Proactive Investors - Run By Investors For Investors

Thomas Cook confirms 'disappointing' full year earnings and turnaround plan

Thomas Cook repeated its strategy for 2019 to “deliver progress” on underlying EBIT and improve free cash flow.
Thomas Cook
Thomas Cook will reduce its airline capacity next year

Thomas Cook Group PLC (LON:TCG) confirmed a 23.3% drop in full year profits two days after warning the market about its “disappointing” performance.

On Tuesday the travel company issued its second profit warning in two months and said it would suspend its dividend after a prolonged heatwave over the summer in the UK hurt demand.  The group also said legacy and one-off charges of £28mln dragged profits lower.

READ: Thomas Cook scraps dividend and issues another profit warning two days before full year results

In Thursday’s annual results statement, there were no surprises with underlying earnings (EBIT) and revenues in line with the company’s forecast.

Underlying EBIT fell to £250mln in the year to September 30 from £326mln last year and revenue rose 6.4% to £9.6bn from £9.0bn last year.

"Overall, our financial performance in 2018 was disappointing, despite starting the year well and making good strategic progress," said chief executive Peter Fankhauser.

Tour operator business under pressure, airline profits grow

The tour operator business was the group’s weak spot with underlying EBIT falling to £161mln from £246mln last year as margins fell to 13.5% from 15.4% due to heavier discounting to lure in customers in a competitive market as well as people making bookings later in the season when holidays are cheaper.

Revenue in the division increased to £7.4bn from £7.1bn the prior year, boosted by sales of holidays to own-brand hotels and strong demand for trips to Turkey and Egypt.

The airline business posted underlying EBIT of £129mln, up from £115mln last year, and revenue grew to £3.5bn from £3.2bn as the company increased its capacity and as customer numbers rose to 20.2 million from 18.6 million with demand supported by the collapse of rivals Monarch and Air Berlin.

However, margins fell to 13% from 13.3% and the group was hit by disruption from industrial action in Europe and higher fuel prices.  

Total net debt ballooned to £389mln from £40mln a year ago while the company insisted that its covenants were compliant and it had headroom for future covenant tests.

Free cash outflow was £148mln, compared to a free cash inflow of £146mln last year.

As previously announced, bookings for winter holidays are 3% down on last year with flat pricing while bookings for next summer have had a "mixed start". 

"The travel operator has been struggling in 2018, and things are getting worse as the year goes on," said David Madden, market analyst at CMC Markets.

He added: "The industry as a whole has been underperforming. The extreme weather this year hurt the travel industry, as the ‘Beast from the East’ and the heatwave was a double negative for the sector. Adding to that, industrial action and the rally in oil price over the summer made matters worse."

Thomas Cook's turnaround plan 

Thomas Cook repeated its strategy for 2019 to “deliver progress” on underlying EBIT and improve free cash flow. The plan is to reduce airline capacity and focus on selling its higher-margin own-brand hotels and differentiated holidays. It has 20 new hotels earmarked to open next year.  

“We will put particular attention on addressing the performance in our UK tour operator where the challenges of transformation in a competitive environment remain significant,” said Fankhauser.

“Across the group, we will continue to streamline our cost base and manage our capacity to give us greater operational flexibility and financial discipline, while focusing the team on delivering performance improvements and giving customers more reasons to holiday with Thomas Cook."

The firm said a strategic alliance with US travel website Expedia agreed last year for hotel sales would help ”transform the way we offer a choice of holidays to our customers” with more than 150,000 hotels on offer and an easy way to book at a reduced cost to the business.

Under the alliance, which has been launched in the first five markets, Expedia provides its online booking platform to support all city break and hotel-only sales across Thomas Cook distribution channels in Europe.

Shares were little changed at 36p in morning trading.

 

-- Adds share price and analyst comment -- 

View full TCG profile View Profile

Thomas Cook Group Timeline

Related Articles

Oil pollution
July 02 2018
A name change might be in order if PCG pulls the trigger on two investments it is mulling
Garden Route
11:20
The luxury travel specialises in bespoke holidays and holds over 3,500 hotel and agency contracts around the world
Theme Park
March 28 2019
Canaccord Genuity upgraded its rating for accesso to ‘buy’ from hold’ following the e-ticketing and guest experience firm’s recent full-year 2018 results

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use