forecasts and the information we had at that time, we felt that it was okay to leave the goodwill as it was.
Antoinette Sandbach
Do you agree with that, Mr Meysman?
Frank Meysman
Yes, I agree with that. We have to keep in mind that the business had done quite a good job at decreasing the net debt level over the first six years since 2011. The question was asked about why it started, and it basically all started in 2007 with the acquisition and merger with MyTravel. I will come back to that one, because the reality is that in 2011 the net debt was close to £900 million. In ’17 that was improved to only £40 million. That was the picture on which you are—the 28%.
Antoinette Sandbach
So you are completely contradicting the advice of Peter Fankhauser by saying it’s not debt that was the problem.
Frank Meysman
Debt was the problem.
Antoinette Sandbach
And yet you chose not to consider how your goodwill would be treated in the accounts other than by writedowns in 2011 and 2012. You didn’t amortise your goodwill between 2012 and 2019. Why?
Frank Meysman
That is correct—because the picture of an improvement of the bottom line was continuous throughout 2017.
Antoinette Sandbach
But goodwill isn’t about that. Goodwill is about intangible assets in the business. That’s got nothing to do with debt.
Frank Meysman
We looked at that continuously, together with the auditors, and made that decision.
Antoinette Sandbach
So what went wrong—what was the major difference between your accounts in May 2018 and your announcements in 2019 that reduced goodwill by £800 million?
Frank Meysman
The realisation that the business was not going to be able to really grow to the level that we had projected before.
Antoinette Sandbach
I am not surprised that you think 28% is an unrealistic growth figure. I would have challenged that growth figure in a difficult market—a highly competitive market, which you have spoken about—and particularly for a company that is carrying a lot of debt. What I want to know is how you justify that goodwill in 2018 at £2.5 billion.
Frank Meysman
We looked at it together with the auditors and we came to that same conclusion, and I think it was the right conclusion.
Chair
But in hindsight, that wasn’t the right conclusion, was it? The goodwill was not worth £2.5 billion in 2018.
Frank Meysman
You look at it at that moment in time; and in hindsight, with what we knew at that point in time, it was the right conclusion.
Chair
Should you not have written it down sooner than May 2019?
Frank Meysman
No. We wrote it down as soon as we should have done. We didn’t even wait until the end of fiscal year ’19; we wrote it down in the mid-year.
Antoinette Sandbach
Which indicates what an awful decision you had made in 2018, doesn’t it? You could not even justify that figure for 12 months after you made the decision, having, I would argue, potentially overstated goodwill in the company for a number of years.
Frank Meysman
That is not our way of looking at it.
Antoinette Sandbach
Well, what is your way of looking at it, because ultimately that is one of the reasons why your business failed, isn’t it?
Frank Meysman
No, I don’t think so. The basic reason why the business ultimately failed is the fact that we had so much debt—1.2. That debt continued. We did all the efforts of trying to have a net debt level decrease, and that all went well until 2017—even through, as Mr Fankhauser said, March 2018. And then came the heatwave, came the anxiety of Brexit, and the business did no longer survive—that made it unable to really deliver those numbers. That’s when we took the decision, at the end of November, that we needed to drastically change the way we look at the business; and we decided, which ultimately was the solution, that debt would be more than halved. The proposal that was on the table and to which there was an in-principle agreement on 28 August was the solution, because it really meant that the debt level of the business was more than halved, and having that solution would be a perfect solution for all the customers and for all our people employed. Unfortunately, it did not materialise.
Antoinette Sandbach
Mr Daugaard, what caused Thomas Cook finally to write down the goodwill? Was it the auditors that forced the writedown?
Sten Daugaard
No, we do not work with the auditors in the sense of force or counter-attack; it is a question of constant consulting. The difference—coming to the writedown of the goodwill in the half-year report for ’19—is a reflection of how fast the business in the UK deteriorated, because that led to a perception of an estimate for massive losses in the UK business in accounting year ’19. Revisiting that new set of facts with the business plan that we used to base the goodwill calculation of ’18 on, we had to do a new business plan and a new calculation, and that calculation—
Antoinette Sandbach
Goodwill is not based on profit.
Sten Daugaard
No, goodwill is based on a business plan that contains a growth rate and an earnings percentage out of that. It has a perpetual part in it, so it is a calculation over 10 years. It is not something that is determined by one year, but the deterioration in the UK business in the first half of ’19 was so strong that the argument that was used to keep goodwill in the books for ’18 could not be kept, and that is why we had to revisit the goodwill calculation.
Antoinette Sandbach
To understand, your goodwill in Thomas Cook, in the UK business, was based on a business plan.
Sten Daugaard
Yes, sure; that’s the way it works.
Antoinette Sandbach
That was the only basis on which you—I can see Ms Verluyten nodding. So it has nothing to do with the skills of your staff, the strength of your brand—nothing about that; it is based on a business plan.
Sten Daugaard
Yes, that is the basis for the goodwill calculation. That is, you set up a business plan for three or five years, and you make a perpetual part of that after that with a smaller growth rate, and out of that you get to a net present value of the business, which you compare with what you have in the books. If there is any difference between the two, that is what you write off.
Antoinette Sandbach
So you do not see it as a purchase of an intangible value—effectively, value of the brand and customer loyalty; you see it as being based on a business plan.
Sten Daugaard
That is what the accounting basis for goodwill calculations says you should do.
