News Column

UPDATE: Thomas Cook Profit Buoyed By Strong Demand In UK, Northern Europe

July 31, 2014

Rowena Harris-Doughty

LONDON (Alliance News) - Thomas Cook Group PLC said Thursday it continued to see strong demand in the UK, Germany and Northern Europe in the third quarter of its financial year, helping to improve both underlying profits and margins, although it reported lower revenue and a bigger loss on a statutory basis due partly to restructuring costs.

The UK-based travel operator said all of its businesses delivered improved results in the quarter excluding restructuring costs and provisions for onerous contracts and legal disputes, contributing to a GBP32 million increase in underlying group earnings before interest and taxes. Its EBIT margin increased to 1.5%, having been non-existent the year earlier.

In the UK, its biggest market, earnings before interest and taxes improved by GBP27 million.

The company has been going through a major restructuring programme in the last couple of years, and provides profit figures which strip out restructuring costs and provisions for onerous contracts and legal disputes to give a better indication of the company's operating performance

Its profit for the 12 months to June 30 excluding those items increased to GBP306 million, from GBP252 million a year earlier.

"Every business improved, and the UK delivered the most significant contribution, accounting for over three quarters of the total rise, as we start to realise its full potential," said Chief Executive Harriet Green in a statement.

However, including the restructuring costs and provisions, Thomas Cook reported a loss before interest and taxes of GBP44 million for the quarter, compared with a GBP30 million loss last year. It made a profit before interest and tax of GBP31 million in the 12 months to June 30, compared with GBP51 million in the previous 12 months.

It booked GBP30 million of restructuring costs in the quarter, up from GBP11 million a year earlier.

Revenue in the quarter came in a GBP2.22 billion, down from the GBP2.34 billion a year earlier, partly held back by fewer customers travelling to Egypt due to political unrest in the region.

Thomas Cook was almost brought to its knees in the wake of the financial crisis as it struggled to finance its big debt pile, and after major markets like Egypt were hit by the so-called Arab Spring, which toppled governments and regimes across North Africa.

It has continued to cut costs across the business as it tries to enhance margins and operate a leaner business. As part of the group's turnaround plan, it embarked on what it called "wave one", which was to exit low-value businesses to help shrink its huge debt pile. The group also has made savings by reducing its brands and labels to 30 from 85. The travel group unveiled its second wave of cost targets in May, when it said it expected to reach GBP460 million per year in benefits by 2015, with a "wave 2" target of over GBP400 million by the fiscal year 2018.

CEO Green said the company was on track to meet its operational performance targets in the current financial year and would deliver "more value" from next year.

The travel group said recent demand in the Summer 2014 "late bookings" market has been strong in the UK, Germany and Northern Europe, albeit with some pricing softness due to higher European short haul market capacity. It said it has currently sold approximately 83% of its Summer programme, slightly more than at the same time last year.

Thomas Cook said it has seen 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. It said Summer 2014 bookings for its concept hotels are up 43%.

It said it has also seen "encouraging bookings and pricing trends" for the Winter 2014/15 and Summer 2015 seasons.

"We are confident that the acceleration of our cost out and profit improvement programme will mitigate market pressures in order to achieve our (fiscal 2014) gross margin target improvements of greater than 1.2% and achieve operational performance in line with our expectations for (fiscal 2014)," the company said.

Thomas Cook's shares were among the top 10 gainers in the FTSE 250 early Thursday, but fell back somewhat and were trading 0.6% higher at 122.60 pence late morning.

"Today’s IMS should do a good job of soothing investor nerves, in our view. The profit growth run-rate is sustained, UK margins have bounced, current trading is reassuring and targets have been reiterated," said analysts at Jefferies in a research note.

"In terms of the underlying business, we remain confident in Thomas Cook's ability to meet targets. An inflection in UK trading will be a significant catalyst as new product is rolled out; we recommend Buying the shares in anticipation," they added.

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Source: Alliance News

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