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Thomas Cook Posts First Profit Since 2010 as Cost Cuts Deliver

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Thomas Cook Group Aircraft
A Boeing 757-200 aircraft, operated by Thomas Cook Group Plc, is maneuverd into position near terminal one of Manchester airport in Manchester. Photographer: Paul Thomas/Bloomberg

Nov. 28 (Bloomberg) -- Thomas Cook Group Plc snapped two years of operating losses, sending the stock to its biggest gain in six months, after the 172-year-old U.K. tour operator cut jobs, streamlined brands and closed failing retail outlets.

Thomas Cook had statutory earnings before interest and tax of 13 million pounds ($21.2 million) for the 12 months ended Sept. 30, versus a 170 million-pound year-earlier loss, the London-based company said today. Its shares rose as much as 14 percent and have more than quadrupled in value this year.

Chief Executive Officer Harriet Green has slimmed Thomas Cook’s holiday portfolio to 30 brands from 85 and closed 227 U.K. shops, or one-fifth of the total, as part of a three-year turnaround plan. Assets including Spanish hotels have also been sold and the company today raised its fiscal 2015 profit improvement target by 10 percent to 440 million pounds.

“We’ve taken out more cost more quickly than originally planned,” Green, who has held the top job for just over a year, said in a statement. “Operational cash flow is gathering momentum.” The company also completed a 1.6 billion pound recapitalization in June and has almost halved net debt.

Thomas Cook shares advanced to 174.60 pence -- their sharpest gain since May 16 -- and were trading 12 percent higher at 172.20 pence as of 10:37 a.m. in London.

‘Taken Well’

The stock’s surge, which comes after the price more than tripled in 2012 following an emergency loan that staved off collapse the previous year, when its value plunged 92 percent, makes the company the top performer on the 11-member Bloomberg Europe Leisure Time Index, with a value of 2.5 billion pounds.

Cost elimination and profit gains totaled 194 million pounds in fiscal 2013, compared with the 170 million pounds Thomas Cook had been targeting, and the company announced a further savings plan for 2018 that it said should deliver benefits comparable to the first program, known as “Wave 1.”

“The cost-out increase and longer-term targets will be taken well,” James Hollins, an analyst at Investec Bank Plc in London, said today in a note to clients.

The tour operator trimmed net debt by 367 million pounds to 421 million in the year, boosting its credit rating to ’B’ from ’B-’ at both the Fitch and Standard & Poor’s. About 10 percent of jobs were cut in the period as part of a plan to reduce the payroll by 2,500 to about 13,000 people.

All “strategic measures” are in line with or exceeding internal targets, while profit margins for the current winter season are ahead of last year, aided by the discontinuation of high volume, low value business. Bookings for next summer are also in line, pointing to further earnings gains, it said.

Revenue from new products is expected to grow to 1.2 billion pounds by fiscal 2017 as the company more than doubles the number of hotels operating under the Thomas Cook brand to 800. It also aims to increase the number of city hotels available to customers to 20,000, up from 7,000 today.

To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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