Antoinette Sandbach
Not in the UK. There are very strong—
Sten Daugaard
We used IFRS and on the IFRS basis, that is the basis of—
Antoinette Sandbach
But you are still required, under UK law, as a company director, to ensure that your business is not trading while insolvent. You have a number of duties under UK company law, as well as the IFRS. Did you consider those duties?
Sten Daugaard
Yes, sure. They were considered every day since I joined, at least; they were probably also considered before that. That is a completely different set of issues from the pure goodwill determination.
Chair
We will move on.
Stephen Kerr
Mr Meysman, you answered Antoinette Sandbach’s question about how you justified the goodwill value on the basis of—you used your hand—rising profits, but you did not have rising profits. For the last eight years, you made a profit only once, of £61 million, in 2015. For all the other years, you made losses. What was all that about, then?
Frank Meysman
Getting from a negative 500 to making a profit in 2016.
Stephen Kerr
’15.
Frank Meysman
In ’15 there was, yes, but we—
Stephen Kerr
Every other year, there was a loss. Is the reason you did that because you were including in your thoughts the exceptional items? For eight years, every single year, this company had exceptional items to the value of £1.8 billion. Is that what you were thinking of?
Frank Meysman
No, I was not, because the way that it looked—I would like to look at the business over the past years in a couple of periods. You really had the first period, from 2011 to 2014, which was a period of massive restructuring. At that point in time, there were indeed massive SDIs. At that point in time, our share price was only 25p and we had a loss of 500. In that period, in 2014, we ended still with a loss of £300 million, but the share price had gone up by 125 because we were doing the right things in terms of transformation. Then we come to the second period from ’14 to ’17, in which we started to build the business—still transformation. At that point in time, the SDIs decreased and we got, as you say, to a first profit. It was our expectation that that would continue into the following years, and it did up until ’17, and then—
Stephen Kerr
No, it didn’t.
Frank Meysman
Well, you are talking about a minor difference in ’16 and ’17, but then ’18 was really when the hit came.
Stephen Kerr
Let me interrupt you, because I was fascinated earlier to hear Peter Fankhauser say that he received a long-term bonus payment in 2015 when he had only joined the business in 2014. That, presumably, was on the back of this one year’s result, was it?
Frank Meysman
No.
Stephen Kerr
So how can you have a long-term bonus after one year? I have never known of such a thing.
Peter Fankhauser
That was a long-term incentive plan, which was created when I came to the UK to turn around the UK operation.
Stephen Kerr
In 2014. In one year, you—
Peter Fankhauser
No. In 2012, I came to the UK to turn around the UK business, and that was an integral part of the first phase of the turnaround, to turn around the UK.
Stephen Kerr
Thank you, Mr Fankhauser. Frank Meysman, if you could go back, please, and explain these massive amounts of exceptionals that fall beneath the EBIT, because you used the EBIT to disclose underlying—you have sold the business to your investors and the banks and everyone else on the basis of underlying results which discount, obviously, all these exceptional items. Is that correct?
Frank Meysman
No, that is not correct, because we made it very clear in our annual report what the separate disclosed items were, so that everybody could see what they were and how they were linked to restructuring, leading in fact, as you say, to a profit at the end of that period. So in ’17, we had by that time really gotten SDIs decreased and our share price was still at 1.25.
Stephen Kerr
The auditors, though, Martine Verluyten—they were unhappy about the way you were reporting these separately disclosed items, weren’t they? Because they asked for changes in 2018.
Martine Verluyten
They were not unhappy. We had discussions with the auditors about the specially disclosed items, but can I first say why we used specially disclosed items? In order to clarify our figures better, we felt it was good to separate the ongoing business from expenses that were one-off or expenses that had to do with the transformation of the company. So then there were—
Stephen Kerr
Eight years of exceptional items is exceptional.
Martine Verluyten
They were very different in nature. The first four years had mainly to do with write-offs of assets, write-offs of goodwill at the time on businesses we sold, and so on. The next four years had to do with the transformation programme we went on, and the transformation programme had three major portions. One had to do with the alignment of the different businesses, because Thomas Cook was made up of very different businesses, so we tried to align the systems, the ways of working, the product, and so on and so forth. That was part of the transformation costs, which were called NUMO, if you look in the annual report. There were then a number of expenses that had to do with the airline restructuring—
Stephen Kerr
Sure, but eight years of these exceptional items is exceptional, is it not? In your experience, Frank Meysman, eight years of exceptional items of this magnitude in a company’s report—
Frank Meysman
It is a high number, that is true, but this company needed, also, that kind of restructuring from where it came from.
Stephen Kerr
But just to confirm what I said earlier, you would use underlying profitability, as you would see it, as a justification for your investors to continue to have faith in you or the banks to continue to have confidence in you. That is correct, isn’t it?
Frank Meysman
No, I think our investors—
Chair
Ms Verluyten is nodding her head and Frank Meysman is shaking his head, so is there a disagreement amongst the management? Frank first, and then Martine.
Frank Meysman
In all the meetings that I had with the investors, we fully disclosed all of the restructuring that was going on. They could really look at all of the numbers, and also in the annual report, but even when I met our top 10 investors, they clearly understood what we were going through.
Stephen Kerr
But you justified their continuing commitment to your business, surely, on the basis of the underlying profitability that you were reporting when you took into account exceptional items. Martine Verluyten?
Martine Verluyten
Our investors were totally aware that our business was made up of two things. One was the underlying business and the other was those expenses required to change the underlying business, which we put in separately disclosed items.
