News Column

Thomas Cook Narrows First-Half Losses As Cost Cutting Continues

May 15, 2014

Rowena Harris-Doughty

LONDON (Alliance News) - UK travel operator Thomas Cook Group PLC Thursday said it narrowed its losses in the first half of the year and again increased its targets for its cost-cutting and profit-improvement programme, as the travel firm continued its turnaround plan aimed at operating a much-leaner business.

For the six months ended March 31, the group reported a pretax loss of GBP366 million, compared with a loss of GBP394 million the prior year, despite the late timing of the key Easter trading period, which this year fell in the second half of the year, as it continued to strip out costs from the business.

Thomas Cook said the late timing of Easter resulted in a loss of GBP40 million in revenues and GBP15 million in earnings before interest and taxes.

Travel companies traditionally make a loss over the winter period and the first half of the year, making most of their money in the summer months when travel is more active, and losses from the first half turn into an annual profit.

Thomas Cook has continued to strip out unnecessary costs across the business, under the reign of Chief Executive Officer Harriet Green. Part of the group's turnaround plan, and what it calls "wave one", was to sell a string of assets, exiting low-value businesses, and in turn shrinking the huge debt pile it built up ahead of the recent economic downturn.

In Thomas Cook's previous trading update, it said that it managed to complete its disposal target 18 months ahead of schedule, and has taken out costs faster than planned. The group has also made savings by reducing its brands and labels to 30 from 85.

In November last year, Green told journalists that "wave one" was a low-hanging-fruit cost cutting programme, but "wave two" is all about profit improvement, yield management and lower distribution costs, as it tries to enhance margins and operate a leaner business.

Thomas Cook has increased its cost cutting and profit improvement target several times. Previously it had forecast savings of GBP440 million and upped its cash-conversion target to more than 70% for the fiscal year 2015.

However Thomas Cook said Thursday that it now expects to reach GBP460 million per year in benefits by 2015, with a "wave 2" target of over GBP400 million by the fiscal year 2018, of which it said it has so far identified an initial proportion of GBP150 million in benefits, including enhancements to its hotel and yield management systems, optimised channels and contact centres and increased digitisation.

Thomas Cook raised its new product revenue growth target to GBP300 million for the current year, and GBP700 million by the financial year 2015, boosted by the growing contribution from exclusive hotels, including concept and partnership hotels.

Thomas Cook said that during the first half of the year, it saw strong demand for its concept hotels and resorts and partnership hotels, which are available exclusively through Thomas Cook, as well as a strong increase in online booking, up almost 39% over the last six months.

"The pipeline remains strong with over 300 potential hotels identified for conversion against a requirement of 165 to achieve the fiscal year 2015 target. Capitalising on this strong growth momentum, we are currently considering a number of strategic and financing options that could enable us to accelerate their development," the travel firm said.

Revenues for the first half dipped to GBP3.01 billion, down from GBP3.22 billion last year due to few customers travelling to Egypt and Thailand, which it said reduced both revenues and profit in the period, and more than offset growth elsewhere in the business.

"While the impact of Egypt makes the achievement of our fiscal year 2014 milestone more challenging, we remain confident that, supported by our encouraging new product momentum, we will achieve our sales growth target of more than 3.5% in fiscal year 2015," the company said in a statement.

Thomas Cook said that bookings for its winter season programme were hit by the social unrest in Egypt, as well as strategic reductions in capacity in France and Russia as it attempts to return those businesses back to profitability.

The group said its summer 2014 booking performance is developing well, having already sold around 60% of its summer season programme, in line with last year. It said that solid volumes in its main markets and cost cutting measures are offsetting some summer season pricing softness in the UK. It said that concept hotel summer bookings are up 44%, and UK bookings for its 2014/15 winter bookings were 11% higher, driven by strong customer demand for its new products.

"Our profitable growth strategy remains on track. The enhancement of our exclusive hotel products and the expansion of growth areas such as Winter Sun and City Breaks underpin our strategy of delivering revenue growth and improved margins over the medium term," the company said.

Thomas Cook said that early Winter 2014/2015 bookings in the first half of the year, are up over 11%, with average selling prices up 2%, supported by its enhanced product range, having widened its choice of Winter Sun destinations.

Thomas Cook shares were down 4.8% at 170.00 pence Thursday morning, making it the second biggest FTSE 250 faller.

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Source: Alliance News

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