Thomas Cook to Close 200 U.K. Shops, Cut Fleet After Loss
Thomas Cook Group Plc (TCG), Europe’s second-largest tour operator, plans to close about 200 U.K. shops and scale back its plane fleet as it seeks to rebound from an annual net loss of 521 million pounds ($808 million).
The underperforming outlets will close when leases expire in the next two years, according to the London-based company, which has about 1,300 shops in its domestic market and last month negotiated an emergency bank loan. The U.K. fleet will be reduced to 35 aircraft from 41, Thomas Cook said today.
The tour operator, which delayed its earnings announcement from last month as it sought additional funding, is overhauling its U.K. unit and selling 200 million pounds of assets to reduce net debt that totaled 891 million pounds as of Sept. 30. The first half of this year will be hurt by the uncertain economic climate in Europe, rising input costs and disruption in the Middle East and North Africa, Thomas Cook said today.
The “U.K. turnaround plan neatly highlights the parlous state into which the operations have descended,” James Hollins, an analyst at Evolution Securities in London, wrote in a note. “This is a stock and industry to avoid. However, with asset fire-sales and cost cuts on the way, on a 12-month view we think the company can survive.”
Thomas Cook fell as much as 7.6 percent and traded at 13.86 pence, down 6.5 percent at 10:56 a.m. in London. The shares have fallen 93 percent this year, more than double the 39 percent drop for larger competitor TUI Travel Plc.
Thomas Cook said it will reduce the number of hotels used by its U.K. business to about 1,500 over the next three years. The tour operator has cut more than 500 of about 2,200 properties for its summer 2012 program and added 90 new locations, about half of which are exclusive to the U.K.
The company aims to improve profitability in its U.K. business by about 110 million pounds a year at a cost of about 60 million pounds over the next three years.
Thomas Cook is in consultations with about 660 people concerning the shop closures, Chief Executive Officer Sam Weihagen said today on a conference call. He declined to comment on an overall figure for potential redundancies.
“What we’ve tried to do with these results is draw a line under the past,” the CEO said today.
Bookings for the first quarter of the new fiscal year have gotten off to a “slow start,” Thomas Cook said today, adding that it has taken a “cautious stance” on capacity. The U.K. summer program is currently 54 percent booked, it said.
“Overall, we expect it to be another challenging year,” the company said in a statement.
The reported loss for the financial year ended Sept. 30 included one-time costs of 573 million pounds before taxes. Most of the charges were non-cash and included 428 million pounds of impairments and writedowns, the company said.
Operating profit, which excludes one-time items, fell to 304 million pounds. Thomas Cook said Nov. 22 that it expected profit to be “broadly in line” with previous guidance of about 320 million pounds. Revenue rose 10 percent to 9.8 billion pounds.
Thomas Cook, which got a 200 million-pound loan from a group of banks on Nov. 25, is confident it won’t breach covenant tests in December, Chief Financial Officer Paul Hollingworth said today.
“We are anticipating a tough current trading environment and the covenants have been struck with full knowledge of that,” he said.
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