Stephen Kerr
I understand that. You are agreeing with me.
Martine Verluyten
I am agreeing with you as far as our underlying business showed improvement, but it took a lot of exceptional costs to bring us from a historical—
Stephen Kerr
£1.8 billion-worth is a lot of exceptional costs over eight years.
Martine Verluyten
It is a very, very complex company—the number of systems that we had to align over the years to come to a united system. I understand that you think that that is a long time.
Chair
About it being a complicated business, with all due respect, you are a travel business. Your business is to get people on holiday, to ensure they have a good time and to bring them back. I don’t think it is a hugely complex business. It became a complex business because—as you say, Frank Meysman and Martine Verluyten—it was two businesses. There was that business and then there was the business of turning around this huge debt, which, because of choices made by the business, you were saddled with. That is the complicated part of the business. You had this debt, which you could not get out of. You said, Martine Verluyten, that your separately disclosed items were meant to clarify the figures better. I would put it that the separately disclosed items were meant to make your figures look better, because the truth is that if you added on that £1.8 billion, which Stephen Kerr has described, your figures would look an awful lot worse than the underlying figures you were trying to present to the markets.
Martine Verluyten
Chair, may I disagree with you?
Chair
You may, but the truth is, in the end, that this all caught up with you, so you can disagree, but you were the chair of the audit committee for this business and all of you were responsible for running it. You can disagree as much as you like, but the proof of the pudding is in the eating, and you failed to turn this business around. In the end, you couldn’t just hide these numbers forever; they caught up with you. Isn’t that the truth?
Frank Meysman
I would disagree with that statement.
Chair
You would disagree with that statement?
Frank Meysman
Yes, because a lot of effort was made to get the net debt to decrease—getting that into shape—and in providing new offers for the customer. Before it all happened, there were 20 million happy customers. Lots of new ways of travelling were proposed, for example Casa Cook and the Expedia joint venture. We had a joint venture in China. There was a lot of restructuring happening. Even in the UK, in 2011, only 20% of people bought their vacation online, but today, or just before, 40% did. There was a lot of restructuring. It took a long time. Mr Kerr, I would agree that—
Chair
Mr Meysman, you are here today in front of our Committee because 9,000 people have lost their jobs and 150,000 people who were on holiday had to be brought home at a cost to the taxpayer. With all respect, Mr Meysman, you can point to as many successes as you like, but you have brought down a 178-year-old business, with huge repercussions for customers, staff and taxpayers. You can point to the successes, but I will point to the failures, which hugely outweigh the successes that you have spoken about. At the beginning, Mr Meysman, you and your colleagues offered some apologies. I think you are deluded, Mr Meysman, about the business that you ran. You chaired a business that has gone under, because of the decisions made collectively by your management team, so when you are pointing to the successes, you might want to have a little bit more humility. Martine Verluyten, if you want to, finish your answer, and then we will move on to the next set of questions.
Martine Verluyten
The only thing that I want to clarify is that we have never hidden the results of the company. Our annual report clearly indicated that. As well as the underlying profit, it included the separately disclosed items and the bottom line of the company. It is not like we were hiding the fact that the bottom line of the company was still not healthy from the investors, the general public and everybody.
Stephen Kerr
I think that the investors and former employees of Thomas Cook would want me to ask this question of Warren Tucker. Were the bonuses paid to the board on the basis of underlying profitability rather than of actual results? If they were, the bonuses that you paid out were bonuses for failure and losses. Were the bonuses paid on underlying profit with no account for those exceptional items?
Warren Tucker
In the five years that I was in charge the remuneration committee, which aligned with Peter’s chief executiveship, there were two years with no bonuses, one year with a small bonus and two years with bonuses in the middle of the range. The bonuses were targeted on five different measures: free cashflow generation, underlying operating profit, customer satisfaction, employee satisfaction and turnaround milestones. It is true that one of the five measures was underlying profit.
Stephen Kerr
The one thing that finds its way from the P&L is the underlying profitability. So am I correct in what I am saying—correct?
Warren Tucker
You are correct, yes.
Stephen Kerr
Absolutely. The £4 million in bonuses that Peter Fankhauser picked up—in shares, for example, which he rightly says are now worthless, but nevertheless—were predicated on underlying profitability with no allowance for exceptional items. I would love to run my household effects this way. I could have all those losses and expenses, and I would hide them away and get some kind of credit in the eyes of other people because I have got this amount over here, which I am happy to show off because it looks quite good. But this bit over here—pfff. It’s ridiculous.
Warren Tucker
The rationale for it was that we were investing heavily in the turnaround and that we did not want to disincentivise any of the investment costs that were going through separately—
Stephen Kerr
I am sorry, Warren Tucker, but none of those things will in any way placate the former employees of Thomas Cook or the investors. The fact is, this board was rewarded for failure.
Albert Owen
I will come back to something that you said at the beginning, Mr Fankhauser, about being overtaken by events outside your control. You mentioned the heatwave. Surely those external factors applied to other companies as well, but we did not hear of them collapsing in the same manner. Quite simply, what missed opportunities were there for you to save the company? You said, when you were apologising at the beginning, that you would have moved at a quicker pace. What would you have done differently? What was the roadblock? I think that is the important part. What stopped you moving quicker? You brought experts in and you knew that there were issues, so what stopped you from moving quicker? Can you explain that to the Committee?
Peter Fankhauser
Primarily, what constrained me, apart from external events—it was not only the heatwave—
Albert Owen
But that is applicable to everyone, is it not?
Peter Fankhauser
Yes, definitely. What prevented us from moving quicker was definitely that we could not scale up our hotel offerings, for example. We could not invest at pace in those new products. We could not transform the business at pace into a web-based business because in 2012, when I joined, there was a legacy in the UK of 1,222 shops. We scaled them back at pace, but we could probably have done it even better if we had had more investment in brand marketing and the development of the web.
Albert Owen
Can I refer you to the sale of the airline? Why did you wait until February 2019 to sell the airline, and why was it so unsuccessful in finding a buyer? You have £1.2 billion in debts, yet you have a profitable asset that you decided to sell very late in the day.
Peter Fankhauser
To give you a bit of context on that, Mr Owen, in 2017, we decided to put the airline on its own feet. We legally separated it. We separated it from an accounting point of view. Everybody could see that we had a profitable airline, but 50% of its capacity was sold by the old tour operator. It was much higher in 2012, and we were constantly reducing this level of dependency from the tour operator by developing their seat-only business. In 2017 we made this step—legally and commercially as well—by introducing a sales and commercial agreement between the tour operator unit and the airline.
Albert Owen
When you separated the business, was it your intention to sell it off at a later date?
Peter Fankhauser
It gave us the opportunity to be able to sell it, yes. Before, in all those discussions on selling the airline, we would not have known what we were going to sell, because that was not clean in the structure between the tour operator and the airline.
Albert Owen
So why didn’t you sell it sooner? Why did you wait till February ’19? I don’t quite understand that.
Peter Fankhauser
That was the first step that we took and then we tested the market: who could have interest? The whole market was talking about consolidation in the European airspace like it had happened in the US, but nobody in the following year, 2018, was really jumping from the fence. Everybody was somehow sitting on the fence and waiting. In 2017, Air Berlin and Monarch collapsed. We took, in a very reasonable way, advantage of this collapse and added capacity, which seemed to be working very well. So we wanted to digest this capacity increase for 2018, and then we had a really valuable business. It was on the agenda, but it was not on the agenda that we publicly said we are going to sell it.
Albert Owen
If you had sold it earlier, do you think you could have helped save the company?
Peter Fankhauser
In hindsight, you are always much, much wiser, yes. Probably it could have been an opportunity. We had talks with major airlines, but we did not come to the final point that we had to disclose something on that.
Albert Owen
So the critics who said you should have sold sooner were probably right.
Peter Fankhauser
That would have been maybe a solution, yes—to sell it in ’19, which was one of the worst years in the airline space, when named companies like Lufthansa, Eurowings, Ryanair, easyJet, and even TUI, were making profit warnings in ’19. That was really not helpful for the process, and the competitive tension that we were thinking to create by then going public with it didn’t happen. On the contrary, the bids, from non-binding bids to final bids, deteriorated.
Albert Owen
Another possible solution would have been reforming your outdated business model some years ago. Why didn’t you do that? We heard that you had changed it and there were more online sales, but why were you so slow compared to your competitors?
Peter Fankhauser
Because we were really constrained with the level of investments we could do.
Albert Owen
You don’t think other companies have constraints and external factors? Why is it unique to Thomas Cook?
Peter Fankhauser
Look, other companies were hit exactly the same. If you compare the TUI results of the tour operator business, which is comparable to our business, they were losing at least the same amount of profitability in 2018 and had to come out with two profit warnings in 2019. We wanted to transform our business by differentiating, by better offerings and by better service. I think we came a long way in terms of service—the absolute focus on the customer and the “Customer at our Heart”, which was ingrained in the culture, which I was proud of. But the business legacy, especially here in the UK, with 1,222 shops—that cost a lot of money. To scale that back to a size of 580 million, and then I was also confronted with the question, “Why do you still have the retail shops in the UK?” In the Nordics we had not one shop left. We were fully online, but here in the UK we still had 60% of our volumes generated by the shops. That means—
Albert Owen
And last year you made £11 million profit with that model, so it was working.
Peter Fankhauser
An £11 million profit for the UK is not enough. It is definitely not enough.
Albert Owen
Why were your investors happy for you to have this slow pace and outdated model? Were you briefing them? Were they coming up to you and saying, “This is probably the future, so carry on”?
Peter Fankhauser
I think they appreciated the massive effort we made, and they appreciated, as well, the strategy we were setting out. That was with our major investors, where we had close contact. That was especially, as well, with Fosun, then finally our biggest shareholder, who were even in December expressly saying, “We are confident in the strategy and in the management,” but we were constrained by the legacy and by the debt burden.
Albert Owen
But I would say your biggest shareholders are probably the staff sitting behind you, and you should have invested more in them, but I will move on; and I make no apologies for talking about the human aspects of this.
Peter Fankhauser
I didn’t get your question.
Albert Owen
It was a statement. You mentioned about shareholders, and I mentioned staff. I think they were your biggest asset.
Peter Fankhauser
You are absolutely right, and as a director you have the duty to care about all stakeholders—not only the shareholders but all stakeholders—and I put massive, massive work into saving the company, and I have to admit that finally we failed.
Chair
The Insolvency Service came in about three weeks ago and they have now found a buyer for your stores, for your shops, in Hays. They are a family-owned business. They don’t have big debts and they think they can do what you weren’t able to do. Do you think that they can make a success of the stores?
Peter Fankhauser
I wish they can. I honestly wish they can. That was one of the brighter days in the last three weeks—when I got the message that Hays Travel was taking the shops and saving about 2,000 of our colleagues’ jobs. The retail business, as a retail business, is a commission business, so you sell the holidays of other tour operators, and you get the commission with it. If Hays Travel is now able, without debts, to renegotiate, probably, one of the leases and to set it up from scratch with a much leaner debt structure—almost no debt structure, I suppose—that can for sure be successful, and I wish them all luck, for our colleagues and for them as well.
Chair
Hays, as you say, Peter Fankhauser, doesn’t have the debts. In some ways it is the simple business that a travel business should be. Its focus will be on running a successful travel business, rather than being distracted by dealing with a huge debt pile, because they didn’t make the rash decisions that Thomas Cook has, over the years, to over-expand and to put on its balance sheet assets which, as Antoinette Sandbach has eloquently put it, didn’t really exist.
Peter Fankhauser
Look, Chair, I fully agree with you.[1] It is out of my remit—the debt pile build-up. I tried to handle it and I tried to make the business better, and obviously I was not fast enough in doing that; but I also have to say, to give you some context, a tour operator business with a retail chain, with the tour operator as a consolidator of all the services from flights to hotels, to transfers, to rep service, and an airline attached, is a totally different business, and a much, much more complex business than just a pure online retailer or a high street retailer.
Chair
I guess the point that I am making, Peter Fankhauser, is that the Insolvency Service in three weeks has managed to do what you were not able to do in five years, which is to sell off parts of the business and try and make a success out of them. You were not able to sell a profitable part of your business—the airline business. The Insolvency Service has managed to sell the part of your business which you suggested was the anchor—the millstone, or whatever—that was pulling you down.
Peter Fankhauser
Yes, I fully understand your point—
Chair
But I think it is quite interesting that you keep saying that in the five years—five years is a long period of time—that you were chief executive, you were trying to do all these things but you weren’t able to do them fast enough. Does it surprise you that the Insolvency Service, who I don’t think are paid anything like £4 million, are able to start to turn around the business at speed?
Peter Fankhauser
I fully understand your point of view, and it can be seen as that from the outside. We were focusing on saving the whole business. We could have sold parts of it. I do not know exactly how much Hays paid for the retail chain in this state, but we explored every avenue to save the business by selling parts of it, like the airline; we also had bids for the tour operator and for the Nordics. We came to the conclusion that, with the debt pile we had, we could not achieve the aim we wanted to achieve with that strategic review while leaving the rest of the business in a sustainable debt structure. That is why we were bound to achieve something for the whole. We could have sold part of it. We had offers for part of it, but none of them would have given enough value for the shareholders and the stakeholders—banks and bonds—that they would have agreed on that.
Chair
As a result, everything went under. As a result of your decisions, 9,000 jobs and 150,000 customers were affected, and then there is the bill for taxpayers. You could have salvaged something, but you held on and held out for some saviour to come along. Frankly, Mr Fankhauser, I think you probably knew that was never going to happen.
Peter Fankhauser
No, I was confident that it was going to happen; otherwise, I would not have tried—
Chair
That was a misplaced confidence then, Mr Fankhauser.
Peter Fankhauser
Otherwise, I would not have tried so hard. I had the backing from the banks, and I had a substantive agreement on 28 August from the banks, the bondholders and Fosun.
Chair
But you didn’t have the £200 million that you claim was needed, so you didn’t have that backing in the end, did you, Mr Fankhauser? We know that because you are sitting here in front of us today.
Peter Fankhauser
Yes, and I repeatedly said that I am awfully sorry that I could not take the deal over the line, but we heavily disputed the need for the £200 million you were talking about.
Chair
We will come on to that in a moment.
Drew Hendry
Peter Fankhauser, one thing that is unquestionably under your remit is the events of 2019 as far as Thomas Cook is concerned. The company went from saying that the cash position was improving and that talks with banks were a proactive measure, to the level of money targeted in rescue plans increasing incrementally and dramatically—£300 million in May, £750 million in July, £1.1 billion in September. Why did you so substantially and repeatedly underestimate the money needed to save the company?
Peter Fankhauser
If I may give you the chronology of the events—
Drew Hendry
I think we know the chronology. Why did this happen?
Peter Fankhauser
Let me explain that. Assuming that we got a reasonable amount of cash proceeds out of an airline sale, we were going to the banks and saying, “We would like to be sure—on the right side of the confidence—that we will get through the winter,” and we were asking for £300 million in addition to an airline sale.
Drew Hendry
But you were never in the position of making that airline sale; you said that earlier.
Peter Fankhauser
No, but that was a precautionary measure to the banks to say, “Listen, we now have this strategic review.” Together with our financial adviser, we went to them and said, “In case the airline review does not give us £1 billion, for example, we want to have the security that we will get over the winter with enough cash.” That was under the assumption that we were successful with the disposal of the airline. After considering all the avenues—not only the airline sale but the Nordic sale and the sale of the tour operator—we came to the conclusion that that was not going to work for our stakeholders—that we were not creating enough value to pay down the debts to the extent needed.
Drew Hendry
What I do not understand, Peter Fankhauser, is that you said the airline sale was never a realistic possibility, for the reasons that you outlined to the Committee earlier, so it is a fact that you created this fantasy sale and used that as part of the calculation to underestimate the amount of money needed to take the company through. Isn’t that the case?
Peter Fankhauser
No, that is not the case, because that was under the assumption that we were generating enough cash for the disposal of the airline, and then, as a cushion, we would have had £300 million. That was not possible any more because, as I said before, the deteriorating market left us in the position where we could not create this competitive tension, and then we came to the recapitalisation plan. There we said that we needed from the banks £300 million as a rolling credit facility, and that we needed from Fosun £450 million of new capital coming into the business. That came to £750 million, which was a totally different starting position, in terms of the deal. It was a highly, highly complex transaction that we were envisaging. Then coming into July, when we were announcing the recapitalisation after the first half-year results, we were under quite big pressure, in terms of the confidence of suppliers, for example, who were tightening payment terms. We were coming under pressure from credit card merchants, who were withholding cash.
Drew Hendry
And you anticipated none of this happening, in addition to the problems you already had.
Peter Fankhauser
No, we didn’t anticipate the effects on confidence—the actions of suppliers and the credit card merchants. Plus the costs of a recapitalisation, with the advisory costs, were putting pressure on our cash flow. That is why, on 12 July, we said, “We have a £750 million need for the recapitalisation." We saw on 12 August that that was not going to work, and that we needed another £150 million to £900 million. With that £900 million, we as a company and our advisers were stuck. We said, “That is what it needs.”
Drew Hendry
Can you see how this looks to people—that this is a company that was out of control? Isn’t it the case that what you are describing as complexities were simply the fact that you were downplaying the difficulties that your company was facing to your investors and your staff?
Peter Fankhauser
I understand that you can interpret it like that—
Drew Hendry
I do.
Peter Fankhauser
But from inside I can assure you that, with all the advice we got and all the efforts we put in, that was not the case.
Drew Hendry
Okay. If that is the case, and given the communication with your investors, how did they respond to what you were telling them? What did you do about the concerns that they were raising with you?
Peter Fankhauser
We engaged with the investors after we announced the recapitalisation on 12 July. In our announcement, we stated that this recapitalisation has a dilutive effect on the shareholders. That was stated, and then we engaged with the shareholders to ask them whether they would like to participate, in one form or another, in the recapitalisation.
Drew Hendry
Peter Fankhauser, I asked what concerns were raised by investors. What concerns were raised by them?
Peter Fankhauser
One investor said, “I’m very sorry, but I can’t participate in this recapitalisation because my fund is only capable of investing in public traded companies.” He said, “And I know that after this recapitalisation, others are going to take the profits, which are now part of this recapitalisation.” Another big investor had not only shares but bonds, and he was playing a very active and supportive role on the bondholder side when we went back to the bondholders and asked them to convert their debt into equity and to provide new money.
Drew Hendry
Could the company have been saved, or at least liquidation avoided, if you had targeted from the start a larger rescue plan than the one you set out with, which seemed to be rather chaotic and with repeated requests for money?
Peter Fankhauser
I firmly believe that the process was not chaotic. Given the level of advice that we took from investment bankers, who were guiding the process to get the results, with advice on the financial side and on the legal side, I don’t think the process was chaotic.
Drew Hendry
I suppose the question I am asking—
Peter Fankhauser
To your question—would it have been an opportunity to do that recaptialisation plan earlier?—I don’t think so, because we had to explore avenues without having such a dilutive effect on the shareholders.
Drew Hendry
You were a group of experienced businesspeople. Didn’t you sense that things were running out of control—that you weren’t going to meet these different targets that you were setting? Didn’t you get a feeling at any point in the process—through all of the advice you were taking from investment bankers and everything else—that things were going awry, and that you really needed to take different action? Or were you simply relying on the advice you were taking from others, rather than acting as the people who were responsible for the company?
Peter Fankhauser
As Sten said—me as well—we had done about five restructurings, and in those restructurings you get an experience of how you can change things. I was convinced that, with the backing of the banks and Fosun, even if the project was highly complex, a lot of stakeholders had had to give up a lot of money and to give in new money in addition, so I was convinced that the plan was going to work. Every day at 4 o’clock, we were testing that: do we still have reasonable prospects, and do we still have a prospect that the parties are buying into it, so that we can trade and so that we can have a good chance—a reasonable chance—to bring this deal over the line?
Drew Hendry
So ultimately, every day at 4 o’clock you were wrong.
Peter Fankhauser
With hindsight, you can say that. At that point in time, after a really thorough examination of all the facts—what is the stakeholders’ position and what is our cash position?—we came to the conclusion that our prospects were reasonable.
Antoinette Sandbach
When did the company engage FTI Consulting?
Peter Fankhauser
We didn’t engage FTI Consulting; they were the advisers of the banks. That was about March.
Sten Daugaard
In March, yes. When we started discussions with the banks about possible additional financing for the 2019-20 window, the advice from the banks was that we should take financial advice on board to support the process. We chose AlixPartners and the banks chose FTI as their adviser.
Antoinette Sandbach
Were you aware of FTI Consulting’s advice to the banks about the £200 million back-up loan?
Peter Fankhauser
At the end of August, we got FTI’s independent business review, and in a down-case scenario in this business review, amongst other scenarios, in an absolute down-case scenario, there was a further need flagged for winter 2021[2] of £200 million. We were challenging that, we pushed back on that. However, as a company, we said, “Okay, how can we address this scenario?” We were developing a mitigation plan for a worse situation in January, February and March 2020—the high-booking season—to see what possibilities we would have to mitigate the £200 million of further funding needs. We came up with a £300 million plan, which was shared with FTI, and FTI shared it with the banks. If I may say, FTI was advising the banks to do the deal and was stressing that that was just a down-case scenario.
Antoinette Sandbach
A down-case scenario that turned out to be accurate—or one that, because you could not satisfy the banks, ultimately led to them not supporting you. On what date at the end of August did you get that advice or understand that to be the requirement?
Peter Fankhauser
I cannot tell you exactly the date when we got the independent business review. I can tell you exactly the date when the banks met before they wanted to go to the creditors—that was 9 September. On 10 September, we met three representatives—
Antoinette Sandbach
I really want to take you back to the date when you knew. It is not in your timeline, and you said it was at the end of August. Are you prepared to undertake to write to us about the date when the board was informed of that requirement, or suggestion, from FTI Consulting?
Peter Fankhauser
I can give you the date when we got the final business review, but we were confronted with an additional request on which we argued and pushed back on 10 September.
Antoinette Sandbach
No. You very clearly said in evidence to me that you were aware of that identified additional funding requirement from the banks at the end of August. Are you prepared—well, I would like you—to write to this Committee and tell us exactly which date in August the board received that information, or that you received it as the chief executive?
Peter Fankhauser
Yes. I can tell you the date when we were sitting together with FTI, when they were racing to say, “We have a down-case scenario, which could create”—
Antoinette Sandbach
So what was that date?
Peter Fankhauser
I don’t have it in mind, but I am absolutely prepared to tell you that date, because after that date we were working hard, without having a request from the banks that it is going to be their request. We were working hard to mitigate this additional funding need—possible funding need—in 2020-21.
Antoinette Sandbach
But on 28 August, you announced that you had agreed key commercial terms in relation to the recapitalisation in respect of Fosun—the bank lenders and a group of noteholders in respect of the recapitalisation. That’s in your timeline. But the additional £200 million was not mentioned at that time.
Peter Fankhauser
Because they were not raised, Mrs Sandbach. They were not raised as an additional request at that time.
Antoinette Sandbach
So you are claiming that, even though your evidence to us was that it was at the end of August that you were told by FTI, on 28 August you had not yet had that information? Is that what you are claiming?
Peter Fankhauser
Yes. We had the information. Can I be precise here?
Antoinette Sandbach
Yes.
Peter Fankhauser
We had the information in the independent business review in a down-case scenario, which we were pushing back and which we had arguments—
Antoinette Sandbach
Whether or not you accept it, what I am asking you to tell the Committee is this: at the time that you made the announcement on 28 August, had you had that down-case scenario from FTI consulting? It’s a simple question.
Peter Fankhauser
Yes, we had that, but not as a request.
Antoinette Sandbach
You had it as a request?
Peter Fankhauser
We didn’t have it as a request.
Antoinette Sandbach
But you had it as a down side, and bearing in mind that you had planned for the up side all the way along, including a 28% margin coming back, you didn’t think, at the point that you were at recapitalisation, that you might need to plan for the down-side?
Peter Fankhauser
We had a very careful business plan, which was the base for the recapitalisation.
Antoinette Sandbach
So, you have confirmed to the Committee that in mid-September your lenders did demand the £200 million loan in standby equity from Fosun. Why were they not prepared to fund the bridging gap themselves if you had such a good business plan?
Peter Fankhauser
You mean Fosun? Why didn’t they guarantee?
Antoinette Sandbach
Yes.
Peter Fankhauser
Because they set out as a principle, “We are not going to guarantee anything, because we want to be treated as a partner, because”—[Interruption.] No, no, let me please finish. Because if we guarantee a backstop facility, we have to guarantee pension trustees as well, we have to guarantee the bonding line providers, who were asking for a guarantee as well, and we have to guarantee the CAA. It would have been a range of guarantees which Fosun would have been confronted with if they gave in on one guarantee.
Antoinette Sandbach
But, Mr Fankhauser, if you had—arguably—such a tight business plan as you are claiming to this Committee, why did your lenders not step in to provide that facility?
Peter Fankhauser
I can’t answer this question, because the lenders just said, “Look, we want to have a cover as a backstop security, in case everything goes wrong,” despite the fact that we had a plan, a mitigation plan—
Antoinette Sandbach
A plan they clearly didn’t believe in, because they weren’t prepared to lend to it.
Peter Fankhauser
Maybe I have the wrong sentence. In this meeting, I was asking the representatives of the banks, “Does it mean you are not supportive of the deal and of our recapitalisation plan?”, and they clearly said, “No. We are supportive of you, and we are supportive of the recapitalisation.” They clearly said that to my face at that meeting.
Antoinette Sandbach
But they were not prepared to put their money where their mouth was, and you were not prepared to see through that.
Peter Fankhauser
No, we were not prepared to see through that. We took that and said, okay, the banks in the negotiations are really giving that as an official request, because that was not an official request that they put on the table on the 10th; they were carefully choosing their words to say, “We are cautious about our credit commitment, and we would like to have a £200 million back-up security.” We were trying hard to get other sources of money to fill this £150 million to £200 million.
Chair
Frank Meysman, do you want to come in?
Frank Meysman
Yes. Knowing that this pressure of the £200 million was there as a demand, we took all steps to see how we could get that £200 million—by making sure that we never needed it, which is what the business was trying to do, and, at the same time, seeing if there were alternative sources. On 22 September—that sad day—we did have people coming forward, particularly Spanish hoteliers, saying, “We are willing to put up money.”
Antoinette Sandbach
But you knew this in August.
Frank Meysman
No.
Antoinette Sandbach
You knew that this was a possibility. You certainly knew it by 10 September.
Frank Meysman
We always believed that we did not need it at all.
Antoinette Sandbach
But clearly you did.
Frank Meysman
As Mr Fankhauser said, it was a possible backstop for the winter of 2021—
Antoinette Sandbach
By 10 September—
Frank Meysman
We wanted to make sure that that could not be seen as a reason for the deal not going through.
Chair
But they saw it as a reason for the deal not going through. Fosun saw it as a reason for the deal not going through.
Frank Meysman
No.
Chair
Well, yes, because they wouldn’t lend the £900 million without that.
Frank Meysman
No, but that is not the reason for not going through. On the contrary, Mr Fankhauser and I went to Shanghai and talked to Chairman Guo, and he firmly committed. They had a press release on the Friday before the 22nd—20 September—where they were fully supporting the deal. There was no thought in our mind that they were not supporting the deal at all.
Chair
But in the end, you didn’t get that money.
Frank Meysman
In the end, we did get that money, from different sources.
Chair
You didn’t get the £900 million from Fosun.
Frank Meysman
Not from Fosun. Other people were in the process of stepping in—Spanish hoteliers and other foreign Governments were giving us indications that we would have that.
Chair
Indications are not quite the same as having the money. That is why you went under.
Frank Meysman
We were sure about a substantial part of that. I am pretty sure that we would have ultimately gotten it, because of the commitments and promises that we had got, both from the hoteliers and those foreign Governments.
Chair
But you were wrong to be sure. If you are saying that you are pretty sure that you would have got there, you were wrong to be sure, because you didn’t get there.
Frank Meysman
That’s not quite true.
Chair
It is quite true. The reason you are here is because you didn’t get there.
Frank Meysman
We got closer than £100 million, for sure, and the other one was indicative.
Chair
But, Mr Meysman, I still don’t think you quite understand the scale of what has happened here. You didn’t get there, and that is why you are here. If you had got there, we wouldn’t be having this conversation. Do you understand that?
Frank Meysman
I am afraid I don’t understand that, because, in my real belief and in my living of that day, we would have gotten that money, as much as you may disagree with me on that one. We can show the mail from hoteliers to you, which show them confirming, even on a Sunday, as well as others saying, “We will step up to it.”
Chair
In the end, no one did step up, did they? You didn’t get the money, and you are now being managed by the Insolvency Service, because you didn’t get that money. You are not even in administration—it is liquidation. This is important. Mr Meysman, you are the chair of a company that was seeking, in the end, £1.1 billion to stay afloat. You were not successful in getting that money. In the end, you had to go insolvent, with all the consequences.
Frank Meysman
I disagree with that statement.
Chair
With what part of it, Mr Meysman? Is Thomas Cook trading as a company today?
Frank Meysman
No, no.
Chair
Are you insolvent?
Frank Meysman
I sat through those negotiations on that Sunday, and I know pretty well what and who was making commitments.
Chair
Mr Meysman, what is the position of Thomas Cook now?
Frank Meysman
It no longer exists.
Chair
Why is that?
Frank Meysman
That is a good question.
Chair
What is your answer to that question, as chairman of that company?
Frank Meysman
That, ultimately, at the end of that Sunday, the parties involved said that they were still willing to do the deal, provided that the Government stepped in in one form or another. That was the case at 4 o’clock on that famous Sunday—that tragic Sunday. That was the statement from both Fosun and the representatives from the banks: "We are still supporting this deal, provided that the Government have a role in the whole project.”
Chair
We will come on to the Government’s part in this in a moment, but, in the end, the Government do not have any particular responsibility for what happened to the company. They didn’t buy all these other companies; they didn’t rack up all this debt.
Frank Meysman
I am just reacting to the fact that even at 4 o’clock in the afternoon, the key protagonists—the banks, who had been asking for that £200 million, and Fosun—clearly stated that they were supportive of the deal.
Chair
As Antoinette Sandbach said, in the end, they wouldn’t put up that £900 million unless you had the £200 million of the backstop.
Frank Meysman
No, unless the Government came in and supported it. That was their statement.
Chair
It was that there should be some sort of backstop—that if your plans didn’t work, you would have £200 million to call on from somebody else.
Frank Meysman
At the 4 o’clock statement, there was no more talk about the £200 million. The question was clear: are you supportive of the deal? We went around the table, and the representatives from the banks, and from Fosun, said “Yes we are, provided that the Government step in.”
Chair
And what did they want from the Government?
Frank Meysman
We asked three different things from the Government. We asked either for £150 million to £200 million, or for them to exert power to bring the parties together. In case of insolvency, we asked to be able to use the current infrastructure to bring the people back. Those were the three questions posed to the Government.
Chair
So basically, Fosun was willing to take this equity and provide £900 million, but it was not so convinced that the plan would work, and it needed the Government to provide a backstop facility for it to put in the money. It is like me saying, “I will lend you £10 to do this thing, as long as somebody else will give you £2 as a backstop. I am not willing to give you £10 unless you have found someone to give you that extra money.” You couldn’t find anyone to give you that extra money because they didn’t believe in your plans, and Fosun wouldn’t give you the money in the end because it didn’t believe enough in you.